Heat in Buildings: progress report 2023

Delivery schemes

Our delivery schemes have continued to provide funding to homes and businesses to install energy efficiency measures and zero emissions heating systems, including targeted support for those in or at risk of fuel poverty. We have also updated some of the schemes during the past year to offer a greater level of support.

During the 2022-23 financial year we provided £170 million of capital funding and a further £20 million of revenue funding which supported:

• over 138,000 households through Home Energy Scotland advice service
• 8,800 fuel poor households to be warmer and easier to heat
• over 5,100 clean heating systems installed in homes
• 7,570 applications for loans or grants (for energy efficiency measures and clean heating systems)
• 652 homes will be connected to a heat network as a result of funding approved this year
• 12 public sector buildings to install clean heating systems

Area Based Schemes

Our Area Based Schemes (ABS) aim to reduce fuel poverty by enabling local authorities to design and deliver energy efficiency programmes in fuel poor areas. ABS focuses primarily upon insulation measures for 'hard to treat' properties, but includes clean heating and microgeneration measures as part of a ‘whole house’ approach. Since 2013, the programme has supported over 108,000 households to improve the warmth and energy efficiency of their home. ABS has been particularly effective in enabling improvements to mixed tenure blocks of flatted and terraced properties.

In the last financial year (2022-23), Area Based Schemes enabled just under 4,000 households to benefit from warmer homes and lower energy bills. The scheme supported fabric improvements to 3,000 properties, almost 200 replacement clean heating systems and 1,200 microgeneration measures (typically solar PV and battery storage).

For the current financial year, as of October 2023 (ABS11), we have approved council proposals worth £64 million, including 11 ABS special projects worth £8.1 million. Overall, councils report that they are on track with delivering most of these planned projects and local schemes.

ABS Case Study: Parkfarm Estate, Inverclyde

An example of one such successful project is the Parkfarm estate in Inverclyde. Parkfarm is recognised as having poor housing and is within the 20% most deprived areas according to the Scottish Index of Multiple Deprivation, leading inevitably to fuel poverty and ill health. All houses are council tax bands A-C. This ABS project has been running since 2021, and over 120 homes have received external wall insulation and solar PV to help reduce energy costs. The estimated energy savings per home has been £477 per annum. This year Inverclyde Council plan on upgrading at least another 46 properties in the area.  

Warmer Homes Scotland

Warmer Homes Scotland (WHS) is the Scottish Government's national fuel poverty programme designed to help those households living in or at risk of fuel poverty through the installation of measures such as insulation and clean heating systems in their homes. It has been operating since September 2015 and has helped more than 35,000 households throughout Scotland. The last year has seen steadily increasing demand and during 2022-23 we delivered improvements in 5,478 households, a record number of installations through WHS. For the current financial year (as of September 2023), we have delivered improvements to 3,328 households.

We launched the successor programme to Warmer Homes Scotland under the same name on 2 October this year. The refreshed programme will build on its predecessor’s success, with a significantly increased maximum contract value of up to £728 million over up to 7 years, to provide even more support for fuel poor households over its lifetime. Higher grant limits per household allow us to deliver whole-house retrofit and install more measures in individual properties. There is also a greater focus on clean heating where this is both financially and technically feasible.

WHS Case Study: Ms E and family, Inverness

Ms E was referred to WHS through the Home Energy Scotland advice service. Warmworks replaced her 40-year old oil heating system with an air source heat pump alongside cavity wall insulation, and replacement heating and hot water systems, resulting in a significant increase in the energy efficiency (from EPC E to EPC C).

Ms E says: “We now have a warm home, it is comfortable, we know that everything is up to standard, so we don’t need to worry about it. It has taken a huge amount of worry away and it’s made the quality of our lives much better because of that and because of the warmth that we have.”

Home Energy Scotland (HES) Grant and Loan

The HES Grant and Loan scheme was launched in December 2022 as an update to the HES Loan and Cashback scheme. The scheme is open to all domestic owner-occupiers in Scotland. The new HES Grant and Loan scheme replaced the cashback element of the previous HES Loan and Cashback scheme with a standalone grant. It provides grant funding for zero direct emissions heating up to £7,500 and for energy efficiency improvements up to 75% of the combined cost of the improvements up to the maximum grant amount of £7,500 – so a grant of up to £15,000 in total.

There is also an additional £7,500 available as an optional interest free loan for both zero direct emissions heating, such as heat pumps, and energy efficiency measures. A rural uplift of £1,500 applies to both clean heating, such as heat pumps and energy efficiency grants. This uplift increases the clean heating grant flat rate and the maximum limit of the energy efficiency grant to £9,000.

The new scheme has seen a steady rise in applications received and approved for heat pumps. HES received over 6,000 applications since launching to the end of August 2023, with over 1,900 funding offers issued for heat pump installations in this period. This reflects a 22% increase in funding offers for heat pumps as compared to the previous year under the HES Loan and Cashback scheme. There has also been significant demand for packaged support combining solar panels and battery storage with a clean heating system.

HES Case Study: Phillipa, Stirling

Phillipa contacted HES, receiving funding to install an air source heat pump in her home. Philippa said: “we're really pleased to have been able to make such a significant step in reducing our carbon footprint".

SME loan and cashback

The SME Loan and Cashback scheme provides interest free loans from £1,000 up to £100,000 to small and medium sized Scotland based businesses for the installation of energy efficiency measures and clean heating. SMEs can apply for a 75% cashback grant of up to £10,000 towards the cost of a clean heating system and a further 75% cashback grant up to £20,000 for energy efficiency measures, meaning SMEs can apply for a total of £130,000 through the scheme.

