SE8 Task 5: Assessment of technical and financial viability of DHNs

Overview of task

The next stage is to carry out a high level assessment of the technical and financial viability of each of the DHN opportunity areas. This exercise should distinguish between sites that may be viable purely commercially and more marginal sites that may be viable with other sources of funding (or the involvement of delivery partners with a higher risk tolerance).

This process is unlikely to be practical for the local authority to complete internally and so no detailed method is set out. More likely it will involve the local authority supplying the data described above to a consultant or potential delivery partner (such as an ESCo) with the required technical and in-house cash flow modelling skills.

Depending on the options that are available, this task should seek to answer the following questions:

Option 1: If an existing or proposed source of heat:

1. How technically feasible would it be to connect a given new development, or existing potential anchor heat loads, to this?
2. If technically feasible, what would be the capital and operational costs as well as potential revenues involved with doing this?
3. What would these connection costs be for a developer compared to the costs involved with providing heating by other means, as well as the costs for meeting future Building Regulations carbon reduction requirements by other means?
4. If an ESCo were to be involved in managing the network, to what extent could they finance some or all of the network costs, based on the potential level of ongoing revenues and costs for managing the network and selling energy to customers? This assessment should be on the basis of providing heat at a price competitive with conventional alternatives.
5. What carbon savings could be achieved, both for new and existing development? For new development, to what extent would this enable them to meet future Building Regulations requirements for carbon reduction?
6. What contribution could the network make to meeting the Allowable Solutions for any new development, both in terms of carbon savings and the financial value of those savings?
7. What is the attitude of the owners/ occupiers/ managing agents of any potential anchor heat loads towards connection to the district heating network? Are there any major barriers to their participation, such as: incompatibility of heating system; existing long term energy contracts; plans to re-locate, etc.? Are there any major opportunities for district heating, such as planned boiler replacements or major refurbishments?

Option 2: If new development may need to provide/ host an energy centre to meet its own energy needs and potentially supply other adjacent new and existing development (i.e. no existing source of heat):

8. What would be the potential capital costs for a developer for providing an energy centre and associated DHN compared to the costs involved with providing heating by other means, as well as the costs for meeting future Building Regulations carbon reduction requirements by other means?
9. What would be the space/ footprint required for an energy centre to house generation plant, and associated equipment and fuel store, to meet the energy demands for the area

As for (4) above, but also considering the costs and revenues to an ESCo of managing the energy centre
As for (5), (6) and (7) above

For option 2: the table below shows a list of the key parameters and variables that the analysis should consider.

* If private wire is assumed then the cost of operation private wire should also be included

A key output from the financial analysis will be an assessment of whether the schemes are commercially viable, or whether gap funding is required. If the latter, then there are two potential sources of gap funding that a local authority, or an ESCo, may be able to secure from developers of new buildings to provide this funding. These are:

• Connection charges
• Allowable Solutions fund

Both options 1 and 2 may be need to be considered, if the opportunities for existing or proposes sources of waste heat exist.