In keeping with the scale of the challenge, the 6th Carbon Budget advice report released last week by the Climate Change Committee, does not make for light reading. Weighing in at 448 pages (not including the Methodology and Policy reports), it sets out a proposed pathway for the UK to reach a 78% reduction in CO2 emissions (compared with 1990) during 2033-2037 and net zero emissions by 2050. It is an ambitious document, but it has to be, as this is where we now find ourselves – just 30 years from a commitment to reach net zero.
At the document’s core is the Balanced Net Zero Pathway. This approach represents a decisive transition of the UK economy to net zero emissions while considering the differing levels of maturity of each sector. For example, electricity has made a relatively flying start to decarbonisation over the last few decades due to the transition from coal to gas and the huge cost reduction in renewable technologies. However, there are harder sectors that require decarbonisation, such as transport and buildings, where the pathway is less clear and will take longer to gather momentum.
So, what does the report have to say about heat networks?
First, all the modelled scenarios are led by electrification via heat pumps and they all also include heat networks – two technologies that complement each other well. In line with previous government studies, the report recommends policies that result in approximately 1 in 5 homes being served by heat networks by 2050 – a staggering increase from the current 2%. As we are, at the beginning of that journey, it suggests that the next 10 years should be treated as a period of transition for low-carbon heat networks with 19% of new homes in 2030 being connected to low carbon heat networks. As the decade draws to a close, from 2028 to 2050, it recommends that a conversion of around 0.5% of the total heat demand is connected and supplied to low carbon heat networks.
One interesting note from the report is how it suggests treating existing heat networks. While it recommends that all new heat networks should be low-carbon (i.e. mainly heat pump driven) by 2025, it gives a big allowance for legacy heat networks. For example, while natural gas boilers should be phased out by 2033, exemptions should be provided to buildings in designated heat network priority zones. This is recognition that heat networks are a transitional (no regrets!) technology that can be converted to zero carbon in the future. From a long-term perspective, it can be a better option to have a fossil fuel driven heat network in the short term if it makes moving to a zero carbon heat supply that much easier in the future. Indeed, the report recommends that legacy networks which are running on gas CHP should be allowed until 2040 to fully convert to a zero carbon heat source. This is an interesting comparison with the Heat Networks Industry Council (NHIC) vision, which is more bullish with regards to existing heat networks (net zero carbon by 2035) but more cautious with respect to new heat networks (net zero carbon by 2030).
For people in the industry, a lot of these numbers will not come as a surprise. We have become hardened to the sheer scale of them and the speed with which the transition is happening and predicted to accelerate. It is easy to repeat these figures but how are we going to enact this change. Thankfully, the report puts its money where its mouth is and lays out policy suggestions for implementing the carbon budget.
How do we actually turn this into a reality?
For the heat network industry, like all other sectors transitioning to net zero, it’s going to need money – a lot of money.
It is recommended that investment in heat networks should be in the region of £17.5 billion by 2030, almost £2 billion per year over the next decade. But it isn’t just about scale, the speed of investment is critical. The report highlights that there is a significant risk to investment in the short term due to uncertainty post 2022. Hopefully, the Green Heat Network Fund (GHNF) will look to plug that gap. The GHNF will be critical at setting the transition over the next 10 years and will need to demonstrate clear ambition to send the right signals to the market.
To ensure that confidence in the heat network sector, the other big lever that the government can pull is regulation. Here, we already have a clear pathway with the Heat Network Market Framework laying the foundation for the creation of a new, regulated utility – heat. The regulation is expected in 2022 and should result in a step change in heat network activity. No longer will it be the wild west of the energy world. Instead, a regulated heat network sector should provide confidence to investors, developers and, most importantly, residents and end users. The report highlights that the new regulations must ensure that residents and end users are treated fairly and that vulnerable and low-income households are protected. Assurance schemes will help deliver low-carbon and low-cost heat networks that can meet all these requirements.
So, we can deliver efficient, low carbon heat networks but how we do we encourage fossil fuel using buildings to connect to a district heating network? Heat networks work best at the large scale but they also need time to build and develop. This dilemma is sometimes known as “demand risk” and can deter investors and scupper the best laid plans. Recently, in an initiative championed by the Association of Decentralised Energy (ADE), heat network zoning has been suggested as a solution to this risk and the Climate Change Committee’s report recommends this approach. In fact, it states that there is a real need to designate areas for low carbon heating networks well in advance of the proposed 2033 gas phase out.
As with other low carbon technologies like heat pumps, to successfully deliver these new systems, an upskilling of the heat network supply chain will be needed and quickly. The new skills that will be needed in the sector will provide a huge opportunity for job creation in the low carbon economy.
To summarise, there has never been a more exciting time to be involved in heat networks and, if the policy recommendations proposed by the Climate Change Committee come to fruition, the 2020s will be the decade that heat networks really came of age in the UK!