BE23183 - Heat Network Zoning Programme – Framework Agreement

Lot 1 - Heat Network Zoning Delivery Support The Lot 1 specification outlines the scope for consultancy services aimed at assisting DESNZ and Local Authorities (LA) implement the standardised heat network zoning methodology. The specific zoning methodology will be elaborated further in comprehensive guidance, which all LAs and Suppliers will be required to follow. Detailed methodology guidance is currently in development and subject to change. Nevertheless, this specification describes the Department’s current understanding of the methodology which also broadly reflects the approach developed in the HNZPP. Work Packages Summary This specification describes the indicative scope, activities and outputs across the three work packages (WP) under Lot 1. These WPs include: - WP1 – Local data collection and stakeholder engagement - WP2 – Refinement of HNZs - WP3 – Zoning market prospectus development and HNZ designation support The WPs are to be implemented sequentially and in doing so, the Client, LA and Supplier continually develop, clarify and inform the potential opportunity for zonal-scale heat network development (supported by the HNZ policy) in a location. Standardised templates and guidance shall be provided to Suppliers by the Client for all deliverables required during the delivery of project work under this framework. Any assumptions which are required shall be logged by Suppliers within the deliverables listed in the WPs below or as otherwise directed by the Client. The envisaged number of Suppliers that meet the minimum qualification threshold that can be appointed to Lot 1 is 15. The call off procedure for Lot 1 is as follows: The call off procedure for Lot 1 will be in order of consultant scoring at procurement stage. The highest scoring, successful consultant will be allocated one of the locations by DESNZ such as a town/city or London Borough then the second highest scoring consultant will be given the next allocated city by DESNZ. This will continue down the list of consultants and revolve back to the start of the consultants list until the cities are fully allocated. A consultant can decline to take on additional cities after Allocation Round 1 if they are not able to resource further cities.

Suppliers appointed to this sub-Lot will be expected to provide the following indicative services across WPs 1, 2, 3 and 4: - Lead and manage a Service Delivery Team assembled from Suppliers appointed for other sub-Lots in the delivery of technical studies - Lead engagement with the Client and LA on the delivery of the services - Establish and implement the agreed project governance arrangements and processes - Establish a baseline of scope, schedule, resourcing, fees and deliverables that is managed throughout the delivery of the services. - Establish and implement a change control process to manage change against the agreed baseline - Establish and maintain key project controls measures and reporting, aligned with DESNZ templates or requirements - Develop stakeholder mapping and plan to support engagement with stakeholders. Ensure engagement materials and messaging is aligned with DESNZ-approved materials. - Prepare and contribute to any wider programme collaboration efforts, sharing lessons learnt and insights on best practice - Develop and implement a quality assurance plan, ensuring all team members are aware of the requirements. Ensure team awareness and adherence to DESNZ data quality and management requirements - Manage access control to DESNZ’s Microsoft Sharepoint and Teams infrastructure - Ensure service delivery across the team is coordinated, efficient and consistent, meeting the agreed milestones

Suppliers appointed to this sub-Lot will be expected to provide the following services: Work Package 1 - Review and update previous zoning and techno-economic feasibility work (where applicable). - Undertake a data gap analysis to identify additional sources of information required to successfully deliver the project. - Advise on project technical risks and opportunities. Work Package 2 - Assessment of heat off-takers including the identification of heat demands required to connect within the area based on heat network zoning policy guidelines. - Produce a high-level TEM (or populate a DESNZ-supplied TEM) to inform cost and commercialisation discussions. - Investigation of potential new heat sources where these are prudent and necessary to support the project; and assessment of all heat sources where previous work is out of date. - Produce a phased delivery plan working with the project manager to inform a program of activities for the successful technical delivery of the project. Work Package 3 - Evaluation of technical evidence gaps in the business case development process. - Support on the specification, evaluation and quality assurance of any technical or design work required to inform the business case. - Support on soft market testing and evaluation of suitable framework or procurement routes. In addition to the essential skills and services outlined above for work packages 1-3, the following skills and services may be sought under Work Package 4: - Engineering and technical advisory services – specialist engineering expertise to support, manage, and de-risk works by the contractor on the Client or LA’s behalf.

