What… is the efficiency of your district heat network?
In order for district heating (DH) to fulfil its potential and deliver wide-scale decarbonisation of heat in the UK, it must demonstrate three things:
- Efficiency: DH networks must transport heat energy from source to customer with low losses.
- Low carbon emissions: using DH must result in demonstrably lower emission by connecting customers to sources of low-carbon heat.
- Value for customers: heat customers must have the means to ensure they’re getting value for their money.
So how are we doing? And what progress have we made in meeting these three challenges so far?
Efficiency
To date, we’ve done heat networks pretty badly in the UK – a topic I’ve written about quite a lot on this blog – resulting in high heat losses and low overall efficiency. But the last 18 months have seen significant changes. Here are a few examples:
- CIBSE and ADE published the Heat Networks Code of Practice, giving services engineers much better guidance on network design and operation.
- Under its Small Business Research Initiative (SBRI), DECC provided £7m to technology projects aimed at improving heat network performance, with some outstanding results.
- Largely as a result of the SBRI projects, the discussion among heat professionals has changed to focus on establishing metrics, measuring performance and making best use of data. This quantified approach is now likely to be incorporated into the upcoming compliance regime for the Code for Practice.
- Clients are finally starting to hold their design teams and contractors to account – a prerequisite for delivering decent networks.
So how are we doing on efficiency? Better – and I’m optimistic about the future. There’s a huge amount of work still to do, but we’re unmistakably moving in the right direction.
Low-carbon emissions
It doesn’t make sense to talk about DH as being low carbon in and of itself. There are plenty of heat networks in Eastern Europe that rely entirely on coal, for example. DH is most effective where it connects customers to sources of low-carbon heat, like industrial waste heat, waste-to-energy, CHP and large-scale heat pumps, all of which require scale.
In order to achieve the scale required, we must therefore stitch together the current patchwork of small networks and connect them to bulk sources of low-carbon heat (something else I’ve written about on this blog).
How are we doing at this so far? Not great.
With a few notable exceptions, the DH market continues to comprise lots of small, isolated networks, often right next to each other, each relying on its own small gas CHP or just gas boilers.
The £320m BEIS funding gives us a golden opportunity to link schemes to each other and to low-carbon heat sources. But it’s possible that the urgency to allocate funding will dominate other, more strategic, concerns. If that happens we’ll lose the best hope we’ve got of meeting our low-carbon challenge.
Value for customers
Value for customers must be built on a foundation of basic customer protection. The customer-supplier relationship must be based on clear quality-of-service standards as well as an independent way for a customer to settle disputes.
Heat Trust, launched in November 2015, currently protects around 23k customers. It does a brilliant job on this front.
But customer protection is only the foundation for value. The next key element is pricing.
Currently all heat networks in the UK are monopolies, where the generator, network operator and heat supplier are one company and customers have no ability to switch.
To improve the situation, you can seek to create “virtual competition”. One way to do this is to provide a cost calculator to compare the costs for heat and hot water from a given heat network to a baseline, for example an individual combi boiler.
Another way is to require heat providers to publish their tariffs so customers can directly compare their own tariff to those of customers on other networks.
Approaches like these have been the main focus for policy discussion and go some way toward engendering better value for customers. But they’re pale substitutes for the more fundamental (and less discussed) solution of making the heat market genuinely competitive. Done well, a competitive heat market in which suppliers and generators compete for business would naturally address questions about value for customers.
What would the shape of a genuinely competitive heat market be and how might it work in practice? That’s the doozy from the title, and I’ll explore possibilities in weekly posts over the next three weeks.
carbon limited 
By “virtual competition” you essentially mean naming and shaming – here’s what you could have from an individual home solution vs what you’re being offered from a communal solution.
Any idea when this comparator will actually be agreed/published?
I completely disagree with the following statement:
“Currently all heat networks in the UK are monopolies, where the generator, network operator and heat supplier are one company and customers have no ability to switch.”
It’s extremely common for generation, distribution, and retail to be separate legal entities operated by separate groups of companies.
GenerationCo owns the energy centre and sells wholesale heat to RetailCo via the DistributionCo, who are paid a service fee by RetailCo.
RetailCo might be a big name company. RetailCo might offer to buy DistributionCo. More commonly they might offer DistributionCo a pile of cash in exchange for a 25 year monopoly on DistributionCo’s assets. This is where the worst price gouging I’ve seen takes place.
RetailCo might also be the Resident Management Company (or freeholder/landlord) buying wholesale heat from GenerationCo and paying DistributionCo a service fee for use of their assets. They might even pay OperationsCo to help meter/bill/collect payment on their behalf. Resident Management Company can’t make an (unreasonable) profit though, and is obligated to secure a reasonable deal on threat of the Landlord and Tenant act, so price gouging is much harder.
This might be old fashioned, but this was how the issue of a monopoly distribution and retail position got fixed last time it arose with gas/electricity/water and landlords, and it works. What might a “new wheel” do that the “old wheel” didn’t? 😉
Hi Marko.
You say: It’s extremely common for generation, distribution, and retail to be separate legal entities operated by separate groups of companies.”
Can you give some specific examples to make sure we’re talking about the same thing?
Regarding how the issue was fixed last time, I don’t agree that the structure you’ve described applies to electricity and gas, and think we could do more to encourage competition in the heat market. Hopefully the next post will clarify the picture.
Any of the older Utilicom/Cofely/GDF Suez/Engie schemes?
IncineratorCo > PipeCo > Local Authority (freeholder). Then freeholder > resident as a service charge.
The electricity/gas/water industry now try to bring “their” cables/pipes up to the flat and get the meter as close to the flat as possible, such that there is no “private wire/private pipe” outside of statutory price controls.
Where there are “private wires/private pipes” owned by the freeholder they’ve long since given up trying to charge a premium/markup on the electricity/gas/water conveyed through/over these and just pass through such costs. Because that’s all they’re allowed to do.
https://www.citizensadvice.org.uk/consumer/energy/energy-supply/problems-with-your-energy-supply/what-your-landlord-can-charge-for-energy/
Communal boilers in the basement? Under these rules they can charge for the boilers and their upkeep. They can charge for the fuel. They can charge for the metering/billing/payment collection/ They can charge admin. They’re NOT allowed to charge interest on the capital required to install the building services inside the building in the first place though.
Personally I think this is where the biggest questions on fairness/price will/should be asked. The electricity/gas/water industry are charging for these “final connections” when they’re inside a building but the relative cost base compared with DH (where most of the cost is in the final connection/inside the building they way that most do it here) looks totally different.