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This article was first published by EG – @EGPropertyNews – on 23 January 2024 (here). It is reproduced with their permission.
Heat networks provide relatively low cost, low-carbon heat which can help the UK to meet its legally binding targets to slash greenhouse gas emissions. In the UK, there are currently 14,000 operational networks, although they tend to have a relatively low public profile.
In July 2018, the Competition and Market Authority’s heat networks market study calculated that heat networks provide just 2% of UK buildings’ heat demand. The independent Committee on Climate Change has estimated that to meet carbon targets, around 18% of the UK’s heat needs to come from heat networks by 2050. This could require investment of between £30bn and £50bn.
What are heat networks?
District heat networks supply low-carbon heat from a central source to nearby buildings (domestic and non-domestic) via a network of insulated pipes carrying hot water. Communal heat networks operate within a single building. In this article we are referring to district heat networks rather than communal heat networks.
One of the advantages of heat networks is that they can take heat from a range of sources, including biomass and biogas-fuelled boilers, energy from waste facilities and air source heat pumps. We are also seeing developers increasingly explore innovative low-carbon heat sources such as mine water, sewers and data centres.
What is zoning?
Recognising the need to accelerate the development of and investment in heat networks, the Department of Energy Security and Network Zero proposes to create a number of heat network zones.
The purpose of zoning is to help overcome some of the perceived barriers to the development of networks such as uncertainty over which areas offer the best opportunities for developing networks, confusion over the role of different organisations in developing networks and lack of clarity on which buildings are likely to connect to a network. Among the changes introduced, zoning is expected to:
- create designated roles for a number of bodies (including local and central government) so that there will be better co-ordination between all parties with an interest in delivering networks;
- require that all buildings within the zone (with some exceptions) connect to the heat network;
- specify that a selected operator (or operators) will have the exclusive right to operate the heat network(s) within the zone; and
- impose requirements in relation to the carbon intensity of heat from the designated heat network.
The introduction of zones will therefore be transformative for the sector and also for any entities which own or occupy properties within zones. DESNZ has already identified 28 pilot areas for zoning, including the Greater Manchester Combined Authority, Newcastle and Nottingham. These pilot areas have the greatest likelihood of first being designated as zones, therefore it is particularly important for owners, occupiers and prospective developers within these pilot areas to consider the impact of zoning.
When is heat network zoning coming in?
Following a consultation in autumn 2021, the government conducted a pilot study of the heat network zoning in order to develop, test and refine an approach to developing heat network zones.
The government is also developing an advanced zoning programme to test and inform live policy development on zoning, with ten cities aiming to have started construction of heat networks by the end of 2025.
The Energy Act 2023 is silent on when heat network zoning will be rolled out nationally under the legislation. However, during earlier consultations and the preparation of the bill, it was understood that construction of infrastructure within zones would commence in 2025 in line with the anticipated finalisation of the regulatory framework.
How are zones being determined?
The zones authority (which is expected to be the Secretary of State) set up as part of zoning will be responsible for developing a standardised national zoning methodology for identifying potential heat network zones.
Regulations will set out how zones are to be identified, designated and reviewed in accordance with this methodology. Once a standardised methodology for identifying zones has been produced there will be a second phase of local refinement to define the boundaries of a zone.
A zone coordinator will carry out functions conferred on them by the regulations, including enforcement of the requirement to connect. It is anticipated that the zone coordinator will generally be a local authority. The level of local government at which the zone coordinator is established will remain flexible, including the possibility of multiple local authorities at different levels of government working jointly to deliver zones (although there is expected to be a single zone coordinator per zone).
The government has recognised that local authorities will play an important part, commenting that "Successful delivery of heat network zoning policy will be dependent on local government having the right resources to deliver their responsibilities effectively."
The requirement to connect
The 2023 Act does not specify the building categories that will be required to connect but it appears the categories will be:
- all new buildings;
- existing communally heated buildings; and
- some non-domestic, non-communally heated buildings.
Regulations will define the types of buildings that are in scope of the requirement to connect, when the requirement applies and the circumstances and process by which building owners or developers may seek an exemption from the requirement to connect. Exemptions can be sought including where:
- it would not be cost-effective to connect, compared to an alternative low-carbon solution; and
- a low-carbon heating system has already been installed.
Owners of potential heat sources (eg energy from waste plants) within a zone should also take note. The 2023 Act states that the regulations will allow a zone coordinator to give notice to a heat source owner requiring the installation of equipment on their premises to enable the thermal energy source to be used by a heat network within the zone.
Regulation
Currently, heat networks are largely unregulated. However, this is soon to change. As mentioned above, new roles are being created for the purposes of implementation and regulation of the heat network zones themselves. Additionally, the secretary of state will also have extensive powers to create and amend regulations governing the implementation of zones.
For consumers, Ofgem will be responsible for the regulation of prices. The government intends for heat network customers to be provided with protections comparable to those that gas and electricity consumers already benefit from. It is hoped that price regulation will be developed as the Advanced Zoning Plan progresses so consumers can be more informed of their rights prior to national rollout.
Consultation
Shortly before Christmas, the Department of Energy Security and Network Zero launched a consultation on heat network zoning. This consultation asks stakeholders to provide views on a wide range of issues including the types of buildings which should be mandated to connect, how existing heat networks within zones should be treated and the most appropriate commercial delivery models for delivering heat networks within zones. The consultation closes on 26 February 2024.
The consultation provides a clear direction of travel in relation to many zoning issues and is therefore helpful for anyone wishing to better understand the potential impacts of zoning, even if they do not intend to respond to the consultation.
Be ready, change is coming
Heat networks are an effective method of offering low-carbon heat and they could make a real impact on the public and private sectors' ability to meet their net zero obligations.
Now that the 2023 Act has received royal assent, the government is keen to roll out zoning nationwide as a matter of priority. Consequently, the sector is undergoing rapid change and it is important for those who could be affected to stay on top of developments. This could include a wide range of stakeholders who have previously never considered connecting to a heat network.
In order to expand and thrive, heat networks require billions of pounds worth of investment. For investors, contractors and developers, zoning will provide numerous opportunities for the delivery of new heat network schemes. Now is an important time for all stakeholders to engage with heat network zoning in order to inform decision making and help make heat networks work for everyone's benefit. Heat networks are coming, ready or not.
