Heat Pump Sector Deal Expert Advisory Group: final report

3. Summary of recommendations

Below are summarised, for the reader's convenience, the recommendations of the Expert Advisory Group, further detail on each is given in the main text.

1. The Scottish Government to provide clarification on the relationship between targets in the Heat in Buildings Strategy and the Heat Networks (Scotland) Act.

The statutory targets that have now been set for heat network growth in Scotland mean there is a need to provide maximal certainty to the industry on the size of the future markets for heat pumps sized for individual houses and buildings and for large heat pumps powering heat networks.

2. Scotland's enterprise agencies should work with industry to support Scotland as a global centre of excellence for heat pump manufacture.

With a forecast surge in installations of heat pumps as net zero pathways are taken across Europe and globally, there are opportunities for Scotland to be a strategic location for heat pump manufacture. The planned pace and scale of domestic heat pump deployment in Scotland will provide an attractive environment for manufacturers to develop an early market advantage in understanding consumer issues and in innovative solutions to technical and deployment challenges.

There is also an opportunity for Scottish industry in the tier 2 supply chain, where the local sourcing of components and parts can increase manufacturing efficiency and help minimise the carbon generated in making them.

In particular, Scotland should consider options for creating, with heat pump industrial stakeholders, a heat pump industry hub to both directly support the large-scale roll-out of heat pumps in Scotland and ensure that this drives maximal economic opportunities and jobs for Scotland.

3. The Scottish Government should commit to tracking heat pump targets in its own programmes.

The Scottish Government fuel poverty programmes (EES, area-based schemes and the national Warmer Homes Scotland) should be reconfigured to track the trajectory to which the government has committed, i.e. the Scottish Government should set targets for these programmes in line with their ambition to at least double the number of heat pumps each year for the next five years.

The Scottish Government should also commit to five years of at least year on year doubling of numbers of heat pumps installed in new properties built through the Scottish Government funded affordable housing supply programme.

Similarly the Scottish Government should work with local authorities and housing associations to ensure that there at least five years of year-on-year doubling of numbers of heat pumps installed in existing properties in the social rented sector.

The Scottish Government should commit to only commissioning or financially supporting new public buildings with zero carbon heating systems and to only supporting zero-carbon replacement heating systems in existing public buildings.

4. The Scottish Government should increase the funding available through loans and grants to support heat pump installation and provide multi-year certainty on the availability of this funding.

The Scottish Government should increase the size of its existing interest-free loan programme for heat pumps in line with the ambition to double the number of installations each year.

If a satisfactory replacement for the UK Government's Renewable Heat Initiative does not materialise, it should introduce its own grant programme for heat pump installations.

There should be at least a five-year commitment to the increased loan programme and to any grant programme put in in place in order to provide clarity and certainty to the market.

5. The Scottish Government should create a definitive 'market moment' for heat pumps by clearly signalling the end point for conventional fossil fuel heating systems.

The Scottish Government should give the clearest possible signal of the coming transition by announcing this year (i.e.in 2021) a specific date by which new heating systems fitted to existing properties (both domestic and non-domestic) must be zero-carbon. Such a signal should be phased, with an earlier date in areas off the gas grid, where heat pumps are already economically competitive and a later one for areas on the gas grid.

Where it is within the devolved competence of the Scottish Parliament, the Scottish Government should seek to tighten emission standards for new domestic and non-domestic buildings with an increase in the pace of such regulation. These standards should be tightened to require new builds to achieve zero-emission heating.

6. Industry and government should work together on specific actions to ensure the growth in the skilled workforce required to support heat pump deployment.

The Scottish Government should work with downstream supply chain organisations such as SNIPEF to:

• Incentivise additional uptake of the renewables modern apprenticeship pathway.
• Create training programmes for those coming into the industry from other sectors with some transferable skills, along with financial support whilst they reskill to avoid the disincentive of a reduced income during conversion.
• Ensure the full range of skills required is covered by training provision, including advocacy and engagement skills.
• Agreeing suitable provision of courses and places with the Scottish college network.

The Scottish Government should work through the Scottish and Northern Irish Plumbers Federation (SNIPEF) and others as appropriate to agree targets for numbers of apprentices training to install heat pumps with the supply chain agreeing to host the agreed number of apprenticeship places and, importantly, provide jobs for those apprentices when they are trained. The Scottish Government and the sector should also agree diversity targets and Scottish Government support should be configured to ensure the latter are met.

7. Industry and government should work together to ensure the necessary certification and quality assurance standards are met.

