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Section 5: Market Size

In developing its recommendations to the Scottish Government, the group considered the potential size of the renewable heat market in Scotland within the wider heat market. The key policy findings are:

• Switching to renewable heat requires investment in completely new infrastructure, either individually or through the installation of renewable heat networks which requires substantial capital investment.
• Heat markets have a number of characteristics that create a different set of issues for increasing renewable heat use, compared to renewable electricity. The key difference is that heat energy is generated at the end user location, rather than at a distant energy plant. There is no single market.
• Gas is the major existing fuel for heating, and there is already a major infrastructure in place for delivery. In areas off mains gas grid, where fuel poverty in particular is of increasing concern, the heat market is especially fragmented with a large number of fuel suppliers delivering mainly oil and LPG to individual users.
• There are some limited heat networks in place, such as the district heating scheme at Seaton in Aberdeen, which use underground pipes to carry heat around the heating grid. Further examples include some small-scale distribution networks which are now up and running in areas such as the Fyne Homes development in Whitegates or the district heating network in Lerwick. Most of these networks provide heating for social housing and do not integrate private housing, industrial use and public sector buildings. The Lerwick project has 592 domestic and 91 non domestic customers including the Clickimin Leisure Complex, Gilbert Bain Hospital and two primary schools. The Caithness Heat & Power project in Wick is the first such major infrastructure project which will link the local distillery, public and private sector housing and the hospital to a district heating network, with energy generated from a biomass CHP plant.

The following table shows the estimated energy consumption by sector.

Table 1: Estimated annual heat energy consumption

The total energy consumption for Scotland is taken from the Scottish Energy Study (Scottish Government, 2006) ¹ and is based on figures for 2002. This study also provides figures for domestic and public service space heating.

Figures for hot water and total heat demand in the domestic and service/public sector are based on the total figures given in the Study for heat, hot water and catering, less the assumed amount used for catering, taken from the Energy Consumption in the UK² catering ( DTI, 2002) (5% for domestic and 9% for service/public).

Figures for industrial space and process heat demand, including high and low temperature process, drying and separation, are based on percentage given in the DTI report (10% and 66% respectively).

The amount of electricity used for heating in the domestic and service/public sector is taken from the Scottish Energy Study and for industry is estimated based on the difference between non-electric energy consumption and heat demand (total non-electric fuel consumption is 70% whereas heat demand is 76%).

To put the above figures in perspective, there are around 2.4 million households in Scotland, using on average 20 megawatt hours of heat energy (MWh _th) each per year. At a larger scale, the 44 MW _e E-On power station at Lockerbie will produce around 0.1 TWh of electricity per year while a 25 MW _eCHP plant could produce around 0.05 TWh of electricity as well as 0.2 TWh of heat per year.

Figure 1: Estimated Energy Use

Current use of Renewable Heat

The Scottish Renewables Forum estimates in its "Delivering the New Generation of Energy" report in 2006 that around 6% of Scotland's total energy use comes from renewables, of which around half of which is renewable heat. This includes heat from renewable electricity and from traditional energy sources, such as wood fires. This would suggest that up to 4% of Scotland's heat demand is currently provided by renewables.

As discussed above, future heat demand is not expected to increase substantially by 2020. Targets should consider both this and the current proportion of heat supplied by renewables when setting ambitious targets for renewable heat use.

Domestic - around 87% of energy used for heat and hot water

In general, most domestic consumers expect heating to be cheap and convenient, something that cannot currently be delivered by all renewable heat technologies. Even where the fuel itself is comparatively cheap, or free as in the case for solar heating, installations can be capital intensive and disruptive. The easiest and cheapest option is usually to fit renewable technologies during construction, though the level of heat demand from existing buildings is of course much greater.

Existing households - solutions to retrofitting

The domestic heat market is estimated to be around 47 TWh per annum, with nearly two thirds of households in urban areas and predominantly owner occupied. The bulk of the remaining domestic properties are owned by housing associations and public authorities. In terms of the total estimated heat energy usage, private householders account for around 31 TWh of energy consumption for space and water heating, and the public/community housing sector accounts for the remaining 16 TWh.

The largest segment of the heat market is high density housing in urban areas (flats or terraces), either privately owned or rented. This can be a difficult sector to tackle in terms of support and coordination of retrofitting, but there is a good example of what can be done in the Edinburgh "Top of the Tenements" case study linked to from Annex C. Planning and space issues may make some types of technology unsuitable and the number of individual owners and types of tenure can make a comprehensive programme of retrofitting more complex. Particularly for district heating, issues such as siting of the plant, disruption caused during retrofitting and getting agreement from individual householders to sign up can create some additional barriers. Only 6% of the Scottish Community and Householder Renewables Initiative ( SCHRI) grants to householders are within the four city local authority areas (Aberdeen, Edinburgh, Glasgow and Dundee). However, based on the experience of local authorities in Shetland and Caithness, there is significant demand from private householders to connect to local heating networks established by the local authority (e.g. 75 applications for SCHRI funding to connect to the Lerwick District Heating scheme), where heating costs are significantly reduced.

