CDW/12/30 Cabinet 14 November 2012
Combined Heat and Power Networks Including District Heating
Report of Head of Capital Development and Waste Management
Please note that the following recommendations are subject to considerati on and determination by the Cabinet (and confirmation under the provisions of the Council's Constitution) before taking effect.
Recommendation: It is recommended that: (a) A District Heating Group comprising core stakeholders is formed to develop projects for the Exeter and East Devon Growth Point area; (b) Cabinet considers a future report on Energy Supply Company (ESCO) Models and agrees its involvement or support for ESCOs that help support the economy of Devon and bring forward development in the County; (c) Based on the outcomes of the current feasibility report for a district heating network for Exeter, soft market testing is carried out to establish the appetite for private sector funding of an Exeter District Heating Network (DH); and (d) DCC makes a site available for the construction of an energy centre to service the Monkerton District Heating Network in Exeter.
1. Summary
This report provides the policy context for Combined Heat and Power Networks, including District Heating, in relation to promoting economic growth, improving energy security and showing leadership on environmental stewardship.
The report provides information on existing schemes either in place or under development in the UK. It also identifies potential schemes for the Exeter and East Devon Growth Point area.
The report identifies the role that the County Council could take to bring forward District Heating Schemes and considers the potential involvement of the County Council and other stakeholders as catalysis for schemes or as active partners in Energy Supply Companies.
An immediate opportunity that the County Council could take to participate in and support the delivery of District Heating solutions in Monkerton, in support of the Exeter and East Devon Growth Point strategy is set out in the report.
2. Background
Critical issues for the UK are delivering economic growth, increasing energy prices, energy security and the need to move away from reliance on fossil fuels and the transition to a low carbon energy economy.
Local combined heat and power networks can contribute towards addressing these issues. The networks comprise energy centres where waste, fossil fuel or renewable fuels are burnt to produce energy in the form of electricity or heat. This is then distributed and sold to customers for consumption.
The Confederation of British Industry argues that a low carbon economy could be a real engine for growth in the UK. It says “green is not just complementary to growth, but a vital driver of it”
Combined Heat and Power and District Heating schemes deliver low carbon energy solutions for businesses in the public and private sector and to individual homes. They can generate, distribute and supply energy (electricity and heat) at lower prices when compared to conventional energy supply from national networks or individual heating systems. The viability of schemes needs to be established for each individual case and depends on energy generations costs, costs for new distribution network infrastructure and billing costs. For new developments District Heating schemes can save on building construction costs by delivering carbon efficiencies that reduce the need for other carbon cutting measures to comply with carbon emission standards imposed through the planning and building regulations processes.
Predicted increases in energy costs and concerns over energy security can be mitigated by moving to decentralised energy alternatives, like local combined heat and power systems and district heating schemes. Discounted energy prices can be built into the local ESCO model and local sustainable fuel supply chains can be developed to meet the needs of decentralised energy networks.
Environmental benefits can be delivered as local combined heat and power systems provide for energy efficiencies compared to heat generated in individual heating systems and electricity supplied by the National Grid. These efficiencies translate into lower carbon emissions and provide a more sustainable and environmentally friendly alternative for energy supply.
Appendix I gives an overview of combined heat and power networks and district heating networks that are either in place or under development across the UK. The list includes schemes in Devon, including the Cranbrook district heating system which was promoted by the Exeter and East Devon Growth Point Board to meet its objective of low carbon development in the Growth Point and which the County Council contributed towards.
Potential district heating schemes have been identified for the Exeter and East Devon Growth Point and these are illustrated in Appendix II.
A feasibility Study is currently underway for the Exeter City Network. The study is due to report by the end of the month and will consider energy generation, distribution and supply. The report will carry out high level cost modelling, carbon saving calculations and options for Energy Supply Company delivery models. The options will include private and private/public hybrid ESCO models.
At Monkerton in Exeter a district heating proposal is currently being considered. Heat would be generated at an Energy Centre within the development area and distributed by an underground pipe network to supply new homes, businesses and other buildings in the area.
