Heat and Energy Efficiency Technical Suitability Assessment (HEETSA): scoping consultation– partial BRIA

Section 3: Costs, impacts and benefits

Quantified costs to businesses

At this stage of our policy development, it is difficult to quantify costs to businesses until we are clear on the scope of HEETSA and the circumstances in which it will operate. This section of the BRIA is therefore still under development and final impacts cannot be quantified at this stage (however, these will be reflected within the final BRIA).

Costs of having existing methodologies approved or developing new methodologies

Existing methodologies

At this scoping stage of our policy development, the Scottish Government is unable to quantify the costs to business of having methodologies approved by government. We assume that in these circumstances, the methodologies already exist and have been developed by business on a commercial or not-for-profit basis. The costs which a HEETSA approvals process would create would be those which require the business to devote additional resource to securing government approval – which could be in the form of staff to oversee the approvals process, or in the form of procuring or developing new features to address any deficiencies in the existing methodology, compared to the government’s requirements for approval. It is difficult to quantify these costs until the scope of HEETSA is established, and further mapping against existing methodologies has taken place.

New methodologies

The Scottish Government is currently undertaking discovery work to consider how to best address potential gaps in the methodologies currently available, which would be needed to meet the full requirements of HEETSA. We estimate at this stage that the cost to the Scottish Government of setting up a framework that could address these gaps, and where the market could bid to develop methodologies, would be circa £3m, which would be met across several financial years. Alternatively, as proposed in the consultation, the market may, of its own volition, choose to develop these new methodologies. Comparative costings, drawn from the UK Government, show that the cost of building the Home Energy Model is in the order of £2.6m^[7], though in the case of HEETSA there may be synergies with HEM that could reduce those costs (through the use of ‘wrappers’) compared to developing bespoke methodologies from scratch, in which case costs would be more in the region of £200k per methodology. We will refine our analysis of these potential costs to business of developing new methodologies, in the light of responses received to the consultation.

Costs of having professional standards approved

Professional standards are set by standard-setting bodies such as the Scottish Qualifications Authority, who are responsible for developing national occupational standards (NOS), such as those which exist for domestic energy assessors. Awarding bodies such as City & Guilds are then responsible for developing qualifications, and then delivery bodies such as EPC Approved Organisations will deliver training and professional development materials which meet the requirements of the qualification. There are a range of NOS which already exist for assessment of the energy performance of buildings, including those developed to support frameworks such as PAS:2035^[8]. In addition, other professional bodies such as the Royal Institute of Chartered Surveyors may deem their members’ professional experience and prior learning as making them suitably qualified persons. There are therefore likely to be some costs for businesses associated with the approval of skills and qualifications frameworks – either from having to develop completely new frameworks, or from having them approved by government. We will work to quantify those costs with stakeholders, as we further develop the BRIA.

Costs of certification / reporting results of the assessment

At present, retrofit assessment methodologies follow their own forms of certification and reporting. There is no standardised means of recording information, nor of presenting the findings of an assessment. Were the Scottish Government to adopt some form of standardisation, there would be a cost to business associated with adapting software and data recording to meet the formatting requirements of any new certificate. This could create costs associated with data gathering (of additional information that might be required for a certificate or report, which is not currently collected), or costs associated with ensuring that the software used to process the data could present the findings in a format that met the requirements of the government’s standardisation of certification. We expect to have clearer information on these costs following the discovery work that the Scottish Government is leading on the development of new HEETSA methodologies.

Other impacts

The most significant additional impacts of HEETSA for business, beyond the costs outlined above, would be those associated with any situation in which a HEETSA had to be paid for by an organisation. Existing full retrofit assessments such as PAS2035 average around £1,000 per property for an end-to-end process from assessment through to oversight of installation of the measures. Further modelling will be undertaken when further developing our proposals for HEETSA, but Scottish Government anticipates that we would be to see costs more in the region of £500 per property to undertake only the technical suitability assessment part (i.e. without oversight of installation of measures). How and when these costs were borne by business would therefore depend on the extent to which businesses such as landlords chose to use HEETSA as a means of understanding the technical suitability of particular energy efficiency or clean heating system measures for their building, or the extent to which they might be required to do this in order to evidence the ability of their property to meet a mandatory standard.

