After identifying opportunity areas a local authority can take different approaches to support the delivery of clean heat projects in their area. We have identified a spectrum of delivery models for clean heat, primarily differentiated by the extent to which the local authority is directly involved in delivery and management of projects. Each distributes risk, governance and return differently. The right model for a particular aspect of the clean heat transition in your area depends on your local authorities’ asset base, delivery capacity, risk appetite and long-term goals. We envision that most local authorities will utilise a range of different models to deliver different types of projects.

The section below illustrates a few examples of the different types of delivery approaches.

In these projects, a private company independently takes the lead on developing and delivering a clean heat project. The market-led approach to heating is broadly how the current heating market works (for example for gas boiler and air source heat pumps), with customers and private companies directly engaging with each other to install, change and maintain heating systems. After developing a local heat plan a local authority would then take a largely hands off approach and let private companies use the plan as guide to which projects they may want to take forward, though it offers no guarantees that any individual projects will take place. A local authority may choose to engage in some activities to increase private sector interest in the delivery of clean heat. This may be through  convening events to connect clean heat stakeholders, such as housing associations, and clean heat delivery partners.

What are the advantages and challenges?

An advantage of any market-led project is that the financial risks associated with the development and maintenance of assets fall entirely with the company leading and scaling the project. This means a local authority is exposed to a minimal amount of financial risk. However it also means there are few opportunities to directly benefit from any of the potential financial upsides. Additionally, a local authority does not need to allocate capacity or resources to managing delivery, however this can also mean the local authority has less control over the management of the scheme, for example the cost of bills to consumers of heat from a heat network.

The challenges of area-based projects also mean that the market may not deliver a solution for all opportunity areas. For example, the private sector may not organically choose to propose complex retrofit projects using shared infrastructure that bring greater commercial risks to the developer and may not guarantee a good return on investment. The market-led approach is therefore unlikely to deliver all the clean projects in an area.

In this model a local authority takes a role in encouraging and shaping the way the private sector delivers clean heat. A clear way to do this may be by taking an active role in procuring projects to help deliver clean heat in the opportunity areas identified in its local clean heat plan, rather than leaving it to the private sector to identify and deliver projects. Local authorities have several options for their procurement model. For instance, an authority could outline a selection of specific schemes and individually put each one out to tender, commissioning a private company to complete the technical designs, deliver the project and manage the assets in the long term.

Alternatively, a local authority could establish a framework, allowing pre-qualified suppliers to compete for clean heat projects as they arise, be it from the local authority itself or from third sector and community organisations including housing associations or social landlords. Another route would be for an  authority to enter into a concessionary agreement, granting a private company exclusive rights to design and deliver clean heat and/or other decarbonisation projects across the local area.

The specific financial structure of any clean heat scheme will likely be tailored to the individual project, negotiated between the commissioning local authority and the chosen delivery organization. This negotiation will determine the necessary blend of public and private funding for asset delivery, as well as the long-term ownership and management framework. Regardless of the specific procurement approach, these projects can be important to kickstart local clean heat delivery, stimulating the growth of a local supply chain, which in turn makes it simpler and more appealing for private building owners to also decarbonise.

What are the advantages and challenges?

Procurement-focused models give public authorities greater control over project selection and long-term strategic alignment, ensuring clean heat schemes are coherently integrated into local plans and scheduled efficiently. However, this level of oversight requires significant internal capacity, as navigating complex procurement cycles and overseeing long-term contracts demands substantial resources and specialised project management expertise.

In this model, a public body and a private company come together to deliver clean heat at an individual project scale (such as a social housing development) or at strategic scale for a city or local area. As opposed to just facilitating the market, in this model the local authority is an actor in managing projects in partnership with the private sector.

This model can lend itself to different legal arrangements, each with advantages and challenges though a joint venture (JV) or co-owned special purpose vehicle (SPV), amongst the most common. These are legal entities with ownership split between the local authority and a private company. The division of ownership can vary. For example, a JV may be a 50/50 split between the private and public sector. In a golden share arrangement a local authority may take a very small share in the SPV, a private company may deliver and operate the scheme but a public body will retain privileged control over the governance of the project, for example, to protect consumer prices or ensure protections and benefits for the local community.

What are the advantages and challenges?

This model allows a local authority to minimise financial risk by bringing in private investment through a partnership. A private company will shoulder some (or perhaps most) of the main commercial risks associated with the project while still giving a public body strategic oversight of the scheme’s goals, albeit with fewer opportunities for scrutiny than in a public-led project. The procurement process may, however, be resource intensive and bring complexity to the project. A stakeholder also noted that, while scaleable, this model might also be more accessible to a local authority or region with assets for development, and came with legal and governance costs

In this model, the delivery and ownership for a clean heat scheme lies with a public
body, such as a local authority, which scopes, leads and secures funding for a scheme. The public body can fund the initiative either by using its own reserves; accessing external funds through borrowing from institutions such as the Public Works
Loan Board or national infrastructure banks; or accessing public grants. The project will be delivered and managed entirely by the local authority. A local authority may choose to create a separate special purpose vehicle to oversee the project and carry out long-term management. Many tasks during this will likely be procured out to external contractors - for example a civil engineering company will likely be contracted to construct pipework for a heat network - however the finished asset will be owned by the local authority. In this model, the public body which leads the project is responsible for developing a sustainable business model for the project.

A successful business model can secure a long-term income for a local authority and create long-term, publicly-owned assets that can generate other co-benefits in the local area. The model for a specific project is likely to be technology dependent, for example heat networks and shared ground loops will typically generate returns through heating bills while a collective heat pump installation scheme may generate service charges paid by consumers.

What are the advantages and challenges?

This model may be suited to local authorities with substantial internal delivery capacity and a willingness to take on the financial and operational risks associated with delivering a clean heat project. Those possessing significant social housing portfolios or other high-value assets can utilise these as collateral to secure the necessary funds.

Local authorities need to be invested in the management and maintenance of assets and customers over the long term, including being prepared to allocate resources to these activities and to generate a return from the assets. However, public ownership of assets also presents risks, as the local authority owning the asset will be responsible for repaying any debts accrued to finance the project. This means that a local authority leaves itself open to financial pressure if the project underperforms financially.