91: Greener Better Living: Finance for the Future
Living Places is a social enterprise focused on funding and delivery of community focused, place-based models for a just net zero transition. Becky and Fraser are joined by their co-founder, Rufus Grantham, to discuss his work in this space. There's a bit of maths and finance - but stick with it!
https://livingplaces.earth/
PODCAST TRANSCRIPT
[music flourish]
You're listening to a Bespoken Media production.
Fraser: Hello and welcome to Local Zero with Fraser and Becky.
Becky: Today on the pod we're joined by Rufus Grantham.
Fraser: Rufus is a co founder of Living Places, a social enterprise focused on funding and delivery of community focused place based models for a just Net Zero transition.
Rufus: There is an opportunity here to create a recycling, regenerative finance structure. Welcome that creates community wealth, creates ongoing income for communities, that leads to that empowerment being a sort of a long running thing.
Becky: Yep, be warned folks, there is finance in this episode. Real, actual math. But stick with it, because Rufus has great things to offer on the practical changes that can add justice into the equation of the Net Zero transition.
Fraser: Yeah, we do maths puns now as well. A reminder that LinkedIn, by the way, is now the place to follow LocalZero for new episode updates.
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Becky: And for transcripts, further reading, and the entire LocalZero back catalogue, LocalZeroPod. com is the place to go.
Fraser: As you'll have heard at the top of the episode, Local Zero needs new funding to keep it going, and we are looking for concrete and practical examples to show funders of positive outcomes of our work.
Becky: We are indeed, so if the pod has helped you with your work or studies or campaigning or anything else really, and you're happy for us to share that with others, please do email us localzeropod@gmail.com or reach out via our LinkedIn page.
Fraser: So Becky. This episode is all about place based approaches to Net Zero, which is very much what the podcast is about, right? But there's a lot of detail in this one, a lot of numbers. We get pretty serious, we get pretty into the weeds. For you, what is a place based approach and what is the value of that approach to delivering Net Zero overall?
Becky: Yeah, it's a important, big, tricky question and I think, you know, you can come at it from a number of angles. I think place based is, is so important and we're talking about it more and more. Just in part realizing that places across the UK are entirely different from one another. And we're not talking about big, shiny technological solutions.
Becky: You know, we're not talking about big power stations. We're not talking about big offshore wind farms. And we're not saying that those things aren't important. They are important, but for so long, I think we've prioritized generation, energy generation, what we're doing on the technology. And actually, if we want to see real transition to Net Zero, We need to be focusing on people and places, homes, businesses, buildings.
Becky: We've seen this with the CCC, the Climate Change Committee's update report a couple of years ago. The places we are struggling is in insulating our buildings, is in decarbonizing our heating systems, in our homes, in our workplaces. You know, all of these things that rely on people engaging and taking part in this transition.
Becky: And there is just no way to do that in a blanket, one size fits all approach across the UK, you have to reach out, engage with people and communities and bring them along. And the only way to do that is by connecting in places. Cause that's where we live. We live in places. We have our connections in places.
Becky: Our kids go to school. We're part of community groups and that's how to create the connections that's going to create the difference. So for me, it's all about. Place based transition, but I think Fraser, this is really important. We need to also not just put it at odds with stuff happening at a national scale.
Becky: It's not, I don't think we should be saying it's place based or national. It's both, it's everything and we need it all. So that's, that's my opinion. And then I think there's another element of this, which is very close to your heart, which is about notion of a just transition and the only way that we can engage people.
Becky: And create that just transition is by doing it in places, wouldn't you say?
Fraser: Completely agree. Completely agree. I think your point around it looking different in different places, it's not going to be the same in Dundee as it is in Dagenham or Orkney and Oxford, right? And that's right. It shouldn't look the same because those places are so, so different and everywhere in between.
Fraser: But I completely agree on that justice piece. You cannot reflect the needs of people in places from a distance. You can't do it centrally. However well your, however strong your intentions might be, however good they might be, you cannot do it at a distance. And doing it locally, doing it in communities and with people I think is generally a far more effective way to reach those people that typically haven't been engaged so far within the transition, those lower income, working class communities, the vulnerable, people in different vulnerable situations.
Fraser: I think another point that I would add to this, Becky, and it speaks to some of the work that we've done with communities on local and community, uh, energy in the past, is that it's not only that place based approaches, sort of more local approaches allow you to better reflect the needs of local people in places, but we tend to find that actually people respond really positively to the idea of more locally, whether that's local solutions to retrofit or local generation as is sometimes the case.
Fraser: I think we find that that can be a really strong lightning rod for general support versus something that feels like it's being done to to people in places. I don't know that that felt like it came through in the work we did with the citizens last year as well, right? That sort of local tense to to be a little bit more inspirational and aspirational, even
Becky: It does indeed.
Becky: And I think that other, the other thing that local brings to mind is that sometimes when we talk about this and we talk about local energy systems, smart, local energy systems, place based action, it can, it can either feel very, very specific. And people like latch onto the notion of micro grid or energy islands.
