Heat and energy efficiency strategies: consultation

2. Background

3. The Scottish Ministers announced in June 2015 that they would take long-term action to reduce the energy demand of our residential, services and industrial sectors through designating energy efficiency as a national infrastructure priority, as subsequently confirmed in the Scottish Government's Infrastructure Investment Plan 2015.

4. Ministers announced that the cornerstone of this will be Scotland's Energy Efficiency Programme ( SEEP) which is currently under development, prior to commencement from 2018, and on which we consulted in early 2017. It will be a co-ordinated programme to improve the energy efficiency of homes and buildings in the commercial, public and industrial sectors as well as supporting the decarbonisation of their heat supply.

5. The Scottish Government recognises that a central element of developing that coordinated programme for energy efficiency and heat decarbonisation through SEEP, is to consider the role that local strategies could play in helping local authorities coordinate local delivery programmes for SEEP. Likewise, considering the potential for regulation of district heating could play an important role in supporting the wider heat decarbonisation objectives of SEEP. Our consultation on the role that LHEES and district heating regulation could play in supporting the wider development of SEEP builds on the evidence gathered from our existing local, area-based energy efficiency programmes, and from experts in district heating development and regulation.

6. In June 2016, a Special Working Group of the Scottish Government's Expert Commission on District Heating (from here on 'the Expert Commission's SWG') made recommendations on the role that regulation could play in supporting the Scottish Government's vision and ambition for district heating in Scotland. The report concluded that regulation could play an important role in providing confidence for the district heating supply chain to invest in Scotland.

7. A Short Life Working Group on Heat Regulation (referred to from here on as 'the Working Group') was established by the Minister for Business, Innovation & Energy in September 2016, and advised on potential regulatory scenarios for district heating and for the introduction of LHEES under SEEP. This group informed our high level policy scoping consultation (published in January this year). The Scottish Government then commissioned an independent analysis of the responses to the high level policy scoping consultation and that report ^[2] is published alongside this consultation. Using this analysis of the views and evidence provided by stakeholders, the Working Group further supported and encouraged the Scottish Government to develop policy proposals using the full extent of its powers. This second consultation document now set outs these proposals.

Purpose

8. The Scottish Government aims to ensure that its work to develop a policy and regulatory framework to support district heating, and the development of LHEES, is in line with the Scottish Government's purpose, objectives and targets. As set out in the draft Climate Change Plan, investment in energy efficiency to reduce energy demand can make one of the most significant contributions to reducing our greenhouse gas emissions and addressing fuel poverty. Likewise, appropriately-sited low carbon district heating is one of the 'low regrets' heat decarbonisation technologies that will support Scotland to meet emissions reduction targets as well as supporting our fuel poverty aims. This is in line with UK-wide Committee on Climate Change advice that 'low regrets' decarbonisation technologies ^[3] should be deployed while the UK Government gathers evidence on options for wider heat infrastructure such as decarbonisation of the gas grid.

9. To support a coordinated approach to the local planning and delivery of energy efficiency and heat decarbonisation programmes within SEEP, we are consulting further on our proposal to create a statutory framework for Local Heat & Energy Efficiency Strategies which will:

• help to drive SEEP across all local authorities, and will act as the foundation for 20 years of delivery programmes to meet our fuel poverty, energy efficiency and heat decarbonisation ambitions;
• send clear investment signals to develop a strong and sustainable energy efficiency and heat decarbonisation supply chain for Scottish business; and
• enhance Scotland's strategic capacity and expertise in the delivery of energy efficiency and heat decarbonisation.

10. To support appropriately-sited, low carbon, affordable district heating, the Scottish Government is consulting further on the development of a policy and regulatory system which will see district heating develop in a strategic manner, and provide appropriate conditions on the ground to accelerate delivery of district heating and to grow this market. In order to achieve this we are consulting further on a proposed regulatory framework in which:

• district heating and communal heating providers will serve their customers well;
• district heating and communal heating providers will deliver affordable and low carbon heat;
• there is increased confidence in the investment in new and expanded district heating; and
• wherever possible, Scotland secures the economic opportunity presented by both reducing costs to customers and, infrastructure investment opportunities for the Scottish supply chain.

Current situation

11. Currently local authorities are funded by the Scottish Government to deliver area-based energy efficiency programmes through the Home Energy Efficiency Programmes for Scotland: Area Based Schemes. Local authority Housing Strategies also include some high-level information on the authority's approach to addressing climate change and fuel poverty for the area's housing stock. These local programmes and strategies are supported by our national energy efficiency programmes such as Warmer Homes Scotland, which provides support to vulnerable private sector households, alongside support to businesses and the public sector through programmes such as Resource Efficient Scotland.

12. Local authorities are also encouraged, with support from the Heat Network Partnership, on a voluntary basis, to develop district heating strategies, or to include a district heating element in wider strategies or plans such as Sustainable Energy Action Plans. Additionally, the Scottish Planning Policy sets out that Local Development Plans should use heat mapping to identify the potential for co-locating developments with a high heat demand with sources of heat supply and should identify where heat networks, heat storage and energy centres exist or would be appropriate and include policies to support their implementation. This has led to a wide range of approaches from local authorities with regard to district heating. Some are at the early stage of identifying opportunities and supporting development of district heating. Others have mapped areas of opportunity within their Local Development Plans and developed supportive policies and/or are developing district heating strategies setting out priority projects identified, mapped and with a delivery programme.

Towards a new regulatory framework

13. With the recommendation of the Expert Commission's SWG that district heating should be regulated, and that each local authority is required to develop and publish a strategic plan for developing district heating ^[4] , and in parallel, taking forward the wider development of integrated energy efficiency and heat decarbonisation programmes within SEEP , the Scottish Government believes that there is now an opportunity to create a new regulatory framework to support this, and we are consulting further on our proposed approach. Considering the delivery of energy efficiency and heat decarbonisation at the same time will also help to ensure that over-specification is avoided.

