Public sector buildings make a significant contribution to carbon emissions. According to provisional UK emissions data, published in March 2025 by the Department for Energy Security & Net Zero (DESNZ), buildings were responsible for 21% of emissions in 2024, of which 11% were attributed to public sector buildings. Emissions from public sector buildings are also estimated to have increased by 1%, compared to 2023 data.
Decarbonising such huge buildings with high footfall and energy consumption is vital if the UK is to achieve net-zero targets.
To address the issue, the Public Sector Decarbonisation Scheme (PSDS) was introduced by the UK Government in September 2020 to provide public sector bodies with energy efficiency and heat decarbonation grants to reduce public building emissions.
There have since been four phases of the PSDS, the latest of which was launched in May 2025. Funding under phase 4 is only available for the periods 2025/26 and 2027/8. This is very much a ‘use it or lose it’ opportunity, so public sector bodies should ensure they optimise the funding they have been given and meet all necessary conditions, or risk having their grants withheld or reclaimed.
The Decarbonisation and Retrofit Framework from Procure Partnerships Framework helps public sector bodies turn PSDS funding into viable, successful projects. With strict timescales attached to PSDS funding, failure to deliver on time risks funds being clawed back or reallocated. The framework supports projects from the outset through pre-procurement guidance, market testing, and compliant procurement routes that bring the right contractors on board early. This approach ensures projects are realistic, on time, on budget, and able to maximise the impact of their funding.
In this article, we explore the objectives and impact of the Public Sector Decarbonisation Scheme and how essential it is that public sector bodies approach phase 4 with a clear plan to optimise allocated funding. We will also provide more detail on how the Decarbonisation and Retrofit Framework can help you develop a clear strategy to efficiently and cost-effectively manage PSDS phase 4 funded projects.
About the Public Sector Decarbonisation Scheme
Launched by Salix Finance on behalf of the Department for Energy Security and Net Zero, the Public Sector Decarbonisation Scheme provided £1 billion of funding for the implementation of heat decarbonisation and energy efficiency measures in public sector buildings.
The objective of the scheme was to reduce carbon emissions from public sector buildings by 75% by 2037, compared to a 2017 baseline.
Public Sector Decarbonisation Scheme Phases Overview
- Phase 1 (2020–2022): Delivered £1 billion in grants to stimulate jobs and recovery through low carbon projects.
- Phase 2 (2021–2022): Focused on heat decarbonisation and whole building approaches through £75 million of funding.
- Phase 3 (2022–2026): Allocated over £1.8 billion in grant funding across multiple application windows (3a, 3b, 3c).
- Phase 4 (2025–2028): Confirmed in autumn 2024 with approximately £940 million allocated; applications closed in November 2024, and awards are actively being distributed.
When using phase 4 funding, public sector bodies can maximise its impact by procuring contractor partners through the Procure Partnerships Decarbonisation and Retrofit Framework. All framework contractor partners are equipped and pre-vetted to deliver any heat decarbonation and energy efficiency works funded by the PSDS. For more details, our article ‘Decarbonisation and Retrofit Projects – 10 Sub-Works You Might Be Confusing for Construction’highlights 10 sub-works our framework partners can help with.
Impact and Strategic Benefits of the Public Sector Decarbonisation Scheme
What is the impact and strategic benefits of the Public Sector Decarbonisation Scheme for net-zero public sector buildings in the UK?
Carbon reduction
The Public Sector Decarbonisation Scheme puts in place heat decarbonisation plans that provide public sector bodies with the opportunity to reach the target of a 75% decrease in emissions by 2037. This includes building fabric improvements and energy efficiency measures that reduce the heat or electrical demand of the building using a low-carbon heating system.
Phase 4 supports more public buildings such as schools and hospitals in switching to cleaner heating and cutting emissions.
Economic savings
Low carbon heating and energy efficiency upgrades are expected to save the public sector an average of £650 million per year through to 2037.
Job creation and supply chain growth
By stimulating demand for low carbon technologies and associated skills development, the Public Sector Decarbonisation Scheme supports the green economy. In fact, the PSDS was part of the Chancellor’s Plan for Jobs, a commitment to supporting the UK’s economic recovery from COVID-19. The aim was to generate up to 30,000 skilled jobs in the low carbon and energy efficiency sectors and increase investment in green technologies such as heat pumps and insulation.
An associated initiative, focused on job creation and supply chain growth, is the Public Sector Low Carbon Skills Fund which provides public sector organisations with grants to engage the specialist skills necessary to develop a heat decarbonisation plan.
Funded projects
According to the Phase 3c Summary Report, the PSDS made £1.8 billion of funding available from 2022/23 to 2025/26. From 443 applications, 209 public sector organisations were awarded funding for a total of 244 heat decarbonisation and energy efficiency projects.
Greater London received the most funding (£145,142,875), followed by the South East (£87.051,702) and West Midlands (£83,924,060).
What can public bodies do now to optimise PSDS Phase 4 funding?
With Phase 4 PSDS funding already allocated, the priority now for public bodies is to efficiently and cost-effectively deliver projects that have been approved for heat decarbonisation grants.
Here is a summary of key points for public sector bodies regarding PSDS phase 4 funding:
- Phase 4 funding is split across two delivery periods (2025/26 and 2027/28), with strict milestones that must be met to retain funding. Use it or lose it!
- Failure to deliver within the agreed timescales may result in funds being clawed back or reallocated.
- All projects must be completed by 31 March 2028. Any delays or incomplete works beyond this date risk losing funding.
- Public sector bodies can refer to Salix’s Phase 4 Applicant Journey Timeline for more detailed information on key deadlines.
Securing funding is just the starting point, what truly matters is ensuring that projects are viable, reach site, and are delivered on time and within budget. This not only protects the client’s reputation but also safeguards funding continuity. The Procure Partnerships’ Decarbonisation and Retrofit Framework is designed to give public organisations the support they need to turn awarded funding into successful, fully delivered projects by:
- Providing early-stage guidance with call-off methods, timescales, engagement sessions, specialist market intelligence, and the development of tender documents.
- Helping shape project viability through soft market testing and professional support in submitting expressions of interest.
- Controlling costs with compliant procurement routes and a fixed, competitively tendered OH&P percentage to stretch budgets further.
- Ensuring delivery confidence by connecting clients with proven contractors and suppliers who have experience in low-carbon upgrades.
- Facilitating effective market engagement sessions so the right contractors are appointed to deliver your project, fully aligned with your decarbonisation targets.
Speak to Procure Partnerships Framework about maximising the impact of PSDS funding
Contact Procure Partnerships Framework today to discuss how we can help you make the most of your PSDS funding and deliver your decarbonisation projects successfully.
