Local authority low carbon heat capital grant: guidance

This guidance has been provided alongside an application form for the Local Authority Low Carbon Heat Grant (LCHG).

The funding is available to all local authorities with projects that are ready for implementation. It is intended for capital works associated with retrofitting low carbon heat solutions in non-domestic, local authority-owned buildings.

This gives local authorities the support to implement low carbon heat projects as part of their journey towards achieving Net Zero. 

Capital grants will be provided to support projects which can complete their awarded works by 31 March 2027. 

The objectives of the Local Authority Low Carbon Heat Capital Grant are:

• to reduce carbon emissions as part of the drive towards achieving net zero
• to accelerate the transition away from burning fossil fuels for space heating and hot water
• to provide funding for low carbon heat projects, enabling schemes with challenging financial situations
• to encourage a whole building approach for low carbon heat
• to build capacity and share learnings within the public sector working towards low carbon heat becoming the new business as usual

The key details of the Low Carbon Heat Grant are as follows:

• support low carbon heat to remove fossil fuel heat
• support a whole building approach towards conversions including heat generation equipment, building fabric improvements, heat emitter upgrades, and DNO connection costs
• systems to produce heat at less than 100g CO2e/kWh
• minimum Seasonal Coefficient of Performance (SCOP) of 2.8
• up to 90% grant offer with a minimum of 10% contribution

Eligible technology and project cost elements of a low carbon heat capital project include: 

• building fabric improvements and draft proofing
• heat distribution and emitter upgrades (including modifications to air handling unit (AHU) heat batteries)
• thermal storage upgrades
• heat pumps (air/ground/water), and Electric Boilers (for top up/back up purposes only)
• electrical infrastructure capacity upgrades to allow heat pump installation, including DNO costs
• biomass where local air quality is not significantly adversely impacted, and heat pumps are not viable
• heat networks around a single site/campus, e.g. a large secondary school campus
• upgrades to existing district heat networks for works to connect a local authority building to a low carbon heat sources heat network, or to transition a local authority heat generation asset to low carbon (excluding any costs viable for the Heat Network Efficiency Scheme)
• development works: further design and exploration work (e.g. trial boreholes)
• phased projects where eligible low carbon heat works are awarded and completed as part of a larger phased approach to transition to low carbon heat
• Project Manager or Client Engineer support from external contractors

Ineligible technologies and project costs include:

• any fossil fuel heating plant e.g., gas boilers, gas CHP
• replacement of existing low carbon heat systems
• replacement of direct electric heating (the grant is intended for replacing fossil-fuel systems)
• building fabric where the primary purpose is not for heat efficiency improvement to enable low carbon heat, or significant and proportionally high building fabric costs as part of the project indicating a refurbishment for aesthetic purpose
• district heating: both new installations and extensions to existing systems, where there is a financial case and return from heat sales
• low carbon heat project which is part of a new-build or extension construction project
• low carbon heat as part of a major refurbishment project where heat infrastructure is not the majority works, or where the major refurbishment project is a multi-year programme
• feasibility or concept work
• internal staff costs (e.g., staff members that are on the local authority payroll)
• contingency costs: project buffer costs or risk costs should be managed by the applicant (note, subject to availability, cost increases during delivery may be applied for as a variation).
• projects where installation has already begun
• recoverable VAT: applicants will need to manage this cash flow aspect appropriately where VAT is paid in one financial year but recovered the next. Note: we expect all VAT to be recovered
• operation and maintenance costs (i.e. multi-year capitalised upfront not allowable)

