Heat: How to make it a Resource that Earns

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Agenda for Today

11.00 – 11.30 Registration 11.30 – 11.35 Welcome and Introduction: Ian Marchant, Director, 2020 Climate Group 11.35 – 11.55 Scottish Government Heat Policies: Kathie Robertson – Scottish Government11.00 – 12.15 Opportunities & Support: Iain Gulland, Zero Waste Scotland12.15 – 12.35 District Heating: Craig Ibbetson, Ignis, Wick District Heating 12.35 – 12.50 Industry Viewpoints: Mike Donald, Site Manager, Michelin Dundee

12.50 – 1.30 Lunch

1.30 – 1.45 Industry Viewpoints: Michael Alexander, Diageo 1.45 – 2.00 Finance: Gregor Paterson-Jones, Managing Director, Green Investment Bank 2.00 – 2.15 Legal & 2020 Climate Group Perspectives: Kate Turner, Director, Pinsent Masons2.15 – 2.30 Close: John Sheridan, Chair 2020 Built Environment Sub Group2.30 – 3.30 Networking Opportunity

Ian MarchantChairScotland’s 2020 Climate Group

http://youtu.be/hvBtqhsT5_s

Suzanne Le Miere Heat, Energy Efficiency and Low Carbon Investment UnitScottish Government

2020 Climate Group Heat Event

Suzanne Le Miere / Ross Loveridge

Heat, Energy Efficiency & Low Carbon Investment Unit

Low Carbon Economy• Sustainable Economic Growth• Climate Change Scot Act (2009)≥42% CO2e emissions by 2020 (1990) ≥ 80% by 2050

• 4 transformational changes incl.– Largely Decarbonised Heat system by 2050, significant progress by 2030

• Stretching related targets– 100% of electricity demand from renewables by 2020 – 12% reduction in energy demand by 2020 – 11% of non-electrical heat demand from renewables by 2020

The challenge for industry• 42% of Scotland’s energy consumption and 16% of emissions• CCC sees potential to decarbonise by 40% by 2030 in UK

Industrial electricity prices after tax (pence per KWh) Industrial gas prices after tax (pence per KWh)

• Rising prices (40-50% over the past 7 years) drive competitiveness concerns• EU and UK influencing – ETS reform; CRC review in 2016; compensation for energy intensive

industries from RO/FIT/CFD, UK review of Climate Change Levy and Climate Change agreements in 2016

• Sets out how low carbon heat can reach more householders, businesses and communities.

• Over half of energy is used for heat; ~£2.6b spent on heating bills; next 40 yrs £100m

of heat equip will be replaced• A framework for investment to 2050 for heat in Scotland.• 4 key challenges

Largely decarbonising heat demand will help delivery of Climate Change Targets Increased heat security Reduced household and business energy bills Economic opportunities for business and industry

Draft Heat Generation Policy Statement

Scottish Energy consumption (2013)

• New target of 1.5 TWh/yr heat to be delivered by district heating, 40,000 homes by 2020• Increased District Heating Loan Fund by £4m, to total of £8 m for next 2 years• Sets out actions to regulate heat • Support includes:

• Heat Network Partnership

(www.districtheatingscotland.com) • Scottish Heat Map

• ~ £300m worth of projects over next period

Development of District Heating

© Aberdeen Heat & Power

Scottish Planning

New requirements in National Planning Framework 3 and Scottish Planning Policy 2014

• “Local development plans should use heat mapping to identify the potential for co-locating developments with a high heat demand with sources of heat supply” SPP, 2014 • “Local development plans should support the development of heat networks in as many locations as possible…identify where heat networks, heat storage and energy centres exist or would be appropriate and include policies to support their implementation.” SPP, 2014

Scotland Heat Map• A new national map of building level heat demand and supply

opportunities to support:o Strategic planning and policyo Project identification and feasibility

• Data given to all local authorities, some other public sector (eg Scottish Enterprise)• Interactive web version (less detailed)• Details, data sharing agreement and web version available at: www.scotland.gov.uk/heatmap

50m raster over Livingston

Total heat demand for Livingston: Approximately 700 GWh

Scotland Heat Map – exampleLivingston

50m raster

Scotland Heat Map – exampleDunblane

50m raster

Scotland Heat Map – exampleDunblane

Example of analysis that could be carried out with heat map data

Sketch DH pipes

Further Analysis:- load within distance of pipe- any constraints?

