Energy Efficient Scotland: the future of low carbon heat for off gas buildings - call for evidence

Background

The Scottish Government's approach to decarbonising heat

Under the Scotland Act, heat policy, energy efficiency and building standards are devolved, however regulation of energy markets, oil and gas, electricity and gas networks and consumer protection remain reserved to the UK Government. As such, the Scottish Government can set standards for energy efficiency, regulate technical aspects of district heating, and can introduce measures to decarbonise heat in buildings not using mains gas. It is not, however, within the Scottish Government's competence to require the decarbonisation of the heat supply of those currently using mains gas. In this area, we continue to work with the UK Government to identify and investigate the best way forward. The UK Government recently published an overview of current evidence on decarbonising heat^[7]. We have also recently published our Vision for Scotland's electricity and gas networks between 2019 and 2030^[8] which discusses the potential role of the gas network in providing low carbon heat in the future.

Our Climate Change Plan and Heat Policy Statement^[9] outline our overarching approach to decarbonising heat, based on the hierarchy shown. (Figure 2).

The Scottish Government has been consistent in its support for energy efficiency and low carbon heat, and continues to focus its efforts where it has control of the necessary levers. As such, over the short- to medium-term we are focussing on improving the energy efficiency of all buildings, deploying appropriate low carbon heat solutions in individual buildings that do not use mains gas and developing heat networks where appropriate.

Figure 2: The Scottish Government's hierarchical approach to heat decarbonisation

Reducing demand for heat, by making buildings and heating systems more efficient, is one of the most cost-effective ways to reduce emissions and bills, as well as to protect against future changes in energy prices. That is why we continue to invest heavily in improving the energy efficiency of Scotland's buildings and by 2021 we will have allocated over £1 billion since 2009 to improving energy efficiency and tackling fuel poverty. Last year we launched Energy Efficient Scotland^[10] which, over the next 20 years, will transform our building stock so that it is warmer, greener and more efficient. Energy Efficient Scotland includes a framework of energy efficiency standards which will see all homes improved to meet EPC Band C by 2040, where technically feasible and cost effective, as well as all technically feasible and cost effective improvements applied to non-domestic buildings.

Our programmes and policies aim to create a favourable climate for investing in low carbon heat solutions. We currently make available a range of support including low cost loans and free impartial advice to householders and businesses, enabling them to switch to low carbon heat.

In recent years, we have put in place a range of support programmes, including:

• The Low Carbon Infrastructure Transition Programme (LCITP) which offers financial support for low carbon projects covering a wide range of technologies, including of low carbon and renewable heat. Since March 2015, LCITP has offered over £40 million of funding to 13 low carbon demonstrator projects supporting low carbon energy generation, and supported the co-development of over 30 proof of concept and development proposals. The Low Carbon Innovative Funding Invitation was launched in January 2018; announcement of the successful projects is expected in early 2019.
• The District Heating Loan Fund which helps address the financial and technical barriers to district heating projects – Since 2011 over £15 million offered to 50 projects across Scotland.
• The Scottish Government actively promotes the GB-wide Renewable Heat Incentive (RHI) scheme – uptake in Scotland is higher pro-rata at 20% of the total accreditations for Great Britain.
• Our SME Loan Scheme offers low or no cost loans to business up to £100,000 for the installation of efficiency measures and renewable technologies via Resource Efficient Scotland (RES). Since 2008, the SME Loan Scheme has financed over 1000 projects resulting in estimated heat and electricity energy savings of 468 GWh, carbon savings of over 182 ktCO2 and financial savings of over £50 million.
• The Home Energy Scotland (HES) Loan Scheme provides interest-free loans up to the value of £38,500 for both energy efficiency measures and renewable technologies via the Energy Saving Trust (EST). There have been 1,325 loans offered from the Scottish Government under the HES Loan scheme since it was launched in May 2017 and the value paid out from the Scottish Government through the HES Loan Scheme to date totals £3.4 million.

Fuel Poverty & Low Carbon Heat

The Scottish Government is committed to eradicating fuel poverty and through the Fuel Poverty (Definition, Target & Strategy) (Scotland) Bill sets a new target that in 2040 no more than 5% of households in Scotland are in fuel poverty; and places a duty on Scottish Ministers to produce a long-term fuel poverty strategy.

In 2017, 24.9% of households were estimated to be living in fuel poverty, under the current definition^[11]. The fuel poverty rate is affected by levels of household income, energy prices, the energy efficiency of housing, and energy behaviours at home.

Overall, all households that do not use mains gas are more likely to be in fuel poverty. In 2017, 52% of those using electric heating systems and 40% of those using oil were in fuel poverty, compared to 19% of households connected to the gas network. For properties using electricity for heat the high levels of fuel poverty are connected to the high unit cost of electricity, while for oil users it is likely connected to the nature of the rural housing stock with more detached dwellings with poor energy performance^[12].

Decarbonising the heat supply to off gas buildings has the potential to affect the fuel poverty rate; attempts to address fuel poverty can also affect the drive to lower carbon emissions. When planning the implementation of heating systems that are fit for the future it is appropriate to consider all heating systems including those using high carbon fuels like oil and LPG but also those using electricity.

