The recovery of heat from power generation in Scotland: study

2 Introduction to District Heating

2.1 Basic Concepts

District heating can take many forms. The key element is the replacement of individual boilers in each building supplying heat with a network of heat pipes that carry heat to buildings from a central source, or sources, of heat.

The key components of a district heating system are:

• The heat source.
• The heat pipe network.
• The consumer unit in each building.

Looking at each of these in turn:

The heat source can take many forms. Examples include:

• Heat only boilers, burning a wide range of fuels from fossil (gas, oil etc) to renewable (biomass).
• CHP units, typically gas engines which generate power and heat, where the heat is recovered from the exhaust and cooling systems of the engine.
• Power stations, where large amounts of heat can be recovered.
• Energy from waste plants, typically where waste is combusted and heat and/or power is recovered.

In larger systems there can be more than one heat source.

The heat pipe network links the heat sources to the heat consumers. The pipes will be made of steel (main elements) or plastic (final connections to consumers). Pipes are pre-insulated in the factory, to provide a low level of heat loss. The size of pipe required is set by the peak heat flow in the system. So the largest pipes are required close to the heat source, with size gradually decreasing further from the heat source. The final stages of the network are much smaller and may be made of plastic.

District heating systems can carry hot water or steam. If the consumers include industrial sites that require steam then the network will need to be configured to carry steam throughout. Buildings typically require hot water for space heating.

Network configurations depend on the topography of heat sources and heat consumers, simple systems may be radial in nature

The largest element of capital cost is the heat network. The pipe is expensive plus there are high costs to install the pipe. Installation requires a trench to be dug, preparation of the bed of the trench for the pipe, joining the steel and insulating jacket and re-instatement of the trench. In urban areas the pipe route will need to be navigated around existing services (water, sewage and gas pipes and electricity cables).

The cost per metre of the heat pipe ranges from £400/metre for the smallest diameter pipe (20 mm) to almost £3,000/metre for the largest (1,100 mm) ^[3] , a typical cost is around £1,000/metre. A study by Poyry ^[4] found that the cost of the heat pipes is significantly higher in the UK compared to other markets where district heating is much more widespread. This suggests that there would be potential for cost reduction if the UK market were to be larger in scale.

The final element is the consumer unit, this replaces the boiler in the building. This will normally use a heat exchanger - so that the heat circuit in the building is isolated from the main district heating circuit. This isolates the district heating system from any issues with air or oxidation within the heating systems in the building. The consumer unit will include heat controls, pumps for the buildings heating circuit and heat meters. For homes the consumer unit can be supplied as a compact system that is similar is size and shape to the boiler that would have been used.

There are other supporting elements within a district heating network, including pumps, stand-by heat sources etc.

District heating is used extensively across the world, there are notable examples in New York (serving 100,000 commercial and residential properties) and Paris (serving 5,774 buildings). In Northern Europe, particularly Denmark, Sweden, Finland and Germany, district heating has a very strong presence, from small community to city wide schemes. In Scotland there are a number of small schemes, including:

• The Shetland District Heating scheme. This serves Lerwick taking heat from an energy from waste boiler. Demand has grown, leading to investment in the heat source to supply further customers.
• The Aberdeen Heat and Power schemes. Three projects using gas fired CHP systems to supply tenants in social housing. Expansion plans include development of the Seaton scheme to serve properties in the city centre.

2.2 Security of Heat Supply

District heating systems offer security of heat supply benefits compared to individual boilers in buildings. There are two reasons for this. Firstly many buildings will have only one boiler, whereas a district heating system will normally have several boilers. So one boiler failure would not affect the district heating system. Secondly the focus of the district heating operator is maintaining heat supply, hence reliability of boiler plant, pumps and the heat network are critical to the business. This is not true of ordinary businesses and homes, where boiler maintenance is unlikely to be a priority.

The security of supply aspects are slightly different for the case of heat recovery from a power station. In these cases the main business is power generation. The supply of heat will earn far less income than the supply of power. The availability of heat will be linked to the operation of the power station, which will be linked to the price for power generated. If heat is not available from the power station then back up boilers will be required to provide heat.

In addition there is a possibility that the power station closes - e.g. if the main business of power generation becomes un-profitable.

In this study we have assumed that new stations supply the heat. This assumption assists the security of heat supply in several ways:

• To provide an acceptable return on investment the power station is assumed to operate for 7,000 hours a year. So the system will be generating and producing heat for most of the time, heat will be available all year round.
• The new power station will be designed for a life of many decades - consistent with the life of the district heating network.

2.3 Consumer Lock In

Typically when consumers connect to a district heating system when their existing boiler system requires replacement - or when a new building is developed. Connecting to district heating under these circumstances has a number of advantages:

• The cost of a replacement or new boiler is avoided (both cases).
• Space may be freed up for other uses (both cases).
• The cost of a gas (or other fuel) supply is avoided (new buildings).

The customer will typically remove their existing boiler plant or will not install boiler plant ^[5] . Hence the district heating system becomes the sole source of heat.

