Future of low carbon heat for off gas buildings - call for evidence: analysis of responses

The role of strategy in guiding investment and delivery

A total of 26 respondents (48%) addressed Question 42.

Support was evident across private and public sector respondents for use of LHEES in early phasing of low carbon heat in off-gas areas. Local knowledge was seen as particularly important in tailoring use of different heat technologies to local circumstances, and there was support for LHEES as a vehicle to apply this to the phasing of low carbon heat. However, an ‘other organisation’ respondent also raised concerns regarding local authority-level planning, and questioned whether this could deliver the diversity of approaches required to meet what can be highly localised needs.

Support for LHEES included comments in favour of use of zoning to identify areas where more rapid uptake of low carbon heat is possible. Specific suggestions here included:

• Zoning off-gas areas as ‘zero carbon heat zones’, for example mandating use of low carbon heat in new build development in off-gas areas, and regulating against further gas grid extension.
• Ensuring coordination of approaches to low carbon heat and energy efficiency.
• Using LHEES to support local campaigns to raise awareness and acceptance of low carbon heat.
• Specific areas seen as suitable for zoning included those with waste heat or heat recovery opportunities, those with sufficient heat density for low carbon heat networks or other opportunities for local cooperation, and areas with building types or building clusters suitable for early retrofit of low carbon technologies.

Some commented on the process required to develop local priorities and targets. This included the importance of cooperation between local government and stakeholders such as industry and communities. A role for local or regional resources was suggested as a means to drive the process, and some wished to see clear national guidance for LHEES that can be translated into local approaches. Some also saw a need for research to build the evidence base for LHEES.

Respondents also recommended targeted financial and other support as part of the implementation of LHEES. This included ensuring sufficient local authority funding and resources for development and delivery of LHEES.

Funding, finance and incentives

A total of 38 respondents (70%) addressed Question 43.

Public funding

The most common recommendation for funding of deployment of low carbon heat was continuation of public funding. This was seen as necessary at least in the medium term, although some suggested that funding could reduce as low carbon markets and technologies mature.

Public funding was seen as particularly important for the fuel poor, vulnerable households and those in hard-to-treat buildings where respondents saw a continuing need for grant support. Some also suggested a need for grants, subsidised loans and/or scrappage schemes for domestic users who are able to pay, particularly lower income households at risk of falling into fuel poverty. Research and development funding was also recommended to encourage investment, and some perceived a need for additional funding to support adopters of emerging technologies.

Some saw a need for expansion of current funding levels, and a streamlining of the current funding landscape. It was suggested that the current condition preventing households from receiving multiple grants should be reviewed. Recommendations for financial support also included reference to a continuing need for energy efficiency improvements for some buildings if low carbon heat is to be a viable option.

Some raised concerns around current public funding arrangements, and suggested these must be addressed for the continuing deployment of low carbon heat. These included suggestions that:

• Benefits of current funding have largely flowed to better-off households.
• Environmental and social obligations disproportionately penalise heating through electricity.

Consumer bills

Views were mixed in relation to a role for consumer bill contributions to fund deployment of low carbon heat. Some private sector respondents saw a role for this, while others (including private, public, third sector and other respondents) were opposed. Concerns raised in relation to consumer bill contributions included that lower income households may be disproportionately affected as they spend a higher proportion of their income on energy, and a suggestion that lower income households are more likely to live in homes with poorer energy efficiency (although no evidence was provided for this).

Reference to consumer bills included recommendations for a review of levies across domestic fuels to ensure higher carbon fuels are not advantaged. A carbon tax was recommended as a replacement that more accurately reflected contribution to carbon emissions, and ensured lower income and vulnerable households are not disadvantaged.

Private finance

There was support across a range of respondent groups for a role for private finance in funding deployment of low carbon heat. Those able to pay for low carbon heat were seen as a key focus for private finance, including low interest loans and equity release. Private finance was also seen as suitable for market ready low carbon technologies that can deliver savings for households.

