Climate change delivery plan: meeting Scotland's statutory climate change targets

CHAPTER 4: HEAT DEMAND AND SUPPLY (and small-scale electricity production)

Key messages

• Emissions from housing and non-domestic buildings have to be reduced in 2020 by 3.9 MtCO ₂e (34% Scottish target) or by 4.3 MtCO ₂e (42% Scottish target) against 2006 levels.
• Improved energy efficiency and reduction in energy demand through behavioural change will be crucial to deliver progress in the short term.
• It is essential to deliver Transformational Outcome 2:

A largely de-carbonised heat sector by 2050 with significant progress by 2030 through a combination of reduced demand and energy efficiency, together with a massive increase in the use of renewable or low-carbon heating.

• In the long term it will be necessary to replace the natural gas grid network with low carbon alternatives, in some cases operating through local heat networks.
• It will be essential for there to be a step change in the levels of renewable and low-carbon heat to 2020.
• There will be a need to mitigate the cost impacts of investment in carbon reduction on fuel poverty.
• The delivery of the relevant Energy Pledges is essential (see Chapter 2).

Background

4.1 In Scotland, heat energy demand produces emissions of about 9 MtCO ₂e (excluding emissions from electricity), which works out at 1.8 tonnes of CO ₂e per person each year. In homes and businesses, this heat demand arises predominantly from water and space heating.

4.2 Reducing emissions related to heat energy is crucial to the reductions required in the non-traded sector to 2020 and beyond. It requires this sector to be "de-carbonised" by 2050 with significant progress towards that by 2030.

4.3 Energy policy in the heat sector is largely devolved. However, a number of the key delivery mechanisms, including supplier obligations such as the Carbon Emissions Reduction Target and the Community Energy Savings Programme (see Chapter 2) and the forthcoming Renewable Heat Incentive, operate on either a GB or UK basis.

4.4 Analysis suggests that there are many low or zero cost opportunities to reduce emissions rapidly in the short and medium term. For example, the up-front costs of measures such as loft and cavity wall insulation are quickly paid back through reduced fuel bills. However, other measures, such as solid wall insulation are much more expensive and disruptive with longer term pay back. There are some real challenges in the longer term, particularly in replacing the heating provision derived from the natural gas grid network and household boilers.

4.5 One of the challenges of delivering renewable heat energy is the difficulty in transporting it. Typically in the UK heat is generated on individual premises, though in other European countries local and district heat networks are common.
While some forms of renewable heat generation are suitable at the individual household level, others work most effectively at community scales. To capture the benefit of such technologies therefore also requires cultural changes within local communities and businesses. The planning system has an important role in facilitating more decentralised patterns of energy generation and supply. The National Planning Framework requires local authorities to take account of the potential for developing heat networks when preparing development plans and considering major development proposals.

4.6 Commercial buildings, including shops, hotels and offices, are responsible for a significant proportion of Scotland's carbon emissions. Improving the energy efficiency of commercial buildings, both existing and new, therefore needs action alongside improvements to domestic properties. Changes to existing properties can include improving thermal performance through replacement of windows and reducing energy use through more effective insulation and more efficient lighting and heating systems. In addition to refurbishment options, the replacement of obsolete commercial buildings provides important opportunities for improving energy performance.

4.7 Energy intensive businesses have a strong profit motive to use energy efficiently and multiple costs imposed by government through economic instruments (taxation, emissions trading schemes) encourage them to use energy more effectively. However, this is not the case for many non energy intensive or smaller businesses. The Carbon Reduction Commitment will provide larger commercial businesses and public sector organisations with an additional incentive to reduce heating demand or use lower carbon heat and the planning system and building standards have a role in facilitating improved energy efficiency in refurbished and new commercial properties.

4.8 Actions that reduce greenhouse gas emissions from heating needs are:

• Reduction in energy demand, either by improving boiler efficiency or improving insulation, fabric or controls in buildings
• Changes in lifestyle, resulting in lower demand for heating/cooling
• Use of lower carbon sources to generate heat energy including waste industrial heat and other forms of combined heat and power.

