Does district heating work for the Build to Rent sector?

Executive summary 

District heating is often promoted as a way of supplying low-cost, low-carbon heating and some local development plans strongly promote it. However, there is little evidence that it is the best option outside certain very limited circumstances. 

It is a type of heat network in which heat energy is distributed to multiple buildings through the medium of hot water. District heating, which serves multiple separate buildings, is distinct from communal heating which distributes heat around a single building. 

Any heat network depends on maintaining the temperature of the large volume of water within the network, and this presents several challenges.

A certain amount of energy loss between the power source and the home is an inevitable inefficiency and where the home in question is within an apartment block, that lost heat energy may cause the block to overheat. 

A further problem is that the system needs to be able to meet a demand subject to both diurnal and annual fluctuations.

During a summer weekday, when there is no heating requirement and very little demand for hot water, the water in the network must still be heated to replenish heat energy lost from the pipework.

However, the energy source needs to be able to cope with the much higher demand expected over the Christmas holidays, when most people are at home with the heating on.

Any powerplant has an energy output at which it delivers optimal energy efficiency, but whatever that output is, it will not be able to operate at it for much of the time. 

Most existing district heating systems are powered by natural gas driving a combined heat and power plant (CHP) that generates electricity and heat.

Historically, the low cost of gas has enabled such plants to produce low-cost electricity, but since 2021 the global market for natural gas has lost its stability and that makes it impossible to be sure that gas power will be competitive with electric power across the lifespan of a CHP. 

A gas-powered CHP is at odds with the government’s policy of a net-zero carbon economy by 2050.

Because it needs to be sited close to the residential area it supplies, a CHP raises local and global environmental concerns, the most pressing being that burning natural gas releases nitrogen oxides which are a major local air pollutant. 

Recent advances in heat pumps offer an alternative to CHPs. They are powered by mains electricity, which produces no local air pollution and has the potential to be renewable; they can use disseminated heat sources enabling them to exploit urban waste heat; and district heating enables heat pumps to be used by apartments that lack the space for a standalone unit.

Smaller heat pumps can also be used inside the homes the network supplies, enabling the water to be distributed at a relatively low temperature which reduces the energy lost from the pipework. 

The downside of disseminated power sources is that they are inherently more complex than a single powerplant, leading to higher capital and maintenance costs. Moreover, there are relatively few residential districts close enough to waste-heat sources, so most schemes require a substantial amount of primary energy to be paid for. 

There is also a non-technical consideration. Britain’s regulatory environment assumes that a dissatisfied customer can change their energy supplier. That may be true when a customer buys gas or electricity from the mains, but a district heating scheme commits its customers to an unregulated monopoly, which is a strong disincentive to connect to it in the first place. 

The potential energy efficiencies of district heating always need to be balanced against the substantial capital and maintenance costs. At Atamate, we are concerned that district heating may be promoted, or indeed mandated by some local authorities, to the exclusion of approaches that would deliver lower cost and lower carbon heating without compromising customer protection.

A brief history of district heating

Around 700 years ago, someone in the village of Chaudes-Aigues, in France’s Massif Central, noticed that in the name lay an opportunity.

Chaudes-Aigues is derived from the Occitan for ‘hot water’, a reference to the hot spring above the village. That enterprising engineer channelled the hot water into village homes using wooden pipes to make the villagers’ winters more comfortable. It’s unlikely to have occurred to them that they were inventing the world’s first district heating scheme.

Chaudes-Aigues was in the fortuitous position of having a natural supply of hot water that could be distributed by the power of gravity, but it wasn’t an approach that could be widely replicated.

District heating only arrived in Britain in 1950, when the forerunner to today’s Pimlico District Heating Undertaking (PDHU) pumped water heated by Battersea Power Station to nearby homes. The Pimlico approach of using waste heat from an industrial process was not unique but it remained unusual, especially as the following decades saw the decline of heavy industry in Britain and the closure of power stations in residential areas.

The Pimlico scheme lost its power supply when Battersea Power Station closed in 1983 and is now powered in the same way as most district heating schemes operational in Britain; a natural gas-powered combined heat and powerplant (CHP) with back-up boilers.

The Pimlico CHP delivers what Battersea Power Station used to deliver, albeit on a smaller scale.

