Episode 1: Heat Networks: From Pipes to Policy

Mairead: Welcome to our first Built Managed Lived podcast episode. I’m your host, I’m Mairead. I am the head of compliance and regulatory affairs at FirstPort, and I am a solicitor. I’m joined today by Stuart, who is the head of critical infrastructure and a chartered engineer, and by one of our residents, Jeremy, who is the vice chairman of a recognised residents’ association at a development in London Docklands. So both of you welcome. Jeremy, I’ve, I’ve introduced you as the, the vice-chair of a, a recognized residents’ association. Think it would be useful to just talk a little bit about what a recognised residents’ association is and what benefit you get from that?

Jeremy: Okay, so, we formed our residents’ association in late 2020. And then we built our membership up to reach the threshold throughout 2021. And we applied for recognition, from FirstPort, and then in early 2022, then we received that.

Mairead: Brilliant. So, Jeremy on a day-to-day basis, what does that mean for you?

Jeremy: Well, it means we have a democratically elected voice for for leaseholders, where volunteers will gain knowledge of their development and they’re able to share that with their neighbours, and also contribute to the direction and the decisions, taken by the freeholder and the managing agent.

Mairead: That’s brilliant. Thank you. So we’re here today to talk about heat networks and the Energy Act. So Stuart, start us off with, what is a heat network?

Stuart: Hi everyone, well a heat network provides heating and hot water to more than one dwelling, and typically could have one or more sources of heat inputting into that network. Heat networks aren’t necessarily new. Nordic countries in particular are… quite advanced on their heat network applications for many, many years, but we’ve seen that develop across most of Europe and into the UK. Typically, there are two types of heat networks. One is a district where you will see large parts of a neighbourhood being dug up and new pipe work putting in to feed multiple buildings from one or more heat source or energy centre as it may be called. Or you have, which is probably more common within the FirstPort arena, community networks where you will have a centralized boiler plant or heat source within there, it could be a heat pump, that then feeds out within the single building. And there are, there’s a distinct distinction between the two in terms of scale and size and complexity. Typical examples on, on the large scale, and I… we mentioned the Nordics, is cities like Oslo, Copenhagen, you’ve got Milan in Italy. In the UK, you may be able to look and see that the Olympic Park in London, was on a giant network there. I think something like 16 kilometers of pipework around Olympic Park.

Mairead: Wow

Stuart: Westminster, there’s a new project called Project Swan, that’s currently underway that will basically hook up all the government buildings within the Westminster area. And in Leeds, you, you’ll probably be able to do some research on what’s known as the Pipe Project and how a lot of communities in the Leeds area are connecting to, to such networks. The reason why it’s important is heat and heating of UK equates to around 21% of the UK’s carbon output. So as the government looks to reduce its carbon footprint of the UK by 2050, focusing on 21% of the generation of that through heat networks is a sensible approach. And as a market share at the moment, or certainly data from 2024, suggests that 3% of that heat is delivered from a network and the government has an ambitious target to reach 20% by the end of 2050. So, heat networks are definitely here to stay. They’re not new, but they need a lot of development, and that’s why we’re here today to talk about what we are.

Mairead: So, a heat network, you don’t have a boiler in your own house. There’s a boiler somewhere else-

Stuart: Yeah, there’s, there’s, there’s a centralized plant that enables you to then deliver through storage and pumping systems to multiple homes, in essence, yeah. There is that threshold in which the new regulations won’t count, which is basically 45 kilowatts and a single boiler. So, if you have that application, you won’t be part of the new regulations. But anything outside of that, you most definitely will be impacted by the new regulations.

Mairead: Jeremy, you, you live on a development that, that has a, a heat network. What’s that like?

Jeremy: Yes, so we have nearly 400 apartments, in five blocks, in London Docklands. And we have a, a central energy centre, providing heat and hot water to the flats, centrally with what are called heat interface units within each of the flats. We were one of the first developments in the country to have a heat network which was great at the time but it’s now coming to the end of its life. And in recent years, we’ve had, lots of breakdowns, we’ve had lots of wastage of energy, and it’s also become quite expensive to run. And in addition to that, the engineers are sometimes more focused on the modern equipment rather than the old-style equipment that we have. So, we’re in need of a modernization, you know, what we really want is a reliable heat network that performs well for our residents and delivers value. And we’re partway through the project to install upgrades.

