Heat in buildings strategy: fairer Scotland duty

Summary of assessment findings

The Heat in Buildings Strategy is not directly aimed at any particular socio-economic group, but is aimed at the homes they live in and buildings they visit. It is anticipated that in the long term the Strategy will impact positively on all sectors of society through the provision of buildings that are easier, cleaner and greener to heat.

However, in the short term issues such as the installation and running costs of low and zero emissions systems might have an effect on certain groups who experience socio-economic disadvantage, including those who experience inequality of outcome in terms of:

• Access to information and financial services
• Education and employment
• Housing
• Location
• Health
• Poverty

Inequality of outcome: Access to information and financial services

There is opportunity to reduce inequalities of outcome through delivery of the Heat in Buildings Strategy by ensuring that financial incentives offered to people to install zero and low carbon heating systems and energy efficiency measures are designed to support all citizens, including vulnerable groups who may be suffering from financial exclusion.

Financial support and advice

• Our advice and support programmes will continue to support energy efficiency measures, and for those households requiring additional support these services will continue to provide help on tariff switching, energy behaviours and make onward referrals to ensure that all households, including those with socio-economic disadvantage receive the support for which they are eligible.
• We will continue to invest in Home Energy Scotland improving our digital presence and extending the support to provide more in-depth support. We will offer interest-free loans for heat and energy efficiency technologies via Home Energy Scotland, with an additional commitment to run our cashback scheme (or a grant replacement) until at least 2023 to help households overcome the upfront cost of taking early action.
• Scottish Government funded loans are available to landlords to improve the energy efficiency of properties and meet minimum standards. The loans are administered by Home Energy Scotland and are available to registered private landlords for improvements to domestic dwellings which are listed on the Scottish Landlord Register, are not a holiday or second home, are registered with the Scottish Assessors Association as paying domestic council tax rates, are not under construction, and are currently occupied by at least one tenant or will have at least one tenant in place within 30 days of the payment of the loan. Loans of up to £15,000 are provided, split across different types of works. Funding is also available for up to two home renewable systems per property, worth up to £17,500 in total, plus an energy storage system up to a maximum of £6,000.
• Warmer Homes Scotland offers material measures to support those eligible under fuel poverty proxies (receipt of benefits, age, broken heating systems), providing fabric measures such as insulation as well as heating systems and small scale renewable measures. More than £150 million has been invested through the scheme since its launch in September 2015 helping over 24,000 households throughout Scotland. This year we have increased funding for Warmer Homes Scotland to £50 million (an increase from £32 million in 2020-21). The successor scheme to Warmer Homes Scotland will see scaled up investment in order to offer a greater proportion of zero-emissions heating systems and to extend scheme eligibility criteria to ensure we are capturing the fuel poor client group.
• We have commissioned independent advice on the concept of Heat as a Service and its potential as a route for decarbonisation in Scotland. The Heat as a Service model has similarities with the way in which many consumers choose to lease a mobile phone or car, with the upfront ownership costs of a new low or zero emission heating system being recouped over a period of time through regular payments, sometimes including operating and maintenance costs. The research suggests that Heat as a Service could help overcome the two main barriers that discourage people from installing low-carbon heating systems: concerns about cost and comfort. We will continue to explore how this model might support heat decarbonisation by enabling consumers to purchase or run low or zero emission heating systems, while delivering the energy outcomes consumers want.
• We will ensure that the remit of the forthcoming Green Heat Finance Taskforce will consider the challenges of financial exclusion.
• To support maximising incomes we are calling on the UK Government to review levy funding for the Energy Company Obligation and the Warm Home Discount and to work with Scottish Ministers to bring these together to establish a single, flexible Scottish Fuel Poverty scheme in order to maximise benefits.
• We will continue to work with key stakeholders, such as local authorities and energy suppliers, to ensure that vulnerable and fuel poor households in Scotland receive the help they need from these GB schemes.

Engagement and future delivery

• We will continue to draw advice from stakeholders and advisors through a variety of channels, building on our productive Heat Decarbonisation External Advisory Group. This group will be adapted as part of our revised governance arrangements for the Heat in Buildings Strategy and we will ensure that those from disadvantaged socio-economic groups are represented in this process.
• We will ensure that challenges and opportunities identified in this assessment are recognised through the development of our Public Engagement Strategy for Heat in Buildings. The forthcoming National Public Energy Agency will provide leadership and coordination to deliver on our heat decarbonisation targets, which will include public engagement across the breadth of society in Scotland to ensure that people are aware of and understand the changes that are necessary, and can access the right support at the right time to meet their needs. The Public Engagement Strategy will provide the framework to guide how the Agency can best achieve this in practice. Further details will be set out in due course.
• We are also working with the Energy Consumers Commission, Consumer Scotland and a range of Scottish consumer representative organisations to ensure that issues of consumer detriment are identified and addressed, focussing on consumer understanding, accessibility, costs, redress, and support for vulnerable consumers.

