Heat in Buildings Strategy - achieving net zero emissions in Scotland's buildings

Chapter 9 The Economic Opportunity

Developing Scottish supply chains – the net zero opportunity

Transforming our buildings by making them more energy efficient and converting them to zero emissions has the potential to make a significant economic contribution and represents a sizeable opportunity for Scottish businesses over the next 24 years. The proposals and actions set out in this Strategy aim to provide a clear set of signals to the market, helping to give clarity and confidence to companies to invest for the transition.

Consultation responses supported our view that the heat transition presents significant opportunities across a range of areas, to bolster our supply chain, create new jobs, enable the deployment of low and zero emissions technologies and encourage new entrants to the sector.

The necessary pace of the transition requires a substantial growth in supply chains, particularly in the availability of skilled heating and energy efficiency installers. Consultation responses were clear that investment in workforces is needed ahead of time to ensure that supply chains do not act as a constraint to deployment, or artificially drive-up prices.

This chapter sets out the challenges and opportunities for heat in buildings supply chains in the transition, highlighting the growth opportunities for Scottish businesses and the actions we will take to unlock investment.

Existing Supply Chain

We have a strong foundation on which to build, with the heat and energy efficiency sectors in Scotland currently generating an annual turnover of £2 billion and supporting around 12,500 full-time equivalent jobs servicing today’s demand^[lxxviii].

However, the construction sector and its supply chains are still recovering from the dual impacts of COVID-19 and EU Exit, presenting specific challenges in the downstream supply of services for heating and energy efficiency installation.

Industry bodies have highlighted a lack availability of skilled staff to meet existing levels of demand before any increased demand arising from the heat in buildings transition is taken into account. This, combined with recent materials shortages and increased prices across the construction sector, sets a challenging context for investment in the heat in buildings supply chain.

Case study: Manufacturing Heat Pumps in Scotland - Mitsubishi Electric Air Conditioning Systems Europe Ltd

Mitsubishi Electric has a long association with Scotland, being based in Livingston since 1979. The Livingston manufacturing campus produces a range of air source heat pump technologies, marketed under Ecodan. The Livingston campus currently operates within a footprint of 54,000 thousand m² across 5 separate production sites and employs circa. 1,400 people, with a doubling in the number of employees over the last 6 years.

The opportunity presented by the heat transition will require a further step change in the capability and capacity of supply chains in Scotland; one that needs to begin now to meet the forecast demand.

Economic Opportunities

Overall, we estimate that an additional 16,400 jobs will be supported across the economy in 2030 as a result of investment in the deployment of zero emissions heat^[lxxix].

As set out in Chapter 6: Kick Starting Investment in the Transition, it is estimated that the total investment in buildings alone required to meet our net zero targets for buildings will be in the region of £33 billion. This figure does not include the potential opportunities arising from Scottish companies servicing the demand from wider UK and international markets. Through our Supply Chains Development Programme, we will work to maximise the economic opportunities for Scottish based manufacturing businesses from public sector investment.

Based on our estimated deployment pathway, annual investment will need to rise gradually, peaking at around £2-2.5 billion towards the end of the decade.

As set out in the 2021 Programme for Government, we want to see – as a minimum – zero emissions heat installations scale up to provide a total of at least 124,000 systems installed between 2021 and 2026. We recognise that setting medium term credible aspirations for deployment of categories of heating technology can build confidence and support investment across supply chains. We welcome the views submitted in the consultation on the role technology specific milestones could play in ramping up supply chain capacity, and are considering how best to proceed.

Challenges

It’s essential that we understand the potential demands on the heat in buildings supply chain to ensure that the availability of skilled labour does not drive-up prices and act as a constraint on the delivery of our ambitions. Equally, it is important that we are well equipped to benefit from the growth in demand for key products, such as heat pumps, by ensuring that manufacturers in Scotland benefit from our investment and that manufacturing sites have access to the necessary skilled workforce.

While the overall impact of the transition is a forecast increase in jobs, the transition will present challenges for traditional, fossil fuel-based jobs, particularly in the gas industry, and it is vital that we have a planned approach to ensure a just transition for these sectors.

In order to ensure that we can proactively design support for workforce investment, we have partnered with Scottish Renewables to undertake a Heat in Buildings Workforce Assessment Project. This will consider the timing of necessary workforce growth and consider the wider context and demand for skills in multifaceted sectors. The report will provide a view on how best to support people transitioning into key sectors, alongside workforce growth through youth employment. A final output from this research will be published in Spring 2022.