Some suggested that availability of private financial support in Scotland was already good. However, others suggested that further regulation was required to strengthen the private finance market for low carbon heat. It was suggested that the role of private finance could increase as markets mature and public funding is withdrawn for all those who are not fuel poor.

Private investment

A total of 36 respondents (67%) addressed Question 44.

Recommendations for changes to encourage private investment in low carbon heat were focused around policy and legislation and public funding, although a range of other suggestions were also made. These are summarised below.

Reflecting comments earlier in relation to supporting uptake of low carbon heat, long-term policy support with clear targets was seen as necessary to provide certainty to industry and de-risk investment. This included a perceived need for a coherent package of regulation, standards, support and regulation to enable innovation, direct investment to low carbon technologies, and address demand risk. Specific suggestions included:

• A clear statement and associated regulatory support on the range of low carbon heat sources with a role to play in Scotland, including the balance between electrification and use of other heat sources. There was a perceived need for work to assess the off-gas housing stock to inform policy around the range of low carbon and energy efficiency technologies with a role to play.
• Clear dates for phasing out installation of high carbon heat for new build and subsequently retrofit of existing buildings, including associated enforcement powers.
• Regulation to require low carbon heat in new developments, and to ensure delivery of futureproofed infrastructure.
• A quality framework for design and delivery of low carbon heat, to encourage consumer demand and reduce risk for investors.
• Consumer protections.
• Inclusion of off-gas heating fuels in obligation or incentive programmes.

Respondents also saw a need for a range of public finance mechanisms for low carbon heat and energy efficiency improvements to incentivise consumer demand. This included reference to Green Financial Taskforce recommendations. Specific suggestions included:

• Long-term certainty regarding continued grant funding and provision of subsidised loans.
• Greater use of upfront payments through public finance.
• De-incentivising high carbon heat options.
• Financial reward linked to use of low carbon heat or energy efficiency performance, for example through Land and Building Transaction Tax relief or flexing of Stamp Duty.
• Funding of research and development to encourage localised production of low carbon heat sources.
• Consideration of public funding of pipe networks and metering for heat networks as core infrastructure.

Other areas suggested by respondents in relation to encouraging private investment in low carbon heat included:

• Demonstrating a clear pipeline of economically viable low carbon technologies, with specific case studies and demonstrator projects. This included programmes to pilot technologies and prove business models, such as the Low Carbon Infrastructure Transition Programme and Local Energy Challenge Fund.
• Improved public awareness of low carbon heat and the need to switch from high carbon sources, and improved confidence in available technologies.
• Analysis of current and potential finance approaches across the UK and internationally to identify models with a potential role to play in Scotland. Development of markets to enable provision of finance via energy service providers or technology services providing energy supply or service contracts. Greater support or encouragement of ‘green mortgages’ to support deployment of low carbon heat.

Current sources of finance

A total of 27 respondents (50%) addressed Question 45.

Respondents referred to the range of current sources of finance, including commentary on positive impacts and where schemes could be improved. This is summarised below.

• RHI was seen as having had a positive impact particularly in the non-domestic sector where organisations can take a longer-term view on return on investment. It was suggested that impact in the domestic sector has been more mixed with lower incentives, a lack of upfront payment and limited consumer awareness suggested as factors here.
• Home Energy Efficiency Programmes (HEEPS) were perceived to limit impact by preventing those taking up HEEPS funding from accessing other grants.
• Respondents suggested that the District Heating Loan Fund provides sufficient capital for smaller scale heat networks, but perceived a need for larger, longer-term and lower interest loans to make larger projects viable.
• Provision of low or zero interest loans such as the Home Energy Scotland Loan scheme was seen as having had a positive impact in overcoming capital costs of low carbon heat. Respondents suggested that the zero interest status of Home Energy Scotland Loans had been a key factor for households, although some suggested that uptake of low interest loans had tended towards higher income households.
• Salix funds had been used by some, but were seen as too short-term for many low carbon technologies to pay back in time. It was suggested that they do not reflect that selection of low carbon heat is motivated primarily by carbon reduction rather than cost savings.
• Some suggested that Resource Efficient Scotland is not working as well as the previous Carbon Trust in matching businesses to the required expert advice.
• Very long-term low or zero interest loans used internationally were perceived to have been effective in supporting the long-term infrastructure elements of low carbon projects, such as ground loops and heat network infrastructure.