Becky: And I don't think it's that, you know, they have their place, but we're not talking about, you know, you gave an example, Dundee and Dagenham, we're not saying, you know, Dundee is going to be its own microcosm and it's going to disconnect itself from the rest of the world and generate everything. And, and, and no, that's not what we're talking about here.
Becky: Um, or I think the other thing that you can get is, is, um, instead of the super hyper focused technical that it sort of doesn't think about the broader picture is you get a very conceptual high level notion of what this means, what place based transition means. And I think sometimes we don't get into the nitty gritty enough.
Becky: Okay. So we know we start to think about these visions for what it could look like, but actually. If we are serious about delivering Net Zero in places, we need to go beyond the conceptual, what does that mean? And we need to start talking about how we do that. Not just from a network perspective, not just from a generation perspective, but how do we bring together the money to deliver it?
Becky: How do we engage the people to deliver it? How do we have, um, you know, the, the data and the business models and the, all of the other things that need to underpin. The transition. So we do need to get into the nitty gritty a little bit. And I think that is really the importance of our conversation today with Rufus.
Fraser: Absolutely. I think on that, let's, let's bring him in.
Rufus: Hello, my name is Rufus Grantham. I am co founder and partner at Living Places, which is a not for profit, uh, consultancy firm. Uh, I am also on secondment in the department of energy security and Net Zero in the UK government.
Becky: Rufus, it's lovely to have you, uh, back to local zero. And I think this is what, second or maybe even third appearance on the pod?
Rufus: Second, I think, but, but, but it could be third.
Fraser: Does it just feel like
Becky: either way, we're really just exhausted with Jack with me and Fraser. Um, we're very, very excited to have you back and to be talking about the living places program, because this is, this is relatively new. So maybe you could kick us off by just telling us a little bit about the program and maybe sort of the story of, of how it came to be and what you're really trying to do with it.
Becky: Um, so we started on the 1st of July last year. So we are just, what, eight months old now, um, just starting our ninth month. Um, it is a, uh, a not for profit, um, consultancy firm and with seven people as of today. I guess the, the kind of thinking behind it was, I had been working for three and a bit years at my previous firm with a large group of people with a similar skill set to me,
Becky: i. e. finance was my background, but actually in all the projects I was doing, I was working with people from other organizations. So people who came from a governance background or a technical background or a, um, community engagement background, all focused around this idea of how do you, how do you transition a whole place?
Becky: And, and what. What are the positive impacts of that? And funding is a component, but only a component of it. And a group of us started to think, why aren't we working in the same organization and doing this together? Um, and so, and so that was really, really where it came from. And I think there's also a, um, an understanding that, um, An organization that was trying to move this stuff forward had to be full of people who had quite a lot of experience.
Becky: Um, I'm not going to use the age word, um, but, but it wasn't, it wasn't not a typical consultancy model where you've got a kind of pyramid structure with, with a lot of sort of very smart, but relatively inexperienced people that wasn't didn't really work. And so that was the original thinking, um, four of us co founded um, the organization, it took a little while for everyone to, to get on board and, and out of their previous organizations. And we brought in two further partners since, um, plus one associate.
Becky: So we're now at seven people and the goal is to, um, not be an enormous consultancy doing tons of, um, you know, sort of detailed work necessarily, but more to be at the sort of strategic advisory piece and particularly to try and knit together all those different disciplines that are needed to drive these kinds of innovative models forward and develop them. Not sure that's a very succinct way of putting it, but that's essentially what we're trying to do.
Becky: I love it.
Becky: It also sounds like you get to work with closely with really other amazing people like build an org, work with your friends, do great stuff.
Rufus: Essentially, yes.
Becky: But I do, I do want to focus on something. So I was having a bit of a gander at the website last week and I noticed this focus on hope and optimism and converting hope into optimism. And I find this a really interesting and challenging thing to chat about when we talk about climate change. Because often it can be very, it can fill you with anxiety or despair.
Becky: Um, particularly some of the messaging that we get. And for me, when I look, you know, I'm particularly interested in, uh, how we're, Living in our homes, in our neighborhoods and on a lot of that, I guess you could say the demand side of the energy system. So the, the people side, I feel like there's very little action from government.
Becky: There's often very little enthusiasm compared to, Oh, we'll find this magic silver bullet in some sort of generation. It just, it feels that way sometimes. And so. I'm just wondering maybe if you can kind of expand a little bit more on this, you know, hope and why it's so critical to the work that Living Places is trying to do.
Rufus: That's quite a big question. Um, so I think, uh, that, that came about, I was asked to do a keynote at the, um, Built environment, smarter transformation festival, uh, back in November, December last year. So that's the Scott, what used to be, uh, construction Scotland innovation center, I think was what it used to be called, um, up in Glasgow.
