Publication - Impact assessment

Energy Efficient Scotland: partial business and regulatory impact assessment

Published: 2 May 2018
Energy and Climate Change Directorate
Part of:

This Business and Regulatory Impact Assessment (BRIA) accompanies the consultation on Energy Efficient Scotland.

41 page PDF

673.6 kB

41 page PDF

673.6 kB

Energy Efficient Scotland: partial business and regulatory impact assessment
3. Options appraisal

41 page PDF

673.6 kB

3. Options appraisal

This section of the partial BRIA presents the impact of the policy proposals within the consultations, and compares the ‘business-as-usual’ option with others.

3.1 Qualitative assessment

A qualitative assessment was first undertaken for each option proposed within the three consultation areas, by scoring the strength of each proposed option against key success criteria

Critical success factor Description
Strategic fit and economic growth Supports Scottish Government objectives to: - meet Climate Change targets - promote and support growth and development of the Scottish economy in a controlled and sustained manner.
Deliverability and quality Delivers in a way which: - matches the supply chain’s ability to deliver the required technologies and works to a set standard and by an appropriately skilled workforce - makes an improvement to Scotland’s built estate to a defined level of quality, and provides protection for the consumer.
Affordability and Value for money Allows a range of finance options to be used and has the potential to attract significant levels of private sector capital. Realises value for money for Scottish Government
Fuel Poverty reduction Promotes achievement of fuel poverty reduction targets through the programme life.
Environmental success factor Description
Population and Human health Work to eradicate fuel poverty Work to reduce greenhouse gas emissions which are harmful to human health Reduce other environmental impacts which are harmful to human health
Climatic Factors Contribute to formal targets to reduce greenhouse gas emissions across Scotland
Environment Protect and where appropriate enhance Scotland’s diversity of biodiversity, cultural heritage, and our most scenic areas and promote sustainable use/reuse of material assets to support sustainable development, reduce greenhouse gas emissions and make best use of resources

This assessment allowed a ‘proposed way forward’ to be identified in each area, which formed the basis of the proposals set out in the consultation documents.

3.1.1 Long-term domestic standards including EESSH2

The findings of the consultation in January 2017 on Scotland’s Energy Efficiency Programme supported the setting of any long-term standard, applicable to all domestic buildings in Scotland. Responders were keen that this provide clarity and the direction and speed of travel. Taking this and experience from work already undertaken on social housing, the consideration of alternatives has been undertaken against a set of key delivery options.

Table 2: Options for Long-term Domestic Standard

How When
Business as Usual (Promote behavioural change/No regulation) Regulation A blend of regulatory, economic and behavioural change initiatives Big Bang Delivery Phased sectoral delivery
Provide information on energy efficiency / use to consumers to promote behavioural change New regulatory intervention focused on meeting climate change targets A blend that combines behavioural, economic and regulatory options Standard set immediately and delivered in a short timescale (next 10 years) Standard is delivered over a phased timescale out to 2040
Strategic fit and economic growth X X √√
Deliverability and quality X √√ X √√
Affordability and Value for money √√ X √√ X √√
Fuel Poverty reduction X X √√ √√ √√
Population and Human health √√ √√
Climatic Factors X √√ √√ √√ √√
Environment X
Conclusion Discount Discount Proposed way forward Discount Proposed way forward

The ‘How’ options relate to ways in which the standard are delivered. Behavioural or regulatory change as standalone options will fail to meet all the key delivery criteria. Neither take into account economic growth or fuel poverty reduction, while behavioural change fails to deal with the deliverability of the supply chain quality assurance or climatic factors, and will not deliver change at the required pace without significant positive incentives being made available. Regulatory intervention focused on meeting climate-change targets directly contributes to environmental, climatic, human health and deliverability factors; however, it will not impact directly upon value for money, and may not adequately target those living in fuel poor households, as the greatest carbon savings can often be found in homes that are not fuel poor.

A blend of regulatory, economic and behavioural change initiatives alongside a phased sectoral delivery will realise all the key delivery criteria. Therefore, this is the proposed way forward.

The ‘When’ options relate to the timescale over which the long-term domestic standard is delivered. The ‘Big Bang’ Delivery scores worse on deliverability and quality assurance as the supply chain and the framework which will train, monitor and assess their output will not be able to successfully achieve the long-term standard across the entire domestic sector within 10 years, without undermining quality.

