Local Net Zero Delivery: Stuck in the Slow Lane until we Unlock Truly Affordable Finance?

The UK has the tools, the targets, and the local ambition to hit net zero. What it still lacks is a reliable way for local authorities to borrow the billions they need at rates that actually make projects stack up. Until that changes, progress on the ground, from insulating homes to rolling out EV chargers, will remain patchy, grant-dependent, and far short of what is actually need to mobilise finance into large-scale net zero delivery.

High borrowing costs have become the silent killer of local climate action. Back in the 2010s, when the Bank of England base rate hovered between 0.1% and 0.75% for much of the decade, and PWLB certainty rates for long-term borrowing were routinely below 2% (often 1–1.8% for 30–50-year money), local authorities had a golden window to lock in cheap debt for infrastructure and decarbonisation programmes.

Few took the chance, now, that window has been well and truly slammed shut.

As of November 2025, PWLB certainty rates for typical 30-50-year local authority borrowing sit in the 4.5–5.2% range (depending on exact maturity and gilt yields), with many local authority treasury reports citing rates “significantly above” their internal hurdles of 3-4%.

Low-carbon investments that provided peace and mind of their financial viability at 1.5–2% simply don’t at 5%+.

The impact is already visible:

• Solar farms and onshore wind routinely shelved when internal rates of return fall below 5-6% (typical council hurdle rates).

• Retrofit programmes delayed, the National Audit Office and Local Government Association have repeatedly flagged high financing costs as a key barrier to scaling insulation beyond pilot schemes.

• Heat networks particularly hard hit: DESNZ analysis shows many district-heating schemes need a weighted average cost of capital below 3-4% to be viable without heavy ongoing subsidy.

• EV charging roll-outs slowed in rural and suburban authorities where upfront capex is high and utilisation ramps slowly.

This has meant that local authorities have instead needed to fall back on competitive grant schemes offered by central government. Borrowing has become too expensive and unsustainable for the projects that needed to be finance. The issue is that grant pots are minuscule when comapred to the hundreds of billions (£) that National Wealth Fund (formerly UK Infrastructure Bank) estimates is needed for local net zero and levelling-up infrastructure to 2050.

PWLB and the National Wealth Fund aren’t the full answer:

The PWLB remains the default lender for most local authorities, but it’s a blunt instrument: one-size-fits-all rates, no green discount (beyond a brief, now-defunct project rate), and no flexibility to recognise revenue-generating assets.

The National Wealth Fund (capitalised at £27.8 billion) is welcome and has started deploying, £600 million into grid upgrades, £1.3 billion in guarantees for social-housing retrofit, but it’s not designed as a mass-market lender for the 300+ English councils plus devolved authorities. Its mandate is catalytic, not volume.

What local delivery really needs is finance that is:

• At least 100–200 bps cheaper than current PWLB

• Matched to asset lives (30–50 years)

• Flexible across portfolios (retrofit + renewables + EV + nature)

• De-risked so Section 151 officers aren’t personally exposed

Is there a role for Sustainability/Green Bonds?

Sustainability/green bonds have proved they can deliver exactly that, elsewhere across Europe, sub-sovereign issuers are tapping institutional appetite for credible green assets at a much lower cost:

• Gothenburg (Sweden) pioneered municipal green bonds in 2013 and has issued repeatedly, funding everything from district heating to zero-emission transport, often achieving a modest “greenium” (pricing advantage).

• Paris, Milan, and Île-de-France region have raised billions via green/sustainability bonds for energy-efficient buildings, public transport electrification, and adaptation.

• German Länder and promotional banks (KfW/Landesbanken) issued tens of billions in green formats in 2024–2025, with KfW alone planning €10 billion of green bonds in 2025 and routinely pricing inside sovereign curves.

In the UK, by contrast, local issuance remains embryonic. Total green/social/sustainability (GSS) bonds from UK local/combined authorities since 2017: less than £5 billion. Sovereign green gilts have raised £12 billion+ by mid-2025, but none of that flows automatically to local authorities to support local climate action.

A properly designed UK model could change that fast. Aggregated issuance, through a national agency, the National Wealth Fund, GB Energy, UK Municipal Bonds Agency, or regional consortia (devolved regions), would solve the scale problem. A £500 million-£2 billion bond backed by a diversified portfolio of local authority assets (schools, retrofit programme for social housing, council-owned solar, heat networks, fleet electrification etc) becomes investable for pension funds and insurers desperate for long-dated, inflation-linked, ESG-compliant opportunities.

Benefits are proven:

• Lower execution costs and better pricing through scale

• Risk spread across dozens of projects/authorities

• Potential greenium (investors have paid 5–20 bps premium for credible European sub-sovereign green paper)

• No balance-sheet hit for individual local authorities beyond their proportional contribution

Pilots already exist: Greater Manchester’s £300 million sustainability bond (2023), Bristol’s first Local Climate Bond tranche (2025), and growing interest via the Green Finance Institute’s Local Climate Bond toolkit.

The missed opportunity from the low-rate era still hurts, between 2010 and 2021 local authorities could have locked in 50-year money below 2%. Instead, tight fiscal rules, no statutory net zero duty, and Treasury caution meant almost no systemic green borrowing framework was built. Now, with rates double or triple what they were, the same pound of borrowing buys far less decarbonisation and carries far more risk and worry for Section 151 Officers.

Let's be clear, low-cost capital is the make-or-break factor every local net zero workstream, without it investments collapse due to the enormous hurdle rates that now exist:

• Heat networks: most schemes need <4% real cost of capital (DESNZ/Ofgem modelling)

• Deep retrofit: payback stretches beyond political cycles

• Renewable generation on local authority land: strong revenues but capex-sensitive

• Public-building decarbonisation: long paybacks, grant-dependent

Without a step-change in financing costs, the UK is going to stay trapped in grant-chasing and delivering net zero projects on an ad hoc basis when we could be doing so much more. The government has the tools to fix this now:

1. Reinstate a meaningful PWLB green discount (100–200 bps) or dedicated net zero window

2. Back aggregated municipal sustainability bonds via NWF/GB Energy guarantees

3. Allow revenue-generating green assets to sit outside traditional borrowing caps

4. Fast-track standardised frameworks (building on GFI’s LCB toolkit)

5. Offer partial first-loss guarantees to crowd in private capital

None of this is reinventing the wheel, Gothenburg, Paris, and German Länder are already doing it at scale and it is working! The choice is straightforward...keep relying on stop-start grants and expensive PWLB borrowing, and local net zero stays slow, unequal, and off-track.

Or build the low-cost, long-term financing architecture that Europe’s leaders already have, and finally give local authorities the capital they need to deliver the UK’s legal climate targets. The technology is ready. The projects are developing. The only thing missing is finance priced for the reality of net zero.