4.9 A distinction can be drawn between households and businesses connected to the natural gas grid network and the 30-35% that remain off-gas grid. The latter group are obvious candidates for earlier decarbonisation, on cost effectiveness grounds, since they are likely to be using relatively carbon intensive, expensive fuels such as heating oil or solid fuels. The former already use a low carbon fuel, natural gas, for their heating needs, with relatively low costs; unless prices spike, and in the absence of other incentives, we might expect these to be the last to convert to low carbon fuels.

4.10 Existing low-carbon technologies can reduce dependence on imported fuels and reduce the ongoing costs of meeting heating needs. Examples include:

• Ground, air & water source heat pumps (essentially reverse refrigerators)
• Dedicated biomass boilers
• Solar thermal water heating
• Biogas in place of natural gas in some instances.

Meeting Scotland's 2020 targets

4.11 As set out in Table 1, emissions from housing and non-domestic buildings have to be reduced in 2020 by 3.9 MtCO ₂e (34% Scottish target) or 4.3 MtCO ₂e (42% Scottish target) from 2006 levels. Around three-quarters of savings for the 34% Scottish target could be delivered from housing.

4.12 Measures in the Heat sector which will contribute to the delivery of the 34% Scottish target in 2020 include:

• All current energy efficiency measures to deliver expected savings
• Additional measures to encourage industrial and business energy efficiency and productivity which cost less than
  £40/tCO ₂e
• A step change in insulation of domestic buildings, including the insulation of all suitable cavity walls in Scotland and enhancement of all loft insulation where it is practical to
  do so
• Delivering the proposed 11% renewable heat target by 2020 through the forthcoming Renewable Heat Incentive
• Introduction of increasingly tight building regulations, leading to low-carbon requirements for all new houses from 2017.

4.13 Emerging results from new Scottish Government analytical tools based on Scottish data indicate that the scale of the challenge (both in terms of size of savings from identified measures and their cost) for reducing domestic emissions in Scotland to contribute to the delivery of either the 34% or 42% target may be greater than that envisaged by the Committee on Climate Change. Work is ongoing to refine our understanding of the carbon impacts of the key energy efficiency measures required and to ascertain their cost-effectiveness in comparison to other measures.

4.14 The measures and actions required to deliver the 2020 targets are summarised in Table 4 at the end of this chapter and are considered more fully below.

Transformational Outcome 2: De-carbonising the heat sector

4.15 The transformational outcome for the heat sector is:

A largely de-carbonised heat sector by 2050 with significant progress by 2030 through a combination of reduced demand and energy efficiency, together with a massive increase in the use of renewable or low-carbon heating.

4.16 Ultimately, meeting Scotland's 2050 target will require heating in Scotland to be almost zero carbon by that time. All cost-effective energy efficiency measures will need to have been undertaken, including some that are not cost effective at current world energy prices. Achieving this outcome will require the replacement of the natural gas network with low-carbon heat. Significant progress on low carbon heat needs to be made by 2030 and, as with the 2020 target, priority areas might include the use of heat pumps, biomass and solar water heating in off-grid households and businesses and local heat networks in new housing developments.

4.17 It is important to start to lay the groundwork now to de-carbonise the heat sector by 2050. That will mean incentivising individuals and businesses to install heating technologies that might currently cost more than £40/tCO ₂e, but which are a stepping stone to the wider use of low-carbon heat sources.

The main delivery mechanisms

4.18 The main delivery mechanisms to achieve the 2020 targets and de-carbonise the heat sector in the longer term are:

• Managing demand/changing behaviour
• Energy efficiency; and
• Low carbon heat.

