Heat and energy efficiency strategies: second consultation analysis

District Heating Licensing

Licensing for District and Communal Heating

176. The consultation paper noted that in order to be able to develop and / or operate a district heating scheme, it is proposed that a developer / operator must have a licence. This licence would have to be obtained before development or operation of a district heating network. Licences would be issued and monitored nationally, in line with regulatory provisions which would be set out by Scottish Ministers. Licences would be issued by a national body with conditions to ensure the licence holder meets their commitments. Contingency measures would also be put in place to ensure that market stability and customers’ heating supply was maintained in the event of a district heating supplier or developer failing to meet licence conditions or becoming insolvent.

177. Question 10 asked:

Q10 What are your views on our proposed approach to district heating licencing?

178. Overall, 53 respondents across all sub-groups, opted to provide a response to this question, with a majority noting their support for the overall approach to district heating, licensing and connection, or for specific elements of the proposed approach such as agreement of the need for a new national body to issue licences or for the use of the CIBSE Code of Practice. Some respondents noted that a licencing system will allow for consumer protection and consistent standards around service levels, service contracts, continuity of supply and so on. A small number of respondents referred to the need for a licensing system given that district heating operators effectively operate a supply monopoly.

179. Small numbers of respondents qualified their response or noted additional issues to be considered. A few respondents within the public sector, local government, academic, business & industry and 3^rd sector / community sectors noted the need for independent scrutiny, monitoring and evaluation to take place, with reviews after specific time periods to ensure that district heating networks are meeting their aims. There were also a small number of requests for the Scottish Government to provide guidance.

180. There were references to the need for the licensing system not to be overly burdensome or bureaucratic and structured so that competition and innovation are encouraged, with a balance struck between the obligations placed upon developers or operators and the rights to facilitate developments. Allied to this, the issue of encouraging investment by operators so that they deliver solutions that offer direct benefits to end users was cited by a small number of respondents.

181. There were a few suggestions that certain sizes or classes of development could be exempt from licensing or that there may need to be different licencing conditions to suit different scales of development (the latter cited primarily by local government organisations) so as to encourage SMEs to become involved as well as encouraging greater levels of investment in the district heating market.

182. Concerns over the challenge of enforcement were raised by a few respondents in the network, professional or trade body and business & industry sub-groups.

183. There was a suggestion from a small number of respondents that licencing requirements should build upon the content of the Heat Trust or that awarding a licence should be dependent upon registration with the Heat Trust and the ADE’s forthcoming compliance scheme, particularly as this would ensure regulatory alignment over the UK.

184. Other concerns raised by very small numbers of respondents included:

• What is proposed does not address the issue of demand risk. As noted by a respondent within the business & industry sector “The licensing approach does seem to be one way and not necessarily de-risking the market for potential entrants in any way. Demand risk is not addressed by this licensing approach for example.”
• A licensing regime could introduce increased burdens on developers without offering them clear commercial benefits. As noted by one business & industry respondent, “We believe that any approach to district licensing should take into consideration the likely cost and administrative burden of licencing on prospective district heating operators. We therefore advocate for a “licence lite” approach”.
• There is a need for fair pricing and the tracking of gas and electricity prices to ensure that customers get best value from their district heating network.
• There may eventually be a need for separate licences for generation, supply and networks.
• A need to ensure adequate consumer protection is in place.

Consumer Protection

185. As heat networks are effectively operated by monopoly providers, the Scottish Government (SG) recognises the need for consumer protection standards. However, consumer protection is not a devolved area for the Scottish Government. What is being proposed is that the Scottish Government will set out in guidance the existing, UK-wide consumer protection framework which already applies to district heating, while pressing for further devolution of consumer protection. The SG continues to work with the Association of Decentralised Energy (ADE) on the development and implementation of voluntary schemes and standards.

186. Question 11a asked:

Q11a Taking into account the limitations of the Scottish Government’s legislative competence in relation to consumer protection, what are your views on our proposals around consumer protection?

187. A total of 50 respondents, across all sub-groups, opted to provide commentary to this question. A significant minority of these respondents noted their support for what is being proposed in relation to consumer protection, with comments such as consumer protection is paramount to ensure price security, high service standards and long term societal support or that it is important to have consumer protection given that consumers will not be able to switch supplier or that they may be obliged to connect. A small number of respondents within the local government sub-group noted their support for efforts to strengthen consumer protection although they noted this will need to be strong and enforceable.

188. A number of respondents, primarily those in local government organisations suggested that consumer protection could be built into the consent and procurement processes; i.e. that there would be a requirement for a district heating operator to be a member of the Heat Trust or an equivalent body. Furthermore, that the content of the licence should build upon the content of the Heat Trust. There were a very small number of references to the need to build upon the content of the Heat Trust and create stronger consumer protection.

