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A decentralised energy revolution is coming and local authorities are leading the way
By Hanaé Chauvaud de Rochefort, Policy Manager at the ADE, as featured in the February issue of Energy in Buildings and Industry. Visit www.energyzine.co.uk to get your copy.
For many years, the traditional approach to generating energy centrally has dominated, with the vast potential for local authorities to play a role the UK’s low carbon energy transition overshadowed. Yet forward thinking local authorities, from Aberdeen to Southampton, have quietly begun to develop and operate their own energy projects.
In the November 2015 Spending Review, Government announced £300m in funding will be made available for up to 200 heat networks, providing a starting block for district heating opportunities across the UK. With the right policy framework in place, district heating could revolutionise the way Britons heat their homes and other properties in the years to come.
District heating is the provision of heat and hot water to multiple properties from a single community energycentre. The energy centre houses the heat generators and the electrical pumps which pipe the hot water to connected properties via a network of insulated pipes. Any source of heat can be connected to district heating with common options including gas-fired combined heat and power (CHP), biomass boilers, energy from waste and large heat pumps. District heating can help consumers access more local, lower carbon and more cost effective sources of heat.
Heat networks are not new in the UK, with the majority of existing schemes developed in the 1960s. The rise of the individual gas boiler in the 1970s and 1980s saw the number of new schemes decline, until now where they are growing in prominence once again.
According to government estimates, just short of half a million UK households are already connected to district heating systems with the figure predicted to rise to as many as 4 million by 2030. But it is not just homes that can be connected; commercial properties, public buildings, schools and swimming pools can all receive their heating and cooling needs from heat networks. The value of the total UK district heating market is estimated to be £400 million in 2012, and district heating delivers additional value through carbon savings.
District heating is already delivering at scale in cities such as London, Nottingham, Edinburgh, Sheffield or Exeter and is in planning in excess of 150 local authorities thanks to strong planning regulations and recent Government backed feasibility studies funded through the Heat Networks Delivery Unit (HNDU).
In London alone, Mayor Boris Johnson has committed to ensuring that 25% of London's energy is delivered by decentralised energy by 2025. The mayor's office actively supports a programme identifying potential district heating opportunities and helping the boroughs implement them through planning policies that encourage or even require decentralised energy use in new developments.
Increasingly, local authorities are seeing district heating as a key tool to control energy costs and tackle fuel poverty while reducing carbon emissions and providing jobs for local people. Seizing the opportunity of decentralised energy generation can provide new long-term income streams for communities and councils, particularly in an environment where local government budgets are under pressure.
The ownership and operation of heat networks often fall upon two or more stakeholders from various backgrounds such as local authorities, private companies, building developers, contractors and investors. Resources to bring together these stakeholders, and the time and energy to learn new skills to deal with the necessary planning and financing of a district heating project, often come as a challenge which deters many Council officers and Councillors.
The introduction of HNDU to provide resources to local authorities in the early stages of planning has helped get the ball rolling on over 180 projects, with 15 now ready to attract circa £112 million in investment. The total pipeline of projects created through HNDU could attract over £2 billion in capital infrastructure investment, thus placing the UK in pole position to develop the local supply chain and create more jobs.
But the successful deployment of district heating in the coming years will rely on the implementation of policies that will continue to address the barriers that prevent the multiplication of heat networks and ESCo businesses.
The £300 million funding is great news for this fledgling industry, but the question now is how to spend the money cost effectively to progress from plans to pipes. We have identified three key policies to ensure the opportunities from this new funding are maximised:
1- HNDU needs to be pursued to ensure strong coordination that helps bring interested stakeholders together. The Unit's role should be continued and extended to support development all the way from securing planning agreement through to commercialisation and financial close. This recommendation is central to maintaining a pipeline of investable projects. Investors will only develop internal knowledge in district heating if concrete investment opportunities exist. This recommendation is central to maintaining a policy pipeline.
2- A Government guarantee on heat demand for a pool of local authority projects is key to getting larger, better-value schemes into development at low cost to taxpayers.
Uncertainty over the timing and scale of new heat users connecting to the network is often cited by infrastructure investors as a barrier to their market participation. For investors to secure returns on their long-term investment, contracts must address the risks inherent to the project and allocate risks to the stakeholders that can better manage them.
Local authorities willing to leverage long-term finance can take some of the offtake risk, which they can mitigate by connecting public sector buildings to the network, such as civic buildings, schools and affordable housing.
3-Exempt district heating networks from punitive business rates: District heating networks do not have the same status as gas and electricity networks. Heat network customers are subject to business rates not applicable to gas and power infrastructure. These costs increase heating bills by as much as 20%. These punitive costs can be particularly damaging when projects are aimed at cutting fuel poverty. This is the most immediate issue facing district heating networks.
By implementing these three policies capital costs will fall enabling heat projects to compete fairly with other infrastructure, and stimulate the level of investment needed to realise Government’s ambition to secure a low carbon and secure energy system in the most cost effective way.