1. These Young Minds
Harnessing the Opportunities
of the Government’s Green Deal
8 February 2011
© 2011 Deloitte LLP Private and confidential

2. Harnessing the Opportunities of the Government’s Green Deal
Agenda Mark Williams – mawilliams@deloitte.co.uk
• Mark leads a dedicated team of managers who specialise in the
The Public Sector landscape for the Green Agenda financial implications (accounting, budgeting and classification) for
Central Government, Local Government and NHS Bodies of
complex projects. Over the last 10 years he has worked on more
Measurement and Drivers than 300 Public Sector projects, including many Public Private
Partnership (PPP) arrangements.
• Given Mark’s experience around financial reporting, budgeting
Strategy, Implementation and Improvement and project structuring he is increasingly involved in advising
clients with respect to the CRC energy efficiency scheme,
sustainability reporting requirements and the broader Green
Financing Solutions – “spend to save” Agenda in the Public Sector. He has already worked on a number
of green infrastructure projects and sees direct parallels with the
PPP arrangements used for the development of social
Green Deal Operating Model infrastructure.
Green Deal Fundamentals and Financing Caroline McGill - camcgill@deloitte.co.uk
• Caroline was formerly corporate finance adviser to the
Precedent – Funding of Waste Infrastructure Department for Business, Innovation & Skills advising Lord
Mandelson, and more recently Vince Cable. She was responsible
for close collaboration with HM Treasury and Cabinet Office
colleagues in the provision of advice to Ministers on the financial
markets and the financial services industry, with a particular focus
on availability of finance for UK corporates.
• She has several years experience in fund structuring, working with
banks, institutional and private investors on multi-target, multi-
jurisdiction investments and debt security structures.
2 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

3. Public sector landscape for the green agenda
Sustainability and the wider green agenda continues to be a focus for government
departments and other public bodies in transitioning the UK to a low carbon economy.
The government have:
• Implemented policies to which public sector bodies must adhere:
Sustainability reporting (FReM) regulation
CRC Energy Efficiency Scheme introduced in April 2010
Committed to10% cut in emissions for central governments in FY11
Carbon neutral ICT by 2015/2020
Life time costing
• Pledged to support green initiatives
Green investment bank (to address market failures and investment barriers for financing
of low carbon infrastructure)
Green deal finance (to address retrofit of low carbon measures in property)
New sources of funding for climate change adaption and mitigation
• Highlighted sustainability as a necessity in order to meet the needs of the public sector
on a tightened budget. The Green Agenda should, if considered strategically lead to cost
reduction. The counterfactual may not true.
3 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

4. Measurement
Assurance Readiness
workshop
Annual Reporting
reporting and Carbon
disclosure management
requirements
Systems
implementation
Source: Deloitte CRC flyer
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5. Driver – Policy, Carbon Reduction Targets
The UK Low Carbon Transition Plan: projected emission reduction across sector
Source: Department of Energy and Climate Change
Carbon budget 1 (2008-12)
Carbon budget 2 (2013-17)
Carbon budget 3 (2018-2022)
5 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

6. Driver - Regulatory requirement
Power generation Large industry Small industry/ Residential Transport
and grids commercial
UK ETS CRC Energy Efficiency Scheme SD relief on zero
(ended 2006) (from 2010) carbon homes
EU ETS
R&D Tax credits
R&D Tax credits
Excise duties and scale
Renewables Obligation Excise duties charges
Climate Change Levy/ Climate Change Agreements Lower rate of VAT
Renewable Transport
Fuel Obligation (from
Building standards 2008)
Contaminated land
Contaminated land relief Carbon Emissions Reduction Targets (CERTS)
relief
Grid loss incentive Environmental Transformation Fund Warm Front Grant
(Apr 08) Scheme Reduced duty for
biofuels (abolished)
CHP target Micro-generation strategy
Carbon Trust Energy Savings Trust Carbon Trust
Climate Change Project Office Air passenger duty
Enhanced Capital Allowances Enhanced Capital
Allowances
IM carbon trading exemption
Landfill Tax/Aggregates Levy
Climate Change Act 2008
6 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

7. Driver - the impact of increasing energy rates and a shrinking budget
Energy Rates / Spend
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Years
Energy rates* Budgeted energy spend ***
CRC and Fines** Cost reduction required
7 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

