Net Zero Go Investment Decision Tree

Local authorities often rely on a combination of funding sources, including government grants, council tax revenue, and various fees and charges. Therefore, it is important to undertake a comprehensive assessment of the projects and services that need funding and weigh them against the resources available.

Net Zero Go’s decision-making tree guides users through a series of questions to assess the various financial options that may be available to fund their project and outline the key advantages and disadvantages of each.

This decision-making tree is intended to support Local Authority decision-makers in assessing various financial options which may be available to fund a project. The tool guides users through a series of questions that will lead to a variety of potential funding sources and includes links to reference materials that give further detail on these sources, their key features as well as advantages and disadvantages.

Questions and summary

1. Does the LA have sufficient own financial sources for the project?

One of the first considerations is whether the LA can already fund the cost of the project using existing, available funds. In situations where the LA does have sufficient funds, this will usually be the quickest approach for projects which may be time critical.

1.1. Does the LA want to use their own financial resources to take on additional debt?

Where the LA is able to borrow, it may choose to use third party debt to fund the project. (Further details of the various debt options are explored later in the toolkit). However, each LA will wish to consider whether it is prudent to assume additional debt, whether it can be serviced (repaid) even in adverse situations, and whether incurring debt for the project may prevent debt being raised subsequently for other purposes which may be more important to the LA’s overall priorities.

Energy Performance Contract (EPC)
Privatization/ As-a-service Agreements
Public-Private Partnership (PPP)

1.2. Does the LA want to fully fund the project with its own financial resources?

Even if able to fund the project fully, the LA will still wish to consider whether using existing resources for the project represents the best possible use of its limited funds. It may prefer anyway to seek external funding for the project so as to safeguard the LA’s scarce internal funds to deliver other priorities (for which it may not be able to secure external funding)

Cash/direct Investment
Subsidies or Incentives
- Interest-free and low interest Loans
- Tax Advantages

2. Does the LA have an asset/land to be sold or leased?

If the LA owns one or more property assets (or other high value assets), it may be able to sell the property to realise cash for the project, or lease it to a third party for a defined period in return for lease payments which could pay for the project.
However, a sale is a one-time event and precludes future use of the asset (and even a lease will restrict it for the period of the lease). Similar considerations would therefore apply to assess whether this is the best possible use of the asset, given the LA will have a range of other policy priorities.

Contract or Receivables Funding
Cash/direct Investment
Subsidies or Incentives
- Tax Advantages
- Interest-free and low interest Loans
Asset sale and land development
Equity

3. Is the LA able/interested to enable private sector participation?

Involving the private sector in a project can bring benefits in addition to securing funding (such relationships can deliver relevant capabilities or knowledge to enhance the project). The LA may, however, not be permitted to involve the private sector, or may prefer to keep the provision of the project and its services fully within the public sector, for regulatory or policy reasons.

3.1. Does the LA want to engage the private sector partner to deliver public services?

The LA will need to consider its policy approach and whether involvement of a private sector partner would be in the best interests of the LA and its various stakeholders.

Energy Performance Contract (EPC)
Privatization/ As-a-service Agreements
Public-Private Partnership (PPP)
Developer Contributions
Revolving fund

3.2. Can the LA co-finance private sector participation?

Co-financing refers to a blended approach to project funding, where part of the cost is paid by the public sector and the remainder by one or more private sector partners. There is a wide range of options for the private sector to provide partial funding for LA projects (covered in further detail below).

Energy Performance Contract (EPC)
Privatization/ As-a-service Agreements
Public-Private Partnership (PPP)
Developer Contributions
Revolving fund

3.3. Can the planned project generate revenue?

Projects may produce revenue in several ways – for example, through fees from users of the service, from sale of “products” from the project, or from partnership contracts with private sector.

Energy Performance Contract (EPC)
Public-Private Partnership (PPP)
Contract or Receivables Funding
Revolving fund
Crowdfunding
Municipal green bonds

3.4. Is the LA eligible to apply for a private loan/be borrower of a debt?

LA may be able to borrow money from a private sector lender, which it then uses to finance the project.

Private sector loan
Crowdfunding
Municipal green bonds

3.5. Can the LA raise private equity capital?

Equity capital refers to an ownership interest in the project. The LA may be able to sell or transfer part of the project’s ownership to one or more private sector investors.

Sovereign Wealth Funds
Equity
Crowdfunding

4. Is the LA eligible/interested to apply for external public finance?

Funding from the public sector (such as grants or subsidised government loans) may be available to fund the LA’s project. The LA will wish to check whether it is able to source such funding, and whether the terms of the relevant scheme are aligned with the LA’s policies and priorities.

4.1. Is the LA able to apply for grants?

The LA may be entitled to grant funding from central government for the project.

Grants

4.2. Is the LA eligible to apply for a public loan?

Loans from central government may be available to the LA to fund its project. Such loans have clearly-defined eligibility criteria which the LA will need to satisfy.

UK Infrastructure Bank
Public Loans
- Public Works Loan Board (PWLB)
- Salix Loans

5. Does the LA need help accessing loans because of a lack of creditworthiness?

The LA may have the right to borrow from external sources, but in reality not be able to if its creditworthiness is viewed as insufficient to repay the debt. In such a case, there may be opportunities for other parties (central government or private sector) to provide credit enhancement to improve the ability of the LA to borrow.

Risk mitigation/ Guarantee
Blended finance