March 29th, 2018
Through the Climate Change Act, the UK is committed to reducing its carbon emissions by at least 80% of 1990 levels by 2050. Central to meeting this important goal is the decarbonisation of heat: according to government data, in 2009 heating-related emissions accounted for 38% of the UK’s carbon footprint.
Decarbonising heat will require both a switch to renewable heat sources and technologies for improving the energy efficiency of heating. The UK Government is supporting the installation of renewables in businesses and homes through the Non-domestic Renewable Heat Incentive and the Domestic Renewable Heat Incentive. On the energy efficiency side, it launched the Heat Network Investment Project (HNIP) in 2015, which will provide up to £320 million of funding for new heat networks and is expected to support up to 200 projects by 2021 – mainly through grants and loans.
A heat network comprises of a system of insulated pipes that deliver heat from a central source to a number of different users. They can facilitate improvements in energy efficiency by making use of energy that would otherwise be lost from power generation and industrial processes. Aside from the chief benefit of helping to reduce CO2 emissions from heating, heat networks also bring additional benefits in terms of financial savings made through increased energy efficiency and a reduction in fuel use.
Decarbonising heating is proving a stubborn nut to crack, but one sector, at least, is making carbon reduction a priority: higher education. The Higher Education Funding Council for England (HEFCE) carbon reduction strategy commits all UK universities to delivering a 43% reduction in carbon emissions by 2020, compared with a 2005 baseline. Universities and other Higher Education Institutions (HEIs) have been required to develop carbon emission reduction plans to contribute towards this sector-wide target.
Recent research on progress has indicated that in the academic year 2015/2016 universities achieved their best year-on-year emissions reduction yet. However, if emissions continue to fall at the current rate then by 2020 the sector-wide reduction would be just 13%, a 30% shortfall against the HEFCE target. Only 52 of the 127 HEIs included in the analysis would meet or exceed their targets, while 14 HEIs have increased their emissions since 2005.
HEIs clearly face a significant challenge in fulfilling their commitments over the required timescale. However, with their large populations, numerous – often old – buildings, and high heat demand, HEIs are especially well placed to benefit from the installation of heat networks.
Reading, willing and able
As part of its efforts towards meeting the HEFCE target, the University of Reading is developing three heat network projects, with support from Eunomia:
- a surface water source heat pump at Greenlands Henley Business School;
- the extension of an existing gas combined heat and power (CHP) system at Whiteknights main campus; and
- a district heating system at Thames Valley Science Park.
The focus of the support has been on preparing applications for HNIP funding towards the commercialisation of the University’s heat network projects, including:
- HNIP eligibility requirement review – reviewing the eligibility requirements for the scheme, covering themes such as organisation type and ownership rights, commercial structure of the heat network, funding requirements and additionality tests.
- Project financing options – identifying potential investment structures, associated contractual structures, delivery models, key investor requirements and investor appetite for this type of investment.
- Gap analysis – weighing the evidence base supporting the projects against HNIP eligibility and financing requirements to identify any gaps and show where further detailed work was required before submitting an application and approaching investors.
The University of Reading is expecting its surface water source heat pump to result in a nine year payback compared to business as usual (BAU). The internal rate of return (IRR) would be around 9.5% and it would deliver carbon savings of 263 tonnes per year compared with the BAU scenario.
Heat networks also have the potential to raise a university’s sustainability credentials, something that could help to increase its attractiveness. With higher education becoming a competitive market in which institutions have to work hard to attract staff and students, HEIs may want to take note of the Department for Business, Energy and Industrial Strategy’s (BEIS) Public Attitudes Tracker, in which the proportion of the public who say they are “very” or “fairly” concerned about climate change has risen to 71% – the highest level the survey has recorded. A university can also strengthen its ties to the local community if it extends its heat network to neighbouring residential or business areas.
The University of Reading’s heat network has already put it in the spotlight for its sustainability initiatives, helping it secure a ‘1st award class’ in the People and Planet’s University League, in which it scored 100% for its pioneering efforts on carbon reduction.
One of the biggest challenges faced when developing heat network projects is the substantial investment they require. Funding is available through the HNIP, but sourcing and securing this can be time-consuming and challenging for institutions that are unfamiliar with the process. The University of Reading considered this to be its main challenge in all three of its projects.
When BEIS ran a HNIP pilot scheme from October 2016 to March 2017, only nine of the 29 applicants were successful. Most unsuccessful applicants failed due to a lack of detail and appropriate documentation, particularly with their business cases. Ongoing discussions with BEIS have confirmed that HNIP business cases should be consistent with HM Treasury’s Green Book approach to investment appraisal. Working with another potential HNIP applicant, Eunomia assessed their business case against the Treasury’s Five Case Business Model, which includes strategic economic, commercial, financial, and management perspectives, to help make sure it stood up to scrutiny.
Developing a heat network is a lengthy process, involving heat mapping and master planning, a feasibility study, detailed project development and commercialisation. However, the University of Reading has shown that it is a process that HEIs can navigate successfully to set them on a path towards achieving considerable carbon savings.
With much of the HNIP’s £320 million pot still available, it remains a major opportunity for ambitious, forward looking institutions and businesses to access support to develop heat networks, both to contribute to the UK’s carbon reduction efforts and to set themselves apart as innovators.