This report, prepared by Scottish Futures Trust (SFT) for the Scottish Government, assesses the potential roles that a range of delivery models could play in helping to accelerate the pace and scale of heat network deployment.
Resource
This report, prepared by Scottish Futures Trust (SFT) for the Scottish Government, assesses the potential roles that a range of delivery models (alongside a number of complementary enabling structures/mechanisms) could play in helping to accelerate the pace and scale of heat network deployment.
Understanding the challenges
Scotland’s heat network challenge lies in delivering low carbon heat networks at the appropriate pace and scale, to ensure there will be enough heat networks to meet future demand (in areas where they are the most appropriate decarbonisation solution).
In SFT’s report, key barriers were identified to the delivery of heat networks at scale.
We know from engaging with the market and key stakeholders that there is significant interest and private capital available to invest in heat networks in Scotland. However, opportunities to invest are currently few and far between. Due to the complexity and risk involved in developing heat networks, investors and developers prefer to invest in larger projects (over £50 million), which benefit from economies of scale and have potential for growth. Most heat networks developed recently in Scotland have been relatively small scale, and although they are usually designed in a way that will support expansion, in practice projects have struggled to expand and connect more customers.
At present, the public sector (and local authorities in particular) has a key role in bringing these projects to market as the primary initial customer – large public sector buildings offer excellent ‘anchor loads’ (i.e., buildings with high and ongoing heat demand) which are essential to make projects investable. Buying heat for these buildings usually requires a procurement exercise. However, bringing heat network projects to market can be challenging: identifying the optimum scale of the opportunity; understanding possible technical solutions; deciding how the network will be delivered, procured and managed; mitigating demand risk and demonstrating value for money, are all complex and time-consuming activities. Local authorities can have significant gaps in skills, capacity and resource to undertake elements of this work.
In addition, stakeholders, both public and private, are clear that policy and regulation need to provide greater demand assurance in order to de-risk potential projects and unlock investment at scale.
Despite these challenges, there are plenty of potential heat network projects in Scotland, and a path needs to be found to unlock them.
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