Financing the low carbon economy: Heat networks

October 25, 2018

Charles Robson, Andrew Hirst and George Matthew from Womble Bond Dickinson tell us about meeting the UK’s legally binding climate change targets in terms of financing the low carbon economy

In October 2018, the UK government launched its annual Green GB Week to highlight the opportunities clean growth offers the UK and raise understanding of how business and the public can contribute to tackling climate change. A key theme of the week was financing the low carbon economy and clean growth. Heat networks are expected to be at the forefront of this growth.

The government has a legally binding commitment to reduce greenhouse gas emissions by at least 80% of 1990 levels by 2050.[1] Heat currently accounts for around 18% of the UK’s existing greenhouse gas emissions (by way of comparison, power is around 21% and transport is 24%). Meeting such challenging climate change targets will, therefore, require complete or near-complete decarbonisation of heat.

Heat networks, as proven technologies for providing lower carbon heat to domestic and commercial customers, have the potential to play a key role in the long-term decarbonisation of heating, and local authorities can contribute significantly to their success in this emerging sector. Local authorities’ involvement, particularly as a principal driver in the development stages of a project, can help realise the many benefits of heat networks, while also delivering jobs and growth.

Many local authorities may recognise the potential benefits of developing a heat network, but lack the expertise and/or finance required to pursue such ambitious schemes. The government, therefore, is providing support to help facilitate the delivery of heat networks:

Heat Networks Delivery Unit (HNDU): Established in 2013, the HNDU seeks to address the obstacles local authorities face when considering developing heat networks by providing grant funding and guidance on project development. Since its inception, HNDU has run 7 funding rounds – awarding £17 million in total – and is currently running Round 8. Over 200 unique projects have so far been supported across 140 local authorities.
Heat Networks Investment Project (HNIP): Launched by the Department for Business, Energy and Industrial Strategy (BEIS) on the 16th October 2018, HNIP is a major government investment project which will see £320 million of capital funding made available for the development of heat network projects. The funding, made up of a combination of grants and loans, will be available from April 2019 and is offered as “gap funding”. Local authorities are encouraged to apply for the funding for a period of up to 3 years, and it is hoped that the scheme will leverage around £1 billion of the private sector and other investment to support the commercialisation and construction of heat networks.

Published Guidance: BEIS have also commissioned various pieces of guidance relating to heat networks. As recently as August this year, the following were published with a view to guiding local authorities (and others) on various aspects of heat networks:
Heat networks: Procuring finance
Financing heat networks in the UK: Guidebook
Optimisation of heat networks: Issues for project sponsors to consider

[1] Climate Change Act 2008