Tackling fuel poverty in Scotland: a strategic approach

Chapter 4 – Improving Access to Affordable Energy

While the amount of energy used in the home can be reduced as a result of energy efficiency improvements, concerted action is also needed to lower the unit price of energy. Powers related to the energy market are reserved to the UK Government with the electricity and gas markets regulated in Great Britain by Ofgem. Within the rules set by the regulator, individual energy suppliers are able to set their own tariff structures and pricing according to their own business models.

There are a number of factors which impact on the price that people pay for their energy supply. These include fuel type, heating system, tariff and energy supplier. Furthermore, when people want or need to obtain a better price they can often face barriers depending on their personal circumstances.

Our analysis of fuel poverty in Scotland shows that there is a strong relationship between fuel prices and overall levels of fuel poverty. Action to reduce the price people pay for energy makes it easier for fuel poor households to afford their energy bills without having to seek further financial support or cut back on other essential items. This can in turn help to reduce stigma and promote wellbeing.

As part of our Lived Experience Research, we asked households in fuel poverty what would they do if their fuel bills reduced by £10 a week, some households told us it would allow them to spend more on the things they had cut back on including food, clothing, or socialising with family and friends.

We want to ensure that everyone has access to affordable energy. We will do this by targeting support at those in fuel poverty who are most likely to face high energy prices and taking action to tackle the barriers that prevent householders in obtaining better energy prices. We will also take wider action to reduce overall energy costs for all households in fuel poverty, including working with the UK Government as it progresses its call for evidence on affordability and fairness to urge that any reforms do not disadvantage Scottish consumers.

Targeting action to reduce energy prices

While all households in fuel poverty would benefit from a reduction to fuel prices, households reliant on electricity, LPG or bottled gas for heating currently face higher energy prices than those who use gas and therefore stand to benefit most from actions to reduce energy prices.

Targeting action to reduce energy prices - electricity consumers

Over 280,000 households in Scotland have electric heating. As part of our Lived Experience Research, we spoke to a small number of households in fuel poverty who use electric storage heaters. While they had a range of views, including those with no problems with storage heaters, the costs of operating them were a significant issue to some, leading them to drastically limit their use.

"The heating was electric, I was spending all my money, [I had] no money left for food, believe me… [It cost] around the £12, £15 every day…Otherwise it was very cold, it was freezing inside, but now it's okay… gas is good now. Costs me £50-£60 a month. "

Yusuf, 35+ no children, Social renter, Large urban, FP and EHR

The high costs of electric storage heaters echo findings in the Evidence Review which found that the high cost of electric heating was one of the most pressing concerns of households that relied on it. In our Lived Experience Research, electricity costs were also a concern for those using gas as their main heating source with those in under heated homes citing the cost of electricity as a reason for not using portable electrical heaters.

As set out in our Heat in Buildings Strategy, we urge the UK Government to take action to rebalance energy costs to reduce the difference in unit prices between gas and electricity. Taking such action would also help incentivise the move to decarbonised heat helping us to meet our climate change targets as well.

UKG action – We urge the UK Government to rebalance environmental and social obligation costs (levies) on energy bills to reduce the premium that is paid for by customers who use electric heating.

Our Evidence Review highlighted further issues with electric heating:

• Lack of knowledge in how to use heating controls
• Complex and confusing tariffs
• Difficulties making price comparisons
• Problems around dispute resolution

The research found that these factors can lead to households with electric heating disengaging from the energy market and a perception that high costs are unavoidable and inevitable. Citizens Advice Scotland also published a report^[10] which showed that households with electric heating face specific challenges in getting advice, information and a choice of supplier, and need tailored support to overcome this.

Households with restricted meters can face greater barriers to accessing affordable energy as their choice of tariff is more limited. A case study from recent research by Citizens Advice Scotland^[11] illustrates this:

One Citizen's Advice Bureau reports of a client who owns a very cold three-bedroom bungalow where she lives with her family. She has a restricted electric meter and there are limited options for switching that would save her money. Her supplier refuses to offer an appropriate tariff for her heating system so she is paying between £350-£450 a month and has debt of £1,900.

