As awareness of district heating grows across the public and private sectors, more organisations are looking seriously at the role heat networks can play in delivering lower-carbon, resilient energy infrastructure. However, there remains a learning curve in understanding what makes these projects deliverable.

District heating projects require significant amounts of capital, often involving complex infrastructure, long delivery timelines and multiple stakeholders. A scheme can look compelling on paper, but the real test is whether it can move from concept to delivery while retaining a clear view of the technical, commercial and financial risks.

Stakeholders therefore need to know more than just whether the network is technically feasible; they need to understand whether it can be funded, delivered and operated in practice. That is where two very different modelling tools, the techno-economic model (TEM) and financial model come in.  They should be viewed as complementary, not competing, tools recognising that the right tool should be used for the relevant purpose.

By introducing the financial model at the earliest possible opportunity stakeholders get a clear and shared view of the financial and commercial implications of a scheme before significant time and resource are committed. By testing affordability, funding requirements, risk allocation and key sensitivities early, the financial model helps identify potential constraints or viability issues before they become embedded in the project. This reduces the risk of abortive, time consuming work and supports better informed decisions on whether, and how, a scheme should progress.

How the two models work together

The financial model goes beyond the TEM by incorporating commercial and financing assumptions such as tax, business rates, inflation, and a financing structure including cost of capital, equity and debt split, covenants, distributions and investor returns. These assumptions can materially affect the project with an ultimate impact on heat price and deliverability.

Both models matter because they answer different but connected questions. The TEM tests whether a scheme is technically viable, while the financial model tests whether it is commercially deliverable, fundable and resilient over time. Used together, they reduce the risk of progressing projects that work in theory but are not affordable, investable or practical to deliver.

Developers and investors

For developers and investors, the TEM is a critical tool for confirming that a scheme is technically viable. The financial model then moves the analysis from viability to investability, showing how a project is expected to perform over time, what level of return it can support, and where the principal commercial risks lie.

This becomes particularly important where delivery depends on external debt, equity, grant funding or a blend of funding sources. A well structured financial model can test how different capital structures affect cash flow resilience, debt capacity, investor returns and the timing of distributions, while also capturing assumptions such as inflation, tax, connection fee income and REPEX timing, and business rates.

The result is a practical decision making tool that helps developers and investors judge whether the tariff strategy and resulting cost of heat is attractive to offtakers, whether risks are appropriately allocated, and whether the investment case is robust enough to support progression to detailed development, procurement or financial close.

Public sector

For public sector bodies and project sponsors, the financial model helps move the assessment beyond technical deliverability to the wider questions of affordability, value for money and long term public benefit. It provides a clearer view of how the project could be structured, funded and sustained in a way that aligns with strategic objectives and protects public resources.

This is particularly important where a local authority, university, NHS trust or other public body is considering whether to support, connect to, procure, own or enable a district heating project. The financial model can test different funding routes, ownership options, grant assumptions, customer protections, anticipated tariffs, and cost recovery mechanisms, while also helping public bodies understand how developers and investors are likely to assess the opportunity. This gives decision-makers a clearer view of the choices available, the trade-offs attached to each, and the conditions required to attract private sector participation.

Used alongside the TEM, the financial model strengthens the evidence base before public bodies commit time, funding or procurement resource. It helps identify sensitivities around demand, inflation, operating costs, capital cost overruns and future lifecycle expenditure, supporting decisions that are better informed, more transparent and more resilient over the long term.

Conclusion

Technical viability alone is not enough. For district heating schemes to progress with confidence, stakeholders need to understand not only whether a network can be built, but whether it can be funded, delivered and sustained over the long term. The TEM proves the technical case; the financial model proves the investment case. Used together from the outset, they provide the clarity needed to move heat network projects from concept to commitment, and ultimately to delivery.

Our experienced team would be delighted to discuss district heating projects, project finance or related opportunities with you:

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The UK’s National Energy System Operator (‘NESO’) is currently reviewing applications to the eighth allocation round (‘AR8’) under the Contract for Difference (‘CfD’) regime. AR8 introduces significant changes to CfD bidding mechanics for this and future allocation rounds. Bidders potentially face greater granularity within the pot structure and less flexibility in bid strategy, placing increased emphasis on robust bid preparation and the associated financial modelling. Developers or investors with a project where a CfD represents a potential route to market should stay informed of the changes and what they mean for a successful bid strategy.