In addition to ensuring there is sufficient capacity in the supply chain, it is also essential that we ensure the supply chain is equipped to deliver high quality services to consumers. In this respect, developing a robust quality assurance framework, and ensuring that the sector is capable of complying with this, represents a key challenge.

Supply Chain Support

We are already delivering valuable, tailored business support to the heat in buildings supply chain through our existing Sustainable Energy Supply Chain programme and our economic development agencies – Highlands and Islands Enterprise, South of Scotland Enterprise, Scottish Enterprise and Scottish Development International.

Sustainable Energy Supply Chain programme

The Sustainable Energy Supply Chain programme is funded by the Scottish Government and administered by Energy Saving Trust. Since 2013 it has provided support and assistance for businesses in Scotland to help them participate fully and effectively in the supply chain for energy efficiency and micro-generation measures and installations. Over 4,000 people have benefited so far from the support provided by the programme.

To augment our existing programme, we will develop a new Heat in Buildings Supply Chain Delivery Plan by Summer 2022, specifically focussed on strengthening the broad supply chains needed to deliver energy efficiency and zero emissions heat in buildings at the pace and scale we need. We will work with industry to co-produce this delivery plan which will:

• Review the supply chain sector support in place, and ensure that measures are introduced to fill any gaps in provision;
• Identify mechanisms to ensure the supply chain is aware of UK and Scottish market stimulation programmes, including Scottish Government funding programmes such as our low-cost loans and cashback;
• Work with the supply chain sector to prepare them for the proposed timetable for introduction of regulatory standards and expected compliance dates, so that it can plan with certainty for delivery to support building owners to meet these standards;
• Set out how the public sector and industry will address barriers and fill gaps identified to deliver our targets, as well as secure the economic benefits in Scotland;
• Identify global opportunities and set out mechanisms for supporting export potential, and consider requirement for inward investment;
• Include a specific focus on developing local supply chains, attracting inward investment, and securing local jobs, particularly in our islands and remote communities;
• Identify the support needed for training and skills development, specifically for those in remote rural and island areas.

Working with industry

We recognise the significance of the heat in buildings opportunity for the construction industry and will continue to work with our partners and industry through existing forums such as the Construction Leadership Group.

However, the heat in buildings transition will be a joint endeavour between government, industry and civic Scotland. It is essential that we deliver the transition through a broad partnership involving key stakeholders working towards specific goals.

Throughout 2020/2021, we have been working with the heat pump industry to explore the potential for Heat Pump Sector Deal for Scotland. This would be a new process of engagement between Government and industry, working to unlock the necessary growth in the supply chain.

In June, the independently chaired Heat Pump Sector Deal Expert Advisory Group published a detailed interim report offering views across a range of important issues for the heat pump sector. The group is now finalising its recommendations.

We will respond to these recommendations at the earliest possible opportunity, and also consider whether or not such a model might be relevant in other parts of the heat in buildings supply chain.

Exporting our capabilities

Building strong and competitive Scottish supply chains will not only be critical to unlocking the high-volume delivery required later in the decade but also offers the potential to compete in markets outside of Scotland. Our ambitious net zero targets and well-developed supply chain will present opportunities to generate exports earnings from overseas markets through utilising our expertise, technology and skills.

We will work with our enterprise agencies and Scottish Development International to understand more about the potential for generating export growth through Scotland establishing itself as a centre of technical expertise and manufacturing excellence.

Supporting innovation

Innovation, in terms of products, services and business models, will be required to meet our ambitious targets for transforming Scotland’s homes and buildings. Fostering and incubating this innovation in Scotland will help to create further economic opportunities for Scottish businesses.

We will work with our partners, including our Enterprise Agencies and the National Manufacturing Institute for Scotland, to create a forward looking and proactive Research and Development community focussed on creating solutions to help decarbonise Scotland’s homes and buildings.

As part of our Heat in Buildings Supply Chain Delivery Plan, we will consider the role of technology innovation in the sector and whether there is a need to bring forward a package of support to ensure that innovation continues to play a role in supporting progress towards our targets.

Case study: Innovation in our supply chain- supporting heat decarbonisation through innovative heat batteries.

Sunamp is a Scottish company that designs and manufactures thermal batteries using phase change material that cuts fuel costs and carbon emissions by storing available energy from renewable and non-renewable sources as heat and releasing it to deliver hot water and space heating on demand.

