In a statement, the Scottish Government said the funding will enable Aberdeen Heat & Power Ltd to increase the network to non-domestic properties, with commercial heat sales revenues ring fenced to heat households in the city.
The combined heat and power scheme works by capturing heat when electricity is created. This is then channelled through underground hot water pipes and pumps, with heating and hot water then being pumped out to properties.
Currently, the system supplies some 2,000 council flats in 26 multi-storey blocks, low rise sheltered housing complexes and 13 public buildings.
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Commenting on the announcement, Social Justice Secretary Alex Neil, said: "This significant funding will help Aberdeen Heat and Power in its drive to deliver reduced bills across the city, at a time when many people are struggling due to rising energy prices.
"Tenants have reported that their typical fuel costs have been reduced by up to 50% over the previous heating system. Carbon emissions from these buildings have also been reduced by 45%.
"The heating system is delivering reduced levels of fuel poverty and eliminating damp conditions, which creates improved health conditions and homes that people now want to live in."
Ian Booth, General Manager, Aberdeen Heat and Power, added: "We are delighted to be able to accept this loan from the District Heating Loan Fund.
"It will help our drive to increase the capacity of the district heat network to deliver affordable heat to domestic and non-domestic properties, and to continue to alleviate fuel poverty and reduce the carbon footprint of the city."
(JP/IT)
