New Build Heat Standard 2024: business and regulatory impact assessment

9. Competition Assessment

9.1 Will the measure directly or indirectly limit the number or range of suppliers?

126. As part of the business / industry themed workshop, this question – as well as the following three Competition and Markets Authority (CMA) competition assessment questions below in Sections 9.2 through 9.4 – were used as an initial assessment of competition during the scoping consultation process.

127. Feedback from the workshop attendees suggested that the answer to this question would be no. The main reasons given were that there has already been an increase in the number of suppliers of equipment and, using heat pumps as an example, it was noted that there was no dominant manufacturer(s) yet – which was considered a positive for competition. However, analysis of MCS-certified heat pump installations does suggest a dominant manufacturer, with Mitsubishi capturing over 35% of the market between January 2010 and September 2021.^[121] This is followed by Daikin, NIBE, and Vaillant with approximately 15%, 10%, and 8%, respectively. A further six manufacturers are identified, each with 5% or less of the market over this time period.

128. This aligns with the following set out in the Heat in Buildings Strategy BRIA,^[122] in relation to the transition to zero emissions heat more broadly: "The transition to zero emissions heat will alter the market for heating systems, energy efficiency and energy. However, this need not have a detrimental impact on the number or range of suppliers as existing firms are likely to be able to switch from supply associated with fossil fuel to zero emissions, and policy development will seek to ensure barriers to entry are minimised, and firms are supported to switch to ensure a just transition." (page 25)

9.2 Will the measure limit the ability of suppliers to compete?

129. Feedback from the workshop was that the introduction of these regulations would have the opposite impact in that more competition would be created. Examples included manufacturers having the ability to utilise products already in use in continental Europe, and upgrade production capacity.

130. Concerns were noted regarding the urgency in upskilling and training required in order for suppliers to capitalise on this opportunity. However, without increased demand for ZDEH technologies, there is little incentive for installers to retrain in installing these.^{[123], [124]} The NBHS, through increasing demand for such technologies via new-builds, serves a supporting role in addressing this gap in incentives.

9.3 Will the measure limit suppliers' incentives to compete vigorously?

131. Feedback from the workshop attendees was that, as the NBHS would be technology neutral, this in itself would promote competition. Furthermore, there was recognition that investment and innovation in ZDEH technologies would continue to grow, creating more competition between suppliers.

132. Against this question, the Heat in Buildings Strategy BRIA did highlight that regulations may limit consumer choice.^[125] However, it was also noted that: "By supporting development of zero emissions alternatives, such as heat network connections or hydrogen, that are currently unavailable to individual consumers (for example, due to infrastructure limitations), the total range of options available need not reduce in all cases." (page 25)

9.4 Will the measure limit the choices and information available to consumers?

133. Feedback from the workshop attendees indicated that this would not be case – particularly as the ZDEH supply chain continues to grow.

134. However, a number of attendees were of the view that it was for the Scottish Government, not industry, to lead here in an effort to improve consumer awareness. In an effort to address this, as committed to within our Heat in Buildings Strategy, work is underway to develop a new Heat in Buildings Public Engagement Strategy to publish in 2023.