Inequality of outcome: educational attainment, skills and employment

There is opportunity to reduce inequalities of outcome through delivery of the Heat in Buildings Strategy by ensuring that supply chains provide upskilling and employment opportunities to those with lower socio-economic backgrounds. This could be done as part of the heat transition through apprenticeships, retraining and upskilling within the supply chain. The increased demand for skills through the heat in buildings transition provides an opportunity to attract new courses and training opportunities for young people, as well as those transitioning from jobs in high fossil fuel sectors of the economy.

• We have partnered with Scottish Renewables and Skills Development Scotland to undertake a Heat in Buildings Workforce Assessment Project. This will build an evidence base in support of the wider skill requirements and opportunities in the heat in buildings transition, including the timings of when skills are required, how best to support the transition opportunity from other industries, support training and the provision of local jobs across Scotland, as well as the development of apprenticeships in this area. Part of this work will consider the skills and training opportunities for socio economically disadvantaged groups.
• We will continue to use our government led programmes, such as Warmer Homes Scotland, to support apprenticeships, and will look to expand our support for apprenticeships through our existing funding programmes. Since Warmer Homes Scotland was launched in September 2015 over 140 apprenticeships have been made possible, 618 new jobs created and 2,671 training and up-skilling opportunities across Warmworks and the supply chain have been made possible.
• We will take forward a Heat in Buildings Supply Chain Delivery Plan by Summer 2022, which will focus on strengthening the broad supply chains needed to delivery energy efficiency and zero emissions heat in buildings at the pace and scale we need. Part of this work will consider the skills and training opportunities for socio economically disadvantaged groups.

Inequality of outcome: Housing tenure

• We will take steps to ensure that everyone, including owner occupiers, tenants, private and social landlords, SMEs and communities, has the opportunity to help shape the decisions we take at a national and local level on how we heat our homes and buildings in the future. We will consult extensively with stakeholders and citizens as we develop the regulations and delivery programmes proposed in this Strategy.
• As set out in the Strategy, social housing is already paving the way for energy standards. The first milestone, the Energy Efficiency Standard for Social Housing (EESSH1) was based on a minimum energy efficiency depending on house and fuel type (specified SAP ratings within bands C or D). It was due to be met in December 2020. The Scottish Housing Regulator reports that 89% of social rented homes have met the 2020 milestone and social landlords (local authorities and registered social landlords) are working towards the second EESSH2 milestone for all social housing to meet, or be treated as meeting, EPC B, or be as energy efficient as practically possible, by the end of December 2032. We will review the EESSH2 standard with a view to strengthening and realigning it with wider net zero requirements so that we can work in partnership with social housing to lead the transition to zero emission buildings and avoid the need for further retrofit in the future. The Zero Emissions Social Housing Taskforce (ZEST) recommended that this review be undertaken sooner than 2023, the date proposed in the draft Strategy. We are currently considering the report and recommendations and will respond in due course.
• The EESSH2 milestone does not change landlords' responsibility to manage their investment policy to ensure it is cost-effective, especially where substantial additional investment has a potential impact on rents. Our guidance for landlords makes it clear that we do not expect landlords to invest in measures that are unaffordable or where the costs are disproportionate to the benefits to tenants. Landlords have broad discretion to decide if potential energy efficiency measures are too expensive or are not value for money in their stock. (See section 8 at Energy Efficiency Standard for Social Housing (EESSH): guidance for social landlords March 2021 - gov.scot (www.gov.scot))
• The Strategy proposes a new all-tenure zero emissions heat standard, as well as minimum energy efficiency standards for private-rented, owner-occupier and social housing. We will also develop a bespoke approach to regulating for improvements in mixed-tenure and mixed-use buildings.
• We are reviewing the recommendations from the Zero Emissions Social Housing Taskforce (ZEST). The social housing sector has shown strong leadership on improving fabric energy efficiency, which has supported tenants to reduce their energy bills, and contributed carbon savings. This early leadership puts the sector in a position to champion zero emissions heat measures in the most efficient parts of its stock. However, fabric improvement alone will not get us close to our targets for net zero and we need to develop a stronger focus on heating system change. This is the case for all other tenures, where we propose to regulate to require installation of zero emissions heating systems as well as energy efficiency upgrades, where within our competence.
• We remain committed to working with the social housing sector and encourage the sector to take full advantage of the support available including through our Social Housing Net Zero Fund, through which we are investing £200 million of capital funding to support decarbonisation of social housing over the course of this parliament. We will also consider how this financial support for zero emissions heating will work in tandem with our other delivery programmes such as our Area Based Schemes.
• In addition, we will invest £3.44 billion to deliver more social and affordable homes over the period 2021-2022 to 2025-2026. We will continue to support affordable housing providers who wish to install zero emissions heating systems in these homes ahead of regulatory requirements in 2024.
• We are working with the sector to introduce regulations in 2025 to require all private rented sector properties to reach a minimum standard equivalent to EPC C, where technically feasible and cost effective, at change of tenancy, with a backstop of 2028 for all remaining existing properties, in line with the direction provided by the Climate Change Committee (CCC).

