The Scottish Government

« Previous | Contents | Next »

Listen

Section 8: Targets and Mechanisms

TARGETS

As discussed in Section 5, annual heat usage in Scotland is estimated to be around 95 TWh per year, the equivalent of approximately 57% of our total energy demand in Scotland. Scottish Renewables estimates that around 6% of total energy demand and up to 4% of heat is generated by renewables. A proportion of that heat comes from electricity and will therefore be from renewables sources, because Scotland is making good progress towards meeting its milestone that 31% of electricity demand is supplied from renewables by 2011. In addition, the Scottish Government has set a new and challenging target of 80% carbon emissions reduction by 2050. At an EU level, the Commission has agreed a target of 20% of energy consumed in the EU to come from renewables by 2020, with the UK contribution set at 15%. FREDS would like to see similarly ambitious targets set for renewable heat for 2020 whilst recognising this needs to take account of what is achievable and how it will help to deliver other targets. A range of targets could be considered offering various levels of carbon emissions reduction and challenges. For example:

Indicative Heat Targets

Scotland is already moving towards the new EU target with targets for renewable electricity generation and is currently committed to a UK-wide target of 5% use of biofuels by 2010 (with an aspiration set out by the EU to achieve 10% use of alternative transport fuels by 2020).

Comparing the targets is complex. The agreed target for the whole of the EU is based on total energy consumption (encompassing transport, heat and electricity sectors). So, looking at Scotland specifically and assuming the energy targets already set for 2020 are met, if 50% of electricity consumed and 5% of transport fuel consumed is from renewable sources, then at least 20% of heat would need to come from renewable sources to achieve a target in line with the EU.

To consider the level of challenge represented by setting a target, an approximate level of market penetration in terms of installed capacity is considered below. Using assumption on average heat load for each sector, an indicative installed capacity for each sector to achieve a 20% renewable heat target would be:

• domestic: 3,736 MW _th: around half a million households (assumes 30% heat load)
• industrial: 765 MW _th: e.g. around 300 distilleries (assumes 80% heat load)
• service and public: 1,309 MW _th: e.g. around 2,000 secondary schools or 1,500 leisure centres (assumes 30% heat load)

(Figures for energy consumption taken from Carbon Trust, 2003 ⁴ and DEFRA, 2001 ⁵)

It is difficult to quantify current renewable heat capacity as this is not necessarily monitored (e.g. on-site generation of energy in the timber processing sector). In the domestic sector, some heating is provided by woodfuel and current heat capacity installed under SCHRI is around 14 MW _th. Around 17 MW _th installed biomass capacity is already in place in small-medium scale installations, with an additional 20 MW _th to be installed under the SBSS by March 2008 and a number of other large-scale CHP projects in the pipeline. As discussed in Section 5, based on Scottish Renewables' estimate, up to 4% of heat demand currently comes from renewable sources. However, further data needs to be gathered to understand where we are currently and the level of support required to deliver against any target set by the Scottish Government.

The group recommends that a new heat target is set, to complement existing renewable electricity targets and contribute to the UK share of the EU target for renewable energy generation by 2020. However, insufficient data is available at the time of this report to set a appropriately ambitious target and the level of support required to achieve it. Therefore, the Scottish Government should carry out further work to identify an appropriate target, taking into account the fact energy efficiency has the potential to reduce overall heat demand, making a renewable heat target easier to achieve.

Targets

That the Scottish Government:

• conducts urgently further analysis of the potential heat market in Scotland and the respective barriers and costs in order to inform the identification of an appropriate target for renewable heat, taking into consideration the impact of energy efficiency and heat loss reduction on the overall market size.

