Low carbon heat networks have been designated as fundamental to the UK’s net zero strategy.
Government and Climate Change Committee analysis suggests heat networks could supply around 15-20% of UK heat demand by 2050 – a significant increase on the current 3%. It is hoped new regulation in Britain, alongside heat network zoning proposals in England, will accelerate the development of new networks.
The government believes zoning and a standardised delivery model will ‘catalyse growth where it’s most needed’. It wants central and local government to work with the private sector to deliver heat networks in geographical areas where there is the opportunity for low cost and low carbon heat production.
The proposed new regulations represent an opportunity to speed up decarbonisation, and private sector investment may help address some of the issues encountered in the past, such as resource, procurement and skill-set constraints. There is uncertainty, however, around the role public bodies will play in the future of heat networks.
History repeating itself?
A private sector model is not a new idea. Private investment dominated the market in the 1990s and 2000s, but significant growth was limited – in part because investment focused on commercially attractive anchor loads rather than wider civic networks. As local authorities looked for greater involvement in delivering expanded networks for the breadth of customers in their communities, a new era of public-private partnerships dawned.
Some local authorities, including in Leeds and Cardiff, have set up companies and contracted private firms to build their heat networks, which the councils then own outright. This means they have more say over issues such as expansion and pricing, and earn an income from selling the heat. But there are challenges to this model, including concerns around liability.
There is always a financial risk to funding big infrastructure projects, and the Procurement Act 2023 – together with the new regulations – may require local authorities to compete in a procurement process, against private sector providers, to win the right to build and run their own heat networks. This takes a lot of time and effort, and public bodies may not want to take the risk. There is also the question of whether it is the best use of public money.
Changes afoot
Under the proposed zoning delivery model, if a local authority wants a new or expanded heat network in its area, it can engage a designated private contractor to lead the process. This is quicker than, for example, establishing and registering a new company with Companies House and then procuring contractors to develop and build the network. Private developers are not bound by public procurement rules in the same way as local authorities.
While this approach has the potential to speed up the delivery of heat networks, reduce carbon faster and drive down risk for public bodies, a private-sector approach is driven by profit margins and stakeholders. Without careful consideration and sufficient contractual levers, it could end up being at odds with a public body’s economic and social strategy – for example, to combat fuel poverty.
In addition – with both private and public delivery models – there are potential supply chain challenges ahead, including a limited labour pool and a skills shortage in the sector. This may raise the cost of building heat networks.
Looking ahead
Carbon Trust has been working with public bodies, such as the West Midlands Combined Authority, to explore their strategic role in this potential new landscape of heat network zoning, private sector delivery and wider regulation. This involves in-depth stakeholder engagement and analysis, spatial data mapping, and potential role assessment and development.
The work has shown how, even in private-only delivery models, public bodies can take a proactive leadership role, aligning local and regional priorities with national policy, and unlocking investment and capacity for low carbon heat infrastructure across their regions.
In our view, there is a happy medium to be had in the delivery of heat networks. This could include an option for public sector delivery among the current proposals, so that public bodies don’t miss out on some of the advantages they have seen in the past.
There are also other opportunities for direct public sector involvement in decarbonisation strategies. A recent example is the establishment of Great British Energy to fund public renewable energy projects.
Whatever the future – and the regulation – holds, it is clear that the public and private sectors each have a role to play in decarbonisation, and close collaboration is key.
ABOUT THE AUTHOR
Lucy Pemble is senior manager, cities & regions, heat networks at the Carbon Trust