District heating: guidance on project level socio-economic assessment

1. Non-technical summary

1.1 Introduction

Energy Efficient Scotland is the cornerstone programme for delivering Scotland's low carbon heat and energy efficiency priorities. Given the need for strategic planning of Energy Efficient Scotland across the 20 years of the programme, the Scottish Government has consulted in detail on the introduction of a new statutory duty on local authorities to develop Local Heat and Energy Efficiency Strategies (LHEES) . The Scottish Government has proposed that local authorities would be required to undertake a socio-economic assessment in developing their LHEES. This assessment should demonstrate that priorities have been designated appropriately according to national and local objectives, including fuel poverty.

Meanwhile, the Scottish Government has also proposed a district heating consents and licence regime, such that in their application for a district heating consent developers would be required to undertake a project level socio-economic assessment.

The aim of conducting any socio-economic assessment is to identify and evaluate the financial, environmental, social and resilience impacts associated with a given strategic intervention or project. Socio-economic analysis sits alongside the technical and financial analysis of any strategy or project.

In the context of energy and heat, socio-economic assessments can be utilised to provide an indication as to the effect that an intervention will have on indicators such as decarbonisation and fuel poverty across an area.

The Scottish Government has proposed that guidance for socio-economic assessments for both LHEES and district heating consents would be made available in the form of detailed methodologies, laying out the overarching process and standard assumptions.

This document provides the methodology and guidance on how to appraise the socio-economic impacts of district heating projects appropriately, through the implementation of Cost Benefit Analysis (CBA).

A similar but separate document details the methodology and guidance for assessing the socio-economic impacts of LHEES, through the application of Multi-Criteria Analysis (MCA). This is also available from the Scottish Government's website.

1.2 What is a Cost Benefit Analysis?

CBA assesses the costs and benefits from a proposed intervention against a baseline scenario, in this case a 'do minimum' scenario that complies with current legislation and regulation.

The principles of CBA are based upon the assumption that most (if not all) of the significant impacts from a given intervention can be monetised. This allows CBA to generate a single numerical value which can be used as a means through which varying interventions can be compared against the baseline.

In the context of appraising proposed district heating interventions, indicators such as the economic Net Present Value (NPV) can be used to determine whether a proposed intervention is better for society than the status quo. This is clearly an important consideration when Local Authorities are assessing proposed district heating interventions for consent, and will help to ensure that projects granted consent add value to society. An approach of this nature ensures that subjectivity in decision making is kept to a minimum, keeping the focus on quantified, verifiable inputs and objective analysis.

1.3 Who should use this document?

The methodology developed and presented here is directed at public and private sector practitioners and project managers across Scotland who may be required to appraise various district heating interventions through project level socio-economic assessments, as part of the proposed district heating consents and licence regime.

1.4 When should this guidance be implemented?

The step-by-step processes and guidance outlined throughout this methodology will provide a robust approach for conducting project level socio-economic assessments through CBA, and also provides the user with detail on how to set an appropriate baseline scenario for use in the assessment. The guidance can also be used to identify the types of outputs that can be expected, alongside the key uncertainties that are present when undertaking a socio-economic assessment.

The concepts outlined within this document are based on best-practice guidance and all approaches are illustrated with relevant examples.