A turbine generates electricity while the heat it produces heats water which is pumped to local homes. The hot water can provide space heating by being pumped directly into radiators and underfloor heating, or it can be passed through a heat interface unit (HIU) that extracts the heat into domestic hot water. 

Some schemes use a combined cooling, heat and power plant (CCHP) which can chill water as well as heat it, providing cooling in the summer as well as heating in the winter.

The CCHP is particularly valuable for apartment blocks, which are prone to summer overheating because of their size, but it requires a parallel pipe network to distribute the chilled water which adds to the capital costs, which is why CHPs remain more common than CCHPs. 

In recent years, improvements in heat pump technology have enabled a new approach to district heating.

A heat pump works by augmenting electrical energy it draws from the mains with heat energy drawn from an external source and using it to heat water.

It can deliver efficient heating from a source temperature as low as 10°C (50°F), enabling it to use waste-heat sources like the discharge from waste-water plants or data centres that use continuous air conditioning, or simply to draw heat energy from under the ground where the temperature remains fairly constant throughout the year. 

Heat pumps may be used in conjunction with a CHP or they may replace it entirely. 

At the extraction end, using a heat pump as a heat interface unit enables water to be distributed at a relatively low temperature.

While many CHP-powered systems heat water to 60-90°C (140-194°F) to distribute it, a system using heat pumps can distribute it below 45°C (113°F). The lower flow temperature improves efficiency because less heat energy is lost from the pipework before it arrives in the homes it supplies. 

District heating systems have a range of advantages and disadvantages, some of which depend on the technology they use and some of which are inherent to the complexities of using water to distribute heat energy.

Advantages of district heating

For a developer, the advantages of a district heating network always need to be considered against the possible alternatives.

In certain situations, a CHP may deliver better cost and/or carbon efficiency than a combi boiler in each home, or it may not.

If it doesn’t, considering a CCHP that replaces mechanical air conditioning may reveal savings in overall operating costs that compensate for the relatively low efficiency of the heating – or it may not. 

As Britain moves away from fossil fuels toward a commitment to a net-zero economy by 2050, there is a need to move away from gas-powered CHPs.

Air-source heat pumps have been widely promoted as a way to improve the cost-efficiency of water heating but they are unlikely to be practical in apartment blocks.

They are large and noisy, so they need to be sited away from the home they supply which is only possible in an apartment on the ground floor. 

District heating can use energy harvested by a heat pump sited some way from the home it heats, so all the home itself requires is a HIU small enough to fit into a utility cupboard.

A major advantage of heat pumps is that by using waste heat as a source, they can deliver considerably more energy into the network than the chargeable primary energy. 

Because heat pumps do not require the sort of heat produced by a power station or CHP, there is a much wider range of input sources available to them. The ability to utilise disseminated heat sources is exemplified by the GreenSCIES scheme currently under construction in Islington, where there is ample waste heat.

At present, both the London Underground network and the data centres are cooled by air conditioning systems that pump heat into the outside air, but GreenSCIES aims to capture it in the water it distributes. 

The GreenSCIES plan epitomises the latest generation of district heating schemes in that it is powered mostly by waste heat which may require supplementing with solar power, but it is not intended to have a central powerplant. 

Technical considerations aside, district heating is often seen as the path of least resistance to meeting national and local planning requirements.

Current policy is that no new gas-powered heating should be installed after 2035 and while all-electric space and water heating can be achieved with relatively low operational costs, local authorities may require the construction of a new apartment block to include an expansion of the local electricity distribution infrastructure which significantly increases the capital cost. 

Local authorities often consider district heating schemes favourably and some incorporate them into their local development plans. For example, the 2021 London development plan practically mandates district heating for new residential developments.

However, the advantages of any proposed district heating scheme always need to be weighed against the disadvantages.

Disadvantages of District Heating 

Billing and customer satisfaction 

The way the British energy market is regulated is a major disincentive to move into a home connected to a district heating network.

District heating networks are regulated [PDF: Heat network (metering and billing regulations 2014 (as amended in 2015 and 2020)] by the Office for Product Safety & Standards (OPSS) as energy providers, placing them in the same regulatory category gas and electricity suppliers. However, those regulations assume a free market in which a dissatisfied customer is free to change their supplier, which is not an option once a home is committed to a district heating network. 

