The government's long-awaited proposals for zoning offer the prospect of a step change in the deployment of district heat networks in England (i.e. networks which serve multiple buildings within an area, rather than networks serving a single multi-occupancy building).
Local Authority action and isolated private sector initiatives aside, until now there has been a market failure in the delivery of this kind of heat network. Although the need for low-carbon heat is clear, few private sector developers have been prepared, other than by partnering with the public sector, to lead the development of these potentially transformative projects.
This is the result of the competitive disadvantage which district heat networks face compared to the principal alternative - gas networks. Gas infrastructure has benefitted from huge investment over decades, resulting in large-scale, widespread, systems whose capital costs have largely been recouped. The developers of those networks enjoy regulatory advantages too, like compulsory purchase powers and rights to install apparatus in the public highway, which developers of heat networks currently do not. Most significantly, gas has also enjoyed a pricing advantage, because gas prices do not fully include associated air quality and climate change costs.
The detailed design of the proposed heat network zoning mechanism is – through consultation – still being developed, but it is now clear that within designated zones various categories of consumer, and potentially also suppliers of heat, will be required to connect.
The consultation covers, amongst other things, who these consumers/suppliers should be, the time period by which they should be required connect, and whether it should be possible to have more than one heat network within a zone. However these issues are resolved, the requirement to connect tackles one of the major obstacles to widespread deployment of district heat networks head-on, and should boost the confidence of private sector investors in the financial case for projects.
Central government believes that decisions about the precise extent and configuration of a heat network zone should be made at a local level, by the relevant Local Authority. We agree. However, it is also clear that central government intends to shape the methodology and process to be used and, if necessary in a particular case, the right to do so itself if, for example, the Local Authority does not have the required resources or is unwilling (for whatever reason). One way or another, the objective of heat network zones is to promote the development of heat networks wherever they offer the optimum solution to decarbonise heat.
Whether establishing heat network zones will lead to scale of investment in heat networks that the government is looking for remains to be seen. We hope it does. Once zones are established (and possibly even before that) the private sector will then have both the opportunity and incentive to invest in what is a no-regrets infrastructure class for decarbonisation. The creation of heat network zones may even be enough to stimulate private sector investment ahead of committed demand, and so get the heat network ball rolling.
