Heat and energy efficiency strategies and district heating regulation: consultation

Executive Summary

This is a Scottish Government consultation paper on Local Heat & Energy Efficiency Strategies ( LHEES), and regulation of district heating. It is one of a number of consultations on the draft Climate Change Plan, the draft Energy Strategy and related activity, published in January 2017 ^[1] .

Your views are invited on the role that regulation could play in both:

• the planning at local level of heat decarbonisation and energy efficiency programmes within our new Scotland's Energy Efficiency Programme ( SEEP), which is due to begin from 2018 onwards; and
• supporting the development of district heating in Scotland.

Background

The Scottish Government designated energy efficiency as a national infrastructure priority in June 2015, covering energy efficiency and heat decarbonisation of both domestic and non-domestic buildings. The subsequent publication of the 'Infrastructure Investment Plan 2015' gave a commitment to multi-year funding of SEEP, which was substantiated in the 2016 Programme for Government (PfG), confirming Ministers' commitment to a minimum of £0.5 billion over the next four years, to support the initial phase of the programme.

Consultation on district heating regulation and Local Heat & Energy Efficiency Strategies ( LHEES)

This consultation document meets our PfG commitment to consult on heat regulations commensurate with the scale of the heat market. It has been drafted in collaboration with the Short Life Working Group which the Minister for Business, Innovation & Energy established in October 2016, to respond to the recommendations on district heating regulation given by the previous Special Working Group ( SWG) of the Expert Commission on District Heating.

This is a high-level policy scoping consultation that seeks views and further evidence on a broad scenario for district heating regulation and Local Heat & Energy Efficiency Strategies, that would deliver the recommendations of the previous SWG, and which would support the development of SEEP:

• Section A consults on the role of LHEES in enabling local authorities to plan for energy demand reduction and heat decarbonisation of buildings across their area, in a phased approach to planning area-based delivery programmes to help achieve the national objectives of SEEP.
• Section B consults on a regulatory framework for district heating, including: area-based zoning for district heating through LHEES; granting of concessions for district heating networks; licensing of district heating networks; connecting supply; surplus industrial heat, and consumer protection.

We would like to hear your views and give you an opportunity to inform our proposals. This paper covers a range of complex issues and we appreciate there is a lot to consider. We will take the views and evidence provided in response to this scoping consultation and use them to inform the decisions that we take on the detail of how to deliver our policy objectives - and further detailed consultations will then follow on different aspects of our approach.

The role of district heating, and the potential that regulation could play in supporting it

District heating is a mature technology used in many cities across Europe which is not yet common in the United Kingdom, in spite of attempts in the past to develop it.

District heating could make an important contribution to meeting Scotland's future heat demand in areas where heat density is sufficiently high to develop networks that can provide heat at an affordable cost. Where allied to a low carbon heat source, it also offers the potential to meet our heat decarbonisation objectives.

The Scottish Government vision is to achieve a significant change in deployment of affordable low carbon district heating as part of the route to a largely decarbonised heat system, moving from the current approach to a more strategically planned, integrated and comprehensive system that is attractive for investors and that takes into account heat user's needs.

To realise our ambition for a substantial increase in district heating in Scotland we want to ensure that SEEP is planned and programmed to achieve its broad objectives to reduce energy demand and decarbonise heat supply in our buildings. This will involve a close relationship between the Scottish Government's national objectives and local planning and delivery of programmes by local authorities and their partners. An agreed framework for regulation of district heating, and mechanisms to achieve coordination across the various stakeholders, will help to give certainty for the development of district heating networks. Currently, many of the existing heat networks in this country often consist of groups of buildings under single ownership; for example, campuses and blocks of flats owned by one local authority or housing association.

As the capital investment is the largest investment in any heat network, and finding low cost capital is currently a major hurdle for any new project, reducing the cost of capital to something akin to that seen in other regulated utilities could support the development of more networks. District heating which costs less to build should also result in cheaper prices for heat users. The Scottish Government is seeking views on whether a regulatory framework can be established in support of this vision in which heat network development can be coordinated, risks can be managed to reduce the cost of capital and heat users and other relevant parties are satisfied with the system.

Given that the majority of our heat infrastructure is delivered locally, this regulatory framework should include provisions to ensure that local strategies for heat and energy efficiency are developed to integrate programmes for heat supply decarbonisation with energy efficiency programmes. It is important that infrastructure does not become needlessly oversized in areas where energy efficiency measures will reduce the heat demand. This will ensure a coordinated approach to energy demand reduction and heat decarbonisation through SEEP.

Approach

We are looking for further evidence and stakeholder views on the recommendations of the Expert Commission's SWG, plus wider evidence, in order to scope our policy for regulation of heat and energy efficiency strategies, and regulation of district heating and also support wider regulation on energy efficiency planned under SEEP (and in related consultations).

