As the UK continues its transition to low-carbon living, developers are increasingly turning to Combined Heat and Power (CHP) systems as a foundational element in sustainable residential design. By generating heat and electricity simultaneously, CHP systems offer a compelling blend of energy efficiency, cost savings, and carbon reduction. However, the path to successful implementation is paved with critical decisions. From feasibility to long-term operation, developers must navigate a complex landscape to ensure their CHP projects deliver on both performance and promise. In this article we consider six key concerns pertinent to a developer considering this avenue.
1. Structuring the CHP delivery model
An important early decision is how the CHP system will be structured and delivered. Developers may contract directly with an Energy Services Company (ESCO) to design, install, finance, own, operate, and maintain the CHP plant on the development site, supplying residents with metered electricity and heat. Alternatively, they may use contractors to design, install and commission the energy system and grant an exclusive concession to an ESCO to adopt, operate and maintain the energy system. The ESCO may provide both electricity and heat to residents or alternatively only provide heat, selling the electricity generated into the local electrical distribution network. Each model has implications for risk, financing, control, and long-term viability, so developers must align the structure with their strategic goals.
2. CHP scheme feasibility
As part of a general feasibility assessment, developers need to assess the capital costs of the design, installation and commissioning of the energy system and how such costs will be covered. Financing options can be divided into two key groups: those that appear on the developer’s balance sheet and those that do not. The most appropriate method of financing will depend on the developer’s financial state and the degree of risk and benefit associated with the project. Some developers prefer to retain full ownership and control of the assets, meeting the capital costs through internal funding, debt finance or leasing. Others prefer the assets to be held by a third party, such as a long-term operating partner like the ESCO.
3. Finding the right ESCO
Choosing the right ESCO is vital to the success of any CHP project. Developers should first consider the ESCO’s financial standing. This is particularly important where the developer is, or is working on behalf of, a landlord who has a legal obligation to provide adequate heating and hot water (a housing association for example). The developer needs to be confident that the ESCO has sufficient covenant strength to meet their obligations to supply energy and maintain the energy system. Beyond financials, developers should evaluate the ESCO’s experience, quality assurance, health and safety records, and capacity to carry out the required work.
4. Property and construction considerations
Where the ESCO is designing and installing the energy system, developers should avoid imposing terms that are unduly onerous on the ESCO. This could have a detrimental effect on the developer by making it difficult for the ESCO to sub-contract elements of the build (as sub-contractors will be unwilling to accept similarly onerous obligations).
To effectively operate the energy system, the ESCO will require leases of the energy centre and heat substations. As the heat industry is currently unregulated, heat providers cannot rely on statutory powers to install their assets in the same way they may do with a water or electricity network. Therefore, it is vital to ensure full easements are obtained over a development site so that the network operator can continue to maintain their assets following installation. This becomes particularly important when the land is sold to future owners as the easements will run with the land.
If pipe routes affect any third-party land, developers should engage with the third-party landowners as early as possible to ensure they are party to the lease or deed of grant, enabling the heat provider to obtain full registerable rights at the Land Registry. Developers must also check for existing statutory undertaker rights that could block installations, and secure necessary consents promptly to avoid delays.
5. Reasonableness of supply agreements
Developers should make sure that the terms on which residents or businesses purchase heating (and power) from the ESCO are fair and reasonable. As the sole provider of heat (and power) for the development, any unreasonable terms may negatively affect property sales or leasing. Ensuring competitive pricing and adequate service levels is crucial. The United Kingdom Heat Trust Scheme protects consumers by establishing common standards for district heat suppliers. The ESCO should be held to these standards by registering the site as a Heat Trust Registered Site and by requiring the ESCO to provide the energy services to residents in accordance with the Heat Trust Scheme Rules.
6. Appropriate exit plan
It is important that, upon termination of the agreement with the ESCO at the end of its term, provisions are in place for a smooth handover of the energy system’s operation to the developer or to a replacement supplier, preventing any interruption in energy supply. The new operator will want assurance that all machinery has been properly maintained. The inclusion of the requirement for a final inspection by an independent engineer in the developer’s contract with the ESCO can ensure the system is handed over in good condition.
The Birketts view
CHP systems offer developers an attractive opportunity to enhance energy efficiency and reduce carbon emissions. However, their success depends on careful planning, sound financial structuring, and strategic partnerships. By addressing the key considerations outlined in this article, developers are well placed to implement effective CHP systems and to contribute meaningfully to the UK’s sustainable energy future.
Key Contacts
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2025.