Zoning in on heat networks

Most agree that heat networks will have a significant role to play in the decarbonisation of heating, but despite recent growth they remain a niche technology in the UK. As part of our Countdown to COP campaign, Utility Week looks at how heat zoning could help to change that.

While the decarbonisation of heat has become one of the most contentious topics within the energy industry right now, one thing that most seem to agree on is that heat networks will have a significant role to play.

In its most recent Future Energy Scenarios, National Grid Electricity System Operator forecast that up to five million homes – representing around one in six households – could be connected to low-carbon heat networks by 2050. The Climate Change Committee has also suggested a similar figure in its net zero reports.

The fact that heat networks have escaped the conflict that surrounds many other heating technologies partly reflects the fact that they are not themselves a source of heat but a way of delivering it to homes and businesses more efficiently. As such, in the areas where they are suitable, they represent a no-regrets option that is compatible with various futures.

Nevertheless, heat networks remain relatively niche in the UK. According to a market report produced by the Association for Decentralised Energy (ADE) there were around 17,000 heat networks across the country in 2018 – approximately 5,500 district heat networks and 11,500 communal heat networks. There were close to half a million connections, nearly 450,000 of them domestic, meaning they served less than one in 50 of the roughly 27.5 million households in the UK at the time.

Heat zoning

One mechanism being considered to take heat networks into the mainstream is zoning, something which the ADE called for in a report last year.

“Zoning is the process of identifying areas of land upon which specific policies, laws, regulations or powers apply,” the trade body explained.

Local authorities would be given “a duty to create energy masterplans that use zoning to determine which national heat and energy efficiency policies and regulations apply in a particular area”.

“UK government and, where devolved, Scottish government and Welsh government should retain the ability to set policy within zones, whilst local planning authorities are able to direct the location of these zones,” the report added.

“Different technologies will require different forms of support to be deployed at scale. National government should work with industry and experts to identify what the best policy is to incentivise different heating and efficiency solutions for each zone type.

“This is likely to involve a combination of planning policy, building regulations, subsidy, taxes, levies and exemptions, as well as tailored communication and engagement strategies.”

Speaking to Utility Week, ADE policy officer Amy Ritchie says heat zoning would “allow the development of strategic networks that are either already in place or being developed new.

“It would allow government funding to be directed to those areas of the country and there’s no confusion about where they should be.”

Ritchie says local authorities would of course need to be “adequately resourced to deliver what is expected of them.”

While acknowledging the “amazing schemes” that many local authorities are already undertaking, she says many are doing so with a small team of just a few people. She sees the current situation as a “patchwork” with a “mismatch across the country”.

Ritchie says zoning would bring a “joint approach” that would empower local authorities to “build up the skills and supply chains and create green jobs as well.”

She also notes that, while the ADE supports a national framework for heat zoning, it should be “flexible enough to take into account local opportunities and advantages,” in particular regarding potential sources of currently wasted low-carbon heat.

Removing the faff factor

One country where heat networks are not only commonplace but in fact dominant is Sweden, where they meet almost 60 per cent of heat demand, including more than half of domestic demand.

Mike Reynolds, managing director of the UK heating arm of Swedish state-owned energy company Vattenfall, claims heat networks could potentially meet up to 30 per cent of heat demand in the UK by 2050: “That’s achievable if we have the right ambition and put the right policies in place.”

He believes heat zoning will be key to realising that ambition: “The principle of zoning is relatively straightforward. It says rather than letting everyone in every single building have to go down the same journey on their own and work out what to buy, why don’t we give them some short cuts and say: ‘In your building, in your location, this is definitely the right thing for you to do and the reason we know that is we’ve already done the studies, we’ve already done the research and it’s the most cost-effective whole-life solution for this building.’”

“I shudder to think about the amount of money that property developers and local authorities have spent on consultancies advising them on how to buy these things,” he remarks.

“One of the reasons is that everyone pretends they should look at lots of other options and the reality is they don’t need to. They all kind of know going in that district heating is the right answer but instead what they do is go and spend a hundred grand on an engineering consultancy to go and tour around all these different things, present a load of concepts, and come back to district heating as the right answer.”

He says this “faff factor” is very expensive: “Before I’ve even spent any money putting infrastructure in the ground, I’ve got to spend half a million quid buying it.”

And he says it’s not just the property developers and local authorities wasting money: “All of the suppliers are having to spend 250,000 to half a million quid bidding to supply this service. So, we’re already burning millions of pounds not even getting anything built, just agreeing that this thing that we want to build is the right thing.”

Reynolds says zoning can also save money by enabling consolidation, standardisation economies of scale: “The worst thing that can happen for me is what’s happened to a lot of the incumbent heat network operators in the UK, which is they’ve got 50 to 60 island projects dotted around cities, all of with their own energy centre, all with their own designs done by separate consultants, all with different performance, all with different customer service standards. Frankly, it’s a nightmare.”

