Heat and energy efficiency strategies: consultation

3. Local Heat & Energy Efficiency Strategies

3.A Local Heat & Energy Efficiency Strategies

Summary of previous consultation

21. In our previous consultation, we stated that we were considering placing a statutory duty upon local authorities to work with relevant stakeholders to produce a LHEES, and to use their powers to implement that strategy to support the delivery of SEEP.

22. We suggested that LHEES adopt an area-based approach and should cover a long-term period; reflect and support local and national policies, frameworks, strategies and targets; set out an understanding of current building stock and identify potential opportunities for energy efficiency improvements and heat decarbonisation; set long-term targets for both energy efficiency and heat decarbonisation; undertake area-based socio-economic assessment to identify the most appropriate heat decarbonisation solutions (including but not restricted to district heating); set out costed, phased delivery programmes for each strategy period; include the phased zoning for the installation of energy efficiency improvements, installation of low carbon heat supplies and development of district heating; and quantify the short-term benefits and impacts of delivery plans, including the impacts on the local economy and employment.

23. We also proposed that phased delivery programmes would take account of potential support from wider programmes, support the delivery of national standards, set out the early years' detail of the approach or 'offer' to properties in prioritised areas, and set out how the local authority would use its powers to help deliver its strategy.

24. We also stipulated that local authorities would be supported in developing these strategies, through national guidance and data sets.

Summary of consultation responses

25. The independent consultation analysis showed that the vast majority of respondents, including most local authorities who responded, agreed that a duty should be placed upon local authorities to produce and implement a Local Heat & Energy Efficiency Strategy. Many felt that this would be a vital step in progressing and raising the profile of energy efficiency and heat decarbonisation. Other common benefits cited were energy demand reduction, reduction of waste heat, promoting heat decarbonisation, and meeting targets on climate change, fuel poverty and affordable warmth.

26. In terms of the scope and content of a LHEES, most respondents agreed with our proposals, including a need to set targets for energy efficiency and heat decarbonisation and setting out a costed, phased delivery programme to meet such targets.

27. Various comments were received on the need for robust data.

28. Specific comments were received on local flexibility to account for local requirements and conditions. For example, in determining whether to implement separate or joint LHEES, or in zoning for local heat demand and sources.

29. A number of queries were raised, particularly relating to enforcement (penalties and non-compliance) and alignment with existing local plans and schemes.

30. A number of concerns were also raised on the availability of the necessary skills, funding, support and resources needed to enable local authorities to produce and implement a LHEES. More details are available in the published analysis ^[12] .

31. While developing and refining these proposals through consultation we are also supporting the voluntary approach to LHEES through the SEEP Phase 2 pilots. 11 local authorities are being supported in piloting the development of LHEES from 2017-19, as part of a capacity support programme (see Section 4.E).

What we are proposing now

32. In the light of the evidence received during the consultation, the Scottish Government considers that it would be appropriate to place a statutory duty upon local authorities to produce a LHEES, aimed at improving the energy efficiency and decarbonising the heat supply of their areas under SEEP. Prior to commencement of a duty, local authorities would be offered capacity and support to develop LHEES.

33. Strategies would cover a 15-20 year period. They would also have a duty to report on progress. Development of a LHEES will include the following stages:

Stage 1: An assessment of existing local and national strategies and data availability.

Stage 2: Authority-wide assessment of existing building stock's energy performance and heat supply.

Stage 3: Authority-wide setting of aggregate targets for heat demand reduction and decarbonisation of buildings – for the short-term strategy period and for the long-term duration of SEEP.

Stage 4: Conduct a socio-economic assessment (see Section 3.C) of potential energy efficiency and heat decarbonisation solutions.

Stage 5: Selection of areas/prioritisation of opportunities for energy efficiency and/or heat decarbonisation, leading to the designation of zones (see Section 3.B).

