Q&A - Vattenfall: Exploring district heating

inspiratia speaks to Jenny Curtis, managing director for Vattenfall Heat UK, to gain insights into the landscape of district heating and energy solutions in the UK and across Europe.

"Vattenfall, the fifth largest energy company in Europe, is on a mission for fossil freedom in the district heating landscape. With a sustainable vision and over two million customers, we are revolutionising the UK market with £1 billion (€1.12bn $1.26bn) of investment by 2030."

In the UK, 2% of homes are currently heated using district heating, and the government aims to increase this to 20% by 2050 to reach net zero targets. This represents a £60 to £80 billion investment opportunity, and it is Vattenfall's ambition to be a major part of this.

How involved is Vattenfall in the district heating landscape across the UK and Europe?

Active in the UK and across Europe, Vattenfall is the fifth largest energy company in Europe, 100% owned by the Swedish state. We have a very strong, sustainable, fossil-free vision. Sustainability is not just a strategy for us; it is our business, and we are working for fossil freedom for our customers.

We are one of the largest operators of heat networks, with over 2 million customers. We have very established networks in Amsterdam and Sweden. District heating in the Nordics is more established than in the UK, but we saw the opportunity here about five years ago, and the UK is a prime market for our experience.

Our strategy is to deliver district heating at scale, focusing on city-scale networks, which provide the best value to the end consumer. We are looking to invest £1 billion into rolling out that infrastructure by 2030. Over the last period, we have been building up our business, and we now have more than 100 people working in the heat sector in the UK. We have established a presence to build out networks in London, Edinburgh, and Bristol – our flagship core cities – and we will be looking to add new ones as we go forward.

We are looking for cities where there is a strong alignment with the local authority, where they share our fossil-free ambition and can provide supportive planning policy, as well as areas where we can access clean waste heat, allowing us to heat those networks.

What challenges do you face while engaging with customers and local authorities, especially regarding affordability and direct household engagement in district heating implementation?

As an infrastructure provider, we encounter the same challenges as our competitors and those in similar sectors, particularly in the current macroeconomic climate with high inflationary pressures and increased construction costs. Historically, we have been exposed to fluctuations in underlying commodity costs, but our model aims to break the connection to oil and gas prices by utilising waste heat resources, which presents a real opportunity for us.

To address inflationary pressures, we are focusing on building skills and expanding the supply chain to access deeper resources in terms of companies that can provide the services we need, including design and building consultancy to the construction of energy centres and varied networks.

Despite the challenges, there is supportive government policy emerging, particularly with the recent passing of the energy bill, which lays the foundation for zoning. This process aims to establish zones for heat networks where operators can bid in to be the provider of heat in that area.

However, this also places pressure on local authorities, as they are tasked with acting as zone coordinators and undertaking base case feasibility work to establish zones and determine the best route to market. While there are challenges with procurement processes potentially being lengthy and expensive, we support the need for competition to drive the best value in establishing these zones.

We are working with government and local authorities under different models for bringing networks to market. These include our joint venture with Midlothian Council and our involvement in Bristol City Leap, alongside Bristol City Council and Ameresco, a flagship initiative aiming to invest up to £1 billion in energy transition technologies for the city. 

You mentioned supportive policies for district heating in the UK. Would you say it is similar in other countries across Europe?

Yes, in Amsterdam, they have a similar approach to zoning, and in most of the continent, heat networks are regulated businesses. In the UK, we are not currently regulated, but we are looking forward to the introduction of regulation through Ofgem. There are many lessons we can learn from the continent regarding the role of regulation in improving consumer confidence and providing certainty around the pipeline, which helps develop the supply chain and investor interest.

In Amsterdam, we are focusing on retrofitting building connections, something that has not been widely done in the UK, but is underway in Bristol. We are going street by street, connecting existing buildings, which is key to unlocking scale. This involves aligning with other energy efficiency improvements needed in buildings to make district heating a viable and scalable option.

What technologies and energy sources on the production side are you excited about?

We are technology-agnostic as long as it provides the best low-cost, low-carbon source of heat for a network. In the UK, our model is not to own the generation, allowing us to bring diversity into our network and integrate third-party sources. We are taking heat from energy from waste plants, a key aspect of our business that utilises waste heat that would otherwise be lost. This involves partnerships with waste management companies like FCC Environment in Midlothian and Cory Group in London.

We are also exploring the use of water-source heat pumps to extract heat from wastewater treatment works or coal mine water. In Scotland, we are looking at using water stored in ex-coal mining communities to provide low-carbon heat.

At Brent Cross Town, we are developing a scheme with Related Argent, using air-source heat pumps, providing both heating and cooling. This innovation extends to digitalisation and data use to maximise network efficiency.

As the decarbonisation of heat involves the electrification of heat, how we interact with the grid becomes crucial. Waste heat sources like energy from waste minimise additional grid requirements. We are exploring the role of heat in demand-side response and smart energy systems. Through Bristol City Leap with Ameresco, we are integrating smart meters, local renewables, battery storage, and heat networks to reduce grid constraints and costs for consumers.

On the distribution side of things, where is your client base? And what are your plans to expand to new customers? 

Because we operate at the city scale, we have a mix of end consumers, which is beneficial for our credit model. We aim for diversity in both client type and usage profile to balance the network. Public sector buildings are key for us because they offer good credit, are large, and are committed to unlocking heat networks as early users.

We work with large real estate developers constructing new residential and commercial buildings, providing a different heat usage profile compared to public sector buildings. Additionally, we collaborate with housing associations, which act as important aggregators of load due to their large estates in various areas.

We also consider industrial loads. Our portfolio includes a diverse range of customer types. The key is aggregating this load into large seed customers, as we are not yet at the point of serving individual households. This approach will likely come in the future, but it is still five to ten years away. We need to establish the supply chain, technology, and network size to enable a street-by-street approach.

Following protests in Redcar in December 2023, you said: "No more public money should go into hydrogen for domestic heating because electrification is the only viable means". How did you come to this viewpoint?

Studies suggest that hydrogen is not cost-efficient for domestic heating. The production cost of hydrogen, combined with the infrastructure upgrades and changes to appliances needed, make it impractical. Additionally, there are underlying health and safety requirements to consider. While hydrogen may be suitable for industrial use, it is not a practical solution for domestic heating. Each area's needs are different, and while district heating or heat pumps may be suitable in some places, we do not see hydrogen as the solution for domestic heating. However, the energy landscape is vast, and there may be options down the road.