Respondents referred to a range of specific examples and projects that had attracted private finance to support low carbon heat, included varying levels of detail. We summarise the key points below.

• Each Home Counts/Trustmark/Quality Mark scheme to ensure greater consistency in standards of retrofit of energy efficiency products and improve consumer protection. This was seen as creating better conditions for investment.
• The Mayor of London’s Energy Efficiency Fund provided a £500million fund to match to commercial debt and private investment, and could be adapted to low carbon heat.
• Industrial heat recovery support programme provides grant funding to support feasibility and capital costs of heat recovery projects.
• The Carbon Trust scheme funded feasibility and implementation of renewable technologies, and was at a level to allow more complex system design required for low carbon heat.
• Reduced VAT and tax credits against approved appliances or installers have been effective in parts of Europe.
• Innovate UK’s innovation funding for development of new technologies.

The role of advice, assessment and information

In addition to elements of a potential future Scottish framework discussed over the previous pages, the call for evidence sought views on the role of advice, assessment and information to support uptake of low carbon heating. Questions 46 and 47 addressed assessment of off-gas buildings for suitability for low carbon heat, and Question 48 addressed the wider information and advice required by consumers.

Assessment of suitability for low carbon heat

A total of 28 respondents (52%) addressed Question 46, and 27 (50%) addressed Question 47.

In relation to suitability of off-gas buildings for low carbon heat, respondents emphasised the importance of accurate assessment given the diversity of the off-gas building stock and range of potential low carbon heat technologies. This included a perceived need for a strategic approach to matching heat technologies to specific buildings, for example that takes account of local infrastructure.

Respondents emphasised specific requirements of the assessment process, included support for a holistic approach that takes account of the full range of factors that may impact the feasibility of specific technologies. This included build type, size, energy efficiency and existing heating systems, together with other variables that may impact energy demand. Some specifically suggested a need for building-by-building assessment.

In addition to ensuring accurate measurement of building attributes, some wished to ensure the assessment process does not favour specific technologies, but rather allows consideration of all available low carbon options. This included specific reference to the role of heat networks, bioliquids and biogas. Some referred to ongoing studies to consider the suitability of varying low carbon heat options across different housing stocks.

The importance of assessing energy efficiency was suggested by a range of respondents, including a role for the EPC framework. This was recommended in terms of assessing buildings to identify the most appropriate low carbon heat option, and in ensuring low carbon heating systems achieve sufficient EPC ratings for off-gas buildings.

However, some respondents perceived limitations with the EPC framework and raised concerns around its suitability for assessing buildings for low carbon heat. It was suggested that inclusion of energy costs in SAP ratings effectively penalises off-gas buildings which cannot access cheaper heating fuels, and has potential to encourage consumers to choose higher carbon lower cost fuels. Some also suggested that the EPC methodology is not suited to providing accurate ‘real world’ estimates of energy performance.

Some saw a need for review of the EPC methodology, which currently comprises a cost calculation and carbon calculation. This included suggestions for the removal of fuel costs from the cost calculation, a stronger role for carbon emissions, and greater focus on the Environmental Impact Rating (EIR) as part of EPCs. An energy efficiency rating based on kWh/m2/year was also recommended as providing a truer reflection of a building’s energy efficiency. The need for assessments to be updated was also noted, including a suggestion for a ‘building passport’ to be updated at key trigger points such as retrofit building upgrades.

