Heat in buildings strategy: island communities impact assessment

A) Screening (Section 7 Assessment)

Step One – Develop a clear understanding of your objectives

10. Section 7 of the 2018 Act states that a relevant authority must have regard to island communities in carrying out its functions. Guidance states that first step should be to develop a clear understanding of the objectives and intended outcomes of a strategy and then, more specifically, identify if there are explicit island needs or any potential direct or indirect impacts for island communities.

Heat in Buildings Strategy

11. Following the passage of the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019, Scotland has set a statutory target for net-zero greenhouse gas emissions by 2045, with interim emissions reductions of 75% (by 2030) and 90% (by 2040).

12. This followed the First Minister's recognition of a global climate emergency. In response, the Scottish Government set out the initial action it would take, as part of the Programme for Government 2019-2020.

13. The Scottish Government committed to publishing a draft Heat Decarbonisation Policy Statement, providing an update to the 2015 Heat Policy Statement in the summer of 2020, but due to the ongoing Covid-19 pandemic this was delayed until the winter of 2020/21.

14. Scottish Ministers then took the action to merge the Statement with an update to the Energy Efficiency Route Map creating the Heat in Buildings Strategy, a single policy framework to eliminate emissions from buildings by 2045.

15. In December 2020, the Scottish Government published a Climate Change Plan update^[3], which set out that to meet our emissions reduction targets, emissions from buildings must fall 68% by 2030 against 2020 levels.

16. The draft Heat in Buildings Strategy was published in February 2021. Following consultation, and analysis of responses, the Scottish Government has now published a final Heat in Buildings Strategy.

Summary of aims and desired outcomes of the Heat in Buildings Strategy

17. This final Heat in Buildings Strategy sets out a pathway to zero emissions buildings by 2045 and details a series of near-term actions to put us on a clear path towards this, as well as a range of further, longer-term commitments to accelerate the transformation of the nation's building stock. It sets out the principles we will apply to ensure our zero emissions heat delivery programmes support our fuel poverty objectives.

18. The Strategy sets out a vision for over 1 million homes in Scotland to convert to zero emissions heating by 2030 and the equivalent of 50,000 non-domestic buildings. Emissions will have to fall by 68% by 2030 as compared to 2020 and to maintain progress towards our statutory emissions reduction targets, heating installations must scale up to provide at least 124,000 systems installed between 2021 and 2026. The installation rate will need to peak at over 200,000 new systems per annum in the late 2020's which is above the natural replacement rate for boilers.

19. In terms of energy efficiency, the Strategy sets out that where technically and legally feasible and cost-effective, by 2030 a large majority of buildings should achieve a good level of energy efficiency, which for homes is at least equivalent to an EPC Band C, with all homes meeting at least this standard by 2033.

Phasing out the need to install new or replacement fossil fuel boilers

20. In the Heat in Buildings Strategy, the Scottish Government has committed to phasing out the need to install new or replacement fossil fuel boilers (in off-gas grid areas from 2025, and in on-gas areas from 2030) subject to technological developments and decisions by the UK Government on reserved matters.

21. We will consult in further detail on this issue during 2022. Should any legislation be required subsequently, it will be subject to a range of impact assessments to allow the Scottish Parliament the opportunity to fully scrutinise the impacts.

22. In our effort to remove emissions from heating buildings, the Scottish Government has separately undertaken a zero emissions first approach in our delivery programmes and will phase out funding for fossil fuel heating systems by 2024 (where it is not detrimental to our fuel poverty objectives).

23. We have already phased out oil and LPG boilers from Warmer Homes Scotland, Area Based Schemes and Home Energy Scotland Loans. No households have had their replacement oil or LPG boilers or heating systems cancelled as a result. All committed offers for oil or LPG systems signed prior to 6 September 2021, for either replacement oil/LPG boilers or heating systems, will have these honoured and will receive their installations/loans.

24. The Strategy is aligned with wider Scottish Government policy on housing, energy, and climate change. The actions it sets out are reflected in our Housing to 2040 Strategy, which also presents further details on how our housing can support achievement of Scotland's net zero ambitions, whilst also delivering against wider objectives.

