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Publication - Report

Heat and energy efficiency strategies: consultation analysis

Published: 14 Nov 2017
Part of:
Environment and climate change
ISBN:
9781788514170

Analysis of responses to the consultation on heat and energy efficiency strategies and regulation of district heating.

96 page PDF

793.2kB

96 page PDF

793.2kB

Contents
Heat and energy efficiency strategies: consultation analysis
3. District Heating Regulation

96 page PDF

793.2kB

3. District Heating Regulation

Section B of the consultation sets out a potential regulatory scenario aimed at helping district heating to achieve its full potential. This regulatory scenario would: establish district heating zones; create concessions and provisions for connecting users to district heating networks within these zones; look at opportunities to make use of low cost, low carbon surplus heat from industry; and set minimum technical and consumer protection standards.

3.1. Proposed Regulatory Approach

Section B1: Q4. What are your views on the broad principles for regulation outlined above? What else do we need to consider? What should be prioritised in cases where principles may not always be compatible?

3.1.1. There were 63 responses to this question, from across respondent groups.

3.1.2. The broad principles were generally accepted with over half of those who replied, from across respondent groups, stating in their comments that they agree with, or support, the principles outlined in the consultation document.

3.1.3. There were some suggestions for changes to the principles and these included:

3.1.4. One respondent, from the business & industry group, disagreed with the statement that "Burden of district heating regulations are outweighed by their benefits" while a local government respondent asked for a definition of the 'burdens' associated with district heating regulation.

3.1.5. Another business & industry respondent would like to see the principle 'wastage of surplus industrial heat is minimised' extended to all forms of waste heat.

3.1.6. A network, professional or trade group respondent felt that the principle, 'district heating networks are feasible and investible for public and private sector developers', could prove challenging as new houses are more energy efficient. In order to attract investors they felt that "the initial focus for district heating networks should be on existing stock where heat demands are generally higher and long-term investment becomes more feasible".

3.1.7. A business & industry respondent felt that there should be a focus on decarbonisation rather than the principle 'overall heat demand is reduced'.

3.1.8. Another, from the network, professional or trade group, recommended changing 'overall heat demand is reduced' to "overall energy demand is reduced". They also felt that the principle, 'district heating networks are developed in a way that minimises risk', is unclear and suggested instead "district heating networks are developed in a way that minimises financial risk and reduces the cost to the customer". They also felt the principle, 'heat customers / building owners have the information that they need to make choices on their future heat supply', is unclear and suggested that there should be a principle relating to consumer protection, such as "heat customers are protected, up to the standard currently set by the Heat Trust scheme".

3.1.9. Consumer protection was mentioned by several respondents as an area that should be included. Other things respondents felt needed to be considered were:

  • The need for consistent, high quality technology.
  • The need to make use of new technologies to ensure efficiencies are maintained.
  • How to ensure security of supply (and hence customer confidence).
  • Affordability / transparent tariffs.
  • The need to minimise bureaucracy.
  • The need to allow for alternatives where relevant ( e.g. in areas of low population).
  • The need to give consideration to the decommissioning of current systems such as gas boilers in homes (and a query as to how decommissioning might affect property values).
  • The business model for district heating.
  • The need to take into account life-cycle infrastructure costs; the need for incentives or other support for infrastructure costs.
  • Consideration of planning policy and any impact on developers.
  • The need to consider industry, as providers of heat waste; industry is not mentioned in the principles.
  • The need for impact assessments on applications to ensure district heating is the most effective option for decarbonisation.

3.1.10. In relation to priorities, two key, and related, points were raised by several respondents across various groups:

3.1.11. Tackling fuel poverty was seen as important by many; one local government respondent said they were: "concerned about potential conflicts of interest for people in fuel poverty as district heating does not always offer the lowest cost on the market". Conflicts, between fuel poverty and decarbonisation and between area based solutions and fuel poverty, were also raised at the consultation events.

3.1.12. Affordability for consumers (some also said industry) was seen as key to encouraging participation and attracting investment, as well as to tackling fuel poverty. A third sector respondent commented:

"A priority for us is ensuring that district heating supplied is affordable to customers and building owners, and meets fuel poverty objectives. If heat is not affordable, then the objective of alleviating fuel poverty is unlikely to be achieved".

3.1.13. Other priorities were seen as any that will enable district heating schemes to become established.

3.1.14. There were a number of queries raised by respondents, particularly around how the balance between choice and compulsion could be struck. One local government respondent commented : "The balance between choice and compulsion / enforcement is of concern, given the nature of energy supplier choice as exists".

Section B1: Q5. What are the key principles or approaches that should inform how our regulatory approach manages risk for district heating across the whole system?

3.1.15. Comments on key principles or approaches to risk management were noted in 56 responses.

3.1.16 Several respondents again stressed the need to include fuel poverty and affordability as key principles. Examples include an academic group respondent that said: "The concept of managing fuel poverty should be a major principle of the proposals moving forward" and a third sector respondent that commented: "we would like to see risk being managed so that the risk of not delivering affordable warmth to consumers is minimised". A network respondent commented that reducing risk was seen as key to reducing capital and operational costs; this would in turn lead to reduced costs for consumers.

3.1.17. Consumer protection was another key principle identified by respondents and this included ensuring security of supply; some respondents suggested that identifying base or anchor loads would provide some certainty.

3.1.18. Regulation of technical standards as well as standards for customer service were seen as important and there was a suggestion that consumers need to be given the same rights and guarantees as currently exist for electric and gas customers.

3.1.19. As well as protection for consumers, respondents also talked about the need to manage risks for all stakeholders in terms of cost and sustainability given the high set-up costs and the long pay-back period involved in heat networks. In relation to businesses and developers there were suggestions that safety nets or incentives could mitigate risk. An investment programme was suggested with one academic respondent suggesting:

"a central energy efficiency fund dedicated to investment in localised energy provisions and services, offering low interest, long-term loans, and reducing investment risk by supporting a portfolio of projects ( HNIP [Heat Networks Investment Project] in England and Wales is an exemplary indicator)".

3.1.20. Several respondents mentioned that as there is not a current market for energy efficiency, in terms of supply, demand or financial mechanisms, regulation is the main way in which such a market can be created.

3.1.21. However, while some wanted to see regulation obliging developers to comply, for example in relation to heat waste, other respondents commented on the need to ensure regulation does not stifle financial viability and therefore deter developers. There was also a comment that heat providers need to be shielded from liability in times when heat cannot be provided.

3.1.22. Other suggestions included identifying anchor users to help mitigate against financial risk. One local government respondent commented: "It is recognised that if there are enough anchor users then individual private householders' involvement can be optional". There were also calls for flexibility so that businesses themselves can manage risks.

3.1.23. A small number, from the local authority group, mentioned the need to address the non-domestic rates burden on the pipework operators.

3.1.24. Other suggestions included:

  • The need for transparency and consistency.
  • The need for information sharing.
  • That systems must be assessed for viability.
  • That lessons could be taken from other countries and other regulated industries or sectors.

Summary: Section B1

The broad principles for regulation outlined in the consultation were generally accepted and while there were various suggestions for priority areas, a key theme was the importance of tackling fuel poverty.

The main themes from the question on key principles or approaches to inform how the regulatory approach manages risk included fuel poverty as well as affordability.

Consumer protection was another key principle identified by respondents and this included ensuring security of supply.

The regulation of technical standards, perhaps in a way similar to that seen for other utilities, was also seen as important

3.2. Planning, Zoning and Concessions for District Heating

Section B2: Q6. What are your views on local authorities having the power through LHEES to zone areas for district heating?

3.2.1 67 respondents commented on this question; responses came from across all sub groups. 35 of these respondents mentioned in their comments that they support local authorities having the power through LHEES to zone areas for district heating, while three commented that they disagree with this. The remainder commented but not did specify their support or otherwise, although another two respondents disagreed with the policy of zoning areas for district heating connection or felt that zones were immaterial.

3.2.2. The main theme to emerge, in nine responses (many from individuals within the local government group), was that zoning areas for district heating could be aligned to local and area plans for development or as part of the wider ongoing planning review.

3.2.3. A number of other themes emerged, in smaller numbers of responses. These included a view, particularly from the business & industry group, that zoning would: be good for developers in that it would help to ensure developments are in the right locations; that it can provide certainly for developers and investors; that it can allow building owners in designated zones to anticipate and plan for future connections; and network developers to plan for any potential to integrate with adjacent networks.

3.2.4. Respondents from various groups commented that this is what has happened in other countries such as Denmark.

3.2.5. However, while views were generally positive, there were some qualifying comments or concerns expressed by respondents. The key concern, cited by 10 respondents across most sub groups, was that local authorities do not have the necessary resources, skills or capacity to define and set up district heating zones. Allied to this, some respondents suggested a need for a centralised mechanism to be in place; to be responsible for dealing with appeals, co-ordination across local authorities, regulation or for providing an overview of plans and performance of LHEES.

3.2.6. There was also a view expressed of a need for consultation with others including tenants, residents, developers, energy service providers, home builders or other local authorities. This needed especially in the production of joint strategies or where a zone may cross a local authority boundary.

3.2.7. There were also some comments, primarily from those within the local government group, that there is a need to take an evidence-based and planned approach to infrastructure provision. This is needed to ensure that proposals meet the needs of wider social and economic benefits and contribute to other plans and investment strategies. It will also be useful for the systematic identification of zones to be promoted for district heating, or for a technical evaluation of network layouts, heat sources, current and future technology options and so on.

3.2.8 A small number of respondents commented that it might not be feasible to zone areas for district heating across all areas, with one simply referring to disparities between rural and urban areas. The other respondents commented that district heating would not be feasible for some areas, for example where there is a high degree of rurality and low density housing; or where there may be an absence of identifiable low carbon heat sources.

3.2.9 A small number of respondents within the local government group commented that there is a need to add cooling into the power because district heating and cooling will become more readily deployable as heat pump technology becomes more economic. As noted:

"It is probable that added powers to designate district heating zones would be beneficial to a local authority. It would also be prudent to add cooling into such a power. District heating and cooling will become more readily deployable as heat pump technology continues to become more economic. The coefficient of performance ( CoP) of heat pumps will, assuming the continued decarbonisation of the national electricity network, soon make heat pumps a serious contender to gas CHP, and the addition of cooling services will help attract innovation, medical, research, IT, data, etc., companies into these zones. Such investment will add baseload to a network, thus making the project more economically viable and improving the wider socioeconomic benefits."

3.2.10. A small number of organisations in the business & industry sector suggested that local authorities could work with organisations that have the ability to fund projects, or organisations in the private sector.

3.2.11. There were also a small number of comments on the current limitations of the Scotland Heat Map as a basis for zoning.

3.2.12. There were also a small number of requests for further information. For example, a local government organisation commented that there needs to be clarity on what is meant by 'zoned areas'. A respondent in the academic sector commented that it is not clear if LHEES will include energy efficiency measures and how they will be funded.

3.2.13. At the consultation events, respondents said that zones need to be financially viable; they also need to contribute to sustainable low carbon heat.

Section B2: Q7. How should district heating zones be identified? For example, how should national targets, socio-economic analysis, local priorities feed into the designation of zones within the Strategy?

3.2.14. 56 respondents commented on this question; responses came from across all sub groups.

