New Build Heat Standard: consultation - part two

4. NBHS Part I Consultation Feedback

4.1 Introduction

This chapter sets out the Scottish Government's response to the NBHS Consultation: Part I analysis, and the steps either taken or planned by the Scottish Government to address the key issues identified.

4.2 Energy Networks

While the proposals set out in this consultation paper are, and will continue to be, technology-agnostic, the Scottish Government does understand that the move away from DEH will – most likely – result in a shift towards a greater electrification of heat. This was also recognised within NBHS Consultation: Part I, where respondents were asked: what are the key challenges for the energy networks regarding the deployment of zero emissions heating in new developments? How could this sector be supported to address those challenges?

The NBHS Consultation: Part I analysis key findings were as follows.

• Concerns were noted over the likely additional demand on the electrical network and a lack of grid capacity to deal with the changes in heating systems being proposed.
• Similar to this, there were concerns over the cost of changes that would be needed for the grid infrastructure.

In an effort to address this, we have:

• worked closely with Scottish network companies to support successful bids to the Ofgem green recovery funding. To date, over £40 million of this fund has been allocated to projects in Scotland to support further innovation in green energy and unlock capacity in Scotland's energy networks.
• provided an official response to Ofgem's consultation on changes to network charges and access. Within this response, we also called for additional support for network projects that are already underway. This could help to reduce the upfront capital costs for new demand connections – ensuring these projects are not delayed so that they can also benefit from this change (as it does not come into force until 1 April 2023).

We will also:

• continue to engage through our Heat Electrification Strategic Partnership (HESP), in conjunction with the Transport Strategic Partnerships, to ensure that whole-system consideration of electricity demand, heat, transport, and electricity generation is considered. These partnerships are a forum with the Scottish DNOs to further develop our understanding of the scale, pace and location of network investment needed, including the role of DNOs in local area planning.
• work with the DNOs through our Heat Electrification Strategic Partnership to identify progress and report on further research and development requirements to support heat decarbonisation.
• continue to review changes to the current charging regime to ensure that it aligns with our ability to meet out legally binding climate targets.

It is important to highlight that, as energy network costs are a reserved matter, the Scottish Government does not have control over the way that networks recover costs from their customers.

However, we have seen a number of positive steps in this regard.

• Ofgem's recent decision on its charging and access review will mean that, from April 2023, reinforcement costs for demand connections (including heat pumps) will be socialised.
• A threshold known as the high cost cap (HCC) will be used to protect customers from excessive costs, which will create a more level playing field for new demand connections.
• Ambitious proposals in both Scottish DNOs draft business plans^[40] were submitted to Ofgem for approval in January. Together, these plans have sought approval for over £3 billion of investment based on scenarios that align with Scottish Government targets for energy, including heat and transport decarbonisation.

4.3 Supply Chain

Within NBHS Consultation: Part I, we asked: how can opportunities be maximised for the supply chain involved in the delivery of new homes (ranging from product suppliers to on-site operatives) including skills?

NBHS Consultation: Part I analysis key findings were as follows.

• The need for a robust supply chain was cited, with some concerns that the current supply chain does not have the capacity to manufacture and install heat pumps in high volumes.
• There were some queries over operational issues, the lifespan of appliances and perceived high maintenance costs.
• Allied to the need for a robust supply chain, there were also a number of references to the need for education, training and upskilling of the existing workforce in order to meet the requirements of the Standard.
• There were references to a need for financial incentives for both the industry and consumers, in order to ensure a robust supply chain, a skilled workforce and take-up of new technologies.

In an effort to address this, we have:

• worked with the heat pump industry to explore the potential for a Heat Pump Sector Deal for Scotland.^[41]
• made available over £1.3 million through our National Transition Training Fund for zero emissions heating and energy efficiency retrofit skills. This includes funding through the Energy Skills Partnership to provide free access to heat pump training in 13 colleges across Scotland with additional capital funding to help colleges purchase training infrastructure.

