Heat networks enable heat and hot water to be distributed from a central ‘energy centre’, via mainly underground pipes, to multiple buildings.
Boiler systems in connected buildings would be replaced with new infrastructure, to enable circulation of heat from the network. The energy centre becomes the source of the heat supply.
Heat networks have a long history — with the first networks being tested nearly 150 years ago. Distribution of heat from a centralised heat source was taken forward in New York city in the late nineteenth century. In the UK, heat networks were used in blocks of flats in the 1960s and 70s. Denmark was one of the first countries to start using heat networks on a wide scale, in response to the oil crisis in 1973. Currently, heat networks are commonly used in Scandinavia and Eastern Europe and in cities across the USA and Canada. There are around 14,000 heat networks in the UK with many being campus-style, providing heat to groups of social housing or hospital/NHS campuses.
Modern heat networks can utilise sources of low carbon heat. These include energy from waste facilities, geothermal sources, solar thermal arrays, air and ground source heat pumps and data centres.
Participating in a heat network is likely to be more environmentally friendly and, in some cases, more cost-effective than maintaining older, inefficient gas-fired heating systems.
Funding available
It’s estimated that fifty per cent of buildings in the UK are located in areas suitable for the construction of a heat network, which currently supply around 2 to 3 per cent of the UK’s heat. The Committee on Climate Change predicts that in order to meet net zero targets (with around 20 per cent of heat supply being from heat networks), it is estimated that investment will need to be around £60 to £80 billion by 2050.
The government has confirmed its support for the sector, as re-iterated at November’s Association for Decentralised Energy Conference by Miatta Fahnbulleh, Minister for Energy Consumers. The government has set a target for at least 18 per cent of the UK’s heat demand to be met from heat networks by 2050. Over £600 million of government funding has been allocated to develop and improve heat networks.
The government’s recently published “Clean Power 2030” action plan sets out that the national wealth fund will make available an expanded suite of financial instruments, as part of investment in heat networks and other clean energy sectors.
The Department for Energy Security and Net Zero already significantly supports the sector via capital grant funding from the Green Heat Network Fund. Education institutions have a range of grant options available to them. One example is the Public Sector Decarbonisation Scheme (via its delivery body, Salix Finance), being a fund dedicated to supporting energy efficiency and decarbonisation initiatives.
Financial support for heat networks is supplemented by the work of other bodies such as the Heat Networks Industry Council, which is a joint industry and Government forum that aims to grow the heat network sector.
Taken together, it is clear that there is genuine ambition to ensure that heat networks play a key role in helping the UK meet its net zero ambitions.
Notable heat network developments
A number of major heat network projects are underway, including the hugely ambitious South Westminster Area Network (referred to as “SWAN”), which will supply low carbon heating to the Houses of Parliament, the National Gallery and large areas of Whitehall, and the Leeds PIPES heat network, which connects to over 3000 dwellings.
The existence of these projects, and numerous others, is evidence of a growing trend in the emergence of heat networks as a major contributor to the UK’s net zero ambitions.
Campus based networks
Heat networks can work well on campus-style facilities. Given the location of the projects mentioned above, city-based higher education institutions should also consider whether it is feasible for their buildings to connect to a heat network, and whether a heat network is planned in their area.
There are a number of recent adopters of heat networks in the education sector, including the University of Liverpool, the University of Bradford and the University of Warwick, with many more universities considering becoming heat off-takers.
Heat networks present academic institutions with an exciting opportunity to forge the way in supporting both new sources of heat, and decarbonising heat in urban areas.
Regulation matters
Aside from regulations that govern billing and metering, the heat network sector is not regulated. This, however, will change – the heat networks market framework regulations 2025 (currently in draft) is to come into force in stages over the next 12 months.
Future regulation is subject to ongoing consultation, which includes consideration of how different groups of consumers are to be protected, and specific arrangements on standards of conduct and billing transparency.
In particular, the proposed regulations do not specifically refer to a ‘supplier of last resort’ regime, which would enable a state-nominated entity to continue the operation of a heat network where the relevant operator had become insolvent. We understand that Ofgem and the government are considering how this would work, given the complexity of arranging for the ownership transfer of infrastructure and capital assets. We await further developments on this.
The scheme rules of the Heat Trust, which operates to protect the interests of domestic and micro-business customers of heat networks, partly informed the content of forthcoming regulations. The Heat Trust’s voluntary scheme is intended to establish common standards of heat supply and associated customer service (with standards of service comparable to those required by Ofgem of electricity and gas suppliers). We therefore anticipate robust standards to be introduced within the regulations, for a wider group of consumers.
Connecting to a heat network involves technical aspects relating to design, maintenance, service standards, and availability of a ‘green’ heat supply. Legal support is essential in navigating new networks as well as specialised technical support. For example, procurement risks, design and delivery risks, real estate and contamination issues, constructions issues, particularly around connection work and secondary side works, exclusivity arrangements and “change in law” provisions given forthcoming regulatory requirements.
Mills & Reeve advises a number of Universities and other bodies on their participation in heat networks.
If you are considering participating in a heat network and would like to speak to us about how we can help, please do contact any member of the M&R team.