Suppliers appointed to this sub-Lot will be expected to provide the following services: Work Package 1 - Review existing commercial studies in the study area, including where relevant any existing contractual arrangements which may limit or support the delivery of a zonal scale network opportunity. - Support the scoping of commercial actions/activities that will be required under work packages 2 & 3. Work Package 2 - Support commercial discussions in the stakeholder engagement process - Review any additional commercial constraints/opportunities identified as part of the data collection under work package 2 - Support any LA directed market engagement on the zonal scale heat network opportunity - To inform the delivery plan, review any Client-supplied standardised routes / delivery models for award of HNZs to developers to assess and shortlist options based on suitability for a given study area. - For the chosen delivery model, work with the LA and relevant stakeholder to customise related client-provided materials (contracts / frameworks / licence formats, etc.). - Consider the procurement strategy for a given study area with LA and the possible bidders, assisting with early market engagement activities. Work Package 3 - Develop the preferred delivery vehicle including assessing set-up costs, exit strategies and capital (re)structuring - Determine a suitable heat pricing strategy (using HNDU’s Whole Life Cost of Heat Tool where applicable) for each key anchor load and other key customer groups, differentiating between service charges (fixed and variable) and connection charges and outlining the charging regime, allocation of risk and contractual arrangements in the design, build and operation phases; - Identify the contracts and frameworks that need to be established or secured and regulations that need to be adhered to. This could include, for example: - National regulations (Energy Act 2023 and related secondary instruments), National Planning regulations and guidance - Local Planning guidance incl., byelaws - Existing contractual arrangements relating to the supply of heat, power or cooling to end-users - Provide procurement support for the Client, e.g. development of procurement specification and scoring approach, bid review process and assessment workshops, bid scoring moderation, etc. and communications back to successful and unsuccessful bidders. Work Package 4 - Advice on commercial delivery and implementation of the chosen commercial model including: - Funding and finance - Commercial strategy realisation - Procurement strategy realisation - Support for ongoing negotiation on pricing strategy incl. heat pricing, tariffs, standing and availability charges - Contract management - Technical and commercial construction contract management

Suppliers appointed to this sub-Lot will be expected to provide the following services: Work Package 1 - Review existing financial arrangements relating to project development/delivery of existing heat network projects that the zonal scale opportunity may build upon - Review any proposed financial structures for the zonal scale heat network opportunity Work Package 2 - Support any LA directed engagement with the finance market on the proposed heat network opportunity - Provide a high-level summary of finance options available to support the delivery of the zonal scale heat network opportunity Work Package 3 - Identify and review preferred finance routes for project delivery - Support ongoing engagement with project financers/funders - Support the procurement of further financial advice/support to develop a full financial model capable of informing the financial appraisal within the Financial Case and demonstrating that the preferred option will result in a fundable and affordable deal encompassing initial and future scheme phases; - Prepare a full financial model to inform the financial appraisal in the Financial Case reflecting different finance sources such as corporate financing (including on-lending) and project finance (equity, debt and lease finance). This shall be in the form of the Heat network template financial model found at Heat Network template financial model - GOV.UK (www.gov.uk) https://www.gov.uk/government/publications/heat-network-template-financial-model - Outline the capital, revenue and contingent budgetary requirements for the spending proposal over the whole life of the project together with an assessment of impacts upon the balance sheet and LA net debt. - Undertake sensitivity analysis to inform the Commercial Case exploring financial implications of key terms within proposed contracts (e.g. commodity price exposure), legal structures (e.g. single SPV versus GenCo/DisCo); - Provide investor return analysis (e.g. blended across shareholder loans and share capital including wider project related cash flows and business rates if applicable); - Soft market test potential sources of finance, including with internal Local Authority finance function to assess borrowing limits and appetite to invest. Work Package 4 - Ongoing engagement as required with project financers/funders - Review/Update project finance model to reflect any changes in project delivery, timescales or commercial arrangements.

Suppliers appointed to this sub-Lot will be expected to provide the following services: Work Package 1 - Review any existing legal advice pertaining to the project, ensuring that it is up to date and accurate, working with the project manager to ensure that any baseline legal risks are captured in a project risk register. Work Package 2 - Support as required, any discussions with project stakeholders on the legal or contractual aspects of participating in the heat network - Ensure that the definition of buildings required to connect and legal aspects of heat network zoning policy is accurately applied in the project development process - Populate any legal risks associated with project delivery within the project risk register - Assess regulatory environment and obligations underpinning the project (e.g. billing and metering, electricity licencing, Heat Trust etc.); Work Package 3 - Evaluate any significant gaps in the legal aspects of business case development process. - Review any existing contractual arrangements and assess the extent to which the preferred commercial option/delivery model is compatible with those arrangements. - Support with engagement on project funders and financers. - Drafting heads of terms with key heat off-takers and project delivery partners and funders. - Evaluation of preferred delivery vehicles on the basis of detailed evidence provided. - Assess any legal agreements required to deliver the preferred commercial option(s) and critical success factors e.g. heads of terms, SPV’s, JV’s, Development Agreement. - Where required, work with local authority legal teams to commence easement access and associated negotiations for the network route; - Ensure that the commercial options, delivery structure, contracting arrangements and procurement approach are compliant with relevant regulatory, policy and State Aid issues; - Assess the extent to which the preferred commercial option, route to market and procurement strategy would be compliant with regulations, policies and law; - Assess any legal agreements required to deliver the preferred commercial option(s) and critical success factors e.g. heads of terms, SPV’s, JV’s, Development Agreement - Where a private led delivery model or partnership is proposed, work with the LA to understand the legal procurement requirements and under which legal regime they fall under. Confirmation of any procurement exemptions and the legal impact of licensing / permitting. Work Package 4 - Legal advice on: - Scope of LA powers - Contract mechanisms and enforcement - Liabilities, covenants, insurance - Planning, easements, land ownership - Legislation, contracting, procurement law, regulation, and compliance

