Triple Point’s Ken Hunnisett envisages a tenfold increase in UK homes being heated by low-carbon heat networks.
How do district heating systems work?
Modern district heating networks distribute locally occurring sources of waste or renewable heat through highly insulated pipes directly to the buildings that need it. They work best in big towns and cities with high building density, where they produce low-carbon heat at the lowest cost for consumers.
Heat networks can also tap local renewable or waste heat sources. At its Bunhill network, Islington Council recovers waste heat from the London Underground. Networks taking heat from data centres are becoming increasingly commonplace; exporting waste heat to a community and importing back low-carbon cooling can help optimise data centre business models while creating significant environmental and social value.
Cities with harbour access, or with fast flowing rivers, have the potential to deliver heat using large water-source heat pumps. In Bristol, the award-winning Castle Park Energy Centre has been hugely successful for a number of years and several are under development along the Thames in London.
A heat network that derives its heat from heavy industry – such as glass manufacturing – or from an Energy From Waste plant should assume occasional downtime for reconditioning and maintenance. Ideally, it would be backed-up by another low-carbon source such as an electric boiler. Over time, though, interconnecting low-carbon heat networks will provide access to a multitude of low-carbon sources delivering performance improvements and greater resilience.
Before much longer, we shouldn’t be burning anything, anywhere, to heat or cool people’s homes – we can do better than that.
Ken Hunnisett, Triple PointBuilding district heating at scale is one of the least regret pathways to net zero and – in the towns and cities where heat networks excel – represent the lowest cost low-carbon heating solution for consumers.
What advantages do district heating systems offer – in terms of cost, sustainability, place-based benefits and any other metrics – over conventional heating arrangements?
The ways in which we currently heat our homes and workplaces are a very significant contributor to climate change. In 2021, emissions associated with heating the UK’s 28 million homes represented 18% of all UK greenhouse gas emissions.
Building district heating at scale is one of the least regret pathways to net zero and – in the towns and cities where heat networks excel – represent the lowest cost low-carbon heating solution for consumers. A study undertaken by PwC and Leeds University asserted that, in the right context, heat networks could be as much as 40% cheaper for consumers than individual heat pumps.
There are a number of other benefits, most of which are realised at the heart of the communities served by the networks.
The Heat Networks Industry Council predicts that the sector will create as many as 300,000 good quality, long-term green jobs by 2050, and most of these will be in the vicinity of the networks themselves.
Nitrous oxide emissions form gas boilers are a major contributor to poor air quality, particularly in urban areas, which can contribute to respiratory and other healthcare problems for those who live and work in those areas. Replacing the boilers with low to zero-carbon networks have the potential to deliver measurable air quality improvements.
There are also localised energy system benefits. District heating with thermal storage helps to manage the intermittency associated with renewable energy supply, lessening the need for renewable generation. It lowers the cost of the transition further by reducing the need for local grid reinforcements.
District heating involves considerable government involvement at multiple levels. Is there deep and consistent buy-in?
There’s significant local and central government support for the sector that shows no sign of lessening. Triple Point has been working with the Department for Energy Security & Net Zero (DESNZ) in managing its flagship capital grant programmes – the Heat Networks Investment Project (HNIP) and its successor, the Green Heat Network Fund (GHNF).
These funds have already done much to prepare the sector for its predicted growth: not just in allowing more than 90 projects across England and Wales to be commercialised and constructed but in building capacity into the supply chain, professionalising the sector and crowding-in private capital. There’s still much to do but so far it has all worked brilliantly well.
While providing that funding, the DESNZ team is also developing a policy and regulatory landscape that we hope will deliver a self-sufficient industry on a near time horizon. Heat zoning legislation coupled with regulation will be the foundational building blocks for crowding-in the kind of supportive, patient institutional capital that the sector will need if it’s to be a success.
But local government is a real force for good too – be that developing networks in their own name, offering up their significant property assets as anchor loads or by providing supportive planning, procurement, funding and convening powers.
In a zoning context, it’s like Local Authorities acting as zone coordinators with the power to create local monopolies in the designated areas it administers.
It has the potential to be the next utility-grade asset class in the UK, capable of delivering attractive, index-linked returns and significant place-based benefits.
Ken Hunnisett, Triple Point
How can pension funds invest in district heating?
Pleasingly, they’re doing so already, though in forgivably limited numbers given the relatively undeveloped state of the market. Most of that investment has been in international opportunities but the Merseyside Pension Fund is just one example of LGPS investment in the UK sector. The £20m debt facility they extended via their Catalyst Fund to Peel’s flagship Liverpool Waters heat network followed the grant made by our own HNIP.
With the potential of being the next utility-grade asset class in the UK, and one capable of delivering attractive, index-linked returns and significant place-based benefits, we hope to see investor interest being piqued. In this respect ‘productive finance’ provides a more than helpful tailwind. Asset owners looking for productive finance solutions in core-plus infrastructure would do well to look at UK district heating.
Having partnered with government since 2018, Triple Point is now finalising our own co-investment and fund options and expect to bring something to the market later this year. With the market primacy that our work alongside DESNZ on the HNIP and GHNF has given us, Triple point is uniquely placed to assist asset owners.
How do you envisage district heating developing over the next decade or so?
We hope it’s going to be very big indeed. The Climate Change Committee (CCC) said some time ago that for district heating to fulfil its potential in our transition to net zero it would need to supply between 18% and 20% of low-carbon heating by 2050. From a baseline today of just 2-3% this means a tenfold increase in the size of the market – and those estimates were made before some mooted alternatives – such as hydrogen-based heating – had been debunked.
I see no reason why low-carbon heat networks wouldn’t be the optimum decarbonisation pathway for between 80% and 90% of our biggest towns and cities.
If that’s true, the Heat Networks Industry Council’s view that £60-80 billion of private capital will be required to enter the market before 2050 looks conservative. The reality is that it will likely be in excess of £100 billion and most of this will need to be deployed over the next 15 years.
We’re still at the beginning of our journey, but can benefit from lessons learned in the UK and further afield. It’s a very significant opportunity.