The Social Housing Decarbonisation Fund is the flagship government offering for retrofit funding. As the name suggests, the primary focus of the fund is to impact social housing. The concept of the fund was launched in 2020, with the initial pilot wave coming in that year. Several other waves have been launched to distribute funding. With Wave 3 on the horizon, coming in April 2025, it’s worth reviewing the focus and impact of the previous waves and looking ahead to what Wave 3 will do.

Social Housing Decarbonisation Fund History

2020 – Announcement of the SHDF

In 2020, the UK government took a significant step towards tackling carbon emissions and energy inefficiency in the social housing sector by announcing the Social Housing Decarbonisation Fund (SHDF). The initiative is part of the country’s ambition to achieve net zero carbon emissions by 2050, with the social housing sector playing a crucial role in this transition. Recognising that many social homes across the UK are older and energy inefficient, the government committed £3.8 billion to the SHDF, spread over a 10-year period.

The initial focus of the SHDF is to retrofit social homes to achieve an Energy Performance Certificate (EPC) rating of Band C or higher by 2030. This target aims to significantly reduce carbon emissions and lower energy consumption in homes often occupied by vulnerable or low-income tenants, many of whom face high heating costs due to poor insulation and outdated energy systems. By upgrading these homes with energy-efficient technologies such as external wall insulation, loft insulation, and heat pumps, the fund seeks to address the environmental impacts of inefficient housing and tackle fuel poverty, making homes warmer and more affordable to heat.

2021 – Wave 1

In 2021, the first wave of the Social Housing Decarbonisation Fund (SHDF) was launched, marking a major milestone in the UK government’s drive to improve the energy efficiency of social housing. A total of £62 million in funding was allocated to over 100 local authorities and housing associations across England. This initial investment round was closely tied to the Green Homes Grant Local Authority Delivery (LAD) scheme, which aimed to accelerate the rollout of energy-efficient upgrades to the nation’s housing stock.

Projects funded in Wave 1 primarily focused on upgrading social homes by installing insulation, heat pumps, and other low-carbon technologies. These measures targeted the root causes of poor energy efficiency in many homes, such as inadequate insulation and outdated heating systems. By installing external wall insulation, loft insulation, and air-source heat pumps, the initiative sought to improve the overall energy performance of homes and significantly reduce reliance on carbon-intensive heating methods. Wave 1 of the SHDF was particularly significant because it laid the foundation for future funding rounds by demonstrating the practical benefits of large-scale retrofitting projects.

2022 – Wave 2

In 2022, the UK government significantly expanded its commitment to decarbonising social housing with the launch of Wave 2 of the Social Housing Decarbonisation Fund (SHDF). This phase saw a substantial increase in investment, with £800 million made available for local authorities, housing associations, and registered social landlords over the following two years (2022-2023). The goal remained focused on improving the energy efficiency of social housing while accelerating the pace at which homes across the country were retrofitted with modern, energy-efficient technologies.

Wave 2 continued the drive to address homes with an Energy Performance Certificate (EPC) rating of Band D or below, ensuring that those properties most in need of improvement were prioritised. This wave supported a wide range of retrofitting measures, including installing external wall and roof insulation, which are critical for reducing heat loss in older homes with poor thermal performance. These insulation upgrades were essential in preventing heat loss through poorly insulated walls and roofs, a common issue in social housing, leading to high energy consumption and heating costs.

In addition to insulation, Wave 2 promoted the adoption of low-carbon technologies such as solar panels and air-source heat pumps. The inclusion of solar panels allowed homes to generate clean, renewable energy, helping to reduce reliance on the grid and lower electricity costs for tenants. Air-source heat pumps, which extract heat from the outside air to warm homes, offer an environmentally friendly alternative to traditional gas boilers, further helping to reduce carbon emissions.

2023 – Wave 2.1

In early 2023, the UK government deepened its commitment to the Social Housing Decarbonisation Fund (SHDF) by launching Wave 2.1, providing an additional £778 million in funding. This further investment aimed to build on the success of earlier phases, enabling even more local authorities, housing providers, and registered social landlords to participate in the programme. The continued financial support underscored the government’s determination to meet its ambitious decarbonisation objectives and accelerate the transition toward a greener, more energy-efficient social housing sector.

Wave 2.1 focused on expanding the adoption of energy-efficient retrofits, targeting homes still falling below EPC Band C. By offering enhanced funding opportunities, the government ensured that more homes could be upgraded with the latest energy-saving technologies. Key measures in this phase included the installation of external and internal wall insulation, loft insulation, and advanced low-carbon heating systems such as air-source heat pumps and solar thermal panels. These interventions played a crucial role in improving the thermal efficiency of homes, reducing heat loss, and decreasing the reliance on fossil fuels for heating.

A particular emphasis was placed on retrofitting homes in fuel-poor areas, where tenants face the dual challenge of high energy costs and low incomes. By upgrading these homes, Wave 2.1 aimed to reduce carbon emissions and improve the quality of life for vulnerable tenants by making their homes warmer and more affordable to heat. The initiative helped address fuel poverty by reducing household energy bills and easing financial pressures for many social housing residents.

The scale of funding in Wave 2.1 also allowed for broader geographic coverage, ensuring that local authorities and housing associations across England had the resources to pursue energy-saving projects.

Social Housing Decarbonisation Fund Wave 3

Wave 3 of the Social Housing Decarbonisation Fund (SHDF) aims to accelerate the UK’s housing decarbonisation efforts with a substantial £1.2 billion investment from April 2025 to September 2028. The fund will focus on upgrading energy efficiency in social housing properties below EPC Band C with various measures, including insulation, ventilation, and low-carbon heating systems such as heat pumps and solar thermal panels.

One key innovation in Wave 3 is the introduction of additional financial caps for low-carbon heating measures, specifically for homes off the gas grid. This includes an extra £7,500 grant on top of the standard energy efficiency cost cap, allowing for a potential £15,000 total grant per property. Furthermore, the government is offering a new low-carbon heating incentive for on-gas grid homes, providing £20,000 per home without requiring co-funding. However, this applies to only 10% of homes in an application.

The fund is also set to include mixed-tenure properties and allows for the inclusion of private homes under certain conditions, particularly where social housing would otherwise be negatively impacted. However, the fund places stringent eligibility requirements on installers, requiring them to be TrustMark registered and compliant with PAS 2035/2030 standards.

Wave 3 builds on the lessons from previous rounds and aims to significantly scale up retrofitting projects, particularly through its Challenge Fund, which requires applicants to propose large-scale projects, sometimes retrofitting thousands of homes.