Heat emissions are a key area of focus in the government’s muchawaited Clean Growth Strategy. We consider the key opportunities for businesses in this sector.
BEIS published the much-awaited Clean Growth Strategy on 12 October 2017. The strategy includes 50 policy proposals covering all aspects of energy.
Heat emissions are a key area of focus – almost a third of UK emissions are currently created by heating homes and businesses.
In parallel with continuing the uptake in the installation of energy efficiency measures via the Energy Company Obligation (ECO), and the £4.5 billion earmarked for the Renewable Heat Incentive between 2016 and 2021, BEIS has suggested a number of other solutions. The suggested solutions include:
- the electrification of heating
- decarbonising the gas grid by substituting natural gas with low carbon gasses like biogas and hydrogen
- the use of heat networks (particularly in densely populated areas).
A number of studies have been commissioned and BEIS promise a full report by summer 2018.
Meanwhile, BEIS is keen to promote “central heating for cities”. There are a number of key opportunities and potential funding streams for heat infrastructure and heat networks which have already been announced. BEIS see this investment as a way to reduce carbon emissions while ensuring lower bills for consumers – two key policy drivers.
Heat Network Investment Project and Heat Networks Delivery Unit
The Heat Network Investment Project (HNIP) is already underway. Nine applicants were successful in the pilot phase of the HNIP, which ran until March 2017. The pilot was open to local authorities and other public sector bodies and total awards of over £24 million were granted.
The aim of the HNIP is to increase the volume of heat networks being built and create the conditions necessary for a self-sustaining market to develop.
Funds under the pilot scheme were available for expenditure including the building of new heat networks, expansion or refurbishment of current networks and works to access recoverable heat. Scoring criteria looked at carbon savings and customer impact (both in terms of heat price and quality of service), as well as an ‘additionality' test (demonstrating that the project would not have proceeded without government funding).
BEIS is reviewing learning points from the pilot before launching the main scheme, but has earmarked £320 million of funding, expected to support up to 200 projects by 2021 through a combination of loans and grants. Further announcements are expected later this year, and could include opening up the scheme more widely to privately-owned schemes.
The HNIP runs as a sister scheme to the Heat Networks Delivery Unit (HNDU), which assists local authorities with the early stages of heat network development, including heat mapping, energy masterplanning, feasibility, project development and early commercialisation. Since its inception, the HNDU has run six funding rounds, awarding £14 million. Round 7 is currently open and runs to the end of 2017.
Industrial Heat Recovery Support Programme
BEIS is consulting on the introduction of an Industrial Heat Recovery Support Programme (IHRS), aimed at overcoming the barriers to the recovery and re-use of waste heat from industrial processes.
With an estimated economic potential of 7 TWh per year, BEIS see recovery of such waste heat as a key area of focus in meeting its legally binding carbon-reduction commitments.
BEIS are proposing a two-phase programme to help increase the deployment of industrial heat recovery technologies and boost industry confidence in identifying and investing in heat recovery opportunities. Phase 1 will provide support for feasibility studies. Phase 2 will provide financial support, delivered through competitive grant funding.
The consultation, which opened on 12 October 2017, seeks views on the design of the proposed IHRS and to gather additional evidence on the barriers and enablers affecting industrial heat recovery, as well as starting to identify a potential pipeline of projects from across industry sectors.
The consultation follows on from the Industrial Decarbonisation and Energy Efficiency Roadmaps project which identified heat recovery as a key decarbonisation option for eight energy intensive sectors (chemicals, cement, ceramics, glass, food and drink, paper and pulp, oil refining and iron and steel). BEIS now want to open up support to the wider industrial manufacturing sector.
It is intended that the proposed capital grants can work alongside the funding provided under the HNIP.
The consultation is open until 4 January 2018.
Heat Networks Framework
A government sponsored framework to help the public sector deliver heat network and electricity generation projects has also been announced.
Over the summer, the Crown Commercial Service issued a prior information notice setting out its intention to set up a framework agreement to “provide a commercial route to market for public sector organisations looking to conduct a Heat Network or Electricity Generation project. This will include design, planning, commissioning, installation, retrofit, upgrades, repairs, maintenance and operation services.”
The overall value of the Framework (and call offs) is estimated at £500,000,000 over 4 years.
Pre-market engagement is underway, with supplier engagement days taking place in November. CCS is expecting to issue the OJEU notice in June 2018.
These funding opportunities come in the context of ongoing reform to the Renewable Heat Incentive. BEIS announced wide-ranging reforms to both the domestic and non-domestic schemes in December 2016, intended to ensure the schemes focus on long-term decarbonisation and offer better value for money for consumers. Some of these reforms have yet to be implemented, due to a lack of availability in the parliamentary timetable following the Brexit vote. BEIS now says that it hopes to see these introduced in Spring 2018.
The delayed reforms include the introduction of feedstock restrictions for AD plants and changes to tariff levels for biomethane and biogas plants as well as the eagerly awaited introduction of tariff guarantees. Designed to provide greater certainty to investors regarding their tariffs earlier on in the project cycle, these guarantees are due to be introduced for large biomass boilers (over 1MW in capacity), large biogas plant (above 600kW), ground-source heat pumps (above 100kW) and all capacities of biomethane, biomass-CHP and deep geothermal plant.
BEIS has stated that it will retain the ability to close the tariff guarantee process if take-up risks early closure of the RHI scheme. While introduction of the tariff guarantee scheme is welcomed by developers, there is a concern that the delayed implementation could lead to a flood of applications on opening, and thereafter a swift closure.
BEIS launched a further consultation in September 2017 which covered a number of areas including:
- proposed changes to the eligible purposes that heat may be used for to qualify for RHI payments (including removing all forms of drying and aquaculture as an eligible heat use)
- the introduction of an annual limit on the amount of heat/biomethane for which an individual accreditation can receive RHI payments (proposed at 250GWh per year)
- changes to the rules on multiple installations, replacing plant and registering to inject biomethane.
The consultation is now closed and the government response is awaited.