What is District Heating and is it used in the UK?

District heating, also known as a heat network, is a distribution system of insulated pipes that takes heat from a central source and delivers it to a number of domestic or non-domestic properties.

In Scotland District heating networks only provide around 1% of Scotland’s total heat demands.  Compare that to Denmark where they provide heat to 63% of Danish households, and Finland where it accounts for 50% of Finland’s total heating market, and it is clear there is room for improvement.

As Heat Networks can be run from renewable sources or waste heat sources they have the ability to reduce emissions and thus help Scotland to reach Climate Change targets.

So why do we not see housebuilders embracing these systems? There are two key factors restricting the use and these are: the significant capital cost required upfront, and the lack of regulation which has made them unpopular with consumers and investors.

What is being done to encourage the use of District Heating?

The Scottish Government is the first within the UK to take steps to address the current concerns with district heating by publishing the Heat Networks Bill.

The aim of the Bill is to ‘make provision for regulating the supply of thermal energy by a heat network, and for regulating the construction and operation of a heat network; to make provision about the powers of persons holding a heat networks licence; and to make provision about conferring rights in heat network assets where a person ceases operating a heat network.’

The Bill sets out some fundamental changes to the operation of heat networks as follows:-

Licence

All operators of a heat network are now required to hold a licence, this is to ensure operators are competent, fit and proper and provide their services in line with certain fixed conditions.

A licensing authority will govern the operators and will provide ongoing monitoring and enforcement where conditions are breached. Initially this authority will be the Scottish Ministers unless the framework for Ofgem as a UK entity can be amended to allow them to take this role on.

In order to place heat network operators on a level playing field licensed operators will be given powers similar to other statutory undertakers such as compulsory acquisition powers, wayleave rights, rights to carry out survey works and access to land to carry out works.

Consent

A specific consent is required from the Scottish Ministers before a new network can be developed. In order to streamline processes planning permission will be dealt with as part of this consent.

Scottish Ministers would consider applications together with Local Authorities to ensure both local and national objectives are met.

Applicants will need to consider how their proposal addresses reduction in greenhouse gas emissions, reduction in fuel poverty, use of local waste heat and storage capacity amongst others.

Heat Network Zones

Local Authorities will be able to identify and designate heat zones or ask the Scottish Ministers to do so on their behalf.

The aim of this is to provide awareness of development opportunities and to use strategic planning to identify areas where sources of waste heat can be utilised or renewable energy can power the network.

A permit to operate within the zone will be allocated to a sole provider following a competitive process.  This gives operators the comfort that they can operate in that zone exclusively to enable them to recover initial capital costs.

Anchor Loads

The public sector will be obliged to assess whether the buildings they own can viably be connected to a heat network.

Large buildings with a large heat demand can be an ‘anchor load’ as it provides a long term secure customer for the operator.  Having a record of these buildings can help with the strategic planning for the Heat Network Zones.

Although there will be no obligation placed upon building owners to connect to a heat network the availability of a potential ‘anchor load’ can give operators some comfort when assessing viability.

In addition to the rights mentioned above being given to operators the Scottish Government is proposing granting additional rights to enable operators to take a network right up to a building although the owner would be under no obligation to use the system. This is to try to secure these anchor loads.

Does the Bill resolve the issues?

The Bill is certainly a step in the right direction and will place heat networks on a more level playing field with other heat providers.

However, consumers want to know that the service they will be provided with will meet certain standards and this is an area the Bill falls short on due to devolution issues.

As consumer protection is not a devolved matter the Bill cannot, at this stage, provide for minimum consumer standards.  The Scottish Government is pressing for the devolution of consumer protection for this area, so watch this space.

What is the future for District Heating?

The increase in regulation will certainly give more assurance to end users and also investors resulting hopefully in the uptake of use of district heating systems which in turn can help us reach our climate change goals.

However, for housebuilders this is going to need to become a factor for consideration at the outset of their projects as it is clear that strategic planning is required in order to make the most of the opportunities available.

There is also likely to be an increased requirement for co-operation between private and public entities to make the most of the anchor loads.

How this pans out remains to be seen - but as climate change becomes higher on everyone’s agenda the option to offer a connection to a district heating system may just be the additional selling point that seals the deal.

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