1

Secure Sufficient Demand

A clean heat project's financial success, especially a project involving shared infrastructure, depends on securing enough demand from customers. This is why projects will often try to guarantee as many customers and as much heat demand as possible. For shared infrastructure a common rule of thumb when designing a project is to determine the linear heat density (LHD). It provides an initial indication of whether the potential heat demand is sufficient to justify the investment, before accounting for other factors like the cost of the heat source or specialised pipework.

A high load heat density (LHD) is crucial for developers, as it significantly improves the financial viability of a project. A higher LHD means the network can sell more heat relative to the amount of pipe installed, which maximises direct revenue and accelerates the return on the initial investment. Consequently, developers prioritise securing the highest possible and most dependable long-term heat demand to optimise the project's LHD. Anchor loads (large consumers like hospitals or universities) can help to de-risk a project by committing to buying heat. Anchor loads offer predictable, sustained demand, improving the business case, attracting financing, and encouraging smaller connections. However, relying on anchor loads is risky, as their withdrawal or reduced demand can jeopardise viability.

New builds and redevelopments are more investable, as clean heat infrastructure costs can match new gas connections, and upcoming regulations (like the Future Homes Standard) will restrict fossil-fuel use. Conversely, retrofitting existing gas-connected private homes is difficult. Individual households have low demand, meaning numerous connections are needed, introducing financial risk and making investors hesitant due to the high risk of securing sufficient private domestic uptake.

2

Cost of heat

To be financially viable, clean heat projects need to offer heat that is priced more competitively than a domestic gas boiler. Lower prices compared to gas are necessary to attract enough customers and ensure the uptake needed to make the project financially sufficient. 

A main challenge for projects using electricity (like individual or networked heat pumps) is the 'spark gap': the high cost of electricity compared to gas.

For individual heat pump projects, the spark gap directly impacts household running costs, acting as a major barrier to customer adoption. For shared infrastructure like heat networks, the spark gap remains a key cost challenge, particularly when the network relies on large, electric heat pumps. If the cost of heat cannot be made competitive or is not cheaper than gas, customer uptake will be severely limited.

Developers of clean heat projects using shared infrastructure can also try to overcome this by using cheaper sources of heat or electricity, for example, utilising waste heat from a data centre or co-locating heat generation with renewable energy generation or large anchor customers to lower costs. If they cannot achieve lower generation costs, they typically rely on securing large initial customers (anchor loads) or offering bundled incentives to encourage domestic uptake.