189. There were also a number of references to the need for mandatory protection schemes rather than voluntary, again based on the standards developed in the Heat Trust Scheme Rules. However, a small number of respondents, primarily within the business & industry sector felt that there needs to be a balance so that protection is fair and proportionate to the developer or operator so as not to discourage development while also protecting the end user. There were also a very small number of suggestions that it should not be mandatory to join the Heat Trust or that there could be a licence exemption for small operators (cited by business & industry respondents).

190. Some respondents, primarily in the local government and business & industry sub-groups noted the need for ongoing dialogue with the UK Government so that Scotland and the rest of the UK adhere to the same standards and avoid regulatory divergence. A few respondents noted their support for devolution of consumer protection regulation or commented that without powers being transferred from the Westminster government, it will be difficult to control or police heat networks.

191. Some respondents referred to the forthcoming Competition and Markets Authority (CMA) Review into domestic heat networks and noted that this should inform arrangements for consumer protection or that these findings will need to be taken into account. A small number of respondents referred to research undertaken by the Consumer Futures Unit of Consumer Advice Scotland (CAS) which outlined a number of protection measures for consumers that should be offered.

192. Other issues raised by small numbers of respondents included:

• A need for pricing control to protect consumers, particularly as operators will be operating in a monopoly situation and thereby restricting customer choice of energy supply.
• A request for clarity over what role the forthcoming Consumer Scotland agency would have in policing operators of district heating networks.
• Queries as to the effectiveness of providing information to consumers via Energy Performance Certificates (EPCs).
• Suggestions for a central agency to provide support to existing schemes so they can meet any required standards.
• A need for robust design and construction standards.

193. Question 11b then went on to ask:

Q11b How do you think we could provide a robust complaint resolution process in relation to District Heating in Scotland?

194. Forty-one respondents across all sub-groups provided a response.

195. There was general support from respondents for a robust complaint resolution process in relation to district heating in Scotland; with a key theme emerging being the need for a district heating ombudsman service to include counselling and conciliation services to achieve dispute resolution.

196. Some respondents referred to Heat Trust as a potential body to offer dispute resolution or suggested their rules for Registered Participants could provide a useful framework for dealing with complaints, although a small number of respondents suggested that consideration should be given to using existing agencies such as CAS.

197. A few respondents commented that the district heating sector should use similar processes as currently exist in the gas and electricity sectors.

198. The process for raising complaints was cited by a few respondents, with comments that this needs to be open, easy to access and navigate, offering a single point of contact and consistent in terms of access. A small number of these respondents focused on the importance of face-to-face support given that some customers of district heating are likely to be vulnerable and will need high levels of support.

199. There were also some comments that this process could be limited given that consumer protection powers are not devolved to Scotland. A small number of respondents noted that separate regimes in Scotland and the rest of the UK could cause confusion.

200. Question 12a went on to ask:

Q12a What are your views on how consumer advice should be provided for district heating customers in Scotland – what form should this take?

201. Overall, 47 respondents opted to provide a response to this question. A key theme was the need to increase awareness of district heating through information campaigns that would highlight the benefits of district heating and signpost individuals to sources of advice for further information. As some noted, awareness and understanding of district heating is low and this form of heating represents a move away from a capacity to switch suppliers, so there is a need to win ‘hearts and minds’.

202. In terms of how information should be provided, respondents cited a range of different information channels, including:

• Literature / pamphlets / brochures.
• Face to face meetings / in home demonstrations.
• Community engagement sessions / workshops.
• Website.
• Social media.
• Outreach engagement such as in libraries or shopping centres.
• Telephone helpline.
• Customer information packs.

203. There were also some comments of the need to ensure that any information provided is easy to read and understand, jargon-free and consistent across all sources. While there was support from some respondents for online information to be provided, others noted that not all individuals will have online access or be familiar with technology.

204. Some respondents highlighted the types of advice that should be offered. These included advice on energy efficiency, billing systems, pricing and tariffs, future pricing structures, timescales for repairs and so on.

205. A number of respondents also focused on which organisations should provide advice, with many local government organisations highlighting the need for organisation(s) that are independent and impartial. Various organisations were cited and these included CAS, Home Energy Scotland (HES), Energy Savings Trust (EST) or local authority trading standards officers. There were a small number of suggestions that organisations could jointly work together in providing advice; for example, CAS could provide general advice, while EST would provide specialist advice.

