Energy efficiency, zero emissions and low carbon heating systems, microgeneration and heat networks - skills requirements: consultation analysis

7. Potential Impact on Competition

Question 7

What impact do you think our skills requirements will have on competition including training provision, quality, availability or price of any goods or services in a market?

7.1 Three-quarters of respondents provided a response to Question 7 on the impact of skills requirements on competition including training provision, quality, availability or price of any goods or services in a market.

Skills requirements will have an impact on competition within sector

7.2 Of the respondents who answered the question, the vast majority reported that the proposed skills requirements would have an impact on competition within the sector (34, 87%). The remainder reported that there would be little impact (two), were unsure or unclear of what the impact would be (two) or felt that there would be no impact at all (one).

Increasing costs and high demand for training

7.3 In terms of competition, the most commonly reported impacts were reported as increased prices/costs and an increased demand for training.

7.4 Some respondents highlighted that there is currently a lack of competition in specific sectors and areas, particularly in remote, rural and island communities. For example, Elmhurst Energy noted that "some qualifications have only one training provider; no competition is present in the market place". As the proposals set out a minimum requirement, the introduction of the skills requirements could result in an increased demand for training.

7.5 Respondents noted that the combination of these factors – a lack of competition and a high demand for training – could create a monopoly in the market with some concerned that there would be "risk of a premium" being placed on goods and services. Most respondents reported that prices would increase and that this would most likely occur in the initial stages of the skills requirements as the capacity (and content) of training providers is developed. For example, a concern raised was that training providers "(not further education or tertiary) will regard this as a cash cow and attempt to milk it with relatively minimal return for the end user (consumer)".

7.6 To this end, Sustainable Energy Association stated that "training providers must look to develop their services in line with the requirements, ensuring a high quality of service". The clarity of the skills matrix and newly developed training would "provide a clearer picture as to what is needed and accepted to be a competent heat pump installer".

7.7 A wider point raised was that further education colleges will "require significant support" to deliver the content and "key costs…may include the purchase of technology on site, financial support for training providers to develop the courses and the costs of training additional trainers."

7.8 The following quote is reflective of many responses and summarises the impact of the skills requirements across various aspects of competition in the market, and how this may change over time:

"It is expected that the impact on training provision will mean that it will raise the standard of training providers. Improved training requirements will likely lead to costs being passed on to the customers. Price will be high initially if there are limited spaces on training courses and limited trainers. The high cost of training might hopefully deter the unscrupulous/poor standard installers from entering the market. There may potentially be higher costs from installers who meet the skills requirements. It is anticipated that higher demand may lead to higher costs where demand outstrips supply. However, as the skills requirements improve it may ensure that costs are then driven down by increased skilled and qualified installers. Bringing our skills up to an improved standard means we would be able to compete more competitively with other sectors for the benefit of the economy and the end users." Perth & Kinross Council Housing Improvements

Increased costs passed onto consumers

7.9 Several respondents, such as Glasgow City Council and Construction Industry Training Board, commented that any increased costs for employers to meet the skills requirements were likely to be passed onto consumers and homeowners at the very least in the short term.

"There will be additional costs placed on employers to achieve a fully qualified workforce in this area. If the Scottish Government does not incentivise this then I suspect some of these costs may be passed on to consumers, which in turn would lead to a lower uptake of systems to be installed by the consumer/householder due to rising costs." Construction Industry Training Board

7.10 As training providers adapt and deliver new content aligned to the skills requirements and more workers become qualified and able to offer goods and services at the required standards, it was felt that the greater competition in the market could help to reduce costs and make goods and services more affordable:

"Clearly increase costs will be passed on to owners/consumers so increased competition would help provide a dampening factor here by keeping costs affordable for owners/consumers." Glasgow City Council

"The skills requirement will stimulate the market, increasing competition, which should eventually drive down prices". Warmworks Scotland

7.11 Some respondents noted that increased competition of suppliers would be the only way that "market price levels will not attract a premium".

7.12 Some respondents, including private sector organisations such as Kingspan Insulation Ltd and NIBE Energy Systems UK, emphasised that the "most vulnerable" individuals should not be priced out of access to low carbon technologies and solutions at any stage. Both respondents highlighted the importance of financial support to remove barriers through schemes such as the Clean Heat Grant.

"If the cost of delivery does increase, it is essential that support is available for the most vulnerable to adopt low carbon solutions. Therefore, Kingspan fully support schemes that provide upfront capital, such as the Clean Heat Grant, to ensure that the availability of capital is not an inhibitor to the low carbon transition." Kingspan Insulation Ltd

"However, crucially, those less able to pay must be protected from additional cost burdens associated with the installation of energy efficiency improvements. Therefore financial support for retrofit projects should be targeted towards those less able to pay." National Insulation Association

Greater quality of product and better value for money

7.13 Given that the fundamental nature of the skills requirements is to set a minimum standard for qualifications within the sector, feedback strongly suggested that it would improve the quality of goods and services by:

• Ensuring the workforce receives a higher quality of training aligned to the skills requirements.
• Upskilling the workforce to improve the quality and consistency of installations.
• Ensuring that competent people work in the sector.

