75p/kW hour subsidies for district heating?


SECHPHeat networks would require subsidies of around 75p/kW hour to attract investors, according to Wales & West Utilities.

The gas network operator told MPs that its trials at Bridgend had indicated that investors – either institutional or households – would require a seven year payback. Unsubsidised district heating might otherwise take three decades to deliver returns. “Solar has taken off because of that subsidy,” Chris Clarke, director, Asset Management and Health, Safety and Environment, Wales & West Utilities told the Energy and Climate Change Committee.

Those calculations suggest subsidies some 50% larger than the most generous early feed-in tariffs for solar PV. However, like for like comparisons are unreflective, given the infrastructure component of heat networks. Because vast amounts of heat is wasted in power generation, heat networks can also play a much larger decarbonisation role than other technologies.

Heating buildings accounts for around half of the UK’s total energy demand and around a third of its carbon emissions. Using waste heat would therefore dramatically reduce the UK’s energy use and carbon emissions.

London, for example, “has enough waste heat to heat the whole of the city,” Association for Decentralised Energy CEO Tim Rotheray told the Committee.

Yet heat networks account for only around 2% of UK heating, despite the Department of Energy and Climate Change finding in 2013 that they could deliver around 20%. In countries such as Denmark and Sweden, they make up around 60%. MPs heard that the disparity was down to economics.

No regrets?

“The Seventies oil crisis caused different countries to react in different ways,” said Dr Rotheray. “Denmark went for efficiency, France went for nuclear power and the UK discovered gas in the continental shelf and developed the gas network.”

Those infrastructure assets were publicly-owned before being transferred to the private sector within a regulatory framework. UK heat networks are currently unregulated.

“[Without that framework] it is unsurprising that district heating has not developed in that way,” said Rotheray. “But it is a no-lose opportunity. Heat networks are heat agnostic. It could be that the heat comes from a mine or a data centre. If you assume that heat demand will remain, that people will always want heat and hot water, then it is a no regrets decision.”

The 300GW question

While government may rightly baulk at 75p/kW hour subsidies (the proposed Hinckley C nuclear contract for difference rate is 9.25p/kWh for 35 years), it will not be able to electrify both heat and transport if the UK is to reduce its CO2 emissions 80% by 2050. Whichever option it takes will be hugely expensive. Given that the UK’s winter peak heat load is around 300GW, government should start making use of waste heat by creating a level playing field for investment, the Committee heard.

“The government has put in place £300m to develop good quality projects. We have to build them properly and then the government, during this parliament, has to develop a regulatory framework so that if you are an institutional investor, you will be able to [accurately] evaluate different options,” said Rotheray.

Energy Technologies Institute CEO David Clarke agreed.

“The level playing field is key, along with the citing of [new] power plants so that the heat can be used,” he said. “Making them ready to use the waste heat whether or not it is used from day one.”

Local authority

Rotheray said Local Authorities would play a key role in bringing forward new heat networks and called for clarity following changes to the Planning Act as to whether they could mandate developers to include district heating within new schemes.

Rotheray, while unconvinced of the need for 75p/kW hour subsidies as mooted by Wales and West, also called for certainty on the current subsidies for combined heat and power.

“It is more complicated because it spans two silos – heat and electricity – within energy policy. So we need certainty on the contract for difference feed in tariff (CfD FiT) and certainty on the Renewable Heat Incentive (RHI). Government deliberately decoupled them and that has created an issue.”

Bankable subsidy

Rotheray said his association had estimated that around £700 million of investment would have come forward with policy clarity, “but none has, because of the inability to ensure that the subsidy regime integrates properly and that you can bank the CfD.”

Without that certainty, industry would probably keep going for gas boiler replacement, he said. “That means the opportunity is gone and they are no longer generating power on site and are exposed to [wholesale power] prices… So there is genuine time pressure [for government to get it right]”

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  1. I would like to echo Dr. Rotheray’s scepticism regarding the 75 pence/kWh subsidy required to support district heating. The Decentralised Energy department at the Carbon Trust supports multiple local authorities across the UK with developing the financial feasibility of their district heating networks and the figures quoted by Wales & West Utilities are unfamiliar to me. Most of the unsubsidised schemes that we work on have payback periods of 10-15 years, and in some cases lower than this.

    Greater constraints include the general lack of information and awareness about district heating and its potential advantages in terms of cost and carbon savings, lack of clarity around local authority planning policy power to support district heating development and constraints on access to low-interest capital financing.

    The government has already demonstrated their commitment to this sector by addressing constraints in developing feasibility studies through the work conducted by the Heat Networks Delivery Unit and taken steps to protect vulnerable consumers through the provision of the Heat Trust. In addition, the government has pledged £300 million in further support to ensure that local authorities can act now to secure the energy supply for the future and support the UK’s 2050 carbon emissions reduction target.

  2. I have no doubt it is true that “London has enough waste heat to heat the whole of the city” Association for Decentralised Energy CEO Tim Rotheray told the Committee. Our electrical infrastructure has seen no real investment over the last decade but it is being asked to supply a city where commerce and industrial is now running 24/7.
    Heat networks could take some of this load, I work in the Lea Valley area of outer London and even with the drive before the Olympics it was not viable to extend the Olympic site energy network to supply our site. Edmonton energy has also tried to look at this but the cost of gas per kW is lower than the cost of their proposed LTHW. Let alone the disruption caused to the local area installing the large diameter supply pipe network. Unless the government steps in to fund at this kind of level I cannot see any larger heat net works taking shape any time soon.


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