Heat networks delivery plan

Sets out how provisions of the Heat Networks Scotland Act 2021 and wider policy will contribute to increasing heat networks in Scotland.


Chapter 5: Wider policy framework

Contribution to eradicating fuel poverty

Heat networks can, under certain conditions, help to reduce expenditure on heating. The Competition and Markets Authority (CMA) found that up to 90% of heat network customers enjoy similar, or lower, bills than those with standard gas boilers and heat networks can cut both emissions and bills. The CMA analysis compared customers of heat networks, which were almost exclusively gas-fuelled, with households using individual gas boilers. We will undertake further analysis to more fully understand the expected running costs of heat networks supplied by zero emission or surplus sources of heat.

Respondents to the Draft HNDP identified alleviating fuel poverty whilst moving to heat networks, and low carbon heating more generally, as a challenge. Some respondents were keen to point out that fuel poverty is a complex issue with a number of different drivers, and that low carbon heating technologies are not the only means of addressing it. A small number of respondents did, however, frame the heat transition as a potential opportunity to address fuel poverty. In particular energy efficiency retrofit of the existing building stock was routinely raised by respondents across questions as essential to reducing heat demand and fuel poverty.

The cost of operating a heat network, and thence the costs passed onto consumers, in part relate to the wholesale cost of any energy input for the heat source. As such the operating costs can fluctuate along with gas and electricity prices, where these sources of energy are used. There are examples[13] of heat networks in Scotland and further afield which use a mix of heat sources and large scale storage to reduce customers' heat costs.

Efficiency and therefore operating costs can also be affected by the temperature of the network – with lower temperature networks generally loosing less heat. Improved energy efficiency of connected buildings can therefore be a factor in lowering network operating temperatures and reducing operating costs.

The Heat in Buildings Strategy has set out guiding principles to ensure alignment of heat in buildings programmes with fuel poverty objectives[14]. We will use these principles in developing regulation and to guide the operation of our capital programmes.

Our Fuel Poverty Strategy was published on 23 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 will work with the Scottish Fuel Poverty Advisory Panel, appointed by Ministers in December 2021, as we bring forward regulation under the 2021 Act so that it supports efforts to eradicate fuel poverty and to ensure it does not adversely impact those in or at risk of fuel poverty. Furthermore, we will work with the Advisory Panel to identify where heat networks could help to reduce the depth and rate of fuel poverty, contributing to meeting our ambitious targets.

Waste and surplus heat

As we transition to a net-zero economy it will become increasingly important that we use resources efficiently. This includes maximising the use of surplus or waste heat, which at present goes unused. A recent ClimateXChange study identified a waste heat potential of about 1,677 GWh across some 932 sites in Scotland, including from distilleries, wastewater treatment facilities, bakeries and many other sectors.

Surplus or waste heat is rarely fully utilised in Scotland, even though heat recovery can significantly increase the overall energy efficiency and energy recovery of facilities. We wish to see the opportunities fully explored for cost effective heat recovery and its use offsite, once onsite usage has been taken into account.

Information is key to facilitating this process. Some respondents to the consultation on the Draft HNDP cited a better understanding of the potential of waste heat sources as necessary and some raised the issue of access to waste heat. One respondent suggested that waste heat sources should be mandated to connect to an available network and another that they be required to supply heat.

Energy from Waste (EfW)[15] facilities are among the largest single sources of surplus or waste heat in Scotland. Currently there are 8 EfW facilities under construction or in operation in Scotland, with a further facility in Westfield, Ballingray in Fife expected to begin construction soon. Since 2014 all EfW facilities have been required to prepare detailed heat and power plans in order to identify opportunities for local use of heat from the facility.

There are examples of surplus or waste heat use at Lerwick, Grangemouth, Shawfair in Midlothian and Torry in Aberdeen. However, significant amounts of heat go unused at some of these and other facilities. A key reason that heat is not recovered is that there are insufficient commercial opportunities to incentivise recovery, in particular the lack of potential heat customers and absence of an adjacent heat network. Equally, there are no legal requirements and limited incentives to recover and use surplus or waste heat.