Managing demand/changing behaviour

4.19 For a start, greater efforts will be made to encourage behavioural change - actions such as turning down the home heating thermostat, or washing clothes in cooler water. In Scotland, the potential emissions reductions associated with such behavioural change is nearly 0.3 MtCO ₂e by 2020. UK households have on average increased the temperatures in their house from 13°C (1970) to 18°C (2006), although the energy consequences of this have been partially offset by rising ambient air temperatures.

4.20 Delivery of changes in behaviour cannot be achieved by the Government alone. The Energy Saving Scotland advice network is one source of help. A broader coalition of civil society and local communities, in part encouraged by the Climate Challenge Fund ¹⁶, will need to make such behavioural adjustments socially acceptable.

4.21 Social norms do not, at present, encourage effective management of heat energy in homes or offices, though an increasing number of businesses will be subject to schemes such as the forthcoming Carbon Reduction Commitment.

Energy efficiency

4.22 More effective energy management and installation of efficiency measures have the potential to reduce greenhouse gas emissions most rapidly and at zero or near zero net cost. Non-domestic potential is predominantly associated with more effective energy management and the use of efficient heating and cooling equipment, lighting and controls. Domestic potential is predominantly associated with more effective insulation in housing, with some additional savings coming from early replacement of inefficient boilers.

4.23 Emissions reductions from energy management in the non-domestic sector will result from technical improvements in energy use by businesses. The realistic potential for these emissions reductions is estimated to be 0.4 MtCO ₂e by 2020 in Scotland. A key driver for these savings will be the Carbon Reduction Commitment which will cap and reduce emissions from larger commercial businesses and the public sector in the UK through until 2020, either through the increased use of low carbon fuels or the more efficient use of heat and electrical energy in buildings. To deliver these savings, it is assumed that the carbon price will be around £40/tCO ₂e in 2020 and act as a sufficient incentive for behaviour change in this sector.

4.24 In the domestic sector, achieving the heat sector's contribution to the 34% Scottish target will depend to a significant extent on existing policy tools, such as the Carbon Emissions Reduction Target and on the successful delivery of the proposals outlined in recent consultations by the UK Government, in particular the scope and ambition of future supplier obligations such as the Community Energy Saving Programme and the Renewable Heat Incentive. These programmes act as a bridge from current policies focusing on low cost basic insulation measures towards more expensive whole-house approaches which deliver large reductions in emissions. The Scottish Government is bringing forward an ambitious area based Home Insulation Scheme to increase the uptake of energy efficiency measures such as loft and cavity wall insulation.

4.25 Enhanced insulation will include much greater provision of insulation in cavity walls and lofts, plus a step change in the number of homes receiving more expensive measures such as solid wall insulation. However, the constraints on delivering all these technical measures are likely to be associated with:

• Adapting the existing skills and accreditation of existing installers to manage new technologies;
• Individual behavioural barriers, hindering the installation of more intrusive technologies and measures, such as solid wall insulation;
• The readiness of the UK Government to increase the obligations placed on energy companies to the level needed to ensure that potentially intrusive measures such as solid wall insulation are installed on a significant scale.

4.26 A key element of the strategy to reduce wasteful use of heat energy is through more effective building standards. These have already driven steep reductions in energy demand, and emissions, from households, estimated at over 60% between houses built in 1990 and houses built today. Further tightening of these standards are expected over the next eight years, with the outcome that by 2020 all new houses built in Scotland will be low carbon. This is expected to deliver relative emissions reductions of nearly 0.2 MtCO ₂e by 2020 compared with not introducing these new standards.

Low carbon heat

4.27 Achieving the Scottish Government's target of 11% renewable heat (which includes low carbon heat such as heat pumps) to 2020 will be critical to achieving the statutory targets set in the Climate Change (Scotland) Bill. We need to exploit the most cost effective opportunities to develop renewable heat in areas such as off-gas-grid domestic properties and the small business sector, and in the use of local heat networks in new housing developments. The UK Government's proposed Renewable Heat Incentive will provide financial incentives to encourage this. With an estimated 80% of installed boilers needing to be replaced by 2020, Scotland has a huge opportunity to influence the future direction of the heat market. The forthcoming Renewable Heat Action Plan due later in 2009 will develop these issues further.

