Chapter 9 The Economic Opportunity
Developing Scottish Supply chains – the net zero opportunity
Transforming our buildings by making them more energy efficient and converting them to zero emissions has the potential to make a significant economic contribution and represents a sizeable opportunity for Scottish businesses over the next 24 years. The proposals and actions set out in this draft Strategy provide a clear set of signals to the market, helping to give clarity and confidence to companies to invest for the transition.
As set out in Chapter 6: Kick Starting Investment in the Transition, it is estimated that the total investment in buildings alone required to meet our net zero targets for buildings will be in the region of £33 billion. This figure does not include the potential opportunity to invest in servicing the demand from wider UK and international markets.
Based on our estimated deployment pathway we estimate that annual investment will need to rise gradually throughout this decade, peaking at around £2-2.5 billion towards the end of the decade.
By introducing regulatory standards covering all buildings, ensuring they improve their energy efficiency and install zero emissions heating systems, we are providing clarity and certainty to the supply chain between now and 2045.
Our investment in, and regulation of heat networks will stimulate both the development of new heat networks and the extension of existing ones.
This will provide high quality, sustainable green jobs across Scotland’s towns and cities in such areas as specialist design and architecture, equipment manufacturing, civil engineering, and maintenance. Alongside the creation of jobs related to heat networks, the investment will also be a stimulus for increased rates of energy efficiency measures, which we estimate could support up to 1,200 jobs for every £100 million invested in decarbonising our building stock[lxv];
Our support for further demonstration of hydrogen, smart heating technologies and electricity network innovation will create opportunities across the wider energy system supply chain. Our targeted support for innovation will support companies with a high growth potential, boosting the economy and creating jobs.
Overall, we estimate that as investment ramps up towards the late 2020s, as many as 24,000 jobs could be supported each year in Scotland by the roll out of zero emissions heat[lxvi].
We want to ensure that the economic opportunities that the heat transition creates, are captured by Scottish businesses through a strong, healthy and diverse supply chain capable of meeting the demand from across Scotland, and beyond, whilst still maintaining high levels of services and quality for consumers and businesses.
We are committed to building local supply chains, maximising local job creation, and ensuring a just transition. We will work with Scottish businesses so that they can play a significant part in the transformation of Scotland’s homes and buildings.
Case study: Manufacturing Heat Pumps in Scotland - Mitsubishi Electric Air Conditioning Systems Europe Ltd
Mitsubishi Electric has a long association with Scotland, being based in Livingston since 1979. The Livingston manufacturing campus produces a range of air source heat pump technologies, marketed under Ecodan. The Livingston campus currently operates within a footprint of 54,000 thousand m2 across 5 separate production sites and employs circa. 1,400 people, with a doubling in the number of employees over the last 6 years.
We have a strong foundation on which to build, with the heat and energy efficiency sectors in Scotland currently generating an annual turnover of £2.4 billion and supporting around 13,000 full-time equivalent jobs servicing today’s demand. 
The opportunity presented by the heat transition will require a further step change in the capability and capacity of supply chains in Scotland; one that needs to begin now to be capable of meeting the forecast demand, and one that presents real opportunities for both existing market participants, as well as new entrants.
Ramping up supply chain support
To realise the economic opportunities associated with decarbonising Scotland’s homes and buildings, it will be critical to secure and maximise investment in supply chains in Scotland. Developing new supply chains is a key element of our National Mission for Jobs which will deliver new, high quality and green jobs.
As set out in the Programme for Government, we want to see – as a minimum - the rate of renewable heat installations in homes and buildings double every year from a current baseline of 3,000 domestic installations per annum in 2020 to 64,000 homes fitted in 2025 – a cumulative total of around 124,000 homes. We recognise that setting medium term credible aspirations for deployment of categories of heating technology can build confidence and support investment across supply chains. We welcome views on the role technology specific milestones could play in ramping up supply chain capacity, and how best to set them.
We are already working with the Heat Pump Sector to develop a new Heat Pump Sector Deal in Scotland. An expert working group has been set up to make recommendations to the Scottish Government by Summer 2021 on how industry and Government can work together to set a clear pathway for accelerated deployment of heat pumps, and to consider how innovation can improve the consumer experience of heat pump technology whilst maximising economic opportunities across Scotland. We will respond to those recommendations in the final version of this Strategy.
