Revolving Green Fund - outcomes of consultation and invitation to submit applications

To:

Heads of HEFCE-funded higher education institutions

Dear Vice-Chancellor or Principal

1.   From January to April 2008 we consulted on the aims and operation of a Revolving Green Fund (HEFCE 2008/03). Higher education institutions (HEIs) are now invited to submit applications for funding.

2.   The total value of the Revolving Green Fund (RGF) is £30 million, with HEFCE contributing £20 million and Salix Finance Limited¹ £10 million. The fund has two strands:

• an institutional small projects (ISP) fund

• a transformational fund.

3.   The ISP fund will use Salix's traditional model where institutions receive ring-fenced money from the fund to be spent on carbon-saving projects. A key principle is that financial savings from funded projects are repaid into the ring-fenced fund held by the institution for re-investment in further projects. Once the original project investment is repaid to the fund, the institution is free to keep ongoing savings. The institution does not have to repay the money loaned while it continues to re-invest savings in eligible projects.

4.   The transformational fund will be for HEIs to tackle larger projects which will transform the institution's approach to managing its energy consumption and reducing its emissions. Applications in the region of £1 million to £4 million per institution are anticipated from HEIs which will lead the way and act as beacons of good practice. Institutions may apply for one or more projects that aim to bring about transformational change, which may include adoption of technologies that are new to the UK or the higher education sector.

5.   Salix has experience of running this type of funding scheme and we have contracted it to manage the RGF on our behalf.

6.   The consultation sought feedback on our proposals for application, assessment and accountability arrangements for the fund.

Outcomes of consultation

7.   We received 74 responses to the consultation, 67 from HEIs and seven from national representative bodies and other stakeholders.

Aims of the fund

8.   All respondents agreed with the proposed aims of the RGF, but some commented on the small size of the fund. HEFCE and Salix were successful in securing these additional funds through the Comprehensive Spending Review. We recognise that the size of the fund is limited, and if it is successful and there is demand we will look to secure further funds through future spending reviews.

9.   Almost all institutional respondents stated that they would consider applying to at least one strand of the fund.

Assessment criteria

10.   There is general agreement with the proposed assessment criteria but the majority of respondents qualified this in some way.

11.   Of the 67 institutional respondents, 57 appeared to confirm their agreement that institutions should make a contribution, although in some cases this agreement was implied or inferred. Five respondents did not offer a clear position and five appeared to be opposed to any institutional contribution at all. Within the 57, at least 35 appeared content that 25 per cent is an appropriate proportion but some 20 thought that this should be lower, typically at 10-15 per cent. There was a concern that a 25 per cent contribution could unfairly disadvantage small institutions and that the percentage should be lower for these institutions. Our response to this concern is that, because the aim of the fund is to reduce greenhouse gas emissions, there is likely to be high demand and therefore the contribution needs to be 25 per cent to ensure effective use of the funds.

12.   Some institutions observed that this is a long-term financial commitment. We note however that it will result in continuing financial benefits and if an institution wishes to withdraw from this commitment at any time it can do so and repay the money.

13.   There was some disagreement with the proposal that those institutions which contribute more than 25 per cent should be preferred in the selection process. Some thought that this criterion could conflict with the aims of the fund by favouring institutions that could afford additional contributions. Consequently, institutions that contribute only 25 per cent will not be disadvantaged in the selection process.

14.   Some thought that the criteria might unfairly disadvantage small institutions, because of economies of scale, the ability to achieve timely payback and because smaller HEIs may not have the energy management expertise in-house. However some current Salix higher education clients commented in their responses that the presence of energy management expertise is critical to the continuing success of the fund. Institutions can obtain this expertise through the Carbon Trust's Higher Education Carbon Management Programme (HECM)², by contracting consultants or by forming consortia. Smaller institutions will probably be looking to implement lower-value projects and the size of applications to the ISP fund can be appropriate to the size of the institution. Salix's experience suggests that £100,000 is the minimum that realistically works for an institution, although smaller applications will be considered.

15.   The assessment criteria for the ISP fund will be:

• the number of 'ready to go' projects at the time of the application which meet the payback and lifetime cost of carbon criteria³. These are conditions of Salix's funding and are therefore fixed

• the presence of appropriate energy management expertise and institutional capability to manage the fund effectively.

16.   The assessment criteria for the transformational fund will be as follows.

1. Predicted greenhouse gas savings calculated as carbon equivalents - projects must include a means of monitoring greenhouse gas savings. 'Green' electricity contracts should not be zero-rated for carbon emissions because these contracts are not guaranteed. Projects should reduce energy consumption and this will result in the 'green' electricity being available to other organisations.

