Heat Networks Delivery Plan: review report 2024

1 Introduction and Summary

1.1 Why we support the development of heat networks

1.1.1 Heat networks are an established technology and are common in Northern Europe, particularly in Nordic countries. In Scotland they are currently less common but they will play a vital role in decarbonising heat in buildings, particularly in dense urban areas where they are uniquely placed to deliver clean heating in areas where other solutions may be more challenging to install. They are therefore a key strategic part of supporting the wider energy transition, securing a greater energy independence through place-based, low emission heat sources. They can also reduce costs through the provision of efficient, affordable heating and so can be a means to support achievement of our fuel poverty targets.

1.1.2 Heat Networks are not only suitable in dense urban areas, they can also be an efficient solution in some suburban and remote & rural settings. For example, heat networks based on shared ground loop arrays can be a very successful approach in remote and rural settings.

1.1.3 The Climate Change Committee advises that heat networks could deliver about 20% of total heat United Kingdom (UK)-wide by 2050^[1]. They currently provide just under 2% of non-electrical heat consumption in Scotland^[2]. We therefore expect the sector to grow rapidly in the coming years and decades. The Heat Networks (Scotland) Act 2021 (the 2021 Act) – the first legislation of its kind in the UK – includes stretching targets for heat networks for:

• 2.6 TWh of heat to be supplied by heat networks by 2027;
• 6 TWh by 2030; and
• 7 TWh by 2035, as recently added.

1.1.4 Section 2 provides more detail about these targets but we are committed to achieving the growth these targets require. This Report will set out our progress on developing the heat network sector in Scotland to help meet our targets.

1.2 The Heat Networks Delivery Plan and this Review Report

1.2.1 On 31 March 2022, following a full public consultation, we published the Heat Networks Delivery Plan (HNDP), as required by the 2021 Act. The 2021 Act also requires that the HNDP is reviewed every two years, and that Scottish Ministers prepare a report of our progress towards meeting the provisions of the Act and other supporting policies^[3]. This document fulfils the requirement to review and report on the HNDP.

1.2.2 The HNDP sits in the context of wider heat decarbonisation policy, in particular, the Heat in Buildings Strategy, which highlights that over the coming years the Scottish Government proposes a focus on the no and low-regrets strategic technologies to decarbonise our homes and buildings, of which heat networks are one. Detail on the other technologies that will play a role in the transition and the approach to those can be found in the Strategy and subsequent consultations. For example, Delivering Net Zero for Scotland’s Buildings is a recent consultation on proposals to make new laws around the energy efficiency of our homes and buildings and the way we heat those buildings.

1.2.3 Section 3 sets out our best estimates on the supply of heat with the limitations of existing data currently available to us. Estimated heat supply via heat networks has increased from an estimated 1.15 TWh in 2018 to an estimated 1.35 TWh in 2022. We will be working to improve data through the regulatory regime so that we can more accurately report in future.

1.2.4 In Sections 4 to 6 we set out the progress that has been made on implementing the Act (Section 4), our significant delivery programmes (Section 5) and wider policies (Section 6). We are only in the early years of implementing the HNDP – some regulations are yet to be made, and others in place for less than a year. Attributing increases in use of heat networks specifically to the Act, or our wider policy, would be potentially costly and unreliable. It is also too early to attempt at this stage of implementation. At appropriate points we instead set out how we expect the actions taken to support our aims.

1.2.5 This document provides a broad indication of progress following changes to the wider policy and regulatory landscape in Scotland and Great Britain, the developing views of industry, the coming into force of the Act in 2021 and the HNDP, published in March 2022 (the 2022 HNDP). It does not report on every single action in the 2022 HNDP.

