Local Authorities and wider public sector investors may well currently consider investing in projects with returns that are lower than most private investors would be able to go down to. However, this is not necessarily because they have access to cheap finance: many private investors also have access to cheap finance. Rather public sector bodies should, and indeed do, consider the wider societal benefits that DH brings. In the UK we provide guidance on how to attribute a monetary value to emissions and air quality impacts: https://www. gov.uk/government/publications/valuation-of-energy-use- and-greenhouse-gas-emissions-for-appraisal. DH schemes supported by BEIS would always be expected to reduce emissions and have limited local air quality impact relative to an appropriate counterfactual. As such the Social IRR should always be higher than the project IRR for UK DH. A project with an IRR of 3% could well have a Social IRR double that. By way of example, below are 6 HNDU supported projects that intend to utilise Low or Zero Carbon technologies. They have undertaken techno-economic feasibility studies for which we have data on capex, carbon and project IRR: As can be seen, irrespective of whether the carbon saved is displacing traded carbon (i.e. carbon that is already accounted for under the European Emissions Trading Scheme) or non-traded carbon, the impact on the reported IRR can be substantial.
Figure 3: This chart shows the potential impact of further evaluating and monetising the forecast carbon abatement and air quality improvement potential that a heat network project should offer. Guidance on how this calculation can be done can be found in the UK’s Green Book Supplementary Guidance: valuation of energy use and greenhouse gas emissions for appraisal.
Increasingly private investors are also considering their social role and how impactful their finance is in achieving the UK’s and indeed the world’s long-term objectives with regards climate change. Demonstrating to a private investor that a sufficient monetary return can be achieved (our non- representative market engagement suggests currently 5-6% or more) and that the social impact is high could be a strong pull for private investment.
For further information please contact: George.Robinson@beis.gov.uk
Figure 3: This chart shows the potential impact of further evaluating and monetising the forecast carbon abatement and air quality improvement potential that a heat network project should offer. Guidance on how this calculation can be done can be found in the UK’s Green Book Supplementary Guidance: valuation of energy use and greenhouse gas emissions for appraisal.
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