Around 4 million out of a total of 29 million domestic electricity customers in Great Britain have restricted (or "profile class 2") meters. However, as electric heating (which is often linked to restricted meter tariffs) is significantly more common in Scotland, it has a significant share of this figure. While the installation of smart meters may allow these households greater choice, it is still unclear when restricted meter users will be able to fully access the benefits of smart meters.

Given the significantly higher number of Scottish households with restricted meters compared with the rest of Great Britain, the Scottish Government have engaged with Energy UK to ensure continuity of the radio signal that allows these meters to function. The Scottish Government has also raised concerns regarding restricted meters with Ofgem and BEIS, especially considering the slower pace of the smart meter rollout in Scotland.

Ofgem have since committed to extending the current protections in place for non-Economy 7 restricted meters until 2025. In addition, they recognised that stakeholders had highlighted a greater need for understanding of the required protections among suppliers themselves, in addition to customers, and that there were concerns about compliance with these rules amongst suppliers.

We will continue to work with BEIS, Energy UK and Smart Energy GB to ensure restricted meter users in Scotland are represented in ongoing decisions on the smart meter roll out. We will also continue to work with energy retailers to ensure that households have access to tariffs suitable for their individual circumstances.

We are aware that the higher percentage of restricted meters in island communities presents a significant challenge to addressing fuel poverty. The Energy Consumers Commission, established in 2020, includes membership from the islands and through this the concerns of those living in these areas are fed into high level decision making in Scotland.

Targeting action to reduce energy prices - prepayment meter users

Prepayment meter users incur higher energy costs than those that pay by direct debit. Our Lived Experience Research showed that fuel poor prepayment meter users are more likely to be in extreme fuel poverty as well as being more likely to be in income poverty. This is supported by additional analysis carried out on the Scottish House Condition Survey (SHCS) data which shows that 36% of households with prepayment meters were in fuel poverty in 2019, significantly higher than the fuel poverty rate of 22% for those households without a pre-payment meter. Similarly 18% of households with prepayment meters were in extreme fuel poverty compared to 11% of those households without^[12].

Our Lived Experience Research also found that the majority of fuel poor households with prepayment meters were reluctant to consider changing their payment method to direct debit. While they knew that paying by direct debit would be cheaper, there were significant concerns that direct debit would make it more difficult for them to manage their money. Households using prepayment meters explained that they provide a sense of control, allowing users to decide how much money to put in their account and to manage their use of energy accordingly.

"You pay what you use and you don't get stung by a big bill at the end of the month or the end of the quarter. Apparently, it's a bit higher, but…people can monitor better what they are actually spending. You've got more control of your bills that way. "

Darren, 35+ no children, Social renter, Other urban/non-remote rural, FP and HER

These findings were echoed by our Evidence Review which highlighted that instability of income and unexpected bills are more of a concern for some fuel poor households than the actual level of income or bill, hence a preference for pre-payment meters which provide immediate and transparent feedback about energy usage in an easy-to-understand way.

We need to ensure that those who want to use prepayment meters are not disadvantaged because of their financial situation. Therefore, we will continue to press for customers with pre-payment meters to access similar tariffs to direct debit customers.

SG Action - We will continue to press for customers with pre-payment meters to access similar tariffs to direct debit customers

Targeting action to reduce energy prices - standard credit

It is not only consumers using prepayment meters who face higher energy costs, but also those paying by standard credit who miss out on the discount applied to bills paid by direct debit.

In our Lived Experience research, there was little appetite for switching to direct debit from other payment methods. In part, this was due to the "fixed" nature of direct debits. One self-employed participant had a variable and unpredictable income and therefore felt she couldn't commit to a monthly direct debit as she could not guarantee that she would have enough money every month to cover it. She preferred instead to be billed quarterly for what she used and have more time between bills to plan ahead.

