Heat networks target 2035 consultation: business and regulatory impact assessment - partial

2. Purpose and Intended Effect

Background

This partial Business and Regulatory Impact Assessment (BRIA) follows on from the Scottish Government’s public consultation on the proposal to specify an additional target relating to the output from the combined supply of thermal energy by heat networks in Scotland to be reached by 2035.

Scottish Ministers must in terms of Section 92 of the Heat Networks (Scotland) Act 2021 (“the 2021 Act”), by 1 October 2023, lay a draft of a Scottish statutory instrument containing regulations specifying a 2035 target relating to the output from the combined supply of thermal energy by heat networks in Scotland.

Consulting on the 2035 target was one of the actions set out in the Heat Networks Delivery Plan (HNDP),^[1] which sits in the context of wider heat decarbonisation policy, in particular, the Heat in Buildings Strategy.^[2] This Strategy highlighted that over the coming years the Scottish Government proposes a focus on so-called no- and low-regrets strategic technologies. These are the technological solutions where cost uncertainty is low and we already understand the costs of installation and running costs for consumers. Heat networks are one such technology outlined in the Strategy. Detail on the other technologies and the approach to those can be found in the Strategy. This document provides an indicative assessment of the impact of the Strategy on various parties and sectors within the Scottish economy.

It should be noted that this is deemed a partial BRIA as BRIA’s have been carried out for the Heat in Buildings Strategy, and the Heat Networks (Scotland) Bill, which cover the impacts of the expansion of heat networks throughout Scotland. The proposed 2035 target supports further growth of energy efficient district heating in Scotland, and reference to these BRIA’s have been made where appropriate. Additional information has been provided within this BRIA where more up to date statistics have been published.

Regulation of consumer protection is reserved to the UK Government. Since the Bill for the Heat Networks (Scotland) Act received Royal Assent in March 2021, UK Government has also introduced the Energy Bill^[3], which is currently progressing through Parliament. Parts of this Bill introduce protections for consumers of heat (from heat networks), as initially set out in the UK government Heat networks: building a market framework consultation^[4]. This will change the wider regulatory regime for heat networks out with the policy being assessed in this Partial BRIA and the Heat Networks (Scotland) Act. Details of the impact of these UK government measures can be found in Impact Assessment for the Heat Networks Market Framework^[5]. UK Government is currently consulting in more detail on consumer protection requirements of the market framework and has set out associated impacts^[6].

Objective

As set out in the Heat Networks Delivery Plan, our ambition is for a heat networks sector that:

• delivers affordable clean heat, supporting delivery of emission reduction and fuel poverty targets;
• develops local supply chains and attracts new public and private investment; and
• contributes to the development, and operation, of an integrated and resilient energy system.

In setting a 2035 target we wish this to be ambitious whilst supporting the overall ambition. We propose to set the following target, where the combined supply of thermal energy supplied by heat networks in Scotland reaches at least 7 TWh per annum by 2035.

We will review the 2035 and, if appropriate, other heat network targets once more evidence is available, such as Local Heat and Energy Efficiency Strategies (LHEES) and heat network zones designated by local authorities.

Rationale for Government Intervention

Scottish Ministers must in terms of Section 92 of the Heat Networks (Scotland) Act 2021 (“the 2021 Act”), by 1 October 2023, lay a draft of a Scottish statutory instrument containing regulations specifying a 2035 target relating to the output from the combined supply of thermal energy by heat networks in Scotland

The 2021 Act sets targets for the amount of thermal energy to be supplied by heat networks, requiring this to reach 2.6 Terawatt hours (TWh) by 2027, and 6 TWh by 2030. These figures equate to approximately 3% and 8% of current non-electrical heat consumption in 2019, respectively.^[7]

Beyond this, Scottish Ministers must – by 1 October 2023 – lay a draft of the Scottish statutory instrument containing regulations specifying a 2035 target. In order to meet this timetable, a public consultation was carried out in late 2022.