FOL - Londons energy future-final

London needs to be more like Copenhagen Bob Fiddik Team Leader – Sustainable Development & Energy 19th March 2012

Why…Copenhagen?

The 3 objectives of UK energy policy objectives :-

low carbon

secure, diverse

affordable

• 98% of city supplied via DH • 40% carbon reduction against individual gas boilers • 35% CHP heat from waste or biomass • hot water - flexible energy carrier • plant – 36% gas, 31% multi-fuel, 21% coal/oil, 12% waste – all CHP • DH heat 44% below cost of individual gas boiler • Authority owned heat companies

A long, and frustrating tale Post oil-crises 1979 • Heat supply law passed • Local authorities to undertake heat planning • Authorities given power to oblige connections to DH or natural gas • Must demonstrate economic advantage to consumer • Ban on electric heating

• Marshall reports on potential of district heating/CHP • 30% high density urban areas could be supplied via DH/CHP • Recommend heat strategy & set up of “heat board” to oversee development North sea gas, energy privatisation

But district heating is costly...?

Pay for CHP energy plant But have some ready...and have to build new plant anyway

Need whole new infrastructure

Pay for heat exchangers...but similar to individual boiler cost

The “all electric� orthodox plan...

Pay for these & untested CCS Pay for these to be there but not do much

Upgrade these

Install lots of these Do lots of this

But getting started is tough...

Croydon drivers for town centre DH/CHP scheme Council •Helping regeneration happen •Improve environmental standard of existing 70s stock Developers •Meet council’s Code Level 4 & BREEAM “Excellent” at lower cost Occupants •Lower heat costs •Low carbon, no CRC (for corporates)

Commercial modelling Phase 1

IRR = 10.8%

new build + cluster of existing public buildings

Full scheme all new build + 25% existing over 1,000 m2 IRR = 18%

Someone has to bear the risk Constraint

ESCo mitigation

Heat revenues

Initial oversizing of energy centre & heat pipes to supply full scheme Phase energy plant investment Construction phasing

Funding gap circa £3- 4 m : ESCo would need a combination of ...

•underwriting of income from phased development •Up-front capital contribution •access to low public sector borrowing rates

Must be lower than meeting targets via onsite measures

Recover capital investment via connection charges Occupancy : use of heat

new build

Occupancy : use of heat

existing

Operating costs follow heat demand Heat charges must be no more than having own system

So what does the wish list look like...?

Policy, regulation & taxation •Danish example is long-term stability & rational energy planning (ministry still employs “experts”) •UK constantly re-invents energy policy, complex market with complex carbon “tweaks” – politically unstable (e.g FITs, “Zero-Carbon”)

For DH/CHP address the heat off-take risk •Danish obligation to connect is most cost effective – but in UK? •Anchors – oblige public sector connections (but estates are shrinking) •Existing buildings - new Building Regulation obligation on boiler replacement •Loan funds at public sector rates – help make connections attractive •Supply side – taxation + incentives for all thermal plant to operate in CHP mode