Key changes 

There are a range of changes to the CfD auction framework which for those interested in the specifics are discussed in more detail in this appendix. The following are likely to have the greatest implications for bid strategies.  

• The Secretary of State’s capacity to view sealed bids above the initial pot budget to determine the final budget is now extended from offshore wind only to the technologies in pots 1 through 4, including solar PV, onshore and remote island wind, floating offshore wind and other deepwater offshore wind. Applicants in these pots can only submit a single sealed bid.  

• Clearing prices within a pot can be separated based on specific factors (stated as being technology, location, repowering status and project size), allowing projects within the same pot but with different characteristics to receive a different price.  

• Capacity awarded a CfD under prior ARs which is surrendered via ‘Permitted Reduction’ or ‘Final Installed Capacity’ mechanisms is permanently excluded from bidding into new ARs. 

Collectively the changes increase pressure on clearing prices (the pots are more granular and there is the potential for separate clearing prices within technologies) while reducing room for error (single bids and no opportunity to rebid capacity once awarded). A material uplift between a price bid and the final clearing price is less likely and should not be relied on. This means that bidding a scrutinised and stress tested price, underpinned by robust financial modelling, is potentially more important than ever. 

What this could mean for bidders 

The AR8 pot structure is summarised below, highlighting which pots are subject to visibility by the Secretary of State and permitted a single bid only. All pots are subject to the potential of separate clearing prices within the pot, determined by the specific factors mentioned above. 

Source:  UK Government Price and Pot Notice 6 July 2026, link

The flexibility for DESNZ to finalise pot budgets following review of bids above a pot’s clearing price means that additional funding will go to the projects which are viewed as best value and can be delivered in time to support the government’s Clean Power 2030 ambitions.

For bidders in pots 1 to 4, the change to a single sealed bid removes the scope for a bidding strategy which allows for varying prices based on capacity or delivery year put forward. Bidders must reach a single solution (price, capacity and delivery year) which maximises the potential of their project within this allocation round or consider holding back capacity for future allocation rounds.

This is critical as capacity which is awarded a CfD and then surrendered is now permanently blocked from bidding future allocation rounds. Seeking to realise upside by rebidding the same capacity in future CfD rounds is therefore prevented and bidding a price too low is more of an acute risk for projects. If capacity is awarded a CfD but then a downside case materialises having not been sufficiently accounted for, the project’s primary route to market could become unattractive, impairing its valuation or making it financially unviable.

The application of factor specific clearing prices, if any, under each pot will be confirmed in the Contract Budget Notice expected between September and November of this year (timing depends on applicant review/appeal scenarios). As that confirmation comes approximately two weeks before the sealed bid window opens, bidders need to proactively consider the potential implications within their bid strategy such that internal stakeholders are fully informed and ready to react as required.

For example, a developer repowering an onshore wind project may have been confident in its bid strategy as cost advantages over new greenfield projects would be expected to make the onshore wind clearing price attractive and possibly offer an upside return over its bid price. If instead pot 2 clearing prices are separated by repowering status (as indicated they could be), the repowering developer would be competing only with other repowering projects which have the same project and cost characteristics.

Likewise, for developers of large projects (in any pot) which may have expected economies of scale to make their bid competitive could instead find themselves above a project size threshold competing only with other large projects, although it is unclear if and how this will be applied.

Other developments

‘Near real time metering’ is now required for distribution connected projects from the point of meter installation. This gives LCCC better oversight of when a project begins commercial operations, thereby strengthening the ‘Unilateral Commercial Operations Notice’ (UCON) mechanism which aims to prevent generators taking advantage of high market prices before formally triggering the CfD, i.e. it removes the potential for optimising projects with a “merchant nose”. This aligns treatment of distribution and transmission connected projects and represents a further step from DESNZ to prevent ‘merchant nose’ revenues. A UCON is only enforceable once a project begins its Target Commissioning Window.

Hybrid metering, where same-technology CfD and merchant assets can share a balancing mechanism unit, is now permitted. This is a positive change for bidders, increasing flexibility to have a portion of a project on a merchant basis. As metering infrastructure and services don’t need to be replicated it reduces a drag that keeping a relatively small proportion of merchant generation would have previously added. There are a variety of restrictions including that the shared metering must be for a single technology (due to wider market rules) and not with facilities subsidised under other Government support schemes. LCCC has published further guidance on this here: LCCC Hybrid Guidance.

