Energy Efficient Scotland: consultation on further development of the programme

Part 1: Suite of Legislation

The Energy Efficient Scotland consultation^[1] outlined the existing legislation that is in place to support delivery of energy efficiency measures on the ground and sought views on whether any new legislation is required.

The legislation that is already in place gives a range of powers and duties to Scottish Ministers, local authorities and energy suppliers, specifically to:

• set energy efficiency standards for domestic and non-domestic buildings;
• make payments for energy efficiency improvements; and
• reduce emissions and alleviate fuel poverty.

The Energy Efficient Scotland consultation set out proposals for energy efficiency targets, which would see all homes meet EPC Band C by 2040, where cost effective and technically feasible, and would see all non-domestic buildings assessed and improved to the extent that is technically feasible and cost-effective by 2040.

The Scottish Government has also consulted on the regulation of district heating in Scotland^[2] including to introduce a licensing and consenting regime that is commensurate with the scale of the market. This included proposals to place a duty on Local Authorities requiring them to produce Local Heat and Energy Efficiency Strategies. We have proposed that local authorities undertake a socio-economic assessment to determine future energy efficiency and heat decarbonisation objectives across their areas. The strategies would enable local authorities to zone areas according to the most appropriate form of low carbon heat, including district heating, and enable them to plan multi-year delivery programmes.

What you told us

Whilst a number of responses to the Energy Efficient Scotland consultation supported the delivery of energy efficiency measures on the ground, others called for greater systematic enforcement of existing legislation. A range of additional actions were identified as needing new legislation, including:

• to allow local authorities to enforce energy efficiency improvements;
• regulations to require consequential improvements where other building work is being undertaken;
• requirements to improve the efficiency of heating systems;
• quality standards to ensure high quality retrofit; and
• requirements to display running cost information in sale and rental adverts and agreements.

Some respondents also recommended consolidating existing legislation and ensuring that existing and future legislation is in line with the rest of the UK. Others noted that the Tolerable Standard should be amended so that properties failing to meet energy efficiency standards are removed from the housing stock.

Respondents also supported the principle of a framework of energy efficiency standards as they provide certainty of the long-term trajectory of improvements, helping them plan for the investment required.

Detailed Consultation Analysis Reports can be found at:

• https://www.gov.scot/publications/consultation-analysis-energy-efficient-scotland-making-homes-buildings-warmer-greener-more-efficient/
• https://www.gov.scot/publications/scotlands-energy-efficiency-programme-analysis-second-consultation-local-heat-energy-efficiency-strategies-regulation-district-communal-heating/

Proposed Suite of Legislation – what we're going to do

As we have previously set out there is already a range of existing legislation available that can be used to support the delivery of Energy Efficient Scotland, which is primarily derived from the Climate Change (Scotland) Act 2009 and the Energy Act 2008. This legislation can be used to determine and set long term energy efficiency standards, providing certainty for building owners and the supply chain, and place duties on local authorities to prepare Local Heat and Energy Efficiency Strategies.

However, we do not currently have the necessary legislation to provide for a regulatory regime for district heating that is commensurate with the scale of the market.

Given the mix of existing powers and need for new legislation, we are preparing to bring forward a suite of primary and secondary legislation to underpin Energy Efficient Scotland. We believe this strikes the balance between strengthening the programme's legislative underpinning without duplicating existing powers.

The remainder of this section outlines the various legislative components we will prepare, including:

• Heat Networks Bill
• Local Heat & Energy Efficiency Strategies (secondary legislation, Section 44 Climate Change (Scotland) Act 2009)
• Minimum Energy Efficiency Standards for the Private Rented Sector (secondary legislation, Section 55 Energy Act 2011; Section 64 Climate Change (Scotland) Act 2009)
• Minimum Energy Efficiency Standards for Owner Occupied Homes (secondary legislation, Section 64 Climate Change (Scotland) Act 2009)
• Assessment of Energy Performance of Non-domestic Buildings (secondary legislation, Section 63 Climate Change (Scotland) Act 2009)

Heat Networks Bill

Subject to Parliamentary time and securing an available slot in the legislative programme, the Scottish Government will prepare legislation to introduce regulation for district and communal heating in Scotland, where the regulation of heat is a devolved matter.