Rufus: And I didn't want to do just to sort of a normal, quite technical and financially sort of focused conversation. And I've also always, and sometimes people take the mickey out of me for it. I've always sort of chosen to be optimistic. I think it is a choice of how you kind of approach stuff. And so I started looking at that and found some, um, scientific research.
Rufus: And I did a psychology degree. That was where I started, um, a long time ago, um, that there was a distinction between hope and optimism. And actually hope is when you don't believe something's going to happen. Whereas optimism is when you do believe it's going to happen. And that's, so that was the transformation I was trying to talk about is that there's a lot of people, there is a lot of despair and climate anxiety.
Rufus: There's a lot of people who are working really positively to try and make a difference. But don't necessarily believe it's going to work. And that's, that's where the hope it is. And to get to transform into optimism, you've got to have belief that something's going to happen. There's some really interesting research about football fans, you know, fans of teams that regularly do well, who are optimistic, and then fans of teams who regularly get beaten, who are hopeful, you know, if that's sort of upset.
Rufus: And I think, the framing of it in those terms is important for exactly what you said, which is there is a lot of conversation about technology and a lot of siloed thinking about technologies. There's a lot of discussion about funding and finance, which is all sort of quite esoteric, and we regularly forget this is about people's lives and places.
Rufus: Um, you know, we called the company Living Places, not Net Zero Places for a reason. And it's about that, you know, the demand side, I think is the critical issue. When I started this work four years ago, I thought it was a finance problem that needed a finance solution. I don't think it is actually. Um, I sometimes provocatively stand up and say, there isn't a finance issue.
Rufus: There's tons of money. That's not the problem. I mean, it's a bit simplistic, but the real issue is how do we create a proposition and a narrative that people buy into and want to be part of. Um, and then you've got something to fund and you've got to find out the problem to solve, but until you've done that, it's, you can have all of the money and all of the supply chain and all of the planning, but if people won't let you into their neighborhood and let you into their homes to do the work, it's, it's pointless.
Rufus: So that, that was really the thinking is how do you create that sort of positive. narrative around change. And I don't think that's by talking about heat pumps and the environment and carbon.
Fraser: So is it, I think it's, it's so, it's so fascinating, Rufus, and it echoes that sort of, um, the, I guess, Rebecca Solnit was someone who talked a lot about this, um, has talked a lot about this over the years, that the distinction of hope being about sort of belief, maybe that something is possible, but not necessarily that it will happen.
Fraser: Does, People such as yourself, or organisations such as yours, or people, let's say, working in this industry and in the sector, does us being hopeful allow the wider public, others who might not be as dialed into this, does us being hopeful allow others to be optimistic that something will get done?
Rufus: Um, well, I think if we're not hopeful, we're, we're dead in the water anyway.
Rufus: So it's, it's, it's, it's, it's a necessary, but I think probably not sufficient requirement. I think to become optimistic, you have to believe there is a model that can actually deliver and to do that, we have to move from talking to doing. And that, that was kind of the point of the, the keynote I made is that we, we spend so much time standing on stages and in panel groups and, you know, talking about how this is all really important and we really must raise the finance.
Rufus: We really know what's important now is we actually, um, trial ways of doing this. And work out what doesn't work, what does work, and iterate, because it's, you know, this, this is complicated, difficult stuff. And until we're actually doing it regularly, at scale, we're not going to be able to develop those models any further by, you know, writing shiny reports, and that's, that's just not going to, that's not going to help us, right?
Fraser: Absolutely. Absolutely. So how do we sort of, what does that proposition look like? You mentioned in the, in the previous question, the proposition, the narrative, what does it look like? What does better living look like to you?
Rufus: Well, so something, something completely draft. Um, one of my colleagues challenged that
Rufus: the rest of us to try and encompass what we were trying to do in 10 words or less, which is always quite difficult. And I wrote mine this morning. I haven't seen everyone else's yet, but I wrote empowering communities and improving lives by funding place based Net Zero transition, which if place based is hyphenated and it's one word, it's just 10.
Rufus: And that's great. That's kind of what it's about. It's, it's about a realization that, okay, we might be here because we're concerned about a climate crisis and trying to reduce carbon emissions. The area we've chosen to focus on, which are the emissions coming out of where we live principally, but not entirely housing.
Rufus: Yeah. It's also transport choices and, um, food choices and consumer choices and other things that happen sort of in and around the home. Um, those things also lead to employment. And healthcare outcomes and productivity and a whole range of, of, of other things, which can be good or bad, those outcomes. And in many cases at the moment, aren't great.
Rufus: You know, if you think about, um, poverty coming from fuel bills, if you think about mold and damp and drafts and cold and excess heat, those are all having negative impacts. And so, by crafting a, crafting a narrative sounds, sounds disingenuous, but by building a case around investing in the fabric of where we live, um, that is, yes, a byproduct is we happen to reduce carbon and that's a good thing for the planet, but actually the key outcome is it's better place to live.
Rufus: It's about regeneration, not about. decarbonization. And I think that's, uh, you know, what do people care about? They care about getting food on the table for their kids. They care about being able to pay the bills. They care about being healthy. They care about having job opportunities. They care about, um, having access to green space.