3.2.15. Many of these respondents cited a number of different criteria to identify district heating zones, and these included:

  • Scotland's national heat map; as this shows heat demand concentrations / heat density and demand.
  • Socio-economic analysis.
  • Aim to reduce fuel poverty; two respondents referenced the need to use census data and the Scottish Index of Multiple Deprivation ( SIMD) to identify areas where fuel poverty can be alleviated.
  • Anchor loads / areas where there is a high concentration of properties such as those owned by Registered Social Landlords ( RSLs) or local authority / public sector buildings; many of these respondents were in the business & industry sector.
  • Local priorities; cited primarily by respondents in the local government sector.
  • National targets (cited primarily by respondents in the local government sector).
  • Heat sources such as NHS hospitals, or sources of low carbon heat or waste heat.
  • Heat Areas identified in the Local Development Plan ( LDP) or areas where applications for major developments have been made. One respondent noted that local authorities should develop their LHEES in line with their LDP; cited mainly by respondents in business & industry. A few respondents, mostly in local government, also noted that planning information combined with Scotland's Heat Map should be used; they also referred to the combined use of Scotland's Heat Map and utility information.
  • In areas where there will be a carbon reduction or where there are carbon reduction targets; cited primarily by respondents within local government.
  • Future infrastructure.

3.2.16. Some respondents within the local government group also noted that district heating zones should support regeneration.

3.2.17. A number of respondents qualified their comments, with some noting the need for any district heating zone to financially viable; this observation was made primarily by respondents within the business & industry sector. Another few respondents noted that existing gas networks may be a constraint to the development of district heating zones as this is a cheaper form of heating for consumers and therefore more attractive financially than district heating.

3.2.18. A few respondents also noted the need for some form of national guidance, or requested a list of criteria to be developed as a template for use in the development of district heating zones. In these instances, it was felt that the Scottish Government should have overall responsibility for development of this template as well as for review of district heating zones, to ensure consistency across Scotland. A small number of respondents (mostly in business & industry) also noted a need for more consultation with various groups of stakeholders including local authorities, key stakeholders and end users.

Section B2: Q8. What are your views on taking district heating zones, or parts of district heating zones, and establishing and exclusive concession for either private – or public – sector heat network developers to fulfil that part of the LHEES? How will this alter the risk profile of district heating development?

3.2.19. 54 respondents commented on this question; responses came from across all sub groups.

3.2.20. There was general support for this proposal, with advantages including the reduction of risk to local authorities in terms of delivery and maintenance of district heating networks, although this was mostly cited by local authorities. Also that it would encourage investment, provide certainty of supply and opportunities to develop networks and allow developers to take a long term view. A number of respondents also commented on the benefits to developers in terms of reducing their risk and promoting confidence to invest in district heating infrastructure. A small number of respondents also commented that this proposal would help to encourage the implementation of the proposals in LHEES.

3.2.21. That said, there was also some qualified support with comments that there will be a need to set clear objectives for a concession; examples of these criteria included delivering people out of fuel poverty; or comments that any criteria set need to be transparent. Allied to this, there were also some concerns that exclusive concessions could create monopolies and impact on consumer choice. There were some comments that risks to the consumer including lack of choice, long term commitment or potential poor service will have to be considered. There were some suggestions of a need to ensure that there are effective procurement rules in place to outline the rights of the consumer and responsibilities of the developer. In line with this, there were some comments on the need to convince consumers of the benefits of district heating.

3.2.22. There were also some concerns that exclusive concessions could lead to conflict between the need to ensure that consumers receive good service and benefit from the introduction of district heating zones, and the need for private developers to make profits. There were also a small number of queries as to what types of organisation should be involved in development of district heating zones (private, public sector, not-for-profit), and how these zones would be managed on an ongoing basis. A small number of respondents from the local government group suggested that concessions for public sector heat networks might prove the best way to meet targets for fuel poverty or to meet socio-economic targets.

3.2.23. Bearing in mind the concerns of some respondents, it is perhaps not surprising that there were some comments on a need for a national body to provide regulatory oversight and scrutiny, with robust consumer protection in place for service provision and complaint resolution.

3.2.24. There was also concern that there could be a potential conflict for a local authority if it were the concession holder and the enforcer of the terms of the concession.

3.2.25. Concessions were also deliberated at the consultation events, with attendees discussing ways in which concessions can shape inward investment and stimulate the market.

Section B2: Q8b. Do you agree that local authorities should be responsible for issuing and enforcing concessions in their areas? Please explain your answer

3.2.26. As the following table shows, 53 respondents responded to this question; responses came from all sub groups. Although this was not presented as a tick box question, nevertheless, many respondents included their agreement or disagreement within their comments. Of these, more supported this proposal; 10 completely agreed with a further 28 making supportive comments but with provisos. Seven did not agree, with the greatest opposition coming from those in local government.

Section B: Question 8b

Yes Proviso No Other comment No reply
Business & Industry (24) 2 8 1 2 11
Network, Professional or Trade body (18) 2 4 - - 12
Local government (17) 3 4 4 3 3
Third sector & Community (9) 2 3 - 1 3
Public sector (7) - 2 - 1 4
Academic (4) - 3 1 - -
Other organisation (1) - - - 1 -
Individuals (7) 1 4 1 - 1
Total (87) 10 28 7 8 34

3.2.27. Among the respondents providing further commentary, a number of themes emerged in support of the proposal for local authorities to be responsible for issuing and enforcing concessions as one of their functions.

3.2.28. A key theme was that local authorities have local knowledge or that they are responsible for other strategies, programmes and plans such as Local Development Plans ( LDPs), and that this additional function would sit alongside these plans.

3.2.29. However, a number of respondents, across all sub groups qualified their support for this proposal. The key reason given was that this would need multiple expert resources across Scotland as a whole, with support from the Scottish Government ( SG) to help embed the necessary skills and resources within each local authority, and to provide oversight of concessions and district heating schemes. It was felt that a national unit would also have the advantage of being able to offer economies of scale.

3.2.30. Another key theme to emerge was that local authorities would need adequate resources to be able to issue and enforce concessions, or that at present they do not have the necessary resources, skills and capacity.

3.2.31. Once again, there were requests for a national unit to provide consistency across Scotland working within nationally agreed parameters, to provide more specialist skills and to act as a regulator. Allied to this, there were some concerns that there would be a conflict if local authorities are responsible for issuing and enforcing concessions that are also managed by their own companies. There were some suggestions that if local authorities are to issue and enforce concessions, they should not also be able to hold concessions themselves.

3.2.32. While a small number of respondents felt that this proposal would sit well with local authorities as an extension of their planning role, it was suggested there would need to be an independent body such as Ofgem to design and manage an appeals process.

3.2.33. Of the small number of respondents disagreeing with this proposal, the key reasons were that local authorities do not have the necessary technical expertise or that it should be the responsibility of the SG to establish a national framework for granting concessions in order to provide consistency.

Section B2: Q9. What considerations should inform the design of concessions (target users, envisaged network growth, concession length etc)? Please provide any evidence you have to support your views

3.2.34. 47 respondents provided comments to this question, many of whom reiterated the considerations listed in the question.

3.2.35. A key consideration, and cited by 23 respondents across all sub groups, was that of concession length. Various time periods were noted by respondents from 'at least 10 years' to 30-40 years or longer.

3.2.36. Most respondents however, noted that the concession length needs to be long term in order to allow for the recovery of high capital costs and the realisation of a return on initial investment, to create more certainty in the market and to realise the financial and socio-economic benefits for consumers. One proviso noted by some of these respondents was that developers should not be allowed to cherry-pick specific concessions.

3.2.37. A significant number of respondents, across all sub groups, also cited the size of the concession as being an important consideration. They saw is a need for any concession to be economically attractive and financially viable to developers and investors; and in locations where there is greatest potential to deliver benefits to the environment, the economy and society. Two examples of areas where it was felt concessions would not be appropriate were in very rural areas where there are limited potential consumers or in areas where there is an existing gas infrastructure and where gas might still be a cheaper alternative to district heating.

3.2.38. There were some suggestions, mostly from local authorities, that there should be a capped profit on heat sales. It was felt this would help to motivate a concession holder to put effort into increasing the number of connections within a concession rather than seeking only the most profitable connections. This would help to take the onus away from profit and focus more on the consumer.

3.2.39. A number of respondents referred to the need for concessions to reduce fuel poverty and lower the costs of heating so as to maximise the socio-economic benefits of any concessions. There was also reference to the need to ensure that socio-economic criteria are met.

3.2.40. Several respondents also noted the importance of anchor loads and ensuring any concessions include key anchor users, giving examples like local authority or public sector owned buildings, large industrial centres, social housing or areas where there is already demand. In line with this, there was some reference to the use of using heat mapping data to determine heat density and to identify potential concession opportunities.

3.2.41. A few respondents also referred to the need to ensure that any concession is in close proximity to large natural heat sources such as bodies of water. There were also requests to ensure that any heat supply would be low carbon.

3.2.42. There were some comments – largely from local government respondents – that there will be a need to target users as well as a need to consider any planned network growth so as to maximise benefits as early as possible.

3.2.43. Once again there were some concerns related to consumer service with suggestions for the careful management of quality assurance and governance to ensure consistency to end users (primarily local government respondents), or the introduction of performance indicators and ongoing review of concessions. There were also suggestions that there needs to be a process in place to terminate concessions that fail to deliver, with a consideration that a Scottish Government backed national energy company could take over any failing concessions.

3.2.44. Echoing a theme already noted at earlier questions, a small number of respondents (mostly in the local government group) commented that there is a link between Local Development Plans ( LDPs) or local authority Corporate Asset Plans and the setting up of concessions. They said that LDPs should be used to help identify possible concession areas, taking into account other factors such as local housing strategies or planned new developments.

3.2.45. A small number of respondents noted that this needs to be consistent with the considerations set out for LHEES as they should be fulfilling LHEES ambitions, or that LHEES needs to be developed first.

3.2.46. Attendees at the consultation events discussed concessions highlighting that many models involve the local authority in a leadership role contracting out services. Concessions would have to take account of any constraints imposed by geography or infrastructure. Looking at the length of concessions, there were suggestions that concessions in mixed areas could be 10-15 years then extended if successful.

Section B2: Q10. What are the implications of zoning and concessions for district heating networks?

3.2.47. 39 respondents provided comments to this question, across all sub groups.

3.2.48. A few respondents, primarily in local government, noted that this could help promote the growth of existing networks through the development of additional connections and the likelihood of further investment.

3.2.49. However, to an extent this question raised more questions than answers; these questions included:

  • Whether an existing concession would automatically become the new concession holder or whether the new concession would be opened up to competition.
  • Whether existing concession holders would be entitled to similar concessions.
  • Whether an existing concession holder would have to transfer their network if they were not appointed as the new concession holder.
  • How could existing heat networks be incorporated into larger systems?
  • Whether integration would incorporate physical and organisational elements of the existing concession.
  • Whether an existing concession holder would be compelled to sell its pipe network and infrastructure.
  • A need to consider transitional arrangements.
  • Ways in which existing heat networks could be incorporated into larger systems.
  • Whether there would be any legal implications if zoning and concessions restricted the growth of existing networks.

3.2.50. Once again, there were a few concerns over consumer protection and the need for regulation, monitoring and review.

Section B2: Q11. Do you think the broad rights and responsibilities of concessions holders set out in this document are appropriate? Why? Please provide any examples or evidence

3.2.51. As can be seen in the following table, far greater numbers of respondents felt that the broad rights and responsibilities of concession holders set out in the document were appropriate, than did not. 42 agreed (including 27 who were supportive but raised some concerns or queries) while three did not.