8. Strategy
Carbon
Readiness Systems Reporting Assurance
management
Do minimum Registration Continue as is Current systems CRC deadlines Internal process
Reporting Evidence assurance
Allowances maintenance Audit certificated
(minimise Governance Accounting (required)
risk)
Proactive Opportunity Proactive strategy Adapt systems Align reporting External
assessment Wider than CRC Consider with other assurance pre-
- Early action boundary (e.g. alternatives requirements EA
(maximise - Trading transport) Forecasting Clear and
opportunity) - Reputation consistent
- Wider impacts comms
- Energy
reductions
approach
8 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

9. Implementation and improvement
Whole economy – i.e. the
Carbon Public Sector setting policy
Green energy management
People Property
behaviour investment Public Sector business
Improvement
i.e. PS bodies strategy,
investment and
Implementation
ICT
Procurement
investment
management
9 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

10. Financing Solutions – Need to “Spend to Save”
• Grants – new Energy Efficiency Fund?
• Capital Funding?
• Prudential Borrowing?
• Green Investment Bank
• Green Deal Finance
• Feed in tariffs
• ESCOs
• Partnership with Local Authorities
• Local Asset Backed Vehicles (LABVs)
• Local Enterprise Partnerships
• Public Private partnership
• Access tax benefits
10 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

11. Green Deal Operating Model
Energy Green Deal
Supplier Provider
Green Deal
Energy Supplier Provider
Property Installer
Debt collector? Data Manager?
Owner-occupier Property Installer
Landlord
Tenant
11 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

12. Green Deal Fundamentals and Finance
Unlocking Finance at
Accredited Accredited
Customer No Up Repayment Moving On
Assessment Installation
Demand Front Cost
Changing
Reliable
No Delivery of Structured customer
Portfolio prediction
application income credit and
effect of income
fees? flows hierarchy property
flows?
profile
12 These Young Minds – Harnessing the Opportunities of the Government’s Green Deal ©2011 Deloitte LLP. All rights reserved.

13. Precedent - Funding of Waste Infrastructure
High Risk High Liquidity
Money In Govt Private Govt Private
Grants Financ Grants Finance
e
Potentially Potentially
Underwriting/
Guarantees?
Entity Corporate/SPV
Public Sector
(Private Sector)
Money Out Waste Infrastructure Waste Infrastructure
De-risk De-risk
PPP PPP Merchant
Return from
Service
Commercial
Charge
Income
Guarantees Secondary Market?
Portfolio recycling?
Stream
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14. Precedent - Funding of Waste Infrastructure
• Waste infrastructure is an interesting precedent because, akin to new green technologies, there is
significant construction and technology risk. Also, many waste infrastructure deals have encountered
issues with respect to planning control.
• With waste infrastructure projects once the construction has been successfully completed and the
technology has been proved, because the demand and available risks are more certain, the overall
risk is significantly reduced.
• The diagram shows the money in, nature of the entity, money out and where the return is gained
from.
• Split between high risk waste infrastructure projects (i.e. unproven construction and/or technology)
and high liquidity waste infrastructure projects where significant amounts of private finance are
required.
• The money in for high risk projects is principally government grants, whereas for high liquidity projects
is private finance.
• For the high risk projects there is a significantly great need for government underwriting and/or
guarantees or to provide finance through a public sector entity. However, for the high liquidity projects
it is private sector entities, both corporate and SPVs.
• The money out is spent on waste infrastructure investment under a PPP structure.
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15. Precedent - Funding of Waste Infrastructure
• The return paid on the infrastructure investment is based on a service concession guarantee. This
service concession guarantee means a fee will be paid by a public sector body provided that the
infrastructure is available, performing and subject to certain volume adjustments.
• We have also seen the development of merchant schemes where there is no guaranteed fee paid by
a public sector body, the return paid on the infrastructure investment is based purely on volume
related payments.
• As with other PPP investments we have seen the development of a secondary market, where
investors are able to recycle their finance in the manner described above as projects are de-risked.
• We believe that the funding of waste infrastructure over the last decade through different forms of
PPP and Merchant structures provides a direct parallel with the funding of new green technologies.
• Circa £2billion of PFI credits has been awarded to local government waste projects at various stages
of maturity to date. The level of PFI credits generally aligns to the capital value, hence the models
described in the diagram have leveraged at least £2billion of private finance into this sector.
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