The funding is being provided by the Department for Business, Energy and Industrial Strategy (BEIS), a new department created by Prime Minister Theresa May earlier this year.

The Heat Networks Investment Project (HNIP) aims to provide a financial incentive for developers to deliver heat network projects for towns and cities throughout the UK.

According to the BEIS, the ‘central heating for cities’ scheme has the potential to reduce heating costs by more than 30 per cent. Overall, the networks will allow cities to recycle wasted heat produced from places such as factories, power stations and even the London Underground to pump back into homes and businesses.

Energy minister Baroness Neville-Rolfe said: “Heat networks can significantly improve the efficiency with which heat is provided to our towns and cities, as well as helping to develop local infrastructure and reduce carbon.

“The new scheme will help us to develop viable reforms to make the most of the heat we produce and use it effectively to bring bills down for people across the country.”

In the pilot phase £39m is available to local authorities and public sector bodies who will submit applications for their projects by the end of November. Further funding rounds are planned to 2020.

Mike Reynolds, SSE’s director of heat, welcomed the creation of the new fund and said: “The launch of the HNIP fund is well timed and comes at a crucial juncture in the development of UK heat networks where the market is predicted to grow between £2 billion and £3.5bn in the next five years. In much of Europe heat networks are common place but they have all been developed with strong policy support and government investment so this bold position from BEIS is good to see.

“The funding from BEIS is an important step in creating the right conditions for further heat networks to come to market and by bridging financial gaps and increasing the number of economically feasible projects. We now believe more needs to be done in parallel to encourage sustained growth in the sector and bring appropriate quality assurance to customers.”