We recognise the significance of this opportunity for the construction industry and will work with our partners, Scottish Futures Trust and the Construction Leadership Group, to engage with the sector on the opportunity presented by the heat transition.
Through our existing Sustainable Energy Supply Chain programme and our economic development agencies - Highlands and Islands Enterprise, South of Scotland Enterprise, Scottish Enterprise and Scottish Development International- we will work to raise awareness amongst the supply chain, and continue to provide valuable tailored business support, as well as attract new entrants and inward investment.
The Sustainable Energy Supply Chain programme is funded by the Scottish Government and administered by Energy Saving Trust. Since 2013 it has provided support and assistance for businesses in Scotland to help them participate fully and effectively in the supply chain for energy efficiency and micro-generation measures and installations. Over 4,000 people have benefited so far from the support provided by the programme.
In 2020, Scottish Enterprise, supported by Scottish Government, published a directory of companies with expertise in zero emissions heat on the Scottish Industry Directories website. The directory lists 402 companies with a base in Scotland, categorised by geography and their area of expertise, as well as providing a brief description of what they offer and a link to their website. The directory provides an opportunity for the supply chain to market their products, and will help developers and consultants to source more resource for projects from Scottish suppliers.[lxvii]
To augment our existing programme, we will develop an action plan, specifically focussed on strengthening the broad supply chains needed to deliver energy efficiency and zero emissions heat in buildings.
Through this, we will work with industry to co-create an action plan which will:
- Clarify the scale and nature of the supply chain opportunities;
- Identify market barriers faced by the supply chain;
- Review the supply chain sector support in place, and identify any gaps in provision;
- Identify mechanisms to ensure the supply chain is aware of UK and Scottish market stimulation programmes, such as the Renewable Heat Incentive, GB-wide replacement schemes and Scottish Government funding programmes such as our low-cost loans and cashback;
- Ensure that the supply chain is aware of the proposed timetable for introduction of regulatory standards and expected compliance dates, so that it can plan with certainty for delivery to support building owners to meet these standards;
- Set out the actions that the public sector and industry can take to address barriers and fill gaps identified in order to deliver on our targets, as well as secure the economic benefits in Scotland;
- Identify global opportunities and set out mechanisms for supporting export potential, and consider requirement for inward investment;
- Include a specific focus on developing local supply chains, attracting inward investment, and securing local jobs, particularly in our islands and remote communities;
- Consider the energy efficiency and zero emissions heat sector within the Scottish Government’s Supply Chains Development Programme.
Supply Chains Development Programme (SCDP)
The 2020 Programme for Government set out a commitment to establish a Supply Chains Development Programme. This overarching Supply Chains Development Programme (SCDP) will bring together supply chain development work across key sectors of the economy, where we see genuine sustainable economic potential. It will:
- take the learning from the experience of working on PPE during the COVID pandemic;
- use public sector procurement as a catalyst for supply chain development in areas of strategic interest;
- bring together the strengths of our economic development agencies - Highlands and Islands Enterprise, South of Scotland Enterprise, Scottish Enterprise and Scottish Development International – as well as the National Manufacturing Institute Scotland and other key agencies;
- target existing and prospective suppliers based in Scotland, to enhance their fitness to compete for public contracts;
- help to secure best value for taxpayers and help Scottish suppliers to grow and compete globally; and
- contribute to delivering the National Mission for Jobs.
The supply chain development work identified within this draft Heat in Buildings Strategy will form an early priority of the overarching SCDP.
Exporting our capabilities
Building strong and competitive Scottish supply chains will not only be critical to unlocking the high-volume delivery required later in the decade but also offers the potential to compete in markets outside of Scotland. Our ambitious wider net zero targets and well-developed supply chain will present opportunities to generate exports earnings from overseas markets through utilising our expertise, technology and skills. We will work with Scottish Development International to understand more about the potential for generating export growth through Scotland establishing itself as a centre of technical expertise and manufacturing excellence.
Innovation, in terms of products, services and business models, will be required to meet our ambitious targets for transforming Scotland’s homes and buildings. Fostering and incubating this innovation in Scotland will help to create further economic opportunities for Scottish businesses. We will work with our partners, including our Enterprise Agencies and the National Manufacturing Institute for Scotland, to create a forward looking and proactive Research and Development community focussed on creating solutions to help decarbonise Scotland’s homes and buildings.