Scotland Heat Map – exampleDunblane

Unused Excess / Waste heat• Why recover, reuse or sell heat? Avoid cost of cooling Potential heat sales

income Corporate Social Responsibility • Operate plant in energy efficient manner (required by PPC permitting)

Implement thermal treatment guidance heat plans• To use: identify where and what unused heat is available identify potential

heat users link potential users & suppliers• SEPA developing additional voluntary info section within SPRI (Scottish

Pollution Release Inventory) for industrial activities under Part A of the Pollution Prevention Control Regs

• Our request: – Provide info from your sites when requested in Feb– Consent to making data widely available

Working with industryScottish industrial decarbonisation and energy efficiency programme• Work underway between partners in SG, SE, HIE, SMAS, RES to

understand specific challenges and opportunities for Scottish industry

• 9 Scottish sector summaries of UK government roadmaps to be published in summer 2015. Focus likely to be: chemicals, food & drink, retail.

• Work with industry to support development of sector decarbonisation routemaps or company specific advice for smaller sectors.

• Identify opportunities for major industrial technological demonstration

• Scotland Heat Map (http://www.scotland.gov.uk/Topics/Business-Industry/Energy/Energy-sources/19185/Heat/HeatMap)

• Heat Network Partnership:.(www.distictheatingscotland.com); Scottish Government District Heating Loans Scheme

• Low Carbon Infrastructure Transition Programme: Collaboration between Scottish Government, Enterprise Agencies Scottish Futures Trust, to support development of low carbon projects. Build projrect development capacity

• Resource Efficient Scotland:(www.resouceefficienctscotland.com)• RES SME Loans Scheme.• Scottish Manufacturing Advice Service (

www.scottish-enterprise.com/industry-support/manufacturing)• Scottish Environment Protection Agency (www.sepa.org.uk) • Scottish Planning (http://www.scotland.gov.uk/Topics/Built-Environment/planning)

Advice and Support

Thank you

Kathleen Robertson / Suzanne Le Miere

Heat, Energy Efficiency & Low Carbon Investment Unit

Suzanne.LeMiere@scotland.gsi.gov.uk

Ross.Loveridge@scotland.gsi.gov.uk

Iain GullandChief ExecutiveZero Waste Scotland

Craig IbbetsonDirectorIgnis Biomass Ltd

Mike DonaldEnvironment ManagerMichelin, Dundee

Lunch will now be served…

What would be the most appropriate heat opportunity for you and your business at this time?What would the barriers be?Who can you go to for help?What the next step is?What is stopping you?

Michael AlexanderHead of EnvironmentDiageo

Investing in Bioenergy – Sharing Diageo's Experience

2020 Climate Group

19 January 2015, Glasgow

Our approach spans across our value chain and focuses on our most significant social and environment impacts

Sustainability & Responsibility.

Our value chain

Our impacts

Environment

DIAGEO

Alcohol in Society

WaterSocio-

economic development

Our PeopleGovernance and Ethics

Suppliers

Customers &

Consumers

27

Why Invest? Delivers business efficiencies

Security and continuity of energy supply

Long term management of input costs

Reduces environmental impact

Engages our employees

Engages suppliers, customers and consumers

Builds reputation with stakeholders and protects and enhances our license to operate

28

Ground breaking technology delivering cost savings and security of supply

£17m investment in bioenergy plant with 17 year payback

5 MW thermal energy – 4MW Biomass, 1 MW bio-gas

50% renewable energy

100% reduction in polluting power of effluent

Roseisle Distillery, Speyside

29

Leveraging learning across the groupCameronbridge Distillery, Fife £65m bioenergy plant in

commissioning – aims to: Generate 30 MW of energy Provide 90% of energy demand

for the site Reduce discharge vol by 50% &

BOD loading reduced by 99% Reduce CO2 emissions by up to

56,000 tonnes

Energy efficiency best practice projects Cost £700k, savings £1.4m, 6mths payback Reduces CO2 emissions by 3,000 tonnes

