Heat Network Licensing Stakeholder Engagement Group minutes: April 2024

Attendees and apologies

• Lynne Hunter (Chair), Scottish Government  
• Michael Berry, Scottish Government  
• Malcolm Rose, Scottish Government    
• Mathew West, Scottish Government 
• Kenneth Broom, Scottish Government 
• Helen Melone, Scottish Renewables
• Carol Aitken, Vattenfall
• Shona Fisher, Office of Gas and Electricity Markets (Ofgem)
• Mike Leonard, Ofgem
• Zoe Jamieson, Ofgem
• Dominic Hutching, Ofgem
• John Mitchell, West Dunbartonshire Council
• Brian Clark, SSE
• Derek Leask, Shetland Heat and Power
• Graham Wallace, Pinsent Masons  
• Sarah-Jane McArthur, Brodies LLP
• Charlotte Owen, Hemiko
• Tristan Wolfe, Aberdeen University
• Alistair Hill, Consumer Scotland
• Kat Quane, Transport Scotland
• Jason Halliday, Transport Scotland
• Kevin Hamilton, Scottish Road Works Commissioner
• Frazer Scott, Energy Action Scotland
• Dominic Hutching, Ofgem

Items and actions

Introduction

The chair opened the meeting and welcomed all attendees to the meeting of the Stakeholder Engagement Group (SEG), to discuss heat network (HN) licensing under part 1 of the Heat Networks (Scotland) Act 2021 (HNSA) and to walk through our current thinking on licensing and welcome stakeholders comments.

Consultation

The chair presented an update on the public consultation plans for the licensing consultation to be amalgamated with the consenting consultation.  Aiming to publish the joint consultation in summer 2024.

Licence applications

The chair confirmed licensing will apply at the organisational level, as opposed to individual project level, which Scottish consenting will address.   The chair then explained the items which a licensing applicant must have regard to that are set out in section 5 of the Act and welcomed comments from stakeholders on how each might be implemented.

The applicant’s knowledge, expertise and experience

The chair explained the Act requires applications should assess the knowledge, expertise and experience of the applicant. The proposal would be for existing HN operators applying for a licence to share details of HNs they have previously built/managed, with identification numbers where applicable. New applicants entering the sector should share any relevant qualifications or experience demonstrating competence, such as detailing key person or persons with relevant experience.

A group member raised an idea that a licence condition could be that the applicant should operate a HN in cooperation with Local Authority (LA).  Malcolm Rose (Scottish Government official) confirmed this may open a risk to the licensee of being in breach of terms, should the LA at any point complain (either fairly or unfairly).

Jason Haliday (Scottish Government official) clarified there is a requirement to cooperate with relevant authorities which is already set out in the New Roads and Street Works Act 1991 (legislation.gov.uk), specifically section 119 of that 1991 Act is the requirement for undertakers to cooperate with road works authorities and Kat Quane (Transport Scotland official) also confirmed this would apply if a heat network developer uses section 109 power to undertake road works i.e. a developer without statutory undertaker rights.

Minimises greenhouse gas emissions

The chair explained the requirement to consider effect on environment and greenhouse gas (GHG) emissions and the intention to remain aligned with EU directives in this space. We may apply emissions targets such as those set by Article 26 of the 2023 revision of the EU’s Energy Efficiency Directive). For licensing we are proposing reporting on a period basis what a licensee’s GHG emissions are, averaged across all their operational networks in Scotland.  This is in contrast to consenting’s decarbonisation requirement which applies at individual network level.

The group were content with regulations driving operators to be lower carbon.  With considerations raised that the industry can only decarbonise as fast as the electricity grid allows.  Another constraint raised was cost, a quick transition to low carbon will possibly drive up costs to consumers (especially in absence of electricity price rebalancing). 

Malcolm Rose explained UK authorisations will be UK wide and will apply UK targets.  However, Scottish Government has separate targets and these will be expressed through Scottish regulations, such as those set by Article 26 of the 2023 revision of the EU’s Energy Efficiency Directive.

Discussion within the group agreed there is a tension between fuel poverty and GHG ambitions. Noting that fuel poverty is defined differently in Scotland (hence regulation-making powers are in our 2021 Act). 

The group also discussed the option of offering stable prices for heat networks, but noted this would depend on the price for heat offtake negotiated with the source (Energy from Waste or otherwise).

Takes account of just transition principles

The chair explained the Act requires heat networks must be operated in line with just transition (JT) principles. It is proposed applicants should demonstrate how they’re embedding the principles into company policies and make these available to view; as well as providing regular updates. The chair presented proposals requiring the detail and evidence of progress towards a just transition to net zero to accompany licence applications, and that commitments should be proportionate to the size and scale of the organisation.  The chair also explained this could also be evidenced through working group memberships or mentorships in matters relevant to JT.

The group discussed Just Transition and agreed from the perspective of a large company, this is fine, however, there  is an element of scale that needs to be considered.

