Heat networks: where is innovation needed?

Necessity is the mother of innovation: our best ideas often come out of our shortcomings and the need to change.

The heat sector is no different. Right now there are substantial blocks to the rollout of distributed networks in the UK, areas where change is desperately needed but so far not forthcoming. In this blog, I want to highlight some of these areas crying out for innovation.
These are not problems we can solve in our silos; the solutions will have to come from collaboration across the industry and government.

Connecting the dots

Most of the expansion in the UK heating market is currently driven by planning and building regulations. This has resulted in lots of little heat networks scattered around the UK’s urban centres and is in stark contrast to the more joined up approaches taken in some European markets.

To fully achieve the aim of stripping carbon out of the heat sector, connecting customers to lower carbon heat, and to address the concern that small heat networks are (unavoidably) monopolies, we’ve got to break up the vertical (generation, distribution and supply) and allow multiple heat generators to compete to supply consumers on heat networks.

None of this is possible until the patchwork of small networks is integrated into a bigger whole. While work has been done on the technical requirements of interconnection, no one has come up with a good commercial basis for this to happen.

Whose pipe is it anyway?

There is no standard legal basis for a private company to own heat pipes buried in the ground.

A statutory electricity, water or gas company can happily own buried assets and has a right to dig them up if needed. But heat network operators aren’t a statutory authority. For heat networks, when you bury a pipe in the ground, it becomes the property of the landowner. You can try to apply workarounds like wayleaves or other legal acrobatics, but fundamentally the problem remains.

Resolve this problem and private investors are free to pour money into networks, knowing they’ll continue to own those assets and have a right to access them in the future.

Leave it to the experts

At the moment, there are only two main commercial models for heat networks: ESCO and owner-operator.

In the first model, schemes of more than four or five hundred homes might attract a commercial ESCO player to come in, design, build and operate the heat network and central plant. The significant risk of maintaining high efficiencies is off loaded to the (profit-making) company that slots in between the landlord and the tenants.

Smaller schemes and those unwilling to adopt the ESCO route must go it alone. Under this model, the freeholder owns the central plant and provides heat to customers, taking all risk for inefficiency.

So at the moment when it comes to outsourcing operational risk, it’s all or nothing. Either you’ve got to hand everything over to a profit making ESCO or you’re forced to go it alone.

A third way would be the use of energy performance guarantees (EPG) – promises to achieve minimum efficiencies on behalf of the owner. To make this a reality, the EPG provider must have enough data to understand the network and have confidence they can achieve efficiency targets. But as yet, this model isn’t widely available.

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