Heat Networks, Standardisation and Regulation

Heat networks distribute thermal energy in the form of steam, hot water or chilled liquids from a central source of production through a network of pipes to multiple properties for the use of heating, cooling or hot water. A “District heat network” is defined by legislation as the distribution of heat to multiple buildings or sites and a “Communal heat network” is defined as the distribution of heat to multiple dwellings in a single building.

In 2015 the Committee on Climate Change (CCC) estimated that around 18% of UK heat will need to come from heat networks, which would be almost 6 million households. In the UK there are currently approximately 480,000 customers spread across around 12,000 communal heat networks (serving only one building) and 2,000 district heat networks (serving multiple buildings).

To promote heat networks, the government’s Heat Network Delivery Unit (HNDU) provides practical support to local authorities and project developers in the early phases of scheme development. In 2015, the UK Government announced £320m of funding through the Heat Network Investment Project (HNIP), with a view to delivering up to £2 billion in new investment, and support is also being given by the Scottish government. BEIS supports using local planning powers to force compulsory connection, through zoning, concession arrangements, and mandated connections.

Research by the Competition and Markets Authority (CMA), by the consumer advocacy organisation, Which?, and by Citizens’ Advice all reveal that the current experience of heat networks is poor. A significant minority of customers face higher heating bills compared to domestic gas consumers; there are more interruptions of supply; and inferior customer service. Heat network customers are significantly more likely to be retired, classified as vulnerable, and identifying themselves as financially precarious than the general population. 88% of networks do not allow customers to disconnect.

The push from BEIS to encourage a decarbonisation of heat networks will lower the average efficiency of the sector; because currently most heat networks are supplied by gas, with 64% of larger systems using Combined Heat and Power cogeneration (CHP). When heat networks employ other technology then costs to customers can be expected to rise.

CMA identifies a very crowded stakeholder landscape; and the conflicting interests between property developers, energy supply companies (ESCOs), local authorities and tenants; as acting to the disadvantage of customers. Currently the market is unregulated, except that since 2014 there are some mandatory requirements around metering and billing for new systems

Heat networks have high market penetration in some countries, for example, Denmark and the Netherlands. In the Netherlands, customer prices are capped at the reference price of domestic gas heating.

BEIS is proposing a regulatory regime that is inferior to the licencing arrangements for the gas and electricity markets. Although the fractured stakeholder landscape is identified as a key contributor to poor outcomes, they are proposing a regulation model that preserves that dysfunctionality.

They are also proposing to use significant government subsidies, and local authority planning compulsion to mandate people to connect to heat networks. A high proportion of those who face such compulsion will be social housing tenants, so the pattern of heat network customers being disproportionately more likely to be vulnerable or in difficult circumstances will be perpetuated.

When properly designed, correctly dimensioned, implemented to professional standards and efficiently run, heat networks can provide good, and cost-effective outcomes. 64% of UK district networks use gas fired CHP (also known as cogeneration), and technically, CHP, especially from gas, is extraordinarily efficient. This report will use the terms CHP and cogeneration interchangeably, as that follows the literature.

However, in addition to seeking to grow the heat network sector, the government’s objective is to simultaneously decarbonise the heat networks themselves. The efficacy of such decarbonisation is assumed by BEIS, but not clearly substantiated, There seem to be unchallenged assumptions about the renewable electricity capacity, and fundamentally, the operating principles of heat pumps do not seem to be clearly understood by many in the sector. BEIS is proposing that ambient ground loops, a form of shared but small district heat network, relying upon ground source heat pumps, should be excluded from regulation. This is the part of the heat network sector most likely to directly compete with domestic gas for new build private sector property, and there seems to be no reasoned case for its exclusion from regulation and technical standards.

There are two separate, relevant issues under consultation by BEIS: regulation and standards. In principle the regulatory regime should not offer weaker protection for customers of heat networks than enjoyed by customers of domestic gas.

With regard to technical standards, the sector is more diverse than the domestic gas heating industry. Some useful work has already been done by trade bodies, but the government should promote a path to a formal British Standard. Some smaller manufacturers seem to be concerned about bearing the costs of standardisation.

Requiring all heat networks to be authorised on the basis of standards compliance provides the opportunity for authorisation to also be based upon substantiation of their decarbonisation credentials. There is some useful technical guidance from the EU’s standards body, CENELEC, on how this can be done for cogenerations systems. Professor Marc Rosen, an academic expert on district heating, and former president of the Engineering Institute of Canada, has proposed a mechanism of thermodynamic analysis for heat networks.