Mairead: That’s great. So just for kind of everyone’s understanding, when you first bought your flat, the way the heat network was managed was under the terms of your lease.

Jeremy: Yes.

Mairead: And the terms of your lease set out how the heat network is maintained, and how you pay for the energy that’s generated.

Jeremy: Mm-hmm.

Mairead: by the heat network.

Jeremy: Yes, so what happened is we would pay up front based on an estimate of the annual consumption. Then at the end of the year, the service charge year, there would be a reconciliation, and, that would be, apportioned to each flat based on usage. What we have now, we’ve had for the past, two years I believe, is individual billing for each flat, but based on actual consumption. So no prepayment, and that makes it much easier for landlords in particular, when they have tenants moving in and out to be able to bill them the correct amount, and it also means for everybody that we’re not paying in advance, and we’re not paying based on a guess.

Mairead: So that was your heat network before the Energy Act.

Jeremy: Mm-hmm.

Mairead: The Energy Act in 2023, we’re just starting to see its provisions come into force now. Stuart, what is it and why is it important?

Stuart: Ofgem have been appointed as regulator for these networks, whereas previously, there was no regulation. There was best practice. You had things like CIBSE, had guidance from 2020, but there wasn’t anything that was set in stone as this is the standard and this is the benchmark that you need to achieve. Under the new regulations, you now have a technical standard, TS1 it’s called. And in addition to that, you have the Heat Network Technical Assurance Scheme. And what this does is sets out clear parameters for data, and the data becomes key to understanding the performance of the networks. So, performance is a cornerstone of what the new regulation brings in, but it’s also gonna increase the consumer protection much bigger focus on consumer protection, the resilience of a network, and the reliability of a network. So, all of this gets wrapped up and managed in a much more clear, concise manner.

Mairead: So key point there is that there is now a regulator, and that regulator is Ofgem. In real terms, what changes are consumers going to see?

Stuart: Well, for the first time, the guys on sites now have access to the Energy Ombudsman. That gives them a right to redress poor performance schemes. You have a demand for improved transparency, so signposting on bills, energy-saving measures, accuracy of meter reads. All of this is gonna be a lot more transparent. There’s greater protections for vulnerable customers, so there’ll be a priority service register for anyone on a network that will enable the operators and the suppliers of the energy to focus on those with the greatest needs. And overall is the performance standards and the ability to benchmark performance, so not just when you move into your home, but when you’re there, you will have some kind of standards that you’ll be able to benchmark how your scheme is performing against others in the area. So this is a significant step change.

Mairead: Jeremy mentioned a moment ago that the network in his development is coming towards the end of its life, and it’s performing badly. What options are available for people like Jeremy and his neighbours who have a heat network which they think is underperforming?

Stuart: Okay well, under the Heat Network Technical Assurance Scheme, you have … they published, I think it was in July last year, a standard for new builds. So you’ve got a gold standard that everybody can aspire to. In January of this year, they published the existing scheme guidance. And what’s happening now, that’s currently going through consultation with a view of I think it’s April the 15th, the final set of rules will be ready, if you like, for the Heat Network Technical Assurance Scheme. What that does is give us a framework to work to, and it gives us the standards to work to. We can then start applying for funding to actually acquire and understand where we are against those frameworks, so it’s almost like a gap analysis. So there’s a scheme called the Heat Network Efficiency Scheme, which the first part of it is very much around funding studies and understanding the condition of- of your network. We’ve been successful at FirstPort of applying for a number of these studies, which then gives us the benchmark that we need to then do detailed design studies that then enables us to go into the second phase of the HESNES, which is application for capital. Now, under the rules of HESNES, 49% of the capital, qualifying capital, can be refunded through the scheme. Now, when I say qualifying capital, if you’re looking to replace a boiler with a boiler and it’s a gas boiler, it won’t qualify. However, if you’re looking to reduce your carbon footprint, if you’re looking to improve efficiency and resilience measures, then those will be considered as part of a project application, and that’s very much where we are.

Mairead: Jeremy, you’ve mentioned that the project at your development is already underway. Did you get funding for that project?