Targeting action to reduce energy prices - changing heating systems

Households with high running costs can see reductions in their bills by changing their heating system to one that uses less energy or uses lower cost fuel. However, to do this households first need to have access to funding and/or the authority to change their system.

We spoke to owner occupiers in fuel poverty as part of our Lived Experience Research and some of them told us that the cost of improvements mean they cannot afford to have them carried out. Similar findings were reported in our Evidence Review for both low income families and households with disabled members.

The tenants that we spoke with, as part of our Lived Experience Research, told us they felt they had limited ability to make changes due to their tenure. Fuel poor households in the private rented sector told us they were reluctant to request improvements to their heating system as they felt this may damage their relationship with their landlord. They would therefore like to see more regulation of private landlords to ensure that they provide decent heating systems.

The social renters we spoke to were more willing to contact their landlord about issues with their heating system, however some told us that they felt their concerns were not listened to, leading to feelings of frustration that improvements had not been made. This echoes the sense of frustration among social renters about their lack of autonomy with regards to these decisions, as noted in the Evidence Review.

As set out in the previous chapter, we plan to introduce a new tenure-neutral Housing Standard which will be aligned to the proposed regulatory standards for energy efficiency and heating. This will ensure a clear minimum standard setting out what people are entitled to expect, and what they are expected to do. Furthermore, we will update the Repairing Standard to amend the existing duty to ensure that installations for the supply of heating are in a reasonable state of repair and in proper working order so that there must be a fixed heating system in a private rented house. This will be supported by Scottish Government guidance. Because it is a new element in the repairing standard, it will come into force from 1 March 2024.

Tackling barriers to affordable energy

How households pay for their energy and their ability to switch supplier or tariff can also impact the price that they pay. In order to eradicate fuel poverty, we also need targeted action to address this imbalance.

Tackling barriers to affordable energy - unregulated fuel users

As part of our Lived Experience Research, we spoke to fuel poor households who used liquid or solid fuels. All of these households lived in remote rural locations. They told us that there were limited options when it came to where they bought their fuel. There are also currently no switching services for these consumers to make it easier to find cheaper deals.

"With oil, you pay the going price or you don't get it, as simple as that. You take what they are offering or you [go without], you have very little option. There are only two or three suppliers here. I have always stuck with the same one, because I feel it is better the devil you know. "

John, 35+ no children, Owner occupier, Remote rural, EFP and EHR

Unregulated fuel users face the risk of self- disconnection if they cannot afford to arrange for delivery of and payment for fuel before their current supply runs out. In some cases, they may need to pay for the fuel they need upfront and the cost of purchase required can be prohibitive to households in fuel poverty.

Tackling barriers to affordable energy - prepayment meter users

Those that use prepayment meters not only face higher energy costs in general, they also have more limited options than households with credit meters when it comes to switching tariff. That is why we will continue to press energy suppliers, Ofgem and other industry decision-makers for customers with pre-payment meters to access a similar range of tariffs to direct debit customers

Furthermore, our Evidence Review also highlighted that some households with pre-payment meters tend to regard changing provider as a 'hassle' because it would require buying and activating new keys for their meter. This situation will be simplified by the continued smart meter rollout which will make switching between suppliers more straightforward for consumers using pre-payment meters who are able to do so and we therefore continue to press for the roll-out of smart meters to be done in a fair way that reflects the needs of Scottish consumers.

Tackling barriers to affordable energy - sub-metering

Some households do not have their own energy account due to being sub-metered. This normally means that their landlord is the account holder and they pay their energy costs to their landlord instead of the energy supplier. This means they cannot switch supplier or tariff and therefore are unable to reduce the price that they pay for their energy.