1.2.6 Despite the changing landscape we have been able to make good progress in a number of areas including:

• Setting a statutory heat networks target of 7 TWh by 2035, signalling to the developing heat networks sector that this – and future – governments of Scotland are committed to its growth. This provides greater confidence and certainty for those looking to invest in these schemes (see Section 2.2).
• Introducing new legislation that requires Scottish public bodies to produce building assessment reports which will provide vital data about non-domestic buildings for heat network zoning and initiate consideration for connection to a heat network (see Section 4.2).
• Publishing guidance in October 2022 that sets out what is required to fulfil the Local Heat and Energy Efficiency Strategies (LHEES) Order 2022, which placed a duty on local authorities to publish Strategies and Delivery Plans by the end of 2023 and update them every five years. Funding and support has been provided to local authorities and 13 councils have published LHEES to date, many of which identify significant opportunities for heat networks (see Section 6.1).
• Developing legislation and guidance for local authorities to review and decide whether to designate heat network zones. Designating zones can both attract investment from heat network developers and inform building owners and heat users in the area of the potential for a heat network in the area (see Section 4.2).
• Working with the UK Government during development of the Energy Bill and afterwards on the new consumer and technical standards it will provide. Through the Energy Act 2023, Ofgem has been appointed as both the regulator for the GB wide heat network consumer protection regime and the heat network licencing authority for Scotland. This is key to allowing these regimes to be interoperable, keeping them as simple as possible while meeting the overall aims for Scottish heat network operators and consumers (see Sections 4.1 and 4.6).
• Developing proposals on consenting and licensing which we will consult on during the next reporting period. These aspects of the regime will result in scrutiny of proposed projects so that they are in line with local and national objectives, support community engagement in the process and will make available new rights to heat network operators such as wayleave, compulsory purchase, roadwork and surveying rights (see Section 4.3 and 4.4).
• Developing proposals to reduce demand risk for heat network development, including our consultation on a proposed Heat in Buildings Bill, which seeks views on proposals to make new laws around energy efficiency of our homes and buildings and the way we heat them and how these apply in heat network zones (see Section 6.2).
• Establishing the Heat Network Support Unit (HNSU) in Autumn 2022, which supports the growth of heat networks by addressing key challenges in the pre-capital stages of heat network development and building capacity across the public sector to deliver successful projects. The HNSU has supported 28 pre-capital projects^[4] so far and at the end of 2023 enhanced its offering to local authorities to also include Strategic Heat Network Support (see Sections 5.1 and 5.2).
• To support central and local government to support development at scale and pace while achieving our wider objectives, the Heat Network Support Unit has recently published a report reviewing existing and new delivery models for heat networks (see Section 5.3).
• Since launching Scotland’s Heat Network Fund in 2022 over £10 million of grant funding has been awarded. This builds on the momentum created by its predecessor, the Low Carbon Infrastructure Transition Programme, with the total value of the current project pipeline across these two funds being over £65 million (see Section 5.4).

1.2.7 Unless otherwise stated in this report, we continue to take forward the actions and policies in the HNDP. For example, we will be:

• Working with the Improvement Service on the development of an online platform to make it easier for people to submit and retrieve (BAR) information and encouraging, including through of our funding programmes, the submission of BAR.
• Consulting during the next reporting period, prior to developing regulations under the Heat Networks (Scotland) Act 2021, on:
  • the consenting process, which will provide a project specific approval process to scrutinise how new heat networks, as well as expansions to existing networks meet local and national objectives, how they carry out community engagement and meet decarbonisation requirements. Consenting will also cover existing networks’ requirement to develop and implement decarbonisation plans; and
  • A regulatory licensing process which adds to, rather than duplicating, the proposed UK authorisation system whereby licensees are able to gain the additional powers they require for things like roadworks and wayleaves, whilst consumer protection and technical standards will be handled by the UK regulator regime, providing common standards across Great Britain.
• Continuing to build the pipeline of strategic and important projects through the Heat Networks Support Unit and supporting the delivery of heat networks with long-term support from the £300 million Scotland’s Heat Network Fund (SHNF).