MECHANISMS

The Report has considered some of the key drivers for renewable heat and some of the barriers. This section makes recommendations on a number of mechanisms to tackle the barriers to growth of a buoyant renewable heat market in Scotland. The mechanisms are grouped into the following categories:

• Policy and Regulation
• Local Planning, including heat mapping
• Financial Incentives
• Capacity Building, including training
• General Awareness Raising

POLICY AND REGULATION

The group considers that further action is required across a number of policy and regulatory areas to develop the renewable heat sector in Scotland, as follows:

Wider Heat Strategy

FREDS considers that a renewable heat strategy must form an important part of a wider heat strategy for Scotland. This will be especially important if we are to reach the targets on renewable energy and climate change, proposed at a European, UK and Scottish level. The Group's view is that district heating will play a key role in developing a renewable heat sector but it needs to be considered as part of a wider heat strategy, integrated with energy efficiency policy. In addition, if district heating is to make an impact then the technology support and regulatory reform will need to take account of the large number of tenements buildings that are typical in Scotland.

Wider Heat Strategy

That the Scottish Government:

• develops a wider heat strategy for Scotland and takes into account, in the strategy, the measures needed to develop the renewable heat sector.
• as part of a wider heat strategy, supports and promotes district heating, taking into account the technology support and regulatory reform needed.

Fuel Poverty

The Scottish Government has provided £1 million funding over a 2 year period (April 2006-March 2008) to pilot the installation of renewables-based central heating systems in properties that are off the gas grid across Scotland. The pilot will enable Ministers to make informed decisions on whether to mainstream renewables technologies with the Scottish Government's Central Heating Programme in order to target fuel poverty.

The Fuel Poverty Renewable Heat Pilot aims to assess the impact of renewables technologies on fuel poverty; assess people's reactions to using these technologies; and to evaluate the potential costs and benefits of including them in fuel poverty programmes. The final report on the pilot is expected in July 2008. An interim report was published in November 2007, and this highlights that heat pump systems may be an effective technology for improving the energy efficiency of a range of hard to heat properties, and for lifting households out of fuel poverty. One significant issue identified is the cost, as renewables systems are significantly more expensive than installing a traditional system. Nonetheless, FREDS considers that renewable heat can play a key role in helping to tackle fuel poverty but only if the Scottish Government provides the necessary support to overcome the high capital start-up costs.

Fuel Poverty

That the Scottish Government:

• supports the roll out of renewable technologies within its Central Heating Programme, subject to the success of the current Renewable Heat Pilot.

Public Procurement

The Scottish Government has announced the establishment of a National Procurement Centre of Expertise which will lead to collaborative procurement of common goods and services on behalf of the wider Scottish public sector and develop a sustainable procurement plan. FREDS recognises that within current public procurement legislation it is possible for public bodies to specify renewable sources of heating in both new buildings and refurbishments, provided that they think doing so is likely to be affordable, fit for purpose and a value for money solution for public funds. This has already been demonstrated in a number of exemplar projects such as biomass heating installations at the offices of Scottish Natural Heritage in Aviemore and in three Forestry Commission Scotland offices at Huntly, Dingwall and Inverness. Local authorities are also pushing forward a number of renewable heat projects, particularly in schools, and North Lanarkshire Council has led the way, with installations in four council premises.

FREDS welcomes the establishment of the National Procurement Centre of Expertise. The Scottish Government has a role to play in demonstrating leadership, in all aspects of sustainable public procurement.

Public Procurement

That the Scottish Government:

• takes a lead in its own public procurement practices in adopting renewable heat within its own estate, and requires local authorities and other public bodies to do the same.

Renewable Heat from Waste Biomass

Waste biomass comes in many forms including materials in household and commercial residual waste and from a wide range of industrial processes including agriculture and forestry. This material is a common constituent of waste that is land-filled where it biodegrades to produce methane, a powerful climate change gas. SEPA estimates that this material, if used in CHP or district heating, could produce energy equivalent to over 500 MW of installed capacity of carbon neutral energy.

The Scottish Government has committed to focus waste policy around the framework of zero waste. Zero waste means designing waste out of the system, preventing waste, and reducing the amount of waste sent to landfill while encouraging high levels of recycling and composting. The Government has outlined a vision where energy from waste is to have a significant role - up to 25% of all waste could go to this sector, focusing on high efficiency plants such as those generating combined heat and power. Where energy from waste is proposed, there are clear environmental arguments for ensuring that plants have high levels of efficiency, such as Combined Heat and Power. FREDS would wish to see the Scottish Government recognise the potential that exists in the efficient recovery of energy, including heat, from waste and the contribution this will make to reaching any target set for renewable heat. Small scale local facilities, utilising a range of available technologies including anaerobic digestion and powered by waste biomass could make a significant contribution to the heating cost of public facilities, industrial premises and new build housing whilst offsetting the negative climate impacts of land-filling waste biomass. Such an approach would be consistent with a Zero Waste policy and would have in-built flexibility to take primary and secondary biomass in future as waste levels fall owing to the impact of recycling and waste prevention measures.

