Heat in buildings strategy: business and regulatory impact assessment

7. Sectors and groups affected

Transforming the way we heat our homes and buildings will touch the lives of almost everyone in Scotland. Unlike the decarbonisation of our electricity system, the transition to zero emissions heating systems will directly affect people's everyday lives as we upgrade and roll out new heating technologies and energy efficiency measures to homes, workplaces and community buildings across Scotland.

The following sectors and groups have been identified as being affected by the proposals.

7.1 Building owners and occupants (including households, businesses, and public bodies)

Upgrading the energy efficiency and switching to zero emissions heating systems will have widespread impacts, though the scale and nature of these impacts will vary across different buildings and different zero emissions heat options.

Fabric and heating system upgrades may be disruptive. Disruption may arise from insulation, installation or reconfiguration of an internal distribution and radiator system, ventilation, and replacement of heating, cooling and cooking appliances. In instances where this is required new or upgraded connection to network infrastructure may also require excavation of outdoor space and streets. The extent of disruption will vary from case to case. The Strategy identifies a need for over a million homes and the equivalent of 50,000 non-domestic buildings to adopt zero emissions heat by 2030, and that the strategic technologies available in the near term are predominantly replacement of fossil fuel boilers with electric heat pumps and heat network connections. A significant proportion of buildings in Scotland will therefore undergo some disruption over the 2020s.

Social housing has already made significant progress, but additional investment will be needed as landlords work towards the Energy Efficiency Standard for Social Housing to 2032 (EESSH2). We will bring forward the review of EESSH2, to respond to the gathering pace of decarbonisation as a priority for change across all housing, how that affects what social landlords are being asked to do, and how it makes a difference to local heating strategies and shared tenure housing. We established a Zero Emissions Social Housing Task Force (ZEST), independent of government, which has advised on requirements in social housing to meet net zero targets. ZEST have recommended that the EESSH2 review is undertaken sooner than 2023, the date proposed in the draft of this Strategy, and we are currently considering this recommendation alongside the others outlined in their report.

The cost faced by building owners in upgrading energy efficiency and installing zero emissions heat will depend on how measures are funded and financed. In the near term financial support is available under GB-wide and Scotland-specific programmes. The Scottish Government has committed to investing at least £1.8bn in heat and energy efficiency programmes over the next parliament, building upon, expanding and improving existing programmes. The first two priorities identified above will directly support building owners manage upfront costs:

1. Supporting those least able to pay: expanding our domestic energy efficiency programme to support more households eliminate poor energy efficiency as a driver of fuel poverty and accelerate the deployment of zero emissions heat across Scotland's social housing stock.

2. Investing in strategic technologies in low or no regrets areas. Targeting at-scale deployment of strategic technologies and maximising private investment through the successor to the Low Carbon Infrastructure Transition Programme.

Aligned with these priorities, the Strategy proposes to continue to offer interest-free loans accessed via Home Energy Scotland, with a commitment to run a cashback scheme (or a grant replacement) until at least 2023 to help households overcome the upfront cost of taking early action. The Scottish Government has increased the cashback available to home and building owners on measures to improve the efficiency of buildings and install zero emissions heating. In 2022/23, the current arrangements will be replaced with a grant scheme to support energy efficiency and zero emissions heat improvements.

The Strategy identifies a need to mobilise and work in collaboration with the private sector to leverage investment beyond that provided by the public sector. A Green Heat Finance Taskforce will be established before the end of 2021, and the Strategy commits to setting out options for future financing and delivery in 2023. In addition, the Strategy outlines the Scottish Government's commitment to establishing a virtual National Public Energy Agency to inform and educate the public on the steps they will need to take to decarbonise heat as well as providing advice and co-ordinating delivery programmes.

The impact of changing heating systems on running costs in the medium- to long-term will be influenced by tariffs available in the energy market. At present, the difference in gas and electricity prices is partly a result of policy costs, such as social and renewable electricity obligations, being recouped primarily through consumer electricity bills. Powers to shape gas and electricity tariffs are reserved to the UK Government. In its Energy White Paper, the UK Government committed to begin a strategic dialogue on affordability and fairness. The outcome of this process will potentially have a significant impact on the relative running costs of using fossil fuels and zero emissions heating. The Strategy underscores the importance of the market evolving so as not to disincentivise switching to zero emissions systems, and to reduce the risk of tension between our climate change and fuel poverty targets.

7.2 Supply chains business

The heat and energy efficiency sectors in Scotland currently generate an annual turnover of £2 billion, with full-time equivalent employment of around 12,500. Of these, zero emissions heating manufacturing is estimated to employ around 2,000 people, and design, manufacture and installation of energy efficient products 8,200 people.^[20] Recent research commissioned by the Scottish Government suggests the additional jobs supported in 2030 will exceed those displaced by an estimated 16,400 as a result of investment in the deployment of zero emissions heat. Job displacement will take place in high carbon sectors as a result of reduction in demand for high carbon systems and fuels, while jobs will be created in low carbon sectors as a result of increased demand.

To meet the increased demand for zero emissions heating, and ensure that workers can benefit from new employment opportunities, we will need to grow the skills base in Scotland across the following areas:

• Building assessment
• Manufacture and installation of energy efficiency measures
• Manufacture, installation and servicing of heat pumps
• Design, installation and servicing of heat networks
• Ancillary services including smart heating controls, support services, innovation and financing
• Delivery, conversion, maintenance and servicing of hydrogen ready boilers, if this becomes a relevant technology in the next decade.

The Strategy commits to building local supply chains, maximising local job creation, and ensuring a just transition. A new Heat in Buildings Supply Chain Delivery Plan, to be developed by Summer 2022, will aim to deliver these objectives across the zero emission heating supply chain activities above, as well as others that may be identified.

The Supply Chain Delivery Plan will be co-produced with industry, and will review existing supply chain sector support, set out how the public sector and industry will address barriers and fill gaps identified to deliver targets, identify global opportunities and mechanisms for supporting export potential and include a focus on developing local supply chains, specifically those in remote rural and island areas.

7.3 Local authorities

Local authorities will be affected in various ways beyond their role as building owners/occupants.

• Implementation of LHEES: We continue to work with local authorities and COSLA on progressing LHEES. We believe Strategies and Delivery Plans should be developed on a statutory basis, and we are committed to resourcing their development accordingly.
• Potential role in enforcement of regulations: As we strengthen our framework for heat and energy efficiency regulation, we will work with local government to identify where responsibility for enforcing standards should lie.
• Role in supporting deployment, including building on our Area Based Schemes and our developing approach to heat network support, which will facilitate local authorities achieve their own fuel poverty and net zero ambitions.