3. Potential Economic Impact
In July 2012 the CBI published its report “The Colour of Growth”. (http://www.cbi.org.uk/media/1552876/energy_climatechangerpt_web.pdf )
This report argues that low-carbon economy could be a real engine of growth in the UK. For example it says: “…. The business response is definitive and emphatic: green is not just complementary to growth, but a vital driver of it…in trying economic times the UK’s green
business has continued to grow carving out £122bn share of a £3.3 trillion global market employing close to a million people.”
“There are significant productivity gains being made throughout the economy as a result of resources being used more efficiently.”
A RegenSW report showed a growth in the Renewable energy section in the South West of 40% in 2011. This could grow to 30,000 jobs by 2020 for the South West, enabling us to meet our target of 15% of energy from renewable sources by 2020. Meeting this target would create 400,000 jobs nationally.
Active involvement by the County Council in facilitating or participating in the development and operation of Combined Heat and Power and District Heating schemes could help ensure that Devon attract its share of this potential growth in the energy sector. It would be an important factor in selling the Exeter and East Devon Growth Point as a low carbon area and in bringing knowledge based and new and innovative businesses in the energy sector to the Exeter Science Park.
The energy cost reductions that would flow from connection to a Combined Heat and Power or District Heating network would improve the competitiveness of businesses and support private sector customers in responding to the challenge of reducing budgets. Typically a DH ESCO will offer between 5 to 10% energy costs reductions to customers.
Combined Heat and Power and District Heating schemes provide direct opportunities for jobs to be created in both the construction sector in the building of district heating networks, and in the renewable fuel sector to supply materials to new schemes, thus strengthening the local economic base.
4. Policy Landscape
There are renewable energy policy drivers at national and international levels. The Climate Change Act places legally binding obligations on the UK to reduce its CO2 emissions by 80% by 2050 over 1990 levels. The UK has also signed up to delivering 15% of its primary Energy from renewable energy sources by 2020 in line with the commitment to the European Directive. The Government’s Heat Strategy, published in March 2012 promotes the use of district heating as a means to meet our carbon reduction targets.
Government is driving the growth of the Combined Heat and Power (CHP) and district heating sectors through subsidies, under the Renewable Obligation Certificates and Renewable Heat Incentive, depending on the type and size of system installed.
On 18 October 2012 the government announced the Growth and Infrastructure Bill and referred to the forthcoming Energy Bill, both as a means to enable investment in low carbon energy projects.
Planning legislation means that new residential developments need to conform to the Code for Sustainable Homes, with progressive reductions in carbon emissions from buildings with developments becoming “zero carbon” from 2016. The supply of heat from a district heating system is a cost-effective way for developers to meet the current and emerging carbon emission targets.
The County Council’s Strategic Plan sets out principles and objectives for helping to develop a competitive economy and supporting local business. The County Council’s Environmental Policy includes policy objectives in relation to waste, to make best use of resources. It provides for the County Council to provide community leadership on environmental issues
and to improve energy efficiency. Combined Heat and Power and District Heating schemes are compatible with these principles.
National waste policy and the emerging Waste Local Plan recognise waste as a resource and energy recovery from residual waste as a key principle. This can take many forms including the generation of heat, electricity or biogas, which can be used as part of a Combined Heat and Power or District Heating scheme.
The County Council has already acknowledged the potential for residual waste to play a significant role as an energy resource. The Exeter Energy from Waste plant promoted by the County Council includes an obligation on the project to make best endeavours to use and market energy from the plant. The plant is currently orientated towards generation of electricity which is exported to the National Grid. There is the potential to increase the efficiency of the plant by taking off heat to supply a District Heating Network. As part of a wider network this would improve the viability of a city wide District Heating Scheme.
5. Energy Supply Company ( ESCO) Models
An Energy Supply Company (ESCO) is a commercial structure created specifically to generate, distribute and supply energy.
An ESCO can be formed to support a regeneration area, a large residential development, a single large building or multi-unit development. ESCOs can also be used to retrofit decentralised energy supply. ESCOs can be used to handle the risks associated with developments by acting as a vehicle to work with experienced energy provider partners to deliver projects.