Rufus: You know, there's a, there was a piece of research I saw that, um, found a direct correlation between the distance you live to the nearest group of trees and the propensity for SSRIs to be prescribed by doctors. So mental health drugs. So if you live closer to trees, you don't have, you don't have, you don't have as many mental health issues.
Rufus: You know, it's a bit simplistic, but. The stuff is much more than just about carbon.
Becky: I was just going to say, I, uh, I actually went to a conference in New Zealand. I mean, this is many years ago and, uh, research was talked about that. I mean, maybe, maybe if that was a new, new piece of research, this was, um, study, but they talked about the closer you are to nature, the best for your mental health.
Becky: And the one exception, which I thought was really fascinating was Greece. And, um, they, they said that they found that the, like the social network around coffee shops provided a connection, but I think, which I kind of love as well. Um, but that notion of those, those connections and those, those those better, um, is so, so important.
Becky: Um, I just, I'm wondering though, because you, you've talked about better and better means a lot of things to a lot of different people. Do you find that when you're taught, when you're thinking about this, cause you know, right at the beginning you were, you were saying kind of living places, you're really trying to influence and create that change.
Becky: And presumably government and, uh, you know, national and maybe devolved governments are really key. Um, audiences for your work. Do you, is there a different message for them? Do they, when you say better, does that mean different things, whether you're thinking about it from communities versus whether you're talking to local government, devolved governments, national government?
Rufus: Uh, it's an interesting question. I, I have, I think there's a, to simplify, I have a slide with a triangle on it. One point of the triangle is, is all about carbon environment. And it's a sort of, uh, a climate change, essentially argument. The other point of the triangle is about productivity. And we know in the UK, we've had a productivity issue for best part of two decades, um, is about economic growth is about jobs.
Rufus: And then on the other part of the triangle is about the social benefits. It's about, um, fabric of community. It's about healthcare. It's about mental health, physical health. And. It's the same story that sits in the middle of the triangle. It's just how you express it. And, and, you know, I, you must sort of laughingly say, depending which political party you might talk about a different, a different point of the triangle, but actually all three are relevant. Um, and so I think there's another thread though, in your question, which is about how do you, how do you define better? And I think there's a real risk here that we sit and define what, how people should live.
Rufus: You know, it's sort of, this is better living. This is what you should be doing. You know, it's, it becomes very sort of, um, condescending actually in many ways. And I think this is a, which is why I use the word empowering because communities should have the power to choose how they want to live. And it's going to look different in different places.
Rufus: And that's fine. And I don't think you're going to build a compelling proposition if you're trying to do things to people. I think this is about creating a financial and delivery mechanism that allows communities to take agency. Over the places they live and actually I think one of the, one of the components that started to come out of our thinking on the financial model, we know that this transition doesn't work from a pure commercial financial perspective, right?
Rufus: There is no model where we can suddenly fund it commercially. We know that the public sector isn't going to pay for this entirely because can't afford to. So there's going to be some sort of blended finance structure. Blended finance has had many terms over the years, but it's public and private money.
Rufus: And we know there's not a great history of public and private collaboration. And that is typically about risk in these structures and You have a public sector and this is not a UK specific comment, actually, it's more broadly, but the public sector tends not to like risk. And so it's, it's often trying to get risk off its balance sheet, essentially, the private sector is fine with risk as long as it's priced okay.
Rufus: And so that asymmetry means often in these sort of negotiations of structures of value. The, the risk is incorrectly priced because the public sector wants to get rid of it and the private sector is willing to take it on and what that means in reality, you start thinking from a, without getting too sort of techie about it, you have debt and equity and funding structures and there is always going to be some equity and equity is often where the risk lies.
Rufus: And how that has ended up manifesting in a lot of public private structures is that the private sector takes on the risk, owns the equity, um, the structures often minimize the downside, but they don't cap the upside. And so you then end up with a private sector that owns the thing, whatever the thing is.
Rufus: And when it turns out not to have been as bad as everyone put in the very conservative, cautious estimates. They make lots of profit and we've seen that in various sectors, um, in the UK and elsewhere. And I think, you know, the reason I go down that route is you don't have to give that long term ownership to the private sector, you could give it to the community.
Rufus: And so what you're effectively doing is you're saying, you know, there is a cost of this transition and we're going to need people ideally spread over a very long time. So it's affordable to pay for that cost. That's unavoidable. And, and, you know, we, we think that should be through the utility bill and it should still leave a net saving for households and all that.
Rufus: Stuff but ultimately they're gonna have to overpay against the real cost if we if we price it, right Once they've overpaid and we've covered the finance cost and actually we know where we're at that overpayment should come back to them rather than be extracted out by the private sector And so there is an opportunity i'm not sure I explained that very clearly, but there is an opportunity here to create a recycling regenerative finance structure here that creates community wealth that creates ongoing income for communities That leads to that empowerment being a sort of a long a long running thing and creates more agency for the people who live in a place to determine how that place moves forward.