25. We envisage that the delivery of our Heat in Buildings Strategy will secure a wider set of outcomes that will benefit Scotland's people and places. These Heat in Buildings outcomes are aligned with our National Performance Framework, and will guide our decision making and support the development of a holistic, people-centred approach to the transition ahead. They are:

1. Heating our homes and buildings no longer contributes to climate change

2. The cost of heating our homes and business is affordable and those occupying them have a high comfort level

3. We have reduced our demand for heat and poor energy efficiency is no longer a driver of fuel poverty

4. The systems we use are smart and resilient and provide us with a reliable source of heat

5. We have a secure supply chain with high value, local, sustainable jobs across Scotland and people have been helped to transition to new, secure jobs as part of a just transition

6. Our indoor and outdoor spaces are filled with cleaner air

7. Our heating systems enable and efficiently use Scotland's renewable energy resources

8. Electricity and non- electrical fuels are produced from sustainable sources in a way which is consistent with net zero emissions and biodiversity targets

9. Our heating systems enable the flexible and stable operation of our energy networks

26. The Heat in Buildings Strategy forms the foundation of our ongoing work, which will build on the insight and evidence generated by the consultation and wider input. Next steps include:

• We will develop our approach to heat in islands and remote rural contexts in our forthcoming Islands Energy Strategy in 2022 (which will complement the existing National Islands Plan).
• We have separately committed to publish a refreshed Energy Strategy and have also committed to an Energy Just Transition Plan in Spring 2022. This will allow us to further refine our approach to heat in buildings, ensuring a coherent whole-system view and further embedding our evolving policies within our wider approach to delivering on a just transition.
• We will set out our approach to eradicating fuel poverty in the Fuel Poverty Strategy by the end of 2021.
• We will develop a bespoke Public Engagement Strategy for heat in buildings to raise awareness of the support and advisory services available and to encourage home upgrades.
• We will co-produce with the sector a Supply Chain Delivery Plan focussed on the development of energy efficiency and zero emissions heat in the buildings supply chain in Scotland.
• We will establish a Green Heat Finance Taskforce by the end of this year.

27. As we transform our homes and buildings by making them more energy efficient and installing low and zero emissions heating, we will consider our local surroundings and resources, whether in dense urban or suburban areas or smaller rural towns and villages or in our remote and island communities. As such, the transition to zero emissions buildings may look different in different communities and will require approaches tailored to place.

Island needs or potential impacts for island communities

28. The Heat in Buildings Strategy covers homes and buildings across Scotland and although not directly only aimed at islands, the Strategy applies to all homes and buildings on our Islands. We know that our island communities can face unique challenges, and opportunities, around distance, geography, connectivity and demography.

29. Our island communities are not connected to the mains gas network. Islands can be connected at the periphery of electricity networks, whilst a small number of our island communities are also not connected to electricity grids and face unique challenges in their efforts to reduce emissions.

30. The potential for reduced supply chain availability, added transport requirements, limited accommodation for contractors and potential weather disruptions means that low and zero emissions measures can cost more to install in our remote and island communities.

31. The National Islands Plan^[4] acknowledges that extreme fuel poverty rates are higher for most of the island authorities. We also know that extreme fuel poverty can be particularly difficult to eliminate in island communities where building types are harder to improve to the required energy efficiency standard and opportunities to reduce fuel costs are more limited. In addition, traditionally constructed buildings and energy efficiency challenges can vary between the islands. Such issues combined with the colder climate in the islands means that some of these homes might have the heating on throughout the whole year. Higher living costs on islands, combined with higher fuel costs, for households on low incomes, can create the conditions for extreme fuel poverty.

32. Heat in Buildings Delivery Programmes

To support the delivery of the Heat in Buildings Strategy Scottish Government have committed to the following suite of delivery programmes. Details of the programmes in relation to islands is listed below:

Warmer Homes Scotland

The Warmer Homes Scotland successor scheme will be accessible to all households in Scotland which will include island households where they meet the eligibility requirements for the scheme. The intended outcomes for island households are the same as that for mainland households to deliver a fuel bill saving for those in fuel poverty and to decarbonise the heating system where it is not detrimental to our fuel poverty principles.

There are 6 Key Performance Indicator (KPI) regions within the existing contract and performance levels have to be reached across all regions in order for a performance linked fee to be paid. The new contract will continue to identify islands as a distinct group for measuring KPIs, ensuring the same high standard of performance is consistent across the country. The supply chain and shortage of available tradespeople to undertake the work is mitigated by a guaranteed national service which will be built into the contract.

The new scheme will support households in the transition to decarbonised heating systems including those in off gas areas. To support this, grant levels will be adjusted to account for the higher costs associated with lower emissions installations and the need for greater insulation measures than is needed to support installs of fossil fuel measures. Where possible, the new scheme will look to mitigate any electrical supply issues through the provision of micro generation technology and increasing supply capability for households where low/ zero emissions heating systems are being installed.