Scottish firms’ international competitiveness

At this stage in our policy development, we do not believe that these proposals will impact on the ability of Scottish businesses to compete internationally, since at present we are seeking evidence on the scope of HEETSA and when it should be applied. There are therefore no requirements which would impact competitiveness at this stage.

Benefits to business

Our policy intention for HEETSA is to ensure that there are sufficient methodologies and skilled practitioners operating within the retrofit assessment market to enable building owners to understand which energy efficiency and clean heating system measures would or would not be technically suitable for their buildings.

Our proposals would benefit businesses already active in the retrofit assessment market by offering opportunities to develop new methodologies or to further skill and expand their workforce to meet any new skills requirements. As the market continues to expand, this would likely create more demand from building owners for assessments to be undertaken and hence more opportunities for profitability and growth. We could therefore expect the number of retrofit assessors to grow in line with this demand.

Our proposals would also benefit businesses such as landlords who would have access to government-approved methodologies and practitioners, helping ensure that they had quality-assured information on the technical suitability of particular energy efficiency or clean heating system measures for their building. This would support them in demonstrating compliance with / exemption from any regulatory standards, or in accessing government funding or commercial lending products.

Small business impacts

The majority of Scotland’s energy assessors currently work within the EPC market. There are around 3,500 individuals registered in Scotland, with 338 retrofit assessors^[9] with business addresses in Scotland. This suggests the majority of these are operating as micro and small businesses. Within the wider retrofit assessment market, those assessors qualified under schemes such as PAS: 2035 or the RICS Residential Retrofit Standard are operating within surveyors, retrofit installers and other similar businesses. The Scottish Government will engage directly with businesses currently active in the retrofit assessment market to help us understand the impact of our proposals for HEETSA.

Investment

We do not envisage that our proposals, at this stage of development, will have an effect on global investment. The development of HEETSA would enhance quality assurance for building owners and landlords and would therefore help to support them in making any investments in their buildings through giving them greater confidence that energy efficiency and clean heating system measures were technically appropriate.

Workforce and Fair Work

We do not believe that these proposals will impact on Fair Work First principles but will consider as part of our policy development, how any government approvals process might ensure that businesses approved to deliver HEETSA are operating to those principles.

Climate Change / Circular Economy

Our proposals for HEETSA would support our wider net zero climate objectives and the objectives of the Heat in Buildings Programme to support decarbonisation of our building stock through assessment of which measures are technically suitable for a building to decarbonise. Installation of energy efficiency retrofit measures can also contribute to a reduction in demand for energy within a building and hence to the wider resource efficiency objectives of a circular economy.

Competition Assessment

At this stage in our policy development, our proposed approach to approving existing methodologies, skills and qualifications would not limit the number or range of suppliers active within the retrofit assessment market. This is because our proposals to approve or accredit different approaches would not prevent other suppliers within the market from offering non-approved or accredited retrofit assessments. Suppliers would therefore continue to be able to compete with each other within the market – both through offering different government-approved products, or through offering those which were not approved.

In the event that our policy was developed such that HEETSA became required in particular circumstances, then this could potentially restrict competition within the market since retrofit assessors who had not received government approval would not be able to offer a HEETSA. In those circumstances, at this stage, with think it is more likely that those market participants would choose to seek government approval, rather than leave the market. For those suppliers who did have government approval, there would still be competition between them in offering different government-approved products to consumers on a commercial basis.

Consumer Duty

The Scottish Government is proposing HEETSA as a means of safeguarding consumers against the risk of installing energy efficiency or clean heating system measures that would be technically unsuitable for a building, and which could create unintended consequences such as dampness or condensation or mould. At this stage we are proposing that HEETSA could be developed across the property market, therefore enabling it to safeguard consumer interests across different tenures and to safeguard tenants as much as owner occupiers.

The main potential negative impact on consumers could be the cost associated with undertaking a HEETSA. Using our estimate of £500 per assessment, this is five times higher than the average estimated cost of an EPC assessment, representing a significant increase in costs. This has to be offset against the savings that could be made through reducing demand for energy by installing the most appropriate energy efficiency measures. Likewise, consumers would avoid the cost of installing measures that were inappropriate for their building. We will undertake further analysis as we develop our proposals.