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Smart tariffs are key to renewable heat schemes

Heat from a diverse range of sources can be utilised within a heat network, but the inclusion of low carbon and renewable technologies is being widely encouraged by the Government to help meet carbon reduction commitments. However Yan Evans warns that careful planning is needed at design stage to ensure tariffs that consider the true cost of low carbon and renewable technologies are set
Heat networks - whether community schemes serving blocks of flats, apartments, or houses, or larger district schemes perhaps serving offices, schools, shops and community centres as well as residential buildings - offer many benefits.

With a local, centralised energy centre distributing heat via hot water pipes, there is, for example, no need to run a gas supply into individual properties or have standalone boilers fitted - not only reducing and simplifying maintenance regimes but also lowering build costs and eliminating certain health and safety issues both during construction and once the building is occupied. For example, annual landlord gas safety checks are compulsory for rented properties - but community and district heating schemes remove the need for landlords to carry out such checks in individual dwellings.

However, the principal benefit of heat networks - and the reason why the Government's Heat Strategy has set out plans for a major expansion of them in UK towns and cities - is that they can reduce carbon emissions.

In some parts of the UK local planning guidance already requires developers to consider the opportunity for heat networks, particularly those involving CHP (combined heat and power) units and biomass boilers, in any new development of a certain scale. A well-known example of this type of requirement can be found within the 'London Plan'.

While community and district heating schemes are able to use a diverse range of fuel sources to generate the heat required significant environmental benefits can be delivered when low carbon and renewable technologies are included.

And, in most cases, community and district heating actually make the installation of low carbon or renewable technologies more feasible. For example, CHP units and biomass boilers are not always appropriate for individual properties - however they are suitable for supplying thermal energy into heat networks. This is because the diverse thermal loads offered by multi-occupancy accommodation presents an attractive demand profile against which such technologies can be operated to maximise the benefits.

However, it must be accepted that heat networks have the potential to expose scheme operators to the risk of debt around the provision of heating and hot water - and we believe this risk could be amplified when renewable or low carbon technologies are utilised, largely because it becomes more challenging to set appropriate and affordable heat tariffs. And if the tariffs are set too low, the scheme operator may not fully recover its costs.

In general, the tariff structure for a community or district heating scheme comprises a variable element (how much the resident consumes for space and water heating) and a fixed charge (the cost to deliver heat to the point of use).

The variable element of the tariff takes into consideration the cost of the primary fuel consumption within the energy centre, which could be a blend of fuels depending on the technologies chosen to generate the heat, and the overall efficiency of heat generation and distribution.

From our own experience the overall efficiency of the heating system (fuel input through to delivered heat at the point of consumption) is typically between 50 and 60 per cent once heat distribution losses have been taken into consideration. However, the efficiency of the system is often overstated, leading to incorrect tariffs being set.

Furthermore, a popular method of setting tariffs is to benchmark against gas or electricity suppliers. But while this may enable the operator to offer a competitive price to residents, it can be extremely risky, especially if a low carbon technology such as biomass is being used, as this is generally more expensive than natural gas.

Charges structured in this way might not reflect the actual cost of generating and delivering the heat, as critical factors such as long term operational efficiencies won't have been considered. This can mean that the residents' heat payments do not even cover the cost of the primary fuel supplied.

Rather than benchmarking tariffs against electricity or gas prices (a fundamentally different market), ENER-G Switch2 believes it is essential to base a heat tariff on all the actual costs and potential incentive payments (for example, the Renewable Heat Incentive), as well as considering a small percentage for bad debt to prevent financial risk exposure.

And of course it is equally crucial to ensure that the heat tariff isn't set too high, else the resident could end up paying for a relatively expensive renewable heating system that has, in some cases, been installed to meet planning and environmental requirements, rather than to deliver affordable warmth. While there are many documents, case studies and reviews of community and district heating in the UK, most focus on the technical and practical application of design solutions and only briefly, if at all, touch upon the true end cost to residents.

In 30 years' operation ENER-G Switch2 has developed specialist knowledge, and, as the UK's leading heat billing organisation, we have the experience to get the tariff right from the beginning.

We have operating data that can prove schemes are less efficient than expected at the design stage. And sometimes this is not down to poor design; it is down to the inaccuracy of data sets available to produce the design. With this in mind, it is important to see joined up thinking at the planning and design stage - for example where we would work alongside heating engineers and consultants - to look at 'actual' long term operating efficiencies and future costs for residents.

Heat networks have many advantages, but it can be challenging to set appropriate, affordable tariffs, especially if low carbon or renewable technologies are installed. However, partnering with an industry specialist at the
design stage can ensure that community and district heating works for all key stakeholders.

//The author is the director at ENER-G Switch2//
1 December 2013

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