While we do not know the full extent of sub-metering in Scotland, we do know that it is often used on Gypsy/Traveller sites. As part of our consultation with members of the community on the development of a Site Design Guide for Gypsy/Traveller sites, residents told us their preference would be to have their own energy account. We will incorporate this feedback into our final Site Design Guide to encourage new sites not to use sub-metering.

Furthermore, as part of our planned lived experience research with fuel poor Gypsy/Travellers we will discuss this issue further with the community as well as examining energy prices on some local authority sites to develop a greater understanding of the barriers to affordable energy faced by Gypsy/Travellers.

SG Action – Ensure our lived experience research with fuel poor Gypsy/Travellers includes examination of energy prices on some local authority sites with a view to better understanding the particular challenges facing Gypsy/Traveller communities

Tackling barriers to affordable energy – energy debt

Households may be unable to switch supplier to reduce their energy prices if they already owe money to their existing energy supplier. If a household using a credit meter has owed money to their supplier for more than 28 days then they cannot switch supplier until they have repaid what they owe. Households using prepayment meters can switch to another supplier as long as they do not owe more than £500 on their account (limits apply separately to gas and electricity meters).

It is therefore important that energy advice and money advice services are able to work in partnership so that energy debt does not lead to households in fuel poverty being locked into higher energy prices or costs. HES already work closely with many financial inclusion services, something we discuss further in Chapter 8.

Tackling barriers to affordable energy - access to switching services

The households that we spoke to as part of our Lived Experience Research had mixed views on the benefits of switching supplier, with negative views outweighing positive ones. Negative views were linked to a general mistrust of energy suppliers. Households were concerned they might not receive the savings promised and knew of other households who had faced unexpectedly high bills after switching. As with prepayment meter users, the risk of receiving an unaffordable bill was more important than the risk that households might be paying more than they need to.

"I just can't think I will get anything less than £20 a week for heating and electricity, I can't see it. As I say, I think you're always frightened you may be worse off with another supplier. I had a friend she was in Wales actually and she changed suppliers, and she said it's a nightmare, I was much worse off. "

Eilidh, 35+ no children, Private renter, Remote rural, EFP

Those aged 75 or over told us that they were typically content with their supplier as they had used them for a very long time and therefore did not see a need to change. In some instances, there was also a lack of awareness that they could change tariff rather than supplier and still potentially receive savings. Ensuring that there is greater awareness of the ability to stay with your existing supplier but still reduce bills could encourage more households to look into switching, including those who prefer to remain loyal to their existing supplier.

Our Evidence Review revealed similar mixed views on switching, with some households believing they were now paying more due to unanticipated fees associated with the changeover.

As part of our Lived Experience Research, we spoke to households in fuel poverty about whether they saw benefits in a support service to help people switch. Most households did not see this as particularly relevant to them because they knew how to switch or were not interested in switching. This echoes the findings of the Evidence Review which highlighted that households that have the greatest need for support are often those who are not accessing it. However, where there were good relationships established, people valued advice-related support. The Evidence Review found that this type of support would be welcomed by those in fuel poverty.

Action to reduce energy prices for all fuel poor households

Taking action to bring down energy prices has the greatest impact on reducing fuel poverty. However, the regulation of energy markets is reserved to the UK Government and overall energy prices are dictated by wholesale energy costs with a price cap set by Ofgem based on these. Despite this cap, additional action is required to reduce fuel poverty and therefore we must see the UK Government and suppliers take action to make energy more affordable.

We will continue to do what we can within our existing powers. Our actions in this area will include exploring how new technologies can bring down bills and ensuring all fuel poor households can access information on how to switch supplier

Action to reduce energy prices for all households - switching supplier

HES can provide information on switching supplier as part of the advice and support they offer.

Action to reduce energy prices for all households – flexible tariffs

Flexible tariffs are another route to help keep the costs of energy down and are also likely to have an important role in enabling the energy transition. These tariffs can offer lower per unit prices during periods where supply outstrips demand, with higher prices in times of peak demand.