Section B: Question 11

Yes Proviso No Other comment No reply
Business & Industry (24) 4 7 1 - 12
Network, Professional or Trade body (18) 2 3 - - 13
Local government (17) 4 9 1 1 2
Third sector & Community (9) 1 3 - - 5
Public sector (7) - 1 - - 6
Academic (4) 1 1 1 1 -
Other organisation (1) - - - - 1
Individuals (7) 3 3 - - 1
Total (87) 15 27 3 2 40

3.2.52. A key issue for a number of respondents was that more detail is needed across a range of issues. These included:

  • The likely size of the concession.
  • Who would be the owner or operator of the heat plant?
  • Would the concession holder also have the right to develop, build and operate the network for a given period?
  • Would the concession extend to supply and billing?
  • Whether the policy decision has been taken to commit to a private sector not-for-profit or whether SG will proactively support development for not-for-profit and state owned assets.
  • Clarity on how progress will be measured and in what timescale.

3.2.53. Linked to this, there were some comments on the need for an independent organisation to issue licences and regulate the environmental impacts of the concessions, with one respondent suggesting that SEPA would be the most appropriate organisation to take on this role.

3.2.54. There were also a few suggestions that a national template is required to ensure consistency across Scotland and that there should be a central body to check on concession design and progress, to provide regulation and guidance. There were also a small number of references to the procurement process.

3.2.55. While some respondents noted the list of KPIs is sensible, there was also some concern over the need to ensure customer choice and protection, with some reference to concession holders effectively operating monopoly concessions, which could be against the interests of the end user. For example, one respondent noted the need for a concession holder to provide heat at an affordable level on a par with other heat providers; another that there is a need for procedures in place to protect the rights of consumers.

3.2.56. While there was a degree of focus on the need to protect consumers, there were also a small number of comments on the need to ensure that concessions are attractive to developers.

3.2.57. There were also some calls for more consultation with stakeholders and developers.

Section B2: Q12. How can a balance be struck between ensuring LHEES are responsive to changing conditions while ensuring security and stability in long term district heating development models?

3.2.58. 39 respondents commented on this question; responses came from across all sub groups. The main theme to emerge, in 15 responses (many from individuals within the local government or business & industry groups) was that there is a need for flexibility. This is required so that, for example, the LHEES will allow for emerging and low carbon technologies to be incorporated when they become cost effective, or to be able to change as a result of the forthcoming Climate Change Bill, changes in heat demand or to sit alongside Local Development Plans ( LDPs).

3.2.59. The long term nature of LHEES was emphasised by a number of respondents, with some noting specific periods from a minimum of 15 years up to 50+ years.

3.2.60. That said, there were a significant number of comments on the need to have regular reviews of the LHEES document as change occurs so that adjustments could be made to contract / concession terms. Of the respondents noting the need for regular reviews, most mentioned a review period of five years, with some comments that these reviews should be aligned with the LDPs and / or Local Housing Strategies.

3.2.61. A number of respondents also noted the need for national oversight and independent regulation, for example, this could be along the lines of OFWAT or OFGEM so as to ensure the long term interests of consumers and network operators.

3.2.62. A small number of respondents referred to the need for carefully structured concession agreements that could be reviewed and regulated. Two organisations in the business & industry group suggested a modular approach to district heating network development to provide additional security and stability.

Section B2: Q13. What should happen to long term ownership of heat network assets, post-concession?

3.2.63. 43 respondents commented on this question; responses came from across all sub groups.

3.2.64. The main theme to emerge, in 14 responses and across all sub groups was that the ownership should transfer or revert to the local authority or a local authority holding company such as an energy service company ( ESCo). A smaller number of respondents also noted that the concession should be owned by the local authority or a not-for-profit ESCo.

3.2.65. That said, there were a small number of comments that a local authority might not have the resources to take over a heat network. There were also some comments that local authorities may have to become the 'Owner of Last Resort' and that they would need to have mechanisms in place to enable this. There were some views expressed that a local authority would need to retain the limitations on profit that apply to the concession.

3.2.66. There were also some suggestions that public ownership of assets might be the way forward post-concession, with a small number of respondents specifically referring to community ownership or ownership by customers of the concession.

3.2.67. Once again, there were also some references – mostly from local government organisations – to state ownership, with the suggestion of a government-owned Energy Company, or a company with Scottish Government involvement such as Scottish Water. There were also a small number of comments that the Scottish Government may need to be the Owner of Last Resort.

3.2.68. Similar themes to those mentioned above also emerged at the consultation events.

3.2.69. Some consultation respondents noted that ownership could transfer between concession holders.

3.2.70. Rather than mentioning ownership, a few respondents noted that there need to be rules in place to govern the resale of a network and to ensure customer protection long term, with some references to the monopolistic operation of district heat networks.

3.2.71. There were also some comments, primarily from those in the business & industry group that this would be dependent on the length of the concession and the original contract, so that, for example, long term ownership should be agreed as part of the concession and this would allow the concession holder to recoup their investment. There were also references to the need for this to be flexible.

3.2.72. A number of respondents felt unable to give a definitive response to this question as they thought each should be treated on a case-by-case basis, or that it would depend on the model adopted. A small number of these respondents also suggested that there is a need to review the experience of other European countries to see what models have been adopted and how effective each has been.

Summary: Section B2

There was support for local authorities having the power through LHEES to zone areas for district heating, comments included that zoning areas for district heating could be aligned to local and area plans for development.

There was little consensus as to how district heating zones should be identified.

There was general support for establishing concessions.

Looking at the design of concessions, concession length was a key theme and the size of the concession was also cited as an important consideration.

In relation to anchor loads, respondents noted the importance of ensuring concessions include key anchor users.

The question of implications of zoning and concessions for district heating networks raised more questions from respondents than it did answers, with concerns over consumer protection and the need for regulation, monitoring and review.

Most of those who addressed the question of whether they think the broad rights and responsibilities of concessions holders set out in this document are appropriate, felt that they were.

Respondents did want to see some flexibility to allow LHEES to be responsive to changing conditions while ensuring security and stability in long term district heating development models.

The long term nature of LHEES was emphasised and, in relation to long term ownership of heat network assets, post-concession, respondents wanted to see this transfer or revert to the local authority or a local authority holding company such as an ESCo.

3.3. Connecting Users to District Heating Networks

Section B3: Q14. What are your views on the opportunities and challenges in connecting anchor loads to new heat networks? In your view, will the scenario set out address these issues and accelerate district heating development? Please explain your answer

3.3.1. 52 respondents commented on this question; responses came from across all sub groups.

3.3.2. The main theme to emerge was an agreement that anchor loads would be essential in making any new district heating scheme viable, although there would be a requirement to a long term commitment to using heat from the system.

3.3.3. Respondents outlined a number of opportunities this would create, and these included that it would:

  • Provide confidence in the viability of a district heating network.
  • Provide stability to a heat network and make it viable for other businesses to connect.
  • Reduce uncertainty and risk for developers and helps to attract investment.
  • Accelerate the development of district heating and provide opportunities to progress with the decarbonisation of heat supply on a large scale and help incentivise the construction of new networks.

3.3.4. However, a number of respondents also cited challenges in connecting anchor loads to new heat networks. A number of respondents commented that this would be most suited to public sector buildings such as schools, hospitals, leisure centres and so on; rather than privately owned buildings. Allied to this, a small number of respondents noted that there could be challenges in encouraging existing building owners to join networks, with concerns over issues such as who would be responsible for the costs of connection or disruption to the anchor load's existing heating supply. Additionally, a small number of respondents felt that uncertainty of demand could act as a barrier to investment.

3.3.5. A number of respondents noted that there would be a need to demonstrate affordability in comparison to existing heating options. There was reference to the relatively low cost of mains gas and maintenance of gas boilers, with some comments that district heating networks would have to offer competitive rates that are comparable to existing heating supplies. There were also some concerns in relation to consumers, with the risk of having a single heat supplier and concerns over standards of service.

3.3.6. Given these concerns, it is not surprising that a number of respondents felt that further detail was needed, for example, on how a local authority would compel a connection, who would be defined as a large heat user or who would be responsible for internal conversion works in compelled buildings.

3.3.7. There were one or two suggestions of the need for data including gas consumption data at a building level or access to load data in order to help ascertain the viability of a network.

3.3.8. There were suggestions from a small number of respondents for a focus on encouraging uptake of district heating networks, in preference to compulsion and the need to create a positive profile for district heating, for example, in letting the public know that the quality of service will not suffer.

3.3.9. There were also some suggestions for incentives for developers, from a small number in the local government, third sector and business and industry groups, for example to help with the construction of new networks or to keep schemes running efficiently or to help with capital investment.

3.3.10. There were a small number of suggestions for a tiered approach to the development of district heating networks, with large heat users connecting initially, which would then encourage others.

3.3.11. Some respondents referred to district heating networks in other locations and the need for Scotland to take these approaches into consideration. These included France where tax incentives are offered, Denmark and the Royal Free Hospital in London.

Section B3: Q15. What are your views on the proposed power to compel existing buildings to connect to district heating?

3.3.12. 58 respondents commented on this question; responses came from across all sub groups. Views were mixed on the proposed power to compel existing buildings to connect to district heating. Of those providing a response, 20 supported the proposed power while 30 raised concerns or queries. Even among those who said they supported the proposed power, some qualified their response and noted specific issues that would have to be considered. Some of these also felt that use of the power to compel should only be used as a last resort, with a preference for persuasion rather than compulsion.

3.3.13. Of those supporting the proposed power, there was a perception that this would help facilitate greater uptake of district heating and create demand certainty for developers and investors, or that it would help meet climate change targets and optimise the planning and design of heat networks. There were a few comments that this has worked well in Norway and Denmark. Consultation event attendees also mentioned the situation in Denmark, saying that this had been successful because the alternative to district heating is much more expensive.

3.3.14. Regardless of whether respondents were pro or anti the proposed power, there were suggestions for a market based comparison to demonstrate the validity of the business case to potential commercial users, for the technical and financial benefits to be highlighted or simply for the need to present a positive business case. There were also comments on the need to ensure consumers will continue to get a good level and quality of service which is affordable, and some concerns that district heating will limit consumer choice.

3.3.15. There were some suggestions for a staged approach to this power, with an expectation on public sector buildings, developers of major heat sources or new public buildings to use district heating networks in the first instance, with some suggestions that this should sit alongside the Local Development Plan. It was felt that this would help create a more positive image for district heating and help persuade others to connect. There were also suggestions, primarily from those in the business & industry sector, that this proposed power would not be advantageous for existing buildings and that retrofitting could cost more than new build.

3.3.16. Some respondents suggested incentives should be provided, in preference to using compulsion. These included financial support to help upgrade heating in existing buildings or connection subsidies for anchor loads.

3.3.17. Those who did not support this proposal felt that compulsion may serve to deter new schemes starting up or that this does not sit well with the concept of a wider competitive energy market. There was a preference to work with developers and building owners, emphasising the benefits, and being involved in discussions from an early stage, so that it could be demonstrated that connection is in the socio-economic interest of a building owner.