From a security of heat supply perspective this is not significantly different from the conventional situation - customers reply on the reliability of their boiler and the supply of fuel to that boiler.

However from a commercial perspective there is a difference. Firstly, with boilers, consumers can switch suppliers of fuel on a regular basis to obtain the best prices. Secondly they can find different contractors to maintain or service their boiler. This is not the case with district heating, therefore it has elements of a natural monopoly.

There are examples of natural monopolies in the energy sector, principally the owners and operators of the gas and electricity networks. These businesses are regulated to ensure consumer protection, with standards of service and cost controls in place. The investments required by these businesses are scrutinised and approved by the regulator and if approved their costs are allowed to be charged to consumers. These businesses are low risk and often have high dividend yields. The regulatory framework has two sides - consumer protection and low risk for investors. This latter point is very important for businesses that need to invest in large scale, long term, assets.

At present there are no regulatory systems for district heating, nor are there plans to introduce any systems.

The commercial consequences of the monopoly are:

• Potential exposure to higher costs of heat.
• Potential costs to disconnect from the network.

To be able to convince customers to connect a district heating operator will need to offer some form of commercial advantage. This is likely to be cheaper heat. When agreeing to take up district heating consumers should obtain details of long term prices, or agree how prices will be indexed to the prices of other fossil fuels.

Importantly the cost of heat for a customer will include the cost of fuel, the energy losses in the boiler, maintenance and service costs for the boiler and deprecation costs for the boiler. All of these costs are included in the cost of heat - although many consumers may fail to recognise many of these important elements of the cost of heat.

To become connected requires investment in the final connection from the existing district heating network to the client and the installation of the consumer unit - to interface the customers heating system to the district heating system.

These costs can be paid upfront by the customer or can be included in the price paid for heat. In the latter case the district heating operator will require some form of security, either a long term heat supply contract and/or payment if the customer disconnects.

Hence to disconnect, the consumer will need to need to invest in the removal of the district heating connection plus the cost of new boiler plant. These may be significant costs and hence significant barriers to disconnection.

2.4 Fuel Sources

District heating systems can use a wide range of fuels. This study focuses on the potential to recover heat from 4 large scale fossil power stations using coal and gas, with some co-firing of biomass. The study does not include the potential for heat recovery from dedicated biomass power stations. This is intentional.

Scottish Government has already undertaken significant work in the use of biomass. The recent Renewable Energy Roadmap notes the need to use finite biomass resources in the most efficient and beneficial ways. Hence Scottish Government policy supports biomass in heat-only or combined heat and power plants, particularly off gas-grid, and to a scale which maximises heat use and local supply.

Biomass power stations proposed in Scotland (over 50 MWe) require consent under Section 36 of the Electricity Act 1989. The Scottish Government's guidance for Section 36 consent requires a heat plan to accompany the application. There are currently four Section 36 applications for biomass power stations, each of which is assessing the potential for heat recovery. Hence this study would have duplicated effort if it had included biomass power stations.

Finally it is not the purpose of this study to set out an analysis of heat recovery that could be compared with the assessment of the applicants.

While the study does not focus on biomass many of the issues and policy measures are highly relevant to heat recovery from biomass power stations.

2.5 Development Model

The way in which district heating has developed in the UK has taken a number of different forms:

• Systems that serve a new housing or mixed use development - initially owned by the property developer.
• Systems that serve a university, hospital or large military base - initially owned by the main client, sometimes transferred to a third party.
• Systems that serve social housing - typically owned by a local authority or housing association.
• Systems that serve public buildings - initially owned by a local authority, sometimes transferred to a third party.
• Systems associated with energy from waste schemes - initially owned by a local authority, sometimes transferred to a third party.

The focus of this study is the recovery of heat from large power stations. Hence the emphasis is on connection of the power station to heat loads - making early use of the energy and CO 2 savings from heat recovery. As the list above suggests there are many other routes which could lead to the wider uptake of district heating. These could involve recovery of heat from power stations, if clusters of smaller networks can be linked together and connected to a power station. However this development model does not necessarily involve heat recovery from a power station and if it does this element will develop many years in the future.

Accordingly this study uses a development model where heat is recovery from the power station in year one, with heat load building up over time. Using this model means that policies that encourage or require the power station operator to provide heat can be assessed.

2.6 Power Stations

This study considers the potential for heat recovery from new power stations at the four sites. It uses generic assumptions about the scale, performance and costs of these. It does not use the details of the existing or proposed stations at these sites. This is intentional.

Use of generic assumptions has the following advantages:

• It assumes that new power stations are built at these 4 sites. A new power station will have a life of 40 years or more - of a similar timeframe to the life of the district heating network. If the existing stations were assumed to supply the heat, they will close partway through the life of the new district heating network.
• Requirements over planning policy will apply to the new power stations. Hence changes to Section 36 guidance on recovery of heat will apply to these new stations - whereas these policy impacts would have zero impact if the existing stations were assumed to be used.
• The costs and performance details of the existing stations are commercial matters for the operators. Hence assumed costs would need to be used in both cases - existing and typical new plant.