ResponsetoConsultationonHeatandEnergyEfficiencyStrategiesandDistrictHeatingRegulation,April2017

IntroductionStopClimateChaosScotland(SCCS)isacivilsocietycoalitioncampaigningforactiononclimatechange.Membersincludeenvironmentandinternationaldevelopmentorganisations,studentunionsandtradeunionists,communitygroupsandfaithgroups.WebelievethattheScottishGovernmentshouldtakeboldactiontotackleclimatechangehereathomeandplayitspartinsupportingclimatejusticearoundtheworld.WearegratefulfortheopportunitytosharetheviewsofthecoalitionontheConsultationonLocalHeatandEnergyEfficiencyStrategiesandDistrictHeatingRegulation.OverviewSCCSwelcomestheconsultationonLocalHeatandEnergyEfficiencyStrategies(LHEES)andDistrictHeatingRegulation.AsheatmakesuparoundhalfofScotland’semissions,SCCShaslongcampaignedforacceleratedactiononheatdecarbonisation.Inrecentyears,wehavecalledforenergyefficiencytobedesignatedanationalinfrastructurepriorityandforacomprehensivelegislativeframeworktoincentivisethedevelopmentoflowcarbonheat.1Theconsultationprovidesapositivepackageofmeasuresthatwillhelptoreduceemissionsfromthebuiltenvironmentandspeeduptherolloutoflowcarbonheatnetworks,essentialtodeliveronthedraftClimateChangePlantargetsforfabricefficiencyandheatdecarbonisation.DistrictHeatingregulationwillneedtobetakenforwardasprimarylegislationthroughaDistrictHeatingRegulationsBill.Legislationisnecessarytoestablishthelongtermstabilitythatsecuresinvestmentandmaintainsthenecessarystandardsofoperation.Certainly,introducingastatutorydutytoestablishaLHEESandintroducingacompulsiontoconnectwouldappeartorequirealegislativefooting. LocalHeatandEnergyEfficiencyStrategiesDutytoProduceandImplementanLHEESSCCSsupportstheproposalsforLHEES,includingtheproposalthatlocalauthoritiesshouldhaveadutytoproduceandimplementanLHEESasoutlined.Thiswillensurethatnoareaisleftbehind,andthateconomic,socialandenvironmentalbenefitsaremaximisedrightacrossScotland.Thefactthatthedutyrequiresimplementationisalsowelcome,asthiswillensurecomplianceandthatthereisseniormanagementbuy-in.ThisstatutorydutywillplaceadditionalburdensonLocalAuthoritiesandmustthereforebecomprehensivelyresourced,within-houseexpertise,adequatefundingandtime.Clearguidancewillneedtobedevelopedcentrallytohelpsteertheformationofthesestrategiesandsupportlearningandsharingofbestpractice,particularlyforLocalAuthoritieswheretherearefewerstaffandfinancialresources.GeographicalScaleLocalAuthoritylevelisanappropriategeographicalscale,allowingtailoredlocalsolutionswhichwillmaximiselocalbenefits.However,LocalAuthoritiesshouldseektodevelopLHEESeitheraloneorincombinationwithotherlocalauthoritieswherephysicalorsocio-economiccircumstancesindicatepotentialsynergies.Smallerlocalauthoritiesmayparticularlybenefitfromsupportbymoreexperiencedorwell-resourcedLocalAuthoritiesthroughjoint-working.

1Seeforexample,SCCS2016HolyroodElectionManifesto:http://stopclimatechaos.org/sites/default/files/Manifesto-final-web.pdf

ScopeandContentWeagreewiththeproposedscopeandcontentforLHEES.Wewarmlywelcometheintegratedapproachtobothsupplyanddemandside,astoooftenenergymasterplanningfocussesonthegenerationandsupplyratherthanreducingdemand,whichisoftenthemostcosteffectivesolutionforheatdecarbonisation.Planstoenabledemandreductionmustencompassmorethanbuildingfabricandenergyefficiencytechnologies,however,butalsoclearstrategiestosupportbehaviourchange,particularlyforhigherenergyusers.TargetsWeagreethatLHEESshouldsetlocaltargetsforenergyefficiencyanddecarbonisation.ThesemustbeconsistentwiththetargetssetoutinthedraftClimateChangePlan,thoughtargetsshouldnotbeinterpretedasacaponlocalefforts.Atpresent,thereisinadequateclarityaboutthewider,long-termtargetsforSEEPandregularmilestonesalongtheway,andinadequatedetailontheSEEPdeliverymodel,includingbudgetsandfinancingmechanisms.ThiswillneedtobefleshedouturgentlyinorderthatLocalAuthoritiescaninterprettheoverallgoalstosetappropriatetargetsfortheirlocalcircumstances.Itisessentialthatanationalgovernancebody(whetherneworanexpandedremitforanexistingbody)isputinplacewithaclearoversightfunctiontoensurethatthesumofindividualLHEEStargetsaddsuptotheoveralltargetsforSEEPandtheresidentialandservicessectorsinthedraftClimateChangePlan.AlignmentwithLocalDevelopmentPlansItiscrucialthatLHEESandLocalDevelopmentPlansarealignedandthereneedstobepolicysupportforLHEESwithinLDPs.TheScottishGovernmentmustensurethatreviewoftheplanningsystemisconsistentwiththeneedsofitsenergypolicy.DistrictHeatingRegulationZoningEvidencefromareviewofinternationalexperience2hasfoundthatzoningareasfordistrictheatingwas able to reduce demand risk and consequently provide confidence to the developers andinvestorsinheatnetworkprojectstoprogresswithdevelopment.Furthermore,zoningwillallowthedevelopment of larger heat networks than the current piecemeal approach because the reduceddemandriskprovidesconfidencetodevelopersand investors.Thiswillhavean impactoncostsaslargerheatnetworksallowfixedcostsinthenetworkandplantroomcanbespreadacrossalargernumberofcustomersleadingtoanimprovedinternalrateofreturn.3EstablishingExclusiveConcessionsExclusivitytodevelopandoperateaconcessionwillhelptheconcessionholdertoreducedemandriskasnoothernetworkprovidercanentertheareatocompeteforcustomers.Thisshouldreducefinancingcosts,leadingtolowerpricesforconsumers.Furthermore,theabilitytoseekobligationtoconnectfromthelocalauthorityshouldenabletheconcessionholdertosecureabovethethresholdof60%ofthelocalheatmarketsuggestedasnecessaryforviability4.