3.3.18. There were some concerns about affordability, primarily from respondents in the local government or business & industry sub groups, and the need to demonstrate through a socio-economic assessment that there would be no long term detriment to building owners or consumers. The role of promoting district heating to developers and potential customers was seen to sit with the Scottish Government, local authorities and other key stakeholders.

3.3.19. There were also some comments that where there are existing gas networks, district heating would be more expensive; also that while heat dense areas would be more economically appealing for district heating, these are also where there are most likely to be existing gas networks.

3.3.20. There were some concerns expressed by a small number of respondents within the local government group, that there could be legal challenges to local authorities.

3.3.21. Consultation event attendees wanted to see clarification of the term 'large heat users'.

Section B3: Q15b. Are the broad principles and criteria appropriate? Should other principles or criteria also apply? In particular, what approach should be taken to socio-economic assessment at the project level, prior to a compulsion to connect?

3.3.22. There was support for these broad principles and criteria from 17 respondents, including those representing district heating developers, with several respondents reiterating points raised in response to the previous question.

3.3.23. In relation to the socio-economic assessment, there were a number of approaches suggested by respondents; these included:

  • A standardised approach and methodology for socio-economic assessment so that all outcomes would be compatible across Scotland.
  • The proposed 'no detriment' test should safeguard the interests of building owners.
  • This assessment should be based on the heat tariff that is cost effective for the consumer; also safeguarding the economic interests of building owners.
  • This assessment needs to consider the complete existing cost of heat to a property, and whether a property is suitable for connection.
  • It is important that social benefits are considered, and not just financial benefits.
  • This should include distributional benefits.
  • The socio-economic assessment should have to look at all potential benefits including the financial benefits from a reduction in carbon emissions, improved health benefits, improved air quality, reduction in fuel poverty and so on.
  • This would need to take place on a project-by-project basis.

3.3.24. There were also a small number of comments, primarily from respondents in the business & industry group, that the technical feasibility of heat networks needs to be considered as connection might not always be feasible; or that it might be more expensive for users even if it is needed for the viability of the network.

3.3.25. Alongside this, some respondents noted the need for national standards that would be administered and implemented by a central body, in partnership with local authorities.

3.3.26. There were a small number of comments on the need to market the benefits and cost savings associated with connecting to heat networks relative to other options to help bring about more positive perceptions of district heating in general.

3.3.27. Some respondents felt that further details were needed and raised issues such as what would happen in the event of a change of owner of a building or a change of use or closure of a building, or what would happen to the heat load if the anchor load building were vacated.

3.3.28. Some respondents, across most sub groups, reiterated their antipathy to compulsion, with comments that compulsion should only be a last resort and that voluntary connection is preferred. This included representatives from district heating, including one who said:

"The aim of allowing a network to legally compel a user to connect to it should be that the offer is sufficiently positive that the legal obligation is never or rarely required to be used."

Section B3: Q15c. Do you agree that this socio-economic assessment at project level should include an assessment of the impacts on consumers of requirements to connect?

3.3.29. As the table below demonstrates, there was a very high level of support for socio-economic assessment at project level to include an assessment of the impacts on consumer of the requirements to connect, with 51 agreeing and only one disagreeing. In addition, the consultation events also saw broad agreement amongst attendees.

Section B: Question 15c

Yes No No reply
Business & Industry (24) 12 1 11
Network, Professional or Trade body (18) 6 - 12
Local government (17) 14 - 3
Third sector & Community (9) 5 - 4
Public sector (7) 3 - 4
Academic (4) 3 - 1
Other organisation (1) 1 - -
Individuals (7) 7 - -
Total (87) 51 1 35

3.3.30. General views across all sub groups were that the customer should be the priority, that the customer needs to understand and agree with the impact on the services they receive, or that this is needed to achieve ambitions in relation to reducing fuel poverty. There were a small number of comments in relation to the need to consider the impact of a failure to supply heat, and two respondents in the network, professional or trade body group commented that this could potentially lead to consumer detriment by reducing choice.

3.3.31. As seen at previous questions, a few respondents reiterated their opposition to compulsion and noted it should be the end users' choice as to whether they take up this form of energy. Indeed, the one respondent disagreeing with this proposal reiterated their lack of support for compulsion.

3.3.32. There were also a few comments on the need to market district heating networks to potential customers, as attitudes towards collective heating and collective decision making are not in the psyche of Scottish people; with two organisations in the network, professional or trade body group commenting that financial viability will be key to establishing a willingness to connect.

3.3.33. A small number of respondents in the local government group queried how 'no detriment' data would be gathered and assessed.

Section B3: Q15d. Do you agree that local authorities should exercise powers to compel connection of existing buildings (for example when requested by relevant concession holders)? Please explain your answers

3.3.34. As the following table demonstrates, there was a high level of support for local authorities to exercise powers to compel connection of existing buildings, with 20 agreeing, 24 giving a supportive but qualified response, and seven opposed.

Section B: Question 15d

Yes Proviso No Other comment No reply
Business & Industry (24) 5 7 3 - 9
Network, Professional or Trade body (18) 1 3 2 - 12
Local government (17) 4 6 1 2 4
Third sector & Community (9) 1 4 - - 4
Public sector (7) 1 1 1 - 4
Academic (4) 2 1 - - 1
Other organisation (1) 1 - - - -
Individuals (7) 5 2 - - -
Total (87) 20 24 7 2 34

3.3.35. 49 respondents, across all sub groups, chose to provide further commentary. Reasons given for support of this included that it would help to speed up growth in the district heating market or that this is a prerequisite for attaining high densities.

3.3.36. That said, the key theme to emerge at this question – and cited by 20 respondents across all sub groups – was that this power should be used only if economic advantage and a positive commercial basis can be proved, with no detriment to consumers.

3.3.37. There were some suggestions that public sector organisations should lead the way in adopting district heating systems.

3.3.38. Some respondents suggested there needs to be support, guidance and encouragement or the offering of incentives for the adoption of district heating, rather than compulsion. Allied to this, there were some calls for compulsion to be used as a last resort, with suggestions for a defined period of time and technical support for owners before compulsion should be used; this came primarily from those in the business & industry group.

3.3.39. There were a few concerns raised, each by small numbers of respondents. These included:

  • Concerns over the issues of penalties and sanctions for enforcement and the legal and political risk that could sit alongside the power to compel. This was raised by respondents within the business & industry or network, professional or trade groups; two of which were involved in the development of district heating.
  • Concerns over a lack of resources and skills within local authorities to enable them to enact this power.
  • Concerns over a potential conflict of interest if a local authority is both a concession holder and enforcer of the power.
  • A need for a well-defined appeals procedure.

3.3.40. Those in disagreement with the proposed power commented primarily that district heating is not viable for all businesses or consumers, or that compulsion overrides the right of consumer choice and / or potentially creates economic disadvantage.

3.3.41. There were a small number of suggestions that the Scottish Government should adopt this role, rather than local authorities.

3.3.42. Attendees at the consultation events had a mixed view, with support for compulsion in the public sector, but that this should be used as a last resort in the private sector and third sector.

Section B3: Q16. Do you agree that mitigating risk by establishing exclusive concessions will lower financing costs and heat prices?

3.3.43. As shown in the following table, views were mixed on agreement that mitigating risk by establishing exclusive concessions would lower financing costs and heat prices, with 14 agreeing, 16 giving a more qualified positive response and 14 disagreeing. The business & industry sub group showed greatest levels of agreement.

Section B: Question 15d

Yes Proviso No Other comment No reply
Business & Industry (24) 5 8 2 - 9
Network, Professional or Trade body (18) 1 - 2 - 15
Local government (17) - 4 5 6 2
Third sector & Community (9) 1 2 1 1 4
Public sector (7) 1 1 1 1 3
Academic (4) 3 - 1 - -
Other organisation (1) - - - - 1
Individuals (7) 3 1 2 - 1
Total (87) 14 16 14 8 35

3.3.44. 45 respondents also provided further commentary. The key theme for agreement with this, from 16 respondents, was that it removes a major risk and provides certainty to the developer, which in theory should also mean that there should be lower heat prices for consumers. One individual suggested that only public sector or community bodies should be able to hold exclusive concessions.

3.3.45. However, there were some comments that there is no guarantee of lower heat prices, with some comments that exclusive concessions might remove the funding gap rather than reduce heat prices or that heat tariffs in less dense areas could still be relatively high.

3.3.46. A respondent from the network, professional and trade group did not support mitigating risk by establishing exclusive concessions will lower financing costs and heat prices. They commented that they:

"do not agree that establishing exclusive concessions, as designed in the consultation document, will provide positive steps forward and reflect a strategically important step, but are unlikely to significantly lower financing costs and heat prices until further action is taken to further de-risk heat revenues to the level faced by gas, water and electricity network investors".

3.3.47. There were a small number of requests for effective and fair regulation; or for performance criteria to be set and monitored throughout the concession period.

3.3.48. There were a small number of concerns that district heating operators would still wish to maximise profits at the expense of the customer. Furthermore, some respondents noted there is no evidence to back up any claim that lower heat prices would result from exclusive concessions. Additionally, exclusive concessions remove competition and possibly innovation within the market.

Section B3: Q16b. How can these regulations be designed to best ensure this happens?

3.3.49. 33 respondents commented at this question; responses came from across all sub groups. Respondents made a number of suggestions as to how regulations could best be designed.

3.3.50. The key suggestion, from nine respondents, was on the need for transparency of costs, which would offer protection for customers; and reductions in financing costs which could feed through to lower heat prices. One organisation suggested a cap on profits.

3.3.51. There were also calls for robust stakeholder engagement, both to help develop the regulations, and to help raise awareness and thereby create demand for district heating. Incentives were also suggested by some respondents so as to encourage take up by customers or to help grow networks. These incentives included tax breaks or the creation of a district heating Renewable Heat Incentive ( RHI) scheme.

3.3.52. Smaller numbers of respondents suggested:

  • Concession holders should be limited to not-for-profit organisations, with some further comment that this has worked well in Denmark.
  • A central unit within Scottish Government or a Working Group of experts to devise regulations, or a body within each local authority to manage and oversee the process and establish zonal boundaries.
  • Long term funded networks that are government or local authority owned, or for build programme risks to be the responsibility of local authorities (business & industry).
  • National benchmarking of heat supply pricing compared to alternative supply options; or conducting annual tariff reviews (local government).
  • Effective planning at LHEES stage, and guidance and support to local authorities to help them in the development and delivery of LHEES.
  • Creation of procurement frameworks for this sector.
  • Consistency in government policy, particularly given the long term nature of district heating concessions.
  • Ensure that concession holders meet standards for design, build and operation; with suggestions that there should be adherence to the CIBSE Code of Practice or the ADE Heat Networks Code of Compliance for the UK.
  • Reduce the risk profile for district heating operators, so that they are comparable with existing gas, electricity and water networks.

Section B3: Q16c. What are your views on the time length of concessions in order to attract investment?

3.3.53. 37 respondents commented at this question; responses came from across all sub groups. Most respondents specified time periods, although a few simply referred to the need for long term concessions in order to attract investment.

3.3.54. Specific suggestions for the length of time of concessions varied from 10 years to 50 years, although the majority noted the length of concessions needed to be at least 20 years. Some noted that the time period needs to be lengthy in order to attract investment, provide greater certainty for developers and obtain a return on their initial investment. There were a small number of comments that the length of the concessions should match the duration of the RHI support mechanism.