Distillery

WaterWheat

Malted BarleyYeast

AnaerobicDigestion

DewateringBelt Press

Water RecoveryBFB Boiler

Firth of Forth

Spent Wash

Solids

Biogas

Electricity

To CIP

Steam TurbineSteam

Energy

GRID

FF Boilers

Renewable Energy Production from Co-Products

Photo Credit, Graham Cartwright:- 3rd May 2012

IC ReactorsAeration Vessels

Process Building

BoilerControl Room& Turbine

Cameronbridge Distillery & Bioenergy Plant

£6m biomass plant using distillery draff

Generates 3.4 MW of thermal energy

Provides 50% of energy demand for the site

Reduces CO2 emissions by 6,000 tonnes

Glenlossie Distillery, Speyside

Leveraging learning across the group

Lessons Learnt - PracticalLessons learnt – project management

Do not underestimate the complexity

Have an agreed defined quality standard to and from process

Benchmark existing applications of proposed process

Ensure verification of any trial work before project design

Leave sufficient time for contract negotiations if outsourcing project.

Stretching targets that require engagement by all employees and stakeholders

A variety of approaches:

Behavioural change in employees

Re-use of energy, reduction of landfill, recycling schemes

Continuous improvement

Large capital projects

Support of community

Wider lessons learnt so far....

Gregor Paterson-JonesManaging DirectorGreen Investment Bank

GIB & District HeatingGregor Paterson-Jones

19th January 2015

37

REDUCING HEATING EMISSIONS

• Heat networks are an enabling technology, taking advantage of all available sources of heat in an area, including waste and renewable heat.

• Allowing future transition from gas CHP to lower carbon sources on commercial rather than domestic scale• They could assist with grid balancing, by providing thermal storage, which is key with an increased role for

electricity.• Heat networks are a cost-effective option vs. gas boilers in areas of high building (and heat) density. Heat pumps

and biomass are space-constrained in urban areas.

Green case for heat networks

Options for reducing heat

emissions

• Demand reduction / improved efficiency: Should be done across the building stock, but only takes us so far where we rely on fossil fuel heating (DECC).

• Biomass: Good from carbon perspective, but query supply chain and sustainability impacts.• Electricity / heat pumps: as the grid decarbonises, electric heating and heat pumps become lower carbon. • Heat networks: Can be more efficient than domestic heat generation, limited by carbon intensity of heat source.

Strong green case for heat networks

Heat networks≈10TWh/year

≈100TWh/year(nearly 10 fold increase)

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THIRD PART FUNDING RISK ISSUES

Indicative only, for discussion

Customer 1

Customer 2

Customer 3

Q1

Q3

Q2Heat StationQtotal

Interface point is the bulk heat meter point/Heat exchanger

Interface point is the bulk heat meter point/Heat exchanger

Distribution Heat loss = Qtotal – (Q1 +Q2+Q3)

DistributionCo HeatCo/SupplyCo

ServicesDistribution of heat (from heat station interface to customer interfaces)

Production of heat (gas/biomass CHP, Heat pumps etc and possibly electricity)Supply of heat (customer interface)

Risks • Return water temperature• Local distribution leaks and

heat loss

• Heat loss in pipes – leaks and insulation breakdown – normalise for weather? – ground conditions (thermal conductivity)

• Water loss (water cost, water treatment, energy in leaked water)

• Service interruptions• Repair costs• Maintenance costs

• Production of heat at the right temperature and pressure

• Return water temperature• Flow rate• Make up water• Water quality• Customer credit• Customer heat load demand

Capacity Based Payment

Connection ChargeStanding ChargeVariable Charge

39

PROJECT DEVELOPMENT

Challenges

• Credit risk of additional heat users• Heat load changes on economics of

the low carbon heat source• Installing ‘strategic’ infrastructure

(oversizing pipes for potential future load)

• Governance to ensure the social benefit of decarbonisation is exploited with our commercial constraints

Challenges in developing single site projects into larger networks

40

BARRIERS AND RISKS

Immediate and long-term structural barriers

Barriers source: BRE, University of Edinburgh and the Centre for Sustainable Energy, March 2013, Research into barriers to deployment of district heating networks.

