With £320 million of funding for heat networks soon to be available and a large pipeline of projects, the UK heat network sector is poised for growth. However, challenges remain in the development and management of heat networks. These include but are not limited to; planning, housing developers, procurement, heat exchange efficiency (delta T), pricing/billing and finance.

The government has put considerable time and money into developing heat networks over the past few years. Current and future heat network projects are a vital pillar for delivery of our legally binding UK carbon budgets (set in UK law by the Climate Change Act 2008, not the EU). Even with their inclusion in the latest UK energy and emissions projections, the government is currently predicting significant shortfalls for the 4th (2023-2027) and 5th (2028-2032) carbon budgets (see below).

Figure 1: UK Carbon Budgets (CB) compared to projections. Vertical bars show central reference scenario uncertainty (at 95% confidence interval) Source - UK energy and emissions projections.

Lower anticipated deployment from the Renewable Heat Incentive (RHI) and the removal of any Carbon Capture and Storage (CCS), have increased the pressure on heat networks to deliver emissions reductions.

Given the challenges facing heat network development, what is the current state of the market?

The Heat Network Delivery Unit (HNDU) has delivered over £14 million of funding to 140 local authorities for feasibility work on heat networks. This unit within the Department for Business Energy and Industrial Strategy (BEIS), has been held up as a particularly good example of government working well with the sector.

Figure 2: Local authorities supported by the Heat Network Delivery Unit (HNDU). Source HNDU webpage

Round 7 of HNDU grant funding is still open for applications (details here). In total, there are 200 projects that have received support. A significant pipeline of projects has been created at various stages of development.

The Heat Networks Investment Project (HNIP) is a £320 million capital funding programme to help this pipeline of projects (and others) deploy over the next few years. A pilot project was announced last year and nine projects were selected, with £24.21 million of support awarded, 35% of which was loan finance. The pilot focused on projects that were investment ready, with the large city-based beneficiaries finalised in March 2017. The learning from the pilot will be used to design the main HNIP funding programme, due to be launched by the end of 2017 and run until 2021.

The question is, how much of this HNDU feasibility work will convert into deployment (with the associated emission reductions for government)? What proportion and form the HNIP capital support takes, will determine how much other investment can be leveraged, and ultimately how many are completed. The pilot chose to use grants and soft loans as the two forms of support. When the remaining £296 million of HNIP funding comes online there could be other forms of support available (e.g. demand guarantees). Until the support parameters are set it is difficult to assess how many projects will go ahead. A further unknown is the impact of the HNIP on other unrelated heat network projects.

The HNIP aims to resolve a key barrier to heat network development – finance. However, many other barriers remain. A recent report highlighted the cost to heat network consumers can be too high in some cases. Planning is also cited as a common barrier to deployment, with a housing crisis, those areas without positive heat network planning policies struggle to convince housing developers to engage.

What is clear is that heat networks are due to be a key part of heat delivery, particularly in cities, and our current government is keen to support the sector. Will heat networks deliver the emission reductions pivotal to the 4th and 5th carbon budgets? It’s a little early to say, with an election and Brexit on the horizon. Maintaining momentum and support in government will need to be a focus for the sector. Regen is keen to add its voice to ensure heat networks at all scales receive the support they deserve.

Author: Olly Frankland

Contact: ofrankland@regensw.co.uk