Heat Network Zone (HNZ) guidance

1 Introduction

"The Heat Networks (Scotland) Act 2021" (herein referred to as the Act) provides a legal framework for the establishment of a regulatory system for heat networks in Scotland. The Act is intended to encourage greater deployment of heat networks in Scotland, in the context of ambitious emissions reduction and fuel poverty targets. Further detail on the importance of heat networks and heat network zoning can be found in the Heat Networks Delivery Plan and wider Heat in Buildings Strategy.

Within the Act, each local authority is required to carry out a review to consider whether one or more areas in its area is likely to be particularly suitable for the construction and operation of a heat network (section 47(1)). Following this review by a local authority, a further requirement of the Act is to make a decision on whether either the local authority itself or the Scottish Ministers should proceed to consider designation of areas as Heat Network Zones (section 47(4)). Further detail on heat network zones can be found in Section 1.2 of this document. After each review, the local authority must publish a statement in relation to each area considered which provides a rationale for decisions made regarding particular suitability. Each area considered likely to be particularly suitable must be identified the area by reference to a map and the statement must justify the route chosen for consideration for designation (section 47(6)).

For each area progressed for consideration for designation by a local authority, consultation is required (section 48(2)), as is subsequent publication of a decision on whether to designate or not (section 48(4)).

This statutory guidance document supports local authorities to discharge the duties outlined above. It is based around completion of a standard proforma, structured as follows:

Part A – area review decision (supports requirements of sections 47(1), 47(3) 47(4) and 47(6) of the Act)

A review to identify areas likely to be particularly suitable for heat networks under section 47(1) should be carried out within a Local Heat & Energy Efficiency Strategy (LHEES)^[1] and outputs can feed directly into the Part A. Note that there is scope to use other evidence, for example from feasibility work or other strategic assessment, to support completion of Part A. This base information is reviewed, with key insights in terms of suitability documented in the proforma. The proforma then requires a decision and justification of whether this information makes the area likely to be particularly suitable and to determine and provide rationale for the route to take forward to consider for designation. A note on the statement required by section 47(6) is provided in this guidance.

Part B – designation consultation (supports requirements of sections 48(1) and 48(2) of the Act)

Captures information gathered during a statutory consultation period, to better inform the decision as to whether to designate an area as a Heat Network Zone. Guidance is also provided in this document to support engagement activity in relation to the area under consideration.

Part C – designation decision (fulfils the requirements of sections 48(3) and 48(4) of the Act)

Captures the decision of whether a local authority designates the area as a Heat Network Zone or decides not to designate the area as a Heat Network Zone. A note on the publication of a document with the designation decision is provided in this guidance.

A summary of the main elements and stages to the decision of whether to designate an area as a Heat Network Zone is provided in Figure 1.

Currently, the process will require Part A to be completed for every area of interest for heat networks identified in the review. Decisions on consideration for designation are made on a case-by-case basis. It is considered likely that many of these areas would have been identified as part of a local authority's Local Heat and Energy Efficiency Strategy (LHEES). However, it is worth noting that the identification of particularly suitable areas under section 47(1) of the Act or consideration of whether to designate areas as zones under section 48(1) are not limited to outputs from the LHEES process (or its suggested approach^[2]) – other review activity could feed into these considerations.

Equally, when deciding whether to designate an area as a Heat Network Zone, it is not essential that exactly the same area has previously been identified as particularly suitable under section 47(1), provided that proper consideration is given in accordance with section 48(1). For example: a designated Heat Network Zone may cover a smaller or larger geographical area than the area originally identified as particularly suitable; or an opportunity to designate a new Heat Network Zone could arise between the periodic reviews taking place under section 47(1), for example, due to the availability of a new heat source or changes to heat demand in an area.

1.1 Assessment of an Area as "Particularly Suitable"

Beyond suggested threshold settings that underpin the demand-based analysis carried out within LHEES, no strong steer or set of threshold values has been provided to define what makes an area particularly suitable. Suggestions are provided under the subheadings of Section 2 below that look to give examples of what might align with this definition, however, this part is intentionally flexible to encourage local consideration of factors and justification of any decisions regarding suitability.

1.2 Zone Designation – Policy Intention and Implications

As set out in the Policy Memorandum^[3], identifying and designating Heat Network Zones by a local authority or Scottish Ministers, will provide the heat network sector with greater awareness of development opportunities within Scotland; and set a boundary in which supporting actions aimed at reducing the demand risk faced by heat network developers can be suitably targeted.

The Act aims to maximise in particular the deployment of large, strategically sited district heating networks by introducing Heat Network Zone Permits. These could offer the market the opportunity to be the sole heat network operator within a Heat Network Zone^[4], following a robust initial competitive process for that right. The designation of a Heat Network Zone does not oblige the Scottish Ministers to award a Heat Network Zone Permit, but it will be a powerful tool available for use in delivering the infrastructure in those areas that have been deemed most suitable for heat networks. The potential for exclusivity (via the permitting process) within a designated Heat Network Zone is therefore an important consideration in deciding whether or not to designate an area as a Heat Network Zone, and also in determining the geographical extent of any designated Heat Network Zone.