The lack of choice isn’t always detrimental and Which? report on heat networks found considerable variation in both the pricing and customer experience of different networks.

Some networks offered very cheap heating and hot water while others offered some of the most expensive on the market.

Some customers gave little thought to their hot water being supplied by a network while others reported the supply of hot water to the tap was unreliable and there was no single point of contact to get maintenance problems resolved. Those dissatisfied customers found that the lack of regulation left them with very little recourse. 

Most heat network providers are members of the Heat Trust, which describes itself as an independent consumer champion and recognises the Energy Ombudsman as the arbiter of consumer complaints.

The ombudsman may not be able to help a customer with a lukewarm shower. Pic: Tim Wilson / Unsplash

However, if a provider does not abide by an Ombudsman decision, the Heat Trust’s only sanction is to expel the provider from the Heat Trust, which does not help a customer with a lukewarm shower. 

In 2017, the government’s Competition and Markets Authority (CMA) published a study on heat networks that echoed many of the Which? report’s findings and recommendations.

The CMA recognised that connecting a home to a heat network makes the occupier dependent on an unregulated monopoly for all the hot water entering their home. Their suggested solution was to make the energy regulator, Ofgem, responsible for regulating heat networks, which would afford much better protection to customers than is currently available. 

There are many potential technical difficulties to district heating but even if they are overcome, the lack of consumer protection remains a strong disincentive to potential customers to buy or rent a home connected to a scheme.

Pipework

However, a district heating scheme is powered, the power source, pipework and connection to each home amounts to a substantial capital cost. 

Some of these costs may be partially offset, because by supplying the space and water heating, district heating supplies the two largest energy demands in most homes. It completely replaces any need for a connection to the gas main.

District heating does not eliminate the need for an electrical connection, which incurs capital costs of its own because new developments are often required to upgrade the local electricity infrastructure.

If it replaces electric space and water heating, a district heating scheme may reduce the extent of the required upgrade but for most developments, a district heating scheme will be one of the higher capital cost options.

The capital costs are passed on to the customers through the standing charge and while a cost projection may indicate that they will be offset by savings in operational costs, such an offset cannot be assumed for the reasons given below. 

Pipework can be a substantial capital cost. Pic: Victor Uoli / Unsplash

Burning natural gas releases greenhouse gas 

A CHP delivers a large amount of heat energy, which can be used either as the primary power source or to augment disseminated power supplied by heat pumps.

However, natural gas has two major disadvantages: energy security and greenhouse gas emissions.

A 2010 report by the Max Fordham consultancy criticised the emphasis on district heating as being based on an outdated view of the British energy mix.

For some time, the British national grid has been in transition from high-cost, high-carbon coal to low-cost, low-carbon renewables.

Natural gas power has been used to smooth the transition because it is intermediate in terms of both cost and carbon emissions and using it to power district heating schemes was regarded as a logical extension to using it for the large-scale power stations used to power the National Grid. 

The Max Fordham report argued that with coal almost eliminated from the British energy mix, the emphasis should be on reducing rather than expanding the supposed intermediate of natural gas.

Twelve years later, the argument has been born out. Not only has the government announced a commitment to net-zero carbon emissions by 2050 but natural gas is no longer a low-cost option.

It has become painfully apparent that a new district heating scheme which depends on gas is at the mercy of an unstable global market.

Burning natural gas causes local environmental problems 

The environmental problems associated with CHPs go beyond greenhouse gas emissions.

To power a district heating scheme, a CHP needs to be sited close to the homes it supplies, which means they are likely to generate a substantial amount of both heat and nitrogen oxides in a residential area.

In a large city, the heat contributes to the urban heat island effect in which built-up areas tend to be warmer than the surrounding countryside, exacerbating the effect of heatwaves during the summer. 

Built-up areas tend to be warmer. Pic: Loredan / Unsplash

Many urban authorities are taking steps to limit local air pollution from traffic and as nitrogen oxides are the major component of such pollution, they are likely to find that any predilection toward district heating in their local development schemes conflicts with the imperative to improve air quality.

Some district heating schemes limit both the heat and nitrogen oxide emissions by running the plant below its peak efficiency, raising the energy costs borne by the network’s customers.

