How much does district heating cost and where can I get funding?

Here is information about the cost, payback periods and available funding.

Payback periods and savings

District heating networks are long-term projects with long-term paybacks. They are unlikely to be suited to short-term investors.

The biggest cost of district heating is the investment required to establish the pipe network. The payback period for this can often exceed the lifetime of the boiler or combined heat and power (CHP) engine. However, this does not mean that such schemes are not viable. Once established, the pipe network will remain a working asset for many decades. Boilers and CHP engines can be replaced.

The following examples demonstrate the payback times for different district heating schemes.

Example 1: Paddock House Farm, Sicklinghall, Wetherby

A 150kW wood fuelled heating system was installed to heat several new-build offices buildings and onsite houses. The installation heats a total area of 1,250m 2 .

  • the cost of the boiler was around £20,000
  • the cost of the infrastructure (pipework, heat meters and so on) totalled £8,000
  • the payback on capital costs is expected within five years.

For more information on this case study, please see this guide:

Woodfuel heating in the north of England: A practical guide, National Non-food Crops Centre (2005)

Using an Energy Service Company (ESCo)

Another way of financing a district heating scheme can be through the development of an Energy Service Company (ESCo). The next four examples demonstrate how using an ESCo reduces the payback period.

Example 2: commercial development

A development comprised of a supermarket, hotel, leisure centre (with swimming pool) and eight smaller retail units (total of 76,200m2). The ESCo was owned wholly by the CHP asset owner. Energy supply contracts were available for the supermarket, hotel and leisure centre.

  • initial investment was £2,000,000
  • the investment was recouped by the revenue generated by supplying the onsite buildings.

Example 3: mixed use development

This development comprised 500 houses together with a school, leisure centre (with swimming pool) and community hall. The ESCo was owned by the developer (90 per cent) and the CHP owner (10 per cent). Energy supply contracts were available for the school, leisure centre and community hall. Additional water and media (TV, phone and broadband) services were offered.

  • initial investment for infrastructure was £1,330,000
  • the payback period was seven years.

Example 4: larger residential development.

This development was largely residential, comprising of 1,950 flats and commercial space (91,440m2). The ESCo was owned by the developer (90 per cent) and the CHP owner (10 per cent). Additional water and media (TV, phone and broadband) services were offered.

  • initial infrastructure costs were £5,100,000
  • the payback period is two years
  • the ESCo makes an annual profit of £450,000.

For more information on these examples please see the:

Developer's guide to maximising profit from CHP, asset utilities (accessed 2010) (PDF, 11 pages, 977KB)

Two additional examples have been calculated for developments at the very limit of the recommended dwelling density. These were calculated using the Simple Payback approach as recommended by DECC. They are not based on built examples and should provide readers with indicative payback periods.

Payback periods for district heating schemes

Funding schemes

Grants, loans and financial incentives for district heating are shown in this PDF:

Grants, loans and financial incentives for sustainable energy projects (PDF, 3 pages, 177KB)

In addition, the following schemes are available for district heating:

Scheme Notes Eligibility
Carbon Trust Energy Efficiency Loans Scheme Interest free loans for £3,000 - £100,000 are available from the Carbon Trust to help organisations finance and invest in energy saving projects.

Zero per cent business loans - on the Carbon Trust website

E.ON Sustainable Energy Fund A grant from E.ON for community groups and not for profit organisations planning to install sustainable energy projects.

Access to funding - on the E.ON website

Charities and or not for profit (local community groups)
Enhanced Capital Allowance (ECA) ECAs enable a business to claim 100 per cent first-year capital allowances on their spending on qualifying plant and machinery.

ECA scheme




1 May 2012

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