Heat from Waste Biomass

That the Scottish Government:

• charges SEPA to prohibit the dumping of waste biomass from industrial and commercial processes to landfill in order to promote its use for energy production.
• puts in place a policy to prevent the combustion of any form of waste without the recovery of heat, via CHP and/or district heating, and ensures that the regulatory and planning powers necessary to enforce this are adequate.
• undertakes to establish a fuel standard(s) for materials from waste derived sources to enable appropriate materials to be treated as non waste fuel.

Low Carbon Buildings

The Scottish Building Regulations incorporate minimum energy standards that apply when a new building is constructed or an existing building is extended, altered or converted. Revised standards came into effect 1 May 2007. (www.sbsa.gov.uk). These energy standards could encourage, but do not yet require the incorporation of low and zero carbon technologies such as heat pumps, solar water heating and biomass boilers into building design. Further revisions to the energy standards in Scottish building regulations will be made on a four-yearly cycle.

FREDS recognises the work ongoing in this area, for example it is aware of the panel appointed by Scottish Ministers to advise on a Low Carbon Building Standards Strategy for Scotland. Their Report was published on 12 December but was too late for the Group to consider its recommendations in any detail. This is a positive step, and highlights Building Standards as one of the key policy tools that can accelerate the move towards low carbon buildings.

Low Carbon Buildings

That the Scottish Government:

• includes renewable heat as part of the process of progressively tightening and fully enforcing building regulations to accelerate progress to deliver zero-carbon new building stock.
• reviews, as a matter of urgency, all options for existing building stock in order to maximise uptake of renewable heat and minimise heat demand.
• promotes the value of CPD for all stakeholders in the property market to raise awareness.

Air Quality

New Air Quality Standards published in July 2007 set stringent targets for local authorities, particularly for levels of small particulate matter. The potential harm to human health via the emission of small particles from biomass combustion (PM10 and PM2.5) has caused concern and levels of these particles are a serious issue in some urban local authority areas. This could impact on the installation of biomass boilers, which can have a higher level of particulate emissions than modern gas boilers. Work is currently ongoing to assess whether or not increased numbers of biomass boilers, particularly in domestic scale systems, are likely to impact on air quality. Local Authorities, under the Environment Act 1995, are required to review and assess air quality in their area against a set of health-based objectives for certain pollutants. These objectives are outlined in the Air Quality Strategy ( AQS) for England, Scotland, Wales and Northern Ireland. If this work suggests that any objective will not be achieved by the required date, the local authority concerned must declare an Air Quality Management Area ( AQMA) and produce an action plan outlining how it intends to tackle the issues identified.

Most of Scotland's air quality problems identified to date have been in large urban areas and are caused by vehicle emissions. Industrial emissions are already more strictly regulated. Emissions from biomass heating systems are currently the subject of ongoing work to assess the potential impacts of substantial deployment in AQMAs. FREDS recognises that any action to develop and expand the renewable heat sector, in particular bioenergy, will need to consider carefully the potential impact of this increase in use on air quality and of pollutants on public health.

Air Quality

That the Scottish Government:

• recognises the benefit of renewable heat technologies to improving air quality, particularly where they replace oil and coal heating.
• ensures, as part of a supportive planning and regulatory framework, air quality management should not disproportionately penalise biomass or other renewable technologies.

LOCAL PLANNING

Planning

Scottish Planning Policy 6 (SPP6) sets out how the planning system should manage the process of encouraging, approving and implementing renewable energy proposals when preparing development plans and determining planning applications. The planning framework set out in SPP6 will help to ensure the delivery of renewable energy targets and help to mitigate the effect of climate change. Development plans should provide clarity on the criteria that should be met to enable development to take place in a satisfactory manner.

