Installation types, markets and funding

The Commercial & District Heating Market

Commercial and district scale heating refers to systems over 100 kW (thermal) and comprises a variety of technologies, including geothermal, ground-source, fresh or sea water-source heat, as well as more sector-specific examples such as heat from data centres, concrete or sewage.

Types of Installation

Single Commercial User

One or more centralised heat pump systems supplying a single commercial user using onsite heating or cooling sources. The heating / cooling network is limited to one building / user. It’s often installed to harness heating / cooling from commercial activities.

UK Deployment: Moderate

Saughton Park, Edinburgh: Saughton Park is Edinburgh’s first green-powered park. Combining a micro-hydro scheme to generate electricity and ground source heat pumps to generate heat for park infrastructure, saving 72 tonnes of CO2e emissions per year.

Stoke Council Local Service Centre: Built in 2011, Stoke Council utilised grant funding to install three GSHP systems, totalling 100 kW (thermal). The system uses brine-to-water pumps to provide heating and cooling via 16 boreholes, reducing building energy use and carbon emissions.

Centralised Heat Networks 

A centralised energy centre, including heat pump and distribution infrastructure, using local heat / cooling sources. Connected to multiple buildings by way of insulated underground pipework, heat is brought into each building through a ‘heat exchanger’. The network may be single ownership or shared between a number of individuals or organisations. 

UK Deployment: Moderate

Caird Park, Dundee: Redevelopment of the Regional Performance Centre for Sport including the installation of a 600 kW (thermal) Ground Source Heat Pump (GSHP), utilising heat from over 100, 200m deep boreholes. The heat pumps will provide energy for buildings at the RPCS site with potential for off-site supply in the future.

Queen’s Quay, Glasgow: Two 2.65 MW Water Source Heat Pumps (WSHPs) that deliver the majority of the annual heat demand of four existing buildings at the former John Brown Shipyard in Clydebank. The scheme will feature Scotland’s first major WSHP, taking heat from the nearby River Clyde and pumping it to customers through a district heating network.

Mini-district heat, Nottingham: Through combining deep energy efficiency retrofit, using the innovative ‘Energiesprong’ model, Nottingham Council has been able to connect around 30 homes to mini-district heating networks using shared boreholes and ground-source heat pumps within communal energy centres.  

Shared Ground Loop (SGL)

Decentralised energy ‘generation’ systems within each property or for each separate user. Shared loops distribute heat via a shared low temperature piping network. Each property / user has its own heat pump with full control over their heat pump use. Heat is taken from the shared loop (often ground source) or ambient temperature fluid. Shared loop systems reduce the need for expensive insulated pipework and suffer fewer issues related to system heat loss.

UK Deployment: Moderate

Enfield Tower Blocks, London (PDF 172KB): Individual GSHPs in separate dwellings connected to 16 “micro-districts” supplying 400 flats across 8 tower blocks in North London. The heat pumps will save over 773 tCO₂ per year and provide nearly £9 million in collective bill savings over the system lifetime.

The Market

Heat Pump Market

The European heat pump market increased 12% during 2018, and is expected to double in size by 2024. In 2018 this amounted to 1.8m heat pumps sold, comprising ASHP (50%), WSHP (12%) and GSHP (9%) (with the remaining 29% a combination of other systems, including exhaust air, industrial heat pumps and hybrid systems) sales. Total turnover resulting from heat pump sales was €6.5bn in 2018, with France (21%), Germany (18%) and Italy (17%) seeing the greatest number of new sales.

The UK market is considerably smaller, with 27,000 units sold in 2018, but is similarly expected to grow to over 45,000 annual sales by 2025 – a 60% increase. Comparative to the European market, and particularly with deployment in climatically similar countries across Scandinavia, the UK has a relatively immature market for heat pumps. Whilst higher oil prices and government support schemes, such as the RHI and ECO, have helped stimulate growth, the UK still lags behind the majority of its European neighbours in terms of deployment. With over 4m households unconnected to the mains gas grid in the UK, and with an ever-increasing focus on decarbonising building energy use, there is a large potential market for heat pump technology into the future.

Heat Network Market

District heating is not a new technology—it has large potential and is well documented—yet it only has an average market share of 10% throughout Europe and is primarily restricted to northern and central nations. The UK currently supplies 2% of the UK’s building heat demand (10 TWh) via heat networks. In comparison, Germany supplies 14% of building heat via heat networks and Sweden over 55%.