Since its inception the SME loan scheme has paid a total of £50 million in financial support, including £7 million in 2022-23, funding more than 200 projects and providing estimated lifetime savings for SMEs on energy costs of over £65 million. For the current financial year (as of August 2023), we have provided over £3.2 million in funding for over 120 projects. Since we published the Heat in Buildings Strategy in 2021, the number of clean heating systems installed via the scheme has increased year on year.

SME loan and cashback Case Study: Ness Soaps, Inverness

Ness Soaps, in Inverness, produces Scottish soaps and body products for personal, hospitality and trade customers and supports young people in the Highlands. The business owner used an interest free SME Loan and Cashback grant to help fund energy efficiency measures and an air source heat pump. She said: “Installing the measures has enabled my workshop to be used comfortably all year round. My products are kept in optimum condition because of the consistent temperature created by the air pump and underfloor heating. [….] I believe that had I not received the support and the SME Loan, that the service I would be able to provide would be restricted to the warmer months, as I would have struggled to find the funds to insulate and install the great heating system.”

Social Housing Net Zero Heat Fund (SHNZF)

The Social Housing Net Zero Heat Fund (SHNZF) continues to support the social housing sector deliver clean heat and energy efficiency upgrades across its properties. We have committed to making at least £200 million available to registered social landlords (RSLs) until 2026.

During 2022-23 we awarded over £38 million to 29 projects across Scotland. We also awarded over £2.5 million to six projects during our first application checkpoint for 2023-24. Our second application checkpoint closed in October 2023 and we are currently reviewing applications. This brings the scheme’s total grant support to over £50 million. This represents a substantial (three-fold) increase in funding to the sector since the last progress report.

During the last year, the fund has undergone a review to ensure that it is providing the best support to RSLs in their transition to net zero. The changes, launched in August 2023, took into account feedback from the social housing sector resulting in improvements to both the fund criteria and application process, including:

• the extension of ‘fabric first’ funding support until 2026
• increasing the intervention rate to 60% for the installation of clean heating systems
• the relaunch of development funding for social housing, supporting pre-capital activities such as feasibility studies, stock analysis or research

SHNZF case studies: projects supported this year include:

• a £1.3 million grant was awarded to Argyll Community Housing Association for the retrofitting of three post-war tenements. This project aims to improve the buildings by replacing the existing gas boilers with a communal air source heat pump supported by solar PV and battery storage. In addition, a range of energy efficiency measures will be installed. This project is seen as a catalyst for the wider regeneration of the local area.
• Hebridean Housing Partnership has been awarded a grant of £800,000 to replace 110 inefficient storage heating systems with new air source heat pumps. These will all be fitted with Wi-Fi adaptors to give tenants remote access,  allowing the tenant to see the exact amount of energy used and budget in advance.
• a £900,000 grant was awarded to East Ayrshire council to deliver a ‘pathfinder’ project that will assess four different approaches to delivering whole-house retrofit in a single phase of works, including assessing the Energiesprong, PAS 2035, LETI (Low Energy Transformation Initiative) and Enerphit approaches to retrofit.

Scottish Green Public Sector Estate Decarbonisation Scheme

The Scottish Government has made £200 million available over the next five years to support the decarbonisation and increased energy efficiency of existing public sector buildings across the country.

The Scottish Green Public Sector Estate Decarbonisation Scheme is the main government-led capital funding mechanism to support decarbonisation of buildings owned by the public sector. The scheme comprises three support elements for public sector bodies:

• the Scottish Public Sector Energy Efficiency Loan Scheme
• the Scottish Public Sector Non-Domestic Energy Efficiency Frameworks and Project Support Unit
• the Scottish Central Government Energy Efficiency Grant Scheme

During 2022-23, the Scottish Central Government Energy Efficiency Grant Scheme has made awards of £30 million to 33 projects across publicly owned buildings for retrofit heat decarbonisation and energy efficiency projects, and £18 million to 10 projects this financial year (as of September 2023), bringing the total grant support to over £59 million. This represents a substantial increase in funding to the sector since the last progress report.

In order to support a larger scale, estate-wide, holistic approach to decarbonisation, the Scottish Central Government Energy Efficiency Grant Scheme now has an increased funding cap to £5 million (from £2 million) per organisation per year and no longer funds single measure energy efficiency projects.

We have also recently announced that the Scottish Public Sector Energy Efficiency Loan Scheme, which has provided zero interest loans for energy efficiency improvements since 2006, will be replaced with Scotland’s Public Sector Heat Decarbonisation Fund, which will issue grant funding to deliver heat decarbonisation and energy efficiency projects. The new scheme is aimed at local authorities and universities.

As a result, our grant funding schemes now cover all of the public sector to take forward heat decarbonisation measures in their buildings. The funding forms part of the £200 million already committed to the public sector for energy efficiency and renewable heating over the next five years.

Scottish Central Government Energy Efficiency Grant Scheme case study: NHS Orkney

NHS Orkney received a £3.9 million grant to implement a strategic approach incorporating energy efficiency, heat decarbonisation and renewables in 12 of its properties across the islands. These measures include insulation and window and door upgrades, various renewables and clean heating technologies including air source heat pumps, solar PV, electric storage heaters and wind turbines. It is expected that this project will see annual energy consumption savings of 274,000 kWh.

Heat and Energy Efficiency Scotland

A virtual Energy Agency, Heat and Energy Efficiency Scotland, currently operates within the Directorate for Energy and Climate Change with a focus on the delivery of our advice and funding programmes. Work is progressing on the business case for the dedicated body, and in the meantime, we continue to take action now through existing Delivery division workstreams.