SPP6 highlights that Scottish Ministers are keen to see a major increase in the smaller-scale production of heat and electricity from renewable sources. For example, there is significant potential for decentralised energy supply systems and small, medium and large scale biomass heating plants for businesses, public buildings and community/housing schemes. Planning authorities are asked to identify sites appropriate for new biomass plants in areas with either existing long-term secure resources or new opportunities to harness local resources.

FREDS supports SPP6, but considers that the Scottish Government can do more to encourage local authorities to embrace a low carbon future. More detailed heat mapping could provide a useful local planning and decision making tool to assist local authorities and that is why the group has made a recommendation on heat mapping at section 7. In addition, FREDS is keen to see Local Authorities deliver local fuel and heat strategies, tied to local economic development functions and asks that the Scottish Government works with Local Authorities to make it happen.

Planning

That the Scottish Government:

• supports the implementation of measures within SPP6 on the installation of microrenewables.
• legislates to require local authorities and housing associations to promote and support district heating using renewable technologies.

FINANCIAL INCENTIVES

In general, FREDS recognises that fiscal and capital incentives will be important in delivering higher penetrations of renewable heat. This can be especially crucial for major infrastructure developments, for example, district heating networks, where access to finance can be difficult to obtain as some financial institutions view renewable heat projects as high risk. That said, financial incentives should consider all the different scales and applications of renewable technologies, as each may require a different intervention.

The diagram below illustrates the range of financial support which can be applied to renewable heat deployment.

FREDS is aware of the report produced for the Department of Business and Regulatory Reform ( BERR) by Ernst and Young as part of the UK Government's development of renewable heat policy. This report highlights that "a support mechanism (or range of support mechanisms) will be required to compensate renewable heat producers for their avoided external costs". Avoided external costs include emissions outputs as well as wider environmental, ecological and societal benefits.

Discussions of some of the key mechanisms identified in the Ernst and Young report, and their application in Scotland, are considered below, including a number of recommendations by FREDS on what the Scottish Government needs to do.

Renewables Obligation (Scotland)

The revenue support to energy developers available through the Renewable Obligation Certificate ( ROC) mechanism has, to date, had limited impact on development of renewable heat provision through CHP. To address this slow development, the recent Energy Review has proposed increasing the support for biomass CHP to 2 ROCs. This may incentivise development of CHP plants, but the primary incentive is still to maximise generation of electricity to earn maximum ROCs. FREDS is encouraged that, while the Scottish Government has still to consult on the review, it has stated publicly that it welcomes banding in principle. Although the proposed incentive would only reward metered electricity generation and not the quantity of heat generated by CHP, it could still be beneficial to the development of the biomass supply infrastructure which will be required for renewable heat-only projects.

Renewables Obligation (Scotland)

That the Scottish Government:

• amends the Renewables Obligation (Scotland) to allow ROC-banding in line with the proposals being considered under the UK Energy Bill; in particular to award double ROCs to biomass CHP schemes, and for advanced conversion technologies for waste only where this is based on CHP and/or district heating.

Financial Mechanisms

• Capital Grants

Grants such as the SCHRI, the Highlands & Islands Woodfuel Development Programme and the Scottish Biomass Support Scheme ( SBSS) will result in around 50 MW _th installed heat capacity by 2008. Grants have been particularly successful in promoting installation of small-medium scale (less than 5 MW _th) renewable heat installations. The SBSS will deliver around 20 MW _th installed capacity in a range of heat only applications, the average size of which is around 350 kW _th. This capacity will be delivered in the space of a year, and will use around 30,000 tonnes of woodfuel to reduce emissions by nearly 20,000 tCO ₂ per year. The compares very favourably with the timescale, resource use and emissions reductions from large-scale power plants. The main issue with capital grants is their short-term, stop-start nature. Grants may not be available at a critical point in project development, which means that opportunities to incorporate renewable heat systems are lost at the design or planning stage. Grants have been available to support renewable district heating infrastructure.