Rufus: It's almost like I sort of joke about this, that it's almost like a kind of community level capitalism, which you could short communism. No, I don't, I don't mean that it's not communism, but, but it is, it is, it is effect, but it is actually, it isn't, it isn't communism. Absolutely not, because that's a centralization.
Rufus: This is almost a decentralization of capitalism. So it's putting more ownership of community infrastructure in the hands of the people who actually use that infrastructure,
Fraser: Something that Becky and I work on a lot is this sort of community level, local level approaches to energy thinking about ownership and value and benefit and participation and something that comes through clearly.
Fraser: And you've touched on this yourself. Rufus is that not all places are the same. And that's kind of the point. But within communities, you don't always have uh, equally active or engaged members who will participate in decision making and democratic sort of structures. How do you ensure that that value is captured in communities, not just for those who, who are vocal or who, who might want to take ownership, but also more broadly within the transition?
Rufus: That's a really good question. And it's a really difficult one. My colleague Kat Um, regularly calls me out on, on that, you know, it's just this sort of idea that everyone's got loads of time and it's going to, you know, really engage around all this. That's just, that's just not life. People have two jobs and they're, they're trying to, you know, they're trying to get through the day.
Rufus: Therefore, the way that we think about. that I think there's more thinking to do on it, but B, yes, there is a model where you're, you're kind of creating a community fund and you've got sort of some sort of participatory process and everyone's deciding what to do with it. And, you know, that can be, that can be done.
Rufus: Badly in a kind of traditional hierarchical. You have a board of people who concentrate power and sort of take over that that value. Absolutely. Or it can be done in a more participatory model. And there are lots of interesting things You sort of democratic models out there, um, that are forming around that, but it does still work on the underlying assumption that people have the time and energy and engagement to, to focus on it.
Rufus: Um, there is a much simpler model, which is if you are recycling value back into the community, everyone just gets a rebate off their energy bill. There's no decision making. It's just, it's, it's just the money flows back. And so I think you can have everything from a very simple model where there is no decision making other than a, um, a resharing back of that value to, you know, you can start talking about the local community educational bursary fund that, you know, grants bursaries to people going to technical college and, and university and stuff.
Rufus: Fine. And that would be a choice of communities to do if they wanted to, but I don't think you have to have that model to support money flowing back into the community. It could simply be you live there, you get a check every six months or you get a discount off your energy bill.
Becky: I don't want to push you into something too kind of technical or, you know, into the, into the weeds with the financial aspect, but something that really struck me when you were chatting a moment ago was around the notion of risk and who, who takes on the risk and then who benefits.
Becky: And last year, Fraser and I were involved in a piece of work with Scottish government, looking at local and community energy. And through that we ran a people's panel. Um, and we, I was actually really, really excited by the fact that we got into some quite interesting nuggets of conversation, particularly because the folk that were coming to this, uh, were not necessarily folk that were engaged in energy.
Becky: In fact, most of them weren't engaged in energy or local energy, um, and that was kind of the point. We wanted to talk to people that often don't form part of these conversations, that aren't driving the community energy groups. But risks came up a lot on this real notion of not wanting to, to take on that risk, particularly at the early stages, that that risk shouldn't be borne by the community.
Becky: And so, is, is that something that's feasible? I mean, are you, if you look to models where the equity comes back into the community through some form of community wealth building or another, can you do that in a way without making the community take on the early risk?
Rufus: I think so. If you take a place and you plan out what, um, that community want to do to that place, so that's going to involve involve presumably some energy efficiency work in the housing.
Rufus: It's going to involve some energy generation infrastructure of some sort, batteries, solar panels, that kind of stuff. Um, it's going to involve, um, a solution to move away from fossil fuel heating, and it's going to involve some other investment in the place. Could be some green infrastructure could be. Uh, mobility solutions could be a community.
Rufus: Who knows, right? That that's, that's for that community side. So you've got a cost. You then have one outcome of that work is that the collective energy bill of that community will be lower. Let's say for sake of argument, the energy bill collectively goes down by two thirds. When we come to risk with the community, I think community has to have certainty over what they will be paying.
Rufus: So there can't be risk of actually my bill. has effectively ended up trebling. So the most that a household can pay is the amount that their energy bill has gone down by so that they are the same position after as before. Now, I actually think in reality, the, the fee that a household would pay would have to be less than the savings.
Rufus: So if the, if the bill goes from 3, 000 to 1, 000, just to make the numbers easy, Um, that's the underlying energy bill. Could you ask them to pay 2, 000 on top of their 1, 000 bill to fund that work? They would then be in the same position pre and post. Three grand before, three grand after. Reality, maybe you want to charge them 1, 500 or 1, 200 so that they have the saving.
Rufus: And I think that has to be capped, right? So it might have some sort of annual inflator. CPI type inflation linkage, but it has to be essentially capped so they are better off after than they were without this having happened. So you've now got an income from that community where everyone is paying in their 1500 pounds each to a central pot.