206. A small number of respondents suggested that network operators should provide information and / or that this could be a licence condition. There were also a small number of references to landlords, estate agents and industry trade bodies such as the Association for Decentralised Energy (ADE).

207. Question 12b then went on to ask:

Q12b What are your views on how consumer advice should be provided for district heating customers in Scotland – who should it be aimed at?

208. Thirty-one respondents opted to provide commentary.

209. A number of respondents reiterated points made to the previous question, commenting again on the need for advice to be provided across a range of different information channels and in different formats.

210. A key theme was the need for advice to be able to cater for all customers; a few respondents highlighted the needs of vulnerable customers and new tenants to be considered.

211. As at the previous question, there were some comments on the need for providers of advice to be independent and impartial, with suggestions as to which organisations should be providing advice.

212. One respondent in the business & industry sector referred to the Bonfield Review and the creation of a single online repository for energy advice.

213. Question 12c then went on to ask:

Q12c What are your views on how consumer advice should be provided for district heating customers in Scotland – what should be provided?

214. Twenty-seven respondents opted to provide commentary; again, many chose to reiterate points raised in response to Questions 12a and 12b.

215. In terms of what should be provided, respondents referred to specific advice on tariffs, prices, costs, billing and standards for billing, repairs, customer standards, customer complaints and resolution, as well as more general information on district heating per se and the benefits of this as a form of heating. Again, there was reference of the need to ensure that any advice is clear and readily accessible to all. Some respondents also referred to different organisations that could provide advice, with one network, professional and trade body noting the need for strong partnership between industry and local groups.

Enabling Connections

Heat Users

216. The consultation paper proposed that, for existing buildings, Scottish Ministers would require the public sector to assess the potential for using low carbon heat, including the connection of its buildings to district heating, in collaboration with local authorities preparing their LHEES, and any local-authority-initiated procurement process. Scottish Ministers could also encourage public sector connection where it is socio-economically cost effective to do so.

217. For new buildings, the consultation paper proposed that local authorities would continue to encourage new buildings to connect to heat networks via the proposed district heating consent process, with new provision to require them to undergo socio-economic assessment, and incentives. Scottish Planning Policy encourages the development of heat networks and future versions will have regard to Scottish Government strategies and requirements in district heating in its preparation.

218. Question 13 asked:

Q13 What are your views on the proposed approach to connecting heat users?

219. Fifty respondents, across all sub-groups, commented in response to this question; almost half across all sub-groups noted their support of what was proposed in the consultation paper.

220. Although there was broad agreement with what was being suggested in the consultation paper, a number of respondents noted provisos and a number of key themes emerged.

221. Some respondents across all sectors noted the need for encouragement to connect and felt that measures for encouragement could be a significant influence on the development of district heat networks. Allied to this point, the need to raise awareness and educate people about district heating networks and the benefits they offer was cited by a small number of respondents, particularly as district heating is relatively unknown in the UK.

222. While this consultation did not propose introducing a power to compel, some respondents spontaneously referred to this, although views were mixed on this concept. A small number of respondents referred to the benefits of having power to compel, with some suggestions that strategic anchor loads should be required to connect. A very small number of local authorities noted that public procurement presents obstacles in the development of district heating networks; and there were some suggestions that if there is no compulsion for public sector bodies to connect, there will be a need to strengthen the approach to securing connections or changes to the ways in which public procurement can be used. Those less in favour of the power to compel noted that there should only be a requirement to connect an energy user where it is demonstrated and evidenced by socio-economic assessment. There were also a very small number of comments from those in the business & industry sector that the power to compel should only be used as a last resort and that there would also need to be a process to challenge socio-economic assessments.

223. A small number of respondents in the business & industry sector and network, professional and trade bodies noted their support for district heating to operate under a separate legal regime rather than being tied to the planning process. This was on the basis that other legislation is already in place that covers energy efficiency; also, it might not always be economically viable to maintain a district heating network. These respondents also noted that new buildings are already constructed to be energy efficient and deliver significant carbon reductions. There were also a very small number of comments that district heating should not be used to impede development or jeopardise project viability.

224. Other comments made by very small numbers of respondents included:

• Scope for buildings to proceed with other low carbon options if they are demonstrated to be more effective, or that socio-economic assessments should not encourage district heating schemes over other low carbon alternatives before the evidence base is complete.
• A need to consider the financial implications of district heating networks.
• Retrofit should be a priority before connection to district heating networks.
• Consideration needs to be given to incentives for new build to support district heating where possible.
• District heating networks will not be viable in all locations, for example in small settlements or in areas where there are off gas grid premises.
• A need to consider the costs associated with district heating and whole life costings in comparison to conventional heating systems.
• A need for SAP calculations to include utilisation of waste heat.

