PSDS Phase 5 Outlook 2026 | What Replaces It
PSDS Phase 4 closed November 2024. What comes next for public sector solar funding in 2026? Salix BAU, Local Growth Fund and Phase 5 chances.
The Public Sector Decarbonisation Scheme (PSDS) was, for half a decade, the largest single source of UK public sector decarbonisation capital. Across four phases between 2020 and 2024, PSDS allocated approximately £2.8 billion to schools, councils, NHS trusts, universities, museums, prisons, and broader public estate — overwhelmingly directed at heat decarbonisation (heat pumps, building fabric) but with substantial supplementary solar PV deployment baked into many awards.
PSDS Phase 4 closed for new applications in November 2024. As of May 2026, no Phase 5 has been formally announced. This piece unpacks what that means for UK public sector solar capex planning in 2026, what funding routes are actually available right now, and how we expect the architecture to evolve.
PSDS — what closed and when
PSDS Phase 1 (2020-21): £1bn allocation, Salix-administered. Heavily heat-pump-skewed but solar-supplementary on most projects.
PSDS Phase 2 (2021-22): £75m. Smaller, more targeted.
PSDS Phase 3 (2022-25): £1.425bn over 3 years. The largest allocation. Multi-year application windows.
PSDS Phase 3c (final tranche): closed October 2023.
PSDS Phase 4 (2024): £230m. Closed November 2024. The smallest of the major phases — and clearly underfunded relative to the public sector pipeline.
The PSDS Phase 4 closure left a substantial unfunded pipeline — schools mid-build, councils with shovel-ready projects, NHS trusts with scoping completed. Salix, the administering body, retains operational capacity but is no longer issuing new PSDS awards.
Why no Phase 5 has been announced
Three reasons converge:
(1) Treasury constraints. UK public capital expenditure is under sustained pressure post-2024 fiscal review. Decarbonisation programmes are being audited for bang-per-buck and PSDS has come under scrutiny — particularly the high-cost-per-tonne profile of some early heat pump conversions where building fabric was inadequate.
(2) Refocus to Salix BAU loans. Salix continues to operate its long-running Salix BAU (Business as Usual) loan programme — interest-free decarbonisation loans for the public sector, repaid from energy savings. Salix BAU is open and active in 2026. It is not as substantial as PSDS grants but it remains the dominant Salix-administered route.
(3) Local Growth Fund pivot. £1.5bn Local Growth Fund (UKSPF successor) for the 11 Mayoral Strategic Authority areas launched April 2026. Several of those Mayoral Authorities are using Local Growth Fund for public-sector solar (council-owned schools, leisure, libraries). This is partially substituting for what PSDS would have funded.
What UK public sector bodies are actually using in 2026
The active 2026 stack for English public sector solar capex:
Salix BAU loans (active). Interest-free, long-tenor, repaid from energy savings. The dominant route for schools, councils, NHS trusts. Salix retains operational capacity and is processing applications throughout 2026.
Local Growth Fund (active). For public-sector estates in the 11 Mayoral Strategic Authority areas — particularly the Greater Manchester, West Midlands, West Yorkshire, Liverpool, NEMCA and South Yorkshire mayoral combined authorities. Allocations vary by mayoral authority but all 11 have committed at least some Local Growth Fund to public-sector decarbonisation.
OfS Capital Funding (active). For UK universities. Ongoing Office for Students capital allocation. Universities are progressing solar deployment under OfS routes plus Salix BAU.
Direct CSR (Capital Spending Review) allocations (active). Some public sector bodies have direct departmental capital — particularly DfE for schools (multi-academy trust capital allocations), MoD for defence estate, MoJ for prison estate.
PPA structures (active). Public sector PPA frameworks are increasingly used for larger sites. Local authorities with substantial roof inventory frequently structure third-party-funded PPAs that don’t require capital allocation. Manchester, Bristol, Birmingham and Leeds councils have all used PPA structures at scale.
Scottish equivalents (active). NHS Scotland accesses Scottish Government decarbonisation capital. Scottish Government Just Transition Fund (£500m commitment) covers some public estate. Scottish IETF for industrial-tagged public estate.
Welsh equivalents (active). Welsh Government decarbonisation programmes for Welsh public sector.
What’s likely coming — Phase 5 outlook
We don’t have official confirmation, but the policy reading suggests:
A successor scheme is likely but not certain in 2026-27. UK Government has not ruled out Phase 5 but has not committed to it either. The 2025 Spending Review and 2026 Autumn Budget are the likely announcement windows.
If a successor comes, it will probably be smaller and more targeted than Phase 3. The Phase 3 £1.425bn scale was a Covid-recovery-stimulated peak. A successor is more likely to be £200-500m scale, more targeted at high-impact projects.
The architecture may shift to local/regional administration. There is policy thinking about devolving public sector decarbonisation funding to Mayoral Strategic Authorities rather than running it nationally through Salix. This would expand the Local Growth Fund route rather than restoring a national PSDS.
Heat pumps will be deprioritised relative to grid infrastructure and behavioural measures. The 2024-26 cost audit of PSDS suggests heat pumps in poorly-insulated buildings produced poor cost-per-tonne outcomes. A successor would likely require fabric improvements as a precondition to heat pump funding.
Practical guidance for public sector capex in 2026
For schools and multi-academy trusts. Use Salix BAU loans plus DfE direct capital plus Local Growth Fund (where in mayoral authority area). PPA frameworks are also viable for larger trusts. Multi-academy trusts solar guide.
For councils and local authorities. Salix BAU plus Local Growth Fund plus PPA structures dominate. Many councils are now structuring third-party-funded PV across council-owned commercial estate. Local authorities solar guide.
For NHS trusts. Salix BAU plus PPA structures. PSDS Phase 4-funded projects are completing through 2026; new projects are pivoting to Salix BAU plus PPA. The trust’s estate is typically large enough to support multi-MWp PPA structures.
For universities. OfS Capital Funding plus Salix BAU plus PPA structures. Most major UK universities have multi-MWp PV estate either deployed or in active scoping. Universities solar guide.
For the wider public estate (museums, prisons, libraries, leisure). Sponsoring department capital plus Salix BAU plus (where applicable) Local Growth Fund. Leisure centres & pools detail.
Don’t wait for Phase 5
The strongest practical advice for any UK public sector estate in 2026: don’t wait for a Phase 5 that may or may not arrive. Solar economics are strong now without PSDS. Salix BAU loans remain interest-free. PPA structures are mature. And electricity prices remain elevated relative to 2018-21 — the economic case for solar PV does not need PSDS to land.
The funding architecture has changed, but the underlying solar capex economics have improved. UK 2026 commercial solar payback (post-Full Expensing for incorporated public bodies, post-Salix BAU for non-incorporated) is typically 4-7 years on schools and council estate, 5-9 years on NHS estate, and 4-7 years on university estate. None of those numbers depend on a PSDS Phase 5.
If Phase 5 lands in 2026 or 2027, that’s an upside. Don’t plan capex contingent on it.
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