• Obtaining funding for feasibility/viability work and legal advice (LA)

• Obtaining capital funding (LA)

• Securing internal resources to instigate scheme/feasibility work and overcoming lack of knowledge (inc. understanding of development process) (LA)

• Selecting suitably qualified consultants (LA / private sector)

• Lack of generally accepted contract mechanisms (LA / private sector)

• Inconsistent pricing of heat (LA / private sector)

• Concluding agreement with energy services provider, including obtaining capital funding contribution (private sector)

• Customer scepticism of technology (including willingness to take heat, linked to economics) (LA / private sector)

• Uncertainty regarding longevity and reliability of heat demand (LA / private sector)

• Uncertainty regarding reliability of heat sources (LA / private sector)

• Correctly interpreting reports prepared by consultants (LA)

• Up-skilling local authority procurement team (LA)

Most challenging

Medium challenging

Least challenging

Objective setting stage Feasibility stage Implementation / operation stage

Kate TurnerDirectorPinsent Masons LLP

Heat : How to make it a resource that earns

Kate Turner

Legal Director – Energy and Finance

17591531-1

Contents

• Overview – why is heat important?

• Legal considerations – low carbon generation and district heat

• 2020 Climate Group Perspective

Why is a focus on heat important?

• Political attention - watch and be prepared

• Social considerations

• Commercial opportunity / Business risk

Low Carbon Heat Generation

• Use of CHP Energy Efficiency Directive 2012 – promoted high-efficiency CHP and use of heating

and cooling from waste heat and renewable energy sources Government introduced a number of measures to promote use of good quality CHP,

including:

- ROCs – note Electricity Market Reform

- Feed-in Tariff

- Renewable Heat Incentive

- Exemption from CCL

- Enhanced capital allowances

- Business rate exemptions for certain plant and machinery

Project Considerations for District Energy

Technology Land/access rights Construction delay Fuel supply risk

(sourcing/spark spread) Availability Operation and maintenance

Heat demand – connection risk Heat/power offtake - pricing

Competitive alternative Achieving other objectives

(competing JV / ESCo objectives) Fuel poverty Council control

Generating plant Heat Customers

District Heating - Risk Mitigation

Asset Reliability Risk

Demand Risk

Fuel Risk

Heat Supply Payment Risk

- Construction contractor warranties/guarantees- Adoption requirements & managing new connections- Force majeure relief- Lifecycling- Asset ownership – pipe and energy centre split?- Sufficient offtakers in immediate area- Due diligence of route & connection issues- Understanding heat requirements of offtakers- Anchor tenants- Pricing structures & competitive alternatives- Understanding heat requirements of offtakers- Backing off some risk to fuel supplier (may not be possible)- Client (if Local Authority) may take bad debt risk of local

authority housing tenants- Covenant strength of commercial offtakers is important- Pricing for fuel poverty objective

Construction Delay Risk - Understanding financial impact of delay- Back-off to construction contractors- Who is best placed to manage risk?- Managing new connections- Insurance?

Structuring the Delivery Vehicle

• Will depend on the nature of the delivery vehicle– Public Private JV?– Owner/concessionaire of DH assets or DBOM contractor?– Duration of concession?– Third party investment?– Local authority objectives (e.g. fuel poverty)

• Common to incorporate (or contract with) an energy services company (“ESCo”)– Separate accountability and risk management– Limited liability– Exit strategy

AllowableSolutions

Project debt

Equity

PWLB loans ifLA sponsored

Basic ESCo Structure

SPVEnergy scheme

PWLB

DeveloperContribution

Private sectorOr Council led

Commercial Bank

EPCO&M Feedstock

contracting

Energy/heatsales

OwnershipandFunding

Operations

100%

Interface agreement

Asset Structuring

SPVenergy centre

SPVenergy network

Scheme Sponsor

Provider private or council

Providerprivate or council

EPCenergy centre

O&M energy centre

Feedstockcontracting

O&Menergy network

EPCenergy network

SPV – DBFOs theenergy centre

Provider arrangesfunding for theenergy centre

Provider arrangesfunding for theenergy network

SPV – DBFOs theenergy network

Energy purchasingsales and

customer billing

2020 Climate Group Perspective

The 2020 Group seeks to drive collaboration between businesses on climate change issues/initiatives.

3 key objectives were identified for today:• Engage business leaders with the opportunities that heat efficiency can

present• Encourage businesses to take positive action• Encourage businesses to share heat data for mapping

Concerted action is required to ensure that heat is generated, distributed and used more efficiently. Tell us what the barriers are to making this happen….

A final thought…

The heat sector is both a challenge and an opportunity…..

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John SheridanChair Built Environment2020 Climate Group

2020climategroup.org.ukGet involved in the conversation

@2020ClimateGrp

Thank you for your time