Are Joint Venture Partnerships the way forward for public sector-led heat networks?

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With the Heat Networks Investment Project (HNIP) funding to be released in the Autumn, the heat network market is hopefully going to be an even livelier place. Having said that, there’s a lot of money to invest and we need to make sure that local authorities (having the central role in the development of heat networks) feel empowered and supported to take on this challenge.

 

Jennifer Belk is Commercial Project Development Manager, SSE Enterprise Utilities

As Project Development Manager for Heat Networks within SSE Enterprise, I am responsible for developing heat networks in partnership with clients. And recently, I was given the opportunity to present at the District Energy Vanguards Network event held in York on the 5th July. The event was themed “Learning from Experience” so it provided a really valuable environment in which to communicate the lessons learnt during my time in Camden Council developing the Somers Town Energy heat network and how SSE can use these lessons learnt to shape our partnerships with local authorities.

The major question we have been asking ourselves is what is the best way for public and private sector organisations to approach the development of these schemes. Do we do it on our own or does it make more sense to blend our skillsets with another organisation? I think the latter. Market research so far shows that the trend is for energy provision to depart from the norm with local authorities playing a much more central role. In regards to heat networks, we are in the process of finding bigger and better ways of working up projects. I’m backing the Joint Venture Partnership model as the progressive way of delivering heat networks.

Why do I think this?

The Joint Venture Partnership model is a commercial structure which allows different organisations to come together to develop and own a heat network project (with varying stakes). Not only does this allow the experience, skillset and obligations of the respective organisations to be blended but it enables both organisations to control the elements of the project which suit their objectives.

For example, local authorities can focus on resident trust, geographical knowledge, obtaining inward investment and development in a given area, planning obligations and income streams whilst the energy company can bring its technical, commercial and contractual heat network know-how to the table ensuring that networks are designed, commissioned and operated optimally.

It also means the following four elements can be embedded:

#1 Readily available project development resource

In having to make investment decisions on heat networks, energy companies are typically accustomed to providing their own technical and commercial due diligence, and SSE are no different. Within a Joint Venture Partnership model, due diligence should be readily available for the stakeholders and can be nicely blended with a local authority’s resource enabling a richer project development journey.

#2 Capital Investment (if needed)

Depending on the local authority’s ambitions (carbon reduction, fuel poverty, income generation), “surplus” funds from the Joint Venture Partnership can be used for the benefit of reducing fuel tariffs, investing in further carbon saving or investing back into the local community. This would safeguard reputation whilst enabling private sector investment.

#3 Risk sharing

If a Finance Director sees high risk, it is unlikely that they’ll feel comfortable investing on their own if a project is not a local authority priority. A Joint Venture Partnership brings a heat networks expert to the table, able to identify and mitigate risks and enabling risks to be shared or to sit solely with the party best able to manage them. Enabling private sector investment in the project ensures both parties are aligned in their drivers to ensure the most efficient design and operational model is employed.  Effectively, the private sector is “putting their money where their mouth is”.

#4 Control

The Joint Venture Partnership enables the local authority to keep control of those aspects of the project which it needs in order to successfully protect its residents. More specifically, mechanisms can be provided which allow the local authority to retain control over key elements which interface directly with residents, such as sign off on fuel tariffs, price changes and the level of customer service that residents deserve.

Ultimately though, it is important that local authorities make the right decisions for their individual organisations. Some local authorities will have the resource to fully fund their own ESCo whereas others will desire external resource and/or funding. Either way, we want to support this process as much as possible all with the common goal of getting more and more heat networks off (in!) the ground.

If you’re developing a heat network project and are interested in chatting about the pros and cons of a Joint Venture Model for your project, feel free to get in touch with me for a healthy discussion.  My team are also offering free financial and commercial appraisals of projects that can help you with a high-level view of how such a partnership with us might work.

jennifer.belk@sse.com

 

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