Sustainable heating for social housing

Creating a greener world is a key priority for many sectors, so it’s no surprise that urban regeneration and sustainability now go hand in hand.

At Legal & General, we are committed to investing for social and environmental impact. That’s why, in January, we announced that LGIM Real Assets had provided debt finance to HeatRHight, a renewables funding scheme that supports the delivery of air source heat pump technology to the social housing sector.

“The technology is quite new in the UK, but it has been used for quite a long time in the US and in Scandinavia,” explains Anna Szypkowska, Investment Associate at LGIM Real Assets. “The way it works is basically like a reverse fridge or air-conditioning unit. The pump looks like an air conditioning unit and pulls the cold air from outside through the unit, producing heat in exchange which is then used to provide heat for the house.”

HeatRHight is a nominated, registered investor under the OFGEM Domestic Renewable Heat Incentive scheme (DRHI), a government incentive. The organisation provides funding to the social housing sector to allow the installation of heat pumps, which are eligible for DRHI payment.

“Under the proposed solution, the housing association could assign the DRHI subsidy payment to HeatRHight in exchange for capital funding,” says Szypkowska. “HeatRHight allows housing associations to monetise these payments on day one, providing the funding in exchange for receiving the government payments over seven years.

In January, LGIM Real Assets refinanced the contributions that HeatRHight had made to the social housing sector to date, providing them with new funding. “This enables HeatRHight to deploy more funds into the sector, accelerate their pipeline and increase the scale of their proposition for the sector,” says Hughes. “We’re levelling up their offering.”

A greener world

The DRHI scheme forms part of the government’s target for the UK to be carbon neutral by 2050, but the social housing sector is under a lot of pressure to become carbon neutral generally, says Szypkowska. One of the biggest advantages of the technology is that it can be implemented both in new builds and retrospectively.

“When you look at the properties in this sector, a lot of them have an EPC rating of Es, Ds and Cs,” she explains. “A lot of them are a little bit older, so social housing providers need to come up with solutions to bring them closer to becoming carbon neutral. Heat pump technology is viewed as one very efficient solution for the sector to support the target.”

Once a home meets the criteria (such as specified levels of insulation), the installation can be done in two days. Furthermore, the technology has scope to become more environmentally friendly in the future.

“The environmental aspect of this project is key,” says Szypkowska. “Air source heat pumps still need energy to be functional. However, if that energy came from a renewable source, this sort of heating could be carbon neutral.

“When we think about saving our plant and making it a better place for everyone, this technology (in conjunction with renewable energy) is exactly the right solution.”

A fairer society

A major bonus of heat pump technology is that it can also benefit the tenants in social housing who are using it.

“What’s very important for this housing sector is that heat pump technology can provide significant savings over traditional heating systems,” says Szypkowska. “This is due to the low running costs, which means energy bills for tenants will be much lower – it’s estimated the technology can lead to up to 50% reduction in energy bills.

“In terms of maintenance cost, these heat pumps have longer life spans than traditional boilers, so that also leads to a reduction in operating costs.

“From a social perspective, paying lower utility bills, especially for households which are relatively low income, puts money back into tenants’ pockets which can be spent in other ways, so there’s that benefit as well.”

Dapo Ogunbiyi, Senior Associate at LGIM Real Assets, concludes that, perhaps most importantly of all, the technology shows that green solutions can be found for all members of society, rather than just those at the top.

“Typically, in society, new technological shifts often happen for the wealthiest people, while those on lower incomes or from a lower socio-economic group can be left behind or helped last,” he says. “HeatRHight is focusing on that space and ensuring that, as we think about improving housing in the country, it’s not a case of helping the rich first and then helping those who are worse off later. Everybody gets a chance.”