Heat networks ‘could be subsidy-free within five years’ with right policy


10078_a-1District heating networks could require no subsidy by 2021 if government made three changes to policy, according to the Association for Decentralised Energy (ADE).

In a paper published today, the ADE called on government to extend its existing support for Local Authorities beyond feasibility studies to the point where networks are ready for financial close.

It also seeks changes to the Renewable Heat Incentive so that waste heat use can be incentivised, and for government to help reduce project risk – and thereby lower cost of capital – by guaranteeing heat connections.

A review of business rates, which have risen markedly in recent years for heat networks, and which vary by region, would also help make district heating more cost effective and investible, according to the paper, as would granting the same access rights to heat networks as to other utility networks.

Some infrastructure investors are very keen to build heat networks because of the stable nature of returns. Heat networks could attract £2bn of investment, according to Decc estimations, and around 150 local authorities are currently investigating them using funding set aside by the government.

However, taking projects to commercial reality requires significant resource and planning. Creating contracts between developers and customers is difficult without connection guarantees, which is often where developments stall due to the increased risk this requires of investors. Even when contracts can be agreed or investors agree to take on increased risk, building the networks can be difficult due to planning rules, with heat networks unable to gain compulsory access rights.

The ADE believes its policy recommendations would create an investment framework comparable to other utilities networks, such as energy, gas and water, thereby lowering cost of capital and unlocking investment.

See the paper here.

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