Heat networks target 2035 consultation: SG response

Response to Issues Raised

Level of Ambition

We have taken account of the responses, and given the general support for the proposed target, we intend to set the target so that the combined supply of thermal energy by heat networks in Scotland reaches at least 7 TWh by 2035. This will be taken forward by laying a Scottish Statutory Instrument in Parliament by 1 October 2023, in line with the requirement on Scottish Ministers to do so within the 2021 Act.

However, as there isn't full agreement from stakeholders on the level of target, and given the limited data still currently available to us, we will review the 2035 heat network target and, if appropriate, other heat network targets once more evidence is available, such as LHEES and heat network zones designated by local authorities.

Relative Target

Currently, non-electrical heat consumption is a relatively good indicator of overall heat demand. However, as decarbonisation progresses and more heating systems move to electrical systems such as heat pumps, non-electrical heat consumption will increasingly be a poor measure of overall heat consumption. As such we do not think it is advisable to set a target relative to non-electrical heat consumption. Given the way electrical usage is metered, measuring all heat consumption including electrical heat consumption would require many assumptions making it at best an experimental data figure.

As such we continue to consider an absolute target a better option for 2035.

Regional Targets

The target is a national target and national targets don't necessarily translate directly to a percentage target for each local authority. Some local authorities may find that the opportunity for heat delivered by heat networks is well above the percentage equivalence of the national heat network targets.

LHEES and BARs

We agree that BARs, LHEES and heat network zoning will likely provide important considerations in target setting. This is one of the reasons we have prioritised the introduction of the duty on Scottish public authorities to produce BAR(s) and on local authorities to review heat network zones, providing templates and associated guidance on 30 May 2023^[6].

Infrastructure and Funding Challenges

In response to the issues raised regarding the funding and support for the delivery of the target, the two main schemes to assist the development of heat networks are the Heat Network Support Unit (HNSU) and Scotland's Heat Network Fund (SHNF). Our current focus is to encourage the use of HNSU and SHNF to support the achievement of our targets and our overall ambition for heat networks^[7].

The HNSU supports the growth of heat networks by addressing key challenges in the pre-capital stages of heat network development and building capacity across the public sector to deliver successful projects. Working primarily with the public sector, the HNSU identifies and supports prospective heat network projects. It offers advice and guidance to projects, as well as grant funding for pre-capital stages of works, for example developing feasibility studies and outline business cases. The HNSU is a partnership between Scottish Government, Zero Waste Scotland and Scottish Futures Trust. More information is available on the official website^[8].

The SHNF is a £300 million capital grant scheme available to applicants from the public and private sector for projects at capital readiness that can clearly demonstrate a funding gap.

This fund will stimulate investment and grow the low carbon heat sector, whilst reducing greenhouse gas emissions.

Commercialisation support is available for up to 10% of the total capital cost to a maximum of £1 million, subject to budget availability. Enabling support (for work such as project management and consultancy) is available for up to 10% of the total capital cost up to a maximum of £100,000. Projects requiring additional commercialisation and enabling support will be required to submit a request providing detailed information on why additional funding is required. More information is available on the Scottish Government website^[9].

Acknowledging the need to ensure funding for heat networks is not to the detriment to other funding sources for home energy improvements in order to reduce energy demand, the following is available via Home Energy Scotland^[10]:

• Home Energy Scotland Grant and Loan;
  • Grant funding for energy efficiency improvements up to 75% of the combined cost of the improvements, up to the maximum grant amount of £7,500, or £9,000 for households which qualify for the rural uplift.
  • Grant funding for heat pumps is up to £7,500, or £9,000 for households which qualify for the rural uplift. The remainder of funding requested can be taken up as an optional interest-free loan.
• Warmer Homes Scotland;
  • The Scottish Government's Warmer Homes Scotland programme offers funding and support to households struggling to stay warm and keep on top of energy bills. In most cases all costs will be met by the Scottish Government.
• Private Rented Sector Landlord Loan;
  • Funding to help registered private landlords to improve the energy efficiency of their properties.

The regulation of consumer protection is reserved to UK Government, and we have encouraged them to develop regulations in this area. The Energy Bill^[11], once passed by UK Parliament, will provide the regulatory framework for consumer protection and is expected to be followed by secondary legislation providing additional detail. More details on the UK Government's proposals are set out in the Heat networks: building a market framework: Government Response^[12]. We will continue to engage with the UK Government on their proposals and work to develop a regulatory regime under the Heat Networks (Scotland) Act, 2021 with the aim that the UK and Scottish regulatory systems are as seamless as possible for both heat network operators and customers in Scotland.

Climate change and fuel poverty

Our ambition for the heat networks sector includes, as set out in the Heat Networks Delivery Plan, that the sector delivers affordable clean heat, supporting delivery of emission reduction and fuel poverty targets.

Our Fuel Poverty Strategy^[13] was published in December 2021 and sets out actions to tackle each of the four drivers of fuel poverty: poor energy efficiency of the home; high energy costs; low household income; and how energy is used in the home.

We recognise that the fabric first approach is vital in reducing energy. We have committed to regulating to ensure that all buildings across all tenures achieve a good level of energy efficiency by 2035, as set out in Chapter 8 of the Heat in Buildings Strategy. Our modelling for the 2035 target has thus assumed that energy efficiency improvements made in properties will reduce the energy demand of those networks.

With regards to the technologies used within heat networks and ensuring that they are low and zero emissions, as set out in the Heat Networks Delivery Plan (HNDP) from the point that the regulatory regime is in place, new heat networks, and additional plants for extensions, will need to be powered using low and zero emissions heat sources.  Existing heat networks (and any new heat networks allowed on a case by case basis to use a small percentage of fossil fuels for back up and peaking heat ^[14])will need to develop and implement a heat networks decarbonisation plan.