Key Contacts: Hugh Cummins – Partner

In our previous article, we considered the major decarbonisation challenges currently facing the Irish heating sector as it works towards meeting its 2030 target of halving C02 emissions. The roll out of district heating infrastructure is recognised by the Government as a key measure to achieve Ireland’s climate aims as set out in the Climate Action Plan 2023 (“CAP23”).

The Government has now approved the Annex of Actions to CAP23 . This update provides more detail on the specific actions required to implement the targets set out in CAP23, and includes information regarding likely stakeholders, necessary steps, outputs and timelines. The update also references the implementation of district heating as part of the wider goal of decarbonising Ireland’s public, residential and commercial heating sectors. The Annex of Actions includes the publication of a National Heat Policy Statement, the acceleration of existing schemes under consideration and implementation of the recommendations of the District Heating Steering Group report.

In this article we focus on the barriers impeding the development and rollout of district heating at scale in Ireland.

What are the barriers to district heating?

The nascent district heating market in Ireland faces various organisational, technical, regulatory and economic barriers. These barriers and challenges are outlined below.

Organisational

There are many organisational barriers to the successful implementation of district heating in Ireland. Some of these include:

  • The presence of the natural gas grid: The gas grid has been present in Ireland since the 19th century, is widespread and the prevalence of natural gas in Ireland can make it difficult to construct a business case for district heating.
  • How cities are built: Cities in Ireland are built at low density with many living in houses rather than apartments which makes centralised heating and shared heating more technically challenging and potentially less effective.
  • The electrification of heat: With the growth of wind and other renewable energy sources, the potential to electrify our heating networks is increasing.
  • Geographical issues: Whilst district heating is well suited to densely populated areas, its installation in sparsely populated rural areas can often be more difficult.
  • Availability of useful waste heat: One of the economic drivers for district heating can be the availability of a suitable ‘waste’ heat source such as data centres or industry to supply the network. These large-scale sources of waste heat are not frequently found in less populated rural areas.

It is apparent from the above that there is no ‘one size fits all’ solution to these challenges. Careful advance planning of the location and configuration of local networks is therefore crucial in optimising the potential of district heating as a means of delivering efficient low carbon heat.

Regulatory

The Commission for Regulation of Utilities (the “CRU”) is Ireland’s independent utilities regulator. The CRU’s remit was expanded in July 2022 when it was appointed regulator of the district heating sector under S.I. 350/2022.

The CRU’s district heating remit will cover, among other things, the registration of suppliers, meter supply and replacement, transparency/accuracy of billing, the minimum provision of information on bills and dispute/customer complaint function. However, the CRU will not have a legal remit on price regulation.

District heating has been the subject of some negative press in recent times, where end users have complained about the lack of consumer protection for domestic district heating customers. These issues are amplified in the context of the cost-of-living crisis currently being experienced by so many. In December 2022 S.I. 630/2022 was introduced to update the regulation of district heating suppliers and network operators in relation to metering and billing of end users. S.I. 630/2022 also provides for a dispute resolution procedure in relation to district heating metering and billing.

Whilst these measures are welcome more will be required to ensure that there is a comprehensive regulatory framework in place to protect end users. These measures must also be balanced against the need to properly incentivise the supply side of district heating and encourage the development of more networks.

Technical

The systems required to implement district heating on a large scale are complex. Realising the potential for district heating in Ireland requires technical expertise to plan, coordinate and deliver projects. The technical barriers that arise include the following:

  • Upskilling: The Irish construction sector is currently facing significant shortages of skilled labourers and tradespeople.  The Government’s Report on the Analysis of Skills for Residential Construction & Retrofitting 2023 – 2030 (published in December 2022) estimates that 50,831 new entrants will have to be recruited in managerial, professional, skilled, and semi-skilled occupations before the end of this decade. This highlights the stark shortage of professional, technical and other trade skills currently at the disposal of the industry. Given that Ireland is only beginning to create a district heating market, the need to upskill existing labour and attract new talent is a significant challenge. In addition, the key stakeholders in district heating such as local authorities do not possess expertise or experience in the sector. This is an issue that has been recognised by the Government in CAP 2023. The CAP23 Annex of Actions notes that ensuring relevant local authorities are appropriately resourced is a necessary step for the delivery of district heating schemes.
  • Retrofitting: The need for energy efficiency retrofitting of the building stock in Ireland is clear. Indeed, CAP 2023 acknowledges the importance of the National Retrofit Plan and highlights that a major expansion in retrofit activity is required to support the reduction in burning of fuels needed to heat our buildings. The introduction of systems as complex and large as district heating by way of retrofitting involve long rehabilitation processes in which barriers and challenges will arise.   It is critical that the demand side is also efficient in its use of heat.  To introduce district heating without improving the energy efficiency of our buildings at the same time would be both a huge technical error and missed opportunity.  In addition, certain social groups such as those with low-income, renters, or the elderly, experience more barriers and be more sceptical of undertaking a building retrofitting on account of factors like upfront costs, “presentism” thinking, disruption, and lack of control.  To help alleviate these concerns, the potential benefits such as long-term savings, as well as disruption to be expected at each stage of the process, should all be clearly explained to the community. This is important, as retrofitting the current housing stock is vital to the long-term success of district heating.

