Green Heat Finance Taskforce: report - part 2

Foreword

Exploring new ways of paying for adapting our homes, businesses and communities for a cleaner, greener future has reinforced our understanding of the need for a systems approach to a complex and multi-layered generational challenge. In this, our second report, we have focussed on creating attractive investment propositions which stimulate economic growth in Scotland, and deliver reduced bills and improved health for Scotland’s people, as well as reducing Scotland’s emissions. If we get this right, it will deliver substantial benefits while helping reduce future costs.

Our first report (November 2023) set out individual property options and financial products including green mortgages, which are increasingly available. Property Linked Finance has potential if it can be developed in Scotland. This report applies a collective lens, focusing on options for place-based solutions, heat networks and social housing.

Legislative, regulatory and policy clarity from the Scottish and UK Governments is needed to give businesses, public institutions and individuals the confidence to invest in energy efficiency measures and install clean heating.

Heat accounts for almost one fifth of Scotland’s emissions and we see no path to net zero which does not include decarbonising heat as a key component. While this will be a two decade journey, it is imperative we begin that journey now. We need to see swift, coordinated and determined action to scale up heat pump installation rates, as well as providing the supportive environment required for heat networks to grow and flourish.

Lack of demand for clean heating, rather than the availability of finance, proved to be a key barrier. For collective property solutions this manifests itself in the lack of a credible investment pipeline and individual projects that can be scaled into programmes capable of attracting institutional investment.

The need to come together across a shared clean heat mission for government at all levels, between governments, business, education and wider civil society, is critical to success. Our call to action sets out clear roles and asks of different organisations.

Collective solutions offer the potential to drive economies of scale and reduce the costs to individuals, while also providing an attractive investment opportunity, provided risks can be effectively minimised for private investors and a sustainable revenue stream created. Blended finance, combining public and private financing, can increase the reach of what can be done with public funding alone, while not leaving the private investor to bear all the risk.

Given the relative newness of blended finance models in the clean heat space, we believe central programme and project support, including access to technical and professional advice, is essential to helping local authorities or other project sponsors develop individual business cases to an investment ready stage. We make recommendations for establishing such support units for social housing specifically, as well as for place-based delivery more widely.

The finance sector has demonstrated a willingness to engage and make available the finance needed to deliver. However, Scotland needs to act quickly if it is not to be overtaken by the rest of the UK and internationally as they develop solutions. Bold and ambitious leadership and urgent action from both governments is required to provide a clear pathway for the steps needed to decarbonise heat and unlock clean heat opportunities.

Scotland, its people and businesses, stand to benefit from our clean heat transition and we look forward to early and decisive action from the Scottish Government. Taskforce members have indicated their willingness to support that journey and I thank them sincerely for their commitment, insights, perseverance and valuable contributions throughout.

Sara Thiam, Chief Executive Officer, Prosper

Chair of the Green Heat Finance Taskforce

This report has been brought to you by the independent Green Heat Finance Taskforce and is published on its behalf by the Scottish Government