Heat Networks Investment Project (HNIP): Accounting officer assessment (June 2018)
Source: data.gov.uk (2022-07-20)

BEIS Government Major Projects Portfolio data. Department for Business, Energy and Industrial Strategy (BEIS) Government Major Projects Portfolio data that supports the Infrastructure and Projects Authority (IPA) annual report.

The Rt Hon Claire Perry MP 
Minister of State for Energy and Clean Growth 
Department for Business, Energy and Industrial Strategy 
1 Victoria Street 
London 
SWlH 0ET 
Meg Hillier MP 
Chair, Committee of Public Accounts 
House of Commons 
London 
SWIA 0AA 
Alex Chisholm 
Permanent Under-Secretary of State 
1 Victoria Street  
London  
SW1H 0ET 
T:  xx-xxxx-xxxx 
E: xxx@xxx.xx  
Our ref: AC/MB0819
22 June 2018 
Accounting Officer Memorandum: Heat Networks Investment Project (HNIP) Main 
Scheme Outline Business Case 
The Heat Networks Investment Project is a Government Major Project which will invest 
£320m of capital funding in heat network projects through grants and loans. This is provided 
as 'gap funding' to grow the UK heat networks market, overcome the barriers to market 
growth and deliver the cost-effective carbon savings required to meet our future carbon 
reduction commitments. 
Government's investment will kick start the heat networks market, driving down costs, 
improving skills and capability, and demonstrating to investors that heat networks are a 
viable proposition in the UK context. The overall aim is for the market to be self-sustaining 
without further direct Government subsidy post-2021, and to increase the long-term growth 
rate of the market. 
It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans 
to start or vary major projects, and then assess whether they adhere to the standards set 
out in Managing Public Money. From April 2017, the government has committed to make a 
summary of the key points from these assessments available to Parliament when an 
Accounting Officer has agreed an assessment of projects within the Government's Major 
Projects Portfolio. 

Background and context 
Department for which the accounting officer who made the assessment is 
responsible: Department for Business, Energy and Industrial Strategy 
Project title: Heat Networks Investment Project (HNIP) Main Scheme 
Main scheme project stage: Outline Business Case - approved April 2018 
Objectives: The project aims to help create a self-sustaining heat network market1 that 
does not require direct Government subsidy by: 
• Increasing the volume of strategic, optimised and low carbon heat networks built, by 
providing central Government funding which will draw in significant additional 
investment. 
• Improving the quality of heat networks that meet local needs and consumer needs. 
• Building capability of project sponsors and the supply chain to develop systems of 
the right type and quality. 
Mechanics: Through a delivery partner, HNIP will deploy capital grants and loans to public, 
private, and third sector heat network developers to support the construction of heat 
networks2 in England and Wates. HNIP's capital budget will be allocated through 
competitive funding rounds which will compare applications in terms of their anticipated 
contribution towards HNIP benefits. HNIP's scope also includes ongoing grant funding and 
guidance to priority local authorities to develop a pipeline of strategic heat networks 
provided by BEIS's Heat Networks Delivery Unit (HNDU)3, and a number of enabling  
actions developing the UK heat networks supply chain and improving investor confidence. 
These activities will maximise the benefits from the capital funding and contribute towards a 
self-sustaining heat network market. 
How heat networks fit into the wider UK decarbonisation strategy: The UK has legally-
binding targets to reduce greenhouse gas emissions by at least 80% by 2050 from 1990 
levels, and by 57o/o over the 2028-2032 period (the 5th carbon budget). The Clean Growth 
Strategy makes it clear that heat networks will play a vital role in the long-term 
decarbonisation of heating in all of the illustrative 2050 scenarios. lt demonstrates a strong 
commitment to significantly expanding the sector. The Committee on Climate Change 
estimate that some 18% of buildings heat will need to be supplied by heat networks by 2050 
if we are to meet our carbon budgets cost effectively. 
At present, heat networks deliver just 1% of heat in the UK, and this market is growing at 
around 2% per year. The policy and program objectives are to significantly increase this 
growth rate and consequently the carbon savings anticipated by the Clean Growth Strategy 
and Carbon Budgets 4 and 5. 
                                                     
1 A market where a sufficient volume of strategic, optimised and low carbon heat networks are economically attractive 
without direct Government subsidy and are operated without significant consumer detriment 
2 A heat network is a system of insulated pipes that takes heat from a central source or sources and supplies it to 
residential, commercial and public sector buildings to provide hot water, space heating and/or cooling. 
3 The HNDU is staffed by experts who have gained experience developing heat networks outside the civil service working 
on technical or commercial aspects of heat networks for consultancies or local authorities. 