Heat in Buildings Area Based Schemes (ABS)

Area based schemesprovide energy efficiency improvements to households in or at risk of fuel poverty living in their own home or a private rented property, leveraging Energy Company Obligation (ECO) finance and private investment. ABS is effective in delivering large numbers of improvements to mixed tenure, multi-occupancy properties (e.g. flats, terraces, council estates/projects). Over the next five years our ABS funding will continue to target areas with higher numbers of households in or at risk of fuel poverty, prioritising those in greatest need (i.e. the least energy efficient properties). We will build upon the expertise and experience of local delivery partners in delivering projects that benefit entire communities, reflecting local needs and conditions. As well as prioritising insulation measures - fabric first - we will deliver more 'whole house' retrofits to fuel poor households as ABS projects. We will adopt a 'zero carbon first' approach in improving heating systems and ensure that households continue to benefit from warmer homes, and reduced energy costs and CO2 emissions.

We also recognise that the costs of delivering energy efficiency measures are often higher in remote rural and island areas. Councils serving remote rural/island communities can now provide grant-in-aid worth up to £14,000 for those in extreme fuel poverty, up from the previous maximum of £9,000. These councils can also apply a higher maxima of grant-in-aid for zero/low carbon heating measures of £8,000 (this uplift reflects greater delivery costs in remote areas).

Home Energy Scotland

All our current advice and support services are already open to those in rural /island locations. Home Energy Scotland (HES) provides free, impartial advice including specialist bespoke advice on home renewables. HES is also the gateway to loans and grants programmes from Scottish Government for energy efficiency improvements and zero emissions heating in homes in Scotland. Scottish Government has introduced a further incentive via the Home Energy Scotland (HES) Loan Scheme by offering owner occupiers up to 75% in cashback (capped at £7,500) towards the installation of renewable heating systems. This incentive makes the uptake of renewable heating more attractive. We also offer cashback on HES loans for energy efficiency measures, and have increased the rate of this incentive from 25% to 40%.

Community and Renewable Energy Support Programme (CARES)

Our new CARES programme will focus further on supporting communities to work together to address and champion heat decarbonisation on a local level including dedicated support for islands and remote communities. Through CARES we will work to understand further the models and solutions most appropriate for communities in Scotland. Building on these approaches, we will work with stakeholders to ensure there is an evidence based, tailored service for islands and remote locations, and will set out more detail in our forthcoming Islands Energy Strategy.

Through CARES, up to £5.25M has been made available for the financial year of 2020/21 to assist community groups in developing renewable energy projects, supporting the growth of community and locally owned energy in Scotland. Through CARES we have extended our support for our most remote and islanded off-grid communities, ensuring that security of supply is maintained and decarbonised – acting across electricity, heat and energy efficiency – helping to transition these communities to a net zero future and provide additional support for rural and island homes which require bespoke, targeted advice. Our Island Energy Strategy will support this target, complementing our existing National Islands Plan, will help set out a pathway to net zero for Scotland's island communities ensure their energy systems are resilient and can meet the changing needs of communities now and in the future. We will also explore the evidence base and options for including an islands uplift in our programmes moving forward.

Beneficial impacts

33. There are, importantly, key benefits that properly installed decarbonised heating systems can bring to island communities. Specifically, these span improved thermal comfort and health benefits, protection of the unique natural environment of Scotland's islands and rural communities through climate change mitigation, and the development of skills and jobs within island communities to deliver this change. Scotland's island communities can also have high levels of community engagement that may be enhanced through heat decarbonisation programmes.

Step Two – Gather your data and identify your stakeholders

Desktop

34. A number of data sources were analysed drawing from:

• The cost of remoteness - reflecting higher living costs in remote rural Scotland when measuring fuel poverty (Scottish Government, September 2021)^[5]
• A Minimum Income Standard for Remote Rural Scotland: A Policy Update (HIE, October 2016)^[6]
• Information gathered during the completion of a Scottish Government commissioned Broad Evidence Review^[7] on implications of the Heat in Buildings strategy on inequality and domestic consumers (for forthcoming publication and which highlighted data from the Scottish House Conditions Survey 2019 (Scottish Government, December 2020^[8])
• Small Islands Energy System Overview (HIE, April 2020)^[9]
• Fuel Poverty Strategy Islands Communities Impact Assessment (2018)

35. A Summary of the key evidence emerging from these desktop sources are outlined in Annex A. Potential issues that were specific to, or more acute within, island communities were identified with regards to:

• Cost – higher living costs, higher heating costs and higher installation costs for heating systems;
• Higher portion of properties on restricted metering;
• Traditionally constructed buildings and related energy efficiency challenges including challenges with PAS 2035 ventilation standards for the islands /remote rural context;
• Stakeholder reports of limited availability of finance for crofting tenures to decarbonise their properties;
• Greater number of larger properties and greater number of owner occupiers;
• Supply chain and skills (availability and supply of workers, lack of accommodation for workers not resident on the islands and challenges in obtaining parts for service and maintenance);
• Weather and climate (for example more exposed coastal locations may have a greater need for heating and potential for weather disruptions to arise which can impact project timescales and costs);
• Fuel Poverty (between 2018 and 2019, rates of fuel poverty increased in remote rural areas from 33% to 43%^[10]);
• In the same period, the extreme fuel poverty rate varied from 7% in East Renfrewshire to 24% in Na h-Eileanan Siar compared to the average in Scotland of 12% . Some local authorities had significantly higher extreme fuel poverty rates than the national average: Na h-Eileanan Siar (24%), Orkney Islands (22%), Shetland Islands (22%), Highland (22%), Argyll and Bute (19%).

Early engagement

36. As part of our evidence gathering exercise officials from the Scottish Government met with islands representatives from Highlands and Islands Enterprise in 2020 to discuss the development of the draft Heat in Buildings Strategy.

37. Through this discussion a number of similar potential issues were identified as below:

• Supply chain, skills and availability
  • It can be difficult to find suppliers of low and zero emission heating on some islands and given the scale and pace of roll-out there was a concern this issue may be exacerbated and could be a barrier. In addition, lead in times for resolving maintenance issues were also a concern with anecdotal reports of long waiting times before system issues were fixed.
• Costs of installation, maintenance and operation
  • Due to some increased costs of living in more rural areas, it is possible costs for installation and other measures will be greater than on the mainland.
• Traditional building stock
  • A high proportion of the building stock across island communities is older solid wall construction which presents difficulties in installing energy efficiency measures. This may mean that options for low and zero carbon heating technologies that require high levels of energy efficiency (i.e. EPC C or higher) may be more limited due to practicalities and/or cost. Research published suggests the total portion of heritage and old homes in Scotland is estimated to amount to about 21% of the housing stock (Scottish Government, 2020^[11]).
• Electricity grid
  • A small number of islands are not connected to the national electricity grid, and those that are, are reliant on deep sea cables and interconnectors which can fail. It was highlighted that a switch to mainly electric powered low and zero emissions heating technologies, grid capacity and resilience would need to be considered to support the increased demand.
• Resource availability
  • However electrification was considered a sensible option for heating buildings if there was an opportunity to link this to the high renewable energy resource availability on islands.
• Local trust and buy in for new solutions
  • Local engagement was seen as key to ensure that solutions for heat decarbonisation were trusted and adopted locally. Community organisations were highlighted as one route to support this aim due to their remit and reach.

38. The draft Strategy proposed a number of actions in response to a range of potential issues, including in regards to a supply chain action plan with an islands component, remote islands grid upgrade support, traditional buildings, prioritisation of budget to support those least able to pay, including those in fuel poverty fuel poverty, funding and finance. These were then reviewed as part of the wider consultation on the draft Strategy.

Step Three – Consultation

39. A public consultation on the draft Heat in Buildings Strategy commenced in February 2021 and ran for 12 weeks. 178 respondents submitted a response. The public consultation played a key role in gathering further evidence in relation to the Island Communities Impact Assessment. All responses to the consultation have been redacted, and 142 of these have been published^[12].

40. As part of the consultation process, all local authorities that represent Island Communities were made aware of the draft Heat in Buildings Strategy. They were then invited via the consultation to provide input regarding the potential impacts on Island Communities from the Heat in Buildings Strategy.

Stakeholder feedback through draft Heat In Buildings Strategy written responses

41. In consulting on the draft Heat in Buildings Strategy the following question was specifically posed to respondents: "In your opinion, what steps can we take to ensure that policies set out in this strategy do not unfairly impact Island and other remote communities?".

42. A total of 73 respondents (Annex B) provided an answer and full consultation analysis was undertaken by Craigforth^[13], and published alongside the Strategy. Key themes (see Annex C for more detail) in these responses in regards to island-specific impacts were:

• Costs (installation, running costs and maintenance);
• Fuel poverty;
• Ongoing community representation and engagement;
• Supply, skills and access; and
• Traditionally constructed buildings and energy efficiency challenges.

Stakeholder feedback through Heat In Buildings Islands Workshop

43. Additionally, an Islands specific workshop was held online in March 2021 to enable island communities and stakeholders (Annex D) to share their views on the draft strategy.