However, households differ in their ability to be flexible with when they use energy. As we discuss further in Chapter 5, some households in fuel poverty require to heat their house for long periods due to ill health, disability or age. The use of storage technologies may help these households access flexible tariffs by allowing energy to be stored when unit prices are lower and used when it is required by the household. We will work with energy retailers and encourage them to introduce tariffs compatible with zero emission heating systems which help fuel poor households to maximise the benefits.

Action to reduce energy prices for all households - renewables & storage technologies

There are also secondary technologies that may be able to help reduce energy prices further such as renewables and storage technologies. Small-scale renewable generation and storage, including solar thermal and photovoltaic, thermal and battery storage could potentially provide a source of energy and flexibility for consumers, helping to reduce bills and tackle fuel poverty. Storage technologies not only have the potential to reduce energy bills, they can also improve the efficiency of renewable energy technologies and offer consumers the opportunity to become more engaged in the energy market.

We are currently monitoring the use of these technologies in several demonstration projects, including through our ABS Special Projects programme where we are providing funding to test the effectiveness of new technologies, such as smart meters and battery storage technology, in reducing energy costs. We will incorporate the learning from these projects into our delivery schemes.

SG Action – We will continue to monitor the effectiveness of new technologies in demonstration projects and incorporate the learning into our delivery schemes to maximise the benefit for fuel poor households

We have also begun research to understand the cost effectiveness of thermal, electrical storage and rooftop solar photovoltaics to support households to reduce bills. Where the evidence shows that introducing these technologies is effective, we will consider support for them through WHS, the scheme that replaces it, and ABS.

SG Action – We will act on the evidence from current research to understand the cost effectiveness of thermal, electrical storage and rooftop solar photovoltaics to support households to reduce bills. Where this proves effective we will consider support for them through Warmer Homes Scotland, the scheme that replaces it, and our Area Based Schemes

Action to reduce energy prices for all households - promoting consumer engagement

As well as ensuring that we take actions to reduce energy prices, we need to ensure that all energy consumers, including those in fuel poverty, are able to engage in the energy market. Increasing consumer engagement in this way will allow us to improve our understanding of the barriers that fuel poor households face as well as learning more about what they want and need from their energy system. This, in turn, will allow us to work towards ensuring that the energy market provides accessible and affordable options for those in fuel poverty.

Consumer Scotland

The Consumer Scotland Act 2020 established Consumer Scotland, a non-ministerial body which will have the general function of providing consumer advocacy and advice with a view to:

• reducing harm to consumers in Scotland,
• increasing confidence among consumers in Scotland in dealing with businesses that supply goods and services to consumers,
• increasing the extent to which consumer matters are taken into account by public authorities in Scotland,
• promoting sustainable consumption of natural resources, and other environmentally sustainable practices in relation to the acquisition, use and disposal of goods by consumers in Scotland, and
• otherwise advancing inclusion, fairness, prosperity and other aspects of wellbeing in Scotland.

Consumer Scotland will also work with existing consumer organisations, conducting investigations into the most serious issues of consumer harm in Scotland and providing leadership across a fragmented landscape.

Energy Consumers Commission

The Scottish Government established an independent Energy Consumers Commission in July 2020 with a varied membership made up of academics, grassroots organisations, and national level bodies. The Commission will transition into Consumer Scotland once that body has been launched.

We have worked extensively with the Energy Consumers Commission and other key stakeholders to explore how to best build consumer engagement with the energy market whilst ensuring that people see value for money in their energy bills. This has included research into the key facets of energy consumers' relationship with decarbonisation which found an increasing concern regarding the climate crisis alongside perceptions that the transition is challenging, expensive and in some cases inequitable – community level engagement was found to be key to mitigating these issues.

The Commission has also engaged in focused advocacy to the UK Government, Ofgem and others to explore these issues.

