District Heating and Cooling and Heat Interface Units are still closely tied markets

Socrates Christidis
BSRIA Research Manager – Heating and Renewables

District Heating and Cooling networks have witnessed significant growth in many European countries in the last five years and this is set to continue in the coming decade. Significant European policy initiatives, such as the Green Deal, country government promotions, alongside increased public and private investment are supporting new business models such as utilities selling heat as a service and not as a commodity, which will drive the market forward.

BSRIA research indicates that the share of heat pumps and Energy-from-Waste in district heating and cooling systems is increasing. This trend is in line with the development of the concept of 5th generation heat networks. These are demand driven and low-temperature networks, using locally available low-grade waste heat (A/C, datacentres, underground stations, etc.), low temperature renewable energy in bodies of water and solar energy instead of a central energy centre. In principle, such systems favour the use of substations at building level, but no heat interface units at the dwelling level, as these are likely to be replaced by heat pumps.

Currently industrial boilers and CHPs remain the main source of heating in District Heating networks. For instance, 85% of planned heat networks in the UK, will have a CHP as the primary source of heating and 50% will have a gas boiler as a backup. The remaining 15% will use geothermal, ground source or water source heat pumps.

Thus, in the short-term Heat Interface Units (HIUs) will remain the link between the apartment and the network.

Going forward, reducing demand for heating and increasing need for hot water and cooling imply that the market will see the uptake of:

  • All-in-one units (heating or cooling and hot water)
  • Cooling units
  • Hybrid units, with integrated electric water heating
Graph showing European HIUs market growth

The main threats for HIUs market progress are the currently lack of consistent quality of installation and COVID-19.

Heat interface units have a major impact on the overall performance of a heat network and successful operation and performance both depend on correct system design and specification, followed by competent installation and maintenance. This has been problematic, with systems inadequately designed and quite often oversized. We see some signs of improvements as the industry becomes more sensitised towards good quality district heating. Documentation is improving as well as codes of practice, testing of HIUs, and further testing on site; however, under tight budgets the emphasis is often for the lowest cost, specification compliant technology. Testing the unit in a lab and then onsite is optional but critical to ensure performance.

Closing of construction sites was the main impact of the Coronavirus pandemic, including lack of cash flow, as the invoicing is done when products are delivered onsite. The industry has also witnessed a lack of new orders from April to June, with some signs of recovery observed just after. Overall, the European sales in the first 6 months of 2020 were between 15% and 30% down, depending on country, when compared to the 6 first months of 2019.

Going forwards, new construction presents a slightly positive picture. During COVID-19 there has been delays but not cancellations in planning permissions; delays as sites operate under social distancing guidelines and some delays for new investment to come through. However, governments and authorities are still eager to go ahead with programs and incentives, with renewed emphasis on the environmental agenda.

Looking at estimations for completions of flats before and after the outbreak, the recovery is likely to accelerate in 2022, and the market is unlikely to recover before. The end of financial support schemes by governments (VAT deferral, loan schemes or furlough) is likely to have a negative impact on many businesses, including contractors. Indications are, that new build and residential sales will be hit harder than commercial ones. Southern Europe is also likely to struggle more, although recession is expected across most of European countries.

Taking all this into account, BSRIA sees the numbers of heat interface units growing steadily but at a single digit compound annual growth rate of just over 4% on a Pan-European basis. The market will become more diverse and will look for more flexible options to cater for high-end, electricity-only heating, mixed-used and communal areas.

To find out more about BSRIA’s District Energy and Heat Interface unit market studies contact us at:

UK Budget response from Andrew Eastwell, BSRIA Chief Executive

Andrew Eastwell, BSRIA CEO

Andrew Eastwell, BSRIA CEO

In a budget that is so close to an election there was never going to be pain inflicted that would upset the electorate and so measures required to compel anyone to spend money on energy saving was not going to feature in the Chancellor’s speech.   On the contrary, with Labour repeating their pledge to freeze energy prices the likelihood was that taxes on energy would be reduced – and with it the inevitable consequence that payback times on energy saving measures would become longer.

This is indeed what happened where the Chancellor quoted a figure for reduction of national energy costs of £7bn through a £1bn “special protection” aimed mainly at manufacturers with high energy intensity operations, steel mills, paper producers and chemical manufacturers. This package is intended to “protect… from the rising costs of the Renewable Obligation and Feed-in-Tariffs”.

A freezing of the Carbon Price Floor does also have a small benefit to householders – estimated at £15 per year.

One surprise however was a concession given to CHP which now has an exemption from the Carbon Price Floor for electricity generated.  It is aimed mainly at manufacturers using this technology but presumably will benefit other district schemes as well.

The Chancellor indicated that there would not be a reduction in renewable energy investment but since so much of that is driven by private investor money it remains to be seen how they will react to the plain intent to begin to offset the differential between UK energy prices and those in the USA.  Mr Osborne noted industrial energy costs were half the price in the USA compared to UK.

Elsewhere the statements regarding the efforts to increase house building were largely a restatement of previous announcements such as the proposed new garden city at Ebbsfleet and additional housing in Barking and Brent Cross.  What was intriguing was a proposal to give individuals a new “Right to Build” – backed with £150m of finance. The details of that will be interesting indeed as previous ministers with construction responsibilities have been keen to increase the volume of self-build homes.

Overall the budget did have a feel of being “Northern friendly” with reference to earlier consideration of HS2 construction beyond  its current plan, extension of enterprise zone tax breaks for a further three years and £270m to guarantee funding for the Mersey Gateway bridge.

Certainly the construction sector will welcome efforts to move the centre of effort further out from the London basin so that resources locked up in people, land and facilities can be fully exploited without the additional costs of working in the hothouse of the South but a budget designed for green development?  I don’t think so, that will have to wait until unpalatable policies can be applied with four years to go before a vote!

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