Episode 1: Heat Networks: From Pipes to Policy

00:00

Jeremy: Okay, we should now be recording.

00:02

Mairead: Okay. So welcome to our first Built Managed Lived podcast episode. Um, I’m your host, I’m Marade. 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. Um, 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?

00:55

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

01:14

Mairead: Brilliant.

 

01:15

Jeremy: … yeah.

 

01:15

Mairead: And what does that mean on a, a day-to-day basis for you?

 

01:18

Jeremy: Uh, well, it means we have a, a demickly… (laughs)

 

01:22

Mairead: (laughs) Try that one again.

 

01:24

Stuart: Do you want to ask the question again ……………………….

 

01:27

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

 

01:30

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

 

01:52

Mairead: Yeah.

 

01:53

Jeremy: Uh, and, uh, and, and the managing agent.

 

01:55

Mairead: Yep. So d- d-

 

01:59

Jeremy: Um-

 

01:59

Mairead: … h- h- how do you go about that? You-

 

02:01

Jeremy: Well-

 

02:01

Mairead: You’ve got a board, so-

 

02:02

Jeremy: Uh, yeah.

 

02:03

Mairead: … a few people-

 

02:03

Jeremy: We-

 

02:03

Mairead: … who are, are taking the lead.

 

02:05

Jeremy: Mm-hmm.

 

02:06

Mairead: But does everyone get involved?

 

02:07

Jeremy: Uh, well, we have a committee of, uh, 10, um, uh, a chair, a vice-chair, secretary, treasurer, uh, and other committee members, uh, representing different blocks and different areas of interest, uh, which could be from a service charge, it could be to antisocial behavior, um, it could be for various projects, um, it could be for our website. Um, so lots of different expertise, uh, amongst our, uh, amongst our neighbors, uh, that we can really, uh, (clicks tongue) utilize, um, wit- within the committee. Um, so, uh, for example, we, we have a website, uh, and on the website, we have, uh, information, uh, which is helpful to residents. So it could be on things like how to change a shower cartridge, uh, it could be how to deal with a, a water leak, um, or it could be how to deal with a mice infestation within, in a flat. So we have some, some videos and some, some, some, some really good content on, on there. A- and then, uh, each month, uh, myself and our chair will have a, a meeting, uh, with the FirstPort development manager. Uh, we invite other members of the committee along as well as when the, as w- when they wish. Um, and, um, in addition to that, then we’ve been introduced to other experts, uh, within FirstPort for various projects, so such as this one with, uh, with Stuart.

 

03:28

Mairead: That, that’s great. And a, a recognized residents’ association is a creature of statute, so residents on any development can get together to, to form a, a recognized residents’ association. Do you feel it’s been beneficial for you in your relationship with FirstPort and in the way that your development is managed?

 

03:47

Jeremy: Uh, yes, I think definitely. I think the, um, first of all, that the leaseholders feel they have a voice, uh, where they didn’t have a voice before.

 

03:54

Mairead: That’s great.

 

03:55

Jeremy: Um, and, uh, it allows us to, to input into the decisions and it also allows us to feed back to the residents from, coming from the resident perspective as opposed to from the, the FirstPort perspective. Um, a- and one of the ways that we do that is we’ll organize a couple of meetings every year with our development manager, uh, and, uh, uh, we’ll run through, uh, the service charge, um, and also the quality of the services provided, and it’s an opportunity for, for leaseholders, uh, members to, um, to ask questions of, uh, of Kelly (phenetic 04:34) , um, just to do with the… our, our development. And, uh, I think by having a real structure in place, it adds to richer des- richer discussions, uh, than, than we had prior to the formation of the residents’ association.

 

04:41

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?

 

04:52

Stuart: Yeah, hi everyone. Um, well, a heat network is generally a heat network that provides heating and hot water to more than one dwelling, and typically could have one or more sources of heat inputting into that network. Um, heat networks aren’t necessarily new. Uh, Nordic countries in particular are… been 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 neighborhood being dug up and new pipe work putting in to feed multiple buildings from one or more heat source or energy center 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. Um, 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 maybe 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.

 

06:13

Mairead: Wow.

 

06:14

Stuart: Westminster, there’s a new project called Project Swan that’s, that’s, that’s currently underway that will, 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 n- 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, uh, or certainly dated from 2024, suggests that 3% of that heat is delivered from a network when 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.

 

07:16

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

 

07:22

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 an essence, yeah. There is a, there’s, there is a, a 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.

 

07:49

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

 

07:55

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

 

09:16

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

 

09:28

Jeremy: Yes.

 

09:28

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

 

09:37

Jeremy: Mm-hmm.

 

09:38

Mairead: … by, by the heat network.

 

09:40

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

 

10:26

Mairead: And so, so that was your heat network before the Energy Act.

 

10:31

Jeremy: Mm-hmm.

 

10:31

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

 

10:41

Stuart: I think it’s quite important. Um, Ofgem have been appointed as regulator for these networks, whereas previously, there was no regulation. There was best practice. Uh, you had things like CIBSE, which is the Chartered Institute of Service Building Engineers, 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, uh, with- under … which, which sit under Ofgem, 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 we, what, what, what the new regulation brings in, but it’s also gonna increase the, uh, consumer protection of a mu- 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.

 

11:46

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

 

11:56

Stuart: Well, for the first time, the guys on sites now have access to the Energy Ombudsman. Um, that gives them a right to redress, um, poor performance schemes. You have a demand for improved transparency, so signposting on bills, energy-saving measures, um, 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, uh, 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. Um, and overall is the- the performance sta- 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.

