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TRANSCRIPT
Low Carbon Heat
Low Carbon Heat
Aqualorenergi.com
Low Carbon Heat
Low Carbon Heat
Aqualorenergi.com
Funding & Procurement of a
Large-scale WSHP Heat Network
Presentation to
REHAU District Heating Workshop
23 March 2017
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Agenda
• Heat pumps - why use at large-scale?
• Aqualor Energi
• Funding
• Procurement
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Low Carbon Heat
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Heat Pumps - Why use at Large-scale?
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Heat Pumps: Technology
• Same operating cycle as a refrigerator but in
opposite direction when used for heating
• Electricity drives compressor pump allowing heat to
be extracted from the source (water, ground or air)
and released into heat network
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Heat pumps: Why use at Large-scale?
• Low (or zero) air emissions
• Tried & tested technology
• Highly reliable – no need for back-up boilers
• Water is best value for large schemes
• Water is commonly available – ground water,
underground streams, flooded mines, sewers
……as well as rivers, lakes and the sea
Low Carbon Heat
Heat pumps: Why use at Large-scale?
• Better value on whole life cost basis than
any other source of heat….
• Possible exception is gas CHP where
private-wire power used
• WSHPs especially suit off gas grid
locations
• Hybrid CHP / heat pumps schemes are
attractive
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Heat Pumps: Hybrid Solution
A hybrid solution may be attractive of:
• Small CHP serving a WSHP
• Power goes to private wire / grid in peak periods
• Power in off-peak periods goes to heat pump
• Heat from CHP assists in serving heat load
Low Carbon Heat
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About us
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About us: Aqualor Energi
• Deliver energy centres and heat networks
based on use of heat pumps
• Develop, fund and operate
• Low cost finance
• Partners include TfL (excess heat), water
utilities (sewers), power utilities (excess
heat), Coal Authority (flooded mines)
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About us: Warm Temperature Network
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Case Study: Warm Temperature Network
One New Change, Central London (Land Securities)
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About us: Warm Temperature Network
Banks of reversible heat pumps
Start of day
H H H H C
Middle of day
H H H C C
End of day
H C C C C
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About us: Ambient Temperature Network
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Case Study: Ambient Temperature Network
Kingston Heights, Kingston in Surrey (NHP Leisure Developments)
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About us: Ambient Temperature Network
• Attractive financially as:
o cost of heat pumps deferred until each building
constructed
o pipes uninsulated so gain further heat in reaching
each building
o builder can lay heat network pipes alongside other
services
o no requirement for heat meters as each occupier
pays directly for power
• Occupier is in direct control of their own heating costs
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Low Carbon Heat
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Funding
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Funding: Project Viability
• Private sector > 10 - 12% Project IRR
• Public sector > 6% Project IRR
Is a project with an overall 9% Project IRR viable?
Yes, if all public sector funded
• But does public sector have access to total funds
required, and/or want development and operational
risk of heat source?
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Funding: Project Viability
May be attractive for:
• Public-sector to own the network as can then control when/how extend the DHN system in the future
• Private-sector to take risk of developing, funding and operating the heat source
For a project with a 9% Project IRR overall, and assuming 50% of scope funded by private sector at 12% Project IRR this would result in a 5% Project IRR for the public sector funding the network. Still a potential problem!
But even at 5% a great opportunity for the public-sector to invest
Heat Source Network Distribution
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Funding: Project Viability
This is because:
• PWLB monies are at say 2 - 3% interest rate - Salix is similar
• Potential for carbon savings
• UK to be fined by EU for air emission infringements which will pass down to local authorities
• Reduction in fuel poverty and other local health benefits
• Job creation
• “Capital” monies can be converted to “Revenue” monies which then available for essential services
• Economic regeneration benefit eg Gateshead
Hence a project at 9% Project IRR can still be viable!
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Funding: Risks
Funders are seeking all project risks addressed especially:
• EPC contract for design and construction
• May require long-term services contract – perhaps up to debt repayment
milestone
• Power supply period – likely <10 years as lower rate for shorter term but to
quickly “lock-in” if appropriate
• Certainty on heat sales – see Heat Purchase Agreement
• Strong counterparty risk – especially heat user/s and EPC contractor
• All consents and land agreements to be in place
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Funding: Grants
Grant funding can significantly help financial viability:
• HNDU – revenue support
• HNIP – capital support
• Other UK funding – eg Coastal Communities Fund
• EU funding – programmes such as Horizon 2020 and EU Structural &
Investment Fund which cover funding streams relevant to energy eg
European Regional Development Fund (ERDF)
Don’t forget to liaise with your LEP
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Funding: RHI
• RHI is essential to the viability of a heat pump project (unless
sufficient grant funding)
• Treasury has confirmed RHI to last at least 2020/21
• Potential digression of RHI tariff way off for WSHPs / GSHPs
• Once awarded RHI is grandfathered for 20 years – essential as
funders need this certainty
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Procurement
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Procurement
How the project is divided up between the parties and to be
delivered influences how the project is procured
Easier for a private–sector lead scheme as less procurement
rules
For a public-sector led scheme points to bear in mind:
• Having a Project Champion can be very helpful
• Involve the Procurement Department!
Heat Source Network Distribution
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Procurement
• Keep any grant funding attributed to the network (not the heat
source) so can claim the RHI
• Abide by any grant or loan funding terms, as well as internal
procurement rules
• Ensure land issues addressed eg wayleaves and easements
• Ensure all consents addressed eg Environment Agency
• Who own assets at end of contract period – handover to client
or opportunity to simply renew?
• Documentation – DEPA is to issue generic documents?
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Heat Purchase Agreement
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Heat Purchase Agreement
No bespoke form – need to consider:
• Term – at least 20 years to capture all the RHI
• Indexing of heat price – as power price and operational
costs likely go up with inflation
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Heat Purchase Agreement
Residential sales – likely basis:
• A standing charge of [x]p per day (to include servicing of the HIU)
• 1st heat rate [y]p/kWh
• 2nd heat rate [z]p/kWh (ie lower for additional usage)
• Reference to the Heat Trust as sector regulatory body
Heat provider needs confidence heat users won’t retrofit gas/LPG boilers or use electric heaters – hence may require residential units to be built without a gas mains supply
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Heat Purchase Agreement
Commercial sales – likely basis:
• Heat “take-or pay” contract in place for a Guaranteed Minimum Heat Consumption, or compensating payment
• GMHC typically around 75% of expected annual usage –not too high so incentive to reduce consumption but don’t risk running short of heat!
• Lower price rate for heat consumption above a minimum
• Maybe a connection fee too especially if retro-fit
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Thank You
Trevor Whittaker
07867 905998