Surplus Heat Suppliers – Further call for evidence

225. The consultation paper set out proposals for a phased approach for non-domestic sectors with potentially usable surplus heat, applying to both existing and new (including significant refurbishment or expansion) plant, to connect and supply heat. Phase 1 would utilise a voluntary approach; phase 2, an enabling approach, and phase 3 would be compulsory mediation. Mediation would be carried out individually or jointly by relevant consenting bodies or regulators such as local authorities, SEPA or the national delivery mechanism. Planning authorities would continue to have their existing discretionary planning powers and SEPA as statutory consultee, to encourage the infrastructure needed for new non-domestic sector developments with potential usable surplus heat to make connections to district heating.

226. Question 14 asked:

Q14 What are your views on the proposed phased approach to non-domestic sectors with potentially usable surplus heat?

227. Forty-one respondents, across most sub-groups, with the exception of public sector respondents and those in the ‘other’ sub-group, opted to provide commentary in response to this question, with over half of these noting their support for the proposed approach. That said, there were some qualifying statements, for example, reference to the need for incentives to be offered to accommodate different drivers for different sectors and organisations to share surplus heat or for encouraging connection to help mitigate the long payback periods within this sector.

228. Once again, there were references to the need to engage with organisations with surplus heat and the need for encouragement to engage. There were also a small number of references to the need for a viable business case to be presented as this would be more effective than the levels of mediation being proposed.

229. While respondents commented that Phase 1 and Phase 2 are likely to be successful, some had an issue with Phase 3. The key reason being that Phases 1 and 2 allow for collaboration but Phase 3 bringing together unwilling partners would be of limited value; for example, compulsory mediation could create a hostile environment or that it would not be conducive to resolving major issues. A very small number of respondents suggested that compulsory connection might be more effective than Phase 3.

230. A small number of respondents requested clarification on the timescales being proposed.

231. Other comments raised by very small numbers of respondents included:

• The limited number of opportunities where heat networks are close to significant sources of surplus heat.
• The Scottish Government will need to review its approach at regular intervals to ascertain whether additional intervention is required.
• Local authorities, if expected to adopt a mediation role, will need access to additional resources.
• A preference for a mediating organisation to be an independent body.
• That it is not desirable to produce excess heat.

232. The consultation paper explained that SEPA currently regulates activities in the non-domestic sector that impact on the environment through a number of individual regulatory regimes, some of which include consideration for energy efficiency and heat. However, energy efficiency and heat are not the primary objective of these existing regimes, so the Scottish Government is keen to gather evidence from stakeholders to assess the scope and desirability for achieving more in the areas of energy efficiency and heat within the current suite of regulatory regimes. This information will be used to inform future policy development. The consultation paper posed a number of questions in relation to views on a number of aspects.

233. Question 15 asked:

Q15 Requiring all regulated non-domestic sector with potentially usable surplus heat to carry out energy efficiency assessments, including heat (and its recovery, and onsite and offsite use), and implement recommendations where feasible.

234. Overall, 30 respondents opted to provide commentary in response to this question, most of whom agreed with the requirement as suggested.

235. A key theme, albeit only cited by a very small number of respondents, was of a need to define ‘feasible’, with one network, professional and trade body noting that it is not possible for the Scottish Government to take decisions on what is feasible for a business or where a business should make investments.

236. Only a small number of respondents were opposed to this proposal, with key reasons being that:

• Energy efficiency assessments are expensive and not all are appropriate to all regulated non-domestic sectors.
• Some requirements are already covered under The Energy Savings Opportunities Scheme (ESOS), Pollution Prevention and Control (PPC), Climate Change Agreements and European Union – Emissions Trading System (EU ETS) and that enabling investment in innovative solutions alongside the existing requirements would be more productive and less of a burden on businesses.
• Allied to this point, a very small number of respondents noted that large companies are already required to undertake ESOS assessment and that, unlike at present, they should be required to implement recommendations made.

237. There were also a very small number of comments on the need to consider any additional regulatory requirements in relation to existing regulatory requirements and how this would align with the current regulatory role of SEPA (cited by respondents in the local government sub-group).

238. A very small number of respondents noted that specific sites offer greater potential for usable surplus heat. There was also a suggestion that there would be potential for heat collection in other infrastructure beyond the non-domestic sector within LHEES areas.

239. A small number of respondents noted that incentives will be needed to ensure private sector compliance, with suggestions that the Scottish Government should consider using the tax system and offering tax breaks or making more effective use of the planning system to encourage the location of heat recovery projects in certain areas such as those with industrial clusters and high heat demand.

