What does PSDS’s closure mean for decarbonising buildings?

Following last week’s Spending Review, Salix has announced there is no future funding for the Public Sector Decarbonisation Scheme (PSDS).

Public bodies that had assumed an autumn funding round was coming will now be taking stock and working through the implications for their decarbonisation programmes.

Here are a couple of aspects to consider…

Shift (back) towards energy efficiency and renewable generation?

PSDS has been important for decarbonising heat, where projects typically do not have a financial return. With budgets already under long term pressure, the appetite for heat decarbonisation is at risk of fading. This could mean energy efficiency and renewable generation return as the focus, where the high cost of electricity means the financial benefit can be enough to underpin borrowing.

However, as UK electricity has become increasingly low carbon, the carbon savings from reducing electricity consumption are not what they use to be.

In 2010, saving a kWh saved you 485g CO₂e; the recently released 2025 value is 177g (-64%) and if the Clean Power Plan target is achieved, it will be <50g from 2030 (though let’s not get into whether we will achieve that here!).

Shifting focus onto energy efficiency and renewables is likely to be the affordable step to take and is still good for the climate, but without decarbonising heat, net zero targets are likely to go unachieved.

Heat Networks Risks

The other, less obvious, risk is for heat networks and the intentions of the zoning policy. PSDS has been used to help connect public buildings to heat networks, and these are often key anchor loads, providing the demand certainty a heat network needs to initially develop.

The withdrawal of PSDS may therefore place greater pressure on the financial case for connecting (regardless of who bears the cost in practice), and may move more buildings towards zoning exemption criteria on cost grounds. This could undermine the availability of these anchor loads, which are needed to get projects off the ground (or should that be ‘in the ground’ in this case?).

With the response to the 2023 heat network zoning consultation eagerly awaited, we need to wait to see how the regulations take shape. However, a central aim of the zoning policy is to provide greater certainty on heat demand, and the removal of PSDS means that this will now be harder.

If you are concerned about the impacts of PSDS being removed, please get in touch and Local Partnerships can work with you to find a way forward.