3.3.55. There were a few respondents who noted that the timeframe needs to be considered on a case-by-case basis because it will depend on the financial model used or that it should depend on cost benefit analysis and linked to the requirements of the development to obtain a reasonable return.

3.3.56. There were also a small number of suggestions to set review periods of 5-10 years where performance criteria can be checked.

Section B3: Q17. Do you agree that compelling existing buildings to connect to district heating would mitigate heat demand risk, lower financing costs and help create an attractive investment proposition for district heating developers and financial institutions?

3.3.57. As shown in the table below, a majority of those providing a yes / no response supported the view that agreeing to compel existing buildings to connect to district heating would mitigate heat demand risk, lower financing costs and help create an attractive investment proposition for district heating developers and financial institutions. 45 agreed (26 gave a positive response while a further 19 agreed but with concerns or queries) and five disagreed.

Section B: Question 17

Yes Proviso No Other comment No reply
Business & Industry (24) 5 8 2 1 8
Network, Professional or Trade body (18) 2 2 1 - 13
Local government (17) 5 5 - 4 3
Third sector & Community (9) 4 2 - - 3
Public sector (7) 1 1 - - 5
Academic (4) 2 1 1 - -
Other organisation (1) 1 - - - -
Individuals (7) 6 - 1 - -
Total (87) 26 19 5 5 32

3.3.58. 44 respondents opted to comment further at this question; responses came from across all sub groups.

3.3.59. Some of those agreeing qualified their commentary, with suggestions that compulsion should be used as a last resort or noting that compulsion should not apply to the private sector.

3.3.60. In terms of compulsion for developers, there were a small number of comments that there would need to be a clearly defined timeline.

There were also a small number of concerns that;

  • The legal and political risk of compulsion could be detrimental to the aim of creating an attractive investment proposition.
  • This would not necessarily lead to lower financing costs.

3.3.61. Those respondents who disagreed with this proposal commented that it is better to offer incentives and present a positive business case rather than compel.

Section B3: Q17b. Could you provide evidence of how much they [financing costs] would be lowered?

3.3.62. Only 13 respondents provided any commentary at this question.

3.3.63. The key theme – mentioned by four respondents – was that individual areas have unique risk profiles and many variables that can impact on cost per unit of heat.

3.3.64. Only a small number of respondents provided evidence, which included reference to:

  • Leith district heating feasibility study.
  • Commercial developers look for a hurdle rate of 15%.
  • Ofgem work on evaluating business plans of companies owning regulated assets such as gas networks shows they allow for 3% return on capital.
  • Private sector investors look for a 12-15% return on investment which might not be sustainable for district heating projects.
  • For long term investment over 30-40 years a return on capital of around 3% could be the norm.

Section B3: Q17c. How can these regulations be designed to best ensure this happens?

3.3.65. Only 26 respondents opted to answer this question; comments came from across all sub groups and some of these reiterated points raised in earlier questions.

3.3.66. A small number of points were made about the design of the regulations, mostly by a single respondent, and these included:

  • The regulations need to be clear and simple, and designed in a transparent and participative way.
  • The regulations should link to energy efficiency measures, service delivery and local objectives, taking into account viability of district heating and decarbonisation targets.
  • The regulations need to define a clear process for engaging anchor loads.
  • The regulations should only enforce connection if it is in the interest of the building it is intended to connect.
  • The regulations need to place an emphasis on feasibility, ensuring that heat supplied is not more expensive than what would be paid using an alternative energy source.
  • The regulations need to be linked to climate change objectives.

3.3.67. A small number of comments referred in some way to the planning process and the need for this to be taken into account. These comments included:

  • The regulations should address any potential gap between existing planning guidance or obligations and any new regulatory framework.
  • A need to make new build and refurbished buildings low carbon mandatory and district heating ready.
  • All new buildings should be on Scotland's Heat Map.
  • Local Development Plans should include details of district heating system ( DHS) locations and access points for add-ins; furthermore, where the LDP states that there should be a DHS or combined heat and power ( CHP), no exemption should be permitted.
  • There should be a change to the current National Building Standards to require an exemption allowance where any new build development is seeking approval without connection to a DHS / CHP.

3.3.68. There were also a small number of comments of the need to do hypothesis testing / evidence collecting before implementation of any regulations.

Section B3: Q18. What are your views on the relationship between LHEES and local development plans and how planning policy and development management should support the anticipated role of LHEES for new buildings? Please explain your answer

3.3.69. 46 respondents commented at this question; responses came from across all sub groups.

3.3.70. The key theme emerging across all sub groups, from 26 respondents, was that Local Development Plans ( LDPs) and LHEES should be aligned. A smaller number of respondents, mostly in the local government group suggested that LDPs and LHEES should be integrated and embedded.

3.3.71. A few respondents also noted that LDPs need to reference LHEES. The reasons given for this was that:

  • It would help to ensure that district heating networks are created.
  • It would help to create better alignment of broader decarbonisation and fuel poverty targets.
  • Site allocations can inform LHEES of priority areas for district heating network development.
  • New developments provide opportunities to build in low carbon heat supply, without the concerns of retrofitting in the future.

3.3.72. Some respondents noted that LHEES and LDPs need to avoid being contradictory.

3.3.73. A few respondents referred specifically to the need for LHEES to be a material consideration for planning authorities. A small number of respondents noted that it might not always be viable to include district heating in a new development and gave examples including developments where the connection cost might be prohibitive or where other low carbon technologies are cheaper to install.

3.3.74. A relatively small number of respondents noted the need for any regulation to be at a national level so that developers have a level playing field across Scotland and to prevent developments being built in an area where they will not be required to create a district heating network or connect to one. Similarly, there were a small number of comments that planning policy at both local and national levels need to be aligned.

3.3.75. A small number of respondents focused on the current Planning Review which has the potential to change Scottish Planning Policy and the National Planning Framework, and noted that LHEES needs to be considered in the context of the Review. Alongside this, there were also a few comments that there need to be links across a range of policy areas including Local Housing Strategies, Carbon Management Plans, fuel poverty strategies and so on.

3.3.76. Once again, there were a few requests, mainly from local government, for guidance, support and resources to be provided to support local authorities.

Summary: Section B3

Many respondents said that anchor loads would be essential in making any new district heating scheme viable, although there would be a requirement for a long term commitment to using heat from the system. However, respondents also saw challenges in connecting anchor loads to heat networks.

Views were mixed on the proposed power to compel existing buildings to connect to district heating.

When asked if the broad principles and criteria are appropriate, there was some support, although relatively few respondents addressed this question.

There was fairly broad support for socio-economic assessment at project level to include an assessment of the impacts on consumer of the requirements to connect with the customer, again along with reducing fuel poverty, seen as priorities.

There was also fairly broad support for local authorities to exercise powers to compel connection of existing buildings.

Views were mixed on the question of whether mitigating risk by establishing exclusive concessions will lower financing costs and heat prices, although more agreed than disagreed.

Respondents made a number of suggestions as to how regulations could best be designed. The key suggestion, albeit from a small number of respondents, was on the need for transparency of costs.

In relation to the time length of concessions in order to attract investment, suggestions varied from 10 years to 50 years, although most said the length of concessions needed to be at least 20 years.

A majority of those who addressed the question of whether compelling existing buildings to connect to district heating would mitigate heat demand risk, lower financing costs and help create an attractive investment proposition for district heating developers and financial institutions agreed that it would.

When asked for evidence of how much financing costs would be lowered or how regulations can be designed to best ensure this happens, few respondents commented. A small number said that individual areas have unique risk profiles and many variables that can impact on cost per unit of heat.

The main theme from responses to the question on the relationship between LHEES and local development plans and how planning policy and development management should support the anticipated role of LHEES for new buildings was that Local Development Plans and LHEES should be aligned.

3.4. Connecting Surplus Industrial Heat

Section B4: Q19. What challenges and opportunities do you see for existing industrial plant to connect and sell waste heat to nearby district heat networks, both now and in the future?

3.4.1. Comments on this question were noted in 53 responses, from across respondent groups, and a number of challenges were identified.

3.4.2. One of the main concerns, raised by 20 respondents across various respondent groups was that of reliability of supply. An example of these comments includes the following from the network, professional or trade group:

"For some existing industrial plant, such as power stations, a heat network operator can be assured of a long term source of waste heat, however, in many cases this level of long term stability cannot be guaranteed. Existing industrial operations may reduce output or close at any time and this may have a significant impact on the operation of the heat network".

3.4.3. Respondents commented that some businesses may have varying availability of heat waste, for example depending on the season or on the demands for their product. Respondents felt that there should be no obligation placed on businesses to provide an uninterruptible supply.

3.4.4. Other key concerns, again across various respondent groups, included the capital costs involved; one business & industry respondent identified "the capital costs to modify their process and/or buildings to be able to take waste heat away and connect to a heating network" while a local government respondent suggested:

"The cost of in-building conversion to DH is identified as an issue; one solution is to require connection at the point of heating replacement. If immediate connection is required, then in-building costs would need further consideration".

3.4.5. Respondents were concerned that high up-front costs could act as a deterrent. There were also comments on the length of time that would be needed to recoup investment and some suggestions that incentives may be required.

3.4.6. There were also some concerns that the investment required to supply the heat waste may be disproportionate to the amount of heat available for use.

3.4.7. Several respondents, across groups, voiced concern over the quality or nature of waste heat, with some adding that because plants are designed to be efficient, waste heat can often be a lower temperature and may need to be boosted.

3.4.8. Other technical challenges identified by respondents included pipe diameter, pressure and storage.

3.4.9. Issues around the distance of the supply from demand were raised by several respondents as was the difficulty of matching supply with demand.

3.4.10. Concerns over resistance from businesses included that businesses may not want to share what may be in some cases commercially confidential data. Another potential issue was that the length of commitment will not fit with short term business planning.

3.4.11. Resistance to change and ownership issues, perhaps where the business owner is based overseas, were also mentioned by small numbers of respondents.

3.4.12. There were also comments that many businesses already use their waste heat and that an obligation could therefore be counterproductive.

3.4.13. Several of the points mentioned above were also raised at the consultation events.

3.4.14. A small number of respondents identified opportunities, either for businesses in supplying their waste heat, or in general in relation to district heating:

  • For businesses, respondents saw the potential for stronger links or integration with local communities. Some said that businesses would be recognised for their contributions to climate change targets and energy efficiency and that being involved could help them meet their environmental targets. It could also provide an additional income stream or help reduce disposal costs.
  • In more general terms, the use of waste heat was seen as beneficial in helping to provide low cost social heating and low carbon heating.

Section B4: Q19b. What barriers have industries experienced in the ability to sell their heat under current market conditions?

3.4.15. 38 respondents identified barriers for industry and many of these were similar to the challenges identified at the previous question:

  • That heat waste is not all suitable because of pressure, quality or temperature.
  • Security and reliability of supply; in addition that users may be concerned about the security of their supply.
  • Location or distance of the supply from demand.
  • A lack of incentive or high set-up costs for a low return, or the time taken to recoup investment.
  • Concern over any contractual requirements to provide an uninterrupted supply.

3.4.16. Other barriers identified by respondents included:

  • A lack of appropriate skills or expertise.
  • That there are no business models related to the use of heat waste in district heating.
  • The lack of existing infrastructure in place for upgrading and transporting the heat; allied to this the need to attract commercial interest for building heat infrastructure.
  • Issues around contractual arrangements; again that there should be no requirement, or penalties, on businesses that cannot guarantee the supply. In addition, a local government respondent commented : "operators of industrial plant may be reluctant to enter into contractual agreements that could constrain their production flexibility in future or cause undue disruption to their current processes".
  • A respondent from the business & industry group also felt that there is a lack of policy support for industrial waste heat recovery.

