*SPECIAL MINI SERIES* Episode 1 of 6 Structuring For Off-Balance Sheet Finance

Part of the podcast series bringing Healthy Homes Hub and Energiesprong UK's playbook, 'Deploying Innovative Retrofit Funding Models in the Social Housing Sector' (also available as an audiobook), to life, unpacking why off balance sheet finance depends on investors carrying performance risk, not just capital, a shift that widens what landlords can fund beyond their own borrowing headroom for warmer, more affordable homes. 

Host: Emily Braham, Director, Energiesprong UK 

Guest: James Williams, Co-Founder and Chief Executive Officer, Sero 

At a Glance 

• Off balance sheet finance depends on the investor carrying performance and delivery risk for the retrofit technology, not just providing capital, which is what allows it to sit outside a landlord's own balance sheet. 

• Sero Bright combines solar and battery installation with an ongoing operator role, managing the technology and billing tenants directly, with adoption driven by trust built at community level. 

• The suggested test for providers new to this: weigh the 30 year cost of continuing energy spend under business as usual against the retrofit investment, rather than judging the retrofit cost on its own. 

Off balance sheet finance for retrofit rests on a transfer of risk, not only a transfer of capital. For a third party investment structure to sit outside a landlord's own balance sheet, the incoming funder has to take on the risk associated with how the technology performs, how it is installed, maintained and operated. That is what reclassifies the arrangement from a financing product into a design, deliver, operate and maintain service, provided to the landlord rather than sold to them. It also means a proportion of the capital needed for retrofit can come from outside a landlord's existing budget, rather than adding to what it already borrows. 

Sero Bright, the company's solar and battery offer, pairs installation with continuing operational responsibility. Once an upgrade is complete, day to day management of the technology, along with billing and metering, stays with the delivery partner rather than the landlord, giving residents a single point of contact similar to an energy supplier. That ongoing operational role is what makes the financing structure work, since the risk sitting with the technology's performance continues to be actively managed after installation rather than left with the landlord alone. 

Adoption depends heavily on trust built at community level. Engagement typically starts with a small number of households, then spreads through a standard adoption curve as residents see a neighbour'sinstallation working and hear that bills and service have held up. 

Fixed charges are generally avoided in these schemes, since they can become a minimum bill regardless of use. A consumption based rate, set against a clear point of comparison, is preferred instead. On one scheme combining solar, battery and a communal ground source heat pump, quarterly performance credits reduced bills by around 300 pounds a year on average, though presenting any saving in simple terms becomes harder when energy prices move sharply, as they did on one project where prices rose by roughly 40 per cent over three months. 

Grant funding has driven much of the sector's retrofit activity so far, but it is cyclical and unlikely to reach every home that needs it. Where it only covers some properties, a gap opens between tenants whose homes qualified for grant funded upgrades and those whose homes did not, which is one of the reasons additional financing routes, including off balance sheet structures, are being treated as a way to widen who benefits rather than only accelerating a fixed pool of projects. 

The advice for a provider considering this route for the first time is to compare like with like. Most landlords already have an estimate of what full decarbonisation or compliance work will cost, and it tends to look like a large number in isolation. Set against the 30 year cost of continuing to pay for energy as usual, a figure that can be built from EPC data or the current price cap multiplied across a housing stock, the retrofit investment is measured against a much larger number, which changes how the case for it is read. 

Practical steps for housing providers 

• Before comparing financing options, build an internal estimate of the 30 year cost of continuing current energy spend across the stock, so that any retrofit investment is judged against that figure, not in isolation. 

• When considering third party investment, establish clearly which risks, performance, installation, maintenance and operation, the incoming funder is actually taking on, since that is what determines whether funding sits off balance sheet. 

• Treat community engagement as a sequential process, starting with a small number of willing households and allowing word of mouth to build trust before wider rollout. 

• Favour consumption based charging over fixed charges in tenant facing billing and agree in advance how any benefit will be presented and communicated. 

• Prepare how billing and savings will be explained to residents if wholesale energy prices move sharply during or shortly after installation, not only for a stable price environment. 

• Review how grant funding is currently allocated across the stock, and consider whether relying on it alone risks leaving some tenants without access to upgrades that others receive. 

• Where an operational or service partner will manage technology after installation, agree clear lines of responsibility and reporting with them before works begin.