4.28 Industrial requirements for heat are largely captured within the scope of the EU Emissions Trading Scheme. Their emissions reductions will be driven by the overall EU "traded sector" trajectory for reducing emissions and facilitated by the energy efficiency measures being directed at this sector. However, waste heat from these industrial processes is not currently used effectively. Opportunities to use this heat resource need to be identified, quantified and costed in Scotland, and the proposed Energy Efficiency Action Plan will consider this aspect.

4.29 Changing social attitudes to low carbon heat technologies is more challenging. The conditions need to be created in which the choice by a householder or small business to invest in a low carbon heating source, such as solar thermal, ground or air source heat pumps, or biomass boilers, is no more unusual than purchasing a new gas or oil boiler. This requires a clear framework in which suppliers can meet demand, installers are properly trained and accredited, householders know the cost implications and benefits of the low carbon heat source, and consideration is given to the air quality implications of the installation of biomass boilers, particularly in urban areas where there may already be air quality concerns.

4.30 The Renewable Heat Action plan will seek to provide the overarching framework; providing a focus on the actions needed, and by when, to deliver the necessary changes.

Barriers and Risks

4.31 The main risks to delivery of the emissions reductions identified are:

• Failure of UK Government supplier obligation policies to deliver sufficient savings in existing domestic households
• Insufficient carbon price to incentivise efficiency measures and energy management in businesses before 2020
• Missing opportunities associated with mapping and delivering waste industrial heat and community scale combined heat and power to business and domestic sectors
• Missing opportunities and removing barriers to the development of local heat networks in appropriate locations
• Failing to overcome household resistance to using non-conventional low carbon technologies, such as heat pumps, solar thermal and biomass boilers
• Failure to overcome "rebound effect" where positive behavioural change to more energy efficient practices lasts for only a short time
• Failure to deliver low carbon housing through enhanced building regulations or failure to enforce new building standards
• Failure to overcome tension between the goals of reducing emissions and tackling fuel poverty. Increasing energy prices to pay for emission reducing investment will tend to increase fuel poverty and have a disproportionate effect on those least able to afford it.

These risks will be addressed by the forthcoming energy efficiency and renewable heat action plans as well as ongoing work on Building Standards.

National Conversation

4.32 A key issue for the Scottish Government is the lack of legislative powers in Scotland with the main responsibilities for energy policy and regulation reserved to Westminster. Having greater regulatory powers would ensure that energy policy and regulations would be better aligned to ensure delivery of Scotland's statutory climate change targets and maximising Scotland's economic potential in renewable energy.

4.33 Regarding energy efficiency, the Scottish Government has recently called upon the UK Government to:

• legislate for a pro-rata level of energy efficiency supplier obligation activity in Scotland;
• give powers to the Scottish Government to enable it to direct and co-ordinate this activity through a co-ordinating body of its choice;
• recognise the variation in Scotland's climate and housing types;
• provide greater level of incentive for loft top-up.

4.34 This should help to guarantee that new energy efficiency investment includes Scotland's rural and island communities and ensure the accurate, disaggregated and regular reporting of energy efficiency related activity in Scotland.

4.35 This will also allow the Scottish Government to use and build upon the mechanisms that it has put in place (Energy Saving Scotland advice network) that deliver the Energy Assistance Package and Home Insulation Scheme to more effectively deliver any future energy efficiency obligation schemes.