As an initial step, we will consider introducing a requirement for potential heat suppliers – for the type of heat source where heat can be cost effectively recovered and supplied – to provide information when formally requested to provide it; and that this information be shared with relevant authorities and relevant licenced heat network providers.

We will also engage with the UK Government on its equivalent proposals which include powers to require:

  • owners of heat sources (such as thermal power stations and industrial and commercial sites which could be used to supply heat networks) provide information to a Zoning Coordinator.
  • heat sources to connect to a heat network (provided it is technically and economically viable).

This year we will work with stakeholders to further develop proposals for consultation on the provision of information on potential waste heat sources and any further measures considered necessary to increase the utilisation of surplus or waste heat. This consultation will include which potential heat suppliers would be in scope of any proposals.

We will also make available to local authorities, by Winter 2022/23, further information on the availability of surplus or waste heat to support the identification of heat network zones and the development of LHEES.

Skills and supply chain

Unlocking investment in the supply chain must start with clear demand for its products and services. Our investment of at least £1.8 billion for heat and energy efficiency projects over the course of this Parliament, as outlined in the Heat in Buildings Strategy, aims to strengthen demand and support an increase in jobs and skilled workers.

We will work with industry to co-produce a new 'Heat in Buildings Supply Chain Delivery Plan' later in 2022 specifically focussed on strengthening the broad supply chains needed to deliver at the pace and scale we need. We will continue to work with the sector to support the development of skills and the supply chain for heat networks that some respondents to the consultation on the Draft HNDP suggested was needed.

Around 60 companies in Scotland are active in the heat networks sector, the majority of whom are civil engineering and construction contractors, most of which are large contractors that offer heat network contractor services as part of a range of construction services[16].

The Climate Emergency Skills Action Plan (CESAP) sets out immediate actions to support the development of skills needed to meet the climate change challenge. Through CESAP we have established a Green Jobs Workforce Academy for existing employees, and those who are facing redundancy, to assess their existing skills and undertake the necessary upskilling and reskilling they need to secure green job opportunities as they emerge.

New skills and supply chains will be needed as we scale up the development of heat networks in Scotland. The Energy Saving Trust (EST) report "Heat Network Skills in Scotland"[17], published in May 2020, identified skills gaps in the heat network supply chain, notably:

  • project management of heat networks, delivery and operation
  • heat network design
  • installation and optimisation of heat networks
  • technical operation and maintenance.

To build on this work, and to better understand potential skills gaps, we have partnered with Scottish Renewables and Skills Development Scotland to undertake a "Heat in Buildings Workforce Assessment Project". This project will help us to better understand the timing of required workforce growth across the heat and energy efficiency sectors, including the heat network industry. This will help us plan how best to support people transitioning into key roles.

It will be important to ensure that the workforce and skills needed to develop, operate and maintain heat networks are available right across Scotland. This will include improving access to the necessary skills and trades in our most remote and island communities, and ensuring local authorities have the necessary skills and expertise to drive development of heat networks.

In addition, in developing technical standards (see Chapter 3), the long-term intention is to develop standards against which certification can take place. This may provide additional opportunities for further qualifications in Scotland.

Non-domestic rates

To help support and encourage investment in green heat networks the Non-Domestic Rates (District Heating Relief and Renewable Energy Generation Relief) (Scotland) Amendment Regulations 2021 introduced a 90% relief from non-domestic rates until 31 March 2024 for new networks run from renewable sources. This is in addition to the existing 50% relief that is in place for all heat networks. This relief is guaranteed to continue until 2032.

These reliefs help to support the business case for new networks by reducing their operational costs.

We note that the non-domestic rates reliefs were welcomed by some respondents to the consultation with some of those suggesting extending to the 2030s. We will continue to monitor the use of reliefs by heat networks and make adjustments as necessary.

Concerns about the valuation methodology generally applied to district heat networks has been raised in the past. Valuations are carried out by Scottish assessors who are independent of the Scottish Government, based on existing statute and case law. Appeals may be made to independent valuation appeal committees.

Contact

Email: heatnetworks@gov.scot

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