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District heat networks: delivering a successful scheme

Property matters 

Once the organisation has worked out what the network will look like, consideration should be given to the properties that will be affected and any access rights which may need to be obtained, and paid for. 

This may involve:

  • The acquisition of new land on which elements of the network will be sited. 
  • Any building where mechanical equipment is to be located may already be in the organisations ownership but it is important to check that rights exists to use the building for this purpose.

The organisation will also need to consider the following:

  • Is permission of any landlord or lender required to carry alterations? 
  • If the property is leased out, does the organisation need to secure vacant possession from the tenant?
  • If there are other occupiers of the building, is it necessary to obtain their consent? 
  • What impact will the work have on other occupiers of the building - whether temporary disturbance or something more permanent. 
  • Those who are connecting into the network may need to obtain consent to do so if they lease their property or it is charged to a lender and alterations are required. In addition, if the property is leased then consent may also be required from the tenant in order for the work to be carried out. 
  • Where pipes and other services need to be run beneath land in the ownership of a third party, the right to do so, in the form of an ‘easement’, will need to be obtained together with appropriate rights of access for maintenance and repair. 
  • If the third party owner does not consent then consideration should be given to what compulsory purchase powers are available and the organisation should be prepared to invoke them if necessary. 

The organisation should also consider the position of any end consumers. 

Whilst it is common for the owner of a tenanted building to be responsible for the provision of heat and power, it is important to ensure that the leases adequately provide for the recovery of this cost. A review of the leases may be required so that variations can be added to ensure that end users can be billed for what they actually consume.

Construction 

Though it is tempting to view the point of contract signature as the end of the hard work, in reality the hard work is just beginning. Every construction project is unique. Site specific issues identified during the procurement phase may now come to the fore. In addition, and depending on the time of year, weather conditions may hinder the construction programme. Key issues during this phase could include: 

interim operational arrangements;
wayleaves, site access and traffic management issues;
removal of hazardous substances (including asbestos);
the switch over to new energy supplies; 
phasing of works (whether or not part of a wider regeneration project); and
insurance and commissioning activities.

The relationships developed during the previous phases of the project with the successful contractor, and the nature and extent of the organisation’s client function, will each be critical factors in determining how the parties seek to navigate and resolve any issues during the construction phase.

Operation and growth 

During the procurement phase the organisation should have discussed the requirements for planned preventative maintenance to maximise availability and reduce costs. The contractor’s responses will be dictated by the output specification in the tender documents and the contractor’s solution.

During this phase, the organisation’s contract management team will assess performance against the requirements of the contract and the need to levy deductions where appropriate.  

By using information from the meters installed and remote monitoring of the equipment, the parties will assess the operation of the plant and be able to gauge the efficiency of the plant.

Increasingly, local authorities and housing associations are looking for projects that are capable of expansion and can facilitate new energy connections. Expansion plans could include aspects which were not included in the initial schemes, eg the addition of cooling.

In order to identify the appropriate opportunities, the organisation will need to maintain a dialogue with local planners and developers so they can assess the opportunities for connecting existing stock. The organisation should engage with hotels, hospitals, schools, care homes etc to find out if they would be interested in connecting to the heat network. Locating and accessing funding to enable these new connections will be of critical importance.  

The organisation should also investigate any new low carbon technologies to understand how they could be incorporated into the project.  

Any expansion of the project would need to be consistent with the initial OJEU Contract Notice and the process for expansion should have been developed and tested as part of the procurement phase of the project.

Negotiating contracts with your consumers 

Effective customer engagement is a key element in ensuring the success of a district heating scheme. In order to engage with customers effectively it is important to have clear and helpful marketing and billing documentation, and workable end-user contracts which give scheme operators adequate protection and which customers have confidence in.

For most district heating schemes the organisation which led on the development of the scheme will also become the operator of the scheme. The scheme’s operator will have to determine what customers will have to pay for the heat they supply. 

A commonly adopted approach is to have a standing charge plus a unit rate. However, the operator will need to carefully consider how they are going to use the standing charge to recoup initial and ongoing construction and maintenance costs. This is important because there have been instances where customers have expressed concern that it is not clear which actual costs the standing charge covers.

Currently the regulations affecting heat supply are relatively light, at least in contrast with gas and electricity supply. 
This lighter touch regulation has obvious advantages - providers can offer more flexible terms and tariffs, and they avoid the significant additional costs which arise from compliance with supply conditions. 

This relative freedom to set customer terms offers opportunities, but there are risks too. Feedback from surveys of some schemes has raised concerns about the consistency and quality of the customer experience. Whilst some of these concerns have been addressed by industry bodies such as the Heat Trust and by moves to implement universally accepted standards by means of a code of practice, operators should keep this in mind when considering their contracts and associated terms and conditions. 

Inevitably, the more common heat networks become, the more the spotlight will be on ensuring that customers have contracts which give them freedoms and rights they would expect for the regulated utilities. Operators should consider the fact that the most successful schemes at engaging customers are likely to be those who use the current flexible regime to meet customers’ needs creatively.

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

Also in this series

District heat networks: an alternative solution?

District heat networks: assessing the opportunity

District heat networks: delivering a successful energy scheme

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