Getting warmer

Local authorities are slowly warming to the idea of investing in heat networks, though it's still not easy, says Richard Rugg

Local authorities are increasingly looking at investment in decentralised energy projects as a way to create new revenue streams, drive local investment, cut carbon emissions and address fuel poverty. Gas-fired combined heat and power (CHP) schemes in high-density urban areas are the most popular because the costs are viable, the technology is mature and heat networks benefit many users. However, as the importance of cutting carbon emissions grows, there is increasing uptake of biomass and renewables at a local level.

This trend has been recognised and supported by the government, which in March announced a £9 million package to help local authorities set up heat networks around the country. Another £1 million will be made available for Manchester, Leeds, Newcastle, Sheffield and Nottingham to help them develop heat networks.

Barriers inevitably remain. Many are institutional, because of the reliance on public sector involvement, particularly for planning approvals. But the biggest obstacles tend to be access to finance, overcoming technical or financial complexity, and a lack of understanding of how to structure finance in the project development process.

The business model chosen has a critical impact on the objectives that a project can address. In some cases it may be appropriate to involve a private partner that can shoulder costs and risk, but will look for a commercial rate of return from energy prices. In other circumstances – trying to tackle fuel poverty or driving the economic regeneration of an area, for example – local authorities may have to bear the brunt of the costs. Although public sector borrowing limits and capital constraints can be an issue, local authorities are increasingly gaining the confidence to manage their own schemes. This can create a revenue stream that can ultimately be reinvested, giving greater local autonomy.

It can also be difficult to identify and make the case for a feasible project. In a time of shrinking resources, the enthusiasm and dedication of local authority staff is not always matched by the capacity available to take projects through to procurement. Where local authorities lack internal capacity but do not want to hand a project entirely over to a private partner, the result can be deadlock. Local authorities that can access their own capital (public funding through government or European schemes, or cheap public borrowing) may be able to accept a far lower rate of return than a private partner, and could still receive a better return on capital than they would get from a bank.

Richard Rugg is managing director, public sector advice, at The Carbon Trust

Bristol takes the plunge

The Carbon Trust has been working with Bristol City Council to help develop a combined heat and power scheme based around the Bristol South Swimming Pool. This will provide heating to the pool itself and four nearby residential blocks with a total of 159 flats.

The council is responsible for the energy bills at the pool as well as the costs of associated carbon emissions under the CRC Energy Efficiency Scheme, and the nearby flats are a complex of high and low-rise social housing where fuel poverty is a concern. The scheme will help to cut immediate costs both for the council and residents, offering anywhere between a 20-50 per cent saving in energy bills and providing resilience against price rises.

The project will partly be funded through the Energy Companies Obligation, and provide a return on investment in ten to 15 years. It will give the council an ongoing revenue stream, reduce risk from energy shortages and price volatility, and help reduce the carbon footprint of both the city and the country as a whole.

“With energy prices rising sharply over the past few years and general strain on public finances, cutting bills and fuel poverty are two pretty major concerns for us at the moment,” says Paul Barker, energy management officer at Bristol City Council. “Decentralised energy schemes are a big part of our commitment to investing in making Bristol the most sustainable city in the UK with a high quality of life.”

This article first appeared in Utility Week’s print edition of 24th May 2013.

Get Utility Week’s expert news and comment – unique and indispensible – direct to your desk. Sign up for a trial subscription here: http://bit.ly/zzxQxx