 

12:48

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

 

13:04

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- 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.

 

14:36

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

 

14:46

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

 

15:25

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

 

15:29

Jeremy: Mm. Yeah.

 

15:30

Stuart: Because your bills are so high, it’s costing you a lot. Therefore-

 

15:32

Jeremy: Yeah.

 

15:32

Stuart: … you can’t save for the rainy day to replace-

 

15:35

Jeremy: It’s-

 

15:35

Stuart: … or drive improvements.

 

15:36

Jeremy: Exactly. Mm-hmm.

 

15:36

Stuart: And I think what the HESNES fund does is unlock that capital. Um, although it’s too early to tell now, uh, 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.

 

16:14

Mairead: I think all, all of this sounds great. So w- what are the challenges in bringing forward a project like this?

 

16:21

Stuart: Wh- when you c- when you- when you look at a project like this, it- it, 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 a, an energy management team. But when you’re going through applications, these have to be validated and independently, uh, developed and approved. That then has to feed back into other processes. And, and from a legal perspective, Mairéad, this is something perhaps you can offer us some advice on. It, it’s where the Energy Act then interacts with existing regulation and legislation around the housing market and, and landlord and tenants act and things like that.

 

17:02

Mairead: Well, the … As, 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, 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 prov- 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- the coming months and years.

 

18:12

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 realize.

 

18:25

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

 

18:39

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

 

19:56

Stuart: I think to add to what you were saying there, Jeremy, when you look at the- 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.

 

20:09

Jeremy: Mm-hmm.

 

20:09

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- 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 an- an- 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. And you also mentioned obsolescence. The equipment that you had was probably great when it was first installed, but technology has moved on, and there are functions in that original technology that would use things like keep warm functions that you don’t need in modern HRUs. So, by applying of the- the attention on the load, reducing that then allows us to focus on- on the next area for you and drive those improvements.

 

21:04

Jeremy: And I think having a modern system as well, um, is really important, because as you say, ours was modern 20 years ago when it was installed. Uh, it’s no longer modern. And 10, 10, 15 years’ time, what’s modern now will no longer be modern. So, we need to be keeping up, but we need to do it in a way which, um, only replaces and- and, uh, and encounters cost when we need to, um, and have it fit for purpose in- in, you know, throughout its- its- throughout its expected life.

 

21:35

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

 

21:41

Jeremy: (laughs) .

 

21:41

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

 

21:48

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 center 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 center that’s neighboring a development, and looking at rejection heat from the data center. So, if we can plug that into the heat network, that potentially could displace gas for the whole of the summer period.

 

22:20

Mairead: Are you, Stuart, are you saying that you’re going to take the wasted heat in that data center 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-

 

22:31

Stuart: Absolutely. So there’s-

 

22:32

Mairead: … and put it in a building?

 

22:33

Stuart: So there’s- so there’s basically a f- prime function of a data center, it has to keep its computers and its processors and servers cold. That’s… 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 neighbored to that- that- 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. Um, 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. And 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- it’s pointless if you’re not gonna do anything with it. You need to make…… data-driven decisions. You need to drive your improvements and your costs and your lifecycle models to actually have an impact. And we’ve found sites where when we’re analyzing 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, a mobile 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. Whereas previously, it could have been, “We’ll do the first floor first, then the second,” and it wasn’t targeted enough. So we’re seeing real savings purely through the Smart Buildings Programme as well.

 

24:31

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

 

24:38

Stuart: Yeah. Yeah. Definitely. Uh, it, it’s … 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, and forecast where we need to spend the money next. It’s, it’s, 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 center, if that comes off that project as a career pathway, you’ve made a difference, and I think that’s … I’d love to see more engineers. So that’s, yes-

 

25:28

Mairead: (laughs)

 

25:28

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

 

25:31

Mairead: Thanks, Stuart.

 

25:32

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?

 

25:40

Mairead: Well, we, 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. Um, we will see potentially some secondary legislation, and we will see how courts and tribunals interpret the, the legislation. That’s one of the ways where any new legislation, um, moves forward once we understand how it’s going to work. And there’s always going to be s- 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, the legislation will be refined as, as we go on, um, hopefully to get us to a point where there are less challenges in bringing forward projects like this.

 

26:50

Stuart: Okay. I echo those thoughts. I think with the April the 15th as the next date for consultation to close on the Heat Network Technical Assurance Scheme, I’m sure that will bring one or two tweaks and changes. So, yeah, no, I, I agree.

 

27:04

Mairead: Yeah.

 

27:04

Stuart: I look forward to it.

 

27:05

Mairead: Yeah, I think it, this is an area particularly where the technology is changing so fast, the law will always struggle to keep up with technology. But using the guidance from Ofgem, um, gives us a real chance to keep moving forward and keep making this an option for residents on developments like yours. And you said earlier, we’re going to go from 3% of heat currently coming from heat networks?

 

27:35

Stuart: From 2024, it was 3%. It’s going to 20% is the target, with forecast of investment of over 80 million pounds to do that across the UK. So, there’s a lot of focus.

 

27:46

Mairead: So, I, I guess the law has to keep up then. (laughs)

 

27:50

Stuart: (laughs)

 

27:50

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

 

28:14

Stuart: Thank you very much. Thank you.

 

28:15

Mairead: Thanks.