We are developing a new framework of support for innovation across Scotland’s energy sector, including a specific workstream on heat and energy efficiency. To underpin this, we will launch a call for evidence in early 2021. This call will seek views on how best to maximise Scotland’s world-leading research talent and facilities for energy innovation. We will respond to the call for evidence by publishing a new market support framework for innovation by the end of 2021.
Case study: Innovation in our supply chain- supporting heat decarbonisation through innovative heat batteries.
Sunamp is a Scottish company that designs and manufactures thermal batteries using phase change material that cuts fuel costs and carbon emissions by storing available energy from renewable and non-renewable sources as heat and releasing it to deliver hot water and space heating on demand.
Their heat batteries are up to four times smaller and more efficient than conventional hot water cylinders, freeing up space in homes and saving energy. The patented technology, developed in collaboration with University of Edinburgh, also has wide applications in commercial, industrial and automotive settings.
Scottish Enterprise has supported Sunamp from its inception, with a total of £2m invested to date via R&D and commercialisation grants, and is now working with the company to develop a heat battery factory with the potential to produce 500,000 heat batteries per year for Scottish, UK and export markets. Scottish Government funding has enabled the installation of heat batteries in over 800 Scottish homes. The technology has been eligible for support through Home Energy Scotland loans since 2018, acknowledging the role of thermal storage in the decarbonisation of heat.
Through these made-in-Scotland products, Sunamp aims to transform how we generate, store and use heat in order to make a significant impact on tackling climate change both in Scotland and beyond.
Summary of action we will take:
90.In 2021, on final publication of this Strategy, we will respond to the recommendations from the heat pump sector deal expert advisory group.
91.We will work with our partners Scottish Futures Trust and the Construction Leadership Group to engage with the sector on the opportunity presented by the heat transition.
92.Through our existing Sustainable Energy Supply Chain programme and our economic development agencies - Highlands and Islands Enterprise, South of Scotland Enterprise, Scottish Enterprise and Scottish Development International – we will continue to raise awareness amongst the supply chain, and continue to provide valuable tailored business support that will attract new entrants and inward investment.
93.We are undertaking work to better understand supply chain linkages for the heat transition across the Scottish economy. This work will identify gaps in the supply chain and the extent to which these could constrain future deployment. We are taking a whole-system view and will consider interactions with other economic sectors.
94.We will work with partners to build on our existing Sustainable Energy Supply Chain programme.
95.Early in 2021 we will initiate a new supply chain action plan specifically focussed on the development of energy efficiency and zero emissions heat in the buildings supply chain in Scotland.
96.We will work with Scottish Development International to understand more about the potential for generating export growth through utilising Scotland’s technical expertise and manufacturing capabilities.
97.In early 2021, we will set out a call for evidence on a new framework of support for innovation across Scotland’s energy sector. We will respond to the call for evidence by publishing a new market support framework for innovation by the end of 2021.
52. What are your views on the plans set out to maximise the economic benefits to Scotland from the heat transition?
53. What role could technology-specific milestones (for example, by 2025) play in supporting supply chain development, and how should these milestone levels be developed?
54. Is there anything further that can be done to ensure that Scotland realises the economic opportunity available from the heat transition?
55. What more can be done to support the development of sustainable, high quality and local jobs in the heat and energy efficiency supply chain across the breadth of Scotland?
56. In your view, what are the opportunities and constraints presented by the role of the wider public sector in maximising the economic benefits to Scotland?
Equipping Scotland’s workforce with zero emissions heat skills for the future
To ensure a smooth rollout of zero emissions heating and energy efficiency we need to have the right skills, in the right place and at the right time. The availability of skills is not only needed to enable the rollout, but also to build and maintain consumer trust. Careful planning will therefore be needed to ensure that a workforce is in place, and suitably skilled, ready to meet growing demand for a range of zero emissions heating systems and energy efficiency measures.
To meet the demand, we will need to grow skills in building assessment; the manufacture and installation of energy efficiency measures, manufacture, installation and servicing of heat pumps, the design, installation and servicing of heat networks, as well as ancillary services such as smart heating controls and support services that include innovation and financing. We will also need to think ahead about ensuring that we have skills in place to deliver hydrogen ready boilers, and their subsequent maintenance and servicing, if this becomes a relevant technology in the next decade.
Whilst the installation of energy efficiency measures will create new jobs, the transition to zero emission heating systems is likely to displace jobs in the fossil fuel heating sector over time. In order to ensure a just transition, it will therefore be important that those currently working in the fossil fuel heating sector, for example, gas heating engineers, have opportunities to retrain and reskill.