Sub-lot 3.1 seeks to appoint Suppliers to support the ongoing development of the NZM, which is a key element of the standardised HNZ methodology. Indicative activities Suppliers appointed to sub-lot 3.1 could undertake the following indicative activities: - Suppliers shall provide the Client with geospatial modelling services with the output being heat network zones. - Suppliers shall provide the Client with software development services for the purpose of maintaining and extending an existing codebase, including but not limited to a Clojure & PLpgSQL back end, Clojure, JavaScript, & CSS, front end, on infrastructure managed with nix, and shell scriptings. - Suppliers shall provide the Client with software development and geospatial services to maintain and extend a system capability for importing a variety of geospatial datasets, including data sourced from Ordnance Survey, the EPC database, and DESNZ. Suppliers shall also be responsible for refreshing the system with new revisions of these datasets, either regularly or on demand. - Suppliers shall follow good data management practices and ensure all datasets used and created are appropriately handled and published in line with license, sensitivity and confidentiality requirements. - Suppliers shall provide the Client software development and geospatial services to maintain and extend a system capability for modelling building heat demand at a national scale, and modelling potential locations for heat network development, along with supporting data and metadata to support the designation of heat network zones. The modelling considers heat demand, heat sources, network routes, techno-economic assumptions and employs heat network routing automation to identify where heat networks are likely to provide the lowest cost low carbon solution for heating buildings. - Suppliers shall provide the Client with software development and geospatial services to maintain and extend capabilities to provide users within DESNZ ability to inspect modelling outputs, export data to various data consumers, and provide configuration, monitoring and access controls to data and system capabilities. NZM visualisation and outputs must be accessible to a non-technical audience, and clear documentation and training on the use of the data and metadata will be required. - Suppliers shall host the system in an environment which is accessible to only the Client. The environment should be sufficiently scalable to allow the modelling process to be periodically carried out at a national scale, with processing taking no more than 8 weeks. The hosting environment should be elastic and cost effective. - The Client may request that the system is redeployed within DESNZ’s CBAS cloud hosting environment, in Microsoft Azure. - Suppliers shall ensure that the system is available for users to access during normal work hours and apply reasonable endeavours to restore the system in the event of an outage. - Suppliers will work in collaboration with the Client, their Client Support Team, data suppliers and agile ways of working will be used in the delivery of scope. - Suppliers shall maintain a clear and visible backlog and plan of activities, and shall work in collaboration with the Client and their Client Support Team to research, refine and detail scope where required. - Suppliers shall deliver services in line with Government’s heat decarbonisation and heat network strategy and targets and governments published consultation on heat network zoning. - Suppliers shall provide the necessary documentation, including technical guidance, code comments, disaster recovery plans to communicate model function and operational procedures - Suppliers shall provide the necessary operational support to deliver the model in line with required timeframes and quality - Suppliers will provide a documented and comprehensive quality assurance process

Sub-lot 3.2 seeks to appoint Suppliers to provide NZM delivery management services and an associated data analytics and management capability. Indicative activities Suppliers appointed to sub-lot 3.2 could undertake the following indicative activities: NZM delivery management: - Suppliers will manage the delivery and operationalisation of the NZM, working closely with the NZM development team (sub-lot 3.1). Suppliers will use a project management approach that is consistent with Agile or other recognised project management methodology and be clearly detailed and presented with roles, responsibilities and hours allocated at the commencement of project. - Suppliers will be responsible for the day-to-day contact with the Client and the NZM development team (sub-lot 3.1) and should have demonstrable expertise of the design and delivery of software solutions, supported by developers and colleagues with relevant expertise. - Suppliers will be responsible for key project management activities including team leadership and management, risk and issue management, resource management, schedule management, project reporting and quality assurance. - Suppliers will be responsible for scoping and driving the delivery of the NZM whereby it will be a portable product in line with the Client’s system and security requirements. Data analytics - Suppliers will provide expert input to energy data analytics and modelling. They will be able to engage with the NZM development team (sub-lot 3.1) and other subject matter experts to support the design and development of model features. - Suppliers will provide energy data collection, support and documentation capabilities. This requires an understanding of the energy data landscape and engagement with key industry bodies. Suppliers must be able to credibly engage with stakeholders, both internally and externally to the Client. - Suppliers will provide data governance, processing, assurance and management support that is robust, consistent across the programme, fully auditable and meeting UK GDPR requirements.