We will also:

• introduce the NBHS legislation before the Scottish Parliament in early 2023, with a view to these regulations coming into force on 1 April 2024, to give industry much-needed certainty which will (a) build supply chain confidence and (b) allow further investment in the necessary training and skills to deliver these changes.
• produce a new Heat in Buildings Supply Chain Delivery Plan later this year, specifically focused on strengthening the broad supply chains needed to deliver at the pace and scale we need.
• continue to work with industry through the Climate Emergency Skills Action Plan Heat Decarbonisation Subgroup to support a continued growth in sectoral skills in support of the provisions in this consultation.
• invest at least £1.8 billion in this parliament, as outlined in the Heat in Buildings Strategy, to strengthen demand and support an increase in jobs and skilled workers.

4.4 Public Engagement

When NBHS Consultation: Part I was published in December 2020, it was recognised, within the paper itself, that public awareness around the transition to ZDEH in buildings (new and existing) was not widespread.

As part of NBHS Consultation: Part I, the Scottish Government asked respondents: what can be done to encourage greater consumer awareness and understanding?

NBHS Consultation: Part I analysis key findings were as follows.

• Increased consumer awareness was identified as a key issue, so that consumers understand proposed changes in heating systems and how these will impact on them.
• The need to provide consumers with education and training on new technologies, how to operate these and how to achieve maximum efficiency.
• Collaboration between all key stakeholders across the industry was cited as being important in order to ensure a smooth transition, with some respondents perceiving that the Scottish Government should be taking the lead on this.

Details on our approach to public engagement, and the importance of this in ensuring the implementation of the NBHS is a success, is set out earlier within the introductory section of this consultation document. This includes an overview of the Scottish Government's work to develop a new Heat in Buildings Public Engagement Strategy in 2023, and develop a National Public Energy Agency in 2025 (with a virtual agency due to be created this year).

4.5 Cost Impacts

NBHS Consultation: Part I endeavoured to be clear and upfront with regards to the cost implications that the requirements of the NBHS may bring – both in terms of capital costs to developers, as well as operational/maintenance costs to building owners/users.

As part of the consultation process, the Scottish Government sought respondent views on two key issues related to costs:

• What do you envisage the key challenges would be for developers, and the wider building industry, in meeting this proposed Standard? How could this sector be supported to address those challenges?
• By introducing this Standard, what challenges or opportunities might result for households on low incomes (for example, around affordability or access), and how can the Scottish Government best take account of these?

NBHS Consultation: Part I analysis high-level key findings were as follows:

• Concerns over increased costs to consumers, with the resulting negative impact on affordability of energy, and increased levels of fuel poverty.

In order to gain a greater understanding of the potential costs associated with the transition to ZDEH systems in new buildings, we have:

• commissioned independent research to gain an understanding of the capital and running costs of installing ZDEH systems in new buildings.^[42]

We will also:

• use the findings from these research reports to inform the development of a Business and Regulatory Impact Assessment (BRIA).
• prior to the laying of the regulations before Parliament, publish the findings of this impact assessment, alongside a cost/benefit assessment.

4.6 Technological Issues

While there were no specific questions relating to ZDEH technologies within NBHS Consultation: Part I (due to our intentions to ensure that the NBHS remains technology-agnostic), respondents did raise a number of key concerns relating to the installation and maintenance of ZDEH systems.

NBHS Consultation: Part I analysis key findings were as follows:

• There was a perception that some form of certification or quality assurance scheme would be beneficial, along with monitoring and evaluation for compliance with the Standard.

In an effort to address this, we have:

• recently published our Quality Assurance Policy Statement,^[43] which sets out our proposals to develop a new energy efficiency quality assurance scheme for Scotland, improve standards and skills, tackle scams and mis-selling, increase engagement with the public and industry, and which sets the milestones and timescales to achieve this.

We will also:

• work with TrustMark to develop a quality assurance scheme for Scotland.
• set up a Scottish Quality Assurance Consumer Oversight Group to oversee the implementation of the new Scottish TrustMark energy efficiency approval scheme and oversee changes and improvements to the existing MCS scheme in support of our Heat in Buildings Strategy.
• integrate the Scottish installer skills matrix into both the BSI PAS 2030 installer standards and MCS installer standards in 2022.
• work with Trading Standards Scotland to prevent scams and support improved enforcement action against rogue traders within Scotland.
• investigate the development of an online portal powered by TrustMark and MCS to help consumers find approved suppliers in Scotland.