3.4.17. A small number mentioned that the mismatch between demand and supply could be challenging, or that until district heating networks are more established a lack of demand could pose a barrier.

Section B4: Q20. What are your views on requiring existing industrial plant, with the potential to supply surplus heat, to make data available to public authorities? Please provide any relevant evidence.

3.4.18. 47 respondents gave their views; 44 of these said that the availability of this data is important.

3.4.19. Many of those who replied commented said that this should be a requirement (26 across groups), although some suggested a voluntary approach could be tried in the first instance (six, mainly from local government). At the consultation events, attendees felt that providing data should be required.

3.4.20. Reasons given for agreeing with a mandatory approach included the need for an accurate Heat Map. Respondents said that lack of data is a barrier to the development of heat networks. Event attendees also discussed the Heat Map and wanted to see data standardised to allow comparisons across local authority areas.

3.4.21. Some commented that, without a requirement to provide the information, businesses may not be willing perhaps due to confidentiality. Several of these respondents stressed the need for safeguards such as confidentiality agreements. A respondent from the academic group felt these concerns could be addressed by the data being managed centrally.

3.4.22. A few cited data protection issues with one local government respondent commenting: " It is unclear how this data could be made available without permission from the companies given the requirements of the Data Protection Act".

3.4.23. A small number felt some businesses may not be able to provide the information due to a lack of expertise or resources needed to compile such data, including compliance costs; there were comments that this could involve significant time, effort or resources. Some suggested that incentives such as tax or rates relief may be required to encourage businesses to provide the data.

3.4.24. A small number of respondents commented that an obligation should only be placed on those businesses in a position to supply surplus heat or where supplying surplus heat was viable. One from the network, professional or trade body group said: "A plant that does not meet the requirements for having 'useful heat' or is in an isolated location should not be required to provide data". One respondent from the business & industry group said that the requirement could apply a threshold of above 5 MWth.

3.4.25. A small number specified that SEPA should be responsible body. One local government respondent suggested: " There is the potential to use existing mechanisms, such as SEPA collection of environmental data to semi-automate this process. It is worth noting that SEPA already mandates industrial sites over 20 MW to have a heat plan".

3.4.26. One network, professional or trade body respondent also commented on this requirement and suggested that this could be amended to include other, smaller industrial suppliers.

3.4.27. SEPA themselves supported the proposals but said that the current system only captures information from those with a Pollution Prevention and Control (Scotland) regulations Part A permit:

"Current voluntary system through SPRI captures some of this information, but not all. It could be extended to capture all the useful data with changes to legislation making data submissions mandatory rather than voluntary".

3.4.28. A respondent from the business & industry group said that they would not support a requirement, saying: " A more effective approach will be for the LHEES to identify potential buildings and industrial plant where waste heat may be an issue and to proactively engage with owners to seek data". They felt that SEPA and other public bodies should be educating and not compelling.

Section B4: Q21. Under these proposed new arrangements, do you think that an enabling approach, perhaps using voluntary mediation, will be successful? How can we best encourage existing industrial plant to supply waste heat to a district heating network?

3.4.29. 43 respondents commented, with more agreeing with the enabling approach than with a requirement.

3.4.30. 16 respondents, across sub groups, felt that the enabling approach should be tried, or tried first. For example, a network, professional or trade body respondent explained:

"One of the key barriers to industrial waste heat connections can be the pricing of waste heat. The network operator will assume it is 'free', while the industrial user will be interested in maximising commercial value while still ensuring the price is below what the network operator is currently paying. Mediation could prove helpful in overcoming these differing commercial perspectives".

3.4.31. Consultation event attendees also shared the view that the enabling approach should be tried first.

3.4.32. Several respondents said that being able to demonstrate the benefits (economic and environmental) would be important for engaging industry. One local government respondent suggested: "Assistance could be offered by Resource Efficient Scotland to trial the quantification of waste heat in some key industries that are located either close to existing heat networks or areas of high heat density. Establishing real life examples of the opportunities available to industry will assist in driving demand from other sectors and industries".

3.4.33. Nine, across most groups but none from the network, professional or trade group, felt it should be a requirement. A third sector respondent said that research by RSPB Scotland has shown that voluntary approaches are not appropriate "where high rates of participation and compliance are required, where there is limited flexibility regarding actions and timings, or where serious social or environmental risks are involved". They said that, as many of these apply "it is not possible to be confident that a voluntary mediation approach can be relied on to deliver the necessary change".

3.4.34. Eight, including three from the network, professional or trade group, said that incentives may or will be required, for example a reduction in CO 2 tax, off-setting the cost of connecting or business rate reductions.

3.4.35. A small number felt this should be dealt with on a case by case basis and this included a business & industry respondent that suggested:

"initial contact and exchange of information a business case would have to be worked up and an open approach should be made where this is considered viable. This can only be done on a case by case basis".

Section B4: Q21b. Which public authority should carry out the role of voluntary mediation?

3.4.36. 31 respondents gave suggestions and several mentioned the need for the body to have skilled people with a technical background and expertise in the field.

3.4.37. The main bodies identified were the Scottish Government (seven, including several local government respondents) and SEPA (seven, mainly network or business respondents) and local authorities (seven, mainly local government and business & industry). Other suggestions included:

  • Resource Efficiency Scotland.
  • Heat Network Partnership.
  • Scottish Enterprise / Highlands and Islands Enterprise ( HIE).
  • Scottish Futures Trust.
  • Zero Waste Scotland.
  • Ofgem.
  • The Advisory, Conciliation and Arbitration Service ( ACAS).
  • A new independent regulator / mediator.

Section B4: Q22. Do you agree that in some circumstances (if requested), compulsory mediation is needed?

3.4.38. As shown in the table below, 32 out of the 46 who replied agreed that in some circumstances (if requested), compulsory mediation is needed.

Section B4: Question 22

Yes No Other comment No reply
Business & Industry (24) 6 2 3 13
Network, Professional or Trade body (18) - 2 2 14
Local government (17) 10 2 1 4
Third sector & Community (9) 4 - 1 4
Public sector (7) 3 - - 4
Academic (4) 3 - - 1
Other organisation (1) 1 - - -
Individuals (7) 5 1 - 1
Total (87) 32 7 7 41

3.4.39. Eleven of those who agreed provided their reasons. These were mainly that there may be cases where this is needed to ensure the supply; some also said that this should be used as a last resort.

3.4.40. Four of those who said no commented further. One individual and a respondent from the network, professional or trade body group did not value mediation while a local government respondent felt that voluntary mediation would be more successful. A business & industry respondent did not think compulsory mediation is appropriate, adding: "We do not see it as the role of the LAs to intervene in contractual negotiations outside of their own assets".

3.4.41. Most of those making other comments said that compulsion should be used as a last resort.

3.4.42. Some of the event attendees thought that mediation would be required, others suggested that mediation could be built in to engagement during the development process.

Section B4: Q22b. Do you agree that if compulsory mediation was not successful, then a more directive approach should be used?

3.4.43. The following table shows that a majority of the 39 who replied agreed that if compulsory mediation was not successful, then a more directive approach should be used (26).

Section B4: Question 22b

Yes No Other comment No reply
Business & Industry (24) 6 1 2 15
Network, Professional or Trade body (18) - 1 3 14
Local government (17) 7 2 2 6
Third sector & Community (9) 2 - - 7
Public sector (7) 1 - 2 4
Academic (4) 3 - - 1
Other organisation (1) 1 - - -
Individuals (7) 6 - - 1
Total (87) 26 4 9 48

3.4.44. Eleven of those who agreed supplied comments and, as seen in the previous question, these were mainly that there may be cases where this is needed to ensure the supply, and again some said that this should be used as a last resort.

3.4.45. The four who disagreed felt that the business should decide or that mediation may have failed because the business case had not been made; again, persuasion was seen as preferable to compulsion.

3.4.46. Those who made other comments, rather than agreeing or disagreeing, did so as they did not think compulsory mediation should be used, or that it should only be used as a last resort.

Section B4: Q22c. Which public authority should carry out the role of compulsory mediation or direction?

3.4.47. The main bodies identified by the 29 who replied to this question were similar to those identified in relation to voluntary mediation. The main suggestions were:

  • SEPA (nine, various respondent groups).
  • The Scottish Government (six, including three from local government).
  • Ofgem (three, various).
  • An independent regulator (three, various).

Section B4: Q23. What are your views on requiring new industrial plant to be 'district heating-ready'?

3.4.48. 51 respondents, across sub groups, commented on this question. 22 said that they agree with this requirement while a further 22 (including most of the network, professional and trade respondents that commented) also agreed but qualified their response.

3.4.49. Several pointed out that costs will be reduced if this is incorporated at the design or early stage of development. Some commented this should be a condition of planning consent or included in national Planning Policy. One local government respondent said: "This requirement could be easily achieved through existing building regulations".

3.4.50. Those qualifying their response said that this should be a requirement as long as the plant is in an area where the supply can be used; a respondent from the network, professional or trade group said: "If a district heating zone has been identified then any planning permission for industrial plant that falls within the zone should be subject to the plant being 'district-heating-ready'". Others said it should only be a requirement if it does not reduce the viability of the development or have an adverse effect on business operations. There were also concerns that such a requirement might lead to additional waste heat being produced just so that it could be sold. Some commented that this might not be suitable for all industry types.

3.4.51. A small number asked for clarification as to what is meant by 'industrial plant' and 'district heating ready'.

3.4.52. There was a query as to whether this would also be appropriate for new build residential developments and a suggestion that it should also apply to commercial buildings.

3.4.53. A very small number (four) were opposed as they felt:

  • The developer should make the decision based on feasibility and cost-effectiveness (business & industry).
  • New plant should be energy efficient and " should focus on its intended commercial purpose and not be influenced by other considerations which may lead to inefficiency and unintended consequences" (business & industry).
  • That this should be measured as part of the business case but that a requirement would not be appropriate for every circumstance and area (local government).
  • Some types of plant need to be based near raw materials rather than near to a heat network (network, professional or trade).

Section B4: Q24. What would be the most appropriate way of ensuring that new industrial buildings connect to district heating networks? What role can zoning within LHEES play in this?

3.4.54. There were 41 responses to this question, again from across respondent groups.

3.4.55. The main theme that emerged in responses to this question was that local development plans, planning regulations and consent could be used to ensure connection. Several of these responses came with similar provisos to those seen at the previous question, particularly that the decision is appropriate for the local area and for the business.

3.4.56. The following example of these comments came from a respondent in the network, professional or trade group:

"If the LHEES has identified a particular location (zone) where district heating is the most appropriate solution then any new industrial buildings in that zone could be targeted to determine any potential anchor load or potentially any usable surplus heat. It could be a condition of obtaining planning consent for new industrial buildings to submit potential heat requirements or any usable surplus heat as part of the planning application".

3.4.57. Several respondents, from various groups, also mentioned the need for incentives to promote this and to ensure viability for businesses, such as loans, lower rates or other incentives.

3.4.58. One local government respondent was concerned that zoning could conflict with other development plan principles.

3.4.59. At the consultation events, respondents commented that it is already a requirement for new industrial buildings to be district heating connection-ready.