We request applicants to consider the following design considerations

• Only fully decarbonised solutions will be supported, with the removal of fossil fuel provisions.
• A 'whole building approach' towards decarbonising heat to support reduced heat loss, lower flow temperatures, and higher efficiencies.
• The lowering of flow temperatures with heat infrastructure, distribution, and heat emitter design (between 35-55 ºC)
• For most projects, we expect the annual primary heat output (kWh/year) from the low‑carbon system to remain the same or be less than that of the fossil‑fuel system it replaces. However, we recognise that certain design or control strategies, such as removing zoning or extending heating hours, may increase the amount of heat delivered overall. Where contractors are encouraged to maximise SCOPs, this must not come at the expense of unnecessarily high heat generation.
• Applications should consider how the heat pump will be operated in practice, ensuring that any design or assumptions are based on real life conditions, not just specification data from the manufacturer.
• Applicants should be clear on their solution for domestic hot water – for larger sites with extensive distribution, it may be that localised provision is more efficient. The LCHG will support enabling measures including decentralised domestic hot water provision, or removal of other fossil fuel provision such as from kitchens.
• The heat output, and electrical input to the low carbon heat generation plant, should be capable of being metered, to enable monitoring and evaluation of the project, the performance monitoring and management should be considered as part of the design stage, and future operational data must be accessible and shareable upon request.
• We recommend MID approved metering equipment - Class 1 (1% accurate) for electric metering & Class 2 (2% accurate) for heat metering.

We request applicants to consider the following project approach considerations

• One of the ambitions for this grant is to build experience and capacity for low carbon heat implementation across a wide range of building types. The majority of funding from previous rounds has been for primary schools, we wish to spread investment for other building types and high carbon saving buildings (such as leisure centres, HQ offices, care homes and secondary schools).
• While we will support multi-year projects, funding will be committed on a year-by-year basis. Applicants are expected to manage their contribution appropriately. Funding is committed on a financial year basis and must be spent within the specified financial year. Approved funds cannot be rolled from one financial year to the next.
• The LCHG will not duplicate any existing or planned pipeline funding, such as Sustainable Communities for Learning projects, or Transforming Towns project.
• Applicants are recommended to consider effective means to manage drawdowns, cashflow, and contractor payments, for larger projects, applicants may wish to consider the Project Bank Accounts, including guidance such as Welsh Procurement Policy Note (WPPN) 010: Project bank accounts
• Applicants are recommended to consider effective means to manage drawdowns, cashflow, and contractor payments, including the payment profiles set in works contracts, and any provisions for early payments (e.g. for ordered equipment).

Round 4 is open for applications from January to April 2026, this will be considered with two waves of funding deadlines, with those applying earlier by the wave 1 deadline being prioritised for earlier assessment and award. Should all funding be allocated in wave one, we may close the grant early. We also encourage applicants to apply early to give a full year for implementation.

• Wave 1 deadline: 6 March
• Wave 2 deadline: 27 April

Please make an application using the Excel form provided and send by e-mail to lowcarbonheat@energyservice.wales

Each form allows for up to 10 sites to be applied for. Up to two applications may be submitted per organisation. We ask that applicants express any priority sites in the detail.

Please submit evidence to support your application, the requirement of which is set out in the application form. These should be emailed alongside your application form. 

Submitted application forms must have all relevant sections complete and supporting information attached. Failure to do so may result in your application being rejected. 

Clarification meetings may be required with applicants, following their submission.

Unsuccessful applicants are welcome to apply to future funding rounds. 

Applications will first be assessed on their technical detail, deliverability, and financials costs.

While projects will not be directly assessed against the parameters listed below, we will consider them as part of the application to determine suitability for funding.

Metrics considered include:

• kW heat output installed per £ of funding
• kWh/m² existing vs. improved
• £/tCO₂e saved (over technology lifetime)
• information on financial return/impact
• expected heat related CO₂e emissions after low carbon heat source installed
• percentage of heat pump usage vs electric boiler

Qualitative aspects considered include:

• deliverability, project maturity, and supporting evidence
• resilience and forward evolution plan
• technical options appraisal undertaken, including primary energy use reduction / fabric first approach
• project governance
• confirmation of retained estate

If successful, a notification award will be sent and following this a Grant Offer Letter will be issued. 

The Grant Offer Letter should be signed within 10 days of its receipt. To accept the grant, an appropriately senior person will need to sign the letter and provide bank details. 