Stage 6: Costing & phasing of delivery programmes that consider:

• Requirement to prioritise delivery programmes in time-limited phases
• Designation of area-based energy efficiency and heat decarbonisation delivery programmes using zoning powers if needed
• Designation of other energy efficiency and heat decarbonisation delivery programmes ( e.g. sectoral programmes)

34. We propose that LHEES would be submitted to the Scottish Ministers (or designated national delivery mechanism for SEEP) (see Section 4.E) for approval, and for funding of associated delivery programmes. In delivering their LHEES function, we also propose that local authorities would do so in consultation with members of their local community planning partnership, and with reference to their wider community planning duties, and local outcomes improvement plans, as set out in the Community Empowerment (Scotland) Act 2015. We would also envisage that local authorities could discharge jointly their duty to produce an LHEES.

Q1. Do you agree with our proposed overall approach to LHEES? Y/N

Please explain your answer in the text box provided, including any available evidence or examples.

Statutory duty to report on tackling fuel poverty and climate change

35. The Housing (Scotland) Act 2001 places a statutory requirement on local authorities to produce a Local Housing Strategy ( LHS) which sets out its strategy, priorities and plans for the delivery of housing and related services, including how the authority will ensure that, "so far as reasonably practicable, persons do not live in fuel poverty." This obligation relates to housing in all tenures. Local authorities, as public bodies, also have obligations relating to meeting statutory climate change targets and our Local Housing Strategy Guidance asks a local authority to set out how it will use all available resources to achieve the maximum contribution for tackling fuel poverty and reducing greenhouse gas emissions; and maximise uptake in the numbers of householders and property owners benefitting from eligible fuel poverty and energy efficiency programmes.

36. We believe that the duty to report on tackling fuel poverty and climate change aligns closely with local authorities' plans for improving the energy efficiency of buildings and decarbonising the heat supply and therefore propose moving that duty from the LHS to the LHEES. Subject to the outcome of this consultation and amending the relevant legislation, it would be for local authorities to report on how they are tackling fuel poverty and climate change in the LHEES rather than the LHS and we would welcome views on this.

Q2. What are your views on asking local authorities to report on tackling fuel poverty and climate change in the LHEES rather than the LHS?

3.B District Heating Zones, Concessions and Consents

37. In our previous consultation (January 2017), we consulted on the scope of a series of regulatory scenarios for district heating, including: area-based zoning for district heating and energy efficiency through LHEES; granting of concessions for district heating networks; licensing of district heating networks; connecting supply; surplus industrial heat, and consumer protection.

Zoning – What we consulted upon

38. Our earlier consultation set out a scenario that in developing their LHEES, where local authorities identified that district heating would be the most cost-effective low carbon heat option over the long run (through socio-economic assessment), the area could be designated a statutory district heating zone by the LHEES and that a concession would be awarded, granting the developer exclusive rights to operate within that zone.

39. In that scenario, building owners in these zones would anticipate connection to a system in future and be able to make informed choices about appropriate low carbon heat technologies. District heating developers would also have a clearer picture than at present of how their systems would be expected to integrate with adjacent networks, and would adopt technical and organisational configurations accordingly. In the scenario, local authorities would also have powers to enforce connection.

Zoning - Summary of consultation responses

40. There was broad support for giving local authorities the power to zone areas for energy efficiency and heat decarbonisation. There was limited consensus on how to go about this. However, there was a recognition of the need to zone based on local heat sources or areas of demand, rather than strict geographical boundaries ^[13] .

What we are proposing

41. The Scottish Government proposes that LHEES would designate zones for energy efficiency and heat decarbonisation. These zones would help to phase the operation of area-based SEEP delivery programmes for energy efficiency. The zones would also set out the most appropriate heat decarbonisation options for specific areas.

42. Following analysis of the consultation, we are proposing that zones would be indicative, and would not prevent other forms of heating from being used in those zones through legislative means, but would instead help local authorities to communicate their strategic approach to energy efficiency and heat decarbonisation through SEEP. The identified zones may be considered within the planning system in the preparation of the local development plan and the determination of planning applications and we will look at opportunities to align LHEES with the planning system where appropriate (see Section 4.D).

43. In particular, zoning will signal to investors both where energy efficiency delivery programmes under SEEP will take place, and the most appropriate areas for future development of district heating, and if appropriate, communal heating. The zones will also highlight where local authorities will focus their action in energy efficiency delivery programmes and in delivery programmes to secure district heating developments. The information provided in the LHEES on zoning, linked to SEEP delivery programmes, will enable investors and developers to seek to deliver new district heating development, and will enable the supply chain to prepare for multi-year energy efficiency delivery programmes.