There are a wide range of options for the establishment of ESCO’s to provide for the three main elements of a district heating solution i.e. energy generation, distribution and supply. An ESCO can invest capital into the scheme and assume responsibility for design and build, through to operation, maintenance and customer care.
ESCO’s can be purely private, public or public/private hybrids. In the case of the ESCO for the DH system for the new community of Cranbrook and Skypark, a privately-owned ESCO has been established by EON.
Public sector involvement in an ESCO may be appropriate and the advantages of such involvement could be: • Influence and control over customers, so whereas purely commercial enterprise may not elect to supply a particular customer, public involvement in an ESCO may for example allow public buildings or housing to benefit from heat supply. • Greater customer confidence in the DH option for energy supply leading to a commitment to long term heat supply contracts by the private sector customers. • Potential for lower cost borrowing and access to funding for infrastructure delivery via the Public sector. • Direct public sector benefit e.g. through profit sharing in the business.
Many schemes have benefited from local authority leadership. See Appendix I for examples of projects and structures.
6. Potential Schemes in Devon
The County Council has already been involved in a number of district heating schemes, in Cranbrook/Skypark, Plymouth and High Bickington, as well as smaller schemes through the Ward Forester and Renewable Energy 4 Devon Projects.
Potential Schemes in Exeter area are shown on the plan and table at Appendix II. There are a number of proposals in development for combined heat and power networks (CHP) in and around Exeter. Currently the 2 schemes progressing more quickly are Monkerton and the City Centre schemes.
For the Exeter City Centre scheme, Parsons Brinckerhoff is carrying out a viability study, which is due to be completed in November. It will report on:
• Heat generation, including from the Energy from Waste plant and other energy centres at key sites in the City. • Heat Distribution network; potential routes. • Heat supply; Potential customers, including anchor customers whose participation is needed to make a scheme viable.
Exeter City Council and East Devon District Council have been pro-active in placing planning conditions on new developers to be “heat ready”. For example the new Waitrose Store on Heavitree Road Exeter and the Marsh Barton Phase 3 development have been designed to take heat from a District Heating system if a scheme is available and they will face financial penalties if they fail to connect.
For the Exeter options presented above, there are a number of potential ESCO models and the County Council could opt for different levels of involvement:
(a) Do minimum: Facilitate the formation of private sector ESCOs. Provide background information by way of a Project Information Memorandum and let the market come forward with ESCOs. (b) Engage with Partners in a Private/Public hybid ESCO: Where the potential rates of return do not attract market solutions, the public sector can get involved a private/public hybrid ESCO to enable low cost finance, greater customer confidence and provide a profit share or reduced energy costs for the public sector. (c) Public Sector ESCO: Where the public sector forms the ESCO and contracts with private sector companies to finance build and operate a District Heating Network.
At Monkerton, EON has been working with Exeter and East Devon Growth Point partners, developers and with support from the Exeter Low Carbon Task Force. DCC may need to make relatively fast decisions on any involvement or investment in this scheme, as one option is to site the energy centre on Devon County Council land. This would provide a deliverable solution and provide confidence to developers that there is a viable long term District Heating scheme, as they move toward submitting planning applications.
7. Proposals
Further work is needed to inform a decision on DCC’s role and involvement in the delivery of Combined Heat and Power and District Heating schemes, as a facilitator or as an active participant. To inform this decision it is recommended that the County Council works with a group of key stakeholders to explore the delivery options and quantify the risks and benefits of a district heating network for the city of Exeter. The Group would also identify funding
options with a view to capturing grant funding and levering in private sector funding to deliver the necessary infrastructure opportunities. It is recommended that the Group should include: • Devon County Council: Because of its leadership role and strategic objectives including for promoting economic growth. Also because of its Energy From Waste Contract. • The Local Enterprise Partnership: To focus its low carbon objectives on the project and bring its influence and support to any bidding process for external public sector funding. • Exeter City Council: The City Council has a fundamental part to play in dealing with planning issues and ensuring new developments are conditioned to take heat supplied from a district heating network where feasible. • East Devon and Exeter Growth Point: To bring to the Group its experience in delivering the Cranbrook scheme and its vision for low carbon development and economic growth. • The RD&E: As an anchor customer and potential site for an energy centre. The Group would: • Make recommendations on the role the partners could play as facilitators or partners in the development of individual schemes, including in the formation of an ESCO company. • Make further investigations into other energy schemes in the UK to understand the risks, benefits and lessons learned. • Consider procurement requirements and potentially make use of procurement frameworks developed elsewhere, to speed up and reduce scheme set up costs. • Work with district local authorities to influence their planning decisions so that they exploit the full potential of district heating schemes in Devon.