240. Question 16 then went on to ask:

Q16 How should energy efficiency (including heat) be assessed across the regulated non-domestic sectors – including consideration for energy efficiency beyond the site boundary?

241. Twenty respondents provided commentary in response to this question; most suggestions were made by only one or two respondents. A small number of respondents referred to ESOS, with suggestions that this would incorporate a requirement to comply with the LHEES, or commented on the potential to improve uptake of this by offering a system of incentives. Other suggestions included assessment by:

• Inspection.
• Working with the non-domestic sectors.
• Reaching conciliation if there are issues.
• Prior engagement with the relevant professional bodies, including SEPA and other sector-specific organisations.
• Suitable benchmarks relevant to the nature of an organisation’s activities.
• Using the EPC regime as a foundation for any new assessment requirement.
• Assessment of greenhouse gas emission savings or emission efficiencies that might be achieved in district heating schemes.
• A system of monitoring and targeting based on the lines of a Zero Waste Scotland project.

242. There were some references to specific types of data that could be collected and these included:

• Data on the amount of heat produced in excess of the business’ own requirements.
• Data on hours of production.
• Data on summer and winter demand, and peak and off peak times.
• Energy demand for floor space.
• Quantum and quality of excess heat.

243. Once again, there was reference of a need to minimise any additional burden on businesses and a preference for incentive schemes rather than regulation.

244. Question 17 asked:

Q17 Could a more consistent approach be achieved within the PPC regime, with the existing energy efficiency requirements for Part A sites being applied to Part B sites?

245. Fifteen respondents provided commentary.

246. Around half of these respondents favoured the existing energy efficiency requirements for Part A sites being applied to Part B sites.

247. Other issues raised, each by only one respondent included:

• This should be rolled out voluntarily because smaller Part B sites will have to pay proportionately more for an assessment; the potential for a light touch assessment.
• Sites already fall under the PPC regime and are regulated by SEPA as well as participating in the EU ETS, with Scope 1 emissions already being subject to year on year target reductions.
• It will be important to use SEPA’s powers and capacity to advise businesses of opportunities and require them to take up these opportunities.
• This would need to be financially viable.
• Would a more consistent approach be achieved by extending the requirement to Part B sites?
• PPC regulations would work contra to a waste heat supply obligation.

248. Question 18 then asked:

Q18 Which benchmarks of criteria should be used / considered in assessing energy efficiency?

249. Overall, 21 respondents opted to provide commentary to this question and a range of different benchmarks or criteria were suggested.

250. The sector or nature of an organisation’s activities were referred to by a small number of respondents, primarily within the public sector, with suggestions for different metrics in different sectors or for energy efficiency assessment to be appropriate to the building construction type.

251. There were a very small number of requests for research and best practice studies to help develop a better understanding of what works (cited by local government respondents).

252. Links with the planning process were noted by a small number of respondents in the business & industry sector or network, trade and professional body sector with suggestions that energy efficiency should be benchmarked against levels set through Scottish Building Standards.

253. Some existing approaches were cited by respondents, with reference to Energy Performance Certificates (EPCs), mostly cited by respondents in the local government sector, as a possible starting point, although there were also acknowledgements that these have limitations, for example, that they do not account for regional variations. Some other existing benchmarks were also suggested; for example, energy cost (£/m2) or CO2 emissions (tonnes CO2/m2). One organisation in the network, professional or trade body sector commented that this is already covered by a range of policy measures that target energy efficiency and energy use; these included the Climate Change Levy, Climate Change Agreements and ESOS. Another respondent in the local government sector also suggested that there should be regulation for minimum standards via ESOS to incorporate a requirement to comply with the LHEES.

254. Finally, there were a small number of suggestions that CIBSE or other similar organisations could provide advice on this issue.

255. Question 19 asked:

Q19 What range of industrial processes should be covered, including size and sector, and why?

256. Twenty respondents opted to provide commentary.

257. The key theme emerging, and cited primarily by local government organisations, was that all sectors should be included or that the principle should apply to all businesses. Other areas cited by only one or two respondents included:

• All industry within the potential heat map.
• All sites in sectors with heat demand or waste above 100MW so all potential opportunities for the use of surplus heat or energy are captured.
• Industrial processes that are stable and within a specified distance of a potential network to minimise transition losses.
• Any organisation that currently has to report under the ESOS framework.
• All organisations currently regulated by SEPA, although one organisation noted that sectors already covered by other schemes should be excluded.

258. There were a small number of requests for further research to better understand the amount of surplus heat produced by different parts of the non-domestic sector. One organisation in the local government sector referred to recent studies that have identified some of the most suitable industrial processes.