44. Zoning would take into account, among other things:

• socio-economic assessment of potential energy efficiency and heat decarbonisation solutions, to identify zones, as set out in Section 3.A (Stages 4 and 5);
• known current, and expected future, heat demand and local conditions, including existing district and communal heating;
• local and national energy efficiency, heat decarbonisation and fuel poverty objectives; and
• local development planning.

45. Within the confines of Scottish public procurement regulations ^[14] , areas zoned for district heating would have particular consideration of public sector buildings as a starting point for future network development (see Section 4.D).

Q3. Do you agree with our proposed overall approach to zoning? Y/N

Please explain your answer in the text box provided.

Concessions – What we consulted upon

46. In the previous consultation, the Scottish Government recognised that in order to underpin LHEES and the development of heat networks in district heating zones, there would need to be a means to allow network developers to exercise rights to construct and operate heat networks in these zones. To enable this, we considered the need for regulation to create a system of district heating concessions, which would allow a range of different kinds of organisation to deliver part of the overarching district heating strategy, and could be awarded by competitive tender. The scenario on which we consulted, suggested that a concession would grant its holder exclusive rights to develop and operate new district heating within the concession zone in line with the LHEES.

47. To support investment in district heating, the scenario also suggested that these exclusive rights would have prevented another district heating developer from developing in that concession area, and could also have excluded other forms of heat supply in that area. The scenario also considered that a concession holder could be given certain responsibilities – some of which would be common across heat networks and handled through a licensing system ( Section 4.B), and others that would be specific to the concession area and would act as key performance indicators against which the concession holder's activities would be judged.

Concessions- Summary of consultation responses ^[15]

48. There was general support amongst respondents for establishing some form of exclusive concessions for district heating, with a common benefit cited being a reduced risk to developers and local authorities in terms of the development and maintenance of district heating systems. Further benefits included the encouragement of supply investment, certainty of supply and providing long-term network development opportunities.

49. The majority of respondents (including most local authorities) agreed that if a system of concessions was established, local authorities should take a lead role in enforcing concessions in their areas as they hold the necessary local knowledge to do so. Additionally, local authorities already have powers to procure district heating schemes ( e.g. under the Concession Contracts regulations ^[16] or Public Contract regulations ^[17] ). In terms of concession attributes, most respondents felt that:

• Concessions should be long term, to allow recovery of capital (concession lengths suggested by respondents ranged from 10 to 40 years);
• Areas where district heating is the most suitable technology needs to be a key deciding factor in determining concession areas; and
• anchor loads ( e.g. public buildings, large industrial centres, social housing) are a key consideration.

50. Concerns were raised, over consumer protection and the need for regulation, monitoring and review. The need for consistency across Scotland was also highlighted, and the potential need for a central body to monitor concession design and progress, and to provide regulation and guidance.

51. Respondents also noted the need for flexibility in the system of concessions, to allow LHEES to respond to unforeseen challenges and changes to implementation, such as emerging low carbon and renewable technologies.

52. In terms of long-term ownership of district heating assets, post-concession, many respondents felt this should revert to the local authority or local authority-owned company, such as an energy service company ( ESCO).

What we are proposing now – District Heating Consents

53. In analysing the consultation responses and wider advice, the Scottish Government has now looked in more detail at potential options that would allow district heating developers to exercise rights to construct and operate heat networks, and to support local authorities in securing these developments.

54. The Scottish Government wants to support local authorities to ensure district heating develops in a strategic manner in their area through our proposal for statutory LHEES. We see the LHEES as a key tool in providing information to the market on the most suitable areas for district heating, helping to secure greater investment from developers by identifying opportunities of which they might otherwise be unaware.

55. In addition to the LHEES, in order to further strengthen local authorities' existing powers, within and beyond the planning system, and to encourage local authorities to also use their existing powers to procure concessions or award contracts for district heating, we are proposing to introduce a new district heating consent system, which would be managed and enforced by the local authority.

