This time last year we were busy working with a school on the initial stages of a low-carbon district heating project, that would have seen the entire school estate coming off oil. The scheme was set to save the school about £3 million over the next 20 years. But it didn’t happen in the end because it was relying on conventional lease-financing and the Governing Body, quite understandably, did not want to risk taking on extra debt.
That set us thinking about how we could arrange the financing of a project so that no capital outlay would be required and instant annual savings would be achieved, but there would be no annual lease repayments. The result was the SLCP. This is in essence a heat purchase agreement, but the key break with previous versions seen in the education sector is that the agreement will be run open-book and operate within agreed profit limits. These features will achieve a level of trust in the partnership between provider and school which in our view is essential if the scheme is to flourish.
We launched the SLCP in December. The first school going through is a large boarding school in the South of England. The whole school estate is currently on oil, with an annual heating bill of over £300,000, and some 20 plantrooms serving the main building, boarding houses and other buildings. The proposed low-carbon scheme will be based on a ground source heat pump district scheme of some 3MW in capacity. At this relatively early stage in the step-by-step risk reduction process preceding final commitment, we anticipate that the scheme will achieve a reduction in heating costs in the first year of 15-20%, and savings over 20 years of several £millions. The RHI is worth more than £10million over 20 years, based on a CPI of 2%.
As we get further along in the development we will be able to refine that estimate, so that before both sides of the partnership finally commit to the installation we will know the risks and benefits in enough detail. The key point for the school is that the primary risk lies with us, not the school. In our view this is the fairest scheme a school could ask for if it does not want to commit its own capital.