Heat networks central to Scottish plans to curb buildings emissions

Out-Law News | 16 Feb 2021 | 10:46 am | 5 min. read

Growing the number of renewables-powered heat networks in Scotland is at the heart of new Scottish government plans to curb emissions in buildings.

In its draft new heat in buildings strategy, the Scottish government described heat networks as "a key strategic technology for reducing emissions from heating our homes and buildings", and set out new interim targets to help it meet its existing goal of achieving zero emissions from Scotland's buildings by 2045 – a target that will impact more than two million homes and 100,000 "non-domestic" properties.

By 2030 over 1 million homes and approximately 50,000 non-domestic buildings will need to have converted to using zero or low emissions heating systems, it said. As part of that drive, it wants at least 64,000 homes per year to have had renewable heating systems installed by 2025.

Jeremy Chang of Pinsent Masons, the law firm behind Out-Law, said: "The draft strategy should be welcomed for taking a holistic view of the different challenges that need to be grappled with in order to decarbonise heat at a pace and scale needed to achieve 'net zero'. Heat decarbonisation is a multi-dimensional issue which requires integrated policy development - from planning to buildings regulations and heat regulation, to skills and supply chain standards and beyond. It also needs to be agile to adapt as the heat market develops and the pathway to decarbonisation at local and national level evolves."

The Scottish government has estimated that heat networks have potential to supply up to 12% of Scotland's heat demand at the moment, but that they currently account for just 1.5% of the heat in Scotland's buildings. However, it plans to "set a new ambition for heat network deployment in Scotland" once a UK-wide assessment of the potential for combined heat and power and district heating and cooling systems is published, with that report expected before the end of March.

Central to boosting the deployment of heat networks in Scotland is the Heat Networks (Scotland) Bill, which was introduced to the Scottish Parliament last year. The Bill, if enacted, would provide for a new system of licensing for heat network installation, along with measures designed to ensure new heat networks are "powered using low and zero emissions sources of heat".

Graham Wallace

Graham Wallace

Senior Associate

The timescale for the Heat Networks (Scotland) Bill is ambitious… It remains to be seen whether the legislation will help to grow the market as the Scottish government hopes given the layers of regulation envisaged by the Bill

"When regulation of the heat network sector is implemented (from 2023) we will only consent heat networks with low and zero emission heat sources when regulation of the heat networks sector begins," the Scottish government said in its draft strategy. "This will mean that gas CHP (combined heat and power systems) may not be used in new heat networks in Scotland, unless new, credible evidence emerges that such systems can provide the needed emissions savings beyond 2023. From that time, existing, fossil fuel powered heat networks will be required to decarbonise upon replacing their heat generation assets. The remainder of our fossil fuel based existing networks will be required to decarbonise by 2045 at the latest as required by our climate change targets."

New financial incentives will be introduced to encourage investment in "green heat networks". New regulations will provide for 90% relief from business rates until 2024 for networks run from renewable sources, while the existing 50% rate relief for heat networks will be extended until 2032.

Graham Wallace also of Pinsent Masons: "The timescale for the Heat Networks (Scotland) Bill is ambitious. As always the devil will be in the detail, but it remains to be seen whether the legislation will help to grow the market as the Scottish government hopes given the layers of regulation envisaged by the Bill. Separately, the rates relief pledges will be welcomed by industry as a straightforward way of mitigating those costs."

Wallace said that it is encouraging that the Scottish government is looking at how to use powers under existing climate change laws to require large and publicly-owned buildings to be connected to heat networks. He said that these "anchor loads" are likely to be essential to get broader heat networks off the ground. He also welcomed plans to require new buildings being constructed from 2024 onwards to connect to existing heat networks, when they are located within a 'heat network zone'.

"This would build on existing requirements for new builds to have zero emissions heating systems installed from 2024 and could serve as a catalyst for the growth of heat networks, particularly when viewed alongside the other plans outlined for a new network investment prospectus to be developed to 'identify key strategic opportunities for heat network development' and guide investment decisions and local heat and energy efficiency strategies (LHEES)," he said.

The Scottish government has estimated that it will likely cost in excess of £33 billion to meet the 2045 target. It said this cost "cannot be borne by the public sector alone", however.

Chang Jeremy

Jeremy Chang

Partner

The investor community will be interested to learn more about the successor programme to the LCITP. It will perhaps not be a surprise if the new programme bears similarities in scope and focus as the green heat network fund that has been proposed by the Department of Business, Energy and Industrial Strategy at Westminster

To encourage private sector investment, the Scottish government outlined plans to develop a successor to the low carbon infrastructure transition programme (LCITP) to support targeted investment in renewable heat projects. It also plans to establish a new green heat finance taskforce "to identify innovative solutions to maximise private sector investment, and find new ways to help individuals and organisations spread the upfront cost of investing in making their properties warmer, greener and more efficient".

Chang said: "The investor community will be interested to learn more about the successor programme to the LCITP. It will perhaps not be a surprise if the new programme bears similarities in scope and focus as the green heat network fund that has been proposed by the Department of Business, Energy and Industrial Strategy at Westminster, which was consulted on in December last year. It will be important to take on board the lessons learned from the LCITP and HNIP (heat networks investment project) programmes to ensure that as wide a scope of heat network structures are eligible for support as possible."

Almost £1.6 billion of public funds is to be made available to heat and energy efficiency projects across Scotland over the course of the next Scottish Parliament. The Scottish parliamentary elections are scheduled to take place in May this year. This funding, the Scottish government said, will provide "a much-needed stimulus to the heat and energy efficiency sector, and contributing toward a longer-term green recovery".

The draft new strategy makes provision for a range of technologies to be deployed to deliver the 2045 zero emissions heating target.

It said: "The key low and zero emissions heating solutions available today are heat pumps and heat networks, and early progress must be made – deploying them in buildings for which they are the right long-term solution. Longer term, hydrogen may have an important role to play and our hydrogen policy statement and hydrogen assessment, published in December, set out our ambitions in hydrogen deployment in Scotland… We commit to keep the option of hydrogen open where it represents a potential cost-effective solution, whilst also making progress with technologies that are ready to deploy in the near term."

Paul Wheelhouse, Scottish minister for energy, and Kevin Stewart, Scottish housing minister, said in a joint statement: "There is a tension between our climate objectives and our commitment to ending fuel poverty, as many zero emissions heating systems are more costly to install and can be more expensive to run than high emissions alternatives. We are clear that this must be overcome and remain steadfast in our commitment to supporting those least able to pay in this transition, and in protecting those who are most vulnerable to any increase in costs."