The False Economy of the Net-Zero Borrowing Ban in Further Education
Why preventing colleges from borrowing to invest in energy efficiency may be costing the sector more.
Walk into almost any state-funded further education college or academy school in England today and you will see a generation of young people being prepared for a net-zero future.
They are learning about green technologies in modern workshops, studying climate science in refurbished classrooms and, quite rightly, expecting the institutions educating them to demonstrate environmental responsibility.
But look beyond the curriculum and a different picture often emerges.On the roofs are large areas of unused space. In plant rooms are ageing, life-expired gas boilers. Across the estate, outdated infrastructure continues to consume energy and drive up running costs.
This isn’t because college principals, finance directors or academy trust executives lack environmental ambition. It is, in large part, because of the financial framework within which they are required to operate.
A financial framework designed to prevent risk
The origins of the current position can be traced back to November 2022, when, following the Skills and Post-16 Education Act, the Office for National Statistics reclassified English FE colleges into the central government sector.
This brought colleges under the strict requirements of HM Treasury’s Managing Public Money framework.
The intention was understandable. During the late 2010s, a small number of colleges experienced significant financial difficulties following ambitious and, in some cases, highly leveraged commercial expansion. The resulting failures left the taxpayer carrying the cost of intervention.
The response was to tighten financial controls and remove access to open-market commercial loans, bank mortgages and unauthorised overdrafts. The problem is that the framework now treats very different types of borrowing in much the same way.
A loan used for speculative property expansion is fundamentally different from borrowing to install infrastructure that reduces an institution’s energy costs every month.
Yet the current approach does not always make that distinction. Not all debt is bad debt. Some borrowing can reduce costs, improve resilience and accelerate decarbonisation.
The FE paradox
This creates a particularly striking difference between further and higher education. Universities, operating under a different accounting and regulatory framework, can access commercial finance and, where appropriate, use borrowing to invest in major infrastructure projects.
An FE college serving the same regional economy may face far greater restrictions. So we can find ourselves in a position where a university can raise finance to invest in solar generation, energy efficiency or a low-carbon campus, while an FE college may be unable to borrow even £500,000 for an investment that could deliver measurable operational savings.
That is difficult to reconcile with the wider ambition to decarbonise the public estate and reach net zero by 2050. It also raises a more fundamental question:
Are we protecting public money, or preventing public institutions from making sensible investments that save public money?
PPAs are useful – but they are not the whole answer
The Department for Education has recognised the problem and has promoted alternative approaches, including Power Purchase Agreements (PPAs).
Under a PPA, a private developer funds, installs and maintains solar infrastructure, typically with no upfront capital requirement for the college. The college then buys the electricity generated at an agreed rate. There is clearly a place for this model.
But it is a relatively narrow solution to a much wider estate problem.
A PPA can help with rooftop solar. It does not, by itself, fund the replacement of inefficient lighting, improvements to building fabric, insulation, heating system upgrades or the transition to heat pumps.
There is also a governance issue. A 20- or 25-year agreement can represent a significant long-term commitment for a college. Finance directors and governing bodies may reasonably be reluctant to enter into contracts that will remain in place long after the people who signed them have moved on.
PPAs have their place. They should not, however, become the default answer to every decarbonisation challenge.
Grants cannot carry the whole burden
The alternative is often to wait for government capital funding.
Schemes such as the Public Sector Decarbonisation Scheme have provided significant investment, but the model is inherently limited.
Capital pots are competitive, application windows can be compressed and the administrative burden can be considerable. There is also a wider issue.
When decarbonisation depends primarily on occasional central government funding rounds, estate strategy becomes reactive. Institutions wait for the next opportunity rather than being able to plan a coherent programme of investment around their own buildings, budgets and priorities.
Other parts of the public sector have benefited significantly from decarbonisation funding. Education has not always had the same experience.
The false economy
This is where the current approach risks becoming a false economy. Energy-efficiency and renewable-energy projects are different from many conventional capital investments because they can reduce operating expenditure.
A well-designed project can generate predictable savings over a defined period. If an academy or college is prevented from borrowing to fund an independently verified project with a short and demonstrable payback period, the financial risk does not disappear.
It simply moves elsewhere.
The institution continues to pay for expensive and potentially volatile energy. That money leaves the operating budget every month rather than being invested in infrastructure that could reduce those costs. Ultimately, that means less money available for teaching, student support and other priorities.
A controlled route to green borrowing
The answer is not to return to the unrestricted borrowing that contributed to problems in the past. There is a more controlled option.
The DfE and HM Treasury could introduce a targeted Green Borrowing Licence for financially sound colleges.
The regulatory infrastructure to do this already exists. Colleges are subject to regular financial assessment, including measures of solvency, profitability and leverage, with financial health judgements providing an established mechanism for assessing institutional resilience. A green borrowing framework could build on that existing system.
Colleges demonstrating a strong financial position could apply for permission to borrow specifically for qualifying net-zero infrastructure. The borrowing would be subject to strict conditions:
- The finance would be ring-fenced for certified energy, carbon or net-zero infrastructure.
- An independent engineering assessment would demonstrate the expected financial and environmental return.
- Projects would need to demonstrate a robust and independently verified payback period.
- Loan terms could be capped at five to ten years, avoiding the creation of multi-decade liabilities.
- Borrowing limits could be linked to the institution’s financial health and ability to service the debt.
This wouldn’t be a return to the past, it would be controlled, conditional autonomy.
Unlocking capital that is already available
There is significant private capital looking for credible opportunities to invest in green infrastructure. The question is whether the education sector has the regulatory framework to access it.
A properly controlled green borrowing route could reduce pressure on oversubscribed grant programmes, accelerate decarbonisation and allow financially well-managed colleges to make investment decisions based on their own estates.
Most importantly, it would put decisions closer to the people who understand the buildings, the budgets and the needs of their students. The climate challenge requires urgency. So does the financial challenge facing further education.
If we genuinely want colleges to reduce carbon, improve their estates and lower their energy costs, perhaps it is time to recognise that borrowing is not always the problem.
Sometimes, not being allowed to borrow to save is the bigger risk.
About Tim Warneford
Tim Warneford MCIOB is Partner at Warneford Consulting, providing strategic estate, energy and funding advice to academy trusts, schools and further education colleges across England.
With a background spanning building surveying, social housing maintenance and national energy-efficiency programmes, Tim works with education leaders to develop practical approaches to estate management, funding and decarbonisation.
He regularly speaks at sector conferences and contributes to national education and estates debate.
Want to understand what this means for your estate?
Warneford Consulting works with schools, academy trusts and further education colleges on estate strategy, energy management, funding and decarbonisation.
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