The PipeCo: an alternate approach to financing heat networks

District heating is booming in the UK, but to pose a serious alternative to the gas network a different funding model is needed, according to Ian Manders and Tanja Groth

A PipeCo model works on the basis of splitting the investment in a new district heating scheme into the expensive heat distribution network, which lasts for 50-60 years before refurbishment, from the energy generation plant and ancillaries, which have a lifecycle of 15-20 years before replacement.

It could work like this:

  1.     Company “A” borrows money and builds a district heating scheme. After commissioning the scheme, the overall costs are known and the income from customers “C” has been secured. At this point, A sells the pipe network to Company “B”, the PipeCo. B is backed by institutional finance which is happy with a low-risk return over several decades.
  2.     A continues to operate the system. From its’ energy centre it supplies C over the PipeCo network, for which it pays a regular (but relatively small) use of system charge to B.

A has managed in the short term to offset its biggest cost (ie the pipe network) leaving it with the parts of the project with a higher IRR that can be financed for a shorter period at higher discount rates.

A then starts looking for another project and the whole process starts again. A and B are in a symbiotic relationship but each have the funding structure suitable for their role in the project.

Source: The PipeCo: an alternate approach to financing heat networks

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Author: Andy Nolan

An experienced director-level professional with expertise in sustainable development, cities, universities, governance, policy and strategy. 15 years of experience working in the field of sustainability in both the private and public sector. Has worked within a local authority, in multi-authority partnerships locally and nationally. Experience in higher education across four universities in the UK plus representative bodies. Particular areas of interest and expertise include; energy; transport; climate change; waste management; air quality; decentralised energy; education for sustainability; smart cities; knowledge transfer; research.

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