The Heat Networks Bill aims to introduce a new regulatory framework which will transform the way that heat networks are developed in Scotland by taking a more strategic approach. It is proposed that the Bill introduce:

• a District Heating Licensing regime which would set minimum technical and consumer standards to ensure that market participants are operating within a level playing field. Standards will be issued and monitored at a national level.
• District Heating Zones which will identify the areas that are most appropriate for district heating through a robust socio-economic assessment undertaken as part of a local authority's Local Heat and Energy Efficiency Strategy (LHEES)^[3].

We are also exploring howtobuild on our proposed District Heating Consenting process and whether further measures can be introduced to encourage a pipeline of heat network projects for delivery, in line with the socio-economic outcomes identified in LHEES. Further discussion of this issue is at Part 5.

To support the development of the Bill, we will shortly establish a Working Group on Heat Network Regulation which will work to ensure that regulation is commensurate with the scale of the market.

Local Heat & Energy Efficiency Strategies

Energy Efficient Scotland will run for 20 years, carry significant public and private investment and will involve activities as varied as improving the energy efficiency of buildings, decarbonising the heat supply to off-gas grid properties and supporting the development of heat networks. As such, there is an important role for strategic planning for the programme at both a local and national level from the outset, and to inform investment decisions.

In 2017 we set out proposals for local authorities to prepare LHEES which would support a coordinated approach to the local planning and delivery of energy efficiency and heat decarbonisation programmes within Energy Efficient Scotland, and to ensure that national level policies and ambitions are delivered on the ground. It is proposed that LHEES will:

• Conduct an authority-wide assessment of the energy performance and heat demand of the existing building stock, enabling potential for improvement to be identified and target-setting for energy demand and carbon reduction;
• Undertake a socio-economic assessment of potential energy efficiency and heat decarbonisation solutions, allowing Local Authorities to identify and prioritise local projects for delivery; and
• Cost and phase delivery over the lifetime of Energy Efficient Scotland, ensuring local and national support is in place to support building owners and sending strong investment signals to the supply chain.

To date we have funded 23 local authorities to pilot LHEES and will shortly publish an evaluation of the first round of LHEES pilots.

We are committed to funding the remaining nine local authorities to undertake similar pilots during the Transition Phase of the Programme.

The Scottish Government recognises that local resources and conditions will vary between Local Authorities. As we continue to work with local government to develop and implement LHEES we will closely consider how the Strategies can flexible to meet local needs. We are encouraging Local Authorities to test the joint-development of LHEES in the third phase of pilot projects, to learn how any duty may be jointly discharged in future.

To ensure strategic planning takes place consistently and to ensure that the benefits of LHEES are felt across Scotland, we believe that the requirement to produce LHEES would be best placed on a statutory basis, most likely by way of secondary legislation under Section 44 of the Climate Change (Scotland) Act 2009, and delivered by our partners in local government.

Before bringing forward such regulations we will work with local authorities to fully understand the resource implications and mutually agree the circumstances and time to place LHEES on a statutory basis. This will allow co-production of guidance on the development and implementation of LHEES through a jointly-led Working Group this year.

Private Rented Sector Energy Efficiency Standards

The Energy Efficient Scotland Route Map set out our intention to bring forward regulations that will require landlords of privately rented homes to meet minimum EPC standards from April 2020.

Initially minimum energy efficiency standards will be introduced under Section 55 of the Energy Act 2011, and will require landlords of privately rented homes to ensure their properties achieve EPC Band E from 1 April 2020 at a change of tenancy, and then EPC Band D from 1 April 2022 at a change of tenancy.

We will publish draft regulations and draft guidance for consultation in May 2019. Regulations will be laid in Parliament after the Summer recess subject to securing a suitable Parliamentary timeslot.