Jeremy: We did. We won nearly half a million pounds worth of funding, to match contributions that we’ve made, as the leaseholders, and, that applied to two of our buildings. So, we’re hoping that we’ll have some more funding for the other three. It’s been a game changer for us in the sense that were it not for that funding, we would have needed to fund that ourselves as leaseholders. And also, it helped to bring forward the date which this project to replace our heat interface units could start.

Stuart: Yeah. I think one of the important points here is that you’re, you’re almost trapped in a vicious circle.

Jeremy: Mm. Yeah.

Stuart: Because your bills are so high, it’s costing you a lot. Therefore you can’t save for the rainy day to replace or drive improvements.

Jeremy: Exactly.

Stuart: And I think what the HESNES fund does is unlock that capital. Although it’s too early to tell now, because we’ve only just been through one winter period, the drop-off in reactive calls as a result of the project is significant. It’s up in the 80%s. That has an immediate impact on cost. So we can drive the cost down, improve the resilience, improve the efficiencies, then we will have more money in the future to reinvest in the network. And I think one of the key points with your project, in particular, Jeremy, is that we focus on the load, reduce the load, focus on the distribution, and then focus on the network in the future in terms of the actual generation element.

Mairead: All of this sounds great. So what are the challenges in bringing forward a project like this?

Stuart: When you look at a project like this,it does involve all elements of FirstPort in terms of the teams that are involved. So we have a strong operational team. We have a strong engineering team. We have an energy management team. But when you’re going through applications, these have to be validated and independently, developed and approved. That then has to feed back into other processes. And from a legal perspective, Mairead, this is something perhaps you can offer us some advice on. It’s where the Energy Act then interacts with existing regulation and legislation around the housing market and landlord and tenants act and things like that.

Mairead: As we said a few moments ago, the starting point for people like Jeremy is that the heat network was governed by the terms of their lease. And through the Energy Act, we’re seeing certain elements of that being taken out of the governance of the lease and put under the statutory provisions. So statutory requirements will always override the contractual terms in a lease. That doesn’t mean that there aren’t issues. There are some very definite practical issues to do with unbundling the energy charges from the service charge in the lease and putting them into standalone agreements. At the moment, we’re waiting for further guidance from Ofgem on exactly how that is going to work. But as you said Stuart, it’s not just the Energy Act and the lease, there’s a whole plethora of other statutory provisions that apply to leases, such as the Landlord and Tenant Act. And all of these things don’t fit together perfectly at the moment, and that’s something that we’re going to have to work on in the coming months and years.

Stuart: It’s certainly a challenge, and that’s why it involves many members of the FirstPort teams across different disciplines to pull a project like this together. It starts a lot further forward in the process than perhaps people realise.

Mairead: Well, shall we look to the future? Jeremy, I’ll start with you. You’ve started a project in two buildings at your development. What are your priorities for the next, say, two years?

Jeremy: Well, we really see this as a way of cost saving, and also having greater reliability and sustainability of our heat network. So let me give you an example. Prior to the commencement of this project, our pumps were pumping water, almost constantly to our flats, and that was using a lot of electricity. The temperature to make the heat interface units function was a lot higher than it will be with the new heat interface units. So, we’ve got two quite big areas of cost saving there that we’re expecting. I think that will give us more value for money, reliability, as you say, and also that transparent billing that I talked about before, I think all of those just provide fairness, transparency, value for money, the kind of things as leaseholders we’re looking for. And to do it in a sustainable way is even better.

Stuart: I think to add to what you were saying there, Jeremy, when you look at the elements of the network, you talk about pumps. You really want your heat network to transfer the heat from one side to your apartment as efficiently as possible.

Jeremy: Mm-hmm.

Stuart: And if, because of an imbalance of the system or the pumping regime isn’t correct, you’ll be charging your hot water around there so quick that you don’t get the economies of scale and the efficiencies. So, what the Heat Network Technical Assurance Scheme does is give us those benchmarks. It gives us the data to look at and implores us to look forward and say, “Well, actually, we can make significant savings if we focus on this element, then this element and then this element.” And- and that’s exactly the approach that we’ve taken on your site, so I’m glad you’re starting to see now the benefits.

Mairead: Absolutely. Stuart, I can see that the engineer in you is dying to come out.

Jeremy: (laughs)

Mairead: And, we’ve said we’ll look to the future, so what are the developments in technology moving forward?