Rufus: That central pot then has to ensure that that set of assets continue to operate, continue to generate power, continue to reduce demand, continue to create heat. And so there's a maintenance bill and a replacement bill that goes with that over a long term period. So you have to model that out. Now we're not going to be able to model that perfectly because you don't know when things are going to break and how much they'll cost.
Rufus: You can, you can make assumptions, um, but you build that piece in that leaves you with an amount of money left over to collectively raise money, raise finance, and this is where the equity and debt bit comes in. No lender is going to come to you and look at that model and say, okay, you're going to have from this community, I don't know, 800 grand a year of, to pay back debt, so we'll lend you some money.
Rufus: That means you've got to pay us 800 grand a year for 30 years or 40 years, because. They will worry that you won't have that 800 grand one year, you might have 750 grand and then you're not going to make a payment. So they're only going to, 100 percent that leverage that income in financial speak. Um, so they'll lend you some money that might require, I don't know, 600, 000 a year.
Rufus: So the equity is the bit between the gap between your forecast income and what you know you have to pay out on debt. And so if all of your modeling is perfect, obviously it won't be, let's say it's perfect, and you're. Because it's not going to be perfect. You're going to make some quite conservative assumptions through that model to make sure you're, you know, your, your risk is on the upside, on the downside, but each year you're going to be putting 150, 200 grand in the bank of that collective pot that you didn't need to use.
Rufus: That's the equity bit. And that's the bit in typical public private structures has been owned by the private sector. And that's the bit you can recycle back into the community. So how you structure those payments and your modeling is going to allocate risk. But effectively, when you go back to the beginning of that whole thing, and we've worked out what is our cost of doing the neighborhood.
Rufus: We're not going to be able to raise enough money from that debt provider to pay for all of that. So there's going to be a funding gap and that's where actually, ultimately the risk goes. And that's ultimately, if we're going to get to Net Zero, it's going to have to be the taxpayer. Um, there is going to be, have to be a public contribution to fill that gap.
Rufus: Now we think. There is a, another group of money you might be able to tap into to reduce that by finding organizations. You've got a commercial alignment with this outcome. So that could be, um, the distribution network operator who is planning upgrade CapEx and because you're sticking a whole load of PV and batteries and doing, you know, Demand risk mitigation, the actual energy demand is going to be lower.
Rufus: And therefore their capital upgrade plan gets pushed out and deferred. And so they're getting value from that. So how do you get them to come in and basically fund that extra value? Um, it could be putting in suds to take, uh, rainwater out of the water system and reduce the cost of the water company while you're doing the retrofit.
Rufus: And so how do you get the water company to come in and, um, that there's discussions about, um, avoided emission carbon offset funds with retrofit that then local businesses could, could, could use offset. So you can bring in some other bits of money, which reduce that public sector bit.
Rufus: The public sector bit is also netted off by a tax circularity that there's tax from doing retrofit, which comes back to treasury, but there is still going to be a net cost for the public sector. And you can think of that as a necessary risk mitigator, first lost capital, those sorts of terms, or. And, or you can frame that requirement for public investment by saying, this is how many jobs are going to be created.
Rufus: This is the reduction of respiratory disease in that community. And therefore an HS cost. This is the increase in productivity. That's going to come from that healthier population and from the jobs that are created. And so you're then making a case, um, that. Regeneration of place and decarbonization of place is an effective way for taxpayers money to deliver public sector outcomes.
Rufus: And that's ultimately, that's the green book business case. That's the treasury rules about value. Um, you know, it's that kind of argument around the value of that, those, those outcomes created. So that's a slightly complicated answer to your question. But I think, I think the point, the point is that.
Rufus: You're absolutely right. What you can't do is say, well, ultimately the community have to bear the risk. And if, if it all goes wrong, their energy bills are going to go treble up. That, that can't, that can't be the case. Um, I think there is a contribution from communities can't avoid that, but we need to leave communities better off.
Rufus: Um, and ultimately. The taxpayer will have to backstop this and that's a very difficult political argument but it is a reality and if we don't accept that reality, we're never going to get there.
Becky: So I I saw some research recently that looked at energy efficiency in domestic buildings and that while there were initial savings following the implementation of retrofit measures, in the long run, energy use bounced back.
Becky: And so for this sort of model to work, are we saying that, that generation is a key component of this, and, you know, in order to be generating your own energy so that even if your energy does bounce back following retrofit, you're still generating within the community, and if energy generation is a key component, are there are there going to be particular challenges for certain communities, whether it's that they are already in an area where it's very difficult to add generation into the grid, or even where you're talking about maybe very densely populated areas where there might be other challenges.
Becky: Like is this something where, and this is not what, I think this is a really exciting model, but I'm just trying to get my head around some of the, maybe those place specific challenges that.
Rufus: You think of the classic sort of Glasgow tenement very little roof space and lots of living underneath there, right?
