Achieving 2050 Heat Network Target Remains Unlikely, Despite Policy Changes

The UK sector is in need of capital support to achieve the 20% of heat demand from networks target. This is starting to be supported for new projects with the function of the recently launched National Wealth Fund, and continuation of existing grant funding schemes, such as the GHNF and HNES. When considered in tandem with other changes, such as the proposed zoning procurement model, a stronger framework for heat networks now exists.

However, despite these changes, the sector is still heavily reliant on private investment to provide the estimated £80billion to meet this target. The existing market-driven model has laboured over an increase from 2% to 3% of heat demand over the past decade. Private investment appetite remains generally low, except for bespoke circumstances such as linking networks to EfW plants. In an environment of high interest rates, small and uncertain customer bases, and gas as the de facto counterfactual for heat pricing, this is unsurprising. Whilst the recent changes are welcome, they don’t do enough to address this.

Where heat networks are more established, such as Denmark, success has been contingent on strong synchronization between consistent government policymaking and experienced, well-resourced, management of utility systems by municipalities. The UK has historically demonstrated neither, with an unfavourable policy platform – for instance, the ‘spark gap’ remains one of the highest in Europe – and a lack of resource and experience within local authorities to coordinate, let alone invest in, utility systems. Furthermore, whilst the aggregate impact of recent changes should be positive, there is a risk that in some instances they could actually disincentivise private investment, such as the cost of HNTAS rectification works and landlord heat supplier obligations. There also remains doubt that the zoning model, as proposed, will ultimately be adopted. A stronger policy basis linked to a nationwide strategic energy transition is what is currently lacking from the UK approach.