UK Heat Networks: The prospects of decarbonisation through developing a heat marketplace

UK Heat Networks: The prospects of decarbonisation through developing a heat marketplace

Thomas Demetriades, ELEXON
Aditi Tulpule, ELEXON

As active energy consumers of today we need to re-think how we source our heat in our homes and businesses simply by questioning ourselves how this can be done greener, cheaper and more efficient. Given that heat generation accounts for around a third of the country’s carbon emissions, a collective action will help the UK reach its net-zero carbon emission targets by 2050.  It is widely recognised that transition to low-carbon heat could be achieved through a variety or a mix of alternative technologies and solutions, one of which is heat networks.

Heat networks distribute heat from a central source to a number of connected domestic or non-domestic buildings. Currently, heat networks in the UK are at a nascent development stage and display two common characteristics:

• Heat production and distribution is integrated; and
• Heat networks are disparate and not connected to each other.

Most heat networks in the UK have integrated heat production and transmission/distribution. Likewise, they consist mostly of localised networks serving densely populated residential areas or supplying heat exclusively to large facilities such as schools and hospitals. However, in countries with more advanced heat networks, heat production is a competitive commercial activity with multiple heat suppliers using the same interconnected pipe network to supply multiple customers. Ultimately, competition at the supply side of the market drives down prices for consumers and ensures efficient and effective production of heat.

At ELEXON[i], we believe that given the evolution in other countries, there is a much greater potential for heat networks in the UK. In order to facilitate the development of a heat market, clear and universally applicable market rules need to overlook all heat networks nationwide. This will help create longer-term transparency and certainty for investors, developers, operators and, ultimately, customers.

Various market frameworks and principles have been tested and proved for the liberalised electricity market and can be suitably adapted to design an unbundled low-carbon heat market. For example, we see an opportunity to apply a number of operational and technical codes from the electricity sector to heat networks. Having these key foundations in place from an early stage will eventually help create a marketplace suitable to accommodate the needs of all the participants in the supply chain.

In our paper, we will delve deeper into the main heat policy principles and how these could be reformed to facilitate the design of a heat marketplace. We will also discuss elements of the currently competitive electricity market rules such as metering, settlement and assurance and how these could be adapted and applied to liberalised heat networks. As the electricity industry is evolving to support UK’s decarbonisation objectives we believe there is scope for aligning future low-carbon heat generation including the development of a new heat marketplace early on. Therefore, we will highlight the benefits from the synergies that could emerge when designing a heat market and how these can be integrated into a wider strategy within the net-zero agenda.

[i] ELEXON is the Code Manager for the Balancing and Settlement Code (BSC) within the GB electricity market. We are responsible for managing and delivering the end-to-end services set out in the BSC and accompanying systems that support the BSC. This includes responsibility for the operation and delivery of balancing and imbalance settlement and the provision of assurance services to the BSC Panel and BSC Parties.

In addition, through our subsidiary, EMR Settlement Ltd, we are the Electricity Market Reform (EMR) settlement services provider, acting as settlement agent to the Low Carbon Contracts Company (LCCC), for the Contract for Difference (CfD) and Capacity Market (CM).