Summary: Section B4

Respondents were asked what challenges and opportunities they saw for existing industrial plant to connect and sell waste heat to nearby district heat networks, both now and in the future. Several concerns emerged from responses and these were also given as examples of barriers to selling heat. Concerns included: reliability of supply; capital costs; and the quality or nature of waste heat.

The availability of data from existing industrial plant, with the potential to supply surplus heat, was seen as important. Reasons given for agreeing with a mandatory approach included the need for an accurate Heat Map.

More respondents agreed with an enabling approach than felt it should be a requirement, although small numbers commented.

Respondents were fairly evenly split over whether they felt the Scottish Government, SEPA or local authorities should carry out the role of voluntary mediation; again only small numbers commented. The need for the body to have skilled people with a technical background and expertise in the field was seen as important.

Most of those that commented on compulsory mediation agreed that in some circumstances (if requested) compulsory mediation is needed; some said that there may be cases where this is needed to ensure the supply.

When asked whether, if compulsory mediation was not successful, a more directive approach should be used most of the respondents who replied said that it should.

SEPA or the Scottish Government were the main suggestions for the body who should carry out the role of compulsory mediation or direction.

Most of those who addressed the question on requiring new industrial plant to be 'district heating-ready' agreed with this requirement. However, many qualified their response saying that that this should be a requirement only when the plant is in an area where the supply can be used.

Local development plans, planning regulations and consent were seen as the most appropriate ways of ensuring that new industrial buildings connect to district heating networks.

3.5. Technical Standards, Consumer Protection and Licensing

Section B5: Q25. Do you agree that as district heating becomes more widespread it will need to become a licensed activity? Please explain your answer.

3.5.1. As the table below shows, almost all respondents who provided a definitive response, agreed that as district heating becomes more widespread it will need to become a licensed activity. Event attendees also shared this view.

Section B3: Question 25

Yes No Other comment No reply
Business & Industry (24) 11 1 - 12
Network, Professional or Trade body (18) 4 1 2 11
Local government (17) 16 - 1 -
Third sector & Community (9) 5 - 1 3
Public sector (7) 2 1 2 2
Academic (4) 4 - - -
Other organisation (1) - - - 1
Individuals (7) 5 - - 2
Total (87) 47 3 6 31

3.5.2. 54 respondents also provided commentary in support of their answer; a number of key themes emerged:

  • That a licensing regime will provide customer protection in terms of standards, price and security of delivery.
  • That this will help to maintain and set consistent technical standards for design, construction, and operation and connectability; this perception was particularly prevalent among those in the local government group.
  • That this will help to ensure customer confidence and credibility in district heating networks.
  • To maintain levels of probity and governance; important because of the need to ensure close scrutiny of the potential for monopolistic abuse.
  • To provide reassurances for potential customers, developers and operators.
  • A need for a national framework applicable to all local authorities across Scotland, to ensure consistency in provision.

3.5.3. There were a number of comments that licensing is important because it will help to provide parity with the existing gas and electricity markets, or that this is directly comparable to other utilities and should therefore be subjected to the appropriate regulations.

3.5.4. However, smaller numbers of respondents commented that licensing needs to be discussed with the industry so that it is not overburdened with unnecessary regulation, or that a licensing regime should not be so onerous as to prevent development or investment in the district heating sector.

3.5.5. There was also a comment that if specific standards are required (both technical and related to consumer protection) then form licensing may not be required.

3.5.6. Some respondents suggested a voluntary code of practice, with a few referring specifically to the Heat Trust or CIBSE Heat Networks Code of Practice, suggesting that the district heating sector should be compliant with either or both of these.

3.5.7. Very small numbers of respondents raised other issues and these included:

  • Who will bear cost of regulation?
  • Who would be responsible for issuing district heating licences?

Section B5: Q26. What technical standards and consumer protection measures should be part of standard district heating licence conditions? How should these relate to existing schemes?

3.5.8. 45 respondents commented at this question; responses came from across all sub groups.

3.5.9. Significant numbers of respondents referred to existing Codes of Practice, with 19 referring to the Heat Trust and a similar number referring to CIBSE (Chartered Institute of Building Services). CIBSE was also referenced at the consultation events. Smaller numbers of respondents referred to:

  • ADE (Association of Decentralised Energy) Code of Practice.
  • Forthcoming compliance scheme to be led on by the ADE.
  • BRE – Technical Guide.
  • Building Engineering Services Association ( BESA) – Hiu test standard / Early Connections Guide.
  • Bonfield.
  • Ofgem.
  • Scottish Housing Regulator.

3.5.10. Smaller numbers of respondents suggested these should be starting points for development of standard district heating licence conditions.

3.5.11. However, one issue raised by some respondents was that the Heat Trust is only voluntary and only applied to the operator and customer; also that this does not cover pricing.

3.5.12. There were also some comments that there is a need to look beyond voluntary measures and create mandatory measures instead.

3.5.13. At the consultation events, attendees identified retail licensing and access to an independent arbitrator as critical to consumer protection. A number of consultation respondents noted that there is need for customers to have consumer rights and protection, or to have similar levels of protection as are currently seen in the gas and electricity markets.

3.5.14. Others referred to specific key elements or protection measures that need to be incorporated in licence conditions and these included:

  • Transparent costs / clear pricing / price setting criteria.
  • Price caps.
  • Secure supply, including high capacity flow, maximum and minimum temperatures, pressure levels.
  • Process for breakdown and maintenance.
  • Accurate / regular / quality billing.
  • Guaranteed minimum standards of heat supply.
  • Maximum repair time guarantees.
  • Compensation payments.
  • Dispute management / complaints handling (with one suggestion of a need for an independent organisation to manage disputes).
  • Joining and leaving rights.

3.5.15. A few respondents in the business & industry and third sector & community groups made reference to the need for protection of vulnerable customers specifically.

3.5.16. One respondent from the network, professional or trade body group provided information on their customer protection scheme for the district heating sector and offered further information and engagement with the Scottish Government on this issue.

3.5.17. Other suggestions included;

  • A need for annual reporting by providers of district heating systems to show they are meeting their public duties under the Climate Change Act.
  • A need for a mechanism for a supplier of last resort.
  • An Ombudsman service (suggested by respondents in business & industry).

3.5.18. There were a small number of suggestions that a timeframe should be put in place for existing schemes to meet technical and consumer protection measures.

There were also a small number of suggestions of the need for the Scottish Government to work with the UK Government as this is not a devolved area.

Section B5: Q27. What are your views on using a licensing system to confer enabling powers on operators, and on what enabling powers are required?

3.5.19. 30 respondents commented at this question; responses came from across all sub groups.

3.5.20. The view expressed by most was that a licensing system is the best way to confer enabling powers, with a number of these respondents suggesting this should operate in the same way as existing utility providers to as to have a 'levelling of the playing field'.

3.5.21. A small number of respondents, mostly in the local government sector, commented that concession holders should have to have a licence.

3.5.22. A few respondents outlined what they felt the enabling powers should be and these included:

  • Wayleave and access rights.
  • Metering.
  • Installation and maintenance of a district heating system.
  • Billing.
  • Power to request obligatory connection.

3.5.23. A small number of respondents commented that enabling powers should not be applied to operators now but that the focus should be on implementation of technical standards and consumer protection.

Section B5: Q28. What principles, objectives and other considerations should guide the development of a Scottish district heating licence?

3.5.24. A wide range of principles, objectives and considerations were noted in responses, each mentioned by small numbers of respondents.

3.5.25. The following points were suggested by two or more of the 32 respondents who replied to this question:

  • Fairness, transparency and sustainability.
  • Fair pricing e.g.: " it should also include unit cost / price guarantees which are indexed to incomes and inflation" (local government).
  • Security of supply.
  • Consumer protection; although one respondent from the third sector commented on legislative issues saying that as consumer protection is not devolved, the SG would not be able to enact new legislation and so would have to amend other current legislation: "the Scottish Government can introduce a statutory licence that includes existing consumer protections in legislation".
  • Knowledge, skills and experience (especially technical experience).
  • Standards or industry-wide standards.
  • Financial stability and viability.
  • The need to maximise development of district heating systems.
  • Environmental considerations, including energy efficiency and decarbonisation and use of low carbon sources.

Section B5: Q29. What drawbacks or challenges might a licensing system create? How could these be minimised?

3.5.26. 36 respondents, mainly from local government or business & industry, commented on this question.

3.5.27. Several respondents felt a licensing system might prove onerous, overly bureaucratic or costly and so act as a barrier to operators, particularly for public sector or small organisations that may wish to take out a licence. This view was shared by consultation event attendees.

3.5.28. There was also a concern that an overly complex or burdensome system could reduce competition and lead to a small number of operators gaining control of the market.

3.5.29. The following, from a local government respondent, is an example of these comments:

"This must strike the right balance between rights and responsibilities; too many rights and there is a risk that the network operator becomes too powerful in its monopoly and therefore may struggle to sign up customers and keep them where there are alternative forms of heat available; too many responsibilities will result in fewer operators being willing to become suppliers and this will harm the growth of this industry".

3.5.30. The need to ensure access to new entrants, communities or smaller schemes was seen as important; there was a comment that a licensing system might act as a disincentive to these groups and also that it could stifle innovation.

3.5.31. In relation to minimising these drawbacks or challenges, transparency, monitoring, and a proportionate, light-touch, well designed system were seen as key to overcoming barriers. For example, a third sector respondent suggested: "It should be a principle in the design of the licensing system that the burden of compliance with each clause or obligation is minimised".

3.5.32. Another challenge identified by respondents was the time period needed to recoup investment, with comments that long concession periods would be necessary to minimise this issue.

Section B5: Q30. Do you have views on who should issue District Heating Licences and ensure that technical standards are being met?

3.5.33. 38 respondents from various sub groups made suggestions; those made by two or more respondents included:

  • A new SG owned Energy Agency or other national body (14 mentions).
  • The Scottish Government (six).
  • SEPA (four).
  • Local authorities with support from SG or other national body (three).
  • An independent body (three).
  • Ofgem (two from network and business, although one local government respondent and attendees at the consultation events said they would prefer licensing power to remain in Scotland).

3.5.34. In addition, two respondents commented that technical standards should follow the ADE CIBSE Code of Practice.

Section B5: Q31. Would the benefits of the concession area outweigh the costs of the licensing arrangements?

3.5.35. 31 respondents, across respondent groups, commented.

3.5.36. Although a small number said yes (nine), more said it was not possible to say at this stage (10).

3.5.37. The remainder gave more general comments including that the benefits of the concession area would need to outweigh the costs of the licensing arrangements in order for the development and implementation of district heating to progress.

3.5.38. Reasons given by those who said yes included that this had already been shown to be the case in other regulated sectors or that this would be the case if compliance costs are kept in check.

3.5.39. Reasons given by those who said 'don't know' included that there is, as yet, insufficient information on which to make a determination. One network, professional or trade group respondent said it is important that:

"any costs imposed as part of the licensing system are as cost-effective as possible, utilising existing frameworks wherever possible, to limit cost impacts on developers (as costs will make heat networks less viable as investments or will impact heat customers)".

Summary: Section B5

Almost all respondents who provided a definitive response agreed that, as district heating becomes more widespread, it will need to become a licensed activity. Once again, consumer protection and consistent standards were seen as important.