The Exeter City District Heating Network Feasibility Report will set out potential ESCO models for an Exeter City scheme. Appendix I provides information on ESCO Models in other UK schemes. It is recommended that once further work has been done to explore the alternative options for an Exeter City Network scheme, Cabinet consider a further report to decide on its involvement or support for an ESCO.
If the Exeter City District Heating Network Feasibility Report shows that there is a viable scheme for the City, it is proposed that soft market testing is carried out to present information to private sector energy companies and determine their appetite for a scheme.
The success of a district heating scheme for the Monkerton development area relies on identifying a long term permanent site for an energy centre. Currently the Met Office could host a temporary energy centre, but there is not sufficient space to accommodate an energy centre that would serve the full development site and the Met office has concerns about potential interference with their equipment from a co located energy centre. A long term solution is needed so that developments in the area can commit to district heating from the onset and avoid abortive costs associated with connecting to conventional energy supplies due to uncertainty over the long term prospects of district heating. This uncertainty can be removed if the County Council resolves to make available a site within its landholding for an energy centre. At this stage, the options for the site have not been agreed, in terms of the sale of the site to an ESCO, leasing the site or offering the site as part of a contribution to an ESCO with the potential for future profit share to recoup the land value. Also, the impact on the adjacent retained land value has not been conformed, but at this stage a decision in principle is sought to capitalise on the potential for a scheme.
8. Financial Considerations
The proposed strategy for funding of District Heating schemes is to present opportunities to the market to lever in private sector funding for infrastructure and for the operation of the business.
However, public sector involvement has advantages as set out in section 3 of this report.
Reviewing the schemes in Table 2 it can be seen that there are a number of different financial models and funding options that can be considered. There are government grants and subsidies towards such schemes as well as EU funding options and private sector investment. For example, it was announced on 19 October that East of Exeter Growth Point has been successful with an £8m bid which includes £1m for a District Heating pipe network from the EfW plant at Matford.
There are a number of funding opportunities that may help with the development of District Heating networks and the delivery of such schemes, for example:
• Defra: Design for Future Climate: Climate Resilience Infrastructure competition for funding to support the development of schemes. • European Energy Efficiency Fund: Provides financing for commercially viable public energy efficiency, renewable energy projects. Provides loans for projects over 5m euros, with first application to Deutsche Bank. This can be linked with EU ELENA funding, which provides European Investment Bank loans for low carbon city developments. • Other development funding, such as further Regional Growth Fund bids.
The Local Enterprise Partnership has the ability to influence funding agencies and support funding bids for schemes under the banner of a wider objective of delivering low carbon growth in the Exeter and East Devon Growth Point.
This report makes no commitment to funding of the development of District Heating schemes beyond those already contained in existing budgets.
The impact on potential income from the sale of County Council land at Monkerton and the potential for income to offset any lost capital receipt for the land that may be made available for an energy centre, has yet to be quantified.
9. Risk Management Considerations
This report seeks in principle decisions on the County Council’s Combined Heat and Power and District Heating schemes . As detailed proposals are developed and presented for decision making, for example on the authorities role in an ESCO, the risks associated with such a decision will need to be quantified.
10. Sustainability Considerations
The potential the Combined Heat and Power and District Heating schemes have for delivering sustainable energy solutions for Devon have been outlined in this report.
The feasibility report on an Exeter City District Heating scheme will quantify the carbon savings, and will be fed into future decision making processes.
11. Equality Considerations
There are no known adverse equality impacts relating to the recommendations being made at this stage. If the County Council decides to be a partner is a future Combined Heat and Power and District Heating project, an equality impacts needs assessment will need to be completed.