14. This coordinated, strategic approach will be key for Scotland to meet our climate change targets in line with the approach being finalised in our Climate Change Plan, in light of the best available evidence, including the recent advice from the Committee on Climate Change ^[5] suggesting significant decarbonisation of buildings will be needed by 2032. It will also be key to our commitment to tackling fuel poverty as set out in our related Fuel Poverty Strategy Consultation ^[6] and proposal to enshrine our ambition to eradicate fuel poverty in a new Warm Homes Bill.

15. Our Programme for Government, 2017-18 ^[7] commits the Scottish Government to introduce a Warm Homes Bill to set a new statutory fuel poverty target to help ensure that progress is made on tackling fuel poverty and improving the energy efficiency of Scotland's buildings, and that support is given to those who are most in need of help to heat their homes. The Programme for Government also commits us to consulting further on detailed proposals for Local Heat & Energy Efficiency Strategies and regulation of district heating and to develop, if appropriate, a wider SEEP Bill for later in this Parliament, which would make any legal provision needed to support our approach.

High level policy scoping consultation (January to April 2017)

16. In early 2017, we sought evidence and stakeholder views on the recommendations made by the Expert Commission's SWG, plus wider evidence, in order to scope our policy for Local Heat & Energy Efficiency Strategies ( LHEESs), and regulation of district heating, and also to support wider regulation on energy efficiency planned under Scotland's Energy Efficiency Programme ( SEEP) (and in related consultations ^[8] ).

17. That initial policy scoping consultation ^[9] focused on two key areas. These were:

a. a proposal that local authorities would be required to create LHEES to support the delivery of heat decarbonisation and energy efficiency objectives of SEEP; and

b. obtaining feedback on a scenario for a regulatory framework for district heating. The scenario aimed to test stakeholder views on effectiveness of support for the development of district heating by: establishing designated district heating zones and within these creating exclusive concessions and provisions for connecting users and suppliers of surplus heat to district heating and introducing and enforcing minimum technical standards and consumer protection standards through a licensing system for all district heating.

This Consultation

18. In response to these recommendations, and in developing SEEP, the Scottish Government is now consulting further on our proposed approach to district (and communal) heating regulation, and to the development of Local Heat & Energy Efficiency Strategies ( LHEES).

19. LHEES would set a framework and delivery programme for how each local authority would both reduce the energy demand and decarbonise the heat supply of buildings in its area, to ensure progress against the national objectives of SEEP. Our district heating proposals would introduce regulation on a proportionate basis, in order to set a clear framework for securing investment in new and expanding district heating in Scotland, and in providing protection for district and communal heating customers. This consultation document builds on the responses and evidence we received to our earlier high level policy scoping consultation (January-April 2017), as well as considering what can be achieved within the limits of the Scottish Ministers' legislative competence.

Overview of policy proposals set out in this consultation

20. We have reviewed the responses to the previous consultation and wider advice, and we are now proposing a strategy-led regulatory framework that comprises the following elements:

a) Local authorities would have a statutory duty to develop a Local Heat & Energy Efficiency Strategy ( LHEES) to cover a 15-20 year period, setting out the overall energy efficiency and heat decarbonisation strategy for SEEP, authority-wide. Prior to commencement of this duty, local authorities would be offered capacity and support to develop LHEES. The LHEES would determine zones, which set out the most appropriate energy efficiency and heat decarbonisation options for those areas to meet the overall decarbonisation and fuel poverty objectives of the LHEES. This would include identifying areas that would be appropriate for district heating, and identification of area-based energy efficiency programmes. Within the confines of Scottish public procurement regulations ^[10] , areas zoned for district heating development would have particular consideration of public sector buildings as the starting point for future network development.

b) Data for developing LHEES would be provided at national level on a voluntary basis and a socio-economic assessment would be used to assess the viability and impacts of the local strategy, and will determine the designation of the zones.

c) Developers would need to obtain a district heating consent to develop district heating. The consent would have conditions associated with it, including the requirement to have a licence and meet licensing conditions. We are also exploring options for ensuring that district heating operators have similar or the same rights as other statutory undertakers for permitted development and wayleaves. Consent to develop district heating could potentially confer permitted development rights ^[11] in relation to pipelines and associated infrastructure.

d) Developers would need to obtain a licence to develop and/or operate in addition to holding a district heating consent. The licence would ensure technical and operational quality standards, network compatibility, and would codify existing UK-wide consumer protection frameworks.

e) The Scottish Ministers would require the public sector to assess potential connection to district heating in collaboration with local authorities preparing their LHEES. Additionally the Scottish Ministers would encourage the public sector (within the confines of the public procurement regulations), when assessing the need for future low carbon heat supply and/or where they have surplus heat, to consider connection to district heating, where there was opportunity to do so, and it was socio-economically cost effective.

f) The Scottish Ministers propose a system of mediation to support discussions between non-domestic sectors with usable surplus heat and relevant third parties seeking to develop or extend district heating. We propose that mediation would be carried out individually or jointly by relevant consenting bodies or regulators such as local authorities, the Scottish Environment Protection Agency ( SEPA) or a national delivery mechanism for SEEP.

g) Planning authorities would continue to have their existing discretionary planning powers, to encourage the infrastructure needed to make connections to district heating. Future versions of Scottish Planning Policy will have regard to Scottish Government strategies and requirements on district heating in its preparation.

h) Provide support for delivery of LHEES and strategic district heating projects, considering in particular the needs of local authorities.