It is worth noting that the detail of processes outlined in the Act such as consenting and permitting is under consideration, and as such, the exact interaction of these with the zone designation process is still to be established. Also worth noting are provisions within the Act to adjust the boundary of a Heat Network Zone once designated, but again, the detail of the circumstances when this could apply is still to be finalised. As such, bear in mind that this guidance is expected to evolve over time.

Designated Heat Network Zones will also be significant in planning terms. The Revised Draft National Planning Framework 4 requires that:^[5]

• The spatial strategy should take into account areas of heat network potential and any designated Heat Network Zones;
• Development proposals that are within or adjacent to a Heat Network Zone identified in a Local Development Plan will only be supported where they are designed and constructed to connect to the existing heat network;
• Where a heat network is planned but not yet in place, development proposals will only be supported where they are designed and constructed to allow for cost-effective connection at a later date; and
• Development proposals for energy infrastructure will be supported where they:
  • i. repurpose former fossil fuel infrastructure for the production or handling of low carbon energy;
  • ii. are within or adjacent to a Heat Network Zone; and
  • iii. can be cost-effectively linked to an existing or planned heat network.

1.3 Roles and Internal Engagement in Proforma Completion

In the LHEES methodology, it is recommended that an internal review group is established to provide input into the heat networks review activity – including provision of local knowledge in sense-checking analysis outputs, making decisions on appropriate analysis settings and supporting completion of the output summary tables that are likely to contain some of the evidence upon which zone designation decisions are based. It is likely that there will be substantial cross over between the expertise in the LHEES review group (if established) and that required to complete the Heat Network Zone Designation Proforma, so continuity of membership might be appropriate.

If an internal review group has not been established as part of LHEES, Table 1 provides a list of key suggested persons within a local authority to engage to support completion of the zone designation proforma. Even if an LHEES review group is established, it is advised that membership be cross-checked against the roles outlined in Table 1 to ensure suitable expertise is included in decision making.

Additionally, senior oversight and input is likely to be required as part of the decision-making process, particularly for the designation of Heat Network Zones. Appropriate governance structures from LHEES or other related activity might be established already, that zone designation work could align with.

Table 1 Summary of suggested local authority stakeholders to engage.

Local authority role: Officer responsible for coordinating heat network analysis / zone designation

Level of engagement: Likely lead for the process.

Indication of insights: Coordinates discussion and input to completion of the proforma; likely to have the highest level of knowledge on the areas of interest.

Local authority role: Officer responsible for LHEES coordination (may be the same as above).

Level of engagement: Likely high.

Indication of insights: Act to provide a cross-check and context with other LHEES priorities and analysis, and to ensure continuity in messaging. For example, opportunities other than heat networks may have been identified through the LHEES process in the areas of interest.

Local authority role: Officer responsible for planning.

Level of engagement: Low to high – if there is likely to be substantial development in the area this will be high.

Indication of insights: Insights into where additional future demands and potentially waste or recoverable heat sources are likely to be. If there is significant development activity e.g., large-scale LDP sites, in the area under consideration, planning colleagues will be particularly important to engage.

Engagement should also be made with the Planning Officer with responsibility for the historic environment, in order to gain insight into historic sites (buildings, archaeological sites etc.) that could be a constraint for heat network routing or other infrastructure.

Local authority role: Officer responsible for properties and estates.

Level of engagement: Likely high, especially if there are a high number of local authority properties in the area of interest.

Indication of insights: Public sector buildings are often key anchor^[6] loads for heat networks. Certainty about these demands and any future planned changes to the public sector property portfolio are important to consider in the designation process.

Local authority role: Housing Officer and Fuel Poverty Officer (may be the same person).

Level of engagement: medium - dependent on type of area under consideration.

Indication of insights: Insights into the level of fuel poverty in a potential zone provides useful context, which should be considered through the designation process. This is particularly important if there is a high level of domestic heat demand in the potential zone.

Local authority role: Building Control Officer.

Level of engagement: Medium

Indication of insights: Responsible for ensuring that all new buildings install zero direct emission heating systems (ZDEH, for buildings warranted from 1 April 2024). Will be important to ensure they are aware of potential HNZs and what this would mean for granting warrants for new developments within those HNZs. This is to ensure that connection to the heat network was the means of meeting the ZDEH requirement.

Local authority role: Economic Development Officer

Level of engagement: Low to high

Indication of insights: Various

Local authority role: Community Planning Officer.

Level of engagement: Low to high.

Indication of insights: Where an area overlaps with a community planning partnership plan.

1.4 Data Sharing Restrictions

The suggested default outputs, in the form of area Summary Tables, to support the review and designation processes come directly from completion of the LHEES approach. These outputs draw on various data sources, including the Scotland Heat Map. Data sharing restrictions apply to elements of this dataset and potentially other datasets used to summarise areas of interest.

The processes supported by this proforma include engagement, consultation and the publication of statements related to area review, designation consideration and designation decisions. In completing this activity, consideration should be given to any data sharing restrictions on the information used and gathered.