259. One respondent in the academic sector noted their disagreement with the approach on the basis that the existence of waste heat on its own is not a sufficiently strong reason to develop a district heating scheme.

Enabling Activity and Additional Areas for Consideration to Support the Regulatory Approach

260. The consultation paper noted that the role and duration of the SEEP programme means that there is a need for co-ordination to ensure consistent and sustained delivery in line with the Scottish Government’s long term fuel poverty and climate change targets. There are a number of potential national delivery mechanisms that could support local authorities in delivering their proposed functions for LHEES and district heating regulation, and which could support delivery and governance of SEEP more widely.

261. Question 20a asked:

Q20a What are your views on the establishment of a national delivery mechanism to support local authorities in delivering their proposed functions for LHEES and district heating, and which could support delivery and governance of SEEP more widely?

262. A total of 54 respondents opted to provide commentary to this question, with the majority of these noting their support for the establishment of a national delivery mechanism to support local authorities in delivering their proposed functions for LHEES, district heating and SEEP more widely.

263. A number of these respondents echoed advantages outlined in the consultation paper; such as ensuring consistency, efficiency and standards across all local authorities and ensuring that the best approaches are used; or the capacity to provide assistance, advice, share good practice, access data and capacity building. Some of these respondents also noted that this national delivery mechanism could be a platform for a collaborative approach between industry, government and research.

264. Some respondents also noted that the suggested functions are appropriate, although some other respondents outlined additional functions they felt were appropriate to a national delivery mechanism. These included:

• Leadership and meaningful engagement across government and agencies to ensure the needs of SEEP are met.
• Governance of SEEP to ensure all targets are met covering fuel poverty and carbon reduction.
• Standard setting and overall quality enforcement.
• Enforcement.
• Centre of best practice.
• Procurement support.
• Research and development.
• Monitoring and reporting.
• Co-ordination with other support organisations such as HES / ZWS.
• Review of building standards and planning to support delivery.
• Licencing.
• Developer of last resort.
• Finance and incentives.
• Consumer engagement.
• To ensure consistency of approach with building regulations and planning policy.

265. Some respondents made qualifying statements and these included the need to ensure flexibility so that LHEES can offer an individualised approach taking into account local input or for the need for links with planning policy.

266. Governance of the national delivery mechanism was an issue cited by some respondents, with some citing the need for this body to be independent or at arm’s length from government; although a small number of respondents suggested this mechanism should be a Scottish Government Agency. A small number of local government organisations felt this should be a centralised regulatory body within the Scottish government to ensure consistency and compliance.

267. Question 20b then asked:

Q20b What are your views on the establishment of a national delivery mechanism to support local authorities in delivering their proposed functions for LHEES and district heating, and which could support delivery and governance of SEEP more widely? What form should it take?

268. A total of 32 respondents provided commentary to this question, although some reiterated points made in relation to the previous question. A key theme emerging was what types of organisation to include and the need to collaborate. In essence, respondents noted that a broad range of different stakeholders could participate and these included local authorities, public and private sectors and the 3^rd sector.

269. Once again, there was reference to governance arrangements for a national delivery mechanism, with respondents echoing the points made at the previous question.

270. Question 20c asked:

Q20c What are your views on the establishment of a national delivery mechanism to support local authorities in delivering their proposed functions for LHEES and district heating, and which could support delivery and governance of SEEP more widely? What functions should it have?

271. Forty respondents chose to provide an answer to this question, although many of these again reiterated points raised in the previous two questions. Respondents cited a wide range of different functions that could be undertaken by a national delivery mechanism and these included:

• Analytical and planning functions.
• Oversight / enforcement of technical standards / ensuring licensees meet their obligations; monitoring and reporting.
• Providing technical expertise.
• Providing an aggregate perspective on LHEES to ensure a whole-systems approach.
• Promoting standardisation of technologies.
• Agree protocols for control systems.
• Dealing with procurement, for example, by streamlining procurement across activities.
• Ensuring consistency in customer service levels.
• Arbitration of challenges over zoning activity.
• Development of guidance on best practice and delivery of training.
• Independent assessment of the viability of schemes.
• Development of business plans and delivery of programmes.
• Financing programmes / investment.
• Establishment and maintenance of standard tools and databases.
• Collaboration with partners and stakeholders and acting as an interface between local authorities and potential concession holders.
• Support to local authorities in piloting new approaches; and capacity building.
• Policy development.
• Developer of last resort.

