Heat Networks Delivery Plan: review report 2024

6 Progress on wider policies to support heat networks

6.1 Guiding Development

6.1.1 As set out in the 2022 HNDP, heat networks are not a suitable solution for all areas. Work being carried out by local authorities on LHEES^[27] is significantly contributing to the development of this picture.

Identifying areas suitable for heat networks

6.1.2 Local authorities have made good progress producing their LHEES. The Scottish Government is providing multi-year funding of £75,000 per local authority, per year, to resource the development of their LHEES, which has been agreed in partnership with COSLA and began in 2022/23. The Scottish Government has committed to providing this funding up to 2027/28.

6.1.3 Thirteen local authorities have published LHEES (seen Annex B), many of which identify significant opportunities for district heating. For example:

• Glasgow City Council’s LHEES shows that the city has the potential for between approximately 20% and 70%^[28] of the city’s heat demand to be supplied by heat networks. The upper bound applies to almost 50,000 domestic and non-domestic properties, around 47% of the Glasgow population and, geographically, includes almost 40% of Glasgow is potentially within range of a viable heat network.
• Fife Council’s LHEES identifies a number of potential heat network zones including sizable zones in Rosyth Waterfront, Glenrothes (North), Dunfermline and Kirkcaldy with these potential zones (after their level 2 analysis) covering a heat demand of around 300 GWh/year.
• Highland Council’s LHEES identifies several existing heat networks, several projects being developed or at feasibility stage (including in Inverness and Fort William), 7 potential heat network zones in Invergordon, Inverness, Fort William and Dingwall. It also notes over 1,550 green spaces in the off-gas areas were identified that show a high potential to be used for small-scale heat networks, such as shared ground arrays with individual heat pumps for the nearby properties, and over 760 for the on-gas areas. Some of the areas are Thurso, Wick, Skye, Beauly and Muir of Ord.

6.1.4 Once local authorities have published their LHEES we will move into an evaluation phase. We have procured a contractor to summarise and collate the data outputs of the 32 LHEES during 2024, which will include an overview of the heat network opportunities across Scotland.

6.1.5 We are working to align our delivery programmes with the emerging LHEES Delivery Plans. For example, our Heat Networks Support Unit (HNSU) is working with local authorities to take the indicative heat network zones identified through LHEES and develop them into projects through feasibility and business case support. Additionally in November 2023, the HNSU introduced its Strategic Heat Network Support to help local authorities to develop strategic plans for district heating deployment and identify ways to attract private investment, for example by exploring and identifying a suitable and long-term heat network delivery model for their area (see Sections 5.1-5.2).

National Planning Framework 4

6.1.6 The Fourth National Planning Framework (NPF4), published in February 2023, supports the development of heat networks. Specifically it sets out that Local Development Plans (LDPs) should take into account the area’s LHEES. The spatial strategy should take into account areas of heat network potential and any designated heat network zones.

6.1.7 NPF4 policy 19 a) and c) ^[29], states that development proposals within or adjacent to a heat network zone identified in a LDP will only be supported where they are designed and constructed to connect to the existing heat network. It also states that 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.

6.2 Demand Assurance

6.2.1 One of the key barriers to heat network development is not having assurance in heat demand. Developers and investors need a long-term, secure customer base to confidently invest. Reducing this risk, reduces overall costs.

6.2.2 Our approach to demand assurance policies involves two broad branches:

• moving buildings away from polluting heating systems, such as gas, and onto clean heating systems, of which a connection to a heat network is one, and
• investigating incentives and requirements for certain types of building to connect to a district heating system, if they are located in a heat network zone.

6.2.3 The first of these approaches was set out in our consultation Delivering Net Zero for Scotland’s Buildings – A consultation on proposals for a Heat in Buildings Bill, published in November 2023. This proposed to make new laws around the energy efficiency of our homes and buildings and the way we heat those buildings. These proposals include a number of points at which building owners will need to end the use of polluting heating systems.

6.2.4 For buildings within heat network zones, we included a proposal that includes the end of a notice period which begins with a notice from a local authority to a building owner. The consultation closed on 8 March and we are analysing responses to help us determine the way forward with this, and other, proposals in the consultation.

6.2.5 The consultation also seeks views on the proposal to provide powers to local authorities or the Scottish Ministers that require developers to connect new buildings within heat network zones to a heat network.

6.2.6 This is in addition to the new build heat standard which requires new buildings constructed under a building warrant applied for from 1 April 2024 to use clean heating systems: polluting (or direct emissions) heating systems, like gas and oil boilers are not allowed^[30].

Public sector buildings

6.2.7 In the consultation we also propose that the Heat in Buildings Bill should require all buildings owned by a Scottish public authority to use clean heating systems by the end of 2038. We are also considering whether other powers in the Heat in Buildings Bill can support the public sector to plan for this transition to help ensure that it is conducted in the most efficient way. These potential duties are set out in Chapter 6 of the consultation.

