RSM evaluates UK government’s Green Heat Network Fund Transition Scheme

Our strategy, economic and policy consulting team has evaluated the UK government’s Green Heat Network Fund transition scheme. What were the key findings?

The role of heat networks in transitioning to net zero

Analysis by the Climate Change Committee, the UK’s climate watchdog, indicates that heat networks have an important role to play in the UK’s transition to net zero – meeting some 18% of overall heat demand by 2050. Yet the UK heat network sector is still at relatively small scale delivering 3% of the UK’s heat demand at present, and still reliant on fossil-fuels.

This is something the UK government is seeking to change. The government’s work includes regulation to encourage large heat consumers to connect to local networks, introduction of consumer protections, guidance on technical standards, and targeted financial support, such as The Green Heat Network Fund.

What is the Green Heat Network Fund Transition Scheme?

The Green Heat Network Fund (GHNF) is a flagship financial measure.

Subject to an application process, the GHNF provides upfront grant support to public, private and third sectors organisation in England for the ‘commercialisation’ and ‘construction’ of new low-carbon heat networks and work to decarbonise existing networks. In doing so, it also aims to support supply chains and skills development, driving the sector more broadly, as well as attracting new forms of private investment.

Before the GHNF main scheme was set up, a transition scheme was run from June 2021 to March 2022, to build a pipeline of ready applicants for the main scheme. Seven projects were funded – three local authority-led projects, two university-led, and two from the private sector.

What was our role?

The Department for Business, Energy and Industrial Strategy (BEIS, now the Department for Energy Security and Net Zero) sought an evaluation partner to provide an independent assessment of the GHNF’s performance, impact and value for money over its lifetime. In May 2022, RSM UK was appointed to this role.

RSM UK, with its partners ACE-Research and CAG Consultants, have been evaluating the implementation and impacts of the GHNF transition scheme for the Department. This has included looking at scheme design, how the scheme was delivered, and how organisations responded to the resources provided.

What are our key findings about the GHNF transition scheme?

1. Supporting project momentum and credibility

Without the transition scheme, funded heat network projects would have been forced to wait for other funding streams, slowing progress and abating any project momentum. Receiving transition scheme funding also provided projects with credibility among key stakeholders. This has been helpful for the projects that have gone on to seek match funding for the future construction phases and supported progress toward final investment decisions to enable network construction.

2. Building the main scheme pipeline

The transition scheme was designed to build the GHNF main scheme pipeline. This was found to have occurred, but not in the way initially anticipated. A key benefit of the transition scheme was in publicising the GHNF Main Scheme and building enthusiasm for it amongst those who did not apply to the transition scheme. Whilst transition scheme funded-projects did not reach a ‘construction-ready’ position, many others were given the lead-time to prepare their Main Scheme application.

3. A learning opportunity

Just as significant was the learning opportunity that the transition scheme has provided. For the department (BEIS, as was), delivering the transition scheme has led to an improved main scheme, both in terms of its design and its delivery. Participants were also able to benefit from the experience, as in many cases, it was the first time they applied for and managed a heat network project – an important step forward for the market itself.

Conclusion

Overall, the transition scheme, whilst comparably small, was a success. Its full impacts are tied up with the success of the GHNF main scheme, where demand has been high and delivery smooth. By whetting the appetite of the market, and refining the design of the programme, the GHNF transition scheme has made an important contribution. 

For more details on GHNF transition scheme and the UK heat network sector, read our report: Evaluation of the Green Heat Network Fund (GHNF) transition scheme.

Please contact Declan Mackin, if you would like to discuss how these issues may impact your business.