A wide range of principles, objectives and considerations to guide the development of a Scottish district heating licence were noted in responses.

Some respondents felt a licensing system might prove onerous, overly bureaucratic or costly and so act as a barrier to operators. The need to ensure access to new entrants, communities or smaller schemes was seen as important.

On the question of who should issue District Heating Licences and ensure that technical standards are being met, most of the small number who commented suggested a new Energy Agency.

While a small number of respondents felt that the benefits of the concession area would outweigh the costs of the licensing arrangements, a similar number said it was not possible to tell at this stage.

3.6. Enabling Activity and Additional Areas for Consideration to Support our Regulatory Approach

Section B6: Q32. What are your views on the best approach to ensuring that potential customers understand the differences as potential customers of a heat network, and who do you think is best placed to convey these messages?

3.6.1. 45 respondents commented on this question; responses came from across all sub groups. Some responses focused on channels of communication, others on who should be responsible for communication, a small number on what the key message should be and some on combinations of these and other themes.

3.6.2. Whilst the overall pattern of comment was fragmented, a relatively common theme was to state or confirm the need for customer engagement, consultation and education.

3.6.3. A few respondents commented on what specifically should be included e.g. financial benefits, environmental benefits, social or societal benefits. The need for consumer protection was emphasised in a small number of comments, sometimes linked to the importance of impartial and independent advice.

3.6.4. Around one in five responses, across sub groups, referred to a need for both national and local communication activity to fulfil different roles, sometimes with different audiences. Linked to these differing needs, many respondents see responsibility falling to multiple parties; the Scottish Government and local authorities were relatively commonly cited. An array of different organisations were mentioned including National Oversight Body, Heat Trust, Home Energy Scotland and Heat Network Developers. The need for trusted or independent sources of information was highlighted.

3.6.5. In comments regarding channels of the communication, the importance of face-to-face contact such as public meetings was cited by a small number of respondents. Other suggested routes for engagement and communication included advocacy, websites and local press. There was recognition of a significant communication challenge and some comment on the need for plain English to be used.

Section B6: Q33a. Please provide any evidence you have regarding analytical skills, resources and techniques that could support development of LHEES, particularly where these are not currently used by local government.

3.6.6. Only 30 respondents commented on this question, although responses came from across sub groups. The overriding theme in responses was that central government input will be required to create Scotland wide, standardised information, data and resources from a central body and make this available to local authorities.

3.6.7. A few responses also suggested that a national approach would be more cost effective and ensure greater consistency.

3.6.8. Several responses, particularly but not exclusively from the local government group, highlighted a lack of either the necessary specialism and / or resources in local authorities to support development of LHEES. Some commented specifically on the need for additional staff or consultants to provide the required skill sets. A similar point was made at the consultation events.

3.6.9. There was some further comment that the purchase of external services on an individual local authority basis would not be cost effective.

3.6.10. The key skill sets identified in responses included development viability, economics, data analytics, option appraisals, whole life costings, specialist legal knowledge, GIS, environmental impact and consumer engagement.

Section B6: Q33b. Please provide any evidence you have regarding the anticipated cost of preparing LHEES.

3.6.11. Only 20 respondents answered this question, half were from the local government group with the rest from across the other groups.

3.6.12. The main theme in comments at this question was that costs are expected to be extensive, although very few respondents specified amounts. One respondent from the local government group estimated a cost of £500,000 per zone to produce a feasible action plan.

3.6.13. A couple of references were made to information from Greater London Authority, citing a cost of producing an in house basic energy master plan for an area within London as around £30,000 and for a consultant supported detailed master plan a cost of around £50,000.

3.6.14. The need for a coordinated approach across local authorities, and for pro forma and guidance from central government as well as resources, were reiterated again here.

3.6.15. At the consultation events, attendees were unsure of costs, saying that this would depend on the level of detail required and the support available.

Section B6: Q33c. Please provide any evidence you have regarding the additional skills and resources needed to meet the requirements of the potential local authority role of district heating regulation.

3.6.16. 25 respondents commented on this question and responses came from across sub groups. The themes were consistent with those at earlier parts of the question and reiterated the lack of many skills as well as a lack of resources in local authorities. Similar themes emerged at the consultation events.

3.6.17. A few respondents made suggestions for regulation to be undertaken by a third party, national body or within the Scottish Government, or for a central pool of knowledge and guidance to be made available. Once again some respondents felt this would ensure consistency and provide a cost effective solution.

Section B6: Q34. What support and resources will local authorities need to produce LHEES and implement the potential local authority role of district heating regulation, and which organisations do you think these are best placed to provide these? Please explain your views.

3.6.18. 38 respondents commented on this question and responses came from across sub groups. The main recurring themes focussed once again on the need for financial resource for additional in house staff and / or procurement of consultancy services. The need for technical resource and strategic guidance was also a theme again here.

3.6.19. Specific mentions were made, each by a small number of respondents, of the need for support in identifying zones, preparing costings, modelling, socioeconomic assessments, energy management, GIS, procurement and contract negotiations, legal, development management and housing services.

3.6.20. A wide range of organisations were cited as able to provide support and resources on specific areas, although each was mentioned specifically by very small numbers.

3.6.21. They included Heat Network Partnership, Scottish Futures Trust, Energy Saving Trust, Changeworks, Scarf, Sustainable Scotland Network, The Carbon Trust, Historic Environment Scotland and a Heat Network Delivery Unit similar to England. Comments were made regarding additional staff within local authorities, working with consultants or other third parties and also the possible benefits of shared resources.

Section B6: Q35. What are your views on how any support should change over the different phases of development, introduction and implementation of any regulation?

3.6.22. 30 respondents answered this question, almost half were from the local government group with the remainder from across the other groups. It was a relatively common theme that the levels of support required are expected to reduce over time as expertise builds at a local level. One or two respondents commented on the need for levels of support to be reviewed over time.

3.6.23. Some respondents suggested there would be greater emphasis on technical support in the early stages e.g. feasibility, heat mapping and zoning, progressing to more support with contractual issues, planning and development, and legal issues such as challenges from bidders and from building owners.

3.6.24. There was some comment that the level of support is likely to vary between local authorities and that it will be important that learnings are shared. Several respondents reiterated again here the need for resources and expert input and this was echoed at the consultation events.

Section B6: Q36. What are your views on the wider regulation of the heat market to ensure decarbonisation?

3.6.25. 42 respondents commented on this question and responses came from across sub groups. A number of respondents stated their support for the Scottish Government's approach. Many comments focussed not only on decarbonisation but also the importance of heat regulation ensuring sustainability. There was also comment on the need to address fuel poverty as a priority.

3.6.26. A relatively common theme within the commentary at this question included a need for controls to ensure energy for district heat systems is low or zero carbon and that new plant can be adapted in future to operate on other fuels or technologies.

3.6.27. There were mixed views expressed as to whether regulation relating to heat should focus on transition to a largely decarbonised energy system and not extend to regulation of other heating fuels. One or two respondents commented on the need for balance to ensure there is fair competition and also to protect consumers. Several responses included suggestions for the use of incentives for take up of low carbon solutions, and carbon taxes or obligations for energy service providers ( ESPs) to reduce CO 2 emissions.

3.6.28. There was some comment on the need for investment and support for green gas projects, low carbon solutions and appropriate infrastructure. There was specific comment that decarbonisation of the gas network should be encouraged through appropriate green gas projects and potentially in the longer term hydrogen. However, one respondent in the business and industry group questioned whether hydrogen or carbon capture and storage ( CCS) would necessarily deliver a cheap solution to decarbonised heat. The same respondent identified the benefits of onshore wind and suggested that the availability of cheap gas is being allowed to delay investment in low carbon infrastructure.

3.6.29. A respondent in the local government group suggested that decision on the future of the gas network should only be taken when the UK Government is satisfied that there is a viable solution.

3.6.30. Another business and industry respondent suggested that policy to target off gas grid carbon emissions reductions would be welcomed, recognising LPG as a low carbon alternative and supporting the deployment of biomass and LPG heat networks.

3.6.31. The theme of appropriate incentives and encouragement recurred in several comments.

Section B6: Q37. What are your views on when decisions should be taken on the future of the gas network?

3.6.32. 43 respondents commented on this question and responses came from across sub groups. A number of these responses suggested that decisions should be taken " as soon as possible" or "as a matter of urgency"; others referred to 2020, by 2023 (before the next gas price control review), mid 2020s or within the next five years.

3.6.33. Comments from those who favoured early decisions included suggestions that this would assist local authorities in their planning, ensure consumers are making appropriately informed decisions regarding purchase of heating systems and give clarity to businesses who may be affected.

3.6.34. There were several comments that early decisions are required to allow all affected parties to plan accordingly; the 2032 target in the Draft Climate Change Plan is also cited as a consideration that necessitates early decisions. On the other hand, there were also comments pertaining to the need for further information, evidence and learnings from ongoing activity before significant decisions are taken.

Section B6: Q38. Please provide any evidence you have to inform the Scottish Government in informing its thinking in this area.

3.6.35. 16 respondents commented on this question and responses came from across respondent groups. A small number of responses include details of specific resources, occasionally in lengthy lists and others offered to share information with the Scottish Government.

3.6.36. A few offered comments detailing their views on how the cost of regulating the asset base for heat in Scotland should be socialised. One business and industry respondent commented:

"In considering the issue of socialisation of costs in future it is important to be clear whether the aim is to spread the costs of de-carbonisation (where taxation would be a more equitable - and probably more practical - way of socialising costs across different technologies) or whether the aim is to spread risks across customers more uniformly which would still be difficult but raises fewer equity / distributional issues."

3.6.37. An individual respondent felt that the costs of regulating the asset base for heat in Scotland should be socialised across all of the tax payers in Scotland.

3.6.38. A local government respondent noted that it would be beneficial to investors, developers and customers for the socialisation of development and maintenance costs to be spread across the widest possible heat market.

Summary: Section B6

Around half of all respondents provided views on the best approach to ensuring that potential customers understand the differences as potential customers of a heat network. The main themes included the need for customer engagement, consultation and education.

Respondents were asked for evidence regarding analytical skills, resources and techniques that could support development of LHEES, particularly where these are not currently used by local government. The main theme, from the relatively small number that replied, was that central government input will be required to create Scotland wide, standardised information, data and resources from a central body and make this available to local authorities.

When asked to provide any evidence regarding the anticipated cost of preparing LHEES, few commented and, for those that did so, the main theme was that costs are expected to be extensive.

Again, few commented on evidence regarding the additional skills and resources needed to meet the requirements of the potential local authority role of district heating regulation; respondents mentioned a lack of many skills as well as a lack of resources in local authorities.

Respondents were asked what support and resources local authorities will need to produce LHEES and implement the potential local authority role of district heating regulation, and which organisations might be best placed to provide these. The main recurring themes focussed once again on the need for financial resource for additional in house staff and / or procurement of consultancy services. The need for technical resource and strategic guidance was also a theme here.

Looking at how support could change over the different phases of development, introduction and implementation of any regulation, respondents simply expected the support required to reduce as expertise builds at a local level.

In respect of the wider regulation of the heat market to ensure decarbonisation, many of the comments made at this question focussed not only on decarbonisation but also the importance of heat regulation ensuring sustainability.

Respondents provided a range of suggestions on when decisions should be taken on the future of the gas network with a number saying 'as soon as possible' and others giving suggestions covering the next 5 to 10 years.


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