2. Financial savings, payback period and lifetime cost of carbon - recognising that ambitious and innovative projects may have a relatively long payback period, there is no maximum payback period for applications to the transformational fund. Over the medium to long term, energy prices and therefore return on investment may be difficult to predict and so the focus of assessing applications will be on value for money and projected carbon savings.

3. Benefits for the sector - potential for replication across the sector and plans for building and disseminating good practice.

4. Innovation - this will be balanced with effectiveness and the potential for widespread savings across the sector. For example, fuel cells are more innovative but may not offer attractive financial returns; large-scale wind turbines and combined heat and power are more financially attractive but less innovative. The fund will allow funding for all of these examples.

5. Risk management - procedures to identify and manage significant risks.

6. Commitment from the institution - applicants to the transformational fund must demonstrate:

   • a history of undertaking carbon management

   • sufficient resources to implement and monitor the project

   • a minimum 25 per cent financial contribution

   • institutional commitment to sustainable development through, for example, a publicly available policy, inclusion in its mission or strategic plan and public reporting on performance.

Application process and monitoring and accountability arrangements

17.   Responses generally considered the application process and monitoring and accountability arrangements to be appropriate, with respondents welcoming the light-touch approach.

18.   Approximately 15 per cent of respondents commented that the proposed application timescale is too tight and that it would be helpful to align it with the financial year. The application timeline has been amended to take account of these views; further information is available in paragraph 33.

19.   Because the ISP fund may be oversubscribed, workshops will be held in September 2008 which will guide HEIs on whether they are likely to be successful if they submit a full application in this funding round.

20.   Four respondents expressed concern that hidden costs, such as the time and effort involved in the application, assessment, validation and accountability process, might outweigh the amount actually saved. Certain elements of the application and monitoring process will be fixed due to Salix requirements but where possible we have designed the fund to minimise the accountability burden. We believe that management costs will not outweigh the amount saved, but we will monitor this issue closely and respond positively to proposals that can reduce unnecessary burdens.

21.   Experience of the existing Salix scheme demonstrates that the benefits outweigh the time taken to collate the information. In addition, the information required is necessary for effective carbon management and arguably should already be collected in a well-managed institution. The updated Salix Finance Energy Reporting System will be provided to all participants for reporting and monitoring.

22.   A small number of respondents thought that it would be disproportionate to report greenhouse gas emissions and cost savings for a minimum of five years for small projects. We will expect institutions to report overall emissions savings for at least five years in order to evaluate effectiveness in the use of funds and provide evidence to request further funds. Reporting on a project-by-project basis for five years will not be required.

23.   Many institutions will be undertaking some of the work and data collection in order to manage their carbon. It was noted by several respondents that they will already be compiling most of the information which we propose to require under energy-related legislation, including the EU Emissions Trading Scheme, the forthcoming Display Energy Certificates for buildings and the Carbon Reduction Commitment.

Transformational fund

24.   The transformational fund encourages innovation and this could include the use of immature technologies. We recognise that there is an additional level of risk involved in these cases and are prepared to share some of this risk. Successful applications will be on the basis of a strong business case and risk assessment. The repayment profile will be set on these calculations. However, if a new technology is not as successful as anticipated the institution can discuss the repayment profile with HEFCE with a view to reducing the amount repaid and/or increasing the time period over which it is repaid.

25.   Several respondents and a national representative body thought that there should be a two stage application process for the transformational fund to avoid wasted effort, because the value of the fund will only allow a small number of successful applications. Also, the proposed timeline was considered tight to develop an application for a large-scale project. Although institutions have been aware of the fund since the launch of the consultation in January 2008 we agree that a two stage application process would be more appropriate for the transformational fund. Therefore, institutions are invited to submit expressions of interest for the transformational fund. These will be reviewed and assessed by the advisory group with detailed applications requested only where there is a high likelihood of success.

Financial arrangements

26.   It is expected that the split of the fund between the two strands will be £20 million for the ISP fund and £10 million for the transformational fund. This may be varied at the discretion of the advisory group according to the volume of applications.

27.   We have been asked to clarify whether a funding allocation will need to be included in any notification to HEFCE on borrowing limits. For the ISP fund it would not, due to the smaller value and uncertainty over the timescale for repayment. Allocations under the transformational fund would need to be included because there will be a clear intention and timescale for repayments.

28.   There may be potential for new revenue streams to be developed from work undertaken using funds allocated from the RGF. As a public body we need to ensure that these arrangements do not constitute unlawful state aids. This is unlikely to be the case if products and commercial partners are procured following public procurement rules. If this is not the case, please refer to Stephen Butcher at HEFCE (s.butcher@hefce.ac.uk, 0117 931 7425) before submitting an application and if necessary we will seek legal advice.