To ensure transparent and consistently high standards in a rapidly expanding sector, the Scottish Government should promote certification of installers under relevant industry standards such as the Microgeneration Certification Scheme, PAS2035 etc.by:

• Requiring appropriate certification for any installer working on installations supported by public money.
• Supporting the costs of certification for SMEs through grants or loans.

8. The Scottish Government should work with Ofgem and network operators to ensure that neither network capacity constraints nor administrative processes for heat pump connection become a barrier to heat pump deployment.

A coordinated approach and collaboration between government, regulators and network providers is needed to ensure the electricity grid can supply the power required by an increasing replacement of fossil fuel boilers by heat pumps. The Scottish Government should promote and pursue such an approach, though we recognise that many of the issues are reserved.

SP Energy Networks and SSE Energy Networks should increase the resources available for grid connection governance processes for heat pumps and be able to demonstrate their robustness to ensure they do not become a limiting factor as the number of heat pumps requiring connection rises rapidly over the decade.

9. The Scottish Government should issue guidance to local authorities to ensure that the planning system plays a fully strategic and proactive role in encouraging and supporting heat pump deployment.

The requirement on local authorities to develop local heat and energy efficiency strategies puts much of the framework work in place to achieve this role and the EAG supports the proposal for a statutory duty for local authorities to develop these strategies.

10. The Scottish Government should continue to work with the UK Government to support heat pump deployment through energy market reforms.

Whilst recognising that this is not a devolved area, there is a clear need to rebalance gas and electricity prices which currently give gas an unjustified (in carbon terms) price advantage which commercially disadvantages heat pumps in on-gas areas.

The different regulatory regimes for gas and electricity are part of the reason for this; most of the regulated social and environmental levies are made on electricity rather than gas, increasing electricity's relative price. A rebalancing of these costs through action of the UK Government and Ofgem is urgently needed to address this issue.

11. The Scottish Government should commission further analysis of the housing stock to identify on-gas buildings where heat pumps are already cost-effective.

Identifying the types, numbers and location of buildings and homes on the gas grid where heat pumps are already a viable financial proposition will assist the industry as a whole by highlighting early opportunities within the on-gas market, helping progress in the early stages of the deployment curve.

12. Support for increased heat pump deployment should be accompanied by support for fabric energy efficiency measures.

As heat pumps are much more cost-effective in well-insulated dwellings, the Scottish Government should maintain or increase its current support for energy efficiency and heat pump support measures should be accompanied by parallel support for maximal fabric insulation.

13. The heat pump sector in Scotland should embrace the need for technical and business model innovation to improve heat pumps as a value proposition for consumers.

Technical innovation:

The EAG have identified specific areas of technical and process innovation which can improve consumer acceptability, reduce cost and increase deployment of heat pumps including:

• 'Plug-and-play' heat pump packages with off-site fabrication.
• A shift towards more environmentally friendly refrigerant gases for use in heat pump systems.
• Innovation to reduce the need for disruptive radiator and internal pipework upgrades to allow compatibility with heat pumps, including the development of an evidence base, standards and tools to support a more conservative approach to such upgrades.

The Scottish Government and industry should work together to identify options for supporting these approaches.

Business model/service innovation:

• The Scottish Government should work with fuel companies, the UK Government and Ofgem to promote the development of flexible tariffs suited to heat pumps.
• The Scottish Government should consider support for innovative business models based on a smart systems approach, integrating heat pumps with control systems, software, battery and heat storage, PV arrays and smart meters. In addition, the Scottish Government should work with Ofgem to remove a number of artificial barriers associated with technical requirements for flexibility contracts set by the system operator.
• The Scottish Government should work with the UK Government and Ofgem to minimise barriers to Heat as a Service or other innovative business models.
• Consumer protection and regulation will be increasingly important as such models develop and the Scottish Government should set clear policy on these areas for such business models.

14. The Scottish Government should continue to support demonstration programmes but focus this support where these will directly inform and enhance the mass deployment pathway.

The Scottish Government should work with key stakeholders to develop appropriate demonstration programmes focused on deployment issues and novel business models where these will provide data and showcase potential which supports the development of the route map to mass deployment.

15. Government and industry need to work together to ensure consumer engagement with and acceptance of heat pumps.

The Scottish Government should ensure there is trusted comprehensive information, advice and support on heat pumps available for householder and consumers.

This is essential to produce the constructive engagement by consumers which will be an absolute requirement for the success of the heat pump roll-out. It will also support the optimum operation of heat pumps by householders.

The industry and supply chain must also play their part in the engagement and support of consumers. Customer journeys need to be simplified wherever possible and common standards for the commissioning of heat pumps need to be developed by the industry. Installers will also have a key role in providing information and reassuring potential customers purchasing new heating systems so that they see heat pumps as a realistic option.