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Chapter 1 Setting the scene

How does this Strategy aim to reduce energy demand from the public sector, business and households?

1.1 This first Energy Efficiency and Microgeneration Strategy for Scotland sets out the Executive's aims for improving energy efficiency and encouraging a greater uptake of microgeneration. Together energy efficiency and microgeneration can achieve a low carbon future for our homes and workplaces and this Strategy therefore takes and reflects a more joined-up approach. Delivering the actions contained within this Strategy will require effective partnership working between the Executive and partners.

1.2 This is a draft of the Strategy for consultation. This consultative draft highlights work underway, sets out progress being made, and outlines work that is currently planned for the future. The Executive is welcoming views on its current thinking.

1.3 In the chapters that follow, this Strategy outlines a range of measures to improve energy efficiency and encourage investment in microgeneration across the domestic, public and business sectors. The benefits in taking action speak for themselves:

• A reduction in domestic energy bills and more comfortable homes;
• A reduction in number of households living in fuel poverty;
• More efficient and better provision of public services through reduced energy use;
• A reduction in energy bills and overheads for Scottish businesses leading to improved profitability and competitiveness;
• A reduction of greenhouse gas emissions which contribute to climate change; and
• A move towards a sustainable, lower-carbon economy.

1.4 Once the consultation has concluded, the Executive will consider all responses and take these into account when revising the Strategy. All of the existing and new targets and commitments in the final Strategy will be compiled into a single Action Plan which will be published during 2007. The Executive will use the Action Planning process to set energy efficiency and microgeneration targets. Progress being made against delivering these targets will be monitored through the Action Plan, which will be reviewed and reported on, on an annual basis. The Action Plan will include a summary of the carbon savings associated with the various actions, thus providing an overall picture of the contribution that energy efficiency and microgeneration will make to Scotland's Climate Change Programme targets.

Why is this so important?

1.5 The Executive's Sustainable Development Strategy - Choosing Our Future (November 2005) and Climate Change Programme - Changing Our Ways (March 2006) provide the backdrop to the development of this Strategy. They both reinforce the need for action to ensure that the vision for Scotland in 2050 as a prosperous and sustainable low carbon economy is secured.

1.6 The Kyoto Protocol targets for climate change established an essential first step for International action. However, if all countries meet their Kyoto targets, global emissions are only expected to fall by 1-2% by 2012. The UK Government therefore set a more ambitious goal to reduce domestic carbon dioxide emissions by 20% below 1990 levels by 2010, with a longer-term goal to reduce carbon dioxide emissions by 60% by 2050. The recently published UK Climate Change Programme was designed to help deliver this target. The International Community agreed at the Montreal Summit in December 2005 to begin consideration of the further action needed beyond 2012 to stabilise greenhouse gases.

1.7 However, many of the decisions that are taken now will leave a legacy for the future far beyond 2012, especially the investments that are made in our housing stock and transport infrastructure. We therefore cannot afford to wait for International decisions to be made before action is taken. Scotland's Climate Change Programme demonstrates its commitment to reduce carbon dioxide and other greenhouse gas emissions in the long term by quantifying and setting an ambitious carbon savings target for Scotland to 2010. The Scottish Share of the UK's carbon savings amounts to around 1.7 million tonnes of carbon equivalent in annual savings by 2010. To encourage Scotland to lead by example, the Executive took a step further by setting an ambitious Scottish Target to exceed this share by delivering an additional 1 million tonnes of annual carbon savings by 2010.

1.8 Although everyone must take personal responsibility, government clearly has an important role to play through the development and implementation of energy policies that will inspire and spur each and every individual into taking action. During 2006, the UK Government carried out a major review of progress in achieving goals set out in a 2003 White Paper. The review highlighted two major long-term challenges - climate change and security of energy supply

1.9 The Executive recognises the critical contribution that energy efficiency and microgeneration can play in tackling the issues of climate change and security of supply. While some actions (including regulation of markets) are for the UK government, the Executive is responsible for promoting energy efficiency and microgeneration - as well as building a vibrant renewable energy sector more generally.

What's happening to our energy?

1.10 As the economy grows, demand for energy also grows. This has two main consequences:

• Much of the energy is currently sourced from fossil fuels, therefore, increased energy use leads to growing carbon dioxide emissions; and
• At a time when North Sea energy production is declining, increased energy demand accelerates a reliance on imported energy.

