After binge watching Netflix shows in December, it’s good to be back at my home desk, channelling a slightly chubby version of Geralt of Rivia, ready to stride straight into a challenging new year.
The system wide removal of fossil fuel combustion from heating of buildings and replaced by decarbonised alternatives is one of the most significant technological, logistical and delivery challenges across the world. Heat represents almost half of global energy use, and is responsible for up to 40% of global emissions.
In the UK, heating in buildings represents almost a third of our green house gas emissions and so we have less than three decades to meet the net zero legal and moral obligations we set for ourselves. To say the transformational shift to deliver on this promise is complex would be a massive understatement.
Ambiguity has shaped the better part of almost two years within the construction industry attributed to a combination of covid responses, Brexit, global supply chain scarcity, raw materials and labour market constraints. This year may see even more headwinds. For most parts we have seen construction output fall 1.8% in volume terms for the 12 months to Oct 2021, inflation rises to 5.4%, its highest since 1992, making it more costly to build (and live!), and with energy prices due to rise significantly and hit consumers hard in April, these elements and more point out that there is a lot of pain on the way.
Across the policy and regulatory landscape, transformation across multiple systems (transport, infrastructure, planning, construction just to name a few) is required to ensure our net zero ambition becomes a reality. The level and speed of change required is daunting.
Just as epic story lines are broken into bite sized chunks, so too are the regulatory steps in our odyssey to decarbonise the way we live, work, study, and play. The Government’s 10-point plan, Energy White Paper, Future Homes and Buildings Standards, the Net Zero Strategy, Heat in Building Strategy, Heat Network Zoning Consultation are just some of a long list of examples where we have needed to consider each step towards decarbonisation carefully.
For many of us geeks (and I use the term with much affection), working in the heat network industry to decarbonise heating in buildings, the dodecahedron die has been rolled and landed a twenty! The government’s response to the January 2020 Building a Heat Network Market Framework (HNMF) has dropped a couple of weeks ago. ‘At last!’, I hear you say. The government proposes to establish a regulatory framework for heat networks which protects consumers, promotes technical standards, and drives forward the growth of decarbonisation of the heat network market.
Whilst my Dungeons & Dragons reference may be a bit far reaching and clunky, the government’s long-awaited response, is not.
As RPG aficionados will know, gifts are usually bestowed on the players early on in the game, and throughout the journey some gifts can randomly appear just before the story gets a bit gnarly. As a New Year’s gift, the Government response has for all intents and purposes, been positive and a welcomed move closer to regulatory certainty. It may even be a tossed coin to a Witcher ready to gulp down the elixir needed to help this new and burgeoning market grow despite the economic challenges on the way.
Heat Networks and District Heating connect multiple buildings through a hot water, steamed or chilled – water piping network to environmentally optimal local energy sources. This important infrastructure harnesses and utilises energy sources that are largely lost to the energy system. This then provides a significant opportunity to deliver heating and cooling in a much more environmentally effective way.
While the Govt’s response covers a range of issues (and I don’t go into all of the elements here) – we see the following ones as critical success factors for creating an efficient and effective heat market that will get us to our 2050 summit.
Regulatory Structure
While OfGem as the regulator was declared some time ago, naming the regulator officially helps in progressing key fundamentals for the heat network market. Particularly identifying to what extent policy frameworks implemented in the electricity and gas sectors ought to apply (and more importantly what not to apply) in the heat network context. This work has already been in train with more details falling into place regarding cost of regulation as outlined in a new consultation piece released at the same time.
Enforcement Powers
Setting out the necessary actions for OfGem is important to ensure the balance is correct and making sure the regulator is fit for purpose, not over burdensome, but can support innovation. Consistency with Electricity and Gas is also a key consideration – however as stated above, it is important to make sure that what is copied and pasted across- does not also lead to a whole set of unintended and undesirable consequences.
Consumer Protection
Addressing fuel poverty will be more important now than ever before as the cost-of-living as well as energy prices will hit consumers quickly and sharply. Ensuring appropriate policies are put in place to protect consumers will certainly be top of mind for the government and the new regulator. It is heartening to see that the OfGem is already working closely with Heat Trust, an independent non-profit consumer champion for heat networks that holds the industry to account for the benefit of everyone involved. Quality of service and transparency of pricing are key pillars of ensuring better informed choices for consumers. In the context of energy price caps a more active role from the new regulator is warranted to make sure those that currently fall outside of regulatory scope, (consumers on communal heating systems) may have some other mechanism for assistance.
Technical Standards
Establishing minimum Technical Standards is a challenging task with many industry experts offering conflicting views and opinions. Reaching consensus is a rugged journey and as seen in the development of the Heat Network Code of Industry Practice (CP1 2020), significant engagement across the sector was achieved. The government’s response was again positive indicating it would like to build on CP1 2020, which is already in use by the market not only as a contractual requirement but also as a government procurement requirement for accessing public funds – such as the Green Heat Network Fund.
Another clear signal being that compliance to CP1 2020 be demonstrated through third-party certification from an accredited certification body. While conformity assessment can be undertaken directly through first party (an interested party) or secondary (an advocate or agent of one party), third party (independent) assessment offers the most appropriate standard to support key principles of integrity, impartiality, trust, confidence, and assurance into the market. In fact, the true value in conformity assessment is in the confidence that is derived from an impartial evaluation by a competent assessor.
