Heat Networks Regulations Advisory Group minutes: April 2024

Attendees and apologies

• Lynne Hunter (Chair), Scottish Government  
• Malcolm Rose, Scottish Government    
• Michael Berry, Scottish Government  
• Kenneth Broom, Scottish Government  
• Antony Akilade, Zero Waste Scotland
• Stephen Knight, Heat Trust
• Jan Reid, Scottish Enterprise
• Paul Moseley, Scottish Futures Trust
• Ken Brady, Energy Saving Trust

Items and actions

Agenda

• public consultation update
• licence applications
• period of a licence
• register of heat network licences
• licence conditions
• revocation appeals
• wayleave compensation

Introduction

The chair opened the meeting and welcomed all attendees to the meeting of the Stakeholder Engagement Group (SEG), to discuss heat network (HN) licensing under part 1 of the Heat Networks (Scotland) Act 2021 (the Act) and  to walk through our current thinking on licensing and welcome stakeholders comments.

Consultation

The chair presented an update on the public consultation plans for the licensing consultation to be amalgamated with the consenting consultation.  Aiming to publish the joint consultation in summer 2024.

Licence applications

The chair confirmed licensing will apply at the organisational level, as opposed to individual project level, which Scottish consenting deals with. The chair then explained the items which a licensing applicant must have regard to that are set out in section 5 of the Act and welcomed comments from stakeholders on how each might be implemented.

The applicant’s knowledge, expertise and experience

The chair explained the Act requires applications should assess the knowledge, expertise and experience of the applicant. The proposal would be for existing Heat Network (HN) operators applying for a licence to share details of HNs they have previously built/managed, with identification numbers where applicable. New applicants entering the sector should share any relevant qualifications or experience demonstrating competence, such as detailing key person or persons with relevant experience.

The group raised a general question clarifying if the intention is that every HN operator will be required to hold a licence?  Or only for the powers attached?

The chair confirmed the Act states that all persons which supply thermal energy by means of a heat network are required to hold a licence and that exemptions may be introduced for self-serving networks and communal networks.

The group raised a potential issue with communal developments being defined as a single building when in reality they are built out over several buildings, but over only one development site (i.e. not crossing any roads or other private / public land etc).  This would not fit this definition, and thus not receive exemption.

The group agreed the defintion of experience and expertise and knowledge should be fully detailed to ensure full understanding of what is included.

The group also raised a point regarding the licensed entity and company structures, which can be complex and the need to consider this with the licence.

Malcolm Rose (Scottish Government Official) clarified that we are bound by the definitions in the Act.  He went on to explain that on expertise, a statement of expertise such as requested on an Environmental Impact Assessment (EIA) application which would be proportional to the size of development.  On the Special Purchase Vehicle (SPV) point:  probably it would be the case that the parent company needs to be licensed. However, ultimately we need to check with our legal colleagues. Malcolm also continue to mention that on the fuel poverty requirements in licensing, we want to avoid a situation where HNs are incentivised to bypass domestic premises which otherwise could be connected in the network’s routing.

Minimises greenhouse gas (GHG) emissions

The chair explained the requirement to consider effect on environment and GHG emissions and the intention to remain aligned with European Union (EU) directives in this space.  For licensing we are proposing reporting on a period basis what a licensee’s GHG emissions are, averaged across all their operational networks in Scotland.  This in contrast to consenting’s decarbonisation requirement which applies at individual network level.

The group raised an example of a local authority with a lot of gas boiler networks and questioned if this high aggregate GHG emission would disqualify the organisation for a licence?

Malcolm Rose confimed this would not preclude an organisation which runs higher carbon networks from being licensed.  The benefit of averaging GHG emissions is to take into account any existing low carbon networks.  Malcolm continued to clarify on consenting and decarbonisation, that existing networks that burn fossil fuel for heat will have to submit a decarbonisation plan as part of their consent application.  This will take into account the specific circumstances of the network and opportunities for decarbonisation.  It may include GHG emission targets, over time.  Key point: we do not envisage the decarbonisation plan being one size fits all, but rather bespoked to the individual.

The group raised a point for consideration on SPV ownership and that if you establish all your networks are SPV, would this provide a loophole or a way around the licensing requirement of GHG reporting across all your networks.