Real time metering reduces scope for potential upside for distribution connected projects and therefore could apply upward pressure on bid prices although this may only be minor. Hybrid metering increases flexibility on the level of capacity submitted by bidders.  Both changes may impact the financial modelling scenarios that bidders consider within their strategy analysis.

How QMPF can help

QMPF supports developers, investors and lenders throughout the CfD process, including bid strategy assessment, financial modelling, lender-case analysis, project financing and transaction support. Our team has extensive experience advising renewable energy projects across onshore wind, solar PV and other low-carbon technologies.

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UCAS 2026/27 application data provides clarity on expected recruitment outcomes, but the underlying picture is nuanced across the HE sector. 

Overall application numbers for 2026 entry increase by nearly 5% 

Recent media coverage may suggest that the HE sector is facing broad-based recruitment headwinds. While longer term structural changes should not be understated and international recruitment challenges remain, the immediate UCAS data presents a more positive overall position. UK undergraduate applicant numbers continue to rise and the latest release shows applicant numbers reaching a new high, exceeding even the levels seen during the pandemic-era cycle in June 2022. 

Numbers of applicants are up 4.6% from the June 2025 cycle, taking the total to 695,740.  

The breakdown of applications also reinforces a second long-running theme, illustrated in the graph below: demand continues to diverge by tariff group, with increasing numbers of applicants considering higher tariff providers. 

Higher tariff universities have seen 6.8% growth in applicant numbers from the same point in last year’s cycle. This pattern is no longer cyclical noise but a sustained feature of the market: in eight of the past nine years, application growth to higher tariff providers has outpaced that seen at either medium or lower tariff institutions: 

 From 2017, numbers of applicants to higher tariff institutions are now 25% higher, while medium tariff providers have seen just 3% growth and lower tariff providers have experienced a 9% reduction over the same period: 

Subject area application changes emerging 

There have always been shifts in the relative attractiveness of individual subject areas, but the latest data increasingly points to a more structural shift.  

Over the past two years, applications to engineering and technology, mathematical sciences and vet science have consistently ranked among the top five areas for growth in application numbers. Law, and architecture building and planning also show strong growth in applications. Meanwhile, several course groupings including computing (-14.2% compared to 2024); language and area studies; and design and creative and performing arts, have recorded year-on-year declines in application numbers across the same period.  

Institutions have already begun to adapt their academic offer in response and the alignment between course provision, student demand and graduate employment outcomes is likely to remain a central strategic issue for sector leaders. It is increasingly apparent that these changes reflect the graduate jobs market and the anticipated influence of AI. Institutions are demonstrating the need to be as agile in provision as their students are in consideration of course options. 

Treasury and financing considerations 

From QMPF’s perspective the application data matters; in the context of refinancing, new borrowing and the assessment of lending to support student accommodation development, confidence in student number forecasts remains fundamental. Although there is currently heightened focus on international recruitment, reflecting both its income contribution and potential volatility, domestic undergraduate recruitment continues to underpin the core fee base of many institutions. Given the data emerging, we also anticipate increased lender focus on relevance of course offering as shifts in graduate jobs markets emerge. 

QMPF will continue to monitor the sector outcomes through the clearing process, ready to be able to present a complete and rounded picture of University forecasts and performance in support of financing options appraisals and interaction with lenders. In the current funding market robust, data driven treasury advice and analysis remains key to institutions successfully and efficiently raising funding. 

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Are Joint Ventures a route to unlocking private sector capital to deliver University capital projects?  

Context:

Universities have long partnered with private sector student accommodation operators through either nomination agreements to provide access to off-campus residences or Design, Build, Finance and Operate (“DBFO”) concession arrangements for on-campus accommodation. As universities seek more flexible structures to meet accommodation needs, a new phase of Joint Venture (“JV”) partnerships is accelerating. JVs between student accommodation operators and universities are starting to become more commonplace to both deliver new accommodation and refurbish existing on-campus facilities. Universities increasingly value more flexible shared-risk, shared-reward partnerships which allow them to leverage private sector capital, while also allowing investment participation and a role in the JV’s operating decisions. For developers and investors, JVs offer an opportunity to develop long-term partnerships with an anchor institution, enhanced student letting opportunities and access to prime on-campus sites. Examples of recently announced JVs include: 

What are Joint Ventures and how do they differ from DBFOs? 

