Heat networks delivery plan - draft: consultation

Chapter 6: Capital programmes and delivery mechanisms

Project development

Currently there is a weak and undeveloped pipeline of heat network projects. In order to accelerate the development and growth of heat networks in Scotland investing in the development of a project pipeline is essential.

To begin to develop a stronger project pipeline the Scottish Government will publish an initial Heat Network Investment Prospectus during the next financial year that will demonstrate the size and location of heat network opportunities across Scotland, as well as information on the decarbonisation requirements of existing networks in Scotland. This will build on the report "Opportunity Areas for District Heating Networks in the UK" and our First National Assessment of potential heat network zones. The prospectus will be a live document, showing an active pipeline of heat network projects in Scotland.

In addition, we will announce next steps to establish a Heat Network Pre-Capital Support Unit this year, initially building on our partners' expertise to drive project development, building to a new unit during 2022, expanding on the previous role of the Heat Network Partnership. This new unit will provide enhanced support to the public and private sector, including support undertaking the necessary feasibility studies and working with potential partners to identify and bring forward projects.

Furthermore, the successor to the LCITP will offer enhanced pre-capital support including the provision of:

• options appraisals
• business cases
• financial expertise
• technical expertise
• legal expertise
• project management
• procurement expertise

Capital support

Over this parliament we will invest at least £400 million through the successor to the Low Carbon Infrastructure Transition Programme (LCITP) to support the development of large-scale heat infrastructure, including heat networks. The successor scheme will launch in phases from the end of this year and will provide capital support for large-scale heat infrastructure projects, including for the:

• development of new heat networks
• extension of existing heat networks
• the decarbonisation of existing networks

We will seek to drive value for money and financial sustainability by using more diverse funding mechanisms including a combination of grant funding, repayable assistance, loan funding and private investment. The new scheme will be flexible to match levels of support required, the maturity and risk of technologies and the commercial needs of projects.

We will continue to offer supplementary financial support to local authorities, social landlords, SMEs and energy service companies (ESCOs) with fewer than 250 employees through the District Heating Loan Fund (DHLF). The DHLF provides low interest unsecured loans with repayment terms up to 15 years. In addition, local authorities will be able to access funding via the Green Growth Accelerator model. ^[xviii]

Green growth accelerator

The Green Growth Accelerator (GGA) programme, launched in June 2021, provides a catalyst for public and private investment in low carbon infrastructure projects across Scotland. The programme builds on the current Growth Accelerator model and aims to unlock £200 million of low carbon capital investment that supports our transition to net zero. The GGA is a revenue financial model in which a local authority commits to deliver defined, measurable outcomes that are enabled or underpinned by investment in infrastructure and is designed to incentivise local authorities to drive transformative change.

The Scottish Government is working closely with COSLA and local authorities to identify and learn from a group of pathfinder projects and will consider the applicability of the funding for heat networks moving forward.

Building level support

For individual property owners wanting to connect to a nearby heat network, interest free and low cost loans are available from both Home Energy Scotland and the Energy Efficiency Business Support Service, subject to eligibility.

We are supportive of the deployment of zero heat measures such as heat pumps, and at the same time keen that Scottish Government investment in the decarbonisation of heat supports and does not undermine the viability of strategically important heat network zones. In most cases within a zone we expect a connection to a heat network will be the best solution to make homes and non-domestic buildings warm and less expensive to heat in the long term.

We will continue to review the interaction between the different schemes of support available, including our own programmes, to ensure that these enable the best delivery option for communities, as well as individual households and businesses.

National Public Energy Agency

We are committed to establishing a National Public Energy Agency to accelerate the transformational change in how we heat and use energy in homes and buildings. To achieve this, the Agency will have a remit to raise public understanding and awareness, co-ordinate delivery of investment, and coordinate national, regional and local government delivery of heat decarbonisation and energy efficiency rollout. We will establish the Agency first as a virtual agency and transition to a dedicated body by September 2025. We will set out the role of the Agency in delivering support for heat networks in the coming months.

Q10: What role should the Heat Network Pre-Capital Support Unit play in supporting project development?

Q11: What types of capital support would help to support the development of low and zero carbon heat networks and attract private sector finance? Please explain your views and provide evidence if possible.