Stuart: Well, the advantage of having a heat network is you can change the source of your heat fairly quickly and easily, and you have a bigger impact almost immediately. So, rather than go around, say, 240 homes replacing boilers, you’d go to the energy centre and you’d change your technology there. Now, that does give you the opportunity to look at different sources of heat. And there’s an example at the moment where we’re looking at a data centre that’s neighbouring a development, and looking at rejection heat from the data centre. So, if we can plug that into the heat network, that potentially could displace gas for the whole of the summer period.

Mairead: Stuart, are you saying that you’re going to take the wasted heat in that data centre and, where that would normally go off into the ether and they would pay money to cool it down, you’re going to take that-

Stuart: Absolutely. So there’s-

Mairead: … and put it in a building?

Stuart: So there’s basically a prime function of a data centre, it has to keep its computers and its processors and servers cold. They generate heat. That heat is normally rejected on the roof. Now, in this particular application that we’re investigating at the moment, we are right neighboured to that heat source. So, why would you not draw on that heat source, use it to preheat via a heat pump to then deliver what you need in term of temperatures, and simply retire the gas boilers? So, it’s quite an exciting time because with the Energy Act, with HENTAS, with the Heat Network Efficiency Scheme, we’ve now got the tools in the toolbox to pull these sorts of things together. And then in addition to that, there… you’ll- y- you’re gonna see a lot more focus on waste heat from waste plants, so burning of waste to generate heat. Even onto the development, and it’s been in the news quite a lot recently, where Rolls-Royce are developing micro nuclear reactors, which they hope will power parts of cities in the future. So, there’s a lot of development in this area that we’ll be able to almost plug and play into a heat network. I think one of the other key focuses around this, and this is where we at FirstPort have been very, very well prepared for over the last 18 months, is smart buildings, because the technology and the data, it’s pointless if you’re not gonna do anything with it. And we’ve found sites where when we’re analysing the data in accordance with the Heat Network Technical Assurance Scheme, losses of 23,000 pounds on one particular site, which, when you look at the number of residents on site, equates to a phone bill each month. Now what we’re able to do is, the lifecycle plan is focus on those elements because we’ve got the data and make sure that we do the right maintenance at the right time in the right locations.

Mairead: And that’s because you’re using specialist technology to be able to monitor those aspects of heat network?

Stuart: Yeah. Yeah. Definitely. There’s a roadmap under the Heat Network Technical Assurance Scheme as to what you need to be measuring. What we’re able to do is take that data, use the right skillsets, who understand what the data means, put it through algorithms, use even AI now for smart learning modules, and actually predict and forecast where we need to spend the money next. It’s a step change. And I think from an industry point of view, anybody working in heat networks right now has the ability to do something that makes meaningful change to residents. And I think that’s, that’s good opportunity and a nice place to be for people in, from engineers of the future. Because when you’re dealing with 244, say, residents, as we mentioned with the data centre, if that comes off that project as a career pathway, you’ve made a difference. I’d love to see more engineers. So that’s, yes-

Mairead: (laughs)

Stuart: … that’s the engineering piece coming out in me.

Mairead: Thanks, Stuart.

Stuart: So, I’d like to turn the question back on you, Mairead. How, how do you see things progressing over, say, the next year to two years?

Mairead: Well, we’ve got the Energy Act and its new legislation. And with, as with any new legislation, it requires interpretation. So certainly over the next couple of years, we’re going to see some of that interpretation coming in the form of additional guidance from the regulator, from Ofgem. We will see potentially some secondary legislation, and we will see how courts and tribunals interpret the legislation. That’s one of the ways where any new legislation moves forward once we understand how it’s going to work. And there’s always going to be situations or scenarios that the legislation hasn’t anticipated or couldn’t have anticipated, so we’ll start to see some of those playing out over the coming years, and the legislation will be refined as we go on, and hopefully to get us to a point where there are less challenges in bringing forward projects like this.

Stuart: I agree. I look forward to it.

Mairead: Jeremy, Stuart, I think this has been a great discussion. It’s given some real perspective around what heat networks are, what funding’s available, how the law is changing. Thank you both for joining in today. And this has been our first Built Managed Lived Podcast. There’s going to be more to come.

Stuart: Thank you very much.

Jeremy: Thank you.

Mairead: Thanks.