Heat Networks (Scotland) Bill: BRIA

Consultation

Development Phase

10. In April 2019, the First Minister recognised that we are facing a global climate emergency.

11. In response, the Minister for Energy, Connectivity and the Islands established the Heat Networks Regulation Working Group in May 2019 to provide advice to the Scottish Government on how best to support the accelerated deployment of heat networks in response to the global climate emergency, ahead of the preparation of legislation.

12. A Recommendations Report^[1] from the Heat Networks Regulation Working Group was published on 3 December 2019, and in summary, advised the Scottish Government that:

• The Group agreed that the heat networks market would benefit from the introduction of a Regulator.
• It was neutral on which body would be best suited for this role, but could see sense in a Scottish Regulator given that a counterpart in the wider UK has not been confirmed, the accelerated legislative timelines in Scotland and the additional functions likely to feature in the Scottish Regulatory framework.
• However, the Group also agreed that should there be a Scottish Regulator, there should be alignment with any counterpart in the rest of the UK, as far as possible.
• The Group supported the principle of introducing licensing to the sector, provided that this was balanced by sufficient measures to support developers and that licences did not unduly burden smaller operators. Some Group members also advocated for a project-specific licence to tailor standards and fees.
• The Group welcomed the proposed introduction of zoning (through Local Heat and Energy Efficiency Strategies (LHEES)) and supported them being made a statutory duty for Local Authorities to develop. There was recognition that the creation of Heat Network Zones would be a positive step for the market.
• However, the Group also requested greater clarity over how heat network project identification and appraisal will be carried out, and felt that heat network developers should be involved in the development of zoning methodologies to ensure that opportunities were fully identified and deliverable.
• Despite the introduction of LHEES being welcomed (and despite heat network developers not being averse to owning a degree of risk), they would not alone significantly change the risk profile for investors. More (beyond that proposed in the Scottish Government's second consultation on Heat Network Regulation) would be needed to support the growth of load which the market currently perceives to be uncertain and risky. There were several proposals to achieve this which some of the Group advocated for, including:
  • For heat network developers and other organisations to be able to compete to be awarded exclusivity within identified heat network zones; and
  • An obligation to connect to a heat network being placed on large anchor load non-domestic buildings within identified heat network zones to address decarbonisation of existing buildings as well as new build.
• The Group felt that the consenting proposal should be reconsidered in order to reduce burden on both local authorities and network developers, and to reduce the risk of Local Authorities effectively self-regulating.
• It was agreed that statutory undertaker rights should be conferred on heat network developers and that this would be a beneficial change. However, it was noted that this, on its own, would not sufficiently de-risk investment in heat networks.

13. The Group provided strong evidence in support of its advice and as such, and within the context of the global climate emergency and Scotland's increased climate change targets, the Scottish Government built upon the proposals it consulted on in November 2017, and these are set out within the Heat Networks (Scotland) Bill and throughout this document, having been broadly agreed in principal with stakeholders.

Within Government

14. The Energy and Climate Change Directorate had direct contact and discussion with the following directorates and agencies during the development phase:

• Directorate for Housing and Social Justice (Better Homes Division);
• Directorate for Chief Economist (Office of the Chief Economic Adviser – Economic Analysis);
• Directorate for Justice (Criminal Justice, Access to Justice);
• Directorate for Local Government and Communities (Building Standards, Planning and Architecture);
• Directorate for Digital (Broadband);
• Directorate for Financial Management (Finance Programme Management Division);
• Scottish Procurement and Property Directorate (Collaborative Procurement – Utilities and Facilities);
• Directorate for Budget & Public Spending;
• Highlands and Islands Enterprise (HIE);
• Transport Scotland; and
• Scottish Road Works Commissioner

Public Consultation

15. The Scottish Government has consulted extensively on heat network regulation, with two dedicated consultation documents:

• A scoping consultation^[2] published in January 2017 on broad regulatory scenarios for the sector. This consultation was drafted in collaboration with a Short Life Working Group commissioned by Scottish Ministers in October 2016; and
• Specific policy proposals published in November 2017^[3], based on feedback and legal advice received following the first consultation.

16. In addition, as part of the Energy Efficient Scotland consultation of March 2019^[4], the Scottish Government sought views on how it could support the heat networks sector to grow.

17. A full, independent analysis of responses to each of these consultations has been undertaken^{[5] [6] [7]}.

Summary of Consultation Findings

18. The broad principles for regulation outlined in the consultations, and the objectives sought, have been generally supported.

19. Respondents had a number of different priorities for the legislation, including the importance of attracting investment into the sector, tackling fuel poverty, consumer protection, and how to ensure security of supply to end users.

20. Almost all respondents, who provided a definitive response, agreed that, as district heating becomes more widespread, it will need to become a licensed activity.

21. A number of stakeholders also supported the regulation of technical standards through licensing, such as has been seen for other utilities.

22. A small number of respondents commented on who should become the licensing authority, with some suggesting a new Energy Agency, while others said the Scottish Government or the Scottish Environmental Protection Agency (SEPA).

23. Many respondents supported introducing powers for Local Authorities to zone areas for heat networks and noted the opportunity for such zones to be aligned with other local plans, such as Local Development Plans.

24. However, there was no agreement on how zoning should be undertaken, with stakeholders suggesting that, for example, zones should be based on local heat sources or areas of demand. Others suggested that zones should cross Local Authority boundaries where appropriate.

25. There was general support for establishing 'exclusive concessions', with Local Authorities and those within the industry particularly supportive of this proposal, as a way to reduce the risk involved in developing new heat networks by giving long-term certainty and confidence regarding the demand for heat that the network could serve.

26. A number of respondents suggested that Local Authorities should be responsible for issuing and enforcing concessions in their areas due to the local knowledge they possess and because they are also responsible for other strategies, such as Local Development Plans.

27. However, several Local Authorities disagreed with this, with resource implications, in terms of funds, time and expertise, were seen as a barrier.

28. Many respondents said that anchor loads – those buildings that have a large and/or varied enough heat demand – are essential in making any new heat network scheme viable, but noted that there are often challenges in securing agreements to connect such buildings.

29. Views were mixed on whether to compel existing buildings to connect to heat networks. Even among those who broadly supported the proposed power, several respondents caveated their responses, for example feeling that any such power should only be used as a last resort.

30. Another theme in response to consultations was the consensus that heat network operators and developers should be given rights such as those which other utility companies possess, in order to undertake their construction and maintenance more easily and efficiently.

Business

31. During the development of provisions for the Heat Networks (Scotland) Bill, a number of businesses were consulted on proposals and have helped to shape the final Bill.

32. Businesses contributed by responding to two public consultations described in paragraph 15 and multiple stakeholder events that followed the launch of the consultations. Additionally, the Scottish Government undertook 6 site visits between Summer 2018 and Autumn 2019 to heat networks across Scotland to identify impacts which proposals may have on business. These visits were part of the Scottish Firms Impact Test and Island Communities Impact Assessment.

33. Furthermore, the Scottish Government worked closely with Scottish Renewables and Association for Decentralised Energy who represent the heat network sector throughout the process.

34. Lastly, the Scottish Government invited 6 organisations from the industry to be part of the Heat Networks Working Group. It also hosted a special extended meeting, where an additional 6 representatives from business were invited to comment on the proposals.