District Heating Networks - routes to delivery
Large regeneration and newbuild projects present excellent opportunities for district heating networks but is the route for delivery clear enough for large developers?
Report from – Nick Hall-Stride
DHNs currently have influential advocates in the Greater London Authority (GLA) and the Mayor of London’s Office, which are keen to use their planning powers to require developers to consider DHNs in major regeneration and new-build projects in London. Yet although we are seeing some of London’s largest and most prestigious projects successfully delivering energy networks – including Greenwich Peninsula, the Olympic Park at Stratford and Battersea Power Station – the GLA’s DHN-supporting policies are heavily criticised for their ‘one size fits all’ approach and complexity. And while the aspiration for London’s construction industry to use DHNs is laudable in attempting to meet Britain's 2050 target of reducing emissions, is the route for delivery clear enough for London’s developers?
A good place to start is reviewing the complexities, which vary from technical and cost issues, to planning and policy challenges.
Technical issues range from development phasing changes, where DHN designs evolve over time yet have to adapt quickly and efficiently to changing network heat demands, maintaining resilience and backup capability, whilst competing for space with other utilities such as water, gas, electricity and telecoms.
In terms of cost, there is no escaping the high capital investment and front-loaded cash flow required to build an energy centre, and DHNs by their very nature, are bespoke designs with highly localised spatial and design features. In purely residential scenarios, the occupancy uncertainty risk can also depress the expected head demand, which is potentially damaging to the very concept of DHNs, by generating more emissions than necessary.
The planning and policy challenges are harder to resolve. The default planning position that developers must consider DHNs is in essence political interference in a commercial decision; planners do not have to live with the consequences of a sub-optimal technical, commercial and environmental decision; developers do.
As a result of these complexities, London developers have two choices: offload the energy supply to a utility company for a lengthy concession period, thereby forgoing long-term revenue streams; or create and actively manage an energy services company (ESCO) themselves, thereby retaining ownership of the energy centre and DHN assets and having access to the full value of the revenue streams.
While the latter sounds like it could be management-time-intensive and not easily achievable, this route has the potential of saving developers a considerable amount of money over the life-time of the assets. The developer-led ESCO is able to appoint an operating company (OPCO) who operates the system to agreed KPIs, service and reliability levels while the ESCO accrues the use of the system, heat and power revenues. The OPCO may also fulfil the function of the customer-facing heat supply company that residents and commercial customers contract with to receive metering, billing and customer services.
These commercial/contractual heat supply arrangements can be managed and deals made on developers’ behalf by independent consultancies, thus preserving the benefits of revenue. The developer can secure planning compliance at lowest management cost, reasonable capital cost and least risk, and the end user enjoys the lowest cost of heat, reliability, security of supply, and heat price protection.
The various challenges and options need to be weighed up and the best course of action taken in each instance. But DHNs can essentially be effective, benefit occupants and add value. The number of developments in London and throughout the UK where DHNs are likely to be the optimum heat supply option is likely to increase as the long-term benefits are recognised by developers and customers alike. Regeneration of the Royal Docks in London, the Thames riverside, Wembley, and pockets of land around new infrastructure like Crossrail are just the opportunities we need. Such examples of mixed use development lend themselves to a flexible and adaptable technical solution from which all the users benefit; a solution that is deliverable by good design and fair commercial structures.
It is safe to say that the positives of DHNs can outweigh the issues. What we need are codes and standards to provide guidance and regulate the sector over the next 3-5 years. Once these are in place, uncertainty will be removed and DHNs can start to deliver the benefits that were intended.
Nick Hall-Stride is Associate Director at Hilson Moran, a multi-disciplinary consultancy. He has extensive experience in renewable energy, decentralised energy, CHP and community energy in both public and private sectors.