This page answers the most common questions about the Net Zero Development Vehicle (NZDV), covering how it works in practice and what it means for local authorities and delivery partners.
If you’re new to the concept or want a broader overview of how the NZDV supports councils in developing and funding net zero projects, you may want to start with our For Local Authorities page.
The NZDV provides the following:
The NZDV is structured as a partnership between local authorities and the private sector. As greater risk often correlates with higher potential returns, the risk–reward sharing model will be tailored equitably to reflect the specific risk appetite of both public and private sector partners.
Primarily, local authorities will be expected to contribute:
Local authorities will also want to ensure compliance with public procurement procedures.
Local authorities are not obliged to provide investment capital.
The NZDV is a strategic partnership, and the governance structure between local authorities and private sector partners is designed to catalyse private finance into local net zero delivery in a way that is fair and equitable to all parties involved. Local authorities will have varying appetites for risks and rewards, therefore the NZDV can be structured to cater to specific local authority requirements to maintain strategic place-based policy influence, whilst ensuring transparency in operational decision-making.
Whilst the NZDV was initially designed to engage stakeholders within a two-tier government structure, it remains fully applicable in devolved areas. Under a devolved governance model, the NZDV would engage directly with the combined authority, enabling more streamlined decision making and helping to reduce transaction and administrative costs. The NZDV will need to re-align with the regional investment priorities outlined in the combined authority’s devolution deal and strategic frameworks. However, we anticipate that devolution will unlock opportunities for larger-scale, cross-boundary projects that have clearer delivery mandates and access to more flexible, multi-year funding arrangements – ultimately enabling faster and more coordinated project delivery.
The private sector has two roles:
The NZDV will require working capital to establish the vehicle and develop the first tranche of projects, with public sector grants anticipated to be the primary source. Thereafter, it will become self-funding through fees generated from completed projects.
Projects will be funded through a blended model of public and private investment, structured to provide market rate of return to the private sector whilst rewarding the public sector for its participation.
Projects or portfolios within the vehicle will be on a ‘look-through’ basis, and not cross-collateralised, in order to allow investors (public and/or private) to participate only in projects (asset classes or market sectors) for which they have the appetite.
By embedding social and environmental value throughout the project lifecycle, the NZDV can attract concessionary funding where available, such as from the Social Housing Decarbonisation Fund.
In the UK public sector, accounting principles are guided by both UK Generally Accepted Accounting Principles (UK GAAP) and International Financial Reporting Standards (IFRS). This framework includes several standards such as FRS 102, FRS 101, and FRS 105. FRS 102 is the main standard for most entities, providing comprehensive guidelines on financial reporting: It distinguishes between finance leases (on-balance sheet) and operating leases (off-balance sheet), with specific criteria for each. Other examples of off-balance sheet mechanisms can be joint ventures (unconsolidated), securitisation of assets or factoring of receivables.
The NZDV will work with local authorities and professional advisors to create an appropriate balance sheet treatment for investments.
The NZDV is structured as a partnership between local authorities and the private sector. As greater risk often correlates with higher potential returns, the risk–reward sharing model will be tailored equitably to reflect the specific risk appetite of each party to the partnership.
Equitability or a fair rate of return will be assessed using the Commercial Market Operator (CMO) principle.
This would depend on the policy objectives and investment priorities of the local authority. Previously, the NZDV has examined priority investments such as decarbonisation of schools, domestic building retrofits and SME net zero support, but project development units can be formed to address any asset class or sector.
The NZDV would use the five dimensions of the Impact Management Project framework for impact management, monitoring and reporting:
Incorporated in this approach are classic performance indicators such as carbon emissions reductions, cost savings and return on investment. Key metrics will be included in the management contract to ensure alignment of interests.