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[1],
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.
Industrial strategy.
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.
Institutional Factors
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.…………………………………
[1] See the separate page
– DECARBONISING
HEAT , a 2016 posting Policies for Decarbonising Heat.,
and an earlier blog Difficult
Questions for Combined Heat and Power.
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