Inequality of outcome: Location

We acknowledge that the transition to zero emissions buildings may look different in different communities and require approaches tailored to place. It will be important for local communities to shape and be involved in decisions about solutions that are most appropriate for their local area.

• Consideration will be given to the role of community renewables and benefits in helping to address socioeconomic disadvantage. Our new CARES programme focuses on supporting communities to work together to address and champion heat decarbonisation on a local level. Through CARES we are working to understand further the models and solutions most appropriate for communities in Scotland.
• Our Local Energy Policy Statement sets out clear principles to guide local energy planning and community engagement.
• Local Heat & Energy Efficiency Strategies (LHEES) will provide a long-term framework for taking an area-based approach to planning and delivery of the heat transition. LHEES will enable a locally-tailored approach. These Strategies also form a basis for local public engagement and will be in place for all local authority areas by the end of 2023.
• Since 2013, the Scottish Government has provided £470 million funding for locally designed and delivered Area Based Schemes (ABS). ABS projects have benefitted over 100,000 households living in or at risk of fuel poverty across Scotland.
• ABS funding enables local delivery partners to offer measures at no cost or a reduced cost to owner occupiers and private landlords with fewer than four properties (i.e. as grant-in-aid). By combining investment by private and social landlords, ECO finance and owner occupiers, ABS projects have been particularly successful in delivering improvements for multi-occupancy properties such as flats and tenements, as well as whole streets of terraced and semi-detached housing.
• In line with our commitments in the Programme for Government, the Scottish Government has increased our annual investment in local ABS projects to £64m in 2021-22 (from £55m in 2020-21). We have increased our funding in 21/22 to enable more of these households to benefit from a `whole house retrofit' that includes low carbon heating and other measures, such as installing solar PV panels to reduce electricity bills.
• Local ABS projects are designed and delivered by councils, in conjunction with utility companies and local delivery partners, targeting fuel poor areas to provide energy efficiency measures to a large number of Scottish households and help reduce fuel poverty. Overall funding allocations to councils are based upon a needs-based funding model agreed with COSLA.
• The model reflects the percentage of fuel poor households within a council area; the percentage of the total LA area population which is fuel poor; % of total LA area population experiencing extreme fuel poverty (10%); each LA's share of properties with uninsulated solid walls; and LA's share of dwellings with uninsulated hard-to-treat cavity walls.
• We also recognise that the costs of delivering energy efficiency measures are higher in remote rural and island areas. Councils serving remote rural/island communities can design projects that deliver grant-in-aid worth an additional £2,000 per household for insulation measures and a further £2,000 in uplift for zero carbon heating and microgeneration measures.
• We are also working in collaboration with the Scottish Cities Alliance and the seven cities on the opportunities to accelerate activity at pace to ensure the Scottish cities cumulatively play their role in meeting our heat decarbonisation and energy efficiency ambitions whilst maximising the economic and well-being outcomes across cities.
• The National Islands Plan will:
  • Review how delivery schemes can work better locally and review funding for island communities.
  • Develop a remote rural, remote small town and island Minimum Income Standard uplift, with the uplift for island areas to be determined separately.
  • Produce an Island Community Impact Assessment (ICIA) on the final Fuel Poverty Strategy, ensuring that representatives from island local authorities are fully involved in its development.
  • Carry out research and analysis to meet the requirements of the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019 that will also enhance our understanding of the costs of living faced by families living in island communities.
• We will also publish an Islands Energy Strategy in 2022 with a focus on resilience and sustainability of island energy systems for the future, and on supporting islands' transition to net zero emissions.

Inequality of outcome: Health

There are a number of positive health impacts that actions from the Strategy may provide. For example, a shift away from fossil fuel removes combustion and therefore the risk of carbon monoxide poisoning. Efforts to improve energy efficiency and heating in buildings could positively impact on infant physical development, long-term physical and mental health and education (with fewer missed days at school due to illness). Moving towards zero emissions heating technologies such as heat pumps can also provide a more constant heating regime for a home or building due to the operational requirements of a heat pump. This may also benefit occupants by providing more consistent levels of comfort.

