CHPA presents “Big Offer” to Energy Secretary to boost community district heating

• Several thousand jobs created in construction
• Carbon emissions cut through greater efficiency
• Consumer bills stabilised

District heating industry representative body CHPA will today present a “Big Offer” to Energy Secretary Ed Davey, the aim being to boost the amount of district heating in local communities. Several thousand jobs will be created in the construction phase, claim CHPA.

The Big Offer aims in the short term to initiate the building of more district heating schemes under current market conditions. In the longer term, CHPA wants to substantially increase the market for district heating by reducing the cost of capital and increasing the quantity of finance available, with the help of state-backed loan guarantees.

“There is a lot of interest in district heating and our proposals are about turning that into real projects” said CHPA deputy director Ian Manders.

CHPA is advocating that DECC provide some short-term (two to three years) of support in the early development phase, based on several years experience gained in London, where successive Mayors have provided such support for local authorities.

CHPA estimate that for a “modest spend” by DECC in development work, district heating projects worth £300 million pounds in capital investment should be expected, leading to the creation of over 7,000 jobs, mainly in the construction phase. Customers’ carbon emissions will be reduced, and their energy bills will be stabilised.

In the longer term, CHPA wants to substantially increase the market for district heating by reducing the cost of capital and increasing the quantity of finance available, via state-backed loan guarantees. This will make far more projects viable, and enable city-wide schemes as seen on the Continent and several North American cities.

Manders added: “While capital grant programmes have made an impact in the past, they’re unlikely to be repeated by a Government pledged to cut Government borrowing. So instead, we propose state-backed infrastructure loan guarantees so that low rate, low risk institutional finance can invest at the scale required.”

In response to actions which will in the long-term create a third energy utility, CHPA will set up a form of self-regulation in terms of a domestic heat customer protection scheme with an independent adjudicator.

The seven elements of the Big Offer are:

1. District heating database of opportunity, an extension of current England heat map, this database will indicate to local government areas to prioritise viable schemes.
2. District heating development support agency, will provide technical experts to support councils to master-plan for heat and develop schemes.
3. District heating development fund for local authorities will provide match funding for feasibility studies and tender development for local authorities not requiring the help of the support agency.
4. District heating contract framework will cut cost of delivering out of town campus district heating projects in universities and social housing.
5. Loan guarantees for district heating will underwrite the capital borrowing from low-risk institutional investors (such as pension funds) to provide capital at low interest rates.
6. The CHPA Customer protection scheme will provide an independent dispute adjudicator for the district heating industry.
7. Finally, CHPA calls for the establishment of a Government/industry Task Force to help deliver significantly more district heating.

ENDS

For further information or to request an interview, please contact:

Ian Manders
Deputy Director, CHPA
T 020 7828 4077
M 079466 12508
E ian.manders@chpa.co.uk

Notes to editors:

About the CHPA
The Combined Heat and Power Association (CHPA) is the leading advocate of an integrated approach to delivering energy services using combined heat and power and district heating. The Association has over 100 members active across a range of technologies and markets and is widely recognised as one of the leading industry bodies in the sustainable energy sector. For more information about the CHPA see: www.chpa.co.uk.

About District Heating
A district heating scheme comprises a network of insulated pipes used to deliver heat from the point of generation, in the form of hot water or steam, to an end user. District heating networks provide the means to transport heat efficiently. Heat networks can be supplied with heat from a diverse range of sources including power stations, waste-to-energy facilities, biomass boilers and CHP plants, gas-fired CHP units, heat pumps, electric boilers and even solar thermal arrays. Click here for more information about district heating and here for case studies.

About the Big Offer
CHPA’s Big Offer is a series of practical proposals to build district heating at a scale to achieve national objectives. The Big Offer is a response to the DECC Heat Strategy, which outlines a strategic role for district heating in decarbonising the energy used in buildings. Whilst the Heat Strategy did not quantify a specific target for district heating, it indicated that as much as 50% of buildings in the UK are in areas of suitable density for district heating.

Following the release of the Heat Strategy, the UK Government is working to develop heat policies that support the decarbonisation of heat. These are due for publication in the period January to March 2013. To contribute towards this process, CHPA set up a working group of members and others with interests in district heating to develop the practical proposals contained within this document. These are presented to DECC for consideration and CHPA will continue to work with DECC over the coming months as the Government’s policy and action plan evolves. A similar set of proposals will be presented to the Scottish Government for consideration.

Research commissioned by Government indicated that between 3 to 8 million dwellings and a major share of commercial and public buildings can be connected to district heating at reasonable cost. The Big Offer documents set out the how the district heating industry in the UK proposes to prepare for this level of expansion in the short-term and the cooperation with Government required.

Two actions are required to bring down the cost of capital to utility investment interest rates. The first is the de-risking of the investment to attract institutional investors; and the second is creating sufficient volume and commonality in district heating investment that individual schemes are effectively ‘commoditised’ for lenders and institutional investors. To enable these to happen, the following proposals make up the Big Offer:

1. District heating database of opportunity: an extension of current DECC work including the England heat map, this database will indicate to local government areas of suitable heat density to prioritise viable schemes.
2. District heating development support agency: this will provide technical experts to support councils on feasibility studies, planning advice, tender development, procurement support, legal advice and operational guidance. To be funded by DECC with matching funding from participating local authorities.
3. District heating development fund for local authorities: this will provide match funding for feasibility studies, planning advice, tender development, procurement support, and legal advice, for local authorities not requiring the help of the support agency.
4. District heating contract framework: this will provide low-cost purchasing frameworks to enable out of town campus district heating projects to be built quickly and with less red tape. Standardised contracts will be used as the basis for tender and a vetted panel of suppliers ‘pre-approved’ through the OJEU process.
5. Loan guarantees for district heating: underwriting the capital borrowing required for district heating scheme investment is required to facilitate access to institutional investors to provide sufficient volumes of capital at low interest rates.
6. Customer protection scheme: aimed to increase the rights of the domestic heat customer, this will comprise a heat customer charter and independent dispute adjudicator for the district heating industry.
7. Industry support for Government policy making on district heating: the industry offers to work closely with government to ensure its policies reflect the right priorities to significantly increase the spread of heat networks, and that the level of ambition required is set out for investors and industry to respond. Therefore CHPA calls for the establishment of a Government Task Force or forum (similar to the Smart Grids Forum), charged in the first instance with overseeing the necessary coordination between industry, finance and various arms of government to “get the Offer moving”.