12. Communications
The planning process for the Exeter Energy from Waste Plant included consultation of the proposals, which included for the best endeavours requirement to use and market energy from the plant.
The objectives of the Exeter and East Devon Growth Point in relation to low carbon development and sustainability have been widely communicated, and the development of Combined Heat and Power and District Heating schemes is compatible with those objectives.
13. Legal Considerations
If the County Council decides to become part of an ESCO, legal advice would be sought to formalise the relationship with other partners.
There would need to be legal input if County Council land at Monkerton was sold, leased or transferred for locating an energy centre.
14. Public Health
Combined Heat and Power and District Heating schemes have the potential to serve residential homes and provide reduced cost heating. If this development can progress it will have a positive impact on public health by improving the level of warmth in homes therefore reducing cold related ill health and associated socio-economic impacts.
There is a long term benefit in promoting Combined Heat and Power and District Heating schemes in helping tackle climate change and its impacts.
15. Reason for Recommendation/Conclusion
The recommendations are made to enable to County Council to support or participate in district heating schemes that would promote economic growth and secure stable long term low carbon energy solution in Devon.
David Whitton Head of Capital Development and Waste Management
Electoral Divisions: All
Cabinet Member for Economy, Enterprise and Employment: Councillor Will Mumford Cabinet Member for Environment and Community: Councillor Roger Croad
Strategic Director, Place: Heather Barnes
Local Government Act 1972: List of Background Papers
Contact for enquiries: David Whitton
Room No. M7 Matford Offices/County Hall, Exeter EX2 4QD
Tel No: (01392) 382701
Background Paper Date File Reference
Nil
dw021112cab sc/cr/combined heat and power networks including district heating 02 051112
Appendix I To CDW/12/30
Overview of some other ESCO District Heating schemes in the UK
Scheme ESCO Structure LA involvement Energy source ESCO Role Comments Aberdeen Heat Municipally owned Set up and funded by the Gas CHP district Generation and Power independent not-for- council to alleviate fuel poverty. heating. and supply. profit ESCO. 50 year Not for profit organisation framework agreement limited by guarantee. All with Aberdeen CC. operating functions are outsourced. Finance from Council, supplemented by government grants.
Woking District Joint Venture Thamesway Ltd is a wholly- Gas CHP. Generation Also used as a revenue Energy developed by Woking owned subsidiary of Woking BC and supply. generator for Woking BC. BC and Xergi Energy and is in a joint venture with Thamesway Energy now called Thamesway Xergi Energy to form also run a scheme in Milton Energy Ltd. Thamesway Energy Ltd. Keynes.
Kielder Municipally owned (by Set up to provide heating for a Wood-fired district Generation Small Rural scheme – Community Tynedale Council) and village in an off-gas area to offer heating. Uses and Supply. residential, business, Enterprises operated by Kielder significant cost and CO2 local wood chip community. Had ERDF and (KCE) Ltd Ltd on a Service Level savings against heating run on from Forestry other grants for set up. (Northumberland) Agreement. fuel oil or electricity. Commission.
Nottingham DH network run by EnviroEnergy set up by NCC. High pressure Generation May be opportunity to utilise EnviroEnergy – a steam from EfW and supply. procurement framework. company wholly Procurement regulations meant plant used to owned by Nottingham HCA funded scheme extension produce hot water City Council. Extension contracted out to alternative for heating 4,500 to scheme contracted supplier. homes and 150 out to Vital Energi. commercial buildings.
Scheme ESCO Structure LA involvement Energy source ESCO Role Comments Southampton Private company - Facilitation of set up of ESCO. Large scale CHP Generation Large scheme. Also District Energy Cofely District Energy with geothermal and supply. additional SEEDA/SCC Scheme (formerly Utilicom) Fundraising for HCA funding for and energy and scheme run by EON in runs Southampton extensions for affordable conventional Southampton. Geothermal Heating homes. boilers as Company Ltd – Joint supplements. Cooperation Agreement to generate profit share for SCC.