Table 4: : Delivery Plan for the Heat Sector - Domestic Buildings

Measure	Required measures (34% Scottish target, 42% Scottish target or Transformational measure)		Action
			Progress	What more do we need to do?
DOMESTIC BUILDINGS (7.3 MtCO 2e in 2006)
Insulation and heat efficiency	34% Scottish target	High uptake of low cost insulation measures (loft and cavity wall), plus 10% of potential for solid wall insulation. Some replacement of inefficient boilers.	Home Insulation Scheme and Energy Assistance Package will assist in driving take-up of measures under the UK Government CERT scheme. Community Energy Saving Programme will increase level of solid wall insulation.	Continue to develop current Scottish Government schemes. Seek to ensure appropriate design of future UK Government supplier obligations.
	42% Scottish target	As above, but 40% solid wall insulation.	Not in current policy framework.	Significant expansion of whole house approach of the kind to be piloted under CESP.
Behaviour	34% Scottish target	Turning down thermostats by 1 degree. Switching off lights/appliances.	Energy Efficiency Action Plan being developed (end 2009 - see Energy Pledge 7). Energy efficiency advice to consumers through Energy Saving Scotland advice network.	Further marketing to incentivise action, followed, if necessary, by dynamic pricing.
Renewable heat	34% Scottish target	11% renewable heat target.	Renewable Heat Action Plan (in 2009 - see Energy Pledge 2). Renewable Heat Incentive (planned for April 2011).
	T 2020	New housing connected to heat networks, heated by biomass or using low carbon heat, including renewables.	Will not be achieved under current policy framework. New building regulations will reduce demand for heat in new buildings - may limit feasibility of heat networks.	National Planning Framework requires local authorities to take account of the potential for new heat networks in development plans.
	2030	All off-grid properties using low carbon heat, including renewables.
	2050	De-carbonised heat supply.	District heating will have high infrastructure costs.
Low carbon new housing	34% Scottish target	Low carbon building regulations. All new homes low carbon by 2016/17 with cost-effective delivery of residual energy needs. Energy Performance Certificates.	Proposed 2010 building standards would deliver around 70% reduction on 1990 levels. Levels recommended in Sullivan report for 2013 could produce up to 80% reductions compared with 1990. Net zero carbon homes by 2016/17 if practical. EPCs already required for new builds and sale/let.	Agree future standards for very low carbon buildings, and start now to ensure that every publicly funded home constructed anticipates those standards.

Table 5: : Delivery Plan for the Heat Sector - NON-Domestic Buildings

Measure	Required measures (34% Scottish target, 42% Scottish target or Transformational measure)		Action
			Progress	What more do we need to do?
NON-DOMESTIC BUILDINGS (2.1 MtCO 2e in 2006)
Insulation and heat efficiency	34% Scottish target	Nearly all energy efficiency/ management savings costing less than £40/tCO2. Small amounts of microgeneration/ CHP.	Carbon Reduction Commitment. Energy efficiency advice to SMEs. Small business loans. Carbon Trust advice and support to large and energy-intensive businesses. Climate Change (Scotland) Bill proposes mandatory assessment of energy performance in existing non-domestic buildings. EPCs already required for sale/rental and public buildings.	Mandatory upgrading of existing non-domestic buildings likely to be needed.
	42% Scottish target	As above, but more microgeneration/ CHP.	Current policy framework not sufficient to deliver. Scottish Business Rates Exemption for microgeneration.	More compulsion to achieve higher savings?
Renewable heat	34% Scottish target	11% renewable heat target.	Renewable Heat Action Plan (in 2009 - see Energy Pledge 2). Scottish Biomass Heat Scheme (£3.3m 2009-10 and 2010-11). Renewable Heat Incentive (planned for April 2011).	Extend Scottish Biomass Heat Scheme until Renewable Heat Incentive is fully operational.
Low carbon new buildings	34% Scottish target	All new non-domestic buildings very low carbon by 2016/17 with cost-effective delivery of residual energy needs.	Proposed 2010 building standards would deliver around 70% reduction on 1990 levels. Levels recommended in Sullivan report for 2013 could produce 80% reductions. EPCs already required for new buildings.	Agree future standards for very low carbon buildings, and anticipate those standards in all publicly supported buildings procured from 2010.