Existing Salix clients

29.   Salix is currently working with 11 HEIs in England. To ensure that these institutions are not at a disadvantage from being early adopters we will apply the scheme retrospectively to these participants. All institutions had the opportunity to apply to receive a Salix grant and the successful applicants have already been through a similar application and assessment process to that of the RGF. Current participants will therefore not be eligible to apply for the ISP but will receive additional payments. These institutions will be notified directly by Salix.

Building capacity

30.   We support the building of capacity through our Leadership, Governance and Management (LGM) Fund. Two examples of projects that will build and disseminate good practice in this area are the Higher Education Environmental Performance Improvement (HEEPI) project and GreenBuild. We welcome further applications to the LGM Fund.

How to apply for the Revolving Green Fund

Who is eligible?

31.   All HEIs funded by HEFCE are eligible to apply. Consortia of institutions and representative bodies are eligible to apply, but they will need to identify an HEI through which funds can be routed.

32.   Our aim and responsibility is to fund the best applications, wherever they emerge from. Therefore, institutions are able to apply for both the institutional small projects fund and the transformational fund.

The application process

33.   Application forms and guidance are available on the Salix Finance web-site. The timescale for applications is included in Annex A.

34.   Steve Egan, HEFCE's Deputy Chief Executive, will chair the advisory group. Members will be appointed primarily by seeking nominations from representative groups, and we are committed to ensuring diversity in the composition of the group. A list of members will be published on the HEFCE web-site once agreed.

35.   It is expected that there will be a second round of applications to the ISP fund in 2009. If enough applications of sufficient quality are received for the transformational fund in the first year we will allocate all the transformational fund.

Freedom of Information Act 2000 and Environmental Information Regulations 2004

36.   HEFCE is subject to the Freedom of Information Act 2000 (FOI) and the Environmental Information Regulations 2004 (EIRs), which give a public right of access to information held by a public authority. Much of the information provided to us in applications to the RGF will fall within the meaning of 'environmental information' as defined in the EIRs.

37.   This may result in applications, communications between us, Salix and the institution, information arising from this work, or the outputs from the work undertaken being subject to disclosure if a valid request is made to us. We will comply with such requests in accordance with the relevant legislation and our own policies.

38.   Institutions can, if they wish, provide potentially sensitive information (such as trade secrets or information relating to commercial interests) in a separate annex attached to the application form. This will highlight to us that there are concerns over disclosure.

39.   Where we consider it to be appropriate and practicable we will seek the views of applicants before disclosing this information. The applicant acknowledges that information provided in the annex is of indicative value only and that HEFCE may nevertheless be obliged to disclose this information. Our assumption will be that all information in the main application documents can be disclosed upon request.

40.   Further information about FOI can be found on the Information Commissioner's web-site. The Department for the Environment, Food and Rural Affairs provides guidance on the Environmental Information Regulations on its web-site.

Yours sincerely

Professor David Eastwood
Chief Executive

Annex A - timeline for submitting applications

12 September 2008	Deadline for expression of interest for the ISP fund.
September 2008	ISP fund application workshops.
17 October 2008	Deadline for applications to the institutional small projects fund and expressions of interest for the transformational fund.
November 2008	Successful applicants to the ISP fund will be notified. Applicants who have been successful at the expression of interest stage for the transformational fund will be notified.
January 2009	Deadline for submission of stage two applications to the transformational fund.
February 2009	Successful applicants to the transformational fund will be announced.

Notes

1. Salix Finance Limited is an independent, publicly funded company set up to accelerate public sector investment in energy efficiency technologies through invest-to-save schemes. Salix has funding from the Carbon Trust and works with local authorities, NHS foundation trusts, higher and further education institutions and central Government.

2. Forty-eight universities participated in the first three phases of the HECM, which is designed to help universities manage their carbon emissions better. Participants receive consultant support to help analyse their carbon footprint and identify ways of managing their carbon emissions. Further information is available on the Carbon Trust web-site

3. Further information on these criteria is available in the application guidance notes on the Salix Finance web-site.

4. HEEPI aims to stimulate strategic change and operational improvements by working with estates and other departments with energy and environmental responsibilities. It helps the higher education sector to improve building design, minimise energy and water consumption and waste generation, and reduce transport impacts. Further information is available on the HEEPI web-site.

5. Further information is available on the HEFCE web-site.

6. This project has two strands: the development of a standard Building Research Establishment Environmental Assessment Method (BREEAM) scheme to cover most higher education buildings, and GreenLab, which will focus on measures to develop more sustainable laboratories. Further information is available on the HEEPI web-site

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