Heat network licensing: partial business and regulatory impact assessment

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Under Option 1 it is expected there will be some costs for businesses which choose to apply for an installation and maintenance licence, in terms of staff resource required to complete the application process and payment of any associated licence fees. Fees may be payable at the time of application and while the licence remains active (for example an annual monitoring fee). However, these costs are expected to be negligible in the context of wider heat network development, and businesses which do not want to pay will not be required to apply for a licence.

Fees will be proportionate and aligned with the costs incurred by the licence regulator. For example, the licence application fee will be based on the cost of processing one licence. These costs are difficult to estimate at this time but based on work done for the financial memorandum to the 2021 Act, a licence application fee could be between £3,150 and £5,250 (in 2019 prices)^[5]. Further detail including indicative fee levels will be outlined in the financial memorandum and Final BRIA accompanying any future legislation in this area and are not available at the time of this Partial BRIA.

If we were to take forward Option 2 (implement mandatory heat network licences under the 2021 Act), this would also result in costs for businesses in terms of application resources and fees. The application process set out in that legislation is more complex than what we are proposing for installation and maintenance licences, resulting in higher resource costs for businesses. Additionally companies would have no option to ‘opt out’ of applying and paying for a licence. The increased volume of licence applications under a mandatory regime, and the increased complexity of processing each application, may also result in higher fees to offset the costs of the licence administrator.

Other impacts

None identified.

Scottish firms’ international competitiveness

As noted in previous sections we understand that UK Government intend to bring forward a similar opt in rights and powers regime in England under the Energy Act 2023 and associated regulations. Because areas like road works are devolved, our proposals are necessary to ensure that heat network developments in Scotland are not disadvantaged compared to those in England. Without an equivalent regime Scotland may become a less attractive place to invest in heat network development, limiting opportunities for the sector here which would have negative consequences for our goals of reducing reliance on fossil fuels, improving energy security and ensuring we meet climate targets.

Similarly, we believe that there is a risk that taking forward Option 2 (implement mandatory heat network licences under the 2021 Act) would result in a disproportionately complex and expensive licensing regime in Scotland when compared to south of the border, which may disadvantage Scottish business.

Benefits to business

The primary aim of installation and maintenance licences is to support heat network development by granting rights and powers which will remove existing obstacles faced by companies when they need to carry out road works, land survey etc. These existing obstacles can increase costs for businesses because they must acquire rights on a case-by-case basis, and may have to change or delay projects where rights cannot be obtained. In exchange for the minimal costs noted above, businesses will be able to access the statutory powers to which they have consistently told us they require.

Heat networks are major infrastructure projects and enabling them to proceed more efficiently is expected to create opportunities across the wider construction industry, as well as associated businesses such as road works and traffic management, consultancy services and so on.

Small business impacts

Because we expect the rights and powers available to licence holders to be most applicable to larger heat networks, the impact on small businesses are expected to be minimal. SMEs will not be under any statutory obligation to apply for a licence so will be able to decide for themselves whether they want to take on any associated costs.

Investment

Our proposals have the potential to make Scotland a more attractive place to invest in heat network development. Accessing the rights and powers available to licence holders should increase investor confidence that a project will be able to proceed without unanticipated setbacks or delays.

Workforce and Fair Work

Our installation and maintenance licence proposals are not expected to have any impact on the workforce or the Fair Work First principals.

Climate change/ Circular Economy

While the development of heat networks creates opportunities to harness waste heat from industrial and commercial sources, supporting circular economy principles by maximising resource efficiency, our installation and maintenance licence proposals are not expected to have any direct impact on climate change or the circular economy.

Competition Assessment

Our installation and maintenance licence proposals are not expected to have any impact on competition in the heat network sector.

Consumer Duty

Our installation and maintenance licence proposals are not expected to have any impact on consumers. Protections for heat network consumers will be provided via the GB-wide authorisation regime under the Energy Act 2023.