Heat networks are central to delivering a secure, affordable and low-carbon energy system. They are expected to supply at least 20% of the UK's building heat demand by 2050, with an even greater role in dense urban areas such as central London.
Despite this potential, the UK is not developing heat networks at the scale needed. While Government analysis has identified significant opportunities across towns and cities, viable projects remain difficult to deliver.
The challenge is not that heat networks are an expensive solution. Rather, current policy does not fully recognise the wider economic, environmental and system benefits they provide. Although district heat networks can be the lowest-cost option from a societal perspective, commercial investment decisions are still driven by a policy framework that fails to account for many of these wider benefits.
This report sets out the practical Industry Commitments and interventions Government could introduce to close the cost of heat gap. The recommendations are designed to provide policymakers with a clear and practical roadmap, identifying which interventions can be implemented in the short, medium and long term, and where support can be reduced as the market matures.
The following actions should be taken by Government:
In the short-term, there needs to be a level playing field on carbon for heat networks.
In the medium-term, a targeted electricity discount, increasing the proportion of public support associated to grand funding for heat networks and a heat network catalytic fund would kickstart a positive reinforcement cycle around managing cost of heat.
In the long-term, the Regulated Asset Base (RAB) Model for heat networks should be introduced.
To enable all of this and make heat networks cost competitive, this is needed now:
Include an enabling framework for investment support mechanism and enable DESNZ/OFGEM to create an appropriate mechanism through secondary legislation.
Treasury commit £10bn in spending on District Heat Networks deployment to 2035.
Enable Ofgem to cross-charge across vectors.
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