13 partners. 18 months. 1 mission. The Innovate UK funded Transform-ER (Transform.Engage.Retrofit) project aims to revolutionise the sector to enable 1m home upgrades every year by 2030. Its new Define the need report outlines the big barriers to scale in the UK, why we need to transform the sector, and how we're going about it.
One of the most crucial tasks identified by the report is unlocking the finance needed to deliver home energy upgrades at speed and scale.
In this guest blog, project partner Tallarna’s Michelle Taute (Head of Strategic Engagement) outlines how we’re rising to the challenge.
Finance is consistently cited as one of the biggest barriers to achieving large-scale retrofit across the UK. For Transform-ER, tackling this challenge head-on is not optional - it’s essential. Without alternative funding mechanisms, the trillions needed globally to reach net zero will remain out of reach.
To date, grants and existing budgets have proven insufficient to enable housing associations, local authorities, homeowners, and private landlords to decarbonise buildings at scale. Now is the time for private finance to take the lead.
Already, around three-quarters of global energy investment comes from private and commercial sources (IEA, 2024), with over $2 trillion invested in clean energy technologies and infrastructure in 2024 alone - a record-breaking figure.
Despite the volume of global capital available, most building owners struggle to access this finance for retrofit projects. The issue isn’t a lack of money; it’s about presenting retrofit projects in a way that aligns with funders’ expectations around returns and risk. This requires a different approach - especially for sectors like social housing.
Although Transform-ER’s work is designed to span all types of housing, the initiative begins with social housing. This follows Energiesprong UK’s principle: “Start with social housing; private market comes later.” There are two key reasons for this.
First, social housing serves those least able to pay for energy upgrades. So, making home improvements here delivers the maximum social impact.
Secondly, social housing offers the kind of scale and aggregation required to attract private sector investment. A large, standardised rolling programme of projects is much more appealing to funders than fragmented, one-off initiatives. This makes social housing the ideal starting point for deploying finance models that can later be tailored for the private market once various systemic barriers to decarbonisation have been addressed.
The social housing sector faces a staggering £104 billion bill to reach net zero (Crown Commercial Service, 2023), but government grants currently cover only £9.5 billion of that total. While some of the costs can be covered by landlords’ existing budgets and traditional forms of finance, the rest requires an alternative approach.
There are three main reasons existing budgets and traditional finance can’t fill the gap:
1. Outstanding debt
Social landlords already carry high levels of debt - around 46% of their total asset value (Savills, 2021). By March 2027, the sector’s total outstanding debt is expected to reach £124 billion (S&P Global, 2025). This severely limits their ability to borrow more money on their balance sheets.
2. Loan covenants
When landlords take on debt, they must adhere to specific loan covenants, such as the EBITDA MRI Interest Cover Ratio. This ratio indicates the surplus generated by a landlord compared to the interest payable on their balance sheet. Spending on retrofit and other major works counts against this ratio.
Currently, the social housing sector's average EBITDA MRI Interest Cover Ratio has fallen below 100% for the first time since the 2008 financial crisis. This makes it challenging for landlords to spend money on projects - even when the funds are from grants - without breaching their loan covenants.
3. Traditional finance terms
Most social housing debt is secured against tenants’ homes and has a 5 to 10-year loan term. But retrofits’ payback period is often much longer. Placing even more debt against these homes when the consequences of default are repossession is a risk many landlords cannot accept.
Given these constraints, the sector only has around £7.4 billion of debt capacity* and £2.8 billion of refinancing capacity** left for net zero and other major works (Savills, 2021) - far short of the £104 billion required.
*Debt capacity includes how much of landlords’ internal budget they can spend given their loan covenants.
** Refinancing capacity is how much finance can be raised by renegotiating existing debt.
To bridge this massive funding shortfall, landlords need access to long-term, off-balance sheet private finance that doesn’t rely on existing assets like tenants’ homes. For funders to agree to this, they need certainty in their returns.
“Overcoming retrofits’ financial uncertainty for funders and residents is key to unlocking private finance. By uniting stakeholders behind shared, de-risked outcomes, insurance and structuring creates the conditions in which decarbonisation at scale can, and is, happening.” Tim Meanock, CEO Tallarna, 2025.
This is where project finance – supported by insurance and structuring - comes in. Project finance is where finance is raised and repaid against the predicted value delivered by a project instead of against residents’ homes.
In solar and storage projects, for example, the value used to raise and repay project finance could include revenue from selling excess energy from the installed technologies to the grid and the fee residents’ pay for buying discounted energy from these technologies, among others.
To make this model viable, insurance and structuring are key. Insurance can guarantee the technical performance and financial outcomes of a retrofit for up to 30 years. This matches the payback period of many measures, helping funders become comfortable lending over longer timeframes. Insurance also helps support an off-balance sheet structure for projects.
For private finance to be truly sustainable, retrofit projects must deliver tangible benefits to residents from day one. Many ESG-focused investors require social outcomes as part of their criteria.
For residents to gain a financial benefit from retrofits, project finance needs to be complemented by a shared savings model. This is where some of a project’s value stays with residents from day one rather than all of it being used to raise and repay the private finance. Insurance can also be used to defend residents’ savings.
Transform-ER's collaborative approach brings together project funders and suppliers to scale retrofit product innovations.
As new products move through Technology and Manufacturing Readiness Levels (TRL and MRL), they become proven and more cost-effective. Higher production volumes bring prices down, strengthening the business case for including them in projects (see graph below).
Crucially, wider product deployment generates the real-world data needed to underwrite them with insurance - closing the loop between technology, finance, and scale.
Discover more insights into the need to transform the retrofit sector, the barriers in our way, and what steps we can take as an industry with Transform-ER’s Define the need report - and sign up to our newsletter at the bottom of this page!
Tallarna Ltd is an Introducer Appointed Representative of Kellclair Ltd which is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 975017. Kellclair Ltd is a wholly owned subsidiary of Tallarna Ltd.
