Monday, March 27, 2017
HEAT NETWORKS AND NEW INDUSTRIAL STRATEGIES
The Institute for Public Policy Research (IPPR) is intending shortly to bring out a report on heat networks and the decarbonisation of the heat sector. A recent workshop addressed some of the specifics of this subject and in particular the potential linkages with industrial strategy, a concept that is back in mainstream policy discussions after years in the wilderness. We should support strongly efforts to create a coherent policy for the heat sector but we should not underestimate the scale of the obstacles to achieving the objectives. These include getting a clear direction of travel on the evolution of the power sector, not least on the future of carbon capture, and also the sheer scale of what will be involved in retro-fitting a high proportion of the UK housing stock with connections to a heat network. A national body, with the scope to develop a coherent strategy, encourage best practice, and assist and advise local authority initiatives, should be part of the answer.
This blog has touched on the heat sector before, as it is clearly fundamental to achievement of UK (and other geographies’) low carbon objectives. Heat networks are also an important component of the future options, choices and scenarios considered by a number of bodies that are concerned with energy policy and decarbonisation, including the Energy Technologies Institute (ETI) and Committee on Climate Change (CCC). So this is a subject that matters a lot and has several dimensions.
A first reaction to the introduction of industrial strategy as an additional objective in the decarbonisation agenda should perhaps be caution. Industrial strategy is most often associated with overcoming barriers to the development of new technologies, eg by funding research and development or helping develop supply chains, and is sometimes loosely associated, pejoratively or not, with “picking winners”.
Heat networks, on the other hand, are very large investments in pipes to transport hot water, and then retrofitting buildings to make use of the heat provided. This includes digging trenches, laying pipes, and a lot of construction activity, most likely as a retrofit. The network per se can be to a significant degree technology neutral, and indeed one claimed benefit for heat networks is that there is some flexibility over how they are fuelled. But the networks themselves do not represent any very radical technological shift. Linkages to supply chains and technology choice, the stuff of industrial strategy, are, on this reading of the problems, less obvious issues.
They might instead be more accurately be described as major infrastructure spend, which can have substantial macro-economic benefits, as a stimulus when this is appropriate, and as an instrument in rebalancing the economy, particularly if associated with efforts to prioritise relatively depressed areas. But in the broader context of influencing future patterns of UK manufacturing, the links with industrial strategy are prima facie less clear.
However decisions on future heat networks are also inseparable from other big choices and other big developments within a decarbonisation programme, since these introduce a number of constraints and preferences. For example, one plausible direction of travel is to associate heat networks with generation based on fossil fuel with carbon capture (CCS). In this context the cancellation of support for a CCS programme in November 2015 is very unfortunate. But had it gone ahead, or were it to be reinstated, it would predispose early schemes to proximity with new CO2 gathering networks and facilities. And of course CCS would have had its own “industrial strategy” questions as to whether the UK would be a leader or a follower and an importer or exporter of the technology.
Energy Sector Choices for Decarbonisation
Embarking on a major investment in a new heat network requires, therefore, a clear view of what are the options for sourcing the primary energy input to the scheme. This in turn needs to be consistent with an overall approach to decarbonisation. Industrial strategy enters the equation as soon as we start thinking about management of primary energy sources, most obviously for carbon capture, possibly for “modular nuclear” (an ETI favourite), for hydrogen (if we go down that route), and possibly for heat storage technologies. Those are all areas where industrial strategy might determine whether we lead or follow, and end up as exporters or importers.
Operation of heat networks is correctly seen by IPPR as a function that belongs to a substantial degree with local authorities, and this in turn raises some important questions about the ability of local authorities to finance very substantial capital investments, and also about the subsequent regulation of the sector and the protection of consumers who may have had limited choice over their participation. These are discussed in more depth on the Decarbonising Heat page, but future issues include:
· possible wide divergence between costs and prices in different towns and cities, reflecting geographical advantages (eg density), access to different low carbon technologies, divergences between earlier and later schemes, and so on.
· a high proportion of fixed costs, where there is no obviously “correct” or unique methodology for charging; inter alia this allows significant price discrimination eg in favour of social housing.
These and other questions indicate the desirability of confronting these potential issues at an early stage in order to establish some principles for the future funding in construction and operation of large scale urban heat network schemes.Taken together these issues make a strong case for an expanding role for the existing Heat Networks Development Unit, possibly as a new National Heat Authority, a body with a much greater ability to interact with the other major players in UK decarbonisation, including the energy companies, National Grid, and the Committee on Climate Change.