Decarbonising heat networks

The UK has seen huge success in its transition away from using fossil fuels to generate electricity, but the heat sector has some ground to make up. Heat networks using gas-fired combined heat and power (CHP) are under scrutiny and seen as a burden on the Government's attempts to achieve its carbon reduction targets by 2050.

Heat networks can supply heat and hot water to multiple homes and businesses from a central source, via underground pipes. Scaled up and connected together, they can even supply towns and cities.What's the problem?The vast majority of UK heat networks are fuelled by natural gas-fired CHP, a reliable source, but a fossil fuel. The fast growth of renewable electricity generation has led the Government to reassess how quickly unabated natural gas-fired CHP will begin to displace the carbon gains being made. It could effectively start raising the UK's carbon emission rates from as soon as 2025.What are the alternatives for heat networks?Heat networks will continue to play an important role in achieving efficiencies but in order to decarbonise them, we must look to the fuel source. Government has its work cut out in setting the agenda away from fossil fuels, as the size and purpose of gas-fired CHP plants vary wildly. Many are bound by long-term contractual arrangements underpinned by strategic financial models.

  • Heat pumps

Government's front runner is the use of heat pumps (air-to-water and air-to-air), which are powered by electricity. They are already widely used, although operate at lower temperatures and so are often supplemented by boilers for periods of peak demand. Some high-profile district networks have already installed heat pumps in their energy centres, including E.ON's Citigen facility in London. Investment is needed to scale up supply chains for wide-scale role out.

  • Recovered heat

Many industrial, waste and commercial processes create excess heat which can be harnessed and used in a heat network, often a win-win for high carbon emitters under pressure to decarbonise. Many energy from waste plants are already decarbonising in this way. Government is keen to promote such sources of heat but they often face the logistical challenge of being built away from urban areas and heat network customers.

  • Biomass

The use of biomass in CHP can be renewable if it comes from a sustainable source but supplies, such as wood pellets, are limited and delivery presents logistical challenges for densely populated areas. In order to achieve the desired emissions reductions, biomass projects which also use carbon capture and storage will be prioritised.

  • Biomethane

The generation of biomethane via new anaerobic digestion plants will receive financial support under the Green Gas Support Scheme (GGSS), which replaced the non-domestic Renewable Heat Incentive (RHI) in the autumn of 2021. However, it won't support the conversion of existing plants to biomethane injection.

  • Hydrogen

A longer-term solution may be replacement of natural gas with green hydrogen, although it is not yet produced cheaply or at scale. Significant investment, research and development is still required, as well as wholesale grid infrastructure upgrades.How is government driving the transition?

  • Future Homes Standard and Part L Building Regulations - the carbon emissions standards for new build homes are being tightened on a phased basis. Currently in the transition phase, full introduction by 2025 will see gas-fired CHP as no longer sufficiently low carbon. Developers with long-term build out programmes will have to plan for the tightening carbon targets, particularly where centralised heat network plant has already been installed.
  • Heat network regulation - heat networks are soon to be regulated and alongside the consumer protection agenda is reduction of carbon emissions. It will be enforced through the proposed authorisation scheme, but will be introduced incrementally in order to work with the replacement cycle of existing plant and not deter investment. Alongside this will be reforms to the Environmental Permitting Regulations.
  • CHPQA (CHP Quality Assurance Programme) - Government is considering introducing carbon measurement as part pf the wider CHPQA and potentially closing the scheme to new unabated natural gas CHP in the short term, as outlined in the summary of responses to its “Pathway to Decarbonisation Call for Evidence” published in March 2022.
  • Incentives - financial incentives from Government are sparse now that the Renewable Heat Incentive has finished. Green Gas Support Scheme is incentivising the production of biomethane and the Heat Networks Transformation Programme is helping fund the capital cost and commercialisation of low carbon heat networks. The Heat Network Delivery Unit provides grant funding to local authorities for the development of heat network projects.

What to consider now?If you're planning the installation of a gas-fired CHP district heating network, be mindful that carbon emissions standards will be tightening. This is particularly important if newbuild homes and commercial properties will be connected over a long build-out period. Long-term financial models may also have to factor in alternative generation technology as part of the cyclical plant replacement programme.In long-term concession contracts currently being negotiated, pay particular attention to change in law and plant upgrade processes.

 

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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