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

6. Costs and Benefits

More widely, UK research published in 2015 estimated capital costs ranging between £0.3 billion per TWh and £1.1 billion per TWh^[20]. The costs in the report are based on 2013/14 prices.

Based on this cost estimate, and noting that it is estimated that 1.4 TWh of heat was supplied by heat networks in 2021, to achieve at least 7 TWh will require investment of between £1.7 billion and £6.2 billion based on the current heat network output. This figure excludes any adaptations that may be required within existing buildings.

Based on the BRIAs carried out for the Heat in Buildings Strategy^[21], and the Heat Networks (Scotland) Bill^[22], the key sectors and groups impacted are as follows. It should be noted that the majority of the impacts below relate to establishing a regulatory regime under the Heat Networks (Scotland) Act, and the Scottish Government has set out that it will introduce a functioning regulatory regime in work packages completing this in 2025, (so this is expected to occur irrespective of the 2035 target). Additionally as set out above the UK Government is introducing legislation to protect heat consumers. The Scottish Government continues to liaise with UK Government and Ofgem regarding this legislation in order to ensure interoperability between the two regimes aiming to reduce the overall burden on business and the administrative cost of the UK and Scottish regimes.

• Consumers:
  • Consumer pricing and bills - the potential for changes in the levels of consumer bills.
  • Consumer disruption from installation - the potential for increased one-off disruption for consumers stemming from an increase in the number of heat network developments.
  • Consumer service offering - the potential for changes in the services offered to consumers. For example, changes in the availability of tariff types, services, and technologies.
  • Consumer health and wellbeing – the potential for increases in health and wellbeing from policy targeted at reducing fuel poverty.
• Local Authority and Government:
  • Development costs of a heat networks regulator - the set-up and administrative costs that would be required in order to develop any new heat networks regulator to deliver the new regulatory regime. Including:
    • Development and delivery of any licencing regime
    • Delivery of facilitator role
  • Development costs of a heat network consenting process – the set-up and administrative costs that would be required in order to resource any team that would be issuing heat network consents.
• Business:
  • Development and operating costs – the potential for increase in development and operational costs for business stemming from specific technical requirements within the licence.
  • Socio-economic assessments - costs of developing and submitting project specific socio-economic assessments alongside the application for consent of any new heat network developments.
  • Licensing process - costs of application fees for a licence within the new heat network licensing scheme, as well as preparation and submission time.
  • Unintended licence consequences - potential consequences stemming from the inclusion of a single licence regime covering the design through to operation for multi-site operators. With individual licences delivered at organisation-level, there could be the potential for single problem-specific sites to risk licence revocation.
  • Market dynamics - the potential for changes in the number and concentration / market power of participants within the market due to higher barriers to entry.
  • Deployment - changes in the deployment and number of heat networks installed and operated, due to the overarching support provided to heat networks from the wider regulatory package.
  • Essential services companies - potential impacts on other essential services companies such as retail energy suppliers, including decreases in provision of energy and subsequent revenues for energy suppliers from an increased deployment of households switching to heat networks.
• Wider Society:
  • Carbon savings - reductions in carbon emissions from the incremental increase in deployment of heat networks.
  • Wider economic and job impacts - wider economic impacts from policy stemming from increases in deployment of heat networks and potential impacts on the number of jobs.