44. Through this engagement, stakeholders reported the following issues that may be specific to, or more acute within, islands communities (see Annex E for more detail):

• Supply chain access and availability (including skills gap, parts and maintenance)
• Building stock suitability
• Electricity grid capacity
• Fuel poverty and costs
• Resilience (the challenges of island geography, demography and economy)

45. Attendees also reported on some of the opportunities and benefits that the heat transition might bring about:

• Abundant renewable energy resources (ability to generate heat locally)
• Engaged and motivated communities and the potential to set up community projects,
• Opportunities for more niche technologies (such as water source heat pumps and heat networks for small communities),
• Opportunities for the local supply chain,
• Opportunities to promote renewable tourism and local business,
• Promoting resilience in islands building stock (by improving the fabric) for future generations.

Summary of main impacts across data gathering and consultation

46. In summary, the key areas in which possible impacts on island communities have been identified through our data gathering and consultation concern:

• Installation and operational costs for heating systems
• Higher living costs, heating costs and high levels of fuel poverty
  • Rural and island households spend statistically significantly more on heating than their urban equivalents (see Annex A).
  • Fuel poverty levels are higher in remote rural (43%) and remote small towns (34%) than in urban areas (24%). One reason for this is that the majority (93%) of urban dwellings are within the coverage of the gas grid, whereas almost two-thirds (65%) of those in rural areas are not. Connection to the gas grid allows households to use mains gas for heating and hot water. As mains gas is currently the cheapest of the major commercial fuels, gas grid access can be a significant determinant in the required cost of heating a home to a satisfactory temperature. The majority of households using electricity in Scotland, whether in urban or rural settings, currently rely on traditional emitters such as storage heaters (see Annex).
• Availability of appropriate finance and funding which takes account of these challenges
• Ability of traditionally constructed buildings to accommodate standard energy efficiency measures
  • Islands and rural communities generally have a relatively larger share of stone walled, detached dwellings of a traditional build form. Maintaining an adequate indoor temperature in these type of properties can be challenging and costly due to the rate of heat loss through large, uninsulated external walls.
  • As previously mentioned (paragraph 33), Island and rural local authorities generally had the highest proportion of the least energy efficient dwellings (those rated EPC F or G) on average over 2017-19 (SAP 2012, RdSAP v9.92). Island and rural local authorities tended to have lower than average proportions of B or C rated dwellings with Shetland Islands (8%), Na h-Eileanan Siar (9%) and Orkney Islands (15%) having the lowest.
• Availability of the supply chain for installation, concerns over applicability of PAS 2035, availability of maintenance with reports of long times for maintenance where no local contractors are available.
  • Island and rural communities can face supply and access issues due to the remoteness of their locations. The flow of goods and services may be restricted or impacted, sometimes at short notice. Further, the smaller population of these locations may mean a reduced local skills based, placing greater demand on qualified work such as the installation of low and zero carbon heating systems. We also recognise the opportunities that employment in low and zero emissions could present on islands, providing essential job opportunities.
• Longer project realisation times recognising constraints on accommodation for incoming workers as well as weather and travel disruption to remote areas.
• Infrastructure and resilience.
  • Our islands face particular challenges around distance, topography, weather and connectivity. These can lead to infrastructural and logistical challenges and costs (such as in regards to electric grid connectivity and access to remote locations) not encountered by other communities, and require additional support to ensure ongoing resilience.
  • Resilience of electrified heat systems in areas with no national electricity grid connection was raised
  • Potential for more remote areas to have higher incidences of single phase electricity distribution network which may impact technology selection in remote areas.
  • Concern over resilience level of remote areas that are reliant on one fuel for heating – where there has been traditionally a mix of fuels available
• Ongoing community representation and engagement was considered a key requirement to develop trust and buy in for Strategy actions.
  • Our island communities are unique and face challenges specific to their location. To address specific contextual island issues continuing engagement and reflection is required. Ongoing appropriate representation and engagement is central to ensuring our transition to net zero supports and benefits islands communities by providing a dialogue to shape and direct delivery.

Step Four – Assessment

47. The above evidence gathering and consultation constituted a screening exercise to identify if an Island Communities Impact Assessment would be required. As it could be determined that there were a number of unique impacts, potential barriers, and wider impacts which would have a direct effect on Island Communities, it was therefore decided that a full Island Communities Impact Assessment should be undertaken.

48. The following section assesses the extent to which the Heat in Buildings Strategy can be delivered in such a manner as to improve or mitigate, for island communities, the outcomes resulting from it.