Heat in buildings strategy: business and regulatory impact assessment

6. Options

Option 1 – Business as Usual (no regulation)

The continuation of existing Scottish Government programmes including Warmer Homes Scotland, Area Based Schemes, the Low Carbon Infrastructure Transition Programme, CARES, and the Home Energy Scotland loan and cash back mechanism at recent funding levels, alongside UK Government support mechanisms such as the Green Gas Support Scheme. This is likely to result in static deployment rates. Currently, around 3,000 renewable heating systems are installed per year (equivalent of around 0.1% of homes). To deliver our emissions reduction targets, zero emissions heat installations must scale up to provide a total of at least 124,000 systems between 2021 and 2026. The installation rate will need to peak at over 200,000 new systems per annum in the late-2020s

Option 2 – A combination of regulatory, economic and behavioural change initiatives as part of a cohesive strategy (the Heat in Buildings Strategy)

Introduce non-regulatory measures to boost public engagement and enhance support for households, the public sector and businesses through consumer advice and advocacy and a range of financial and funding mechanisms, whilst targeting supply chain and skills development to support the transition and maximise economic opportunities. This will pave the way for a coordinated programme of regulations (subject to competence) beginning to take effect from 2025, providing certainty to the market and greater assurance that legislated targets are met.

The Heat in Buildings Strategy sets out the Scottish Government's approach to reducing emissions from heat across a range of policy and delivery actions. By bringing this range of interventions together it presents a coherent package aimed at tackling the challenges of heat decarbonisation and keeping costs as low as possible.

The key components of this package are:

• Local Heat and Energy Efficiency Strategies, to provide an area-based long-term framework for planning, delivery, coordination (e.g. with network investment) and potentially triggering regulation.
• Expanding Scottish Government support to at least £1.8 billion over the next five years, evolving and expanding existing delivery mechanism to reflect focus on Heat in Buildings and our four key priorities (1) supporting those least able to pay, (2) investing in strategic technologies in low- and no-regrets areas, (3) showcasing Net Zero leadership and (4) innovation and demonstration.
• Working towards a long-term market framework, including development of new finance mechanisms and work to align financial incentives around zero emissions heating choices.
• Working with the supply chain on a new action plan to ensure skills and supply chains are adequate to deliver the transformation needed across our buildings and energy systems, maximising the economic benefits to Scotland by building local supply chains, maximising local job creation, and ensuring a just transition.
• Development of a regulatory framework for zero emissions buildings providing certainty and clear end-points to building owners and across supply chains. Regulations will require buildings to reach minimum energy efficiency standards (equivalent to EPC C), with a backstop date of 2033. Subject to competence, we will bring forward proposals to require installation of low or zero emissions heating systems in existing buildings from 2025, with a backstop date of 2045.
• Working with network companies, Ofgem and UK Government to ensure the wider energy system is able to supply the energy needed for heating buildings in Scotland through the transition.
• Working more broadly with the UK Government to ensure coherence across reserved and devolved areas, including regulations, investment and market mechanisms, customer protection, product standards, taxes, levies, data access and GB wide schemes.
• A public engagement strategy and action plan to enable people to actively participate in shaping the decisions that affect them, and support to enable communities across Scotland to play a role in the developing heat transition.
• Developing and agreeing through consultation a series of phased targets starting in 2024, with the most difficult buildings like hospitals being decarbonised by 2038, and for all publically-owned buildings to meet zero emission heating requirements, with a backstop of 2038.
• Establish a virtual National Public Energy Agency to accelerate the transformational change in heat and use energy in homes and buildings, to inform and educate the public on the steps they will need to take to decarbonise heat as well providing advice and co-ordinating delivery programmes.

The package will continue to develop as policy implementation, evidence and experience progress. In the near term this will include: work to refine our coherent whole-system view of the heat transition and its interaction with other sectors through the refreshed Energy Strategy in 2022; setting out our approach to eradicating fuel poverty in the Fuel Poverty Strategy by the end of 2021; and embedding our evolving policies on zero emissions heat and energy efficiency within our wider approach to delivering on a Just Transition.