We've previously consulted on extending PRS standards to EPC Band C, with all privately rented homes achieving this level by 2030. Part 3 of this consultation document summarises responses received to this proposal and seeks views on next steps.

Owner Occupied Energy Efficiency Standards

The Energy Efficient Scotland Route Map proposed that all homes meet EPC Band C by 2040, where cost effective and technically feasible. For owner occupiers, the Route Map proposed that this is met in two phases: an encouraging phase running until 2030, with mandatory action taken thereafter if sufficient progress on improvement had not been achieved.

Respondents to the 2018 consultation told us that having a clear end point was important, although views were mixed on whether home owners should be required to meet energy efficiency targets, and on whether 2040 was too much time or not enough.

We will publish a more detailed consultation seeking views on proposals for both the encouraging and mandating phase later in 2019. Following that consultation we will consider the timing of regulations, under Section 64 of the Climate Change (Scotland) Act 2009, for owner occupied homes, and will consider whether these should be brought forward early, within this Parliamentary Session, in order to provide long-term certainty for the sector.

The introduction of standards for owner occupied homes will help energy efficiency policies to reach dwellings whose owners may be most reluctant to undertake energy efficiency upgrades, and which therefore are least likely to be reached by government programmes where participation is voluntary. Equally, they will help to provide certainty to those in multi-occupancy blocks. Early introduction of standards may also help raise the profile of the requirement for owner occupier properties to meet an EPC Band C, so that even if enforcement does not commence until years later, owners may consider installing upgrades in case they decide to sell their property at a later date.

Social Rented Sector Energy Efficiency Standards

The Energy Efficiency Standard for Social Housing (EESSH) was launched in March 2014, and aims to encourage social landlords to improve the energy efficiency of the social housing stock in Scotland. Under EESSH, landlords are required to ensure their properties meet a minimum energy efficiency rating, broadly EPC Band C or D, depending on the type of property and the fuel used to heat it. The Scottish Housing Regulator (SHR) is responsible for monitoring compliance with EESSH, and their latest performance data reveals continued encouraging progress, with 80% EESSH compliance (2017/18).

The Scottish Social Housing Charter, issued under Section 31 of the Housing (Scotland) Act 2010, sets the standards and outcomes that all social landlords should aim to achieve when performing their housing activities. A revised Charter came into effect from April 2017, and this includes achievement of EESSH by 31 December 2020.

The Energy Efficient Scotland Route Map proposed a challenging and aspirational target to maximise the number of social rented homes meeting an EPC Band B by 2032. It also proposed a target of EPC Band D by 2025, below which no social house should be let, subject to limited temporary exemptions.

There was support in principle for the proposal to maximise the proportion of social housing meeting EPC Band B by 2032. However, there were some concerns, particularly from social landlords, around the difficulty and cost of making improvements in some housing, the diminishing returns on further improvements which limit the value-for-money of investment, and concern that landlords would be under pressure to make improvements even if they were not cost-effective, and which might result in a shift from fuel poverty to rent poverty.^[4]

Consideration of milestones and activity post-2020 (EESSH2) is ongoing, with analysis and assessment of the EESSH2 proposals and consultation returns through the EESSH Review Group.

Non-domestic Sector Energy Efficiency Standards

The Energy Efficient Scotland Route Map proposed that all non-domestic buildings will be assessed and improved to the extent that is technically feasible and cost-effective by 2040.

Regulations on the Assessment of Energy Performance of Non-domestic Buildings were introduced in 2016 under Section 63 of the Climate Change (Scotland) Act. Currently these regulations apply to buildings over 1,000 m². We aim by 2040 to extend regulations so that they apply to all non-domestic buildings. The expansion of regulations will be phased, with the size of buildings being affected decreasing over time and development of appropriate sensitivity to heritage issues and deliverability.

In 2018 we undertook work to establish a more detailed profile of Scotland's non-domestic buildings. In 2019, we will commission research to support development of appropriate future standards and convene an industry working group to consider proposals for amended regulations. We will consult on amended non-domestic regulations in 2020, with the intent of them coming into force from 2021.