A phased timescale for the owner occupier, private rented and social rented sectors will provide confidence in the supply chain, allow steady growth of suppliers and promote affordability and value for money as new technology becomes more widespread and therefore reduces in price. It also recognises the different relative starting positions of the tenures.

3.1.2 LHEES and District Heating

In the consideration of a national roll-out of Local Heat & Energy Efficiency Strategies ( LHEES), under the control of local authorities, recent consultation (during 2017 and 2018) has provided direction on the consideration of alternatives. This has also been combined with experience taken from the LHEES pilots which have been undertaken during 2017 and 2018 and which are on-going. Further, recent consultation on the implementation of a regulatory system for district heating during 2017 and 2018 has also provided information to allow the consideration of alternatives.

Final decisions on our preferred approach to LHEES and district heating regulation have not yet been taken, and will form part of the Scottish Government’s wider response on potential legislative provision, following the related consultation accompanying the Routemap.

Table 3: Options for Local Heat and Energy Efficiency Strategies

Business as Usual (Non-statutory LHEES) Statutory LHEES National Programme – no LHEES
Local authorities are free to develop LHEES as they see fit, following non-statutory guidance issued by Scottish Government, or using existing powers such as for housing and planning. Local authorities have a statutory duty to develop and deliver an LHEES, as set out in legislation and statutory guidance Heat and Energy Efficiency Strategy is developed nationally and delivered by the Scottish Government or national delivery mechanisms
Strategic fit and economic growth X
Deliverability and quality √√ X
Affordability and Value for money
Fuel Poverty reduction √√
Population and Human health √√ √√ √√
Climatic Factors √√ √√ √√
Conclusion Discount Proposed way forward Discount

As regards LHEES, our proposals around the strategic analysis each local authority would undertake in preparing its LHEES would help it to prioritise and cost local delivery programmes and so accordingly, while the proposals in the first instance would be a duty that falls to local authorities, groups including housebuilders, businesses and contractors at all levels of the local skills and supply chain and low-carbon economy would all be affected.

LHEES will give a collective vision and comprehensive picture of the building stock nationally. This will ensure the Scottish Government has an accurate picture of the levels of improvement needed for the whole of the Programme. We note the options described above could have varying potential impacts on the phasing and overall timescales for implementation across the 20-year span of the Programme.

In terms of the benefits of the various options, while they will all provide some level of improvement over the ‘Business as Usual’ option, it would be reasonable to assume that the difference between LHEES being non-statutory as opposed to statutory will have an impact in terms of how the Scottish Government takes measures towards ensuring consistency nationally across the 20-year span of the Programme.

Regarding the option of a national programme without LHEES – in which a Heat and Energy Efficiency Strategy is developed nationally and delivered by the Scottish Government or national delivery mechanisms – while this would be more beneficial than the Scottish Government taking no additional action (letting the status quo continue), the loss of opportunity to have the standard methodology at the local level that LHEES (statutory or otherwise) would provide, would make it less likely that progress would be as joined-up, evidence-based and consistent so as to best achieve the goals of the overall Programme in the national context.

Table 4: Options for District Heating Regulation

Business as Usual (No regulation) Non-statutory guidance and support Regulation of District Heating Incentives - Combined Public & Private sector financing
Leave the implementation of district heating services to the market, supported by research and information Provide non-statutory guidance and support to local authorities to encourage development of district heating at a local level New regulatory intervention focused on meeting climate change targets

Public sector funding used to support local authorities to implement LHEES.

Public sector financing used to lever in private sector finance to support the growth of DH schemes

Strategic fit and economic growth √√
Deliverability and quality X X
Affordability and Value for money X √√
Fuel Poverty reduction X X X
Population and Human health √√ √√
Climatic Factors √√
Conclusion Discount Discount Proposed way forward Discount

While our proposals on regulation to encourage the provision of district and communal heating would be expected to affect a similar range of groups as LHEES, the expected and intended increased provision of district heating networks would obviously have a marked effect on district heating providers, and we could expect to see greater impact on social landlords who are receptive to shifts towards district or communal heating. That the regulation could potentially include a licensing regime could also be expected to affect district heating providers; however, it would also provide benefits by improving consumer protection and guaranteeing minimum standards, which would increase public confidence in the district heating sector and strengthen its overall viability.