• Taxation

The Ernst and Young report identifies a number of taxation mechanisms which can provide an additional incentive, but are not in general sufficient to incentivise installations alone. The key barriers identified are that they do not overcome the capital costs for small-medium scale installations, nor provide the revenue support which can incentivise large-scale installations. They also do not apply to district heating infrastructure.

• Carbon trading/obligations

The Ernst and Young report identifies existing and proposed carbon emissions reduction mechanisms such as the EUETS, Carbon Emissions Reduction Target ( CERT) and Carbon Reduction Commitment ( CRC). Renewable heat projects can generate carbon credits under these schemes; however a key barrier is that they generally support the lowest cost options for emissions reductions, which may make renewable heat projects unattractive. Further details on carbon obligations/trading schemes are discussed in the Energy Review and the Ernst and Young report on renewable heat.

Credit Guarantee Schemes

An additional support mechanism considered by the group was a Credit Guarantee Scheme. This mechanism would help to finance large-scale, complex heat only or CHP projects and the establishment of Energy Supply Companies ( ESCOs). Such a scheme may also facilitate cross-sectoral partnership in creation of new ESCOs to provide energy services, particularly in development of district heating networks. Furthermore, credit guarantee schemes could also bring in private finance to support development of renewable heat and could work alongside existing finance mechanisms.

Experience elsewhere suggests that an energy services company model could help promote renewable heat. The Group trusts that the Scottish Government will collaborate with the UK Government to ensure that any regulatory reform to enable ESCOs incorporates provisions to support the development of renewable heat technologies and markets.

Choosing a support mechanism for Scotland

The potential support mechanisms set out above demonstrate the range of options available. Looking in particular at the Ernst and Young report, the Group felt that the report contained good analysis on large-scale projects, but the same was not available for the smaller to medium scale project (under 5 MW _th), which would be the likely size of projects being developed in Scotland. This was the case for projects supported under SBSS and SCHRI.

The Ernst and Young report however, does conclude that different scale technologies are likely to require different levels of support: grant based mechanisms are likely to be more appropriate for household scale installations, while larger scale, standalone heat projects would suit revenue-output based mechanisms. However, whatever financial support structures are chosen other regulatory mechanisms relating to building regulations and planning need to provide support and incentives.

The Group concluded that this is a complex area and that without further analysis it would be difficult to reach an informed view on detailed recommendations. It is therefore recommending that more work is carried out by the Scottish Government to review existing work in this area and assess what support mechanisms will work best in Scotland alongside existing regulatory and support structures.

Financial Mechanisms

That the Scottish Government:

• urgently reviews ongoing work by the UK Government on financial mechanisms, and carries out additional analysis to determine the most appropriate mechanism(s) for developing a Scottish heat market, taking into consideration scale, technology, capital and fuel costs, innovative financial models, and market price to ensure no undue burden is placed on the end user.

CAPACITY BUILDING

Continuing Professional Development

The installation of renewable heat technologies relies on appropriate knowledge and skills being in the hands of the right people, and there being sufficient numbers of these to increase the adoption rate.

The design stage is the earliest stage in the lifecycle of a building or community where decisions having a bearing on sustainable energy adoption are taken. The key actors here are architects, engineers and mass-market housebuilders. There is growing interest in renewable heating systems from these stakeholders but take-up is still not the norm. Training can build confidence in the building sector and help change perceptions about the benefits and long term cost effectiveness of renewable heat systems.

Continuing Professional Development ( CPD)

That the Scottish Government:

• runs CPD workshops and/or seminars involving the Royal Incorporation of Architects in Scotland ( RIAS) and the Institution of Civil Engineers ( ICE), to ensure that all players are in tune with sustainable development principles, give proper consideration to renewable heat, and fully implement planning and building standards.

Training

After design, the implementation stage requires the availability of skilled installers to deploy the equipment. The availability of trained personnel to carry out ongoing post-installation maintenance is also crucial to ensuring users retain confidence in renewable systems. Training availability is currently rather limited. Inverness College provides some courses for installation. Other colleges are showing interest in developing courses further across Scotland (Dumfries & Galloway, Glasgow, Dundee, Moray, Shetland, Eilean Siar) - looking to Inverness College as an exemplar. However, interest so far is more of a groundswell than a driven, centrally coordinated programme. It is not for government but for colleges themselves to determine the need for training and the profile of the courses offered. The Sector Skills Council is now taking an interest and incorporating Renewables into National Occupation Standards, looking at how existing qualifications can be enhanced.