The lock-in problem 

Installing a district heating scheme powered by a single CHP risks technological lock-in: dependence on a single unit with a large enough capital cost that it is not economically feasible to replace it if an alternative becomes available within that unit’s lifespan, even if the alternative requires lower operating costs. 

The problem of lock-in is not purely financial.

In 2021, a report by the government’s Climate Change Committee (CCC) raised lock-in as one of the major problems in cutting greenhouse gas emissions. A large gas-powered CHP is exactly the sort of technology they were warning against. 

A single powerplant is inherently inflexible, with optimal and maximum energy outputs that cannot be varied without replacing the whole plant.

The plant is usually selected to heat a given number of homes during the winter, which is the peak requirement for any district heating scheme. However, requirements are lower at other times of year. 

The annual fluctuations dictate that a CHP can only run at its optimal efficiency for a small proportion of its total running time.

It may be scaled for optimal efficiency at its predicted peak load, accepting that it will be running at a lower efficiency when its output is lower. Alternatively, it may be scaled for optimal efficiency at a lower load and augmented with electric or gas-powered boilers, which add to the capital costs.

A further problem is presented by likely changes over a longer timescale. If homes are added to or removed from the network within the lifespan of the CHP, the operator faces the choice between the capital cost of replacing the plant prematurely or the increased operating cost of operating the existing plant at below its peak efficiency. 

Accessing disseminated heat is difficult 

Schemes like GreenSCIES, which use disseminated heat sources, resolve some of the problems posed by a single powerplant: 

• The system is inherently more resilient because if any single power source fails or needs to be taken offline for maintenance, it is not left without power or dependent on inefficient backup systems. 
• The primary energy required is drawn from mains electricity, avoiding the greenhouse gas emissions, local air pollution and dependence on imports inherent to using a gas-powered CCHP. 
• Using disseminated heat sources allows more flexibility than a single plant, as heat pumps may be added or removed from the network as heat source availability and heating requirements change.

The problem of pollution. Pic: Maxim Tolchinskiy / Unsplash

However, multiplying the number of power sources also multiplies the complexity of the network and consequently, its maintenance costs. 

Those costs may be offset by savings in primary energy if there are exploitable sources of waste heat, but residential districts are usually sited away from the commercial districts that produce it.

Even GreenSCIES, which has access to local data centres and the London Underground, will need to draw additional energy from solar power. 

A hybrid approach is to use waste heat to augment a CCHP rather than to replace it, reducing rather than replacing the requirement for natural gas.

Such an approach may deliver heat at a lower cost than if it were entirely dependent on a CCHP but, alternatively, it may combine the problems of pollution and gas dependence integral to using a CCHP with high maintenance costs and the capital costs needed to install both a CHP and various heat pumps.

Inefficiencies of distribution 

Whatever the power source, there are inefficiencies inherent to distributing heat by pumping hot water around. No matter how well the pipes are insulated, it is impossible to prevent some heat energy being lost between the powerplant and the home. 

A further inefficiency is that the occupants of those homes may require heat at any time, so the network needs to maintain the temperature of the entire network’s water irrespective of how much of it is being used.

The network needs to be designed around the anticipated peak load, which is likely to be on a winter weekend when everyone is at home with the heating on.

During a weekday in the summer nearly all the energy put into the system is likely to be needed to replace the losses from the pipes, which amounts to very poor efficiency. 

The problems of heat losses from pipework go beyond energy waste.

During the summer, the large size of an apartment block makes it inherently prone to overheating and hot water pipes exacerbate the problem by internal gains: the production of heat inside the building.

Overheating of homes seriously impacts the health of their occupants, to the extent that there is a measurable rise in deaths and hospital admissions during heatwaves, and climate change will make such heatwaves commonplace in the coming decades.

From June 2022, UK building regulations mandate the mitigation of overheating to be prioritised in the design of domestic buildings although, at the time of writing, it remains to be seen how local authorities will reconcile that requirement with their support for district heating. 

Regulations also decree building construction that uses fabric which retains heat extremely well, leaving a new build with a very low requirement for space heating but a concomitantly high requirement to mitigate overheating.

The combination may leave district heating more efficient at causing overheating than delivering efficient heat. 

The low flow temperatures of the latest systems reduce the overheating problem, but they still deliver water above the 20-25°C (68-77°F) comfort temperature. Unless they also have the provision to provide cooling, they will contribute to overheating.