Incentives

272. In summer 2017, the Scottish Government announced support to 11 local authorities to pilot the development of an LHEES in their areas through SEEP pilots. Prior to any introduction of a statutory duty to prepare LHEES, this programme of pilot capacity building support would be made available to all of Scotland’s local authorities. There is also support available for the district heating elements of wider local strategies through the Heat Network Partnership local authority strategy support programme.

273. The Scottish Government is exploring options for procurement frameworks to support local authorities. There is also a range of financial support available through a number of different programmes. However, with the Low Carbon Infrastructure Transition Programme (LCIPT) and the Renewable Heat Incentives being funded until 2020/21, there is a need to consider options for providing support to district heating as part of the SEEP programme and its development.

274. Question 21 asked:

Q21 Please let us know any views you have on the most cost effective way of supporting schemes that are socio-economically appropriate and in line with the local authority LHEES.

275. Forty respondents provided commentary in relation to this question, with some of these reiterating the importance of grants, loans and incentives. For example, grant funding was seen as important by some respondents as it can help to de-risk and progress projects, particularly as initial start-up costs are high. A very small number of respondents noted that it is important to have consistency in available funding as the start / stop nature of some funding streams can create risks to project outcomes from an investment perspective.

276. Respondents, primarily in local government, business & industry and network, professional and trade bodies cited a range of different types of grant funding or organisations providing grant funding that would be useful to help further development of LHEES. These included:

• Heat Network Investment Project (HNIP), although there were one or two requests for a simplified version of this funding.
• Low Carbon Infrastructure Transition Programme (LCIPT); some respondents felt this plays an important role in bringing forward pilot schemes and new technologies, although there were also some comments that LCIPT projects suffer from short deadlines.
• Renewable Heat Incentive (RHI).
• A Low Carbon Investment Fund.
• ECO funding,
• Waste Heat Incentive.
• Similar schemes to CAReS grant / loan funding.
• District Heating Loan Fund, operated by the Energy Saving Trust (EST); there were a small number of requests for the operation of this to be reviewed.
• Resource Efficient Scotland.
• Local Energy Scotland.
• A substantial funding mechanism via Scottish Futures Trust (SFT) for large schemes.
• A dedicated Green Bank to raise finance via public deposits and issue loans.
• An Environmental Bond so the public can invest.

277. There were a small number of comments of the need for funding to be provided by a national body and / or on a long term basis and / or to have appropriate delivery lead times to allow for adequate planning, scoping and best value. Also requests for the LHEES / SEEP programme to set out a cohesive framework for how different funding elements will come together.

278. There were some suggestions that business rates and rateable values could be reduced in order to provide greater confidence to network developers and owners; and that district heating networks could be offered the same level of business rates as are currently offered to gas and electricity networks.

279. While comments in relation to grant or loan funding were made primarily in respect of developers and owners, there were a small number of references to a need for favourable connection costs, low / zero interest grants to enable consumers on low incomes or in fuel poverty to be able to connect or for payback on installation to encourage greater uptake. Conversely, there were a very small number of suggestions that the costs of high carbon heating should be increased to provide funding and support to low income households.

280. There were a small number of references to the need for stakeholder alignment and collaboration; for example, that working with local communities would be important.

281. Once again, the issue of compelling to connect was raised spontaneously by respondents, with some suggestions that this should sit alongside incentives.

282. A small number of respondents noted that large scale building retrofits would have wider socio-economic benefits and that district heating policy should be focused on existing building stock given the number of benefits that could be offered. Some of these respondents also noted that the new build sector is likely to bring about any tangible benefits as low carbon heating is already delivered through other means.

Wider UK Heat Market Reform

283. The consultation paper reiterated the Scottish Government’s continuation to focus its efforts on areas of heat decarbonisation which are within their competence, while awaiting the outcome of UK Government decisions on the future of gas.

Question 22a asked:

Q22a We would welcome stakeholders’ views on our suggested approach to wider UK heat market reform, and in particular any additional evidence that can be offered around the approach that should be taken to decisions on decarbonisation of the gas supply.

284. Forty respondents provided comments to this question; over half of whom agreed with the proposals laid out in the consultation paper; for example, noting that a no regrets option will be key until there is evidence from the UK Government to ensure the potential least costs routes to heat decarbonisation in Scotland are kept open or that the Scottish Government should look to initiate discussions with the UK Government on how best to implement consumer protection for heat customers in Scotland.

285. Some respondents referred to the need to consider other technologies alongside district heating, with references to hydrogen, biogas and heat pump technology as well as the need to consider a range of options for decarbonisation of the gas network. A few respondents, mostly in the business & industry sector referred to feasibility studies currently being undertaken by their own or other organisations, which could feed into evidence for the Scottish Government.

