Heat Networks: Building a market framework: consultation response

Published: 3 June 2020

Heat – including industrial heating processes – is responsible for a third of the UK’s greenhouse gas emissions . Heat networks are a crucial aspect of the path towards decarbonising heat. The Department for Business, Energy and Industrial Strategy has launched this consultation to consider approaches to accelerate the move of heat networks to low carbon generation such as waste heat and heat pumps.

There are currently over 14,000 heat networks in the UK, providing heating and hot water to approximately 480,000 consumers. Heat networks deliver heating, hot water, and/or cooling from a central source or sources to domestic dwellings, public sector buildings, shops, offices, sport facilities, hospitals and universities. They are uniquely able to unlock otherwise inaccessible larger scale renewable and recovered heat sources such as waste heat and heat from rivers and mines.

In the right circumstances, heat networks they can reduce bills, support local regeneration and can be a cost-effective way of reducing carbon emissions from heating. In this consultation the UK Government set out our proposals to drive forward growth in low-carbon heat networks’ in a regulatory framework that protects consumers and ensures fair pricing.

The UK Government believes there is significant potential for the number and scale of heat networks to increase dramatically. We are also proposing legislative changes to give heat network developers equivalent statutory rights and undertakings to other utilities, such as gas and electricity. These additional rights would ease developers’ costs and burdens when building out new networks or extensions. We set out in this consultation plans to establish a licensing arrangement for parties who wished to secure these additional powers.

Key points

Our analysis of the pathway to Net Nero, using leading edge national energy system modelling, points to the high value and potential for heat networks to support cost-effective decarbonisation of heating over the next 2 to 3 decades. It is right that the government considers carefully how to build a coherent market framework for heat networks as a key part of the net zero portfolio.

We welcome the broad proposed approach to developing the market framework for heat networks which seeks to avoid imposing unnecessary regulatory burdens or constraints on the sector at a relatively early stage of development, while allowing for appropriate innovation and development. This includes the proposals for:

  • Assigning Ofgem as the regulatory body for heat networks
  • The broad regulatory model of general authorisation with optional licence for rights and powers
  • The approach to developing pricing transparency, without requiring full price regulation (although this should be kept under review as the market develops)
  • The use of industry-led specification and certification in the development of technical standards.

We believe that the national roll out of a structured approach to Local Area Energy Planning, with local authorities playing a key leadership role, should be a key part of the development of the market framework. Such a process can underpin the effective and evidence-based identification of those areas most suited to development of heat networks. This requires the development and resourcing of a robust, nationally agreed methodology for local energy planning.

  • This form of local area energy planning should also link to and inform investment planning for other relevant energy network infrastructure, such as investment planning by gas and electricity distribution network companies, as we are currently exploring with Ofgem. There will be a clear interaction between infrastructure planning for heat networks and that for other energy vectors.

We believe that further work should be done to develop measures to strengthen the demand pull for low and zero carbon heat networks, as part of the government’s broader heat and building decarbonisation policy framework. We have developed proposals in our recent ‘Six steps to Zero Carbon Buildings’ work including the setting of minimum carbon performance standards for buildings and mechanisms to reward low carbon choices through energy bills, for example through a building carbon credits scheme. These proposals could and should apply equally on a level playing field to energy supplied to buildings by heat networks or any other energy vector.