Taking the long view. Why long-term investors can bring significant benefits to district energy schemes.

By Andrew White, Metropolitan Infrastructure Ltd

District energy networks represent a long-term commitment for public and private sector developers. Each network may be operational for up to 60 years, delivering low-carbon heat for entire communities and it is essential from both a financial and environmental perspective that networks are run at maximum efficiency throughout their life spans.

How to achieve that desirable outcome depends on the ownership and management framework that the developer puts in place. Flexibility must be built in. Over such a long period of time customer needs, available resources and technologies will change and the management of the network needs to be able to adapt. Partnering with a long-term investor, committed for the life of the network, brings significant operational and investment advantages to the primary developer and the community the network serves. There are already some excellent examples of this alignment and we expect this trend to continue with long-term investors willing to build or adopt district energy networks.

A flexible option

Installing a district energy network to serve a community is a major project judged by any standard. Networks take years in the planning, design and procurement phases and rightly so, they represent a significant investment. During that time, however, much can change. Unexpected difficulties in design and on site may be encountered en route to bringing the network into service; key personnel in consultants’ or contractors’ teams may leave; technologies may evolve for energy efficiency or regulatory reasons; and funding options and availability may fluctuate. Bringing in new partners and fresh thinking can resolve these issues and ensure the long-term viability of the network.

District energy is known for its flexibility as a heat solution. Networks can be adopted, extended and reconfigured and heat sources changed as and when required. Adoption of a network by a long-term investor can take place at any stage in the network’s lifetime but is most likely to be optimal when the network is still in the design phase and collaboration between developer and long-term investor can lead to further enhancements.

The heat network at the Hallsville Quarter development, part of the transformational new town centre for Canning Town in London, demonstrates the flexibility that a long-term investor can bring to developments. Here, the developer, Linkcity, brought in Metropolitan to provide external expertise once the first two phases of the development were complete.

The existing heat network and energy centre at Hallsville Quarter have been adopted and will be extended to serve the future phases of the development. The small CHP engine now in service will be replaced with a much larger and more carbon-efficient 1.2MW CHP engine. For the third phase of the development, optimum pipe sizes have been specified and costs reduced through leading-edge design. This will result in lower carbon emissions, operational efficiencies and ultimately a reduction in customers’ tariffs. The 25-year agreement governing the network adoption will ensure the most efficient running of the network over the long-term.

Design optimisation

Unless district heat networks are implemented as part of a new town development where the designers start with a blank canvas, they tend to serve new communities within densely populated urban areas. This can mean that arriving at the optimum solution may take time and require input beyond the original design team. A recent example of this is Taylor Wimpey Central London’s flagship Postmark development in Farringdon. Sitting across two postcodes, WC1 and EC1, and surrounded by Farringdon, Clerkenwell, King’s Cross and Chancery Lane, Postmark will consist of more than 680 residential units together with shops, restaurants and cinemas.

The main challenge presented by the location, which is shared by the 129-year-old Royal Mail sorting office at Mount Pleasant, is that the two phases of the development are separated by a public highway. In order to avoid the already heavily congested existing utilities under the road, the original design envisaged having two separate energy centres, one for each side of the development. Coming in as a third party, we were able to undertake a cost-benefit analysis for one energy centre versus two. To overcome the congested utility infrastructure, pipework sleeves were installed under the highway. These enabled the design to be rationalised allowing a single gas-fired CHP energy centre to serve the entire development, saving space and significant cost.

The 40-year agreement to adopt and operate the heating and cooling infrastructure at Postmark will provide stability and guarantee continual expert engineering input to maximise efficiency over the lifetime of the network.

Working for Communities

Successful district energy projects can deliver excellent outcomes for communities, delivering affordable and low-carbon heat over very long periods for residents.

To ensure success, it is vital that appropriate ownership models and governance structures are established to optimise their performance, with a strong alignment between project initiator (developers) and long-term investors.

For the public sector, in particular, robust business cases may have been developed in response to available funding both from the Government and the private sector. By the time a network is commissioned, however, circumstances may have changed and capital needs to be freed up for other projects; or changes to technology and building regulations demand new investment.

Partnering with a long-term investor may offer the most beneficial solution. The new partner will have a vested interest in running the network at peak efficiency, investing as required and introducing new technologies to achieve that outcome. It is, of course, essential to select the right partner for this long-term relationship, to ensure that customers receive the best quality of service and pay the lowest tariffs possible. Financial stability and the track record of the investor are just as important as their technical expertise.

Finally, a commitment to membership of the Heat Trust, the industry-led initiative which recognises best practice, would be an important indicator. Service standards set by the Trust encompass the support of vulnerable heat customers; billing and payment arrangements; fault and emergency reporting; complaint handling; and privacy policy and data protection. The survey conducted by BEIS into heat networks in 2017 found that networks that were members of the Heat Trust achieved particularly impressive consumer satisfaction levels concerning the quality of billing and usage information they received.

More networks, more adoptions

In conclusion, the benefits of partnering with a long-term investor are significant. Long-term contracts to build, adopt and operate networks ensure stability for the network over the foreseeable future. A fresh perspective for network design can yield greater efficiencies and help developers achieve the low/zero-carbon emissions demanded by building regulations, whilst customers can enjoy lower fuel bills.

The Institute for Public Policy Research (IPPR) forecasts that by 2030 heat networks could be servicing at least 10% of the UK’s total heat demand. As more networks are planned and commissioned, then we can expect to see more network adoptions. Watch this space.

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