District Heating Could Be Subsidy Free by 2021

Low carbon district heating networks could succeed without subsidy from 2021 if put on a level playing field with other networks, says a new report published today by the Association for Decentralised Energy (ADE).

The report says that a regulatory investment framework would put heat networks on par with water and energy networks, enabling large investors to consider these different infrastructure assets the same way and helping to drive down heat costs for customers.

Building on the Government’s commitment to provide £320 million in capital support for district heating networks over the next five years, the report sets out how the industry can move to a long-term, subsidy-free footing.

Government estimates there are £2 billion in district heating investments under consideration in more than 150 local authorities, and technical potential for district heating networks to meet up to 20 percent of heat demand by 2030.

The new ADE report, ‘Levelling the playing field: Unlocking heat infrastructure investment’, sets out proposals that would help attract lower-cost investment by reducing heat network capital risk, lower network costs by creating a fairer tax regime, and provide local authorities with the support they need to move forward with new network investments.

These policy proposals build on an industry framework to protect customers and investors, including the UK’s first independent heat customer protection scheme and a new national Code of Practice, developed in partnership with CIBSE.

The new ADE report sets out three key proposals to level the playing field for heat networks:

• Provide a guarantee to reduce the risk to investors of future heat connection capacity, levelling the playing field with other energy networks. Such a guarantee would lower the cost of capital for projects, subsequently reducing the cost of heat for customers. This policy would create an enduring low-cost framework for district heating infrastructure investment.
• Treat district heating networks equally to electricity and gas in Business Rates. Heat network customers subject to Business Rates far higher than gas and power infrastructure, increasing heating bills by as much as 20%, up to £300 a home. These punitive costs can be particularly damaging when projects are aimed at cutting fuel poverty.
• Extend and expand the role of DECC’s Heat Networks Delivery Unit to support planning and delivery. A relatively small Government investment (about £10m) has resulted in over 200 projects being explored, revealing a latent interest in projects from Local Authorities across England and Wales. The Unit’s role should be continued, ensuring there is a pipeline of investor-ready projects, and extended to support development all the way to commercialisation and a final investment decision.

The new report also calls for expanding the Renewable Heat Incentive to include low-carbon heat sources from 2021; providing district heating companies with the same wayleave and access rights as other utilities; encouraging local authorities to consider district heating in planning processes; and encouraging compliance with industry standards, including the ADE-CIBSE Code of Practice and the independent heat customer protection scheme Heat Trust, to ensure network design, operation, maintenance and customer service delivers for customers.

Dr Tim Rotheray, Director of the Association for Decentralised Energy, said:

“This report sets out how, by levelling the playing field between heat and other types of networks, we can achieve best value, low carbon heating for thousands of homes around the UK without the need for subsidy.

“All other UK network infrastructure have clear investment frameworks to secure low cost capital investment. An investment framework for heat networks has the potential to reduce investor risk, drive down the cost of heat supply, and attract major international and UK investors.

“Working collectively with industry, Government and stakeholders we have examined the barriers and opportunities for local energy solutions and set out a policy roadmap to 2021 that will allow the most cost effective options to come forward.

“Delivering on our heat network ambitions will help us to meet our carbon commitments as cost-effectively as possible, return control over energy to local authorities and their communities, and generate jobs and value to local areas across the UK.”

Notes

District heating is a network of pipes that carry hot water and steam from a central generator directly to homes and businesses. They can be used with any fuel source, are often more efficient than individual boilers, and in urban areas can also be the cheapest heat solution available.

About the Heat Network Delivery Unit

Beginning in 2013, the Government has allocated more than £11 million in grant funding to expand the number of heat networks across 118 local authorities, as part of an effort to decarbonise the UK’s heat supply at lowest cost. The funding aims to help local authorities perform feasibility studies to investigate whether district heating could work in their areas.

Source: Association for Decentralised Energy