Decarbonisation
Decarbonisation of heat and buildings is a tough nut to crack. And as heat networks are complex systems with hundreds of variables, the system should be designed and delivered well in-line with performance expectations. Another positive in setting regulatory targets far in advance will give the industry the long-term investment signals necessary for sustainable growth, inform technology choices, lift skills and to change and lift poor cultural practices in implementation. The most pertinent point though is that the industry won’t be able to decarbonise heating delivery, unless entire schemes are performing effectively and efficiently.
While these particular aspects are all positive signals, its sets the stage for the “so what next?” question.
Take Home Messages
With regulatory ambiguity giving way to a bit more certainty, there now needs to be a super charged effort to ramp up proper quality assurance and certification practices, which we see as a cornerstone in getting the heat network industry fighting fit to meet 20% of the UK heat demand by 2050.
On the sharper end of the stick, with the cost of gas being subsidised, the unintended consequence of this, has been to mask poor workmanship and commissioning of heat networks. In other words, just burn more gas, turn up the heat and it’ll be fine. This is unsustainable and with prices due to rise even more, this certainly shines a spotlight on how important it is for industry to rapidly shift adopt cultural norms to improve the quality of design, delivery and operation of complicated heating infrastructure.
Simply put – independent third-party certification and assurance reduces capex, de-risks projects, optimises performance as well as reducing operational maintenance, increasing customer comfort and experience. With the amount of public and private funding focussed on increasing the adoption and roll out of heat networks, we need to make sure that they are designed, installed, commissioned and operated to a high degree.
Quality Assurance and Certification Brings Many Benefits.
- Enhanced customer experience and increased customer protection, as many of the pain points experienced by end customers begin in the early parts of the project from poor planning, design and poor construction and commissioning of complex systems.
- Help generate a cultural shift and pride of workmanship as better practices lead to reduced heat loss and improved affordability for end consumers, directly contributing to addressing fuel poverty
- Recorded conformities, non-conformities and solutions will create rapid knowledge shift across the supply chain and wider market with investment choices
- Data and information sharing, and reporting is formalised and easy to supply improving decision making from local authorities and Heat Network Zone Coordinators
- Consistency of reporting through validation and verification statements will also reduce administrative burden on local authorities, and other decision-making bodies, as well as increased transparency for public and private investors
- “Publication of Assured” Heat Networks provides further trust, confidence and protection for consumers and wider stakeholders as they are engaged by Zone Coordinators and local authorities in carrying out obligations to connect to Heat Network Zones.
Heat Networks are complicated systems that can take years to deliver, with many interdependencies. Our view is that the optimal form and model for certification to CP1 2020 should use a combination of international standards, ISO 17029 Validation and Verification, and 17065 Certification, ensuring a consistent approach to conformity assessment. All bodies looking to assure heat networks will need UKAS accreditation.
Another key consideration in the Government’s Response is the need to ensure the correct level of proportionality can be achieved within any compliance scheme.
Proportionality sums up the key role of regulators across multiple industries and jurisdictions. Regulators if developed properly through engagement with all industry stakeholders, must find the “sweet spot” between protecting and enhancing outcomes without placing too much burden on a growing market. If an emerging market is to face burdensome regulation, then the regulation can stifle growth, ingenuity, and innovation. On the other hand, if regulation is absent or too light touch, then protection and enhancement of consumers and market participants can fail. Balance is the key.
With CP1 2020 compliance then, this balance is finely struck through the use of the Statement of Applicability. CP1 2020 provides a presumption that all requirements must be met – unless there is a justified reason not to. The Statement of Applicability sets out the particular requirements applicable to the project and specifically record those requirements not applicable. The Statement must also be updated throughout each of the CP1 Stages.
This means that at the early planning stages, all parties are clear as to outcomes intended, design choices, equipment choices, pipe routing, installation and commissioning choices to be made and what requirements from CP1 2020 should be used as the standard benchmark for each. In this way proportionality and balance is taken into account and as the market races down the experience curve its continued adoption and application in conformity assessment will lift skills across the supply chain.
Our view is that with CP1 2020 as the default technical standard, and set to evolve in time, can provide the appropriate Assurance and Certification framework now. Having been published and released early last year, the Code has been adopted and specified already in many Design and Build contracts and by government as a requirement when applying for public funding. With the next steps section in the HNMF encouraging the market to continue to use CP1 2020, the government has sent a pretty clear signal to investors and developers.
In this response and with many interested players digesting the government’s approach, industry will welcome these signals and will see more regulatory certainty than ambiguity over the next couple of years as the market framework begins to form and it feels refreshing and can provide a hint of optimism momentarily.
So, Where To Now?
If a troublesome economy is manifested as a bloodthirsty monster about to rain down havoc among the village, we now need to steel ourselves for what is to come. A positive outlook on a future regulatory framework from the government is a helpful step forward for the heat network market, with many more steps to take. However though one thing is certain, this step from the government in some respects is a “tossed coin” in the right direction towards a Witcher as we head into a challenging year.