The Committee on Climate Change (CCC) estimates that around 18% of UK heat will need to come from heat networks by 2050 if the UK is to meet its carbon targets cost effectively. At present there are 14,000 heat networks installed in the UK, including 2,000 that are considered to be district heating schemes, where more than one customer is served by the network. These systems provide heat to nearly 500,000 customers, comprised primarily of domestic customers (450,000), commercial customers (38,000) and a further 7,438 connections found in universities, hospitals and public buildings. However, only a small fraction of these, between 1 - 6%, currently include ground or water source heat pumps as their heat generation technology.

Market Actors

At present, the more developed heat pump markets in Europe mean the majority of heat pumps deployed in the UK are imported. In particular, the UK imports heat pumps from Scandinavia, Germany and Austria, including manufactures such as Vaillant, Bosch and Danfoss. While underdeveloped, the UK heat pump market may prove to be a multi-billion-pound market in future and there are an increasing number of emerging manufacturers and service providers.

Notable heat pump manufacturers in the UK include Kensa Heat Pumps, a GSHP-focused manufacturer with an innovative shared loop ‘shoebox’ sized heat pump design, and Star Renewables, a Glasgow-based heat pump manufacturer with experience in bespoke commercial installations. 

While there are few heat pump technologies produced within the UK, the UK market has considerable expertise in infrastructure manufacture, including ground heat collector equipment such as borehole materials and heat network piping. There are also considerable installation capabilities and experience in the UK, with the majority of large construction companies now well-acquainted and highly capable heat pump and network installers, alongside expertise from GSHP specialists and smaller local installation companies. As the heat pump market proliferates in the UK, the capability to install and maintain heat pumps will become widespread, as existing heating expertise transitions to building capability in respect to low carbon heat.

Relevant Graphs

Funding a Low Carbon Heat Project

As with any developing sector, there is a large degree of uncertainty around the future policy and support landscape for heat pump projects. This section sets out the current landscape as of 2020, paying attention to long term funding and support mechanisms available in the low carbon heat market. See also module 2 - subsidies.

The financial status of any project is critical in defining the choice of external funding options available to a low carbon heat project. This may include:

• Projects displaying Strong Financial Viability may be partially or fully funded by loans at market rates, available to projects regardless of the social or environmental benefits that they might offer

• Projects displaying Moderate Financial Viability may only be viable with ‘concessional’ loans, below market rates, or grant funding to cover part of the capital cost. Projects must normally demonstrate that they will deliver positive social or environmental impacts in order to access these types of funding.

It is also worth noting that projects that are partly funded through an organisation’s own reserves (e.g. a local authority funding a greenspace heat scheme from its own capital spending budgets) may still need to demonstrate a minimum level of financial performance in combination with social / environmental impact in order for the investment to be approved.

Where to look?

There are a number of government-led, public and private routes to raising project funding and finance aimed particularly at accelerating the deployment of low carbon heat technologies and networks. 

Government-led funding streams for heat network development in the UK include the Heat Network Investment Project (HNIP) in England & Wales and the Scottish Government’s Low Carbon Infrastructure Transition Programme (LCITP). These funding streams aim to accelerate and de-risk the development of innovative low carbon heating projects and networks. Funding is available to public, private and third sector organisations at varying rates of support - see Table 1 for further details.

Local authorities have the ability to leverage government support via the Heat Networks Delivery Unit (HNDU), with many examples of successful low carbon heat network projects providing a framework for similar types of development. Partnership between local authorities, local communities and investors have been proven to offer viable business models for project development, such as the South East London Combined Heat and Power (SELCHP) collaboration between Southwark Council and French utility, Veolia.

Private sources of finance also offer a route to heat network development, often worth considering in tandem with the above public funding schemes. The Department for Business, Energy & Industrial Strategy (BEIS) currently provide an overview of available support for heat network development, including a list of high-profile heat network investors, such as Green Investment Group and Octopus Investments.

In some circumstances, crowdsourcing project finance can be appropriate. Platforms such as Sharenergy, Energy4All, Ethex and Abundance offer management services for share offers and crowdsourced equity, often focusing on community or third sector-led projects.

Footnotes:

1. Delta-ee (2019)

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