Eneco discontinues development of heat network

Source: www.gulfoilandgas.com 4/5/2024, Location: Europe

Eneco decided this week to stop developing a collective heat network in the Overvecht-Noord neighbourhood in Utrecht. The company concluded that the affordability of the expansion of the heat network in this district cannot be sufficiently guaranteed for the residents.

Since 2021, Eneco has been investigating together with the municipality of Utrecht whether a heat network would be an affordable, reliable and sustainable option to take the neighborhood off a gas connection. The main reason for stopping the development of the heat grid is that 75% of the area consists of ground-level single-family homes. The homes are relatively far apart, requiring a lot of heat grid per home. The construction of this is costly, while the heat demand in this neighborhood is relatively low. Eneco believes that in this situation with low-rise homes, other heat technologies, such as a hybrid heat pump, are more affordable than a heat grid.

The decision to stop developing a heat network in Overvecht-Noord is in line with Eneco’s vision that in the Netherlands we should only build heat networks in those neighborhoods where they are significantly cheaper than the alternatives. Only then will it be attractive for tenants and homeowners to switch to a heat network, and a sufficient support base from residents can be gained for the project.

Why stop now?
Recently a number of changes have occurred that have led us to this difficult decision:
The municipality of Utrecht designated and reduced the final heat area in the Overvecht-Noord district in January 2024. As a result, many flats have dropped out and many low-rise houses remain. Eneco is convinced that in this situation an alternative package with insulation and (hybrid) heat pumps will provide residents with a lower monthly energy bill than a heat network. We therefore expect that the participation threshold of at least 70% required for an affordable heat grid would not have been met. To illustrate, in December 2023, the municipality of Pijnacker-Nootdorp and the public heat company HVC failed to achieve a 50% participation threshold in a similar situation.

In March 2024, in a letter to the city council, the college of the municipality of Utrecht announced that it did not want to explore a public-private partnership with us, but instead opted for a public municipal heat company. This choice by the municipality means that new investments by Eneco in a heat network will involve greater investment uncertainty in view of the possible introduction of the Collective Heat Supply Act (Wcw).

In addition to the reasons mentioned above, a factor is that for several weeks there has been much uncertainty about the regulation of heat tariffs in the Netherlands. An emergency bill is currently being debated in the Lower House, the impact of which is as yet unknown. Further elaboration by the ACM is now awaited. Eneco supports the rapid introduction of cost-based heat tariffs by January 1, 2025.

Costs and transparency
In addition, the municipality and Eneco together looked at ways to reduce the costs of the construction of the heat network, for example by obtaining subsidies and combining various activities, such as cooperation on sewer replacement and construction of the heat network. In practice, this did not lead to sufficient cost reductions. The municipality asked the consulting firm Innoforte to independently check the cost summary for this project for accuracy. By having the figures validated by this firm, Eneco has attempted to provide maximum transparency on the cost overview and thus submit a feasible and affordable bid. The main conclusion of this second opinion was that Eneco's calculated costs are realistic and that the actual investment and operational costs are probably even slightly higher than the company calculated itself.

Eneco remains convinced that a collective heat network does represent the cheapest solution for neighborhoods in the Netherlands with many high-rise buildings and attractive local heat sources, as also evidenced by analyses by the central government and the Netherlands Environmental Assessment Agency. Eneco therefore still sees heat via heat networks as an essential part of the sustainable energy mix of the future and hopes that new legislation can take the heat transition in the Netherlands a step further.

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