AVONMOUTH & SEVERNSIDE ENTERPRISE FORUM

THERMAL ENERGY GRIDFEASIBILITY STUDY FINDINGS OVERVIEW

MON 3RD MARCH 2014

1. Outcomes of study

Heat Input• 5 Projects/sources• Max Est.

1,100,000Mkwh pa

Heat Users• 205 Locations• Process & Space heating

Theoretical TE Uptake• Max Est.

718,000Mkwh pa

Network• Mapped against road

access & overland pipe runs

1. Outcomes

Z1

Z2

Z3

Z4

1. Outcomes

27

6781

30

Type of Operation

Processing/ manufactur-ingDistribution/ warehous-ingCommerical /Officesunknown

362,229

45,654

159,736

150,651

TE Zones Heat Demand Potential

Zone 1Zone 2Zone 3Zone 4

Zone 1 Zone 2 Zone 3 Zone 40

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Heat Demand DECC calcsLCSW Study data

2. Headline Numbers• Pipe run lengths

• Z1 ~ 14.9km• Z2 ~ 6.3km• Z3 ~ 15.8km• Z4 ~ 4.3km

• Project cost est (£3k/m – £2k/m)• Z1 ~ £44.9M - £32.7M• Z2 ~ £18.9M - £12.6M • Z3 ~ £47.4M - £31.6M• Z4 ~ £12.9M - £8.6M

• Total + connection• £129.3M - £87.9M

• Revenue Potential(£0.018 – £0.028/kwh – based on DECC heat pricing gas lined)

• £12.9M - £20.1M pa

• ROI Potential• 10 to 4.4 years

HOWEVER……

3. Reviewing The Details• Revenue Potential : £12.9M - £20.1M pa• ROI Potential : 10 to 4.4 years

What this assumes Other UK TEG/DHNs The AS TEG

Heat uptake 100% heat uptake 100% heat uptake 100% v unlikely!

Incentive structures

Structures to drive long term contracts and user sign up (LA

operations, planning etc)

No LA operationsEstablished planning consents

Contract term None 25+ yrs 3yr max

Heat pricing Gas linked heat pricing

LESS than gas link pricing for large users

Pricing formula Heat supply only Real cost of heat delivery (O&M, space saving, cost

avoidance – personnel etc)

Cost avoidance formula very different.

Heat supply only LESS cost of existing assets + is variable (central

procurement etc)

Additional DHN revenue support

No energy centre Energy centre (RHI, electricity revenue etc)

No energy centre

Engagement Site decisions not just a matter for the specific location.

“we are already doing a lot – Why should we do this?”

The REALITY IS:-

3. Playing with the parameters• Effect on ROI when varying

• Capital cost (via discounting)• Heat uptake

Maximum capex and minimum heat price

z1 z2 z3 z4 total + con

100% 6.88837564590762

22.9991953037236

16.4907988177157

4.79031936488446

10.0042220274628

50% 13.7767512918152

45.9983906074473

32.9815976354314

9.58063872976893

20.0084440549255

20% 34.4418782295381

114.995976518618

82.4539940885784

23.9515968244223

50.0211101373138

10.0

30.0

50.0

70.0

90.0

110.0

130.0

ROI (years) 0% Discounted Capital Cost

100%50%20%

% of total heat uptake

years

3. Playing with the parameters

z1 z2 z3 z4 total + con

100%

6.88837564590762

22.9991953037236

16.4907988177157

4.79031936488446

10.0042220274628

50%

13.7767512918152

45.9983906074473

32.9815976354314

9.58063872976893

20.0084440549255

20%

34.4418782295381

114.995976518618

82.4539940885784

23.9515968244223

50.0211101373138

10.050.090.0

130.0

ROI (years) 0% Discounted Capital Cost

100%50%20%

z1 z2 z3 z4 total + con

100%

3.44418782295381

11.4995976518618

8.24539940885784

2.39515968244223

5.00211101373138

50%

6.88837564590762

22.9991953037236

16.4907988177157

4.79031936488446

10.0042220274628

20%

17.220939114769

57.4979882593091

41.2269970442892

11.9757984122112

25.0105550686569

5.025.045.065.0

ROI (years) 50% Discounted Capital Cost

100%50%20%

z1 z2 z3 z4 total + con

100%

1.37767512918152

4.59983906074473

3.29815976354314

0.958063872976892

2.00084440549255

50%

2.75535025836305

9.19967812148946

6.59631952708627

1.91612774595378

4.00168881098511

20%

6.88837564590762

22.9991953037236

16.4907988177157

4.79031936488446

10.0042220274628

2.57.5

12.517.522.5

ROI (years) 80% Discounted Capital Cost

100%50%20%

0% 50% 80%

100% 10.0042220274628 5.00211101373138 2.00084440549255

50% 20.0084440549255 10.0042220274628 4.00168881098511

20% 50.0211101373138 25.0105550686569 10.0042220274628

100% uptake at min cap

4.37246670362687 2.18623335181343 0.874493340725373

50% uptake at min cap 8.74493340725373 4.37246670362687 1.74898668145075

20% uptake at min cap 21.8623335181343 10.9311667590672 4.37246670362687

5.0

15.0

25.0

35.0

45.0

55.0

ROI (years) Variation with Max/MinCapital Estimates ,0%, 50%, 80% Capital Discountingand 100%, 50%, 20% Heat uptake

100%50%20%100% uptake at min cap50% uptake at min cap20% uptake at min cap

3. Playing with the parameters

Only realistic scenario.Use this to inform the model

4. Recommendations

1. Standard DHN/TEG business model does not apply.

2. Establish a workable business model rather than trying to make the model work.

3. Fundamentals and risks of this model will be dictated by:-

a) The private/corporate heat users.

b) The cost of the infrastructure.

4. To achieve an acceptable ROI will take financial input from Public and Private sectors.• Use a mixture of existing instruments eg:-

• Part PFI type for main infrastructure• Standard debt for small supply grids within a

neighbourhood/industrial complex

5. Must drive down the capital repayment burden, to

6. Enable short term contracting of TE to work.