Scotland's Heat Network Fund: application guidance
Information on the Heat Network Fund, including eligibility and how to apply.
How to apply
Stage 1: Expression of Interest (EOI) form
Projects must submit an expression of interest (EOI) form prior to the submission of a full application. Potential applicants should submit EOI forms as soon as possible in order to provide the SHNF team with an indication of their interest.
Proposals are welcome from heat network projects that will be delivered in Scotland, with a project location and an end user for output identified at time of submitting a proposal.
The EOI asks for a project summary, as well as information about the partner organisations, the stage of development, key project delivery dates, estimated capital costs, and whether the project meets the SHNF eligibility criteria.
The EOI allows the SHNF team to review the project at a basic level and make sure it meets the eligibility criteria. You will receive a request for a meeting within one month of submission of the EOI. Eligible projects will be invited to submit a full application.
Submitting a business case is not compulsory at EOI stage, however, if you have these documents available it would be beneficial to submit these to assist understanding of the project. A meeting can be organised with the SHNF team ahead of submitting an EOI to answer any questions.
Stage 2: Making a formal application
Application form
Application forms are provided by the SHNF team, if applicable, after reviewing an EOI form for the project.
Applicants are required to complete an application form which will provide an overview of the project and will be used as a basis to assess the project’s eligibility for support.
All projects are required to submit mandatory information in support of their application. Without this information, the application cannot be progressed.
The SHNF application form contains specific guidance on completing each section of the application form.
Follow these steps to submit your application:
- ensure you have read and understood the privacy policy within the application form
- ensure a senior member of the lead organisation, such as Chief Executive or Director, also supports the application by signing the application and providing their name and position in the form
- use the checklist to ensure you have provided the required documentation
- submit the application form to heatnetworkfund@gov.scot
Supporting evidence
Investment grade business case
Applications must be accompanied by a full investment grade business proposal.
Applicants should be able to identify the expected benefits that a project will deliver. These should be expressed in measurable terms against the counterfactual situation if the project is not delivered. Quantitative benefits should be estimated appropriately e.g. carbon emissions reduction, heat purchasing costs for consumers, quantum of energy supply, and economic benefits in pounds (£) and jobs created.
The HM Treasury guide sets out useful guidance on the development of a business case. It is recommended where appropriate that projects submit an HMT Green Book compliant business case in support of their application. It is expected that all business cases submitted in support of their application will include the following.
Business case: what to include
- a description of the project and investment opportunity including a schematic diagram of the overall energy balance
- technology options appraisal with a feasibility study and any relevant detail in the appendices
- overview of the financial plan for both construction and operations period. This should include all costs including on-going administration, operation and maintenance arrangements
- detailed financial model and supporting assumption book
- commercial and governance structure for the project through procurement, construction and operations periods, including details of the organisation/company vehicle(s) that will be responsible for delivery, details of ownership and any parent company guarantees or loans. This should include details of shareholdings and how profit/surplus will be allocated
- funding requirements: Schedule profiling total capital costs, SHNF repayable grant requirements and match funding
- evidence of the organisational hurdle rate with justification
- detailed project procurement strategy, clearly showing how this creates a competitive process to ensure best value for money is achieved
- project capital delivery programme and timeline to enable commissioning to meet relevant deadlines
- sourcing strategy and details of suppliers where the operation process requires on-going supply
- clear details of potential consumers with supporting market testing documentation
- outline heat off take agreements – including cost per unit
- partnership agreements where necessary to support project delivery
- detailed project risk register and corresponding mitigation strategies
- summary of project delivery team and relevant experience
It is also recommended that large scale heat network projects are developed in line with the CIBSE’s Code of Practice.
Project programme
The project programme should be provided alongside the application covering current development work up to project completion. It should be presented as a Gantt chart highlighting the critical path and milestones. This should include the following.
Project programme: what to include
Your project programme should include:
- timescales and sequences
- key dates for approvals and deliverables
- inter-dependency relationships
The following key dates should be covered in the programme:
- key decision stages / sign off
- lead in times (where identified)
- engagement with relevant authorities / planning approvals
- design stage completion milestones
- procurement milestones
- construction commencement and other milestones
- testing
- phases of customer heat connections
- proposed final SHNF grant drawdown
- project completion
- commissioning
This should include significant detail, breaking tasks down into sub tasks and highlighting interdependencies.
The project programme should also include details of the individual with responsibility for taking forward and completion of a particular task or project milestone e.g. the Project Manager or another named individual. This is to ensure clear lines of responsibility and provide the Scottish Government with reassurance that the governance structure and processes in place to monitor project progress is adequate.
Project feasibility and options appraisal
Alongside the investment grade business case, other documents demonstrating the project’s feasibility should be provided. This could include reports during pre-feasibility or feasibility stages that explored the project’s technical and financial feasibility.
The project’s heat source options appraisal should be summarised with reasoning for choosing the preferred heat source. This should be demonstrated by including information on the following.
