Heat networks delivery plan

Chapter 6: Capital programmes and delivery mechanisms

Project development

Currently there is a weak and undeveloped pipeline of heat network projects. In order to accelerate the growth of heat networks in Scotland investing in the development of a project pipeline is essential.

To begin to develop a stronger project pipeline we will soon publish maps and data from the First National Assessment of Potential Heat Network Zones. This builds on the report "Opportunity Areas for District Heating Networks in the UK" and will further be supplemented by the work of local authorities on LHEES and heat network zoning (see Chapters 2 and 3). The Scottish Government will publish quarterly updates through our Heat Network Fund to demonstrate the current pipeline of projects in development that are receiving support through Scottish Government programmes. Together the outputs of the First National Assessment and the ongoing quarterly reporting form an initial heat networks investment prospectus.

Consultation responses to the Draft HNDP suggested a wide array of potential pre-capital support that may be helpful including knowledge sharing, supporting engagement with the private sector as well as expertise, advice and technical services.

We launched our £1 million Heat in Buildings Development Funding Invitation to assist with the development of a long-term pipeline for capital investment. This will provide resource funding to stimulate and accelerate the development of a pipeline of zero emissions heat projects for buildings, including heat networks, across Scotland. This funding is a forerunner to establishing a fuller Heat Networks Support Unit later this year. The support unit will be a key mechanism for supporting the development of a pipeline of projects. It will co-ordinate support across the public and private sectors to identify and nurture opportunities to install new heat networks or expand and decarbonise existing heat networks. This support will offer enhanced pre-capital support including the provision of:

• options appraisals and feasibility
• business cases
• financial expertise
• technical expertise
• legal expertise
• project management
• procurement expertise

In order to support knowledge sharing, as part of the formal closure of the Low Carbon Infrastructure Transition Programme (LCITP) in April 2022 information will be disseminated sharing details about a number of the projects that have been funded, 14 of which have been heat networks receiving over £40 million of funding. We will also establish a heat networks forum of heat network operators and associated practitioners.

We will support the development of community engagement and ownership or co-ownership of small heat networks where these are appropriate with a tailored package of support, handholding and advice, through our Community and Renewable Energy Scheme (CARES), delivered by Local Energy Scotland.

Capital support

We launched the new £300 million Scotland's Heat Network Fund in February 2022. It offers long-term support to enable the delivery of heat networks by making capital grant funding available to public and private sector organisations. Projects will be required to demonstrate that their heat network can provide heat at an affordable cost to consumers and can support the eradication of fuel poverty.

Scotland's Heat Network Fund provides funding for the following types of projects across Scotland:

• new zero emission heat networks, including communal heating systems
• expansion of existing heat networks, with requirements to install additional zero emission generation
• decarbonisation of existing fossil fuelled heat networks

Existing heat networks supplied by gas combined heat and power (CHP) may apply for a loan to extend their heat network, with grant funding available for zero emissions systems which alongside future regulation will encourage conversion away from fossil fuel systems.

We will seek to drive value for money and financial sustainability and encourage private investment. The Fund takes a 'toolbox' approach to financing heat projects, deploying a variety of financing mechanisms to provide tailored support. These financing mechanisms will include grants, repayable assistance and loans.

The new scheme is flexible, matching levels of support required, the maturity and risk of technologies and the commercial needs of projects.

Scotland's Heat Network Fund will remain open to applications throughout the year and over the course of the parliamentary session. Funding will be awarded on a competitive basis against the funds criteria and will be available until the total fund value has been reached.

The Heat Network Fund website provides details including objectives, eligibility criteria, conditions of funding and the application process.

We will continue to offer supplementary financial support to local authorities, social landlords, SMEs and energy service companies (ESCOs) with fewer than 250 employees through the District Heating Loan Fund (DHLF). The DHLF provides low interest unsecured loans with repayment terms up to 15 years. In addition, local authorities will be able to access funding via the Green Growth Accelerator model.

Green Growth Accelerator

The Green Growth Accelerator (GGA) programme, launched in June 2021, provides a catalyst for public and private investment in low carbon infrastructure projects across Scotland. The programme builds on the current Growth Accelerator model and aims to unlock £200 million of low carbon capital investment that supports our transition to net zero. The GGA is a revenue financial model in which a local authority commits to deliver defined, measurable outcomes that are enabled or underpinned by investment in infrastructure and is designed to incentivise local authorities to drive transformative change.

The Scottish Government is working closely with COSLA, local authorities and the Scottish Futures Trust to learn from a group of pathfinder projects and will consider the applicability of the funding for heat networks moving forward.

Building level support

For individual property owners wanting to connect to a nearby heat network, interest free and low cost loans are available from both Home Energy Scotland and the Energy Efficiency Business Support Service, subject to eligibility. Support is also available through the Community and Renewable Energy Scheme for community buildings to connect to a nearby heat network.

Additionally we have recently announced that the Social Housing Net Zero Heat Fund has launched a development call, to support Registered Social Landlords (RSLs) to produce investment grade business plans. Connection to an existing heat network would be an eligible project. Reflecting the fabric first theme raised by many respondents during the consultation on the Draft HNDP, and supporting social landlords to meet the Energy Efficiency Standard for Social Housing, we have also extended the fabric first energy efficiency only funding for RSLs until 30 March 2024, with a condition that homes benefiting from this support install or connect to zero emissions heating by 2032.

We are supportive of the deployment of zero emission heat measures such as heat pumps, and at the same time keen that Scottish Government investment in the decarbonisation of heat supports and does not undermine the viability of strategically important heat network zones. In most cases within a zone we expect a connection to a heat network will be the best solution to make homes and non-domestic buildings warm and less expensive to heat in the long term.

We will continue to review the interaction between the different schemes of support available, including our own programmes, to ensure that these enable the best delivery option for communities, as well as individual households and businesses.

National Public Energy Agency

We are committed to establishing a National Public Energy Agency to accelerate the transformational change in how we heat and use energy in homes and buildings. To achieve this, the Agency will have a remit to raise public understanding and awareness, co-ordinate delivery of investment, and coordinate national, regional and local government delivery of heat decarbonisation and energy efficiency rollout. We will establish the Agency first as a virtual agency by September 2022, and transition to a dedicated body by September 2025. We will set out the role of the Agency in delivering support for heat networks as part of the transition process.