Supporting Leeds’ visionary district heating network

We led a project to commercialise the second and third phases of the low carbon Leeds PIPES heat network, helping to secure grant funding needed to connect the network to public buildings and strategic development sites across the city centre.

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Leeds city

Client: Leeds City Council

Service: District heating and cooling advisory services

Outcomes:  

  • Provided specialist knowledge and advice to support two successful grant applications
  • Delivered financial modelling and commercial advice to support the development of the business case
  • Helped to leverage £12m of capital investment across the two project phases

What was the challenge?

Leeds PIPES (Providing Innovative Pro-Environment Solutions) is a flagship project to provide low carbon heat and hot water to 1,983 council homes and numerous businesses across Leeds using waste heat from a Veolia-operated recycling and energy recovery facility outside the city.

The +£42 million project is one of the UK’s largest heat networks and is pivotal to Leeds City Region’s plans to become net zero by 2038, with the potential to reduce carbon emissions by 11,000 tonnes annually. The project is wholly owned by Leeds City Council (LCC) and operated in partnership with its delivery partner, Vital Energi.

The first phase of the project began in 2016 and involved the installation of 16.5km of pipes. It planned two further phases in order to extend the network to connect with major public buildings in the city centre, including Leeds Museum and the Civic Hall (Phase 2) and a further extension across the River Aire - to connect with development sites in the South Bank area, such as the former Tetley Brewery (Phase 3).

However, despite PIPES’ major decarbonisation benefits, the risk profile and long-term nature of the investment meant it was unlikely to attract private finance on acceptable terms to fund the two planned extensions. So, Heat Network Investment Project (HNIP) support was vital if the project was to continue.

To qualify for this grant, the project had to compete with other projects in England and Wales, based on its potential to maximise financial and carbon savings, while delivering other benefits. It sought our support for the grant application given our extensive experience in this area and our role as part of the Leeds City Region Energy Accelerator – an innovative programme supporting public sector low carbon projects across the Leeds City Region delivered by an expert consortium including the Carbon Trust, Turner & Townsend and Sweco.

“To win the HNIP grant we needed to prepare sophisticated, investment-grade modelling of the societal case – all within eight weeks. To meet the deadline, we tapped into specialist advice from the Leeds City Region Energy Accelerator, a consortium supported by the Carbon Trust that is dedicated to supporting low carbon projects,” said George Munson, Senior Project Manager, Sustainable Energy and Air Quality, Leeds City Council.

“The Carbon Trust’s experience of helping projects to access HNIP funding and bringing heat networks to financial close was fundamental to securing the funding,” he added.

How did we help?

Working with LCC we coordinated a team to provide technical, commercial and legal services in order to commercialise Phase 2 and 3 of the PIPES project.

For Phase 2, we provided full financial modelling and led the development of the financial and commercial cases for the Outline Business Case. We also assisted with the subsequent Full Business Case approval by the Council’s Cabinet.

The project comprised a £5.6m extension delivered through council-owned ‘PipeCo’ – a Special Purpose Vehicle (SPV) – that was set up to deliver the project. The successful funding application secured £2.4 million of HNIP grant for Phase 2.

Phase 3, which has a total potential capex value of circa £20m, will be delivered using the same council-owned SPV incorporated for Phase 2. We provided financial and commercial services and coordinated a wider team of technical and legal consultants for commercialisation. Our work included engagement with developers to build support for connection and the development of a financial model, as well as helping with the development of the economic, commercial and financial cases of the Outline Business Case.

We also developed a funding plan for Phase 3 East, assessing funding sources such as HNIP grant, council on-lending of PWLB funds and equity. Plus, we checked the plan for compliance with State Aid rules.

The timelines for Phase 3 East were compressed to meet a HNIP submission deadline, requiring the financial model be developed in parallel with, rather than subsequent to, the techno-economic model. This highlighted the importance of good communication and a coordinated approach between Carbon Trust, Sweco, LCC project and finance teams and Vital Energi, to ensure data consistency across, and timely delivery of, both models.

A HNIP grant application for £2.4m was submitted for Phase 3 East in July 2020 and we are continuing to support LCC in the commercialisation of Phase 3 West.

What were the benefits?

Against tight deadlines, we supported two successful funding applications to deliver what was needed to bring Phase 2 and 3 East to financial close. Overall, we helped to leverage £12m of capital investment across the two project phases.

“The Carbon Trust provided essential support to us, to extremely challenging timescales. They coordinated a team of consultants plus legal and financial experts through the Leeds City Region Energy Accelerator and undertook detailed financial modelling in-house to produce Stage 2 financial models to HNIP’s exacting standards. They have been a pleasure to work with and provided high quality outputs,” added George Munson.

The Leeds PIPES network is expected to continue to expand in the coming years and LCC is also exploring the potential to incorporate additional heat sources, such as heat pumps.

Now that the Council has bridged the gap between planning and construction of the second and third project phases, over the long term there is also potential to attract low cost private finance once the initial network is built and ‘de-risked’.

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