Thursday, September 8, 2016
POLICIES FOR DECARBONISING HEAT
A round table discussion last week on decarbonisation of the heat sector was a reminder of just how large and complex a question the future of UK domestic heating is set to become. A paradox of the sector is combination of major technology choices at one end of the chain, with all the potential concerns of parish pump politics (not intended as a disparaging term) at the other. Sourcing the heat in the first place has multiple competing options and poses huge strategic decisions across the power and gas industries; these include modular nuclear, heat and other storage technologies and linkages to carbon capture. But there are also distribution issues including the demand heat pumps can place on local power networks. And downstream distribution of heat in district heating schemes is dominated mainly by the relatively low tech problems of digging up streets, laying pipes, retrofitting homes, persuading or compelling householders, and a myriad of particular local issues and considerations which historically at least are associated firmly with local authorities and their skills and expertise. Our round table focused on the latter and on district heating in particular.
The Big Picture
Most scenarios for a low carbon future, and, post Paris, especially a zero carbon future, expect domestic heat needs to be met predominantly from innovations such as heat pumps installed for individual households, or through communal systems involving the sourcing of heat from combined heat power production, involving various thermal generation technologies. These include modular nuclear and fossil plant with carbon capture, combustion of waste products, and some geothermal and other sources. A fuller discussion of the heat sector from this perspective is given on the [DECARBONISING HEAT] page (button at the top of this page).
The future of heat delivery, in terms of these “big picture” options, is very obviously bound up with the future of the power sector, but it also has a local scale at which the major transformation has to be implemented, potentially affecting every household in the country. Key points that emerged both from what was discussed at the round table, and what was not discussed, were several.
Immense scale of what is involved, compared to UK experience to date.
DECC evidence suggests there are at present some 1750 district heating networks in the UK, with two thirds of these classified as small (less than 100 households), with an average of 35 households per scheme. There are only some 75 “large” networks with more than 500 households, and the total number of households connected to a network is around 220,000, or less than 1% of all households. So the UK does have some experience in developing and maintaining these networks, but the scale is tiny compared to our expectations for the future. Even defining “large” as 500 households is revealing in this context. In Denmark the CTR scheme for central Copenhagen serves 275,000 households.
To put this in perspective there are some 27 million households in the UK, so the full decarbonisation of the heat sector by 2050 is likely to require installation or retrofitting of low carbon solutions (heat network or individual property solution) to around 20,000 households a week over about 25 years, assuming a starting at some point in the 2020s. In other words this implies an entirely different scale of operation from anything of which the UK has any past experience.
A future district heating industry will develop a very different culture.
The dominant culture in the management of heat networks reflects (mainly) a history of post World War II local authority reconstruction schemes, together with some opportunistic exploitation of specific sources of waste heat from power station or other industrial schemes. The positive benefits of utilising “waste” heat combine with some of the social objectives associated with local authority schemes, including keeping the costs to householders as low as possible. One of the benefits of “waste” heat is that it has frequently been provided at very low or no cost to the scheme.
The low carbon objectives which will underpin the future of district heating will create some very different economic conditions. The supply of waste heat per se is really very limited, although the future will most likely include purpose built installations built specifically with the dual purpose of providing city-wide heating and power to the national system. But schemes will have to fund significantly higher heat costs, as well as infrastructure, and the cost of heat is likely to be significantly higher than it is for today’s householders who enjoy a gas supply.
The economics of large schemes depend on scale. Getting to a reasonable average cost will depend on achieving near universal penetration in high density urban populations. This will accentuate the problems of collective choice for heating and may introduce elements of compulsion.
Taken together with the sheer scale of the district heat undertaking, the challenges for traditional management structures and assumptions in the heat sector will be immense.
Cost of capital again a critical issue.
Once again, and as in the power sector, the capital requirement will be very large. I have emphasised on many occasions the fact that infrastructure projects “ought” to be considered as low risk, low cost of capital investments. But this requires careful attention to the structuring of the funding arrangements and may require substantial public sector guarantees and significant local government borrowings, another major cultural shift. This is increasingly accepted but it is a necessary condition for the transformation of the sector at a reasonable and affordable cost.
Roll out in conjunction with energy efficiency
One of the most fundamental obstacles to introducing large scale district heating is the physical disruption to the householder. The same issues promote inertia in introducing household level measures for energy efficiency. Given that energy efficiency is a necessary part of overall heat strategy anyway, in order to bring heat loads down to manageable levels, then coordinating and integrating the rollout of low carbon district heat with energy efficiency measures makes a lot of sense.
Finally we can foresee some new and challenging questions for energy regulation, and a considerable political overlay.
First, this is another sector dominated by fixed infrastructure, ie network, costs. There is considerable scope for alternative approaches to how those are recovered from consumers, eg a fixed charge per household or an averaging over all kWh of energy consumption. This will include the question of whether heat metering is feasible and desirable.
Second there will almost certainly be a huge variation in actual costs between different schemes and geographies. This may provoke political demands to “even” out the costs to householders, avoiding the “postcode lottery”.
Third, initial concentration on high density urban housing will ensure that social policy issues come rapidly to the fore. Will this lead to new approaches to fuel poverty questions?