1.11 Department of Trade and Industry statistics show that total electricity produced in Scotland for 2005 was approx. 49 Tera Watt hours (TWh) - this is a reduction of approximately 1% from 2002, where electricity produced was 49.6 TWh. The major sources of electricity in Scotland in 2005 were nuclear (38%), coal (25%) and gas (17%). Renewables accounted for 13% and oil for 6% of electricity generation. Total electricity consumption in Scotland for 2005 was 35.6 TWh.

1.12 As part of the Scottish Energy Study series, the Executive has commissioned research to examine potential patterns of energy supply and demand in Scotland in 2020 and to project the possible energy picture for Scotland in 2050. Assumptions will be made about the factors that affect energy demand, as well as factors that could affect Scotland's future energy mix. These assumptions will provide information on the potential carbon dioxide emissions associated with the various scenarios and will allow consideration of where further action is needed. This data will be presented in Volume 5 of the Scottish Energy Study which will be published during 2007.

Saving more energy

1.13 Improving energy efficiency is widely recognised as the easiest and most cost-effective means of reducing carbon dioxide emissions. The financial benefits of doing so are clear - industry and society can achieve more with less energy, public services are delivered at lower cost, and fuel poverty is reduced. Better insulated buildings and more energy efficient workplaces cut energy bills for householders and businesses. Reducing demand also puts less pressure on energy supplies.

1.14 Scotland is reducing its overall carbon dioxide emissions. Recent figures show that Scotland's net carbon dioxide emissions have fallen by 14% since 1990, from 17.6M tonnes of carbon in 1990 to 14.86M tonnes of carbon in 2004. This reduction is more than any other part of the UK and of 14 of the 15 Member States that signed up to the EU Kyoto agreement. Despite the progress being made, demand for energy continues to rise and the scope for reducing energy consumption and carbon dioxide emissions is still significant. The residential and transport sectors have shown the most significant growth in energy consumption and carbon dioxide emissions, however, these sectors are also the most difficult to tackle as they involve a behavioural change for millions of individuals.

1.15 Residential energy is used to heat and light buildings, and to power appliances. The rise in energy use is partly due to changing social trends, such as an increase in the number of households where people are living on their own. But we are also still using far more energy than we need, for example:

• Energy is often wasted because of poorly insulated existing buildings or where heating, ventilation, air conditioning and lighting are poorly controlled;
• Products are less energy efficient than they could be - for example, the average upright freezer on the market today uses nearly three times as much energy as the most efficient one;
• Energy saving light bulbs use less than a quarter of the energy of ordinary light bulbs, and can last up to twelve times longer, but few people use them;
• Lights are left on in rooms when they're not being used;
• Appliances are left on stand-by rather than being switched off; and
• Rising wealth is leading to greater energy consumption through the proliferation of energy intensive consumer goods and services, such as digital set top boxes, plasma TVs and home computers.

1.16 However, many individuals and organisations do not fully realise the benefits that can be achieved through simple energy efficiency measures. This strategy identifies how the Executive will encourage more households, the public sector and businesses to take up those opportunities, and outlines a package of policies and measures to drive an increase in energy efficiency across these sectors of the economy.

Whose Responsibility?

1.17 There is clear direction from Europe to set ambitious and realistic targets for tackling climate change and improving energy efficiency. The EU Energy Efficiency Action Plan published in October last year and the European Commission's recent Strategic Energy Review (January 2007) highlight a number of priorities which are closely aligned with the Executive's policies for tackling climate change and improving energy efficiency. These propose:

• Setting targets to reduce greenhouse gas emissions by 30% by 2020; and
• Improving energy efficiency by 20% by 2020.

1.18 Scotland has a key role to play in delivering and achieving these European targets and we will make our contribution. The Executive has devolved responsibilities for the promotion of energy efficiency and takes on the challenging role of changing behaviour through raising awareness and providing advice and financial incentives to improve energy efficiency across the public, business and domestic sectors. This Strategy therefore focuses on what the Executive and its partners in Scotland can do to contribute to European and UK targets.

1.19 The UK Government is responsible for measures that relate to regulation, appliance labelling, mandatory obligations, and energy services. The Executive already works closely with the UK Government on these issues, and will continue to do so, to ensure that Scottish interests are represented. (The Executive is, for example, ensuring that the White Paper which will follow the recent Energy review reflects Scottish interests.) UK-wide measures that have an impact in Scotland are outlined in Annex A.

