Heating is one of the most difficult sectors of our economy to decarbonise. This is largely because gas provides 90% of our domestic heating demand, and so infrastructure to deliver gas to homes represents a big sunk cost. In addition, gas boilers are much cheaper than low-carbon heating technologies. For instance, the £2,600 cost of a condensing gas boiler compares unfavourably with £6,500 for an an air-source heat pump.
In our recent report, Better homes, we found that of the different microgeneration technologies that produce renewable heating, heat pumps, had the greatest potential to be deployed at scale. Private investment by individual households in heat pumps and other home energy improvements should be encouraged through new Help to Improve loans and ISAs.
However, there are alternative approaches to heat decarbonisation. For instance, ‘green gas’ (biomethane) can be injected into the gas grid, the gas grid can be converted to use hydrogen, or new ‘heat networks’ can be constructed.
This blog will examine the potential of heat networks in particular, and the barriers to greater deployment.
Heat networks trends
Heat networks are a distribution mechanism for heating. In a heat network, heating is generated centrally and then transported through insulated pipes to homes for space and water heating. The energy comes from a range of sources, including gas, waste heat from power and industry sectors, energy from waste plants, and large-scale electric heat pumps. District heat networks can be delivered by partnerships of energy companies, government, housing associations, businesses, and local authorities.
There are currently 2,000 heat networks in the UK, supplying heat to around 200,000 homes. Heat networks provide around 2% of the UK’s heating. Heat networks are very common in other European countries, such as in Denmark where over 61% of customers receive their heating from a heat network.
In the 2013 heating strategy, DECC modelling suggested that up to 20% of UK heating demand could be met by heat networks by 2030. The Government has allocated £320 million of public capital for heat networks over the course of this Parliament. It has created a new programme, the Heat Network Investment Project, to distribute the funding, leverage private finance, and deliver the infrastructure. It believes the pipeline of proposed projects over the next 10 years will require £2 billion of private investment.
Barriers to heat network deployment
There are a number of barriers to further deployment of heat networks. First, in order to enable carbon reduction targets to be met, the energy sources of heat networks must be low-carbon. At the moment, the majority of the energy used in district heat networks comes from natural gas. There are still carbon savings from switching to this more efficient heating system away from individual gas boilers, but it does not constitute low-carbon heat. Existing heat networks need to be converted over time to low-carbon energy sources, such as waste heat from power and industry sectors, or large-scale electric heat pumps.
Second, financing mechanisms for heat networks must be further developed to give operators more certainty while protecting consumers. This was one of the key recommendations in Policy Exchange’s recent report on the heat sector. Consumers are naturally unwilling to contract with a heating provider which isn’t yet operational. Yet to give investors the certainty they need to construct the heat network, a basic level of demand must be guaranteed. The Association for Decentralised Energy has called for a new capital guarantee scheme from government to de-risk heat network investment. It is vital that reducing risk for developers does not damage consumers, who will in effect be contracting with monopoly providers.
Third, not all types of properties in the UK will suit the heat network model. They require a dense heating demand profile in order to be economical and minimise capital costs, and as such will mostly be installed in highly populated urban areas. They are also more expensive to retrofit into existing properties than to install in new developments. In the right conditions, however, savings for the consumer are possible. DECC analysis suggest that heating costs for a flat supplied by a heat network can be 30% lower than the equivalent property heated by a gas boiler.
Heat networks could certainly play a key role in cost-effectively decarbonising the heating sector. It is a great opportunity to utilise low-carbon waste heat sources, particularly in urban areas. The barriers identified above can be overcome by policymakers. However, given the scale of the transition away from gas boilers, it is likely that a combination of heating solutions will be required, also including energy efficiency measures, heat pumps, and green gas. Heat networks should be part of that mix.
Sam Hall is a researcher at Bright Blue