Project risk, finance and insurance

The following points have been identified for understanding the current state of finance, risk and insurance for retrofit: 

1. Financial barriers to retrofit 

• Landlord debt & loan covenants: Outstanding debts and restrictive loan terms hinder large-scale retrofit investment. 

• Unclear return on investment pathways: Landlords face rising debt repayments without a clear route to profitable retrofit returns. 

• Investor concerns: Retrofit is seen as high-risk due to issues like non-payment, voids, and underperformance. 

• Long-term payback: Returns are slow, while savings must be passed to tenants, reducing investor appeal. 

• Lack of business cases: Few compelling, data-backed business cases exist to justify investment in expensive measures. 

 2. Fragmentation & misalignment among stakeholders

• Disconnected ecosystem: Poor communication between landlords, tenants, finance stakeholders, and delivery teams. 

• Internal fragmentation: Even within organisations, misalignment leads to delivery and funding challenges. 

• No clear delivery model: Absence of a proven business or operating model for retrofit at scale. 

• Unclear stakeholder roles: Lack of hierarchy and structure among delivery actors complicates coordination. 

 3. Investor preferences & retrofit measure attractiveness

• Funding type sensitivity: Different energy efficiency measures (EEMs) appeal to different funders depending on funding type (grants, loans, bonds). 

• Most attractive EEMs: 
  • Standardised installation and maintenance. 
  • Quantifiable costs and outcomes. 

• Least attractive EEMs: 
  • High risk due to unknowns and rework potential. 
  • Limited revenue diversification. 
  • Skills gap in UK workforce for specific measures. 

• Pilot projects limitations: One-off pilots lack scalability and repeatability, reducing investor interest. 

 4. Insurance & risk complexity

• High-risk perception: Bespoke nature of retrofit makes it hard for insurers to assess and support. 

• Complex underwriting: Retrofit’s variability complicates insurance coverage and risk assessment. 

• Gaps in coverage: Existing properties and installed EEMs often lack adequate insurance. 

• Certification challenges: 
  • Lack of system-level certification for whole-house retrofits. 
  • Product-level testing exists (e.g. BRE), but whole-system validation is unclear. 

 5. Regulatory, compliance and data gaps 

• Lack of real-world data: Insufficient performance data to support business cases and reduce perceived risk. 

• Monitoring barriers: 
  • Tenants may refuse participation. 
  • High cost of monitoring technology in pilots. 

• Regulatory uncertainty: 
  • Older buildings may not meet updated codes. 
  • Homes are complex microsystems, and many archetypes exist, undermining standardisation. 

• Sector risk aversion: Negative stories and lack of innovation deter new entrants and investor confidence. 

To reach scalable retrofit, the following has been identified for the future state of retrofit finance, risk and insurance:  

• Moving the industry towards standardisation de-risks retrofit, achieving ‘packaged retrofits’ that are: easier to communicate to end users, scalable, insurable, and easier to finance. 
• Diversify revenue streams – whole house retrofits portfolios need to consider the mix of potential revenue streams possible through the EEMs applied: 
  • Making investment profiles more attractive to investors 
  • Accounting for energy market demand and fluctuations 
  • Digitally enabled smart assets can provide new additional revenue streams or optimised revenue streams – as has recently been shown by Octopus Energy –  Octopus supercharges social housing with new ‘Tenant Power’ tariff | Octopus Energy 
  • Diversifying income streams spreads risk, widens scope and scale of returns – resulting in a strong business case for investors 
    • Enabling reaction to market characteristics – “House like a power station” 

• Standardised ‘packaged retrofits’ deliver reliable performance, known outcomes through evidence, at a lower price point than one-off pilot projects due to economies of scale and offsetting fluctuations of asset performance. 
  • As part of the package, standardised kits-of-parts for different archetypes of buildings, for repeatable and reliable performance outcomes. 
  • Targeting archetype portfolios to spread the risk, reduce cost per property and apply continuous improvement and learning. 

• Strengthen the business case for investors: 
  • As part of this, reach a common understanding across different stakeholders. 
  • Through a multi-tiered or blended approach, applied to both financing and to the measures applied to portfolios, depending on ease of scalability and returns on investment. This could include phased whole house retrofit over a longer period. 
  • Develop a balanced strategy to deliver a pre-agreed standard of retrofit based on a sound business case. 
    • Guidance is required regarding when to pursue WHR versus when to install electrification measures first/only, based on evidence and known outcomes 
    • Clarify the perception of energy demand reduction, to gain higher levels of efficiency, as part of a mix of future revenue streams. 

• De-risk and standardise installation, maintenance and commissioning processes for heat pumps, fabric and other EEMs. 
  • Data and information gathered as evidence base to guarantee retrofit outcomes. 
  • Roughly 50% of the total cost of heat pump retrofit can be attributed to the installation cost, highlighting the need to de-risk and standardise this process as much as possible. 

• Scalable retrofit portfolios – investors gain returns across a portfolio of projects which comprise standardised, de-risked retrofits versus “one-off” pilots. 

• Adoption of frameworks such as the Value Toolkit to consider outcomes broader than profit only, such as human and ecological capital, e.g. via use of the value toolkit. 

• Ensure accurate and quality data is available in early programme phases e.g. RIBA Stage 0, to streamline the insurance and funding process e.g. archetyping, aggregation of pipeline, package solutions matching, accurate costs – including integrated manufacturer and contractor costs and lead times.  

Questions

• How do we make attractive return profiles for investors?  

• How do we standardise and scale packages to simplify the options to landlords and residents? 

• How do we prove impact and navigate a pathway to the future state, without waiting for utopia to arrive? 

• How do we deliver consistent high-quality packaged projects to funders? 

• How do we break siloes between funders, landlords, residents, and the supply chain, creating greater transparency? 

Enablers

• Scalable projects (e.g., portfolios of retrofit) unlock funding and make deployment of advanced technology financially feasible due to capital cost of technology and equipment being spread across larger programmes e.g. drones, scanning technology.  

• Performance verification ensuring resident savings are achieved, while returns are generated. 

• Simplified retrofit value propositions that are easier to communicate to key stakeholders 

• New mechanisms which enable energy savings from residents to be captured to create additional revenue streams. 

• STANDARDISATION – standard ‘Packaged retrofits’ known, repeatable outcomes, enables insurable retrofits and attractive risk profiles to investors, through establishing risk ratings for retrofit. Streamlining insurance processes and finance for scalable retrofits.  

• Flow and visibility of data and information is key in early stages of achieving insurance and unlocking finance – e.g. pipeline aggregation, solution matching, accurate costing, lead times etc. 

• First privately funded project to create domino effect 

Key insights

• STANDARDISATION for retrofit includes financial products and insurance processes, not just physical products, kits of parts and installation. 

• Achieving insurable retrofits at portfolio level is a critical, fundamental step in achieving retrofit at scale.