6.2.8 Additional to these proposals we are updating our guidance to public bodies (see para 6.2.9).

Social housing

6.2.9 We recently consulted on a new social housing net zero standard (SHNZS). This proposed that:

• the SHNZS sets a requirement for heat network connections to be mandatory under certain circumstances. For instance, where housing stock not already using a clean heating system is offered a connection at a reasonable cost, and where there is sufficient capacity in the network to accommodate the housing. What is considered a ‘reasonable cost’ would be subject to further analysis and engagement, but would include comparison with alternative clean heating systems.
• If the relevant building(s) are within a designated heat network zone, and have been notified of this, then they will be exempt if they commit to meet the SHNZS by connecting to a network by 2045. This will preserve the business case for a new heat network development by ensuring that buildings which are likely to connect are not forced to adopt another system before time. In this scenario, the fabric efficiency rating of the SHNZS will still need to be met. Additionally, the time limit to this exemption ensures that the transition to clean heating still occurs by 2045 should a heat network not be developed in time to meet the 2045 clean heating standard.

Further demand assurance measures

6.2.10 We remain committed to further consulting on proposals, as far as possible within our legal competence to introduce mandatory connections. Our initial focus is on large publicly owned non-domestic buildings.

6.3 Wider policy framework

Guidance to public bodies

6.3.1 The non-statutory Built Environment supplement and the new Statutory Guidance for public bodies is due to be published March 2025. This guidance supports public bodies to implement their climate change duties. The current draft of the Built Environment supplement has a more detailed and comprehensive section on the expectations of the public sector with regard to heat networks, particularly district heating. The draft, which has received feedback, sets out actions for public bodies including:

• urgently complete their building assessment reports, if not already done,
• prioritise connection to district heat networks when decarbonising the heating of their buildings; including engaging with other organisations early enough in the process to ensure option appraisal, planning and procurement processes can be completed to timescales,
• work with other public bodies and the local authority to investigate and maximise the potential for district heat network development;
• where already available, engage with local district heat network operator(s) to identify their interest in and capacity to supply heat and at what potential costs, and
• engage with and seek funding from our delivery programmes (detailed in Section 5).

Recoverable and Waste Heat

6.3.2 Maximizing the use of recoverable or waste heat, which at present goes unused, remains a priority. Recovering waste heat is an underused resource, which has the potential to increase the reach of viable heat networks across Scotland, potentially reducing the costs charged to consumers and reducing running costs of the heat source provider.

6.3.3 The full extent of the potential for waste heat is unknown, however, research has identified a waste heat potential of about 1,677 GWh across around 930 sites in Scotland. In April 2023, we provided data on potential sources of recoverable heat sites^[31] to local authorities to support the identification of heat network zones and the development of LHEES^[32].

6.3.4 We are taking forward a number of actions to promote the use of recoverable heat and make sure that it is considered when designating heat network zones. To support this aim we are exploring, as part of our consultation on proposals for a Heat in Buildings Bill, whether we will require occupiers of non-domestic properties to provide information about unused heat on their premises (on request and in confidence); and potentially require buildings with unused heat to provide this to a local heat network (where cost-effective).

6.3.5 Working in partnership with Scottish Enterprise, we have commissioned the development of a guidance document for non-technical specialists to help them to engage with manufacturing and industrial companies based in Scotland on recoverable and waste heat opportunities for heat networks. This engagement will ascertain if companies currently have any initial ‘high level’ interest in supplying heat, and signpost interested organisations to further expert advice. The guidance will also include descriptions for each of the different kinds of heat sources and the heat technologies that can be used to recover and supply heat. The guidance will be published in April 2024.

Skills and supply chain

6.3.6 Section 3 shows that to achieve our ambitious heat networks targets, we will require a substantial growth across the heat network supply chains.

6.3.7 Supporting Scotland’s current and future workforce to develop the skills needed for the net zero transition is a priority for this government. Our Heat in Buildings Supply Chains Delivery Plan was published in November 2022 and sets out practical steps that we will take to support the growth of the green heat sector. We continue to work in partnership with the sector to ensure that the appropriate support and training provision are aligned at a local level with business needs and future local demands.

6.3.8 Data and evidence are crucial to effective skills planning and policy making which is why we have asked the Scottish Funding Council and Skills Development Scotland to progress critical green skills pathfinders which aim to provide a better understanding of the skills requirements in the transition to net zero focusing on investment, demand, and provision across the sectors relevant to the net zero transition. The second work stream of these projects focuses on the decarbonisation of heat in buildings and has taken a regional focus, investigating both the Glasgow City region and Shetland region. The workstream has concluded the evidence gathering phase and is currently testing project co-design opportunities with local training providers, employers and the Scottish Government.

6.3.9 In the meantime, our significant investment in heat networks (see Section 5) will help kick start the supply chain in Scotland, creating high quality and green jobs.

Non-domestic rates

6.3.10 We carried out a review of rates relief for district heat networks^[33] during 2023. From April 2024, we will introduce a 90% rates relief for all district heat networks on the valuation roll, where at least 80% of the thermal energy generated by that network in any given year is derived from renewable generation. This relief will remain in place until March 2027 at which time we will review it This is in addition to the existing 50% relief that is in place for all heat networks, which is guaranteed to continue until 2032.

6.3.11 These reliefs help to support the business case for new networks and support the business case for existing networks to decarbonise by reducing their operational costs.