Money can be spent from the date of the initial notification of award.

To receive the grant, applicants must provide the Energy Service with proof of quotation and contractor appointment.

There will be requests for progress reports or meetings throughout the grant period. 

Local authorities must submit a grant variation request to the Energy Service regarding any material changes to the approved project e.g. change in scope, deliverability within required time period, or required grant value. They must email lowcarbonheat@energyservice.wales. 

Grantees are required to provide access to operational staff for interviews or surveys, respond to requests for case studies and press releases, and agree to reasonable requests to share learning and insights. This includes, but is not limited to, sharing design and performance information, supporting site visits, and sharing case study information and photos.

We expect most grantees to make a single claim, however for more complex projects up to three (3) drawdowns can be made as part of your agreed grant offer. Funds should be drawn down in arrears, as and when costs are incurred. Payment requests will be made using a claim form.

Applicants must follow claiming standards specified by the Energy Service. This includes provision of PDF invoice evidence to cover 100% of the project capital costs (of which up to 90% will be funded). Templates of the required claiming documents will be provided to applicants upon signing the Grant Offer Letter.

Defrayal evidence should be provided either as part of the claim submission or within 4 weeks of the grantee receiving the funding. This can for instance include remittance advice, redacted bank statement, receipted invoice. 

Lessons learned from local authorities installing low carbon heat under previous funding rounds

• Delivering low carbon heating can be complex, however, despite the challenges, the market is engaged and there are learnings from the increasing number of ongoing local authority projects as low carbon heat starts to become ‘business as usual’.
• The key considerations when planning for low carbon heat projects are:​
  • Whole Building Approach​
  • Electrical loading and capacity​
  • Appropriate sizing of the low carbon heat technology & thermal storage​
  • Design & Planning considerations​
  • Installation Programme​
  • Ongoing Measurement & Verification
• Key advice we’d give to any low carbon heat applicants is to be very proactive and seek early engagement with the DNO, even in advance of the final design. Across LCH projects we see a mix of needs for DNO related works, some do not need upgrade works, as they have enough site capacity, and some need DNO connection works. We strongly encourage applicants to have a clear understanding of their DNO position upfront.
• The following items were not included in contractors’ initial quotes but were later identified as needed. Please consider whether these items are included in your contractor’s specification.
  • Concrete plinths for ASHPs
  • Security enclosure for ASHP (where applicable)
  • Fabric improvements/draught-proofing in doors/openings
• Ancillary works (grid, electrics, additional insulation etc) are often the most complex part of installing a low carbon heating project in an older property.
• Expertise in designing efficient low carbon heating systems is improving but still lacking in industry. You may need to look outside current M&E contractors when procuring low carbon heating. Training of in-house teams on the efficient use of low carbon heating systems will also be required and should be included in the project specification.
• Project timings can be a challenge, especially for education sector buildings, this requires careful consideration. Build contingency into project timelines if there is the potential for surveys to uncover issues, particularly with older buildings.
• Outdoor air design temperature impacts the kW rating of heat pumps, and electrical capacity, consider what’s realistic.
• ASHP enclosures are often a security requirement, consider air flow so that operation not impacted.
• Solution for DHW: consider system losses to appraise centralised vs. decentralised.
• Design temperatures: reduce flow temperatures as much as possible in the design. Consider a trial in the winter before to assess how far flow temperatures can be reduced.
• Thermal store sizing: consider its ability to fit through a doorway, but it must also be sized for SCOP.
• Environmental impact: consider planning issues like flood risk, and bats.
• Planning permission for the scheme, confirm if permitted development or not.
• Procurement approach, time, and risk to design/finances, quote at application stage, consider a turnkey solution.
• DNO final quotes and approvals, thoroughly consider the time impact and cost changes, proactively engage and push forward.
• Plan for dust impact in occupied spaces and the impact upon fire alarms.
• Unexpected issues can result from the presence of asbestos.
• Use of existing system: requirement to clean existing pipework and radiator sludge.