We propose that a new regulatory framework for heat and energy efficiency strategies, and for regulation of district heating, should focus on two key areas. These are:

A. that local authorities are required to create Local Heat & Energy Efficiency Strategies ( LHEES) to support the delivery of heat decarbonisation and energy efficiency objectives of Scotland's Energy Efficiency Programme ( SEEP); and

B. that regulation be put in place to specifically support the development of district heating, including provisions for zoning of areas for heat networks, connecting users and surplus heat loads, technical standards and consumer protection.

These areas are discussed in Sections A and B of the consultation document.

Section A - Local Heat & Energy Efficiency Strategies

In Section A, we set out that we are considering placing a statutory duty upon local authorities to work with relevant stakeholders to develop a LHEES, and to use their powers to implement that strategy, to support the delivery of the objectives of SEEP. These strategies would have a scope and content as set out below. Local authorities would be supported in developing these strategies with the provision of national guidance and data sets, such as the Scotland Heat Map.

In Section A, we suggest that LHEES should develop an area-based approach and that strategies should:

a) cover a long-term period such as 20 years;

b) reflect the national fuel poverty and climate change targets and set out how they contribute to them;

c) take into account other national targets and ambitions in respect of heat and energy efficiency as set out in the Scottish Government's policies such as the draft Energy Strategy, Climate Change Plan and SEEP, including the indicative levels of implementation and to set out how they contribute to these;

d) take into account what policies and frameworks already exist for energy efficiency and heat at a local level, such as local housing strategies or local development plans;

e) set out understanding of current energy performance and heat use of buildings within the local authority's area;

f) identify potential opportunities including for reducing the need for heat, improving energy efficiency of heat supply, increasing low carbon heat sources and low carbon heat storage;

g) set long-term targets to ensure that all buildings in the local authority's area are able to improve their energy efficiency and decarbonise their heat supply in line with national objectives set by the Scottish Government;

h) undertake an area-based socio-economic assessment that would be used to assess the energy efficiency interventions and to identify the most appropriate heat technology for an area and to designate district heating zones;

i) set out costed, phased delivery programmes for each strategy period, to ensure that a proportion of buildings in the local authority's area are improved - cumulatively ensuring that all buildings are improved across all strategy periods to meet the long-term target;

j) include the phased zoning of different parts of each local authority for:

• development of district heating networks in appropriate areas (see Section B)
• installation of new low carbon heat supplies
• area-based energy efficiency improvement programmes;

k) quantify the short-term benefits and impacts of delivery plans; and

l) consider the impact on the local economy and employment.

These phased delivery programmes would:

a) take account of potential support from wider programmes;

b) support the delivery of national standards;

c) for the early years of the strategy (such as the first 5) set out the detail of the approach or 'offer' to properties in those prioritised areas to enable them to improve their energy efficiency and decarbonise their heat supply; and

d) set out how the local authority (and the local planning authority) will use its powers to help deliver the strategy).

The consultation asks a series of questions to allow stakeholders to set out their views on this potential framework for LHEES to support the delivery of the objectives of SEEP.

Section B - District Heating Regulation

In Section B, we set out a potential regulatory scenario that has been informed by the advice of the Short Life Working Group, which would help district heating to achieve its full potential. This regulatory scenario aims to transform the way heat networks are developed in Scotland by:

• Establishing district heating zones to enable coordination between building owners, heat network developers and public authorities around an agreed long-term plan for district heating development. These zones would articulate objectives around decarbonisation, fuel poverty and energy system resilience. They would be subject to socio-economic assessment at the Strategy level, and would be part of the overall programme for energy efficiency and heat decarbonisation set out by local authorities in their Local Heat & Energy Efficiency Strategies.
• Creating concessions and provisions for connecting users to district heating networks within these zones to align heat network development with public objectives and to minimise the risk of stranded assets, including through socio-economic assessment at the project level. Reducing risk is key to lowering the cost of capital, which in turn will lower district heating supply prices.
• Revealing and exploiting opportunities to make use of low cost, low carbon surplus heat from industrial processes and power generation that would otherwise be wasted.
• Setting minimum technical and consumer protection standards for district heating which will be enforced through a licensing system, including socio-economic assessment at the project level of impact on customer energy bills.

The consultation asks a series of questions to allow stakeholders to set out their views on this potential regulatory framework for district heating to support our objectives of enabling district heating to reach its full potential in Scotland.

Further Policy Development And Consultation To Inform Regulation

The evidence received in response to this consultation document will enable us to scope out the broad policy needed to enable regulation of district heating and LHEES. This evidence will then be used to allow Ministers to take decisions during 2017, on the extent of district heating regulation required. We would then propose to follow up with a more detailed consultation, or consultations, setting out our preferred approach to regulation and on LHEES, for further comment and testing with stakeholders in late 2017. Evidence from this second round of consultation would be used to inform Ministers' final decisions on whether any legislation (primary and/or secondary) would be needed for district heating regulation and LHEES. Where new legislation is required, further consultation on a draft Bill or draft Scottish Statutory Instruments would take place prior to introduction in the Scottish Parliament.