 
 
By investing in heat networks, the government is shaping this new market in line with our 
ambitious, modern Industrial Strategy. Heat networks represent a significant opportunity to 
upgrade part of the UK's energy infrastructure and seize the opportunity for business that 
new technology presents. They support local growth and reegeneration, and generate new 
revenue streams for UK industry and local authorities. As heat is generated and consumed 
locally, the benefits of more affordable heat delivered through networks are felt by the 
communities they serve. Investing in heat networks is a good example of how the 
government's Industrial Strategy is creating an economy that boosts productivity and 
earning power throughout the UK. 
Rationale for Government Intervention and why HNIP: HNIP will address a significant 
number of market failures and barriers to the creation of a self-sustaining heat network 
market. By using HMG's funding (including the pilot) to draw in around £1bn private and 
other investment, HNIP will significantly increase the annual market growth rate and have a 
lasting impact on the post-HNIP market by increasing the volume of heat network 
construction, improving the quality of design and operation for better customer outcomes, 
reducing costs, increasing the capability and capacity of sponsors, and increasing investor 
confidence. 
Assessment against the accounting officer standards 
Regularity 
HNIP is assessed as regular. lt relies on existing primary legislation, is within BEIS agreed 
spending budgets4, and will comply with UK and European law. Whilst Government is 
familiar with provision of grants and loans, one element of the project loan offering (the 
connection delay repayment grace feature) is classed as novel. Design of this feature will 
reduce the risk of default by providing a repayment grace period up to a maximum of three 
years to projects whose expected customers have delayed in connecting to the network. 
Applicants will have to provide evidence to support the need for this feature and this will be 
monitored on an ongoing basis by the appointed Delivery Partner. The provision of this 
feature has been agreed with Her Majesty's Treasury and will support HNIP's contribution to 
creation of a self-sustaining heat network market by addressing demand risk, a key risk for 
heat networks. 
Propriety 
HNIP is assessed as proper. lt is compliant with parliamentary control procedures and 
expectations. Careful consideration has been given to interaction with other parts of the 
public sector. HNIP does not frustrate other initiatives. 
Value for Money 
The cost benefit analysis conducted for the Outline Business Case shows HNIP represents 
good value for money for the Exchequer and UK society as a whole against other 
alternative courses of action. lt is recognised that given the nascent nature of the UK heat 
network market there are uncertainties around some of the figures in the quantitative 
assessment but, even taking these into account, the analysis indicates the project is a 
sound use of public funds. 
                                                     
4 NB funding profile spans two Spending Review periods, and the Government has announced that there will be a review 
of spending in 2019. 

Feasibility 
The design of the HNIP main scheme has benefited from the earlier pilot scheme. HNIP's 
delivery confidence assessment from the last Gateway Review in October 2017 was 
Amber/Red. All of the recommendations from this review have now been addressed. The 
HNIP pilot has provided important lessons that have been incorporated into the main 
scheme design - for instance with regard to the application process, loan and grant design 
(provision of novel project loan delay mechanism), funding agreements and arrangements 
to ensure project quality. 
Conclusion 
I have considered this assessment of HNIP against the four accounting officer standards of 
regularity, propriety, value for money and feasibility. I am satisfied that HNIP relies on clear 
legal powers, meets the standards in Managing Public Money and accords with the 
generally understood principles of public life, represents good value for money for the 
Exchequer as a whole and is feasible to deliver. Whilst one element of the loan offer is 
novel, the risks associated with this feature have been minimised. I am therefore satisfied 
that HNIP is a good use of public resources. 
As the Accounting Officer for the Department for Business, Energy and Industrial Strategy, I 
considered this assessment of the Heat Networks Investment Project (HNIP) Main Scheme 
and approved it on 22 June 2018. 
I have prepared this summary to set out the key points which informed my decision. I will 
prepare a further summary to accompany the Full Business Case approval.  
If any of these factors change materially during the lifetime of this project, you should expect 
to receive a revised summary and assessment. 
This summary will be published on the government's website (GOV.UK). Copies will be 
deposited in the Library of the House of Commons and House of Lords and sent to the 
Comptroller and Auditor General and Treasury Officer of Accounts. 
 
Alex Chisholm 
22 June 2018