Heat networks delivery plan

Chapter 4: Guiding development

Heat networks are not a suitable solution for all areas. To date the establishment of district heating has been reliant on new buildings, and suppling heat to existing 'anchor loads' (see Chapter 2).

Heat networks are most suited to areas of high heat demand, which are often associated with denser urban settings and/or areas of high industrial use. Newer fifth generation heat networks may be suitable for lower density areas.

Identifying areas suitable for heat networks

The Opportunity Areas for District Heating Networks in the UK report uses geospatial modelling to identify areas where there may be economic potential for heat networks. This analysis estimates that heat networks could provide around 15 TWh of heat per year in Scotland by 2050. This is likely to be the maximum potential.

The First National Assessment of Potential Heat Network Zones^[10] has further developed our understanding of the suitability of heat networks in Scotland. This assessment provides a high level initial assessment at a national level, identifying potential heat network zones (where heat networks are a potential long-term solution) based on linear heat demand and key anchor loads. This First National Assessment follows the early stages of the LHEES methodology, but does not incorporate local authority held data or local insight that impact on potential zones identified. The outputs relevant to a local authority's area have been provided to each local authority to support the development of their LHEES and any designation of heat network zones under the Heat Networks (Scotland) Act 2021.

The LHEES methodology and any guidance relating to the LHEES statutory duty will be updated to ensure that in following it local authorities can fulfil the requirement to consider whether one or more areas in its area is likely to be particularly suitable for a heat network^[11].

As noted above (Chapter 3) we will supplement the LHEES guidance and develop a more detailed assessment to determine whether an area is particularly suitable for a heat network to support local authorities in designating heat network zones.

Building Connection Hierarchy

Within zones it will be important to encourage and prioritise the connection of key anchor buildings, which can enable the efficient operation of a heat network, helping to reduce customer costs and enabling the extension of the network over time to other nearby buildings.

Box 2: Scottish non-domestic buildings.

These vary significantly in size^[12]. Non-domestic buildings with a floor area greater than 1,400m² account for over half the stock by floor area and 9% by number of buildings; and buildings over 2,500m² account for 26% by floor area and only 3% by number. The average area of non-domestic stock is estimated to be 444m².

To guide the development of heat networks we have adopted the following Building Connection Hierarchy, which prioritises the connection of existing buildings based on their size, heat demand and ownership. A previous version of the Building Connection Hierarchy was proposed in the Draft HNDP as a tool to help steer delivery on the ground and in certain instances useful as part of a prioritised or tiered policy or regulatory approach, though this will not always be appropriate. Respondents to the consultation were generally supportive of the hierarchy, however suggested a number of alternations and considerations. This included that local flexibility may be required in its application. Respondents also indicated a preference for a heat demand threshold or a proxy for this, over a size threshold.

The Hierarchy has been designed to support the development of heat networks. Respondents also suggested a needs based approach could be part of or sit alongside this hierarchy, to support those buildings with more limited zero emission heating options. For many historic or traditional buildings and some multi-ownership buildings heat network connection may offer the most appropriate or feasible zero direct emission heating solution. While this has been included, it is on the basis that it does not delay the development of heat networks.

The Hierarchy has been updated in light of these comments and when used should take into account the need for flexibility. New buildings within a heat network zone should connect to a heat network where available and appropriate.

Table 5: District heat network development: Building Connection Hierarchy*

Priority	Non-domestic*2		Domestic*3
1	New Buildings (with a heat demand)	Existing public sector non-domestic buildings (above a certain heat demand*4)	Residential buildings with high heat demand. Highest priority for highest heat demand such as large groups of homes already on communal heating, large multi home or multi tenancy domestic buildings*5 and retirement homes.
2	Existing Commercial or Third Sector non-domestic buildings (above heat demand threshold*4)	Existing public sector non-domestic buildings (below heat demand threshold*4)
3	Existing Commercial / Third Sector (below heat demand threshold). Possible priority for multi tenancy or multi ownership or historic or traditional buildings*5
4	All other heat using buildings in heat network zones that are not already served by zero emission heating or for which there is no fuel poverty increase in doing so.

Building Connection Hierarchy – Interpretation and Points of Note

* This Hierarchy applies only to buildings in a heat network zone, buildings that do not already have a zero emission heating system and that are not soon to be demolished.

*² Particular flexibility may be required around long term contracts for energy supply, energy performance contracting or novel financing arrangements such as Private Finance Initiative (PFI) Non-Profit Distributing Model, and Pubic Private Partnerships (PPPs).

*³ Where this does not adversely impact those at risk of fuel poverty. Higher priority for those that support the eradication of fuel poverty.

*⁴ Where heat demand cannot be used a size threshold may be an acceptable alternative.

*⁵ The inclusion of multi ownership buildings (rather than those with one organising entity such as a social landlord) and historic and traditional buildings is included only where this does not risk the timely delivery of the heat network.

Draft National Planning Framework 4

The Draft Fourth National Planning Framework (NPF4), which details our long term plan for what Scotland could be in 2045, was laid in Parliament in November 2021. Alongside Parliamentary scrutiny of the draft, we are running a consultation, which is open until 31 March 2022. The consultation seeks views on draft policy on heating and cooling.

Demand assurance

We know that one of the key barriers to heat network development is demand assurance, with investors needing a long-term, secure customer base to confidently invest.

As set out in the Heat in Buildings Strategy we will, subject to legal competence, introduce a regulatory framework to require the installation of zero or very near zero emissions heating systems in existing buildings off the gas grid from 2025 and on the gas grid from 2030. This is in addition to proposals to require new buildings consented from 2024 to install only zero direct emissions heat sources.

We will also consult in 2022 on a series of phased targets for all publicly owned buildings to meet zero emission heating requirements by 2038.

In order to secure the development of heat networks and in order to meet our statutory heat network targets it will be important that these regulatory requirements drive the development of, and connection to, heat networks in designated heat network zones. As we take forward these consultations in 2022 we will consider how best to ensure that the proposed regulatory requirements are compatible with our heat network targets.

In the Draft HNDP we asked for views on the right approach to demand assurance. Some respondents expressed the view that mandatory approaches such as mandatory connection can be interpreted as a problem in today's society, with some respondents suggesting ways this could be made fairer. There was support for mandatory connections from large and publicly owned buildings to provide demand assurance for heat network development. There were more mixed views on mandatory connections for the residential sector – some suggested larger residential buildings or groups of buildings with existing communal heating or undergoing renovation should be required to connect.

We remain committed to consulting on proposals, as far as is possible within our legal competence, to:

• introduce mandatory connections with a focus on large non-domestic heat users and publicly-owned buildings; and/or
• use new powers under section 15 of the Non-Domestic Rates (Scotland) Act 2020 which could potentially be used to de-risk investment and drive net zero behaviour, including connections to heat networks.

In developing proposals we will pay particular attention to fairness aspects and will consider whether buildings of all types already on heat networks should be in scope or not. We will also consider UK Government proposals to mandate connection to heat networks in designated areas in England to assess their applicability in Scotland and fit with our proposed wider approach to building regulation. Subject to legal competence, we will consult on proposals during 2022.