Residential Low Carbon Heating Solutions
Project Summary
Oxford City Council plans to create street-scale or large-scale community heat networks that would enable the decarbonisation of heat in up to 791 privately-owned residential properties located in the Oxford Canalside Corridor.
Outcomes
- 70% reduction in carbon dioxide emissions (relative to gas heating) - c.3,000 tonnes/year
- Creation of local jobs (initial installations and local service providers during the lifetime of the infrastructure)
- Reduction in total energy use
Other information
Organisation
Oxford City Council, with Verity Retrofit & Fractal Networks.
Total Cost
£6.4m.
Remaining
£6.4m (The Community Energy Fund provided a grant for phase 1 of the feasibility works and an application is being submitted for further funding).
ROI
~5.0% (unleveraged internal rate of return) over the investment term. As an infrastructure asset with a long lifespan, this is modelled as a long-term investment over 50 years. The cashflow position is highly dependent on the uptake rate, and the current model assumes an s-shape curve where 50% of the households are connected by year 10 (2036-2037) and 90% by year 15 (2041-2042). Under this scenario the project starts generating an operating profit (EBITDA) by year 6. The financial return is highly sensitive to the rate of adoption/connection by residents, which, in turn, is highly sensitive to central government policy decisions, as well as the ratio of electricity to gas prices.
Timings
The next phase of the feasibility works requires funding which is being applied for through the Community Energy Fund (CEF): the timeline is uncertain dependent on central government policy decisions. We are looking at other sources of funding to make sure we get the project ready for investment asap. Assuming that the full investor pack is ready by Jul/Aug 2025, households would be able to connect from late 2027 / early 2028.
Investment
Preference for blended finance, but consideration also given to direct investment, and potentially to co-investment/ pooled investment. Supplementing with tranches of debt finance could potentially improve the returns to equity investors.
Revenue Model
Households will pay an annual fee to connect to the infrastructure (e.g. a similar model to gas standing charges). The capital cost of the infrastructure is ~£7,000 per household – more detailed costings would be conducted based on the particular characteristics of the site. In the case of a low-temperature ground-source loop households would need to make their own investment in purchasing individual heat-pumps (which will then be connected to the infrastructure) plus internal adaptations as it would be the case if they were installing an air-source heat-pump instead. The investment made by individual households is not included in the package being presented.
Supporting Information
Expected to save 700 tonnes per annum to 2030. Individual domestic retrofits would require planning permissions and it is never 100% possible to verify supply chains may not involve forced labour.