Their heat batteries are up to four times smaller and more efficient than conventional hot water cylinders, freeing up space in homes and saving energy. The patented technology, developed in collaboration with University of Edinburgh, also has wide applications in commercial, industrial and automotive settings.

Scottish Enterprise has supported Sunamp from its inception, with a total of £2m invested to date via R&D and commercialisation grants, and is now working with the company to develop a heat battery factory with the potential to produce 500,000 heat batteries per year for Scottish, UK and export markets. Scottish Government funding has enabled the installation of heat batteries in over 800 Scottish homes. The technology has been eligible for support through Home Energy Scotland loans since 2018, acknowledging the role of thermal storage in the decarbonisation of heat.

Through these made-in-Scotland products, Sunamp aims to transform how we generate, store and use heat in order to make a significant impact on tackling climate change both in Scotland and beyond.

Defining quality assurance standards

In 2018 we convened a Short Life Working Group to consider the quality assurance requirements needed for energy efficiency and zero emissions heating. The Group made 19 recommendations, including that a relevant quality mark should be adopted for suppliers delivering work through Scottish Government funded schemes. We consulted further on this approach in 2019.

Following consultation feedback, we will adopt the UK PAS 2035/30 standards for our delivery programmes, which will ensure that installers of energy efficiency measures are suitably skilled to undertake required works. These standards cover the entire energy efficiency retrofit process in homes, from initial assessment and design, through to installation and evaluation. We will also consider using the UK government endorsed TrustMark quality assurance framework to ensure compliance with these standards.

TrustMark

TrustMark^[lxxx] was established in 2005 and operates within a Master Licence Agreement issued by the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS). TrustMark lists ‘approved’ trades for home improvements and recently in 2019 broadened their remit to include energy efficiency installers.

A TrustMark approved energy efficiency installer must:

• Be certified to the BSI installer standards (PAS 2030) and be compliant with BSI retrofit standards (PAS 2035).
• Comply with the TrustMark Code of Conduct and Customer Charter.

For microgeneration, including heat pumps, we already require measures installed under our schemes to be installed by an MCS certified installer. Together, PAS 2035/30 and MCS standards will ensure that installations are both good quality and fit for purpose.

To ensure these standards are tailored to the needs of the Scottish market, we have developed an installer skills matrix which we propose to integrate within the PAS 2030 and MCS installer standards. This will provide more clarity on the qualifications required, as well as the different routes for achieving these.

This proposal was included in our Consultation on Scottish skills requirements for energy efficiency, zero emissions and low carbon heating systems, microgeneration and heat networks for homes^[lxxxi].

We plan to publish our response to this consultation in a separate policy statement in late 2021. This will also include our proposals for quality assurance including quality marks and consumer protection.

Heat networks are not covered by the PAS 2035/30 or MSC Standards and as complex large-scale infrastructure, it requires its own bespoke skills across design, development, operation and maintenance^[lxxxii]. As the heat industry grows there may be opportunities for redeployment from other sectors. We are working with partners to develop at least two accredited training courses, to be delivered by universities and colleges in Scotland. We expect these courses to be on offer from 2021.

As the quality assurance requirements set out above are adopted, and demand for energy efficiency and zero emission heating grows, we will work with partners to ensure that there are sufficient training opportunities to support career pathways for those who wish to enter the sector. We will also work with our partners to develop new qualifications for energy efficiency and zero emissions heat as may be appropriate. Our approach will be set out in the Heat in Buildings Supply Chain Delivery Plan, as detailed above.

Summary of action we are taking:

102. By Spring 2022 we will publish the results of our Heat in Buildings Workforce Assessment Project in partnership with Scottish Renewables

103. By Summer 2022, we will co-produce a new Heat in Buildings Supply Chain Delivery Plan with the sector. This will specifically focus on the development of energy efficiency and zero emissions heat in the buildings supply chain in Scotland.

104. We will respond to the final recommendations of the Heat Pump Sector Deal Expert Advisory Group following their final publication.

105. We will work with our Enterprise Agencies and Scottish Development International to understand more about the potential for generating export growth through utilising Scotland’s technical expertise and manufacturing capabilities.

106. We will adopt the UK PAS 2035/30 standards for our delivery programmes.

107. We will respond to our energy efficiency, zero emissions and low carbon heating systems skills requirements consultation in late 2021.