Heat networks - thermal energy target 2035: consultation analysis

3. Fuel Poverty

A key consideration in setting policy targets for heat networks is ensuring that doing so does not cause fuel poverty, or exacerbate existing fuel poverty for new heat network customers. To this end, this consultation asked respondents to reflect on whether there are any specific fuel poverty considerations that need to be addressed as new legislation is implemented.

A range of responses were received. Most respondents noted that fuel poverty is a multi-faceted challenge and, therefore, requires multiple solutions. In terms of fuel poverty, a focus on heat networks is not seen as important as ensuring a 'fabric first' approach is taken to building retrofit and build. Yet, while heat networks were not necessarily seen either as a solution to, or a cause of, fuel poverty, they were argued to be capable of both exacerbating and alleviating the problem. These positions are detailed below.

Fabric first approach is necessary for reducing fuel poverty

Some Local Authorities and a Professional/Representative Body made clear that fuel poverty is mainly a problem of heat demand and stated that setting a target for heat network output does not, therefore, do anything to address existing fuel poverty issues. Rather – in line with concerns raised more generally in this consultation – many respondents (including Local Authorities, a Consumer Advice/Advocacy/Campaigning Organisation, a Professional/Representative Body, and individuals) argued that, because heat demand is directly related to thermal efficiency of buildings, it is critical to maintain a focus on a 'fabric first' approach to ensuring heat networks do not cause or exacerbate fuel poverty.

In line with other statements made in this consultation, it was generally argued that a fabric first approach should be taken regardless of whether heat network capacity increased. However, where heat networks are installed, increasing the energy efficiency of homes heated by heat networks reduces the heat requirements of those homes. Some respondents stated that, in their view, this would not only make heat produced by the networks "go further" (Consumer Advice/Advocacy/Campaigning Organisation), but also reduce individual heating bills, increases home comfort and can improve health (Local Authority).

Heat networks can help mitigate fuel poverty

Although heat networks were not seen as a primary means of addressing fuel poverty, many respondents highlighted that heat networks have the potential to reduce it.

One individual highlighted a specific positive example from Glasgow:

"The Wyndford estate findings show a good relationship between the development of heat network and fuel poverty. According to SSE, the lives have improved, comfort levels have increased, carbon emissions have fallen and jobs and economic value have been created".^[2]

Reduced/more stable bills

Many respondents who suggested heat networks could reduce fuel poverty stated that this was because heat networks often reduce bills. According to one Community Group, prior to the recent spike in energy prices, 90% of district heat networks in the UK operated at the same or lower costs to consumers than conventional heating systems. A Local Authority cited the Lerwick District Heat Scheme (Shetland Heat Energy and Power - SHEAP) as an example of a heat network providing lower-cost heat than other viable alternatives in the area.

Some respondents specified that the reason heat networks can result in lower bills is that they are typically more efficient than individual boilers. For example:

"Large scale, standardised district heating systems that can provide demand and supply side services to the electricity grid at scale while also fulfilling its obligation to provide heat to its customers will be a profitable enterprise. The ability to provide cooling services to industrial users by accepting waste heat into its networks from multiple sources will generate revenue for this service while also reducing its primary fuel costs. The ability to generate revenue from a portfolio of services reduces the overall cost of heat. System design is critical to achieving this. This approach is by definition, more fuel efficient than current heating arrangements based on gas distribution. The long service life of the system >50 years will also reduce overall costs."
Carbon Recycled Energy Limited (Energy Services Company)

Another organisation (Consumer Advice/Advocacy/Campaigning) stated that heat networks can also make bills more stable and predictable, further mitigating fuel poverty: "District heating can contribute to fuel poverty reduction targets through its ability to provide stable and predictable prices for energy over an extended period…"

The same organisation also suggested that heat networks could "…reduce worry for households about breakdowns or repairs".

A Local Authority and a Professional/Representative Body both believed that that running heat networks on renewable fuels could further reduce bills, stating that renewable energy is cheaper than energy from fossil fuels.

Wider positive benefits

Beyond reducing and/or stabilising the cost to consumers, wider benefits were also noted. Two respondents (Fife Council; Consumer Advice/Advocacy/Campaigning Organisation) suggested that the money customers saved on fuel bills could be spent on other goods and services locally, thereby boosting the local economy. The same Consumer Advice/Advocacy/Campaigning Organisation also noted that the creation of heat networks may create local employment opportunities.

Heat networks may exacerbate fuel poverty

Many respondents voiced concern that, without due care, connecting consumers to heat networks may increase their risk of fuel poverty.

A concern that was also highlighted elsewhere in the consultation is the risk of the cost of setting up new heat networks being passed on to consumers. Multiple Local Authorities and a Professional/Representative Body highlighted how this may be particularly detrimental to households already experiencing fuel poverty, and could risk pushing others into fuel poverty who are not already.

Other organisations (Local Authority; Citizens Advice/Advocacy/Campaigning organisation) expressed concern that, because heat networks can limit the heating/cooling options available to households connected to them, fuel poor households may not be able to move to cheaper options if necessary.

Other heat network challenges

Broom, Kirkhill and Mearnskirk Community Council argued that new heat networks are only suitable for new build properties. They stated that, because low income (fuel poor) households often live in older, possibly poor-quality tenements and flats, it is unlikely that heat networks will be an option for them.

In line with responses to other questions in this consultation, geographical considerations were also raised with respect to the challenge of fuel poverty. One individual asserted that fuel poverty is worse in remote rural areas than in urban centres. Relatedly, one Local Authority highlighted the risk that funding be focused on "urban and central belt consumers", which could distract from rural consumers who are often more at risk from fuel poverty.