In contrast, we would envisage that the option of leaving the implementation of district heating services to the market without any regulation would mean we were losing an opportunity to assist the growth of district heating and have any control over minimum standards and reliability of networks in order to protect consumers.

Under the ‘business as usual’ option, where the Scottish Government continues providing non-statutory guidance and support to local authorities to encourage development of district heating at local level, progress will continue, but likely to be at a slower pace. It would also be less likely that the overall goals of the Programme in terms of reduction of energy demand and carbon would be achieved with district heating playing as great a role.

3.2 Quantitative assessment

For the area where the proposals contained in the consultation have reached a sufficient degree of detail, a quantitative assessment has been undertaken. As such, only policies relating to the long-term domestic standard and EESSH2, which are more developed, particularly in the case of EESSH2, are costed here. Feedback from this consultation on proposals in these areas as well as other areas will help inform any impact assessments which are required in the future as a result of proposals set out in this consultation.

3.2.1 Modelling Methodology

In relation to housing stock, the National Household Model ( NHM) has been used to estimate the impact of the proposed regulatory standards in the owner occupier, private rented and social rented sectors. The NHM is a domestic energy-policy modelling and analytical tool, commissioned from the Centre for Sustainable Energy by the UK Government, and also used by the Committee on Climate Change.

The stock information which has been used in the modelling exercise is a three-year combined dataset (2011-2013) of all dwellings surveyed during this period by the Scottish House Condition Survey, which has previously been converted for use in the NHM. Each dwelling record has a sample weight which allows the results for the individual dwellings to be grossed up to represent the overall Scottish housing stock. Assumptions for demolitions and new build were then applied for future years.

The flexibility of the model allows different objective functions to be set for the model to solve. In the modelling work undertaken to inform this consultation, the objective was to meet the relevant EPC rating at the lowest upgrade cost.

Table 5 sets out the measures that were modelled in the NHM for this exercise. This is not exhaustive of all the measures that could be considered; for example, district and community heating was not modelled as the NHM is not designed for spatial analysis. Restrictions were placed on the availability of certain measures to try to account for problems that may arise in practice. For example, only 50% of pre-1919 stone dwellings were assumed to be suitable for wall insulation, and for solar PV, not only were mid- and ground-floor flats excluded, but in addition it was also assumed that only 50% of top-floor flats and houses which have a roof of at least 30m 2 also have a suitable pitch and orientation for solar panels.

Table 5: Measures modelled in National Household Model

Insulation and heating efficiency Renewables
Gas boiler upgrades
Cavity wall insulation
Double glazing
Draught proofing
External wall insulation
Floor insulation
Internal wall insulation
Loft insulation (top-up)
Low energy lighting
Secondary glazing
Storage heater
Tank insulation

Air source heat pumps
Biomass boilers
Ground source heat pumps
Solar PV
Solar thermal

Given the likelihood that there will be significant technological development over the time period in which it is proposed that the standards should be achieved, which could result in new and improved measures, and reductions in costs of existing measures, the results set out below should be regarded as indicative rather than precise.

3.2.2 Long-term domestic standard in private sector

This section sets out the costs and benefits of the proposed long-term domestic standard that all dwellings should have an EPC of at least C. Since a higher standard is proposed in the social sector (see Section 3.2.3), the costs and benefits set out in this section relate only to the private sector, i.e. the owner occupier and private rented sectors.

Modelling shows that three-quarters of the private sector stock can achieve an EPC of at least C at a total cost of £4.7bn. Higher attainment rates can be achieved by spending more, but in the consultation we propose that properties would only need to be brought up to the standard where it is technically feasible and cost-effective. We will develop our proposals on cost-effectiveness in the light of feedback from this consultation, and we will then be able to revise the costs, benefits and attainment rates given the final form of any exception to meeting the C standard based on cost effectiveness.

Table 6: Costs and benefits of raising dwellings to an EPC C in the private sector

EPC C attainment rate 75%
Total cost £4.7bn
Average (median) upgrade cost 1 £3,500
Average (median) fuel bill saving 1,2 £350

1. The averages used for upgrade costs and fuel bill savings are medians (i.e. the mid-points). Medians are less affected by extreme values than means, and since we are proposing that upgrades will not have to be installed if they are not cost-effective, the median is a better measure of central tendency than the mean in this context.
2. The benefit relating to a modelled fuel bill saving may be taken either as a money saving through a lower actual fuel bill, or in kind as comfort-taking for those households who were previously underheating their homes and who can now afford to keep them warmer.

