Heat networks must be treated as long-term infrastructure

On Tuesday last week, I appeared before the Energy and Climate Change Select Committee to give evidence to their inquiry on low carbon infrastructure. The Committee is asking some really interesting questions - ones we have not heard before. Questions about systems, integration, and genuinely seeking out about how we address energy, not just power.

I gave evidence alongside Dr David Clarke of the ETI and Chris Clarke of Wales and West Utilities. Wales and West Utilities is a gas distribution network, the system that brings the fuel that heats the homes of most of Britain. When the committee asked about district heating, they were told that Wales and West Utilities had calculated district heating investments would need a subsidy of 75p/kWh. This is a huge number, 15 times the domestic retail gas price, and it made me sit up. Then I realised why it was so large. Mr Clarke’s analysis required a return on the money invested in the infrastructure within just 7 years.

Such an approach would treat district heating as if it were a boiler, which last about 10 to 15 years, and not like energy infrastructure, which lasts for many decades. In other infrastructure utilities, like power, gas and water networks, we have a dedicated infrastructure investment framework. Rather than expecting a short 7-year payback, the network operators invest on a payback of more than 30 years.

Wales and West Utilities’ analysis highlighted a very clear case: we cannot treat long-lived infrastructure like short-term generation assets. We need to enable those who invest in infrastructure to look at heat in a similar way as other networks. By setting long, stable investment horizons the major upfront investment is spread over the lifetime of the infrastructure, keeping bill payers’ costs dramatically down. If the energy regulator started requiring 7-year paybacks on gas or power network investment, our energy bills would skyrocket.

There is no one solution or infrastructure for our future. We need a diverse heating mix. The diversity creates resilience helping security of supply but it also enables the right solutions for different localities, using local resources.

District heating is best in dense areas of population where heat demand is high per square metre. Gas through combined heat and power is excellent for industry and high temperature heat, cutting energy waste and increasing competitiveness. Renewable gas is an excellent way to further decarbonise in industry and lower density areas. Heat pumps are superb in new, well insulated homes off gas grid, while older homes off gas grid need efficient low-carbon sources like LP gas microCHP and biomass.

For those areas where district heating is the best value, low carbon heating solution, it needs to be as investable as other forms of energy network infrastructure. As this nascent industry develops in the UK, the Government’s £300 million in support announced in the Spending Review can focus on developing the best, new, high quality exemplar projects.

At the same time the Government can also develop an appropriate regulatory investment framework so that district heating investments can be evaluated by institutional investors in the same was as other infrastructure assets like gas, water and power networks. That way, there will be no need at all for a subsidy. We will simply have a level playing field for infrastructure. That strikes me as a good deal for the consumer.

Tim Rotheray, director, Association for Decentralised Energy