Conversely, Dumfries and Galloway Council suggested that fuel poverty is more likely in urban centres. But, because such areas may better lend themselves to heat networks (according to the respondent), heat networks were thought to have a potentially positive impact on fuel poverty.

Considerations that may help mitigate HN-associated fuel-poverty risks

Funding support/fuel price interventions

Many respondents (including individuals and Local Authorities) highlighted that, in general, raising awareness of the funding that is already available to support households with heating costs (e.g., via Home Energy Scotland and Local Energy Scotland) is a necessary step to reducing fuel poverty. This was seen as an initiative that is separate to – and more important than – a focus on delivering heat networks.

It was also suggested that more (well-advertised) funding is required in this space, specifically to mitigate costs associated with connecting to a heat network. Funding targeted at supporting the installation of heat networks in social housing was highlighted as particularly necessary by both a Professional/Representative body and Scottish Power (Energy Services Company). Scottish Power stated the following:

"It is therefore vital that long-term funding is made available to facilitate the development and construction of heat networks in existing and new social housing areas including those homes that may have been bought by residents and who find themselves unable to invest in upgrading their property. We support the £300 million that has been set aside for the Heat Network Fund in this parliamentary term, and we would recommend that additional and comparable levels of funding are made available in the next term. Funding support should taper, whereby early projects should receive greater percentages of subsidy to ensure a sustainable market is created. Medium to longer term funding can then be reduced and/or focused to ensure that the pipeline of projects for those most in need is not damaged due to lack of funding."

Related to this, two individuals argued for the continuation of fuel bill subsidy programmes and the fuel price cap.

Others (Local Authority; Scottish Property Federation – Professional/Representative Body) suggested that a necessary intervention is the rebalancing of electricity and gas prices (an area of policy reserved to the UK government), particularly if future heat networks are to run on renewable energy. They argued that a move to lower electricity prices would, by extension, also mitigate fuel poverty.

Other fuel considerations

Two respondents, including SSE (Energy Services Company) highlighted the importance of heat network fuel source in determining fuel prices, and therefore a heat network's impact on fuel poverty. SSE stated: "Heat Networks with the right fuel source should be lower cost for consumers than a typical low carbon (typically Air Source Heat Pump) counterfactual."

Active engagement with fuel poor consumers and relevant organisations

The need to actively engage fuel-poor households and the organisations that provide them with support (i.e., housing associations, registered social landlords) in the design and delivery of new heat networks was also raised more than once by a range of respondents (a Local Authority; a Consumer Advice/Advocacy/Campaigning Organisation; an Energy Services Company). This was deemed necessary in order to maximise heat networks' potential benefits for fuel poor customers (fuel saving, comfort, heating control, etc.). Specific suggestions for achieving this included co-design of heat networks – a key tool for ensuring 'user-centred design':

"[We stress] the importance of involving users in all aspects of heat network development. We reiterate our support for active engagement and, wherever possible, co-design with consumers. Affected consumers must be deeply integrated into efforts to expand the prevalence of heat networks in Scotland. Clear two-way channels of communication, information transparency (incl. pricing and performance metrics) and user-centred design are all essential elements to the success of heat network services. These processes should develop in-step with progress against the legislated target to enable heat networks to deliver competitive efficiency-based savings for consumers and, thereby, contribute to alleviation of fuel poverty."
(Consumer Advice/Advocacy/Campaigning Organisation)

Improved regulatory context/ensuring regulatory alignment

Some respondents highlighted the need to ensure regulatory alignment between heat network legislation and other relevant policy and legislation, including that related planning, to fuel poverty and the Just Transition This was seen as particularly important because the 'Just Transition' process will be continuously evolving, and includes a range of interconnected, non-linear processes (Consumer Advice/Advocacy/Campaigning Organisation).

The aforementioned Consumer Advice/Advocacy/Campaigning Organisation suggested that an "overarching framework" that integrates just transition priorities (including fuel poverty) into relevant Scottish Government policy and decision making is required. They argued that without this, emissions reduction objectives may be prioritised over fuel poverty objectives. RTPI Scotland (Professional/Representative Body) stated that the planning system could play a central role in helping deliver such a joined up approach:

"RTPI Scotland see the planning system as fundamental in orchestrating such approaches and should hold a pivotal role in enabling the delivery of heat networks and aligning them with wider regeneration efforts to maximise the benefit of interventions. This includes other policy ambitions associated with regeneration such as Community Wealth Building and inclusive growth."

Related to this, the need for a robust heat network-specific impact assessment process was highlighted. The importance of including fuel poverty measures within this was emphasised by respondents.

"While the Scottish Government has a practice of undertaking individual impact assessments for several key factors, fuel poverty is not specifically incorporated into this practice. [We] would welcome efforts to embed fuel poverty within an integrated impact assessment process."
(Consumer Advice/Advocacy/Campaigning Organisation)

As was emphasised in response to other questions in this consultation, the need to ensure that strong heat network-related consumer protection measures are in place was highlighted again, in relation to fuel poverty. This issue was raised separately by a Local Authority, a Consumer Advice/Advocacy/Campaigning organisation, and a Professional/Representative Body. Such protections were seen as necessary for both fostering consumer confidence in heat networks (Scottish Property Federation -Professional/Representative Body), and ensuring that consumers – particularly fuel poor households – are not stuck in unaffordable heat network contracts (Local Authority). It was, however, noted that developing such measures lie outside the remit of the Scottish Government (reserved competency). One Consumer Advice/Advocacy/Campaigning Organisation suggested that heat networks should be approved only if they reduce costs to consumers.

Other considerations

One individual argued that making heating more efficient in general would reduce poverty. They suggested that the Scottish Government should give households free thermometers to help them monitor and manage their energy usage.