SG Action - We will ask Consumer Scotland to consider tracking the impact of decarbonisation on households as part of their future workplan

Smart meters

In our Lived Experience Research, some of the fuel poor households that we spoke to had a smart meter installed already. They were said to be useful in understanding how much energy was being used, particularly for those on prepayment meters who found it an easier way to identify how much credit was left.

However, only a few had noticed any reduction in their bills as a result of their use and around half reported problems with the operation of their smart meter meaning they still had to submit meter readings manually. Issues with connectivity and perceptions of inaccuracy had led to In-Home Displays being turned off by users, sometimes completely. Others had turned off the In-Home Display simply because they felt it made no difference to their energy use. Our Rapid Evidence Review also highlighted that older people can find them to be confusing and many households report finding it difficult to adjust their energy use to maximise savings.

Among those fuel poor households without a smart meter, there was little appetite to get one. Concerns were raised about their perceived inaccuracy as well as concerns about data privacy and security. These concerns tended to be driven by word of mouth and media coverage.

The smart meter programme is owned and led by the UK Government who have responsibility for the policy, regulatory and commercial framework. Energy suppliers in turn are responsible for planning and delivering the rollout of smart meters on the ground, working within the framework established by the UK Government.

The Scottish Government funds HES to deliver a forward-looking Smart Meter Advice service. This innovative system aims to use the real time data from smart meters to provide individually tailored help and advice to consumers, particularly vulnerable consumers, on energy efficiency.

We will continue to work with BEIS, Ofgem, Smart Energy GB, Energy UK, and the wider energy market, while highlighting findings and concerns to the UK Government, to ensure Scottish consumers are considered and can access the benefits as the smart meter roll out continues.

SG Action - We will continue to work with BEIS, Ofgem, Smart Energy GB and the wider energy market to ensure Scottish consumers are considered and can access the benefits of smart meters as the roll out continues, particularly representing the interests of those at highest risk of fuel poverty

Action to reduce energy prices for all households - ensuring a fair and just approach to decarbonising home heating

We need to address our climate objectives and our commitment to ending fuel poverty together. While we want to ensure that those in or at risk of fuel poverty don't face higher running costs as a result of the transition to zero emissions heating, we also need to ensure that those in fuel poverty are not left behind in the transition. We must therefore ensure that the approach we take is informed by the differing needs of those in fuel poverty.

The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 enshrined in law our commitment to a just transition to net zero - one in which wellbeing, fair work and social justice are prioritised and no-one is left behind. Our commitment to these principles is unwavering.

In our Heat and Buildings Strategy, we published guiding principles to underpin our commitment that no one is left behind in the heat transition, ensuring our approach neither increases the fuel poverty rate nor the depth of existing fuel poverty and ensuring that those on lower incomes or in or at risk of fuel poverty are protected from any negative impacts. The strategy also builds on our 2021/22 Programme for Government commitment to establish a dedicated National Public Energy Agency by 2025.

The Agency will help us to deliver a Just Transition as we accelerate the transformational change required in how we heat and use energy in our homes and buildings, by bringing new coordination and leadership to our existing energy efficiency and heat decarbonisation advice and delivery programmes. This will ensure that people can continue to access the help they need, when they need it throughout the transition process. This work will be guided by the aforementioned key principles, which are set out below.

Heat in Buildings Strategy – Fuel Poverty Principles

1. We are committed to ensuring that poor energy efficiency is removed as a driver of fuel poverty. As such, a focus on improving the fabric of buildings will be central to how we decarbonise heat.

2. We recognise that heat decarbonisation is essential to address the climate emergency, and that in decarbonising our homes we must not make fuel poverty worse. We commit to delivering measures to help those in fuel poverty to manage their running costs. As such, it is essential that, whenever possible, measures that both promote decarbonisation and lower fuel costs are supported.

3. We will assess our heat in buildings capital delivery programmes for their impact on those households experiencing fuel poverty– both at installation and throughout their lifespan. This assessment should be proportionate to the expected impacts.

