The objective of this Project is to help inform (i) GDN’s views on the investability of the heat networks business model proposed by DESNZ and Ofgem, in particular on the appropriateness of the proposed use of zoning and adaptations or alternatives to zoning which might be more appropriate; and (ii) GDN’s understanding of the prospects for repurposing selected assets on its gas networks to form part of heat networks.
Benefits
The primary benefit from this project is the identification and evaluation of viable investment models that can attract significant capital to support the development of Heat Networks. This will help to stimulate debate and support strategic decision-making within GDNs and possibly influence DESNZ and Ofgem on alternative funding structures.
Additionally, the project outcomes will allow GDNs to explore repurposing options of assets to identify new revenue streams or increase long-term asset value.
Learnings
Outcomes
The project identified that there is no viable option for repurposing existing MOB riser assets to a non-gas solution. The project determined that existing riser assets cannot feasibly be utilised for non-gas solutions, including the following:
A duct for electrical cabling
Water pipes for heat network flow or return pipes
Ducts for pre-fabricated water pipes
Uninsulated water pipes with cavity insulation
These options were discounted due to implementation complexity, asset life uncertainty and/or a requirement for a return leg. The following alternative approaches were considered possible to support the transition away from natural gas:
Reuse larger, disused mains as pipe or cable carriers, which do not have the supply continuity issue and could provide greater capacity (but this is only applicable for gas mains and not risers).
Repurposing SGN’s existing assets for gas conveyance (e.g., biomethane or hydrogen)
Our analysis shows that removing gas distribution assets is likely to be prohibitively expensive, there would be limited demand for these pipes and there are likely to be technical challenges with removing them. Our analysis also shows that gas risers and distribution mains don't have much scrap value either.
A high-level analysis of the cost of decarbonising heat in MOBs through transition to biomethane, ambient loop system GSHP, communal ASHP or a communal gas boiler was completed for a scenario of a MOB with 100 flats, and the following conclusions were drawn:
Biomethane/Biogas could be cost-competitive with BAU gas boilers if biomethane prices remain relatively close to methane and only minimal system upgrades are required.
Ambient loop system GSHP has a Levelised Cost of Heat (LCOH) more than double that of BAU gas boilers. However, existing subsidies and longer asset lifespans could significantly further reduce the LCOH.
Communal ASHPs have a slightly higher LCOH than the ambient loop system GSHP in the low scenario but are comparable in the high scenario. Similar to GSHPs, subsidies and asset longevity could help reduce the LCOH.
Communal gas boilers (heat network ready option) has a lower LCOH than GSHP and Communal ASHP in the low-cost scenario, but a higher LCOH in the high-cost scenario.
The project identified a range of options to mitigate regulatory risks linked to GDN assets in MOBs, including the following:
1. Accelerated Depreciation
2. Transition Funding Mechanism
3. Dual Regulation Periods
4. Risk and Safety Investment
5. Heat Network Interface Support
6. Equity and affordability
Lessons Learnt
GDNs face a range of policy and regulatory issues relating to decarbonisation of MOBs that must be managed proactively. A range of options to mitigate regulatory risks linked to GDN assets in MOBs were recommended by the project, including the following:
1. Accelerated Depreciation
2. Transition Funding Mechanism
3. Dual Regulation Periods
4. Risk and Safety Investment
5. Heat Network Interface Support
6. Equity and affordability
SGN should consider, potentially in collaboration with other GDNs, the appropriate position on the issues outlined in the report and a strategy for engaging with Ofgem, DESNZ and other stakeholders.
6. Equity and Affordability
SGN should consider, potentially in collaboration with other GDNs, the appropriate position on the issues outlined in the report and a strategy for engaging with Ofgem, DESNZ and other stakeholders.