2Bestpracticeinheatdecarbonisationpolicy:Areviewoftheinternationalexperienceofpoliciestopromotetheuptakeoflow-carbonheatsupply.UKERC(Dec2016)3DistrictheatingintheUK:ATechnologicalInnovationSystemsanalysis.DHawkeyEnvironmentalInnovationandSocietalTransitions(2012)4BackgroundReportonEU-27DistrictHeatingandCoolingPotentials,Barriers,BestPracticeandMeasuresofPromotion.Andrewsetal.EUJointResearchCentre(2012).

The responsibility for issuingandenforcing concessions should fall to local authorities as theyareclosesttothepointofdelivery,theywillunderstandthespatialandtopicalgeographyoftheirareas,they will have responsibility for other local strategies, programmes and plans (such as the localdevelopment plans) and provide a democratic channel for local consumer concerns. It has beennotedelsewherethatincountrieswheredistrictheatingisasubstantialfeatureoftheheatsupplysectorlocalauthoritieshaveplayedaprominentrole5.Themainimplicationofzoningandconcessionsisthatcustomerswithinthezoneswilleventuallybeconnectedtoamonopolyproviderfortheirheatrequirementsgivingrisetoconcernsoverpotentialmonopolyabuse6.Thisemphasisestheimportanceoftransparencyandconsumerprotectionbeingembeddedinregulationsandrootedinlegislation.It should be noted that in Denmark companies retailing heat are required by legislation to beorganised as not-for-profit entities7. Itmay be thatmeeting the conditions and requirements forconcessionsmeansthatanot-for-profitapproachwillbebestplacedtosucceedinthecompetitivetendering and this should be actively considered. The regulations should not rule out enablingmunicipalorpublicbodiesfromestablishingaconcessioniftheycanprovetobethebestpartytotakeforwardadevelopmentthroughacompetitivelicensingprocess.Concessionsmayneedtobegranted for longer thanthe20year timeperiodproposed forLHEES.Typicaldistrictheatingprojectsusea25–30yearterm.CompulsiontoConnectSCCS supports a compulsion to connect, where it can be demonstrated through socio-economicassessment thatover the long termtherewillbenodetriment tobuildingownersandconsumersandthattheywillbenefit.Atpresent,demandriskmeansthatdeveloperslackconfidencethattheycancapturesufficientloadtojustifyinvestmentandinvestorspricetheriskintotherequiredreturnoncapitalleadingtohigherconsumercharges.The approach should be to seek voluntary connection based on a competitive offer. Compulsionshouldonlybeusedasalastresort.It is likelythatthismayneedtobeusedinearlystagesofthenewregulatoryregime inorder todemonstratetheScottishGovernment’scommitment.Butoncethisisunderstoodandacceptedthentheneedforcompulsionwillsubside.IndustrialPlantandWasteHeatWewelcomethefocusonwasteheatfromindustrialplantandnotethatvoluntaryapproachesmaynot always work. Therefore the Scottish Government will need to signal a clear pathway fromenabling tomediation to direction.However,we also note the challenges in using industrial heatsourcesastheprimaryor‘anchor’sourceofheat,asthisisnottheirprimaryuseandthevolumeandqualityofheatmaybesubjecttochange.Thiscanbemitigatedbyassemblingasupplymarketfroma broad diversity of potential heat sources, for example in a large industrial area. Air quality andnoisepollutionmustalsobetakenintoaccountinplanstousewasteindustrialheat.ThisshouldbeaddressedthroughtheLHEESandLDP.Formoreinformation,pleasecontact:CarolineRance,CampaignsManager,StopClimateChaosScotlandcaroline@stopclimatechaosscotland.org01312432701 5Bestpracticeinheatdecarbonisationpolicy:Areviewoftheinternationalexperienceofpoliciestopromotetheuptakeoflow-carbonheatsupply.UKERC(Dec2016)6Bestpractisesupportschemes.SvenWerner.EcoHeat4EU(2011)7HowDanishcommunalheatplanningempowersmunicipalitiesandbenefitsindividualconsumers.Chittum&Østergaard.EnergyPolicy74(2014)