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District heat networks: assessing the opportunity

Whilst district heat networks have been identified as a way in which Local Authorities and registered providers can provide efficient and cost effective heat solutions, it is important to ensure that the opportunities they present are properly considered. This includes looking at how they fit with existing property arrangements with end users such as secure tenants, long leaseholders and businesses. 

Increasingly, Local Authorities and registered providers (the organisation) are using different prompts to assess and develop opportunities for district heat networks. An opportunity many arise as part of: 

  • a wider refurbishment project, ie some Energy Company Obligation (ECO) funded schemes for solid wall insulation have been expanded to include a district energy scheme; 
  • an estate review - as these older systems come to the end of their natural working life replacing the system with a more efficient district heating system may be appropriate; and 
  • a new residential and/or non domestic development. 

The benefits provided by district heating schemes are wide reaching. The opportunities include helping the organisation to deliver its strategic aims including tackling fuel poverty, developing a secure energy supply for a given area and/or realising a revenue receipt. 

In addition, by using smart meters as part of the development of district heating networking, it may also be possible for the organisation to develop demand supply management strategies and for the recipients of the network to enable them to better manage their energy spending. 

Local Authorities, registered providers, developers and operators should note that there are specific statutory requirements relating to the deployment of meters in both existing and new district heating networks. Specialist advice should be sought regarding the application of these statutory requirements. 

Delivery models 

There are a number of models which can be used to deliver a district heating scheme. Choosing the right model will depend on the opportunity prompt, the strategic objectives of the organisation and the appetite for risk. Delivery models include: 

  • corporate joint ventures; 
  • wholly owned companies and the possibility of utilising Teckal exemptions; and 
  • design, build, operate and maintain contractual approaches, ie contractual joint ventures. 

Each of these approaches will allow the organisation to calibrate its approach to risk and assess its requirements regarding financial returns.  

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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