Strategic Innovation Fund

Hot Chips

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What the project is about How we’re doing it What makes it innovative What we’re learning

Project Data

Start date:

05/01/2025

End date:

07/31/2025

Budget:

£149,207

Summary

The heating sector in the UK accounts for nearly one third of the country’s annual carbon emissions. One promising approach to decarbonising this sector is the use of low-carbon District Heating (DH) systems. DH networks can source heat from a variety of low-carbon options, including air-, ground- and water-sourced heat pumps, as well as waste heat from different origins.

While DH systems have the potential to offer flexibility, if not properly managed, they could significantly increase peak network loads. So far, DH deployments in Great Britain have proven inefficient, highlighting the need for improvements to minimise their impact on the electricity network and avoid costly upgrades.

At the same time, the UK is experiencing unprecedented growth in electricity demand driven by data centres. According to NESO, electricity consumption by data centres is expected to reach 35 TWh by 2050, representing 11% of the UK’s total electricity use. Notably, around 40% of this electricity is used for cooling, which releases low-grade heat (between 25-40°C) into the environment.

These two challenges present an opportunity to complement each other. This project will explore the technical, financial, and environmental feasibility of repurposing surplus heat from data centres.

What is the project about?

The heating sector in the UK accounts for nearly one third of the country’s annual carbon emissions. One promising approach to decarbonising this sector is the use of low-carbon District Heating (DH) systems. DH networks can source heat from a variety of low-carbon options, including air-, ground- and water-sourced heat pumps, as well as waste heat from different origins.

While DH systems have the potential to offer flexibility, if not properly managed, they could significantly increase peak network loads. So far, DH deployments in Great Britain have proven inefficient, highlighting the need for improvements to minimise their impact on the electricity network and avoid costly upgrades.

At the same time, the UK is experiencing unprecedented growth in electricity demand driven by data centres. According to NESO, electricity consumption by data centres is expected to reach 35 TWh by 2050, representing 11% of the UK’s total electricity use. Notably, around 40% of this electricity is used for cooling, which releases low-grade heat (between 25-40°C) into the environment.

These two challenges present an opportunity to complement each other. This project will explore the technical, financial, and environmental feasibility of repurposing surplus heat from data centres.

How we’re doing it

Our project will develop a framework that incentivises collaboration between electricity network operators, heat network providers and data centres to identify and pursue opportunities for decarbonising heat. The goal is to integrate this approach into the routine assessment and planning activities of all involved parties.

We will achieve this through three key workstreams:

  • Commercial Business Models: we will explore innovative commercial arrangements between data centres, network operators and heat networks to encourage active participation. This will include a review of international best practices and case studies.

  • System Modelling: we will develop a user-friendly modelling framework to evaluate the benefits across the entire value chain. This will assess whole-system impacts, considering residential heat demands, infrastructure costs and flexibility options such as thermal storage and dynamic electricity tariffs.

  • Ambient Loop Systems: we will identify opportunities to harness 4th and 5th generation district heating systems that can repurpose low-grade heat (25–40°C) from data centres. Using water-source heat pumps, this heat can be upgraded to temperatures of 55–60°C, making it a viable and low-carbon source for district heating.

What makes it innovative

While heat pumps and data centres are commercially available technologies, the integrated system proposed in this project requires further development and testing — currently at Technology Readiness Level (TRL) 6. However, both the Commercial Readiness Level (CRL) and Integration Readiness Level (IRL) remain low, at CRL 2 and IRL 2 respectively.

The development of a waste heat market for data centres is progressing too slowly, putting the UK’s Net Zero targets at risk. Previous innovation investments in isolated projects that co-located data centres and heat networks have not led to widespread adoption. This is largely because they lacked a replicable planning framework and did not establish viable commercial models.

Hot Chips is therefore essential. This project will investigate the commercial models, barriers, and motivations of key stakeholders in order to design a practical and enduring solution that enables effective coordination across the sector.

The primary users and beneficiaries of this innovation are:

  • Distribution Network Operators (DNOs): to assess the feasibility, opportunities, and challenges of repurposing surplus heat from data centres to manage peak electricity demand.

  • Residential customers: by reducing the electricity consumption of heat pumps, lowering energy costs and supporting decarbonisation.

  • Data Centre Developers: by supporting and accelerating their contribution to the decarbonisation of heating through waste heat recovery.

What we’re learning

By the end of the Discovery Phase, our goal is to deepen our understanding of the challenges and opportunities through the following work packages:

Literature Analysis

Develop a summary of data centre operational and infrastructure requirements to inform subsequent phases of the project.

Identify regulatory and market barriers to scaling surplus heat recovery.

Data Centre Engagement Report

Conduct interviews with data centre operators to gather insights and perspectives.

Summarise key findings to inform technical, commercial, and policy considerations.

System Modelling Framework

Develop an initial plan for a modelling framework to analyse heat transfer, thermal storage, and system-wide impacts.

Quantify potential cost savings, carbon emissions reductions, and peak demand benefits for grid operators, energy suppliers, and end-users.

Perform high-level calculations to test core hypotheses and validate modelling assumptions.

Business Case Evaluation

Propose a commercial model that incentivises collaboration among data centres, energy networks, and heat suppliers while promoting open and fair market access.

Assess the preliminary technical, financial, and commercial feasibility of using surplus heat from data centres for residential heating and heat pump optimisation.

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