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  4. Levelling the playing field: Unlocking heat infrastructure investment

We need low cost, low carbon heat

About 80% of a household’s energy costs are spent on heating and hot water. We need affordable, secure heating while meeting our carbon budgets. As heat accounts for a third of UK greenhouse gas emissions, the UK needs policies that will drive a step change in emissions reduction with a sharp focus on cost. 

District heating networks

In areas of concentrated heat demand, such as cities, district heating is repeatedly demonstrated to be one of most cost effective ways to decarbonise heat supply and provide low cost heating to customers. A district heating scheme is a network of pipes that takes hot water from a local heat source to homes and businesses. District heating’s real value is linking local heat sources with local users. For example local power generation, industry, energy from waste, and data centres are all sources of local waste heat which can be captured. District heat networks can use heat from any source provided it is of the right temperature. As new technologies or heat sources arise they can feed into the district heating network and ensure that the network remains valuable for many decades. By capturing sources of wasted energy, district heating is central to enabling a more productive energy economy.

£300 million for the Heat Network Investment Project (HNIP)

The Government estimates that district heating has the potential to meet 20% of domestic heating and hot water needs by 2030. This level of market penetration requires a step change in investment. To ensure growth at the lowest possible cost to customers, a framework is needed to enable projects to attract infrastructure investors with a low cost of capital. The Government’s provision of £320 million for new heat network investment through to 2021 is a vital step to support a developing supply chain and demonstrate successful projects. However, following this subsidy, a long-term policy framework will be necessary to remove the need for further subsidy and to create a stable market for investment. 

Toward a long-term policy and regulatory framework In the years after 2021, industry will continue to require access to low cost capital, since cost of capital is the largest variable cost element in a network. An investment framework has the potential to reduce the investor risk that district heating undertakings face when attracting low cost capital, and to drive down the cost of heat supply. Such an investment framework has the potential to open up the market and lower the cost of heating for customers.

Major international and UK investors are interested in investing in UK district heating projects subject to long-term, stable returns. All other UK energy network infrastructure has a clear investment framework which has been successful at securing low cost capital investment. Working for over a year with the district heating industry, Local Authorities, developers and investors, we have investigated what is needed to create a level playing field for a new energy infrastructure network. This paper sets out the need for a district heating investment framework that will promote more equal investment consideration for all energy infrastructure and ensure the best solutions to customers in a given area. 

Read the full report here