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ADE Director Dr Tim Rotheray explains why Government must de-risk investment in heat networks

12 February 2018

The value of heat networks: the best kept secret in the energy industry.

ADE Director Dr Tim Rotheray explains why Government must de-risk investment in heat networks | ADE blogs

The case for using heat networks to decarbonise heat in cities is a clear one. Studies show again and again that they are one of the most cost effective ways to cut carbon.

The UK Government has identified heat networks as a key technology to decarbonise heat and has allocated £320m of funding out to 2021 to grow the heat networks market. This funding is expected to draw in significant amounts of additional capital investment and support the construction of many more heat networks across England and Wales. Scotland is seeking to connect 40,000 homes to heat networks by 2020, representing 1.5TWh of Scotland’s heat demand. The Scottish Government’s District Heating Loan Fund, established in 2011, and Low Carbon Infrastructure Transition Programme have supported significant heat network investment in Scotland.

The Association for Decentralised Energy (ADE) Market Report: heat networks in the UK reveals there are already around 17,000 heat networks in the UK supplying c. 12,000 GWh to about half a million customers every year. The energy savings from these schemes are significant: the ADE estimates that heat networks cut UK gas imports by the equivalent gas use of 216,000 homes (over 3,000 GWh per year).

Heat networks present real opportunities to use energy that would otherwise be wasted, and delivering it to homes and businesses. They allow waste heat, solar heat and power station heat to be connected to the end customers. This means the best heat sources in any given location can be used. Further,heat networks can enable a truly smart energy system. If they were to meet 17% of heat demand, as modelled in the Government’s 2017 Clean Growth Strategy, we could store enough to keep a million homes in heating and hot water for four hours. This ability to store energy is key to enabling more renewable power generation and a cost effective decarbonised energy system.

Heat networks can also deliver tangible customer benefit. A recent Government survey1 revealed customers on heat networks report equal levels of customer satisfaction and enjoy lower cost heat than those using the alternative. Customers were also less likely to suffer from cold homes.

So, why are heat networks not attracting the investment they need to grow into a subsidy-free market? Uncertainty over how heat networks, as very long-term investments, will develop has meant that investors have seen them as more risky. To understand this risk, industry and stakeholders have collaborated to consider what the future of heat networks in the UK should look like, to attract investment and ensure customer protection. The work revealed a clear overarching need for a regulatory framework to de-risk investment and to create binding customer protection.

The recommendations are made by the industry Heat Network Task Force: a collaborative industry group formed in March 2017 by the Association for Decentralised Energy (ADE), and representing a range of stakeholders from across the sector. The Task Force was created to consider how industry and Government can work together to deliver an enduring market framework. It also sought to address the challenges created by the natural monopoly of heat networks, including the role for regulation in price, contract length and structure, and competition.

The Shared Warmth Industry Heat Network Task Force Report is the first detailed  proposal to make heat network infrastructure deliver on Government’s ambitions to grow the market, providing a comprehensive suite of principles from which a regulated industry for heat networks can be developed.

The Task Force recommendation is to the point; in return for regulation reducing investment risk, heat network developers would have to meet standards for pricing and customer services, as well as set out a plan for decarbonisation.

To date, the industry has been proactive in driving up standards of customer protection through Heat Trust and build quality in the CIBSE/ADE Heat Networks: Code of Practice for the UK. The recommendations in this report are the vital next step to meeting Government’s ambitions for decarbonising heat in a cost effective way.

It has become a truism to say industry needs to seize the opportunities presented by the unprecedented rate of change but for the heat network industry to do so requires long-term industry and government partnership through effective market and regulatory structures. If the recommendations in this report are taken forward there is a real potential to tackle one of the knotty problems in energy: how to decarbonise the heat in our towns and cities.

1 Heat Networks Consumer Survey: consumer experiences on heat networks and other heating systems (December 2017) revealed heat network customers on average pay £100 less than gas customers and enjoy similar satisfaction and reliability.

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