56. Under our proposed approach, development of district heating would require the consent of the local authority. Local authorities would be given a new statutory power to award this consent, subject to the applicant meeting certain requirements set by the Scottish Ministers. This would ensure that district heating development was subject to a similar consenting regime as that for other energy utilities such as under the Electricity Act 1989 consents process, though with different requirements and thresholds. Requirements or conditions of the consent for applicants could include:

• the requirement to have a licence and meet licensing conditions (see Section 4.B) prior to any works taking place;
• consideration of national heat, energy efficiency, renewable energy, emissions reduction, fuel poverty targets, etc;
• strategic considerations for energy efficiency and heat decarbonisation within LHEES;
• other local targets, plans, obligations and/or objectives;
• socio-economic criteria and assessment;
• a specified duration within which construction of the development must commence; and
• any other conditions set out by the Scottish Ministers, or which the local authority may wish to specify.

57. The Scottish Ministers would develop national guidance for applicants seeking district heating consent and for local authorities who would be responsible for assessing applications and issuing consents. This guidance would include expected timescales for decisions, could include thresholds to which the consenting regime applied and could include details of any appeals process which might be appropriate. Where appropriate, it would be a requirement of applicants to provide evidence of customer engagement to ensure that there is a sufficient demand from customers to sign up to connect to district heating once it is available. In district heating zones, this would build on the socio-economic assessments that will have been carried out by the local authority to identify the zone as well as signalling to potential customers that district heating is an option and thus allow customers, a choice regarding upgrading their existing heat systems.

58. In a situation where a district heating consent has been awarded, but the district heating developer is not able to complete construction of the development as specified in the conditions of the consent, we are seeking views on the appropriateness of any potential options for a relevant body to act as the 'developer of last resort' to ensure completion of development. This could for example be a direct power of the relevant local authority or a power for the Scottish Ministers, who may delegate this to another body. As an alternative route to ensure completion of development we are also considering the potential to introduce performance standards (means of incentivising or penalising non-completion of work) through licence conditions (see Section 4.B).

59. Any conditions associated with a district heating consent could be set out in perpetuity or could be subject to variation or review, as set out by the Scottish Ministers.

60. The requirement to seek consents to develop district heating (new or extensions) would apply to all potential district heating developments, whether zoned by a local authority (via a LHEES) or speculatively proposed by a district heating developer. This new statutory consent would operate in parallel/alongside any other aspects of the proposed development requiring planning permission.

61. In developing our proposals for a district heating consent, we will explore the options for ensuring that district heating operators have similar or the same rights as other statutory undertakers for permitted development and wayleaves. At this stage we envisage energy centres and heat storage facilities would continue to need to apply for planning permission before they are constructed to enable all the proposal and site specific matters to be addressed. We recognise that if statutory wayleaves are introduced for district heating, that thought will need to be given to compensation for the use of the land and to wider issues in relation to property rights.

62. We therefore envisage that under our proposed district heating consent system, development of district heating would be initiated in two ways:

a) 'Strategy driven' – by a local authority identifying an area as suitable for district heating through zoning within its LHEES, and then:

i. inviting third parties to apply to develop and operate this through use of existing procurement powers and then granting them consent, following that procurement process; or
ii. developing the network itself using its existing powers to construct, lay and maintain pipes and associated works for the purpose of conveying heat ^[18] subject to conditions that would be equivalent to those provided for in a consent; or
iii. initiating a collaboration with other third parties ( i.e. public or private bodies) ^[19] .

Local authorities would still need to ensure that the consenting procedure had been fulfilled, either after or during one of the above options being completed, and that relevant conditions are met, such as licences being held.

b) ' Speculative' – by a third party making an application to develop district heating in any area (either zoned in an LHEES or not zoned in an LHEES) – e.g. a private district heating developer.

63. By proposing this approach, the Scottish Government envisages a more proactive, strategic approach being taken towards district heating development by local authorities through the LHEES – identifying potential areas for development, and then initiating processes to secure that district heating, in both areas of existing buildings, or in areas where new building development is anticipated. In particular, public sector buildings could be identified in discussion with the local authority, and as part of the procurement of utilities ^[20] , as 'first movers' helping to develop these networks (see Section 4.D), making them more attractive to the market. The process of preparing the LHEES would help to overcome lack of market information which may prevent developers identifying potential areas suitable for district heating, and would signal to investors future areas for development.