The group also raised concern that just transition means different things to different sectors and there may be an overlap here with fuel poverty measures.  Thus raising a concern at potential duplication of licensing requirements.

The chair noted concerns and confirmed we are committed to avoiding duplication.

Contributes to meeting fuel poverty targets

The chair discussed the fuel poverty requirements of licensing.  The HNSA also requires HNs must contribute to meeting fuel poverty targets. It was proposed that applications must demonstrate some overarching policies towards addressing fuel poverty and protecting vulnerable customers (e.g. discretion around payment plans, and provision of advice the application for a licence should include plans to protect vulnerable customers, and how they will provide support when falling into arrears).  Aspects like communication on how to optimally operate your heat network will be required via consent applications.

A  group member discussed common requests they have seen from Scottish Local Authorities is how to make heat cheaper for those who are in fuel poverty, and the concerns that costs of low carbon heat is higher.  They also identified the opportunity to deal with this situation is energy efficiency retrofit to building but the need to consider the reality that we are not going to see retrofit in domestic buildings at any scale within the next 6-10 years, as there is a need to await electricity price rebalancing first.  

A group member raised a question on how do you propose to deal with this tension between fuel poverty (essentially lower cost) and the higher cost of reducing GHG?  Are you requiring HN developers to solve this contradiction? Or can Scottish Government, with UK Government, arrange for financial redistribution to cover the cost of low carbon heat?

Malcolm Rose acknowledged that licensing is not going to resolve such issues from the outset, seeking to make a difference in the round over the lifetime of a licence. Licensing requirements could possibly become more stringent over time.

A group member also raised the need to ensure there is consistency with the info we have to provide for GB authorisation and avoid duplication.

The chair confirmed we are working closely with The Office of Gas and Electric Markets (Ofgem) and Department for Energy Security and Net Zero (DESNZ) to avoid duplication where possible.

Period of a licence

The chair set out the proposal that HN licences will  have no end date unless revoked or surrendered.  Mirroring gas and electric licences.

Register of licences

The chair set out proposals for the public domain register to contain:

• the name and address of licence holder
• terms of licence
• date the licence takes effect
• the date the licence ended (if applicable)

This mirrors gas and electric licences.  The chair raised a discussion topic on what else should be included.

The group raised considerations from a consumer perspective, and the requirement for a system that is clear for the consumer to ascertain a point of contact and if the register could help with this.  The group also discussed if the register would be the best route for this purpose, and how consumers would know of the register.

Kat Quane confirmed that any HN developers which have statutory powers (i.e. licence holders) then they will be added to the publicly available list hosted by the Scottish Road Works Commissioner.

Mike Berry (Scottish Government Official) confirmed this issue could link to the Community Engagement Report which is a requirement of Scottish consenting. For example, ensuring the community understand what the heat network development is , how they can connect, what the tariffs are, proving instruction to optimal operation of the heating system at home (i.e. the Heat Interface Unit) and crucially communicating whom to contact when things go wrong.

A group member raised they felt that regulations provided by the heat trust (mainly aimed at residential customers) sets out good practice guidance in terms of contact, debt recovery and billing which may be appropriate to consider as part of the new licensing regime.

Licence conditions

The chair noted discussions were ongoing with Ofgem to agree conditions. These were expected to follow the example of existing utilities, with special conditions granting powers around roadworks if requested.

Revocation and appeals

The chair confirmed the intention is to introduce regulations to allow appeals against a licence revocation. Revocation as last resort, and to utilise an existing process such as the Scottish Government’s Division of Planning and Environment Appeals (DPEA) or Ofgem’s internal appeals process.

Compensation

The chair confirmed the intention is to introduce regulations to allow compensation in relation to wayleave rights.  An example of this would be when there is a dispute in the manner of how wayleave right is exercised, there may be compensation due to a land owner.

Any other business

A group member raised a question relating to Kat Quane’s point of information on wayleave rights not applying to roads and will Scottish HN developers be designated with statutory powers rights. 

Mike Berry (Scottish Government Official) confirmed licence holders will be bestowed with statutory undertaker rights.

Kat Quane clarified that wayleaves are different to access to a road.  There is a separate legal process for undertaking road works (via New Roads and Street Works Act 1991 (legislation.gov.uk)).

Kevin Hamilton (Scottish Road Works Commissioner) confirmed the term wayleave does not apply to a road. Section 82 of HNSA will grant road works powers to licence holders. The distinction is if you dig up private land; seek wayleave, and if you dig up a road; seek statutory undertaker rights.

Malcolm Rose clarified that wayleaves (which are for everything other than roads) are under section 69 of HNSA.

Kat Quane added that in Scotland there are two regulators rather than one - Ofgem to grant the licence and Scottish Road Works Commissioner to regulate the roads operations.

Close

The chair thanked everyone and closed the meeting.