Takes account of Just Transition (JT) principles

The chair explained the Act requires heat networks must be operated in line with JT principles. It is proposed applicants should demonstrate how they’re embedding the principles into company policies and make these available to view; as well as providing regular updates. The chair presented proposals requiring the detail and evidence of progress towards a just transition to net zero to accompany licence applications, and that commitments should be proportionate to the size and scale of the organisation.  The chair also explained this could also be evidenced through working group memberships or mentorships in matters relevant to JT.

The group raised points to clarify in terms of whether the organisation should have prior evidence, or commit to them in the future, with the same consideration to fuel poverty contributions.

Licence applications – contributes to meeting fuel poverty targets

The chair then discussed the fuel poverty requirements of licensing.  The Heat Network Scotland Act (HNSA) also requires HNs must contribute to meeting fuel poverty targets. It was proposed that applications must demonstrate some overarching policies towards addressing fuel poverty and protecting vulnerable customers (e.g. discretion around payment plans, and provision of advice the application for a licence should include plans to protect vulnerable customers, and how they will provide support when falling into arrears.  Aspects like communication on how to optimally operate your heat network will be required via consent applications.

The group discussed considerations for data restrictions and ensuring that the requirements are measurable. Consideration should also be given for some people who may not want to be identified as being fuel poor.

The group also discussed the need to avoid a network developer bypassing a council estate with lots of people in fuel poverty.  So it will be beneficial to have some controls in place to help address this or could zoning be considered to help.   

A discussion also arose around the possibility of heat networks providing a more stable heat price and whether this could be considered as contributing to tackling fuel poverty.   There was some challenge to say at the moment we have experience almost the opposite of price stability as commercial energy prices have fluctuated.

The group dicsussed that much of Europe has large networks which were built with financial help from the state.  However, the model the UK is embarking on relies on private investors.  There is a risk to consider as private investors are seeking returns. This could possibly lead to higher unit heat costs via networks than in Europe.  There was a risk raised that the reliance of drawing in private capital will do anything but lower fuel poverty.

The conversation then raised a question on what will be licensed in terms of network components, when there are ‘trunk’ heat supplies?

Malcolm Rose confirmed the Act states that a person must not supply thermal energy by means of a heat network unless the person holds a heat networks licence, and then goes on to define heat networks. If you were supplying bulk heat to a network, this is not (arguably) defined as part of the network.  Malcolm continued to discuss that we cannot expect heat networks on their own to solve fuel poverty.  An aspiration is indeed to provide competitive and low heat tariffs, however there are other ways to contribute.

Period of a licence

The chair set out the proposal that HN licences will have no end date unless revoked or surrendered.  Mirroring gas and electric licences.

Register of licences

The chair set out proposals for the public domain register to contain:

• the name and address of licence holder
• terms of licence
• date the licence takes effect
• the date the licence ended (if applicable)

This mirrors gas and electric licences.  The chair rasied a discussion topic on what else should be included.

The group discussed the register to include a list of all the consented networks belonging to that licensee.  Otherwise difficult to match up who owns which network.  We see this as essential.

Malcolm Rose confirmed we are exploring with Ofgem applying unique identifiers to each network , so that consumers can easily identify who their heat supplier is. 

Licence conditions

The chair noted discussions were ongoing with Ofgem to agree conditions. These were expected to follow the example of existing utilities, with special conditions granting powers around roadworks available if requested.

The group raised a question on whether the powers will mirror those in England (English licence).

The chair confirmed not identical eg we use wayleave rather than easement, but broadly similar , allbeit the terminology differs for to differing legal systems. 

Malcolm Rose explained Permitted Development Rights (PDR) in planning in Scotland – under phased review at the moment to possibly expand PDR to other development types. In Scottish consenting, we have spoken with planning colleagues about applying PDR principles to heat networks.  For example, we looked at what sort of consent should be required for a network which extends.  We propose to define an extension as solely adding a heat centre or increasing the heat centre’s capacity (to the exclusion of defining increased connections as an extension).

Revocation appeals

The chair confirmed the intention is to introduce regulations to allow appeals against a licence revocation. Revocation as last resort, and to utilise an existing process such as the Scottish Government’s Division of Planning and Environment Appeals (DPEA) or Ofgem’s internal appeals process.

The group agreed the fundamental point is to make a distinction between those making the decisions and those dealing with the appeal as it is a legal requirement.

Compensation

The chair confirmed the intention is to introduce regulations to allow compensation in relation to wayleave rights.

Any other business

The group raised a question as to why Consumer Scotland were not in this group.

The chair confirmed they are represented on the wider stakeholder enagagement group for licensing meeting next week.

Close

The chair thanked everyone and closed ths meeting.