This call for evidence is concerned with all properties that do not use mains gas for heat, including those currently using electric heating systems. Homes using electricity for heat currently have extremely high levels of fuel poverty (52%)^[13]. These homes are within the scope of this call as although they use electricity and thus are moving toward low carbon heat already, their levels of fuel poverty may mean that their existing heating system could need upgrading if fuel poverty targets are to be achieved. The decarbonisation of all heat and the achievement of fuel poverty targets will require wholesale changes in how buildings are heated across Scotland. If low carbon and fuel poverty targets are to be achieved it is appropriate to take a holistic view across the system and to plan for the affordable, low carbon system of the future. It is also appropriate to consider the network and generation infrastructure requirements of the future with planning for this inherently linked to the scale and type of electric heating.

Scotland's building stock & current heat supply

Scotland's building stock is extremely varied in terms of building type, construction method, age and energy efficiency rating. Natural gas is used to supply the majority of heat in Scotland, but electricity and heating oil also account for significant shares. In recent years, renewable sources have met an increasing proportion of heat demand and in 2017 accounted for an estimated 5.9% - 6.1% of non-electrical heat demand. The main renewable sources currently, in terms of capacity, are biomass (including CHP), heat pumps and energy from waste.^[14]

Electricity is the primary heating fuel of 12% of Scottish households.^[15] Electricity in Scotland is becoming increasingly low carbon, and by 2032 electricity generation is predicted to be largely decarbonised, therefore contributing to the supply of low carbon heat.

The remainder of this section provides a breakdown of heat supply across the domestic, non-domestic and industrial sectors and looks at the current market for low carbon heat in Scotland, giving a sense of the scale of the challenge ahead.

Domestic Buildings

In Scotland around 500,000 domestic properties or approximately 21% of total housing stock do not use mains gas as their primary source of heat.^[16] Scotland has a higher proportion than the UK average of domestic properties that do not use mains gas as their primary heating source.

The majority of these properties use electrical heating systems, with the remainder, using heating oil, LPG or solid fuels as their primary heat source (excluding properties connected to district heating networks). Homes using high carbon fuels like oil, LPG and coal are much more common in remote and rural areas, with properties not connected to the gas grid in urban areas predominantly using electricity for heat.^[17]

At present electric heating systems in the UK are predominantly electric storage heating systems that take advantage of lower electricity costs at certain times of the day^{[18] [19]}. Direct electric heating systems without a storage functionality, such as panel heaters, are less common, with heat pump systems less common still.

Homes that do not use mains gas as their primary heating fuel are recorded as having lower energy efficiency ratings than properties that do (see Table 1)^[20]. These ratings are informed by both fuel costs and energy efficiency. Electric heating in particular is associated with high costs, while properties that use high carbon heating fuels like oil, LPG and solid fuels, are much more likely to have solid, stone walls, which have a lower level of energy efficiency and are often more difficult to retrofit ^[21].

Table 1: Energy efficiency SAP rating^[22] and EPC band (Table 21 Scottish House Condition Survey (SHCS), 2017, SAP 2012.)

		SAP rating	B/C	D/E	F/G
Primary Heating Fuel	Gas	66.8	47%	52%	1%
	Oil	50.2	9%	70%	21%
	Electric	56.1	26%	59%	15%
	Other	55.5	42%	33%	25%
Location	Urban	66.1	46%	51%	2%
	Rural	54.9	22%	62%	17%
Scotland		64.3	42%	53%	5%

Non-Domestic Buildings

We estimate that there are approximately 200,000 non-domestic buildings in Scotland, which range from small shop and business units to large office buildings, industrial units and shopping centres. We currently know much less about our non-domestic buildings. We estimate that there are in excess of 100,000 (58%) non-domestic buildings (excluding military and agricultural buildings) which currently do not use mains gas for heat.^[23] These buildings are predominantly electrically heated. Heating oil is the most popular alternative to electric heat for non-domestic buildings that do not use mains gas.

We do not currently have sufficient evidence to compare the relative energy efficiency of off gas and on gas non-domestic properties. However, recent Scottish Government analysis estimated that almost three in four of all non-domestic premises have a current EPC band of E or worse with 5 percent banded B or better^[24].

Industrial Heat Users

A minority of non-domestic buildings will be used by industrial or manufacturing businesses to house their operations, processes or production lines. Heating these premises to create adequate conditions for the internal comfort of employees is part of heating Scotland's non-domestic building stock. There will be varied requirements on internal conditions that industrial premises have due to the specific nature of processes taking place within these buildings, however we do not have specific information on this.

Industrial heat consumption for process energy will often be the main reason for energy consumption at a site. These processes often include significant quantities of heat which, if captured and used, could help the competitiveness of industrial business by providing a revenue stream.

Fuel diversification is one method of reducing emissions from industry, in particular the energy intensive industrial sector (EII), and this could include using natural gas or LNG instead of solid fuels. Options to switch could be enabled by gas grid extension. There could be opportunities for buildings and industrial users to share the benefits from extended infrastructure. Significant EII demand could be a catalyst - creating connections between industrial sites and adjacent communities and helping to embed the energy transition.

Looking ahead, hydrogen as a fuel could meet some industrial demands albeit this would depend on a degree of repurposed infrastructure. A paper on how to decarbonise Scotland's industrial sectors and sites will be published for discussion in 2019. It will cover how to incentivise a wide range of methods to decarbonise including industrial heat recovery, energy efficiency measures and innovative technologies such as carbon capture and storage.