The Government has confirmed that no new funding rounds will be launched under the Public Sector Decarbonisation Scheme (PSDS) beyond those already announced.
While existing projects will continue through to 2028, this marks a significant shift in how the UK will support public sector bodies in their journey toward net-zero.
What Has Been Announced?
Since its inception in 2020, the PSDS has awarded £3.5 billion in grant funding across nearly 1,400 projects, helping reduce carbon emissions from public buildings. The recently launched Phase 4 will remain active until March 2028, while Phase 3c will conclude by March 2026.
However, the key announcement is that no further phases are planned beyond these existing rounds. Salix Finance, the delivery partner, will now focus on ensuring the successful completion of projects already in progress.
Context: National Net-Zero Commitments
This change comes at a crucial time. The UK Government has set ambitious targets to reduce emissions from public sector buildings by 50% by 2032 and by 75% by 2037, using 2017 levels as the baseline. While current PSDS funding supports these goals, the lack of future grant rounds raises concerns about maintaining momentum and consistency in delivery across the public estate.
Is This a Funding Cut?
It’s important to distinguish that this is not a cut to existing budgets. All committed PSDS funds remain in place, and current projects will proceed as planned. However, this decision does reflect a pause on future funding rounds, which is likely linked to broader government spending constraints.
More concerning is the cancellation of the Low Carbon Skills Fund (LCSF) for 2025/26, which supported public sector organisations in developing heat decarbonisation plans. Without this, many schools, trusts, and councils may struggle to initiate or plan for energy upgrades, particularly smaller bodies without in-house expertise.
What This Means for the Industry
While the pause in new funding limits long-term certainty, the PSDS still presents substantial short-term opportunity. With billions still allocated to live projects through to 2028, the industry is far from stagnant.
For delivery teams such as M&E contractors, building surveyors, and heat pump installers, demand is expected to peak as organisations rush to deliver funded work on time and within scope. This is a critical window for companies to secure contracts and build delivery capacity.
For consultants and planning professionals, the absence of the LCSF opens up a consultancy opportunity. Public sector clients that previously relied on grant funding to develop heat decarbonisation strategies may now turn to private providers for support. This creates space for firms offering holistic energy planning, lifecycle costing, and funding advice.
For finance and energy service companies, the market may shift toward blended or private finance models. With the door potentially closed on future PSDS rounds, public bodies might need to explore alternative solutions such as leasing, energy performance contracts, or loan schemes (similar to the former PSEELS programme).
For local authorities and multi-academy trusts, this announcement should serve as a call to action. Those with existing grants should prioritise timely delivery and ensure projects are completed before the funding window closes. At the same time, it’s critical to start preparing for a future in which capital grants may be scarcer or focused differently.
Preparing for a Future with Scarcer Capital Grants
For local authorities, schools, and multi-academy trusts (MATs), this announcement should be seen as more than just a funding pause. It’s a signal that the landscape of public sector energy investment is shifting. While the PSDS has, until now, offered substantial capital support for heat decarbonisation and retrofit projects, future schemes may be more competitive, regionally controlled, or focused on specific priorities like heat pumps or digital controls over comprehensive building upgrades.
In this new climate, organisations should:
- Develop long-term decarbonisation strategies: Rather than relying on reactive bids when funding rounds open, institutions should create robust, costed plans that can be mobilised quickly.
- Identify “quick win” projects: Fabric-first improvements and controls upgrades often offer strong payback and may be more likely to attract support under tighter funding regimes.
- Consider alternative financing routes: Loan schemes, energy performance contracts (EPCs), or partnerships with Energy Service Companies (ESCOs) may become more viable or even necessary, especially if capital grants become narrower in scope.
- Invest in capability: With the end of the Low Carbon Skills Fund, MATs and local authorities may need to strengthen their knowledgebase by seeking trusted external partners who can help them bridge this capability gap.
The era of centrally issued, broadly scoped grants is likely drawing to a close. Being ready with the right data, a clear plan, and a flexible delivery model will be essential in this new environment.
What Comes Next?
While this isn’t a reversal of the UK’s net-zero agenda, it’s a shift in how the journey will be supported. The focus appears to be transitioning from centrally distributed grants to potentially more regionalised support and greater reliance on market-led solutions.
Salix has signposted public sector organisations toward Local Net-Zero Hubs for technical advice, suggesting that future government support may take the form of guidance, facilitation, or co-funding, rather than direct capital investment.
How Stratus9 Consulting Can Support You
At Stratus9 Consulting, we specialise in helping public sector clients navigate the complexity of energy strategy, funding, and project delivery.
With the evolving funding landscape, our support becomes even more valuable. Here’s how we can help:
- Heat Decarbonisation Plans
We prepare robust, DfE-compliant heat decarbonisation plans tailored to each client’s estate. These include costed options, staged interventions, and lifecycle carbon and cost assessments, ready for future funding or board approval. - Energy Retrofit Design & Strategy
Our multidisciplinary approach enables us to assesses building fabric, M&E systems, and controls to create practical and fundable decarbonisation roadmaps, integrating low-carbon technologies and smart sequencing of works. - Funding Readiness
We help clients stay ahead by identifying funding opportunities, preparing strong evidence-based bids, and packaging projects for delivery thus ensuring you’re always ready to act when grants or loans become available. - Client Advisory Services
For MATs and local authorities without in-house energy expertise, we act as a trusted adviser interpreting technical proposals, setting procurement strategy, and providing impartial support at every stage. - Post-Grant Delivery Support
Already secured PSDS funding? We provide project assurance, Clerk of Works inspections, and contract administration services to keep projects on track, on budget, and aligned with funding conditions.
With experience across the education, local authority, and NHS sectors, Stratus9 is ideally placed to help clients succeed in a more complex and competitive decarbonisation environment.
Let’s talk about how we can support your organisation. Whether you’re mid-project, planning for the next phase, or just starting out we are here to help.
Final Thoughts
The message to the industry is clear: now is the time to deliver, make the most of existing grants, and prepare for a future where funding is less predictable. Organisations that can offer integrated retrofit solutions, practical decarbonisation planning, and flexible finance models will be best placed to thrive.
While the end of new PSDS funding rounds may create uncertainty, it also presents an opportunity. Those who can fill the emerging gaps in skills, planning, and financing will be essential partners in keeping the public sector’s decarbonisation ambitions on track.
Suggested Links
1. Official Announcement of PSDS Pause
Salix Finance – News Update
👉 https://www.salixfinance.co.uk/news/public-sector-decarbonisation-scheme
2. UK Government Net Zero Targets
UK Government – Net Zero Strategy
👉 https://www.gov.uk/government/publications/net-zero-strategy
(Provides national context for emissions reduction commitments.)
3. Phase 4 Guidance Documents
Salix Finance – PSDS Phase 4 Guidance
👉 https://www.salixfinance.co.uk/PDS_phase4
(Useful for organisations with active or upcoming projects.)
4. Local Net Zero Hubs
Energy Systems Catapult – Local Net Zero Hubs
👉 https://es.catapult.org.uk/tools/local-net-zero-hubs/
(Linked to in the Salix update; supports decentralised funding and advice.)
5. DfE Guidance on Heat Decarbonisation Plans for Schools
Department for Education – Good Estate Management for Schools (GEMS)
👉 https://www.gov.uk/guidance/good-estate-management-for-schools
(A go-to resource for MATs and school leaders developing energy strategies.)
6. Understanding Energy Performance Contracts (EPCs)
Gov.uk – EPC Contracting Guidance
👉 https://www.gov.uk/government/publications/energy-performance-contracts-for-public-sector
(Supports the discussion around alternative funding routes.)