Respondents also suggested the following approaches and technologies:

• In addition to the assessment of the building fabric (for example via EPC), some respondents suggested that further consideration of heat demand and the specific needs of residents was required. This included a perceived role for tailored information and advice to support consumers in choosing the low carbon option that best suits their needs. It was suggested that this should include consideration of the financial viability of each option in the context of available financial support.
• A private (renewables/low carbon) sector respondent recommended technologies and modelling approaches that could have a role in assessment of suitability for varying low carbon heat technologies. This included reference to remote rapid assessment systems integrated with building dynamic software to enable modelling of multiple heating options.
• An innovation competition was recommended to encourage development of new approaches to assessment.
• Some also wished to see better use of existing data sources to inform assessment of off-gas building stock, such as via smart metering.
• Respondents perceived particular challenges for assessment and feasibility testing of low carbon heat for non-domestic buildings, and suggested that additional funding is required to support this process.
• Some suggested that LHEES provided a suitable vehicle to take forward assessment of suitability for low carbon heat, ensuring a strategic approach to matching technologies to building types.

Consistent with the comments above, respondents saw clear links between assessment of energy efficiency and suitability for low carbon heat technologies. In this context there was support across respondent types for alignment with proposed Energy Efficient Scotland assessments.

This appeared to reflect comments noted above in relation to the need for a ‘holistic’ approach to assessment for low carbon heat. Some commented that Energy Efficient Scotland assessments provide an opportunity to fully integrate low carbon heat into advice to consumers. This was seen as having potential to support more coordinated action to decarbonise heat alongside energy efficiency improvements. However, concerns noted above regarding the current EPC methodology were reiterated in relation to any assessment approach based on EPCs.

Specific suggestions relating to the assessment of low carbon heat as part of Energy Efficient Scotland assessments included:

• Identifying when a building is in a LHEES ‘zero carbon heat zone’ or ‘heat network zone’.
• Recording current heating system emissions.
• Placing sufficient emphasis on the Environmental Impact Rating as part of the EPC.
• Providing key information on low carbon heat options including an accurate assessment of potential heating costs and potential behaviour changes required. However, some suggested that a fully costed assessment was unrealistic, but that Energy Efficient Scotland assessments could improve on current EPCs by signposting consumers to potentially suitable low carbon options for further investigation.
• Some suggested that Energy Efficient Scotland assessments must be supplemented with access to high quality, bespoke advice for consumers.

Consumer information and advice

A total of 31 respondents (57%) addressed Question 48.

Respondents noted that the importance of information and advice for consumers has been recognised by the Committee on Climate Change. This was in terms of ensuring consumers are supported to make the right choice for their needs, and protecting against unexpected energy performance and costs. The following types of information and advice were specifically referenced by respondents:

• A clear statement of the rationale for decarbonising heat in Scotland.
• Detail on the full range of low carbon technologies available and associated performance, cost and environmental benefits.
• Space requirements and changes required to building fabric.
• Likely installation and fuel costs, and availability of financial support.
• Estimated heat performance and efficiency.
• Counterfactual information.
• Tariffs and connection charges.
• Connection and supply agreements.
• Service standards.
• Obligations and rights/protections.

Respondents saw a potential role for a range of organisations in provision of information and advice on low carbon heat technologies. These included Home Energy Scotland, Citizens’ Advice and other third sector organisations, heating manufacturers and installers, energy suppliers and service companies - although some cautioned that vested interest could undermine the information and advice given. A role for national and local government was also recommended in ensuring consistency in standards of information and advice. Respondents recommended:

• Wider awareness raising to ensure the public understand the need for urgent action to decarbonise heat in Scotland.
• Regulation to require installers provide information on low carbon alternatives;
• Ensuring that installer training delivers the skills and knowledge required to provide information and advice;
• Potential verified provider lists.
• Local heat and demand mapping to raise awareness of local opportunities.

Some also saw a need for a reliable, impartial online source of information and advice, and a standardised consumer information pack was suggested. Targeting information and advice to consumers at key ‘trigger points’ was also recommended.