After a period in which heating networks were presented as the ideal solution for implementing the energy transition in Dutch urban areas and smaller residential areas (among other things to replace the use of natural gas), recent developments are growing doubt as to whether this is the case. The reactions of users to the often much higher energy prices than initially proposed and the decisions of a number of large energy suppliers to stop heating network projects because they cannot be carried out profitably, are understandable. However, as has been pointed out in a recent publication, there is no reason to present heating networks as a less relevant or even bad solution.
By 2030, 1.5 million Dutch homes and many other buildings must be made more sustainable and/or free of natural gas (NPLW) and heating networks are a solution. However, there is (a lot of) resistance to this solution with collective heating networks, because the tariffs are considered too high. This is partly due to the current legislative framework Warmtewet 1.0 (“Heating Act 1.0”) that links the tariff for energy supply at the gas price. Also, the desire of politicians to exclude the private sector from the development of these networks as much as possible might not be helpful. This is done because it wishes to maintain a certain degree of control over these systems which are a common good and have a utility function. A return to full implementation in the hands of the public sector is probably not the most efficient solution either, even if on paper it can give greater confidence in the success of a project.
A point that unfortunately almost never comes up in the current discussion is why a heating network, or rather a "heating and cooling network", is a serious way to realize the energy transition in many urban areas and small residential areas. In particular as the recent technical developments allow heating and cooling networks to operate 40-50% more efficiently. Unfortunately, the benefits of the so called 5th generation networks (or 5th Generation District Heating and Cooling or 5GDHC) are still largely unknown.
The attached PDF document gives under five separate headings a non-technical explanation of "the how and what" behind the heating networks and the role that XChains wants to play in them.
The first section "Legislation and regulation" gives a brief overview of the different acts and instruments (Wet Collective Warmte [WcW or Collective Heating Supply Act], Wet Gemeentelijke Instrumenten Warmtetransitie [WGIW or Municipal Heating Transition Instruments Act] and Warmtenetten Investeringssubsidie [WIS or Heating Networks Investment Subsidy]). However, these new acts and instruments do not overcome all issues as there remains, in particular for the larger existing companies, quite some uncertainty in respect of how the "a cost-based rate" will be determined and about their future role as the public authorities should have a majority shareholding in these future heating companies.
Hence, a possible side effect of the new acts might be that the publicly organized projects may lead to the introduction of less efficient solutions because a part of the market, innovation and risk-taking are eliminated. Municipalities, and certainly the mostly smaller municipalities, do not have the experience, manpower and knowledge to develop and operate these networks and they often lack the opportunity to provide the desired financing. The section ends with indicating how with a flexible approach to the Act, it might nevertheless still be possible to implement the energy transition decisively.
Under the heading "Thermal energy sources and networks", an explanation is given about why a good combination of the right energy source and an efficient network with possible storage essential is in creating a successful heating network and ensure a successful energy transition. It addresses the different energy sources currently used as well as the different options that do exist and should be considered for the future.
It concludes that it is possible to develop small-scale projects that make use of the various existing sources and provide a credible alternative to the traditional large scale projects that require large investments which can only be amortized taking into account large numbers of connections and offer little opportunities to expand easily.
The section "5th Generation District Heating and Cooling (5GDHC)" provides a quick overview of what a 5GDHC network is, how it functions and why municipalities should seriously consider this approach if they consider heating networks as an alternative to natural gas heating.
The section "Private Public Partnership" outlines why a PPP solution is an approach that should be considered more favourably than currently is done. Basically, a PPP solution forces both parties to give due attention to governance. This governance should not be structured via how decisions are taken within a heating company, but around how to manage a project as a whole. This starts with a clear project definition, allocation of roles and fixing of prices and tariffs through contracts and the raising of finance. With the key elements fixed, the focus of the private sector is on ensuring an efficient delivery and that of the public sector on ensuring that the implementation follows what has been agreed prior to reaching Financial Close at the end of the development period.
The last section on "XChains" sets out how XChains can bring the above elements into reality. It has been set up with the aim of financing, managing the construction works and operating & maintaining a large number of small-scale 5GDHC projects.
The role of XChains is thus to ensure that the most important construction contracts are secured before Financial Close is reached, thus giving the Special Project Vehicle (SPV) a good level of cost certainty. During construction, it will take care of an efficient project management, and thereafter, it also takes care of the management of the operation and maintenance responsibilities on the basis of the agreed tariffs.