DBFOs are a well-established route for universities to deliver on-campus accommodation in partnership with private sector partners. DBFO are normally based on a concession agreement of up to 50 years and the grant of a headlease on university-owned land, which reverts to the university at maturity. DBFO projects are often highly structured to unlock very long-term senior funding (up to 85% geared, at 50-year maturities) with project agreements in place that define rent uplifts, the nomination process and manage the operational and construction risks between the partners. Due to the structured project agreements DBFO structures can be inflexible and take time to negotiate the Project Agreement ahead of Financial Close.  

JVs are bespoke and there is no typical blueprint. In contrast to DBFO projects, JVs will tend to be lower-geared and less heavily “structured”, with more of the commercial operational decisions set by the JV partners through the annual business plan rather than preset by the initial project agreements. Universities considering a JV will need to explore the different structures available that will allow it to deliver core aims around rents, operational flexibility, upfront capital requirements, procurement, exit opportunities and land reversion. A JV structure may provide more flexibility to allow the University more control in operational decisions. However, it will ultimately depend on the underlying funding model selected, whether a JV structure can meet a university’s requirements and what protections would need to be in place.  

Potential Opportunities: 

• New residential developments – JVs can be used to deliver new accommodation projects, as an alternative to DBFOs.  

• Stock transfers – as Universities deal with backlog maintenance or reimagine their current campuses, partnerships could be used to modernise or re-develop existing accommodation or convert excess academic space into bedspaces.  

• Non-residential assets – JVs can also be used as a development vehicle with agreed feasibility metrics to support the development of non-residential developments.  

• Financial sustainability – universities may wish to raise capital receipts from existing assets or achieve efficiencies and risk transfer through partnering with a specialist operator. 

How can QMPF help?  

We have experience of structuring projects, including joint ventures and “DBFOs”, leading procurement processes and providing financial advice across all project stages from initial feasibility work to reaching financial close. We can manage the commercial interface between universities and the private sector. We can assist you with:   

• Financial modelling to assess project viability and potential rent strategies  

• Options appraisals and business cases   

• Comparing delivery options (self-build, DBFO, JV and nominations)  

• ‘Soft market testing’ among providers and funders to help affirm options   

• Arrangement of finance (bank facilities, development finance and income strips) 

• Deal structuring and negotiation between universities and commercial partners  

• Financial or lead advisor through procurement processes  

• Residences portfolio financial modelling  

• Support throughout university governance  

We have also advised universities on the establishment of joint-ventures (with Unite, among others); and support private sector investors and operators on financial modelling, commercial structuring and raising funding for student accommodation.   

Our ongoing projects comprise delivery of more than 5,000 bedspaces with clients including the University of Manchester, London School of Economics and University of Southampton. 

Please get in contact if we could be of any assistance, or for a general discussion about the market and wider opportunities.   

Staffordshire University Student Village – DBFO Partnership – QMPF 

University of Exeter – West Park – QMPF

Manchester Metropolitan University – Student Accommodation JV – QMPF

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Higher Education SORP: Accounting for Student Accommodation Transactions 

With the implementation of the new HE SORP from January 2026, there are some changes to the accounting treatment of student accommodation projects. We have considered the potential implications and key areas of focus for universities as they navigate the changes to the standard.   

Context 

 The implementation of the new FEHE SORP from January 2026 brings important changes to the accounting treatment of student accommodation — including nomination agreements, DBFO transactions, and joint venture structures. This note sets out the key changes and what universities should be considering now. 

Who does this affect, and when? 

The FEHE SORP 2026 was published on 3 November 2025 and is effective for accounting periods beginning on or after 1 January 2026 (SORP 2026, para. 1.3). For universities with a 31 July year end, the first affected accounts will be for the year ending 31 July 2027 — but preparation should be underway now. The new SORP aligns with the March 2024 amendments to FRS 102 and replaces the 2021 edition. The primary change for student accommodation is the removal of the distinction between operating and finance leases under the revised Section 20 of FRS 102, with almost all leases now required to be recognised on balance sheet. 

What has changed? 

Previously, depending on the length of the agreement, it was possible to recognise a nomination agreement as an operating lease which meant that there was no balance sheet liability and only an annual lease expense through the statement of income and expenditure (“I&E”). Under the revised Section 20 of FRS 102 (as adopted by Section 14 in the SORP), the majority of leases must now be recognised on balance sheet. The limited exceptions – leases of less than 12 months, or where the underlying asset is of genuinely low value – are practically unlikely to apply to student accommodation.   

There are also changes to how leases are reported through the I&E with depreciation on the right of use asset and interest on the lease liability replacing the single lease expense under the previous SORP.