"We think that the skills requirements are a necessary 'raising of the bar', with all that this implies i.e. standards will rise, some installers will drop out, others will move in, prices may rise but so will quality, assurance and value for money." United Kingdom Accreditation Service (UKAS)

7.14 As noted earlier, it was acknowledged that an improvement in the quality of product could lead to (at least an initial) increase in prices which would most likely be passed onto consumers. Although some, mainly public sector bodies, reported that the increase in quality (e.g. by increasing the lifespan of products) would lead to better value for money for consumers.

7.15 National Insulation Association agreed with the "view outlined within the Impact Assessment that slightly higher installation costs are acceptable if this ensures a higher quality installation which lasts the expected lifetime of the measure".

7.16 As more of the workforce are upskilled to meet the skills requirements and the increased availability of suppliers leads to increased competition, a few respondents stated that it would be important that a high quality of installations are maintained. It was considered important that standards were maintained as opposed to a "race to the bottom" for prices and quality of installations in order to secure more work:

"…we must be careful to ensure that there is proper oversight over the quality of work; qualified installers may rush jobs in order to serve more customers – creating the potential that we end up with poorly delivered services." Warmworks Scotland

Some contractors will leave the market which may improve quality

7.17 Another consequence of increased costs for employers to meet the minimum skills requirements could be a reduction of available installers as they might be priced out of the market:

"The additional skills requirement could increase the cost of projects, as the investment by contractors will need to be funded. There is a risk that the introduction of more onerous criteria could drive out some contractors from the sector. As a result, less completion could drive up costs. However, the introduction of a minimal skill requirement can only improve the quality of the sector and the projects delivered." Falkirk Council

7.18 In the absence of a sufficient transition period for the skills requirements to become mandatory, it was suggested that the limited availability of installers could have an impact on the availability of labour and inflate prices.

"There is a risk that the proposed requirements could lead to a reduction in the availability of installers and therefore an increase in the price of installations. If installers are given insufficient time to prepare for the change and there is a risk that a cliff-edge in installations could be created whereby installers are unable to operate within Scottish Government's Heat in Buildings Programme, due to not possessing the formal skills requirements. If a limited number of installers have the skills required, they would be able to charge a premium for their services thus leading to an increase in installation costs." National Insulation Association

7.19 More specifically, concerns were raised about the impact of the skills requirements on smaller companies who might face challenges in terms of ability to pay for required upskilling and training.

"Industry will struggle to demonstrate that they meet the necessary standards and importantly some will leave the market as the move to whole house retrofit increases the need for compliance and broader skills. The industry is currently based on an SME model and the future under whole house retrofit will lend itself more to a main contractor sub-contractor model - if the structure and pricing of work does not reflect this change then industry will take some time to decide on the most appropriate delivery model with some leaving the industry for good." The Insulation Assurance Authority

7.20 Views were relatively mixed on whether the reduction in available suppliers would be positive or negative for the sector, although slightly more respondents reported that it would be positive.

7.21 The impact of some contractors leaving the market was not viewed universally as a negative by respondents, most of whom noted that it may be necessary to 'weed out' any 'cowboys or rogue traders':

"With more stringent and ambitious training and skills requirements and the involvement of additional roles within a retrofit project, there is a risk that the costs of delivery may increase. It is therefore important that a consistent approach is adopted to drive up quality across the whole of the sector, removing the ability for rogue / cowboy installers to operate at sub-market rates." NIBE Energy Systems UK

7.22 This would ensure that the purpose of the skills requirements – to improve and enhance standards throughout the sector – could be achieved. To this end, Historic Environment Scotland stated that the skills requirements would improve the quality of installations by making competition fairer:

"By increasing demand for training, capacity should expand, competition increase and quality and value for money see a commensurate increase. In terms of competition within the industry increasing the requirement for qualifications should have the effect of ensuring all companies are working at the same level, making competition fairer, reducing the risk of unqualified providers undercutting skilled providers." Historic Environment Scotland

7.23 On the other hand, a few respondents, including an individual respondent, felt that quality of installations may be compromised as a result of contractors leaving the market due to increased costs. For example, it was reported that there could be less availability of suppliers meaning fewer options for goods and services.

7.24 It was considered vital that smaller contractors were supported to be able to meet skilled requirements:

"Some parts of the industry, particularly smaller installers, may struggle to demonstrate that they meet the required standards and to adapt their business models to methods/technology that align with a net zero pathway. As such, industry will require clear timelines and support to help them adapt. It is vital that Scottish Government support SMEs across the sector to adapt to the low carbon transition to ensure that the sector is not dominated by fewer, potentially larger installers. This will also help to ensure that costs to consumers do not become unreasonable." The Association for Decentralised Energy

Wider points raised by respondents

7.25 Albeit to a much lesser extent, wider points raised by respondents included the following:

• Signposting and making the skills requirements as clear as possible across the sector (e.g. explaining the "why they need to change" question for installers) was considered important.
• The importance of considering the skills requirements through a rural lens.
• That the skills requirements and matrix could take greater consideration of the fossil fuel sector.