3.2.3 EESSH2

Following agreement through the EESSH Review Group, and aligning with our wider ambitions for the Programme, emissions reductions and domestic heat, we are proposing a new EESSH2 milestone by setting a target to maximise the number of social rented homes meeting EPC Band B, by 2032. This will be supported by: an opportunity for review in 2025 (to confirm progress and finalise the detail of future milestones, and which will be able to account of the development of decarbonisation and forthcoming policy announcements on hydrogen from the UKG); and a visionary standard for 2040 to remove poor energy efficiency as a driver for fuel poverty in social housing, and for all social housing to be carbon neutral as far as reasonably practical.

Table 7 sets out the proposed targets for social housing for 2032. Modelling of the impact of EESSH2 was undertaken through the NHM in a similar way to that for the private sector. In addition, a parallel costing exercise was undertaken with volunteer case study landlords. Details of the modelling approach in the case studies are set out in the EESSH2 consultation. The case-study landlords constitute around 12% of the social sector stock, and they were chosen in order to represent a broad range of landlords in terms of the type and location of the stock. The results of the case study landlords were grossed up to express the impact of EESSH2 for the social sector as a whole.

Table 7: EESSH2 targets for 2032 (by fuel and dwelling type)

Minimum EPC EE Band
Dwelling type Gas Electric Biomass Other fuels
Flats B B B C
Four-in-a-block B B B C
Houses (other than detached) B B B C
Detached C C C C

Table 8 sets out the attainment rates, costs and benefits of meeting EESSH2 in 2032. While the benefits of meeting EESSH2, in terms of fuel bill and energy savings and carbon abatement, were not reported in the case studies, they are available from the NHM modelling.

Table 8: Projected attainment rate, costs and benefits of EESSH2

Case studies grossed up to sector level – attainment rate and cost
EESSH2 compliance 62%
Total cost £3.4 billion
National Household Model – attainment rate, costs and benefits
EESSH2 compliance 49%
Total cost 1 £3.7 billion
Average (median) upgrade cost 2 £5,400
Total annual fuel bill savings £110 million
Average (median) annual fuel bill saving 2,3 £160
Total annual energy savings 1.3 TWh
Total annual carbon abatement - including electricity 0.4 MtCO2e
Total annual carbon abatement - excluding electricity 0.2 MtCO2e

1. The average cost in the NHM is lower but total cost higher than for the case-study results because the NHM modelling allows for a degree of demolition and new build over the period 2032, while the case-study results were grossed up using the latest (2016) stock figures.
2. The average used for upgrade costs and fuel savings is a median (i.e. the mid-point) to facilitate comparison with results for private sector shown in Table 6. Mean upgrade costs and fuel bill savings are contained in the EESSH2 consultation document.
3. The benefit relating to a modelled fuel bill saving may be taken either as a money saving through a lower actual fuel bill, or in kind as comfort-taking for those households who were previously underheating their homes and who can now afford to keep them warmer.

The results in Table 7 show that, based on the case study results, it is estimated to cost around £3.4bn to achieve just over 60% attainment of EESSH2, as compared to a cost from the NHM modelling of £3.7bn to raise about half of the stock to EESSH2. Given the somewhat different characteristics of the stock in the two modelling exercises, differences in software used, and different modelling approaches, these results can be considered to be broadly similar.

Table 9 breaks down the attainment rates by dwelling type, based on the NHM modelling. The highest attainment rate is for detached houses, for which a minimum EPC rating of C rather than B is proposed. The next highest attainment rate is for non-detached houses. Although these will have to meet a B if their fuel is gas, electricity or biomass, which is the same standard as for flats and 4-in-a-block, their higher attainment rate reflects the fact that they are more suited for solar upgrades, which play a key role in raising dwellings to a B.

Table 9: Projected EESSH2 attainment in 2032 by dwelling type – NHM modelling

Dwelling type EESSH2 attainment rate
Flats 10%
4-in-a-block 12%
Houses (other than detached) 94%
Detached houses 100%
All house types 49%