64. Our proposed approach would also continue to allow developers to make speculative proposals for district heating either partially or entirely outwith district heating zones, for example where major changes to a building with a significant heat load might provide the opportunity to install a new heating system that could connect to district heating. Where a developer is requesting consent for a speculative proposal outwith district heating zones, there may be a greater burden on the developer to provide the evidence to demonstrate that their proposal is the most socio-economically appropriate solution in that area since the local authority will presumably hold no information to show this outside district heating zones. Developers would be required to provide any evidence as may be required by the local authority. The decision to award a consent ultimately lies with the local authority and the fact that the potential district heating scheme may be outwith designated district heating zones may be considered in making that decision.

65. Overall, through our proposed consenting approach, the Scottish Government wants to find a balance between ensuring that district heating development grows in a strategic, planned manner, guided by LHEES, and that it can continue to be dynamic, responding to new and unanticipated proposals for development. Our proposed dual approach consenting process aims to achieve this balance between strategy-driven and market-driven development through a dedicated consenting process which will be both responsive to the wishes of developers, and driven by the wider objectives of local authorities in securing their LHEES objectives for energy efficiency, heat decarbonisation and fuel poverty under SEEP.

Q4. What are your views on the proposed district heating consent process?

In particular, what are your views on:

a) the appropriateness of any potential options for a relevant body to act as 'the developer of last resort', to ensure completion of development?

b) options for ensuring that district heating operators have similar or the same rights as other statutory undertakers for permitted development and wayleaves

Please provide any appropriate evidence to explain your answer.

District Heating Consenting Process

This diagram provides an illustrative indication of how the consenting process might work – our consultation document recognises that further evidence will be required to finalise the detail of these processes.

3.C Socio-Economic Assessment

Summary of previous consultation

66. In the previous consultation, we set out how socio-economic assessment would be used in the LHEES to assess the energy efficiency interventions, to identify the most appropriate heat technology for an area, designate zones (including district heating zones) and award concessions, ensuring consistency with national objectives. Our scenario also set out how project and individual building level socio-economic assessment could be used to determine minimum thresholds for connections to district heating, such as an affordability threshold to measure impact on consumer energy bills and fuel poverty.

Summary of consultation responses

67. There was fairly broad support for socio-economic assessment at project level to include an assessment of the impacts on consumers of the requirements to connect with the customer; again reducing fuel poverty was seen as a priority. Socio-economic assessment was also seen as an important element in identifying district heating zones in LHEES and awarding concessions. In relation to the socio-economic assessment, there were a number of approaches suggested by respondents; these included standardised methodology; heat tariff being cost effective for customers; social benefits being key (not just financial benefits); distributional benefits being included; inclusion of emissions reduction, health benefits, air quality improvements and fuel poverty reduction among others. More details are available in the consultation analysis ^[21] .

What we are proposing

68. We propose that socio-economic assessment would be a statutory requirement at three levels: of LHEES (strategy level), of district heating developments (project level) and for use during mediation for connecting individual buildings (heat users and surplus heat suppliers).

69. The Scottish Government would provide statutory guidance for socio-economic assessment in the form of a detailed methodology, laying out the overarching process and standard assumptions.

Role within LHEES (strategy level)

70. We propose that local authorities would be required to undertake a strategy level socio-economic assessment, following the statutory guidance, in developing their LHEES. This assessment should demonstrate that the zones have been designated appropriately according to national and local objectives, including fuel poverty, and are consistent with neighbouring local authorities. The assessment should be publically available alongside the LHEES.

71. The strategy level socio-economic assessment would, along with the LHEES, be used by district heating developers, heat users, and surplus heat suppliers to inform their project plan / business cases / investment decisions.

72. The strategy level socio-economic assessment would also be used by an approvals body to help determine approval of LHEES, and by the local authority to monitor the impacts of implementation.

Role within district heating consenting process (project level)

73. We proposed that district heating developers would be required to undertake a project level socio-economic assessment and submit it as part of the application process for district heating consent. The local authority would use the project level socio-economic assessment submitted by the district heating developer to decide on district heating consent applications. It would also use assessments as part of the criteria to judge tenders.