He continues: “As it gets bigger, the costs of your pipes go down, the cost of your dig and your install goes down, the cost of your operation goes down and because it’s a local energy system I can then work with the local community to invest in the skills, the labour.”

“When we get zoning right, what you enable me as a multinational business to do is double down on an area of the city.”

He draws attention to the heat network Vattenfall is developing around the Cory Riverside energy from waste plant in southeast London: “There’s a quarter of a million – I think up to half a million – properties that could be connected to that district heating network over the 20 to 25 years, which means I look at that completely differently.”

“By creating a certainty for me as an investor and operator you enable me to do it cheaper, faster, bigger.”

Although he agrees that heat zones should be implemented and enforced by local authorities, Reynolds believes the location of the zones themselves should be determined at the national level: “We don’t plan large rail projects at a local level. We don’t plan transmission lines at a local level. And the reason is because you need a bigger view than you will have a local level.

“I think there should be a national infrastructure approach to district heating and actually all decarbonisation at scale.”

Mandated connections

With regards to enforcement, Ritchie believes this should include the mandating of connections for certain buildings: “The ADE’s position at the moment is that within a zone mandated connections should eventually go as far as possible given that, within a zone, a heat network has been designated as the most cost-effective solution.

“We are pushing for mandated connections for all public and private non-domestic buildings and also for blocks flats or blocks where this an existing communal heat network in place.”

“In terms of how we’re thinking about that potentially working is having a set number of years for those building types to connect to the network or potentially using things like triggers points, so when an existing heating system comes to the end of its life.”

She describes these as the “easy wins” and says the association is still considering its position on individual homeowners.

Following the release of the ADE’s report, BEIS announced plans to hold a consultation on zoning in 2021. Ritchie says she expects the consultation to come later this month and set out the government’s position on mandated connections, something it has previously suggested as a possibility.

However, Katie Greenhalgh, head of carbon reduction projects and policy at Nottingham City Council, which already operates an extensive heat network serving around 5,000 domestic properties and 70 businesses, believes mandating connections is not the right way to go.

“There might be site-specific challenges or various reasons why it’s cost-prohibitive or for some reason isn’t the lowest carbon option so I do think there needs to be options for developers and we need to do things on a case-by-case basis rather than have a blanket approach – you must connect – because what we don’t want to do is stop development.

“We don’t want to put people off investing by making them go with an option which isn’t viable for any reason. But you would hope that if they were in that zone, they would be a compelling case for them to choose that as the best option.”

Greenhalgh says local authorities’ powers in this regard should instead be limited to requiring developers and customers to consider a connection, rather than just defaulting to gas, “which obviously they won’t be able to do for much longer anyway; making sure that each development has some sorts of options appraisal undertaken so that they know that they’re choosing the best option, both in terms carbon reduction and efficiency and obviously cost”.

She says this would at least avoid a heat network from being “discounted very early on” as often happens now.

“It needs to be a balance,” she adds. “There needs to be enough in the policy to make sure it is well considered but perhaps some caveats so if there’s significant justification for why a heat network isn’t the best option for a range of reasons that would also be considered.”

Greenhalgh says there also needs to be a balance between local and national government when it comes to zoning: “The support from central government is essential, so having the policy mechanisms in place to make sure we can set and enforce these zones.

“The methodology needs to take into the local knowledge and locals plans that we have in place, so I think a combination of the two, making sure that there is a consistent approach nationally and the policy in place to support that, but using that local knowledge to inform decision making would be a good solution.”

Regulatory levers

Whatever model the government settles on, Ritchie from the ADE says zoning will need to be supported by other policy and regulatory levers “things like building regulations, planning policy, energy efficiency policy”.

“It’s really important that even if zoning is as successful as we hope it will be in driving forwards the heat networks market, we need to make sure that these other policy levers are matching up in terms of timescales and incentivising connection to heat networks for a range of different building types.”

These also include the Heat Network Market Framework, which is expected to be “the main vehicle for heat network regulation in England and Wales,” introducing consumer protections and technical and service standards and granting heat network operators similar statutory rights to gas and electricity network operators: “It’s been slightly delayed now but the government are maintaining their commitment to regulate by 2025.”

Reynolds says progress so far has unfortunately been slow: “Vattenfall chose to enter the UK district heating market in 2017. We set up in 2018. A lot of it was because we thought the government were going to be pushing hard for simplifying things and enabling us to roll out district heating at scale.”

“If I’m honest, all of the stuff that was on the table ten years ago is still on the table today. All the same policy asks.”

“We have to go through planning applications to install district heating. Our competitors do not. If you want to put a gas network in, you can just build it. You’ve got permitted development rights. We don’t have permitted development rights. We have to get planning approval.

“That adds costs. It adds complexity. I don’t get way leaves. I don’t get the rights of access so I have to buy those, which adds costs to my projects. I have to pay business rates, which other utilities don’t have to pay.”

He concludes: “At the moment, you’re making me compete with them with one hand tied behind my back.”