UK: Waste Not Want Not - The Industrial Heat Recovery Support Programme

Last Updated: 26 September 2018
Article by Kenneth Addly

Background

The Government launched the Industrial Heat Recovery Support Programme (IHRSP) on 5th July 2018.

Recovering heat from industrial processes, that would otherwise be wasted, can:

  • Reduce costs for business;
  • Contribute to reducing carbon emissions; and
  • Drive economic growth.

Waste heat can be re-used in an industrial facility for heating/cooling; exported via heat networks to other end-users or converted into power.

Government has identified three barriers to deployment to heat recovery projects:

  • Insufficient knowledge;
  • Technical difficulties of fitting heat recovery technology;
  • Availability of capital and amortisation - investors look to a return of the invested capital, through savings, within a three year window, but waste heat projects tend to have longer amortisation profiles.

IHRSP – Programme and Process

IHRSP is designed to tackle these constraints and will run from 2018 to 2021.

BEIS considers that a relatively low level of financial support through IHRSP could make a significant dent in the constraints and has the potential to reduce total industrial energy bills by over £500 million over IHRSP's lifetime.

IHRSP will comprise two phases of funding:

  • Phase 1 – funding for feasibility studies, sourcing opportunities on sites and cost/benefit assessments. The total pot available will be £6 million;
  • Phase 2 – capital support to help project delivery. The total pot will be £12 million.

The first Phase 1 applications will be made in in autumn 2018.

IHRSP only applies to England and Wales.

Originally IHRSP was only to be open to industrial manufacturing sectors as set out in ONS Standard Industrial Classification Codes 10-33. Respondents to the Government consultation suggested a widening of the scope. Government is now minded to extend IHRSP to Data Centres which could help unlock a potentially valuable income stream for operators in this growing sector.

IHRSP will only be available for fully commercialised technologies, but otherwise is technology neutral.

The programme will not distinguish between renewable/non-renewable origins of the generated heat. Recovery of any waste heat is of value.

Under the Energy Efficiency Directive Industrial operators of combustion plants with a total thermal input exceeding 20MW and which are substantially refurbished must explore opportunities to recover waste heat for use in district heating schemes. IHRSP will extend to funding of those refurbishments.

Funding will be awarded on a competitive basis against "a set of established criteria"1, for example the potential heat recovered or carbon dioxide reduced.

To comply with State Aid rules support will be on a matched funding basis. The maximum level of match funding for feasibility studies will be 50% rising to 60/70% for SMEs. The maximum level of capital funding will be 30% rising to 40/50% for SMEs.

Projects that could have gone ahead without IHRSP support will not receive funding.

IHRSP will have rolling application windows for both Phases. A Phase 2 grant will not be provided to an applicant at the same time as a Phase 1 grant is awarded.

Draft detailed Guidance has been issued by BEIS.

Interaction with other support mechanisms

To the extent deployment of heat recovery technologies:

  • reduces EU ETS allowances and CCL through CCAs;
  • accesses support designed to incentivise deployment of CHP – e.g. ECAs, RHI and CfDs.

this will not prevent access to IHRSP support, but the aggregate value of support provided to an applicant across the various regimes will aggregate to the cap of Government support permitted by State Aid rules.

The value derived from other support mechanisms will also be considered in assessing the extent to which the project would have proceeded without IHRSP support.

There is explicit recognition of how IHRSP may interact with the £320 million Heat Networks Investment Project (HNIP) with the possibility of the IHRSP being used to fund enabling works and on site use/distribution and HNIP being used to fund construction or expansion of heat networks outside of a site boundary.

Impact

Although some respondents to the consultation suggested allocating funding away from Phase 1 to Phase 2 it may be that best value is extracted from Phase 1 as it will allow potential developers to rigorously assess:

  • heat sink issues/location for potential export;
  • temperature levels;
  • core business operational disturbance;
  • safety issues; and
  • process/technology reliability.

Conversely it is more difficult to see how the capital funding. (which is modest), will:

  • unlock the payback problem;
  • alter competition for capital within the business; or
  • solve the problem of focusing administrative effort on capex approval for non-core business.

Business may be more receptive where industrial waste heat recovery is funded and provided by third energy efficiency providers under a shared or guaranteed savings regime (perhaps as part of a wider energy efficiency offering).

Those organisations typically carry out a process that is naturally aligned to the IHRSP Phase 1 and Phase 2 stages. However it appears that IHRSP funding would not be available in this way to external commercial energy efficiency organisations. Although not expressly stated the applicant is assumed to be the entity carrying out the heat generating process. This is potentially a missed opportunity when the only relevant outcome is reducing energy use and Co2 emissions.

Footnote

[1] Industrial Heat Recovery Support Programme, BEIS October 2017 paragraph 53.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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