Colleges could have an important role to play in providing generic training required by all heating engineers (refrigeration, air conditioning, boilers, health and safety, plumbing, energy auditing, technologies, new and retrofit, Euro handling certificate, maintenance etc), but rather than being bolted on to existing conventional training, FREDS would wish to see more renewables-focused training. Courses could be SQA approved, and facilities would have a number of devices for training purposes, funds for student places and finance for set up costs. The courses could be developed alongside organisations like the regional construction industry fora. FREDS would wish to see better coordination of training across the key stakeholders groups in order that it can begin to reach the penetration levels needed to grow the sector in a meaningful way.

Training

That the Scottish Government:

• instructs the Scottish Funding Council, Sector Skills Council and Skills Agency to develop a co-ordinated training programme incorporating: microgeneration, energy efficiency, and renewable heat.

There is also a case to consider training to promote cross-sectoral partnerships between the public, private and voluntary sectors, in order to develop successful renewable heating schemes. There are existing working partnership models in Scotland, such as Wick, which illustrate the importance of cross-sectoral framework agreements, and which have also benefited from having a competent intermediary to negotiate such agreements.

Best Practice

A number of European countries are well ahead of Scotland when it comes to the use of renewable heat as show in the following table. The heat markets in these counties are more mature having been developed over a number of years. Good examples include Denmark, where the use of district heating systems is compulsory in selected areas, making the most of waste heat from industrial processes and volume efficiencies. Another example is Austria, where grant support has been effective in encouraging take-up of renewable heat as part of a wider package linked to building standards improvement and to energy efficiency. The group has not had the time to explore such examples in any depth, but considers that such exploration will be very useful in the development of any Scottish strategy. The group recognises that differences in regulatory regimes elsewhere, and the limits of Scotland's devolved powers may constrain what could be reflected here from successful examples abroad, but judges that international best practice is nevertheless worth exploring.

Source: Sustainable Development Commission (Scotland)

Best Practice

That the Scottish Government:

• investigates the promotion of renewable heat within other countries, to consider how they have achieved a well-developed renewable heat market, and ensure benchmarking against best practice abroad, with a view to adoption of best practice, subject to statutory competence.

General Awareness Raising

Consumers find it hard to get good quality independent advice on the relative benefits of different types of technology, their suitability for a particular heat demand and their relative carbon savings. This can result in completely inappropriate installations, without necessary maintenance and support services in place, resulting in project failures - often with a degree of associated bad publicity. The market is developing and there are now a wide range of highly successful installations of all types of technology, delivering real cost savings, carbon emissions reductions and other benefits to a range of consumers.

To address some of these issues, the sector as a whole needs to promote the benefits of renewable heat in a coordinated and easily accessible fashion. Consumers need access to good quality independent advice, across a whole spectrum of technologies and applications. More work needs to be done on learning the lessons from poor installations, ensuring the appropriate skills and standards are in place to ensure these are not repeated and promoting successful projects as best practice case studies.

Good quality independent advice can come from a range of sources such as handbooks and guides or professional advisors. The group has already recommended that Scottish Renewables develops guidance explaining the various roles that different technologies could fill, which will help.

One of the most easily accessible sources is the internet. FREDS conducted some internet searches and came to the following conclusions:

• It may be better to channel customers through a single web site with consistent identity than send them through never-ending chains of links to others
• Any site needs to be sympathetic to difficulties facing people with no specialist knowledge
• The site needs strong graphical design to promote trusted identity, and be accessible to all
• The site needs to be independent from industry

General Awareness Raising

That the Scottish Government and the sector as a whole:

• promotes the benefits of renewable heat in a coordinated and easily accessible fashion, including through web promotion by appropriate agencies and other general awareness raising activities.

« Previous | Contents | Next »