4. Where an intervention can lower running costs, fuel poor consumers should be targeted for support as soon as possible, including support for the up-front installation costs of these measures. Factors affecting the ability of consumers experiencing fuel poverty to take up these measures should be considered as part of this process, as should the provision of advice and support to ensure that households in fuel poverty derive the maximum benefit from new measures.

5. We will develop mitigation measures to be deployed across our capital funding programmes where there are demonstrable cost increases on those in or at risk of fuel poverty. Success of these measures should be regularly assessed and, if appropriate, these measures should be adjusted to better meet the needs of these households.

6. In cases when zero emissions heat interventions are assessed as likely to increase energy costs even after mitigation measures are put in place, government supported measures should be focused on consumers who are not at risk of fuel poverty.

7. In some cases, wider change will be needed for decarbonisation measures to become suitable for those in fuel poverty, including areas that are reserved to the UK Government. We will continue to urge the UK Government to take necessary action in reserved areas and will use the research and practical experience gained through our decarbonisation schemes to support us in building appropriate evidence and pushing for systemic improvements.

8. Communications should be presented in formats accessible to a wide range of consumers, taking into account differing circumstances and accessibility needs.

To ensure our approach is in line with these principles, we are conducting analysis to consider the distributional impacts of decarbonising our homes and buildings and to further quantify the impact of making our homes and buildings warmer, greener and more efficient for those on lower incomes and those in or at risk of fuel poverty. This work is also considering options to mitigate any negative impacts which can be implemented over the longer term.

As part of its role in overseeing the Scottish Government's progress in reaching the fuel poverty targets, the Scottish Fuel Poverty Advisory Panel will provide expert advice on how to ensure those in or at risk of fuel poverty are not adversely impacted by our decarbonisation efforts.

We are stepping up our investment over the next five years and have allocated at least £1. 8 billion to support the accelerated deployment of heat and energy efficiency measures in homes and buildings across Scotland. This investment will support the removal of emissions from heating and the removal of poor energy efficiency as a driver of fuel poverty, with at least £465 million to support those least able to pay through our programmes targeted at those in fuel poverty

To ensure that those in fuel poverty are able to take part in the transition to decarbonised heating, we will take a zero emissions first approach in our delivery programmes and will phase out funding for fossil fuel heating systems by 2024, where it is not detrimental to our fuel poverty objectives.

There are examples of projects delivered through WHS and ABS that have provided zero emission heating systems and improved insulation that reduced both carbon emissions and fuel bills. For example, for some properties heat pumps can help reduce bills where they are replacing older, more inefficient oil and gas heating systems. Increasingly, there is also the option to deploy heat pumps alongside other measures such as solar photovoltaics or battery storage to help further reduce electricity bills.

An increasing number of heat pumps are being installed to address fuel poverty through WHS. Feedback received from households suggests many are benefiting from consistently warmer homes, and in some cases cheaper bills, when switching from predominantly old electric storage heaters to air source heat pumps.

WHS - Case Study

Mr S, a householder from Inverness, contacted HES to find out about support for replacing his heating system with something more energy efficient. HES determined that he would be eligible for support towards an air source heat pump, from Warmer Homes Scotland, with a small contribution to be paid by the customer.

Mr S's home is now more energy efficient with the SAP rating having gone from 32 to 45, which will undoubtedly result in a warmer home. Speaking about his experience of the Warmer Homes Scotland scheme, Mr S said:

"We have lived in this house for 13 years with electric storage heaters and the house was always cold, even when the heating was on full blast. It was so expensive every month and the electricity bill was extortionate. We also never had hot water and would have to manually switch it on an hour before. Now to turn the tap on and have hot water is amazing. I am thrilled to bits as I have young children and they have noticed the difference. "

However, when a heat pump replaces a modern, efficient gas boiler, the greater efficiency of the heat pump may be insufficient to offset the higher price of electricity and the household's running costs may therefore increase^[13].

