Public Sector Decarbonisation Scheme (PSDS)

£1.17 billion funding confirmed over 2025/26 to 2027/28.

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About the PSDS

What is it for?

The Public Sector Decarbonisation Scheme (PSDS) is a fund dedicated to heat decarbonisation and capital energy efficiency projects in non-domestic public sector buildings across England, such as hospitals, libraries, museums and the MOD estate. DESNZ provides the funding, and Salix Finance delivers the scheme.

The scheme aims to achieve significant carbon savings within the sector by 2037.

Phase 4

The annual funding allocation for Phase 4 has been announced:

£670 million available in 2025/2026 – up to £335 million of this funding is allocated to the second year of PSDS Phase 3c.

£300 million available in 2026/2027

£200 million available in 2027/2028

Guidance on Phase 4 will be released in summer 2024.

Phase 3

Phase 3 of the Public Sector Decarbonisation Scheme aimed to provide over £1.4 billion of grant funding over the financial years 2022 to 2023 and 2025 to 2026, through multiple application windows:

Phase 3c

Phase 3c closed to new applications in November 2023. It had up to £230 million available to help public sector organisations make low-carbon energy upgrades to their buildings in 2024 to 2025.

Key changes

  • Counterfactual cost minimum to now be set at 12% of total project cost
  • New systems must 100% replace the existing heat source and meet the demand
  • Energy efficiency measures cannot exceed 58% of total grant funding and must be in the same building as the low-carbon heating
  • Zero fossil fuels will be allowed to be installed and will exclude any project from being eligible

Find out how the public sector buildings can benefit from the Public Sector Decarbonisation Fund from Ian Goodchild, the Non-Domestic Director of Sales for Kensa Contracting.

Previous funding phases

PSDS Phases 1 and 2, which provided £1.075 billion to decarbonise the public sector, are now closed to new applications. The delivery of these projects had to be completed by March 2022.

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Be 'shovel ready' for the next application window

It is clear there is both a need in the market and a desire from the government to support the development of schemes in this sector. However, with each funding round oversubscribed and short timescales to submit bids, projects need to be ‘shovel-ready’ to have a chance of success.

We have seen first-hand how important it is, that clients engage with the supply chain as early as possible. Nearly all projects will require some form of planning permission which can take 12 weeks, with Stage 4 design completion up to 12 weeks, dependent on the level of detail within existing designs used at application, this then leaves 24 weeks for mobilisation, construction, and completion.

Kensa has supported their current clients during previous phases of PSDS by undertaking all the necessary stages required and this includes the procurement process, either through tendering or award through specialist frameworks.

Potential projects

Eligible public sector bodies include:

  • Emergency services
  • NHS Trusts & Foundation Trusts
  • Further & higher education institutions
  • Local authorities
  • Maintained schools within the state education system
  • Nursery schools maintained by a local authority
  • Central government departments & non-departmental government bodies
  • MOD estate
Ground Source Review: Grade Ruan School, Cornwall. - Exterior of school

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