As we develop our Supply Chains Development Programme we will work with industry bodies, such as SNIPEF and BESA to consider opportunities for retraining and dual qualifying the existing heating sector workforce. As part of a just transition, this will enable existing gas and oil boiler installers to offer expert knowledge on alternative systems.
Community anchor organisations (see case study below) are one example of where local jobs in the heat and energy efficiency sector can be realised, whilst playing an important role in local reskilling and capacity building, providing essential opportunities across the breadth of Scotland. To support this, we will ensure that these community anchor organisations are considered within our Supply Chains Development programme.
Case study: Community anchor organisations providing local reskilling and capacity building employment opportunities in heat and energy efficiency sector - Kyle of Sutherland Development Trust.
Community anchor organisations (CAO’s) play a key active role in providing services within their community. Controlled and owned by local people they are well placed and networked to work collaboratively, engaging with volunteers and other active local voluntary and statutory organisations, business, partnerships and stakeholders, and can respond to challenges and opportunities as they arise. Offering local leadership, they work to represent the views and interests of the community. CAO’s may also own a range of community assets, many of which are income generating.
Kyle of Sutherland Development Trust (KoSDT) is a community anchor organisation - a charitable trust and a social enterprise set up in 2011 to deliver economic and social projects, to support community development, and to seek inward investment. KoSDT currently employs 14 staff, a significant number in this remote and rural area, and has acted as a springboard for young local graduates into further careers within the public and private sector across Scotland.
During the last few years, KoSDT has delivered several projects with a focus on energy efficiency and reducing heat demand. These include a number of projects aimed at reducing carbon through home energy efficiency measures, winning the Energy Award at the Climate Challenge Fund (CCF) Awards (pictured). One of their projects, Greening Kyle, a 2-year project funded by the Scottish Government through the CCF, realised a saving of £56,000 on fuel bills across the area and lifted 30% of clients out of fuel poverty.
Our Delivery Programmes also maximise the opportunities for skills and employment benefits. Our Warmer Homes Scotland programme delivered over 1,000 training opportunities, 119 trade apprenticeships and created 611 new jobs from 2015-2020. This approach will be integrated into the procurement of a new national Energy Efficiency scheme which will replace Warmer Homes Scotland from September 2022.
In 2018 we convened a Short Life Working Group to consider the quality assurance requirements needed for energy efficiency and zero emissions heating. The Group made 19 recommendations to the Scottish Government covering quality, skills, consumer protection, procurement and non-domestic premises and we consulted on these recommendations in 2019. Respondents to this consultation noted their broad agreement, or agreement in principle, with the recommendations, which were described as welcome, relevant and comprehensive.
When asked about the recommendation to have a quality mark in Scotland, respondents indicated that since any Energy Company Obligation (ECO) work in Scotland has to be carried out by a business that is registered with TrustMark and has demonstrated compliance with PAS 2030 and PAS 2035, it would make sense for the supply chain in Scotland to be aligned with these requirements. Furthermore, establishing separate standards for Scotland could make it difficult for Scottish contractors to work elsewhere in the UK, and vice versa. Rather than establish a separate scheme, it was concluded that there should be a single assurance process and an agreement which confers approval on one scheme that meets the core standards of another.
As a consequence, we will adopt the UK PAS 2035/30 standards for our delivery programmes, which will ensure that installers of energy efficiency measures are suitably skilled to undertake the required works. These standards cover the entire energy efficiency retrofit process in homes, from initial assessment and design, through to installation and evaluation. We will also consider using the UK government endorsed TrustMark quality assurance framework to ensure compliance with these standards.
TrustMark [lxviii]was established in 2005 and operates within a Master Licence Agreement issued by the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS). TrustMark lists ‘approved’ trades for home improvements and recently in 2019 broadened their remit to include energy efficiency installers.
A TrustMark approved energy efficiency installer must:
- Be certified to the BSI installer standards (PAS 2030) and be compliant with with BSI retrofit standards (PAS 2035).
- Comply with the TrustMark Code of Conduct and Customer Charter.
For microgeneration, including heat pumps, we already require measures installed under our schemes to be installed by an MCS certified installer. Together, PAS 2035/30 and MCS standards will ensure that installations are both good quality and fit for purpose.
