Ener-Vate EVOLVE

With over 17,000 heat networks in the UK and ambitious Government targets for growth from ~3% of heat network penetration up to 18% by 2050, the legislation surrounding heat networks is changing. Owners and operators of heat networks will be required to comply with new technical and customer standards and may incur additional liabilities. However, this legislation also brings new rights and opportunities for growing existing networks and encouraging the utilisation of waste heat.

Over the last ten years, Ener-Vate have been providing expertise and support to housing associations, local authorities and developers of heat networks and can help you understand what these changes mean for you and how you can best exploit the value of your existing assets.

The need for change

The Department for Energy Security and Net Zero (DESNZ) have appointed OfGEM to regulate Heat Networks following ascension of The Energy Act 2023, which includes one of the most comprehensive changes to how heat networks will be required to operate, but also how heat networks will be expanded to cover more of the UK, through the introduction of Heat Network Zoning.

Impact for Existing Heat Network Operators

To give reassurance to those who have already invested in Heat Networks and to ensure investment continues whilst the Secondary Legislation from the Energy Act is under consultation, DESNZ started to communicate their vision for how existing heat network assets will be treated within heat network zones

This will depend on the type of network you own or operate. If you supply heat to multiple tenants of a single building, or operate a campus site such as a university and don’t supply other third parties, you are likely to be classed as a “Communal Network”. If you supply heat to multiple buildings and different parties you are likely to be classed as a District Heating Network (DHN)

The proposals indicate that a new Heat Network Zone operator cannot compel an existing heat network operator to sell their asset, but depending upon the definition of your network, Communal Networks may be required to connect their assets. There are certain technical and customer requirements you now may be obliged to meet and there are exemptions on the requirement to connect. You will need to understand your responsibilities and options.

DHNs are unlikely to be required to connect to a larger zone operator and would receive additional rights for expansion: with certain customer types required to connect, if your network meets certain performance thresholds. Understanding how your network is operating, or could operate in the future is key to knowing your rights, obligations and potential value going forward and Ener-Vate can help you understand your options.

The first step for any Heat Network is to understand your definition under the legislation and the potential value of your assets, depending on that definition.

The value can be determined through our commercial modelling tools, but is informed by data from your real-world operation - Do you have an up-to-date business case? What is the basis of your O&M contract and have you been tracking your costs, asset condition and depreciation? Are all your customers now connected and does the income match predictions, particularly taking into account utility cost fluctuations? What capacity do you have at the Energy centre and pipes?

Importantly – will your network be compliant with the upcoming regulations?

If you don’t have this information, we can work it out with you and develop a baseline model to understand your network performance and its future potential. From that, we can work with you to develop your strategic approach to the upcoming changes.

What Next?

What comes next will be guided by you and your needs, but falls generally into three categories:

Protect: you may not want to grow your network, but, you may not want to connect to a third-party network if communal and wish to apply for an exemption, or see a situation where your customer base is eroded. You may want to know how to work your assets more efficiently, or need to decarbonise

Extend: you may want to utilise capacity in your network, maximise your incumbency rights and establish your boundary areas and required to connect loads prior to heat network zoning and add new customers. You may need to decarbonise, or understand how to “sleeve” new low carbon heat to new customers. You may need additional funding to achieve these aims

Dispose: your network may not have performed as you expected, or you may want to reduce your costs or risks and transfer the network to a new heat network zone operator once in place. You need to understand the fair market value of your assets and your connections and help negotiating for your best outcome.

Contact our team to find out more about EVOLVE and how we can support you with your existing Heat Network.