This report is the culmination of wide ranging industry stakeholder collaboration. The report recommends the introduction of a regulatory framework that provides those looking to invest in heat networks with 'demand assurance' in return for meeting cusotmer protection standards.
Changing the way we heat our homes and businesses is a central part of transitioning to a low carbon economy.
Heat networks present a key decarbonisation tool, through connecting customers to heat sources such as waste heat from industry and power stations, large-scale heat pumps, solar, and bioenergy, through a network of insulated pipes. Heat networks can supply reliable, low cost, low carbon heat to homes and businesses.
Repeated analysis indicates that cost effective heat decarbonisation requires a major growth in heat networks, which could meet up to 20% of heat demand by 2050. However, current deployment rates are not sufficient to meet Government decarbonisation objectives. With the anticipated growth in the heat network market, important questions are raised as to how heat network customers can be assured a good deal and reliable service.
Heat network investability and customer protection are two sides of the same coin. Investors want assurance that customers will be content with the service, as it reduces the risk of investment. More investable projects can attract institutional investors, which lowers the cost of capital and results in lower heating bills.
The ADE established an industry Heat Network Task Force: a group of experts, from within and outside of the industry, who spent a year considering how best to address the two issues of investability and customer protection. This report is the culmination of that work.
The Task Force considered a full range of options, from industry action through to regulatory intervention, and a combination of the two. Network investability was considered first, as customer protection obligations can only be placed effectively on those with investable propositions.
The Task Force considered how best to address the investment risk associated with long term infrastructure like heat networks. At the point of investing in a heat network, the probability of all of the different heat customers connecting to a network is a vital element. Future customers cannot commit until the network is built, and investors cannot commit without future customers. The Task Force concluded that a regulatory framework to reduce investment risk caused by demand uncertainty was the best route to secure investment at lowest possible cost. This regulatory framework would be based around addressing the future heat demand risk; a policy proposal known as Demand Assurance.
An investment framework would also establish the route to ensuring customer protection. For customer protection to be effective it needs to be both binding on, and aligned with the interests of those supplying the service of heat provision. By making access to Demand Assurance contingent on meeting customer service standards, the investor has a direct stake in ensuring those standards are met. The Task Force carefully considered where regulation could have a role in increasing competitive pressure to improve customer outcomes; setting the balance between regulation and market solutions. This report sets out a comprehensive set of principles that are needed to give heat network customers the same level of protections enjoyed by customers receiving heat by other means.
The Task Force has one overarching recommendation: addressing the key challenges for heat network growth requires a regulatory framework that reduces investor risk through Demand Assurance, and sets binding customer protection standards on which that demand assurance is contingent.
This document is not an exhaustive set of recommendations. It establishes the principles that need to be met, and the strategic mechanisms that can achieve the aims of Government. For the first time this report sets out considered proposals from industry and stakeholders as to how to deliver an investable sector that protects its customers. The challenge to decarbonise heat is often described as one of the most difficult areas in energy decarbonisation. Through credible proposals, the Task Force has set out how this challenge can be met in a way that works for all; driving investment up, while reducing customer bills and carbon emissions.