Rufus: so a number of different threads there to pull on and the return on generation is generally a lot better than on fabric measures in average Which in turn is better than the return on? on degasification of heat at current gas and electricity prices. And so blending those together, um, is, is important and the generation piece is therefore important to the return you can, you can get.
Rufus: Um, so yes, generation is important. On the, um, sort of reduction of efficacy of fabric measures that's been seen in a number of research studies. I have a theory, I don't know if this is true or not, but I have a theory that. If, um, that there's a couple of reasons why that might be. One is because from a technical perspective, whatever, whatever interventions were put in, start to become less effective over time.
Rufus: And so then it's about, are you factoring in enough maintenance and replacement of those assets to maintain the outcome, which is why that maintenance fund is really important. And then two, is it the psychology of affordability? I don't know if that's a phrase I just made up, but in other words, if my energy bills, 3000.
Rufus: And we have a load of energy efficiency work done, and my energy bill halves. Am I, do I, am I making decisions about, well actually I'll turn the heating off, that I no longer make, or, Yeah, I left the window open, never mind, you know, because the bill's lower now. And so actually, it's a behavioural change that happens.
Rufus: Now some of that, behavioral change is entirely warranted if people are underheating their homes, right? And we're clearly gonna have a portion of the population where the outcome of doing this is not that the bill goes down, but the comfort goes up to a humane level, which is a great thing and has lots of social value that that's attached to it.
Rufus: But part of it is inefficiency of behavior, if I can put it that way. And, um. If my bill has gone from 500, I don't have the financial pressure to not shut the window. If I'm now, if my bill goes to 1, 500 underlying, but I'm now paying a 1, 200 comfort fee on top, so actually my net bill has gone from 3, 000 to 2, 700, I, my guess is that my energy use won't bounce back in the same way.
Rufus: And I don't, I think the studies that have looked at that have been when people are better off after the work rather than are effectively paying for it through a, through a utility bill comfort fee. I don't know that's the case, but that would be my, my guess. Um, but it does mean generation is important.
Rufus: And so the final point is it's about how we blend this together. So if you look at. If we were thinking about this from an individual house perspective, clearly the outcomes for different individuals is going to be really widely different depending on the typology, whether you're in the top flat and you've got rights to the roof or you're in the flat below and you don't have rights to the roof, you can't do any generation, whatever, whatever the setup might be.
Rufus: If you look at the whole house, that starts to be blended. If you look at the whole street, it starts to be blended even further. If you look at the whole neighborhood, it becomes blended even further. If you look at the whole city, it becomes blended even further. If you start to, I mean, I've had a conversation a couple of years ago with, with Glasgow, let's go back to the tenement example about the city region deal.
Rufus: You know, there is much more space. In Renfrewshire and Inverclyde than there is in Glasgow city. So actually do you end up with a, um, regions acting as generators for the city center potentially? Um, you know, and on the flip side, um, when you go to densely populated places, the business model for. for, for networked heat becomes much better.
Rufus: So there are pros and cons of densely populated or less densely populated, but actually if we start to aggregate it, um, across geographies, I think some of those variations start to start to average out. And I don't think it should be a postcode lottery of, you know, who, who happens to live in the right place and who doesn't.
Fraser: What are some of your favorite examples of place based approaches to Net Zero in action?
Rufus: We're getting to the question of why isn't this happening as quickly as it should do. Not enough has happened. And I think there are some particularly progressive and wealthier bluntly. Um, authorities who are pushing this work ahead and the most advanced, um, arguably is Westmids combined authority.
Rufus: You have a Net Zero neighborhood program across the seven authorities. They have a, um, a first, demonstrator in Brockmore and Dudley, um, which is currently going through retrofit assessments and, and planning to actually start doing the retrofit for the first wave, it's a relatively small, um, neighborhood, it's 300 homes, um, but still reasonable.
Rufus: Um, and they're self funding that, and that's an advantage of the devolution deal that, that Westmids have, um, GMCA similarly thinking about doing, doing similar stuff. Uh, Hounslow in London are quite advanced with a. I have a site chosen and starting to plan engagement around that site with the, with the community.
Rufus: So we're at that phase. Of, of really doing this at a, at a scaled basis, it is business planning of demonstrators is where we're at. There is no, to my knowledge, example where, you know, a thousand homes have been retrofitted of model. Yet, that's what we want to get to. Um, there are conversations about a programmatic approach across authorities in Scotland.
Rufus: That we're involved in similarly in London. Um, we're doing some work with Bristol. Um, there's, there's quite a lot of interesting stuff happening in Wales, which I've been much less close to trying to get closer to at the moment. Um, so there are pockets there's, there's, there's stuff happening, but it is typically, held back by the capacity and capability gap that we all know exists in local government.
Rufus: Um, although that is, you know, I think it is, it's, it's worth recognising the progress we have been making. You've now got 60 million quid within the Innovate UK Net Zero living program. You've got 19 million pounds within the local Net Zero accelerator that that there's, there's have, have, um, or kicking off with Westminster, Manchester and York.
