Public Sector Decarbonisation Scheme (PSDS)

The application window for Phase 3b closed on 31 October 2022


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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. The funding is provided by BEIS and the scheme is delivered by Salix Finance.

Covering up to 88% of ground source heat pump installation costs, the scheme’s objective is to achieve significant carbon savings within the sector by 2037.

Phase 3b of PSDS closed on 31 October 2022.


Phase 3b of the Public Sector Decarbonisation Scheme is set to provide £635 million of grant
funding over the financial years 2023/2024 to 2024/2025 – this is to be split with up to £402 million
for 2023/24 and up to £233 million for 2024/25.

As Phase 3b PSDS builds on Phase 3a, refinements have been implemented to reflect stakeholder
feedback regarding the proportion of funding made available for financing projects that deliver
over more than one financial year. Other changes sharpen the scheme’s focus on cost-effective
decarbonisation of heat and the overall achievement of carbon emission savings.

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

Hear 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 and the delivery of these projects had to be completed by March

Phase 3 of the Public Sector Decarbonisation Scheme is providing £1.425 billion of grant
funding over the financial years 2022/2023 to 2024/2025 and this has been broken down into
further phases.

Phase 3a Public Sector Decarbonisation Scheme is closed to new applicants. Salix and its
partners assessed the submitted projects for Phase 3a. Successful applicants will have to
complete their designs and procurement, with the projects finishing in March 2023 for one-year
projects. The total budget allocated was £553 million, to 160 public sector organisations with a
total of 217 clean heat and energy efficiency projects.

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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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