To ensure these standards are tailored to the needs of the Scottish market, we have developed an installer skills matrix which we propose to integrate within the PAS 2030 and MCS installer standards by summer 2021. This will provide more clarity on the qualifications required, as well as the different routes for achieving these. We will soon be consulting on the detail of the skills requirements outlined above.
We will provide increased support to Scottish colleges for training and retraining for jobs in the energy efficiency and zero emissions heating sectors, including capital investment for colleges to buy equipment.
Heat networks are not covered by the PAS 2035/30 or MSC Standards and as complex large-scale infrastructure, it requires its own bespoke skills across design, development, operation and maintenance[lxix]. As the heat industry grows there may be opportunities for redeployment from other sectors. We are working with partners to develop at least two accredited training courses, to de delivered by universities and colleges in Scotland. We expect these courses to be on offer from 2021.
As the skills requirements set out above are adopted, and demand for energy efficiency and zero emission heating grows, we will work together with Skills Development Scotland (SDS), the Scottish Qualifications Authority (SQA) and the Energy Skills Partnership (ESP) to ensure that there are sufficient training opportunities to ensure that there are career pathways for those who wish to enter the sector. We will also work with our partners to develop new qualifications for energy efficiency and zero emissions heat as may be appropriate.
The Climate Emergency Skills Action Plan (CESAP), published in December 2020 identifies construction, including building retrofit as a priority area for the net zero transition, and proposes immediate and longer-term actions to support people to reskill, retrain and access the growing number of good, green jobs. CESAP recognises the call made by the Climate Change Committee for a step change in the development of zero emissions skills in construction, as well as the increased demand in professional level skills such as planning, design, surveying as well as management. There will also be a requirement for specialist knowledge and skills around retrofit, zero emission heating systems and heat networks for professional, technical and craft roles. Upskilling of existing roles and reshaping of training will be needed across new build and retrofit, as well as for growing demand for digital construction skills and leadership skills across the sector.
We will continue to drive delivery of the skills and jobs actions above through the CESAP delivery, including the new Green Jobs Workforce Academy and the Green Jobs Skills Hub. These will support both employees and employers to access the information and support they need to reskill and retrain for green job opportunities of the future.
As we develop our Supply Chains Development Programme this year, we will set out a more detailed profile of the likely demand for skills and how it is likely to change over time. We will also consider what further support is needed to enable individuals to train in the sector, drawing on insights from our Affordable Housing Supply Programme evaluation. Ensuring that young people can access training opportunities and apprenticeships will be critical to grow the sector. We will continue to use our government-led programmes, such as Warmer Homes Scotland, to support apprenticeships, and will look to expand this further through our existing funding programmes.
Summary of action we will take:
98.We will work with industry bodies, such as SNIPEF and the BESA to consider opportunities for retraining and dual qualifying the existing heating sector workforce.
99.We will consult on proposals for Scottish skills requirements for energy efficiency, low and zero emissions heating systems, microgeneration and heat networks in 2021.
100.We will continue to work together with Skills Development Scotland (SDS), the Scottish Qualifications Authority (SQA) and the Energy Skills Partnership (ESP) to ensure that there are sufficient training opportunities and to ensure that there are career pathways for those who wish to enter the sector. We will also work with our partners to develop new qualifications for energy efficiency and low and zero emissions heating as may be appropriate.
101.Provide increased support to Scottish colleges for training and retraining for jobs in the energy efficiency and low and zero emissions heating sectors, including capital investment for colleges to buy equipment.
102.With partners, we will develop at least two accredited training courses, to de delivered by universities and colleges in Scotland. We expect these courses to be on offer from 2021.
103.Throughout 2021, we will continue to build evidence in support of the wider skill requirements necessary for installing low and zero emissions heating systems in the buildings sector, including the timings of when skills are required, how best to support the transition opportunity from other industries, support training of young people and the provision of local jobs across Scotland, as well as the development of apprenticeships in this area.
104.We will continue to use our government led programmes, such as Warmer Homes Scotland, to support apprenticeships, and will look to expand our support for apprenticeships through our existing funding programmes.
57. In recognition of the proposals set out in the forthcoming skills consultation what further action can be taken to support skills development in Scotland over the lifetime of this strategy?
58. Are you aware of any barriers to the reskilling of existing oil and gas heating engineers to equip them to install low and zero emission heating?
59. How can we support the development of more opportunities for young people?