Creating more clean energy

1.20 Energy Efficiency will help to reduce carbon dioxide emissions, but not on its own. Changing Our Ways - Scotland's Climate Change Programme points out that the energy sector contributed 37% of Scottish green house gas emissions (excluding removals) in 2003. In order to move to a low carbon economy, more clean energy must be created. Most of our electricity is generated in large power stations, and around three quarters of the heat that is used comes from gas fed through a nationwide network. Both electricity distribution and gas networks are optimised for a one-way flow, from a small number of entry points out to industry and buildings. This centralised model delivers economies of scale, safety and reliability.

1.21 There are a number of ways of producing heat and electricity for a home, housing development, industrial site or local community, and potentially towns and cities, and of connecting these sites through small-scale electricity or heat networks. 'Distributed energy' or 'decentralised energy' is a broad term used to describe this model. Its essence lies in generating energy near where it is used. It can include a range of technologies, such as microgeneration, Combined Heat and Power ( CHP) plants, biomass boilers, solar thermal panels, geothermal energy and heat pumps.

1.22 A distributed energy system using these technologies could radically change the way our energy needs are met in the long-term and it could lower emissions, increase the diversity of energy supply and, in some cases, lower costs. However, many of these technologies are still emerging and there are a number of significant barriers preventing more widespread investment in distributed generation - including a range of financial, technical and practical issues, low awareness and a lack of reliable information on their future potential.

1.23 The Executive is keen to make progress to develop its long-term potential for Scotland and understand the challenges faced in getting there. There is much to learn from the Scandinavian countries where distributed generation works well, for example, 50% of Denmark's power comes from decentralised energy, and 90% of Helsinki is heated by district heating. The UK Government, in conjunction with Ofgem, is currently undertaking a comprehensive review of the potential of distributed energy as a long-term alternative or supplement to centralised generation, looking at the incentives and barriers that impact on distributed electricity generation including CHP. The review is expected to report in the first half of 2007, and the Executive will use these findings to help take forward the potential for Scotland. As decentralised energy includes more than just microgeneration, this much larger piece of work is being carried out separately to this Strategy.

1.24 The Executive has already started to make a difference. Some low carbon technologies, such as microgeneration, are suitable to power an individual home or a community. In the chapters that follow, this Strategy outlines steps the Executive is taking, and will take, to further increase awareness, demonstrate potential, help to remove some of the barriers and encourage more widespread take-up across the domestic, public and business sectors.

Creating more clean energy on a small-scale

1.25 Microgeneration can make a significant contribution to tackling climate change, ensuring reliable energy supplies and helping to tackle fuel poverty. It can provide a sustainable source of low carbon energy and help to reduce carbon dioxide emissions from homes, small commercial buildings and community buildings, such as leisure centres and schools.

1.26 Microgeneration can also have a wider impact: Increasing awareness and engaging the public in tackling climate change. The attractiveness, visibility and personal nature of microgeneration installations, especially those in the community, can help stimulate the potential for home generation and encourage more energy efficient behaviour. Its use in schools can create an enhanced understanding of energy issues and climate change amongst future generations, helping to influence future behaviour patterns. Microgeneration technologies could also help to tackle fuel poverty, particularly for those households that are harder to help through traditional energy efficiency methods or who are not connected to the gas grid.

1.27 The Executive supports the full range of renewable generation technologies, including microgeneration, to enable Scotland to realise its considerable renewable energy potential. The Executive has set a target of generating at least 40% of Scotland's electricity demand from renewable sources by 2020 (an estimated 6 gigawatts of renewable capacity). The importance of using clean and sustainable energy from renewable sources will continue to increase as a result of the need to tackle climate change and ensure secure and diverse energy supplies. Microgeneration will play a part in helping to meet that target.

1.28 The built environment, including domestic, commercial and industrial premises, accounts for over 40% of our carbon dioxide emissions. Microgeneration could reduce this figure by providing low carbon sources of heat and electricity. The markets for microgeneration technologies are still in the early stages of development, therefore they may not have a significant impact on reducing emissions by 2010, but they will be particularly significant in meeting longer term emissions targets. Recent research suggests that, by 2050, widespread installation of microgeneration could provide 30-40% of Scotland's electricity needs and help to reduce household carbon dioxide emissions by 15% per year.