74. The project level socio-economic assessment would also be used within any appeals process (see Section 3.B) to help determine challenges to contracts and concessions awarded for projects.

Role for connecting heat users and surplus heat suppliers (building level)

75. We propose that building level socio-economic assessment would also be used by third parties to inform decisions to connect individual buildings to district heating schemes to take heat or supply surplus heat.

76. Where there is a dispute between these parties over connecting to a district heating scheme, we propose that any appointed mediation body (see Section 4.E) would use the building level socio-economic assessment in its determination.

Q5. What are your views on the proposals for socioeconomic assessment?

3.D Data for Local Heat & Energy Efficiency Strategies

Summary of previous consultation

Heat demand

77. In the previous consultation, we set out a scenario whereby local authorities would be supported in developing LHEES with the provision of national guidance and data sets, such as the Scotland Heat Map. We also set out where data on surplus heat from industrial sites could be made available to local authorities in supporting them with development of LHEES and in connecting industrial sites to district heating.

Surplus Heat

78. A scenario was described where industry would be required to make data on surplus heat available to public authorities. Scottish Environment Protection Agency ( SEPA) would use the data to investigate efficiency and onsite heat recovery, with data on remaining available heat (which could be exported), used by local authorities to inform the development of their LHEES.

Summary of consultation responses

Heat demand ^[22]

79. Respondents to the consultation commented that local authorities would need more data to develop LHEES than is currently available in Scotland's Heat Map and the Energy Performance Certificate ( EPC) Register, in particular, data on electricity and gas consumption. Potential sources of these data suggested included the Department of Business, Energy and Industrial Strategy ( BEIS), or network operators or suppliers (perhaps making use of SMART meter data).

80. Some respondents commented that existing available data in Scotland's Heat Map and the EPC Register needs to be more robust and 'real time' in order to develop LHEES.

81. The voluntary nature of data provided was seen as potentially limiting its accuracy. Respondents also identified gaps in data including data collection from district heating schemes. However, respondents indicated that any requirement to provide such data should not place any unnecessary burden on local authorities or others.

Surplus Heat

82. Respondents' views were mixed over whether industry should be mandated to make data on their surplus heat available to public authorities or whether it should remain voluntary. Local authority stakeholders consider that it should be mandatory, as the data are required to develop LHEES, whereas industry stakeholders are concerned about commercial confidentiality and the expertise and resources to provide data ^[23] .

What we are proposing

Heat demand

83. Local authorities already have access to some data on energy use and factors that influence heat demand through existing sources such as Scotland's Heat Map and the Energy Performance Certificate ( EPC) register. Wherever possible, we propose that this should be supplemented with data on gas and electricity consumption with improved accuracy to enable local authorities to develop LHEES. This data would be subject to strict data sharing agreements.

Local authorities would continue to seek other voluntary agreements from large heat users and other third parties so that local authorities have access to as much relevant data as possible, that would be necessary to develop LHEES.

Surplus Heat

84. We propose to continue to encourage industry with surplus heat to provide data about potential off-site heat provision on a voluntary basis to local authorities for the development of LHEES. In order to facilitate this, we are now calling for further evidence from stakeholders on how data on surplus industrial heat could be made available to develop LHEES or a detailed district heating project

85. We understand that one of the major barriers to industry providing data is its commercial sensitivity and are keen to better understand how these could be overcome.

86. Industry receives support from a number of partners such as Scottish Enterprise and SEPA as set out in the Scottish Manufacturing Action Plan. For example, Resource Efficient Scotland are trialling Energy Measurement and Quantification support ^[24] to assess energy flows and waste heat streams at energy intensive industrial sites in Scotland identify opportunities for heat recovery and reuse, both on site and for export off site.

Q6. What are your views on the proposals for data for LHEES?

Please explain your answer, including any available evidence or examples.

Further call for evidence

87. We are also calling for further evidence and would like your views on the following questions.

Q7. What types of data information would industry be willing to provide a local authority or national delivery mechanism to develop LHEES, so that they can identify opportunities (potentially in aggregate) for heat demand reduction and heat recovery, both on and off site?

Q8. What data from industry would be most helpful in developing district heating projects?

Q9. What data could be provided without compromising competitiveness of these organisations.

Please explain your answers, including any available evidence or examples.