Heat source options appraisal: what to include
Your heat source options appraisal should include:
- the heat sources/technologies considered
- the estimated CAPEX and running costs of each
- the reasoning for choosing the preferred heat source
- information and modelling of available heat sources on the network
- evidence to demonstrate that different types of heat generation have been considered e.g. waste heat.
- energy use
- carbon emissions
- evidence of market – if available
- lifetime of product and likely replacement timescales.
- suppliers – if identified
The development work undertaken so far should be described in the application form.
End users
End users for the heat network must be identified. For buildings considered as anchor loads, (connections that provide a guaranteed heat offtake that de-risks the project), evidence should be provided demonstrating that these buildings will connect to the heat network once it is constructed. This should include agreed terms for the supply of heat with detail of:
- the price for end users and the methodology of calculating future variation of this (for example due to inflation).
- quantity of heat to be supplied
- the minimum duration for which heat supply would be agreed
For privately owned potential connections that cannot be agreed until the network is under construction (for example private homes), detail should be provided on how building owners will be encouraged to connect. An end user strategy should be provided as a requirement of grant funding to ensure the project has considered how it will maximise the number of connections to the network. The end user engagement strategy should include:
- information that shows the heat offered to potential heat customers will be more cost-competitive than their current heating system
- a strategy on how potential customers will be targeted for connection
- description of an engagement plan to market the heat network to potential heat customers and maximise connections
It is expected that a significant number of connections, or a significant anchor load, has already been agreed at the point of application. Grant funding will not be awarded to projects without high assurance that the heat network will be connected to end users at the commissioning date.
District heating projects should also describe plans for future expansion beyond the length of the SHNF funded phase of the project or explain why there are no plans for future expansion.
Summary of required evidence:
- identified end users
- agreed terms for heat supply
- connections strategy
- expansion plans
Heat suppliers
For projects where the heat is being supplied by a third party (e.g. waste heat), applicants must demonstrate that an agreement is in place to provide assurance on the heat supply. The following evidence should be provided:
- letter of support from the Chief Executive Officer or Chief Financial Officer for the organisation that will supply heat
- head of terms of the Heat Supply Agreement
- detail on the quantity of heat that can be provided and the proposed heat supply price
Project risks
The purpose of this section is to understand the risks associated with the project and understand how SHNF support can help manage and mitigate these risks. The applicant should highlight key risks associated with the project, covering technical risks and commercial risks (for example, significant cost overruns / project delays) and any other areas of relevance.
Please provide a copy of the project risk register. This should be specific to the heat network project, rather than providing the risk register for wider activities (for example, construction of new buildings). The items the risk register should include as a minimum are:
- a unique reference
- a description of the risk
- probability of the risk occurring
- impact on the project should the risk materialise
- overall score (which will incorporate probability and risk)
- an indication of how these will be managed and mitigated
- score post mitigation
- person or team responsible for action
- risk owner
- current status of the risk
Projects of all scales will be required to provide a detailed risk register.
Community engagement
SHNF looks for applicants to demonstrate that in addition to those who will connect to the heat network, the local community is also made aware of the clean heat opportunity and the Scottish Government’s wider net zero targets. Applicants will be required to submit a community engagement strategy as a requirement of grant funding which describes how the local community will be informed and educated on the heat network system and wider net zero aims. Ideally, engagement should start as early as possible and should continue throughout the development and installation phases of the project.
This is to maximise the resources which can be used as learning tools for local schools, community groups and other individuals in the areas to demonstrate what the heat transition could and does look like in practice. This is in line with Scottish Government net zero aims and aligns with the work Scottish Government is currently undertaking in forming a Heat in Buildings Public Engagement Strategy in order to educate the public on the changes needed for a transition towards net zero heat in buildings.
Dissemination strategy
For Scotland to meet its ambitious targets for heat network deployment, it’s important that lessons are shared between current and future project developers, constructors and operators.
Grantees will be expected to produce a dissemination strategy during the delivery of the project. This should advise how you will share the lessons from your project at both a local and national level. Highlighting barriers and challenges that you require to overcome will also be of value. Grantees should identify the groups or audiences that they will look to target and share information with and detail how they will be engaged. Examples include writing articles; publishing case studies; presenting at seminars, conferences; providing training/workshops; allowing tours of the new facilities etc.
If an application is successful, the grant offer letter will include a milestone for a dissemination strategy to be provided to the Scottish Government.
Financial statements
Financial statements should be provided alongside the application for the lead organisation, any parent companies and, if applicable, any delivery partners that are investing in the project.
Signed and audited (if applicable) accounts/financial statements for the previous two years should be provided.
Subsidy control rules
All financial support provided under Scotland’s Heat Network Fund will be following Subsidy Control obligations. If the Grant (or any part or condition thereof) does not comply with applicable Subsidy Control obligations, Scottish Ministers may require immediate repayment of the Grant or any part of it together with interest at such rate and on such basis as may be determined from time to time in accordance with law.
Any queries regarding Subsidy Control obligations should be emailed to HeatNetworkFund@gov.scot who will engage with the Subsidy Control team.
Contact
Email: HeatNetworkFund@gov.scot
Related information
There is a problem
Thanks for your feedback