We take a low-carbon first approach where households will be initially assessed for suitability of a low or zero emissions heating system accompanied by insulation and fabric measures. Under the current WHS scheme, we look to install secondary technologies such as home energy storage batteries to help reduce running costs in order to further support the deployment of low and zero emissions heating systems. Where a low or zero emissions system would have a negative effect on fuel poverty, we currently continue to support the installation of a replacement fossil fuel system accompanied by improved insulation measures. The successor to WHS will look to new energy efficiency technologies to maximise opportunities to provide low-carbon heating to people in fuel poverty.

We will also bring forward primary legislation in this term of Parliament which will provide the regulatory framework for zero emissions heat and energy efficiency, as well as the powers needed to underpin this. It is proposed that compliance with a new zero emissions heat standard be phased in, with all buildings needing to meet this standard no later than 2045.

We are also committed to ensuring adequate financial support is available, as a last resort, for those who may be in fuel poverty as a result of the transition. However, we will maximise opportunities to ensure this financial support is not required. We will do this by taking action to improve energy efficiency and reduce energy costs so that households are able to power and heat their homes without the need to rely on social security.

Action to reduce energy prices for all households – levies

Both gas and electricity prices will rise as we decarbonise heat. It is therefore vital that the UK Government takes steps to ensure that decarbonisation is not funded in a way that falls disproportionately on those least able to pay while also ensuring that low carbon technologies are not further disincentivised.

As set out earlier in this chapter, we urge the UK Government to act on the UK Climate Change Committee's recommendation to rebalance environmental and social obligation costs (levies) on energy bills to reduce the difference in unit costs between gas and electricity and help to unlock the deployment of low and zero emissions heating.

We published research^[14] alongside our Heat in Buildings Strategy on the balance of levies between electricity and gas supplies to support understanding of how changing this balance might impact the deployment of low and zero emissions heat in Scotland. We will further consider the potential options for reviewing levies and the impacts these may have on fuel poor households.

SG Action – We published our research into the impacts of rebalancing levies and charges on electricity and gas supplies alongside our Heat in Buildings Strategy and we will further consider the potential options for reviewing levies and the impacts these may have on fuel poor households

Action to reduce energy prices for all households - Heat as a Service

In the Heat and Buildings Strategy, we committed to explore the concept of Heat as a Service. We have commissioned research into how this model might support our heat decarbonisation agenda by enabling consumers to purchase or run low or zero emissions heating systems, while delivering the energy outcomes consumers want.

Heat as a Service provides heat to homes for an agreed monthly fee, often including installation, maintenance and energy efficiency upgrades. Consumers could have their homes heated to a set temperature, or pay a set price for the heat provided.

The research suggests that Heat as a Service could help overcome the two main barriers that put people off installing low-carbon heating systems: concerns about cost and comfort. It could also provide opportunities to switch to a low or zero emissions heating system for a predictable set monthly price. This could be attractive to some fuel poor households who are currently put off paying by direct debit due to the risk that payment levels will change.

We will continue to undertake market and consumer research while working with industry and the regulator to understand whether Heat as a Service can help fuel poor households and when and where this could be used in Scotland, while considering different routes for bringing this concept to market.

Action to reduce energy prices for all households - heat networks

The overall aim of the recently passed Heat Networks (Scotland) Act 2021 is to accelerate the development of heat networks in Scotland, in turn, driving down emissions and tackling fuel poverty.

The Competition and Markets Authority found that up to 90% of heat network customers enjoy similar, or lower, bills than those with standard gas boilers^[15] and heat networks can cut both emissions and bills.

The Scottish Fuel Poverty Advisory Panel will be a statutory consultee for guidance on reviews, designation and variations of heat network zones by local authorities and for any regulations relating to determining heat network consent applications or modifying heat network consents.