Low Carbon Heat. Aqualorenergi.com. Low Carbon Heat

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1 Aqualorenergi.com

2 Funding & Procurement of a Large-scale WSHP Heat Network Presentation to REHAU District Heating Workshop 23 March 2017 Aqualorenergi.com

3 Agenda Heat pumps - why use at large-scale? Aqualor Energi Funding Procurement

4 Heat Pumps - Why use at Large-scale? Aqualorenergi.com

5 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

6 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

7 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

8 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

9 About us Aqualorenergi.com

10 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)

11 About us: Warm Temperature Network

12 Case Study: Warm Temperature Network One New Change, Central London (Land Securities)

13 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

14 About us: Ambient Temperature Network

15 Case Study: Ambient Temperature Network Kingston Heights, Kingston in Surrey (NHP Leisure Developments)

16 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

17 Funding Aqualorenergi.com

18 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?

19 Funding: Project Viability Heat Source Network Distribution 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

20 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!

21 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

22 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

23 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

24 Procurement Aqualorenergi.com

25 Procurement How the project is divided up between the parties and to be delivered influences how the project is procured Heat Source Network Distribution 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!

26 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?

27 Heat Purchase Agreement Aqualorenergi.com

28 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

29 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

30 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

31 Thank You Trevor Whittaker Aqualorenergi.com