Rufus: Um, so there is some money starting to flow and that's money that isn't capital to do the works. It's, it's money to hire the people to actually work out the plans of how to spend the capital, get the data and do the engagement. It's all that important, you know, hard yards of, of business planning and business case prep.
Rufus: So it's starting to happen. I think there could be more and that could be accelerated.
Becky: So I want to close by kind of coming back to where we started a little bit in this notion of optimism. Um, and so if we are trying to create this mindset shift from hope to optimism, what do you think that we all need to be doing over the next year or so to try and help move beyond these kind of niches of a very interesting action and start to really drive.
Becky: better living more widely across the UK?
Rufus: Um, I think we have to prove the case. And so that doesn't mean doing it everywhere all at once. It means leaning into the places that aren't doing it. And really maximizing the learnings that we can have out of those places to iterate that model until we have something that we know works and it can then be rolled out at scale.
Rufus: Um, that means engagement from the, um, private financial services sector. To, uh, to ensure these models are fundable replicable. It means, um, engagement from local authorities who really want to drive this forward and commitment of funds, which is incredibly difficult in, in local government funding situation, but some are doing it.
Rufus: And I think it means coordination from. central government to continue to support that work and create programs around that work. Um, and that's part of, of, of what I am focused on in, in our succumbent into Desnes. So I'm spending some time as a civil servant now, um, looking at that funding, those funding structures, um, you know, authorities working in isolation is not going to be how we maximize learnings.
Rufus: So working as cohorts working together, um, is really important moving away from sort of consultancies competing with each other. This is a, this is a big problem we all need to get together and try and fix. Um, so yeah, it's really about pushing those projects forward. And for me, the really challenging part of it is.
Rufus: That whole point about narratives. So it's about, we need, we need a phase over the next 12, 18 months of proper deep engagement in places. Co design, um, to come up with the deliverable projects. And by deliverable, I mean, not from a technical perspective, because they all probably will be, but from a, we've got enough people in that place excited about this happening.
Rufus: Cause it's going to be disruptive, right? People have got to see the upside of it happening. Um, and I think. You know, the, the lack of optimism at the moment is our current approach to doing this, which is we're going to stick some subsidies out there, often very, very siloed to particular technology. We're going to put some policy in place about you can't do this and you can do that.
Rufus: And we're going to hope everyone suddenly starts acting. The evidence of that working globally is almost zero. You know, so that's why we're not optimistic because we don't see it happening. And I think we need, we need to see positive impact in places, even if it doesn't work perfectly. And we, we work out, you know, we need, we'd try it differently this way or that way or whatever, but it's that iterative.
Rufus: It's almost like a sort of agile tech development sort of mindset of, well, we've got to keep doing this in places. Yeah. And I think we'll, we'll create that momentum. What I would really like to see Is the public, private and philanthropic sectors to come together to provide the funding for a proper national program for this work, because at the moment.
Rufus: Nearly all of the funding for it is coming from the public sector. There's a little bit, few pockets of philanthropic money, people like the MCS charitable foundation and others. And then you've got a private sector that largely is sitting on its hands, very interested by the potential investment opportunity.
Rufus: But he's not so interested in writing a much smaller check to unlock that opportunity and I can understand why because it's, it's a harder thing to get through the CFO and the CEO to get, get funded. There are some exceptions. I think, um, there's, there's a project in Leeds that one of the big banks has, has been supporting, um, with, with direct funding.
Rufus: Um, But, but we could really do with, with that sort of public private philanthropic consortium coming together and saying, right, we're going to really drive this work forward, not necessarily for Net Zero, but because going back to the starting point, because it's going to make a massive difference to to a whole range of outcomes.
Becky: Amazing. Well, thank you so much, Rufus. I feel like I've got, well, Fraser and I do. We've still got a whole massive list of questions, but I feel like we could chat to you for about another four hours and still not get through everything we want to ask you. So, we better have you back again at some point.
Becky: Maybe when the, um, maybe when the programs are done a little bit more and we can hear a bit more about some of the work and, and possibly even the work, you know, that's going on, um, You mentioned the thriving places program. So maybe we can, uh, we can touch base in a little while and, uh, reflect on how that's going and where we need to go to next.
Becky: But for now, I just want to say, thank you so much for joining us. We really appreciate the conversation and for you taking the time to explain. Probably some very complicated financial aspects in there and financial models in a really, really clear way. So thank you so much. Thank
Rufus: you for inviting me on.
Rufus: I'm very happy to come back.
Fraser: Thanks very much, Rufus. And for more information on the work that Living Places are doing just now, you can visit livingplaces. org. You've been listening to Local Zero. If you enjoy the pod, please leave us a review on Spotify or Apple, wherever you get your podcasts to help us conquer those blasted algorithms.
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Fraser: Or whatever you think best applies.
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Fraser: But for now, thank you and goodbye.
Becky: Bye.
Fraser: Produced by The Spoken Media.