286. Allied to this latter point, there were some references that research in this sector is still in its infancy and there are limited well established alternatives at present. There were some calls on the need to wait for further evidence.

287. A small number of respondents noted that the Scottish Government could play a role in influencing policy direction and providing the UK Government with evidence for its review on the long term future of the gas network or that Scotland has the opportunity to lead the way in the decarbonisation of heat.

288. A very small number of respondents noted that while decarbonisation is important, that fuel poverty considerations must also be evaluated, particularly as gas is currently one of the most affordable means for heating homes. One network, professional or trade body suggested: “there should be a test in line with the socio-economic duty for housing, with firm evidence that decarbonisation will not lead to higher fuel bills or increased fuel poverty”.

289. Question 22b then went onto ask

Q22b We would welcome stakeholders’ views on our suggested approach to wider UK heat market reform, and in particular any views on the issues being considered within the remit of the ADE taskforce.

290. Seventeen respondents opted to provide a response to this question, some of whom reiterated points made at earlier questions.

291. The key comment, primarily cited by respondents in the business & industry sector, emerging in response to this question was support for the approach published by the ADE Taskforce. Other comments made by very small numbers of respondents included support for the Scottish Government’s approach in focusing on efforts in heat decarbonisation that are within their remit and support for their approach to wider UK heat market reform. Other comments included:

• Regulations should be UK-wide or that a key element for investment is consistency of approach between different jurisdictions.
• The Scottish Government has a role in bringing evidence to the UK Government.
• Welcome for proposals for a regulatory framework and consumer protection standards.
• There is a need to reduce demand risk.
• There is a need to consider the balance between investment risk and regulation and consider how to ensure technical innovation and decarbonisation of the heating system sit together.

Summary of Findings: District Heating Licensing

There was broad support for the overall approach to district heating licensing, with various advantages being cited; these included consumer protection and consistent standards around service levels, service contracts and continuity of supply. A licensing system was felt to be important by some because district heating operators will effectively operate a supply monopoly.

There was broad support for a licensing system, although concerns over the challenge of enforcement were raised by a few respondents.

There were some suggestions that licensing requirements should build upon the content of the Heat Trust or that awarding a licence should be dependent on registration with the Heat Trust and the Association for Decentralised Energy’s (ADE) forthcoming compliance scheme.

A significant minority of respondents noted their support for what was being proposed in relation to consumer protection.

Some respondents noted a preference for mandatory, rather than voluntary, protection schemes, based on the standards developed in the Heat Trust Scheme Rules.

Ongoing dialogue with the UK Government was important to respondents, so that Scotland and the rest of the UK would adhere to the same standards and avoid regulatory divergence.

There was general support for a robust complaints resolution process, with requests for a district heating ombudsman service to include counselling and conciliation services to achieve dispute resolution.

Respondents noted the need to increase awareness of benefits through information campaigns, as well as providing jargon-free and consistent information via a range of different information channels. It was felt that advice should be offered by an independent and impartial organisation(s).

Almost half of respondents noted their support for the proposed approach to connecting heat users, although some had provisos.

There were suggestions from some respondents that district heating should operate under a separate legal regime rather than under the planning process.

There was majority support for the proposed phased approach to non-domestic sectors with potentially usable surplus heat.

While respondents felt that Phase 1 and Phase 2 are likely to be successful, not all were supportive of Phase 3.

There was support from a majority of those responding to require all regulated non-domestic sectors with potentially usable surplus heat to carry out energy efficiency assessments, including heat (and its recovery), and onsite and offsite use, and implement recommendations where feasible.

Respondents felt that energy efficiency (including heat) could be assessed across the regulated non-domestic sectors via The Energy Savings Opportunities Scheme (ESOS).

There was support from around half the respondents for the existing energy efficiency requirements for Part A sites to be applied to Part B sites.

Respondents felt that all industrial processes should be included in assessing energy efficiency.

There was majority support for the establishment of a national delivery mechanism to support local authorities in delivering their proposed functions for LHEES, district heating and Scotland's Energy Efficiency Programme (SEEP) more widely.

There was no consensus on the type of governance that should be adopted.

While various suggestions were made on the most cost-effective way of supporting schemes that are socio-economically appropriate and in line with the local authority LHEES, respondents tended to focus on grants, loans and incentives as they help to de-risk and progress projects. There were also calls for funding to be consistent, to have appropriate delivery lead times to allow for adequate planning, scoping and best value, and to be long term.

Over half the respondents agreed with the consultation proposals on Wider UK Heat Market Reform.

There was support for the approach published by the ADE Taskforce.