However, if a property is not kept well ventilated through construction, technological or natural means, energy efficiency measures which improves airtightness can lead to increased indoor air pollutants, risk of overheating in the summer months and rise in humidity, which can result in increased dust mites and mould impacting respiratory conditions and allergies.

Ventilation

• The Strategy recognises that it will be important to understand the need for passive measures, such as ventilation and shading, that could be applied to buildings during the course of improving their fabric efficiency. It will also be important to understand the need for, and role of, zero emissions heat systems that are capable of also providing cooling, such as reversible heat pumps.

Quality Assurance and skills standards

• We will adopt a whole house approach based upon the PAS 2035/30 standards as part of our Heat in Buildings delivery programmes.
• We will consider using the UK Government endorsed TrustMark quality assurance framework.
• We will continue to ensure that microgeneration measures supported through our programmes are carried out by an MCS certified installer.

Buildings Standards

• In parallel with development of the New Build Heat Standard, we are reviewing energy standards set through building regulations, to deliver further improvements in building energy performance. This will include very high levels of building fabric performance in our new homes, avoiding the need for costly retrofit in the future, contributing towards removing poor energy efficiency as a driver of fuel poverty, and making homes more affordable to heat.

Zero Emissions Heat Standard

• The Strategy proposes a new all-tenure zero emissions heat standard, as well as minimum energy efficiency standards for private-rented, owner-occupier and social housing. We will also develop a bespoke approach to regulating for improvements in mixed-tenure and mixed-use buildings.

Inequality of outcome: Poverty

Fuel Poverty

As we address the damaging climate change impact of heating our homes and buildings with unabated fossil fuels, we must also continue to tackle the social inequalities that are all too prevalent in our housing sector, and deliver a just transition. In particular, we must redouble our efforts to end fuel poverty and the blight of unaffordable heating. This is challenging as many zero emissions heating systems are more costly to install and can be more expensive to run than high emissions alternatives. We need to work together across sectors and jurisdictions to overcome these issues, and to deliver a just transition. We remain steadfast in our commitment to supporting those least able to pay in this transition, and in protecting those who are most vulnerable to any increase in costs.

A new Fuel Poverty Strategy setting out our approach to eradicating fuel poverty in Scotland will be published by the end of 2021.

Energy efficiency

• High standards of energy efficiency are essential to reduce the overall demand for energy. Alongside energy saving behaviours these measures can help to ensure running costs remain affordable. We will continue to take a fabric first approach as it underpins the successful roll out of low and zero emissions heating, as well as being an important aspect of tackling fuel poverty.

Guiding principles

• We have published in the Strategy a set of guiding principles to underpin our commitment that no one is left behind in the heat transition, ensuring we only take forward actions where they are found to have no detrimental impact on fuel poverty rates, unless additional mitigating measures can also be put in place.

Investment

• We are taking action through our delivery programmes to maximise the number of homes with households in fuel poverty achieving a level of energy efficiency equivalent to EPC C by 2030 and EPC B by 2040.
• We will continue delivery of energy efficiency investment to support fuel poor households in order to make homes warmer and easier to heat and to reduce the impact of any increased running costs from zero emissions systems, including recognising the distinct challenges faced by island, rural and remote communities, and seek to improve targeting so that we can reach more households in fuel poverty.
• We will continue our investment in Area Based Schemes, extending their reach to support higher numbers of households in or at risk of fuel poverty. We are working closely with our local delivery partners to extend the reach of our projects, accelerating progress towards our net zero, targeting more households in extreme fuel poverty and most vulnerable to the effects of cold.
• We will procure a new, enhanced successor to Warmer Homes Scotland following expiry of the current contract in September 2022, which will provide support for fuel poor households at its heart, and embed increased support for zero emissions heating, adopting a zero emissions first approach which will support the reduction of household costs.

Consumer support

• We will continue to work with energy retailers to ensure households have access to the right tariffs, that tariffs tailored to zero emissions heating systems are available, and continue to press for customers with pre-payment meters to access similar tariffs to direct debit customers.

Evidence

• We continue to build the evidence base on the interactions between our fuel poverty, child poverty and climate commitments, and are applying that knowledge to our policy design and to our programmes, mitigating any risk of unintended consequences, and tracking progress and learning by doing in order to adjust immediately where unintended consequences nevertheless arise.

The Scottish Government will undertake the mitigating actions outlined within this FSD and in noting the high-level nature of the Heat in Buildings Strategy, will require subsequent delivery programmes and regulatory legislation to have regard to the Fairer Scotland guidance and undertake additional FSDs as relevant.

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Name: Sue Kearns,
Job title: Deputy Director, Heat in Buildings Division