Recognition of Student Accommodation Agreements 

As with prior versions, the SORP contains helpful guidance on how to determine whether your accommodation agreement is a Service Concession Arrangement (“SCA”) or a lease. A series of tests must be satisfied to be recognised as a SCA and, depending on the specific nature of the contract, there may be a requirement to recognise all, or part, of the contract value. 

The following tests must be met to determine if an arrangement meets the definition of a SCA.   

Should all of the above tests be answered “yes”, the project is therefore a SCA and the University must then consider whether or not there is any liability (and matching asset) to be recognised on balance sheet. 

DBFO accommodation transactions will usually meet the definition of a SCA. Where there is no explicit guarantee of senior debt, the arrangement will typically remain off balance sheet, due to the nature of the annual nominations (which confer the university the right but not the obligation).  Once one year’s nominations has been made, then the university will be required to recognise the value of this charge as both an asset and liability on balance sheet. 

Lease Recognition 

Where an accommodation arrangement does not meet the SCA criteria, it may be the case that this is accounted for as a lease. Under this scenario, the University should recognise the present value of future lease payments as a liability (and matching asset) and this is then unwound over the life of the nomination agreement.  

In terms of I&E treatment, the University would depreciate the asset in line with its existing policies and also recognise the interest charge associated with the arrangement. 

Universities must consider how the new treatment of leases will interact with any financial covenants under existing borrowing arrangements. Gearing levels may be negatively impacted by the inclusion of  a new lease liability on balance sheet while EBITDA tests could be positively affected by the shift of lease costs from operating expenditure to interest and depreciation. A clear and robust analysis of any potential impact should be undertaken before entering into any new arrangements. 

Existing leases that were previously recognised as operating leases will now be required to be brought on balance sheet (subject to the criteria noted above). However, the assessment of the liability will be based on the present value of future payments and there is no need to restate prior year financial statements. 

Joint Venture Arrangements 

Joint ventures (“JVs”) are another potential structure which can be used to deliver student accommodation and there are recent examples of agreements being reached by universities and private sector partners. 

There are no material changes to the accounting treatment with the new SORP and these will generally continue to be recognised under the equity accounting method. Any nomination agreement should be assessed under the new lease and SCA regulations and any balance sheet impacts accounted for accordingly.  

Three Takeaways to Consider  

When considering student accommodation transactions, it is important that the following areas are considered: 

• Balance Sheet Impact: Determine whether your arrangement is an SCA or a lease — and, if a lease, quantify the liability now required on balance sheet, including for arrangements previously treated as operating leases. 

• I&E Volatility: Potential for increased variability with lease interest charge and depreciation adversely impacting underlying surplus, while EBITDA may improve. Both effects require proactive communication among governors and other stakeholders. 

• Interaction with existing borrowing: Awareness of potential impacts on any current financial covenants and implications for institutional headroom against current tests and the need for lender engagement.

How can QMPF Assist? 

QMPF is one of the leading advisors to the education sector, supporting on student accommodation developments as well as debt raising and restructuring of existing debt facilities. We can provide support to universities in navigating this environment, evaluating any accommodation proposals and considering the potential impacts on your overall finances. Our experience supporting the sector is longstanding and we have significant experience of delivering student accommodation projects and strong relationships with the primary lenders to the sector.  

Ultimately, the accounting treatment of any accommodation project will be subject to your auditor’s sign off. QMPF can support you not only in developing projects but also through engagement with them. Our support includes:  

• Financial Modelling & Forecasting: We build robust, transparent project models that integrate with wider institutional forecasts. We also provide “critical friend” reviews of existing models to ensure they are funder ready. 

• Market & Partner Insight: With over 20 years’ sector experience, we leverage deep relationships across the funding and student accommodation markets to facilitate candid negotiations and drive optimal client outcomes. 

• New Accommodation Projects: As leading advisors on off-balance sheet projects, we specialise in innovative structures, including disaggregated procurements and incremental partnerships, tailored to specific university needs. 

• Covenant Management: Since early 2024, we have supported over £300m in new borrowing. We assist with covenant negotiations and use live market intelligence to assess impacts and support funder engagement. 

• Governance & Audit Support: We provide commercial input for internal governance reporting and external auditor discussions, specifically regarding balance sheet treatment and the long-term consequences of accommodation arrangements. 

Further information on the SORP can be found here: 

Universities UK – HE SORP 

BUFDG – SORP Knowledge Hub 

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