Local authorities say finance and public procurement biggest hurdles to heat networks


ThermaflexLocal authorities say financing heat networks is the biggest barrier to and have warned that a lack of appetite from both property developers and public-sector heat sources, such as hospitals, is likely to undermine even commercially viable projects.

Local authorities interviewed on behalf of the department of energy and climate change’s Heat Networks Delivery Unit (HNDU) also said that lack of internal resources and expertise was a barrier to progress. Similarly public procurement practices create a drag.

The research was based on qualitative interviews with 47 local authorities and a quantitative online survey which was completed by 50 local authorities in receipt of HNDU funding.

Gas and growth

Findings confirmed that gas combined heat and power (CHP) was likely to be the technology of choice as it is believed to be the most economical and flexible. HNDU funding requires recipients to consider multiple technologies. But as one local authority interviewee stated:

“You can say you’re going to put in all sorts of wonderful renewable systems in, but do they pay for themselves?”

The research also found that regeneration trumped carbon as the primary driver of local authority heat network development. It was suggested that security of supply will become a growing concern for businesses.

“If you can relocate within the city where we can connect you up, both from a heating and a power perspective, we can offer you that security of supply […] I think that’s going to become an increasingly important component of every city to be honest,” according to one interviewee.

Procurement blues

However, engaging developers, both housing and commercial properties, was cited as a barrier by half of survey respondents.

“We haven’t had a case yet where we’ve managed to get a developer to install district energy,” said one respondent. There is a need to convince developers of the benefits of putting heat networks into new developments, said another:

“We need to find a way of increasing the confidence in the development market that district heating is a viable alternative, and I think we’re a long way from doing that at the moment.”

As well as creating a drag on buying-in consultants and external expertise, some local authorities said public sector procurement rules made securing ‘anchor’ heat loads more difficult. Hospitals were identified as a problem child.

“It’s very difficult to get Health Trusts to engage properly in these types of projects. As a result of that I think it’s fair to say that potentially good schemes will flounder,” said one of the consultants also interviewed as part of the research.

One local authority suggested that was because of the complexity of NHS Trust’s organisational and financial structures.

In general, a number of local authorities said that public sector procurement rules hindered progress because, rather than simply sign up a heat source, a complex procurement exercise was required with no guaranteed contract for a local heat provider at the end of it.

The research, conducted by CAG Consultants, in association with Narec Distributed Energy, also found that HNDU resources may be better concentrated on fewer projects – i.e backing winners – than being stretched too thinly.

More money

Virtually all local authorities said ongoing government support was necessary for heat network development.

The quantitative survey found a clear focus on development finance and commercial skills, with 96% saying that development finance would be ‘very important’ or ‘important’ and 91% saying the same of training on commercial skills. It also found strong demand (87%) for assistance in engaging potential investors.

Many local authorities suggested that revenue funding to cover the costs of external support was the most important form of future support requirement.

“Without being blindingly obvious, funding,” said one LA. “To get this from academic to actual is going to require some sources of funding.”

Unintended consequences

While the research found broad support for the HNDU, one intended consequence of its funding of heat network research was that local authority resources were being drawn away from other areas, such as street lighting or building retrofitting, as a result.

See the full report here.

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Firms with CHP units could be paid to stop generating

Intelligent district heating grid

Biomass boilers take RHI payments to school and connect to heat network

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