ADE calls for heat to be "on level playing field"

Although the Government has pledged millions to its development a level playing field with gas and electricity networks would help district heating to succeed subsidy-free, believes Barney McManigal, policy manager at the Association for Decentralised Energy (ADE).

Looking to meet the UK’s carbon targets in the wake of last year’s decisive election and landmark Paris climate agreement, the Government is strengthening its focus on heat and specifically district heating networks as a cost-effective alternative to the gas and power grids. With ministers aiming to deliver value for money while upholding the global pledge to keep temperature rises below 1.5oC, Department of Energy and Climate Change officials have estimated that heat networks could potentially cover up to 20 per cent of UK heat demand by 2030 and have pledged to provide £320m in support.

Yet expanding the reach of UK heat networks beyond the current 2 per cent of heat demand will require a significant increase in investment for years to come. Although DECC’s plan to make £320m available for capital investment will provide critical support over the next few years, achieving a subsidy-free expansion after 2021 will require the right long-term policy environment: specifically, a level playing field with other energy infrastructure.

Heat accounts for 45 percent of UK energy consumption and one-third of emissions. Heating and hot water make up 80 per cent of household energy costs, with £33bn spent in 2012.

The Climate Change Act obliges the UK to cut most of its emissions from heat by 2050, requiring households and businesses to find low carbon solutions to meet heating needs.

DECC officials are expected to begin awarding the £320m later this year under the Heat Networks Investment Project (HNIP), and the money is expected to help generate the £2bn in private sector investment needed to bring the UK’s pipeline of 280 projects online.

The funding could potentially fund a diverse range of projects, including new heat networks, new cooling networks, network expansions and interconnections, as well as project support for local authorities. Although officials might initially limit the money to the public sector DECC could accept private sector applications in the future.

Although the £320m is expected to attract low-cost capital investment over the course of this Parliament, doing so after 2021 remains a challenge, since DECC’s funding will no longer be available and there is no plan for further subsidies.

For district heating to achieve its expansion potential over the long term and without a subsidy, it will require a policy environment that creates a level playing field across energy infrastructure.

The Association for Decentralised Energy has identified the key policy priorities required for the sector to succeed over the long-term. First, district heating will require a capital guarantee to reduce the future heat connection capacity risk for investors.

Before a network is built, developers are often unable to secure sufficient contractual commitments to connect to the network.

Potential heat users are interested but will not always engage in a contact for something that is not yet operational. Investors need to be assured of future users to justify investing.

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