HOT|COOL NO. 4/2017 "Technical Innovation and Optimization"


BARRIERS AND APPROACHES TO DEVELOPMENT Development of DCCH schemes in UK social housing is challenging from the outset and a number of SHPs encounter barriers before they have even begun. Survey responses showed that the upfront cost, lack of subsidies and limited knowledge and experience all proved common obstacles to SHPs and, in some cases, were enough to derail a scheme altogether. For those who are able to overcome these initial stumbling blocks the next challenge faced was the development of a business model. This was largely dictated by the organisation’s existing financial circumstances and the funding opportunities available to them; resulting in a number of different approaches: • Those with upfront capital to invest opted for ground source heat pump or biomass technology, in order to take advantage of government subsidies in the form of the Renewable Heat Incentive (RHI) • For local authority SHPs, borrowing is more of a viable option than it is for housing associations as they can access lower finance capital, and • Schemes that benefited from the inclusion of non-domestic customers were able to subsidise the cost of heat supplied to domestic customers. Yet the survey results showed that the most common approach was to access funding from a fuel supplier. In the UK, fuel suppliers are required to meet carbon reduction targets under the Energy Company Obligation (ECO) and so provide funding to projects such as the development of DCCH schemes. However, accessing funding such as ECO and RHI can bring trade-offs, with half of SHPs (13 out of 26) finding themselves developing schemes which prioritise funders’ requirements over their own. This also influenced the affordability outcomes and compromised the sustainability of the scheme in cases where the original plans had been more ambitious. With financial plans approved the scheme enters its design and development phase. Decisions and actions made here determine whether the scheme will have the capacity to provide affordable and sustainable heat once operational. It is at this stage that a lack of experience in this emerging market begins to show considerable impact. One of the most significant issues is the trend of oversizing, resulting in substantive heat losses, compromising both affordability and sustainability. Other compromising factors reported by SHPs in the design and development phase included: • Failure to factor operation and maintenance into costs and/ or the design • Lack of a contingency fund; to cover unforeseen expenses • Limited in-house knowledge and skills to inform procurement • Few quality contractors tendering for work • Poor communication between main and subcontractors during installation, and • Contractors not following the design specification.

Some issues could be addressed by the SHPs themselves through changes in practice, better use of existing resources, or the employment of an expert clerk of works to ensure installation is delivered to specification. Other barriers are inherent in a relatively new and loosely regulated DCCH industry; and therefore require policy and regulatory intervention to provide stronger support for development. Despite these challenges, SHPs appeared largely satisfied with their schemes; 21 out of 22 survey respondents, with suitable stock for DCCH, stated that they would consider further schemes. IMPLICATIONS OF CHALLENGES The study sought to analyse data from existing schemes to gain an understanding of the technical and financial performance. However, it quickly became clear that very little data was available and in cases where it was, it had not always been analysed. This suggests that SHPs are either not collecting or being provided with enough technical data to be able to assess system performance. This was a key finding of the study and has major implications for SHPs and the sector as a whole, as it makes it impossible to definitively say whether or not these schemes are delivering against their aims. The result of this for SHPs is that operational efficiency cannot be understood or adjusted; threatening the financial and environmental performance of the scheme. Results from the survey showed that 13 out of 38 SHPs had schemes which were operating at a financial loss, in either all (nine) or some (four) cases, and a further four did not know the status. SHPs reported that this was a result of operational costs being higher than anticipated, heat revenue being lower than expected or the systems operating inefficiently. These issues were common across the participating schemes to varying extents. However, whilst some SHPs recovered these costs through residents’ fuel bills, others did not.


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