It is important to remember that as Ireland’s decarbonisation journey progresses, measures such as district heating and the associated retrofitting activities provide opportunities for certain skilled professionals.  This can potentially attract greater numbers into these professions, who, with complementary skills can make the transition to clean energy infrastructure.

Economic

There are several economic barriers for the successful implementation of district heating. Some of these include:

  • Source of the heat to the network: This is perhaps the primary factor dictating the economic success of district heating systems. Where heat can be sourced from ‘waste’ heat produced by data centres or other industries, the project is far more likely to be economically viable. This heat is zero carbon, indigenous and importantly, practically free. Other sources of heat can be more expensive and can potentially make a project unfeasible.
  • Significant upfront costs: Ireland faces challenges that many European countries do not in that many other countries have district heating networks which have existed for decades. For example, the first Swedish district heating system was introduced in Karlstad in 1948. Where other countries are primarily concerned with converting their existing district heating networks to renewable energy sources, Ireland is only in the very early stages of establishing district heating networks while also trying to provide renewable energy to those networks. Therefore, the move towards carbon neutral heating may prove more costly for Ireland than many of our European counterparts.
  • Lack of consumer protection: One of the intended benefits of district heating is lower consumer costs. However, currently in Ireland there is minimal consumer protection for those using district heating networks and there are negative news stories of customers receiving notably expensive home heating bills. As noted above, the CRU is in the process of developing a regulatory framework which will be essential to the positive future application of district heating.
  • Grant funding: Studies in other jurisdictions have found that most successful district heating projects depend on grant funding.

With the right level of investment (both public and private) and impetus from Government, these economic barriers can be overcome The ultimate hope is that in the long-term district heating networks will be cheaper than alternative heating methods and thus be more attractive to end users. Not only can district heating play a key role in decarbonisation and the fight against climate change, but it can also go some way towards alleviating fuel poverty.

Next generation district heating

Ireland has recognised the potential for deep low-to-medium temperature geothermal energy resources. The installation of “Geothermal District Heating” (“GeoDH”) systems is more suitable in areas with higher urban density, to allow for both resources and demand to be geographically matched. Ireland’s many sparsely populated areas of the country outside of Dublin coupled with the high costs of deep drilling associated with GeoDH pose a challenge to establishing these kinds of schemes in Ireland.

Indeed, Minister Ryan recently published a Policy Statement on Geothermal Energy for a Circular Economy. This statement includes a strategy to promote sustainable development of Ireland’s geothermal resources to decarbonise heating and cooling of buildings.

Solar energy may be more suitable for district heating schemes in smaller towns and countryside areas where land is available for solar farms. Not quite as popular as GeoDH, “Solar District Heating” schemes (“SDH”) have been implemented in several European countries including France, Spain, Italy, Germany, Sweden and Poland. A variety of factors need to be considered to assess their suitability for use in Ireland. Three main aspects to consider that have a bigger impact on the comparable costs of the energy produced by a SDH system are the initial cost of developing the system, the lifetime of the system and the long-term performance. Costs can vary greatly from country to country depending on factors such as climate, taxes, and construction costs. A benefit of this kind of system is that consumer costs associated with SDH typically remain stable over a long period of time as there are no fuel price fluctuation influences once the system has been developed.

Next steps

For district heating to be a success in Ireland, strong support is needed not only from the Government but also at local authority level and buy in from the commercial and residential sector is needed.

Further developments such as the publication of the Heat Policy Statement and Geothermal Policy Statement should give a deeper insight into the plans for developing new, environmentally efficient heating systems in Ireland and tackling issues which will inevitable arise when developing this burgeoning technology.

The Climate Change Advisory Council’s Annual Review for 2023 concludes that Ireland is not on course to meet its carbon budgets targets for 2021 to 2025. This, coupled with the recent media reports of extraordinary heat waves across the European continent, provide a stark warning that we must do more to reduce our carbon emissions and control climate change. Notwithstanding the challenges it presents, district heating clearly has a role to play in this and there is no time to waste.

 

This article was written with the assistance of Thompson Barry Doherty.