One aspect of our clean heat neighbourhood approach is shared infrastructure technologies, such as networked heat pumps, shared ground loops, and communal and district heat networks. These will be the most appropriate clean heat solution for many city centres and densely populated areas. If used appropriately, these technologies are highly efficient, can make use of local resources such as waste heat, and create opportunities for long-term stable income thanks to their long lifespan.

In practice, though, these shared infrastructure projects often encounter financial and commercial difficulties that can slow down their delivery and prevent them from scaling.

We interviewed project leads, policymakers, institutional finance actors and industry experts to understand the reasons behind the challenges faced by shared infrastructure projects across the UK.

What’s in the report

• Shared infrastructure projects require a large financial outlay and have a long payback period.
• They can be delivered through various arrangements, either directly by a local authority, a private company or through a partnership between the public and private sector which can spread the risks between partners.
• While individual projects have been developed across the UK, they have often struggled to achieve scale, leading to a larger pipeline issue, which has meant that larger financial actors have not entered the market at the pace required to reach decarbonisation targets.
• Structural challenges, such as the high cost of electricity relative to gas, currently weaken the business case for shared infrastructure.
• The research in this report suggests that the coordination failures between local authorities, developers and investors in the UK’s shared clean heat infrastructure sectors should be addressed by UK and devolved government action.

Recommendations

The following is required to scale up the delivery of shared infrastructure projects.

• The UK and devolved governments should address the low certainty of demand and improve the economics of individual projects by:
  • using mandates to connect, and building regulations to guarantee uptake from a range of offtakers, and lower risk for developers
  • encouraging lowering the cost of heat at the source through supporting local authorities in mapping sources of waste heat, encouraging connections with local sources of energy generation or waste heat, and mandating connections to clean heat projects to guarantee a stronger business case
  • giving local authorities responsibility for pooling investment by giving them additional capacity through revenue funding, in order to create a stronger project pipeline.
• In addition, the UK government should increase the amount of capital available for clean heat projects through:
  • a strategic investment fund to support projects across tenure and technologies
  • taking an equity stake in clean heat projects in order to de-risk them, attract other forms of private investment (such as debt finance) and create more opportunities for long-term sustainable assets to generate returns on investment, using the financial transactions included in the Warm Homes Plan.