Peninsula Heat Joint Venture between The Royal Borough committed Heat will be Generation The Greenwich Peninsula Network (Royal Royal Borough of £7.3 million of grant funding supplied into this and supply. Regeneration Limited Borough of Greenwich and EON. held in reserves (£4.8m Mayor network from a RBG own (GPRL) development to be Greenwich) 40 year concession for of London grant; £3.0m Low number of gas pipes and built out over the next 20 EON to develop and Carbon infrastructure grant) to and renewable energy centre years will comprise over run scheme. fund the ESCo through a fuelled boilers and and EON has 10,000 dwellings and almost combination of loan and equity Combined Heat operating 400,000 m2 of office, retail, investment, to be determined and Power contract. and education within the Shareholding generators accommodation. Further Agreement for the ESCo. principally located adjoining developments £0.5m allocated to feasibility, in a large single include the existing and set up costs. Leader of Council energy centre. planned Anshutz to appoint a Board Director. Entertainment Group (AEG) Estimated capital cost of energy leisure and hotel scheme over time £30m. accommodation, including the O2, and the Greenwich Millennium Village (GMV). With ambitious aspirations to reduce environmental impact, we propose to install a community energy solution based around a central district heating (DH) network.
Scheme ESCO Structure LA involvement Energy source ESCO Role Comments Birmingham Cofely District Energy Birmingham CC, Birmingham Tri-generation Generation The current Broad Street own and operate Children’s Hospital and Aston from CHP (heat, and supply. and Eastside schemes could Birmingham District University conceived scheme, electricity and be extended to join together Energy Company Ltd funded feasibility and went out chilling). in future. “in partnership” with to tender then signed up for 25 Birmingham City year contracts with BDEC Ltd. Council. Partnership board members (these large users) have a profit-share in the form of an energy rebate.
High Bickington Rural Devon Scheme DCC input via funding and Woodchip Generation Rural scheme. Affordable Community – owned and operated support. and supply. and free market housing and Property Trust by the CPT. 6 workshop units, community Ltd centre, school – phased development – currently 2 workshops units, 16 homes and community centre.
Whitemoor Farm, Small privately-owned Limited support from DCC Privately owned – Generation Small woodchip scheme to Dartmoor scheme on Dartmoor. through Ward Forester project. woodchip scheme and supply. generate revenues for selling heat to operator while reducing nearby carbon emissions. Similar neighbours. scheme at Loyton in Mid- Devon.
Leicester District Private – Cofely Leicester City Council and Gas CHP with gas Generation Similar model to Energy Scheme District Energy ESCO Leicester University 2provide boilers and and supply. Birmingham. Heat and called Leicester District key anchor loads to make woodchip boiler. electricity to 32 Energy Company. scheme economic. 25 year administrative buildings and Working in partnership supply contract with 5 year 2,900 residential buildings. with City Council and extension. University.
Scheme ESCO Structure LA involvement Energy source ESCO Role Comments Manchester Tri-generation – £415m development Salford Quays CHP, heating, including 7million sq ft of “MediaCityUK” cooling. office and residential space. High build standard plus environmental measures including the district heating.
Cranbrook Privately owned – Government grant funding Gas CHP moving Generation Seen as ground breaking EON through HCA and coordinated to waste wood. and supply. new eco-town whose LA involvement and partnership development has had working from 3 LA’s with EON significant support from and developers to ensure County and District councils. project succeeds.
Plymouth… Joint Venture – 100% Plymouth City Council are EfW privately financed with procuring an ESCO partner to options for public deliver the scheme. funding.
Appendix II To CDW/12/30
Generation Distribution Supply: Confirmed Supply: Potential ESCO
Growth Point Energy To Cranbrook and Cranbrook Sainsbury E.ON Centre Skypark: Under Skypark Under Construction Construction
Exeter Energy From To investigate Matford Phase 3 SW Urban Extension To be Established. Waste : Matford Businesses Distribution and Supply Under Construction Link into City Network (Viridor)
Monkerton Energy Options under Monkerton Urban To be Established (likely Centre: investigation with EON Extension EON) To be confirmed: Met Office?
Exeter City Network: Feasibility Study RD&E To be Established To be established: Underway Co Hall Bus Stn Redevelopment? Wonford Hospital Anchor Customers, City Centre Developments Exeter EfW?