1.29 There are still a number of barriers to overcome before the full potential of microgeneration can be realised. These include financial costs, availability, a limited knowledge of the benefits and cost effectiveness of various technologies, and a range of planning and technical issues. The Executive is, therefore, putting in place a range of measures to encourage the uptake of microgeneration, develop the market and provide significant business opportunities for Scotland.

1.30 To address the lack of reliable information on the future potential of microgeneration in Scotland, the Executive is carrying out further research to ascertain its true potential. In addition, a wide range of other actions are required and will involve the Executive and its agencies, the Enterprise Networks, local authorities, UK Government, Ofgem and the microgeneration industry to work together to address these constraints. This strategy sets out the work that the Executive is doing and will do in the future to address these barriers and to help support and develop microgeneration in Scotland. All of this work will help to set microgeneration targets for Scotland which the Executive will do during 2007.

1.31 To date, the Executive's support for microgeneration, and renewables in general, has tended to focus on the generation of electricity and it is now considering what is needed to support the promotion of renewable heat. This is critical because it is estimated that, in the residential sector, 80% of energy used goes towards heating and the potential to reduce emissions is therefore significant. In addition, Scotland has significant forestry & agricultural resources and is well placed to become a major player in renewable heat and biomass production. In recognition of the importance of the renewable heat sector to Scotland, the Executive is separately developing a Renewable Heat Strategy, which is due by the end of 2007. This will cover a wide range of potential technologies including biomass, ground source heat pumps, solar water heating, geothermal energy, energy from waste, anaerobic digestion and landfill gas.

What about transport?

1.32 Transport is an essential part of economic activity, but this activity produces carbon dioxide emissions - it has an impact on the local, national and global environments. In 2002, transport accounted for around 29% of energy use in Scotland.

1.33 Key trends include: the continuing growth in travel, particularly by air and road and the growing contribution this makes to Scotland's carbon dioxide emissions; changes in international trade; changes in land use patterns and lifestyles and changes in demographics and health.

1.34 The challenge therefore, is to develop transport systems, both infrastructure and services, in new ways which accept at the outset that there is a carbon imprint to transport which must be addressed. The Executive published the National Transport Strategy for Scotland during December 2006. This sets out the Executive's plans for taking forward Scotland's transport services over the next twenty years. The Strategy is based around three key strategic outcomes: improving journey times and connections, reducing emissions and improving accessibility, quality and affordability.

1.35 Developing Scotland's transport infrastructure and delivering against these key strategic outcomes poses challenges for Scotland, especially for reducing or limiting carbon dioxide emissions from the transport sector. The National Transport Strategy sets out a number of policies aimed at reducing carbon dioxide emissions. These include:

• Maintaining commitments to the Renewable Fuels Transport Obligation;
• Enhanced sustainable freight distribution strategies;
• Better land use planning; and
• Programmes aimed at influencing travel behaviour and the promotion of more sustainable transport options e.g. travel planning, consumer transport advice and eco-driving campaigns.

1.36 Although these activities aim to reduce carbon dioxide emissions, the National Transport Strategy recognises that there are a number of transport policies that could have a negative effect on reducing emissions. The Executive will, therefore, present a "carbon balance sheet" for monitoring and reviewing progress being made against all transport policies - not just those that reduce emissions. As the impact of the transport sector on emissions is being looked at on the whole as part of the implementation of the National Transport Strategy, the transport sector is not discussed any further here.

Energy and equality

1.37 In promoting energy efficiency and microgeneration, the Executive is committed to ensuring that support provided meets equality objectives. An equality impact assessment of the Strategy is currently being carried out. We do not anticipate the Strategy itself having a discriminatory impact but we need to ensure that programmes of support are equally available. Work carried out so far has highlighted the need to improve data on uptake and the Executive is working to improve data collection. This will help identify, for example, whether delivery mechanisms require to be redesigned in any way.

1.38 As later chapters of this Strategy set out, some existing programmes are already expressly directed to groups who are in fuel poverty. But the Executive must ensure that broader programmes of information and advice are designed and delivered so as to meet equality objectives. The Executive will publish further details of how it will meet these objectives during 2007.

What next?

1.39 The chapters that follow set out the measures in place and the steps we will take to improve energy efficiency and encourage investment in microgeneration technologies across the domestic, public and business sectors. The final Chapter highlights how the Executive will implement the Strategy through the development of an Action Plan.

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