Heat Networks: Understanding the Basics

Heat Networks – what are they?

Heat networks supply heat from a central source to consumers, via a network of underground pipes carrying hot water. Heat networks typically cover a large area like a development scheme but can be fairly local, supplying a small cluster of buildings. They can be various sizes and serve various combinations of building types. Heat networks are particularly attractive in high density built up areas such as city centres. They can deliver a wide variety of benefits to the environment, to consumers and to the wider economy. They are an essential part of our future clean energy infrastructure. Many of the cheapest sources of low‑carbon heat can only be used if there is a network to distribute the heat.

 

What do they involve?

The central heat source is often referred to as ‘the energy centre’. There are many possible technologies that can provide the input to a heat network including power stations, energy from waste (EfW) facilities, industrial processes, biomass and biogas fuelled boilers and Combined Heat and Power (CHP) plants, gas fired CHP units, fuel cells, heat pumps, geothermal sources, electric boilers and solar thermal arrays.

Heat is brought into each building through a ‘heat exchanger’ which, for a residential connection, is about the same size as a small gas boiler. All the same heating controls are available and to the end user the central heating and hot water system works in the same way as a domestic gas fired central heating system, without the need for any combustion to take place inside the building. Heat networks can be extended over time, and new heat demands, and heat sources can be added to the network.

 

What are the benefits?

Heat networks avoid the need for individual boilers or electric heaters in every building and are one of the most cost effective ways of reducing carbon emissions from heating. Also, their efficiency and carbon saving potential increases as they grow and connect to each other.

Once the network is in place, heat that otherwise goes to waste can be harnessed and used: for example, waste heat from industry, from power stations or from low temperature heat sources such as from data centres. Heat can even be taken from the rivers and canals that run through many town centres and from the warm mine water left in old coal mines.

New infrastructure investment is a catalyst for local growth. Local authorities often incorporate heat networks (sometimes alongside Combined Heat and Power plants to provide local electricity) to drive regeneration and attract new business.

The energy system, like the whole economy, is an integrated and complex system. Heat networks can have a beneficial impact on the stability and cost effectiveness of the whole system. Such benefits will take time to realise, but we know that a large heat network system, especially when combined with a large thermal store (hot water tank), offers a cheap and easy way of storing energy until it is needed. This can include taking any surplus supplies of electricity and converting them to useable heat, to the benefit of the overall energy system.

 

Energy Act 2023 – new regulation for heat networks

Until recently, heat networks were not regulated in the same way as the electricity and gas networks. This means customers did not have the ability to switch away from their current providers. The Competition and Markets Authority (CMA) carried out a market study into the sector in 2018 and found that although on average heat networks deliver a comparable service to individual heating systems, there was a small minority of consumers who were being subject to high prices and frequent outages. The CMA therefore recommended that the government regulate the sector.

The Energy Act 2023 sets out a framework for the regulation of heat networks which, once implemented, will radically transform the way that heat networks in the UK are deployed.

Ofgem will be appointed as the regulator of heat networks, to introduce a licensing regime, monitor compliance and will be given powers to take enforcement action where heat networks are not meeting the required standards. There will also be regulation in relation to mandatory minimum technical standards, decarbonisation requirements and fair and transparent pricing. All of this is driven at protecting consumers and ensuring that heat networks deliver a reliable, cost effective and low carbon means of heating buildings.

The most radical change in the Energy Act is the powers to introduce heat network “zoning”. This will empower local authorities to act as “zone coordinators” to identify and designate areas best suited for heat networks. Once a zone has been designated, it will be mandatory for certain types of building to connect within a prescribed timeframe (subject to certain exemptions). This will likely include all new buildings, all large public sector buildings, all large non domestic buildings and all domestic buildings that are already communally heated. Powers for local authorities to designate heat network zones in Scotland are included in the Heat Networks (Scotland) Act 2021.

 

Other considerations

Getting the District Heat Network (DHN) design right is key to ensuring on demand availability and ensuring that the network complies with performance standards. This includes estimating site demand correctly and sizing the heat plant accurately. The sizing of the pipework is also essential to ensure that the heat network can be expanded as required to service additional customers where possible.

Developers or landlords also need to ensure that the contractual structure and terms are robustly drafted, so that the operational and performance metrics can be clearly evaluated and proper recourse is available where there is default or delivery failure for contractor fault.

 

Is there funding available?

The Green Heat Networks Fund (GHNF) is a three year GBP288 million capital grant fund that will support the commercialisation and construction of new low and zero carbon heat networks and the retrofitting and expansion of existing heat networks. The scheme launched on 14 March 2022 and will run until 2025.

The GHNF is open to applicants from organisations in the public, private and third sectors who are responsible for the development of heating and cooling networks in England, that:

• meet the initial GHNF gated metrics covering the carbon intensity of heat delivered, consumer detriment, the minimum annual heat energy demand and the scheme’s social IRR (see section 4.2 of the Guidance for Applicants document);
• are able to provide all supporting documentation (see section 5.3 of the Guidance for Applicants document);
• are legal entities (such as companies or organisations). Public sector organisations such as NHS Trusts and other governmental departments may also apply.

Information on funding for heat network projects in Scotland is available on the Scottish Government’s Renewable and low carbon energy page – this includes a link to guidance on Scotland’s Heat Network Fund.

We are available to answer any questions that you may have on heat networks. Please contact: