- 9 Feb 2021
Attendees and apologies
- Mike Thornton, Energy Savings Trust (Chair)
- Caroline Bragg, Association of Decentralised Energy
- Lewis Shand Smith, Energy Consumers Commission
- Paul Jordan, Energy Systems Catapult
- Phil Hurley, Heat Pump Association
- Ian Rippin, Microgeneration Certification Scheme
- Rodney Ayre, Mitsubishi
- Clementine Cowton, Octopus
- Helen Melone, Scottish Renewables
- Martyn Raine, SNIPEF
- Dave Pearson, Star Refrigeration
- Stewart Wilson, TIG
- Ross Armstrong, Warmworks
- Graeme Bruce, West Highland Housing Association
Scottish Government secretariat:
- Craig Frew, Alastair Robertson
Scottish Government observer:
- Melanie Macrae
- Andy Mason, Lloyds Banking Group
Items and actions
Welcome and introductions
The Chair introduced the session. It was noted that the Terms of Reference had been updated following feedback at the introductory meeting, and that the minutes for that meeting had been shared for comment. There was no further feedback from the group on this.
The Chair reminded the group of the objectives within the Terms of Reference under Innovation and Demonstration which would help guide the discussion.
Scottish Government secretariat stated that they would take note of the recommendations and points made by the group as they move through the discussion. These would be reflected on at the end of the meeting. Following the meeting, secretariat would formally capture these and share with the group for further comment.
Technology/business case innovation
The Chair moved onto the discussion paper which had been circulated in advance in support of the meeting. The first discussion was on the merit of further technical innovations within heat pumps. The majority view of the group was that there is unlikely to be innovations within fundamental heat pump components which would make a significant impact in overcoming the barriers to deployment. This is because the technology is well established, and any incremental improvements (e.g. increased efficiency) will be driven by large manufacturers in a global value chain for the product. The Energy-related Products Directive is a successful driver of technical innovation within the heat pump market in Europe and the group felt there was limited scope for further government support or intervention beyond this.
The group highlighted that performance improvements to heat pump systems will come as a result of a stronger market demand and subsequent competition. A key area with scope for innovation was in the integration of heat pumps into existing buildings and local energy systems.
The group highlighted that there may be an opportunity for innovation within new-build construction to make properties more suitable for heat pump installation. This could help prevent space restrictions and noise issues. An example of this is solar PV, where integrating panels into the construction of roofs had reduced costs.
There was a discussion on reducing the time taken to install heat pumps by manufacturers providing “plug-and-play” style packages. The group highlighted that this could potentially help reduce costs through off-site pre-fabrication, allowing greater cost efficiencies in the supply chain.
It was pointed out that Mitsubishi produce a pre-packaged thermal storage system for the UK and for Europe they produce a fully packaged tank system that is standalone with the full integration of the expansion vessel, pumps etc. The group acknowledged that further innovation on system integration, with a particular focus on the Scottish building stock was an area of opportunity.
The group touched on the need for upskilling and attracting more fossil fuel heating installers to move across into heat pumps, with the resulting competition in the installation market reducing costs. The Chair highlighted that this would be discussed in more depth in a scheduled session on People and Place.
Business model innovation
A key theme of the discussion was that market creation and consumer adoption are more important than technical innovation. The group highlighted that an innovative approach to reducing the lifecycle cost of heat pumps and increasing the value of their services is required rather than a narrow focus on capital and installation costs. The group focused on options including innovative tariffs to reduce running costs and simplifying the installation process by making heat pumps more installation-ready during the manufacturing process.
A point was made that there is no market incentive for smart heat pumps currently, because the vast majority of utility companies do not provide suitably flexible tariff agreements to make them worthwhile. The group highlighted that agile tariffs are not currently incentivised strongly enough through price signals, and that this should be a key area of focus for government and regulators.
There was a discussion on the need for the ESO to appreciate the role that domestic level energy assets could play in balancing the grid, rather than the traditional focus on large scale generation facilities. It was suggested that this could be supported through an approach which combines type testing (i.e. laboratory testing specific heat pump models to record performance details) with portfolio level testing (testing a group of heat pumps together in-situ) to understand the technical requirements in ESO balancing service contracts.
The group discussed the heat as a service (HaaS) as an innovative business model for heat pumps. A point was made that HaaS seems attractive as a concept but the group would need further detail on its intricacies to understand its value. There were concerns that as the heat supplier takes on greater responsibility for the heating system, this would result in higher costs than a typical approach where the consumer purchases the product outright. However, it was pointed out that there are benefits in the supplier having this responsibility, as it would be in their interests to ensure the system is of high quality, runs efficiently and that the fabric of the building is of high standard. There were diverging views from the group on the definition of the Heat as a Service business model, ranging from a fully funded model including capital equipment, through to a subscription model for heat only.
It was pointed out that the fundamental energy market framework would likely remain a challenge for business models like HaaS, particularly for deployment in on-gas areas. However, it could become prominent in future markets and governments should ensure there are no artificial barriers to HaaS or other innovative business models and tariff pricing strategies. However some members of the group highlighted that consumer protection and regulation will be increasingly important as such models develop and that the government should develop a clear policy on such business models.
Finally the group highlighted that renewable heat provision could be integrated into business models which work across other strong service-based markets, such as social care, home security and property retrofitting.
Current Government support
On the topic of current Government support, a point was made that innovation support is a complex space involving various actors and that it would be helpful if information on what support is available was in one place.
It was pointed out that the Home Energy Efficiency Programmes for Scotland (HEEPS) Equity Loan is a valuable programme which is improving energy efficiency in homes. Heat pumps can be installed under HEEPS currently but there may be opportunity to better use the scheme.
A question was raised on the potential role of the Scottish National Investment Bank in supporting heat pump innovation & demonstration. A point was made that SNIB should consider the role it can play in creating a strong market for heat pumps and then providing support when private investment can be leveraged. The group would welcome more information on the role of SNIB in this space.
Demonstration and pilot projects
The Chair recalled that comments from the introductory session indicated a need to focus on demonstration at scale rather than pilot projects.
Several members provided an overview of demonstration projects that they have/are involved with. It was noted by several group members that demonstration projects at current scales are unlikely to drive the market forward, and that large scale demonstration should aim to promote open competition in the marketplace. Demonstration projects typically use procurement which moves the project away from real market conditions.
However, there was agreement from the group that small/medium-scale pilot projects still have value in understanding the barriers to scale, including the technical constraints of heat pumps and regulatory barriers such as planning legislation.
Gaps and opportunities for demonstration
There was a discussion on the opportunity for demonstration to focus on heat pumps in new-builds ahead of regulatory changes which will drive the wider use of heat pumps. A more general point was that the new-build heat pump market can support growth across the sector– this will be discussed further in the Deployment Pathway session in January.
One member highlighted there could be an opportunity for a demonstration programme which shows the application of heat pumps within industry, with the whisky industry a particular area of interest. This could tap in to a large sector in Scotland and demonstrate how large scale heat pumps can be used to support decarbonisation in high temperature processes.
It was raised that lessons from demonstration projects could help convince heating engineers and installers that heat pumps are an attractive proposition, when engaging directly with consumers. These stakeholders are highly influential, due to their consumer-facing role when new heating systems are being installed. According to figures sourced by SNIPEF, approximately 20% of apprentices have taken the environmental technology pathway over the past 5 years. The group suggested funding could be targeted to support plumbing apprentices to train on renewable heating rather than fossil fuels and to monitor their progress in comparison to fossil fuel apprentices.
Secretariat summarised the suggested recommendations from the meeting. Recommendations will be provided in written form for the group’s feedback.
Conclusion and closing remarks
The Chair thanked the group for their time, pointing out that the next meeting will take place on January 27th and will focus on Deployment Pathway. The meeting was brought to a close.