A key driver for retrofitting heating systems is fuel poverty. Around one third of Scottish houses are off-mains gas - mainly in small towns and rural areas - of which roughly one quarter will be local authority/housing association properties. This sector therefore comprises around 9% of households and could be a strategically significant target for renewable heat.

New build - promoting renewables in the private sector

The rate of new build in Scotland is currently around 1% of the existing housing stock per annum. The Scottish Government has signalled that it wants to see the rate of development of new housing increased from the current level of 25,000 per year to 35,000 per year by the middle of the next decade, meaning that the opportunities for using renewable heat technologies in new properties will increase. This suggests that over 10 years all new build properties could account for at least 10% of the total domestic heat market. However, energy consumption in new properties is likely to be lower compared to existing housing stock due to tougher building regulations and the estimated heat market from this sector is likely to be around 0.3 to 0.4 TWh per annum.

The vast majority, nearly 90%, are built by and for the private sector and this is therefore a key market sector to address. Housing associations have built several flagship district heating schemes with renewable heating - but market penetration of renewable heat must reach the private sector to deliver significant renewable heat capacity.

Whether or not this elevated building rate is achieved, the new build market - stimulated by the Merton rule, SPP6 and efforts to bring forward the provision of zero carbon buildings - offers a critical opportunity for the development of a renewable heat industry subsequently able to provide technology at a cost which makes it commercially viable for retrofit into existing dwellings. Where developments with a total cumulative floor space over 500m ² are planned, the introduction of SPP6 raises an expectation that developers will explore fully the opportunities for the installation of low and zero carbon equipment to contribute to at least an extra 15% reduction in carbon emissions beyond the 2007 building regulations standard for carbon dioxide emissions. There is limited consensus on which technologies will be favoured by the effects of building regulations and planning rules, but broad agreement that appropriate technologies such as biomass CHP will need active support to scale up to the levels of demand anticipated.

Table 3: New build properties by owner (2006)

Industry - demand for process heat

It is difficult to get a detailed breakdown of industry heat consumption. Based on figures from the Scottish Energy Study, it is estimated that heat consumption is around 24 TWh per annum (67% of total industrial energy consumption). This energy is used for a wide variety of processes and each sector has specific requirements for heat. Two key areas to consider when looking at targeting support and appropriate technologies are:

• type of heat requirement (low to medium temperature/high temperature)
• sectoral distribution (large individual point sources/dispersed)

Large-scale point sources - major industry users

Most of the large-scale point sources of heat emissions and hence energy use are chemical industries, including refineries. Other key point sources are large-scale timber industry plants (pulp and paper, chipboard), the seven large grain distillers and individual large-scale energy consumers.

Key sectors - major industrial heat users in Scotland

Some of the key industry sectors already use renewable energy. Alcan in Lochaber use large amounts of hydro-electricity; the timber industry uses biomass fuel, and two of the major paper producers, have biomass projects in the pipeline:

• It is estimated that the paper and timber industry currently uses around 92 thousand oven dried tonnes of domestically derived biomass per annum for energy, equivalent to nearly 2% of total industrial heat energy usage. The installation of large scale biomass plants currently underway will increase significantly the proportion of renewable heat used by the industry over the next five years.
• The chemical sector, including oil refineries, has a very high heat demand. Boiling, distilling and various chemical processes have a low-medium temperature requirement which could be met by a variety of renewables.
• The food and drink sector is a significant market segment in Scotland. In particular, whisky distillers use an estimated 8% of heat energy in Scotland just over half in 7 large grain distilleries. The remaining demand is split over 80 locations, predominantly in rural areas and often close to local populations. Distilleries also produce a significant amount of biomass co-products and waste heat, which could be a key opportunity to address both industrial and domestic heat use.

Service Sector

This includes commercial, public and agricultural energy use and the Scottish Energy Study estimates that energy used for space, water heating and catering is around 17 TWh per annum. Major energy users in this sector are leisure facilities, schools, hospitality and commercial offices.

Future heat demand

Domestic - improved energy efficiency balances increases in consumption

Between 1990 and 2002 domestic energy consumption across the UK increased by around 12% due to a number of factors:

• an increasing amount of electrical appliances in the home;
• more people living alone, increasing the number of households;
• an increase in the average temperature in the home (estimated ³ to be around 1.5ºC between 1991 and 2000).

This is counterbalanced by increasing energy efficiency and insulation, and as housing stock improves, by 2020 overall heat demand should be starting to decrease, assuming that improvements in the existing stock outweigh the net effect of additions to the stock. The higher the standards of new dwellings the less demand will be added, and the easier it will be for reduced demand in existing buildings to result in net reductions in demand.

Industrial - declining demand

Between 1990 and 2002 consumption in the industrial sector decreased by around 31%, largely due to a decline in heavy industries. However, some sectors are experiencing growth, for example food and drink remains a key sector for Scotland. Growth in sectoral energy use will also be counterbalanced by targets set under the Climate Change Levy.

Services - improved energy efficiency in public buildings

Between 1990 and 2002, energy consumption increased by about 10% mainly due to increases in the use of electricity for office equipment, etc. Again, improvements in the energy efficiency of buildings, particularly new buildings, will reduce the energy consumption per m ².

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