Scottish Government

6. Renewable Heat

Objective: To build a commercially viable, diverse renewable heat industry in Scotland in support of our 2020 renewable energy target.

• Making progress on renewable heat is a major new challenge if we are to meet the EU 2020 target of 20% of final consumption of energy from renewable sources.
• The Scottish Government has prepared an Action Plan for the development of renewable heat in Scotland in response to the report from FREDS.
• The Scottish Action Plan on renewable heat includes an indicative target of 11% heat demand to be sourced from renewable heat by 2020.
• We will work closely with the UK Government to ensure that plans for regulatory financial incentives for renewable heat can support our Action Plan.
• We will run another round of the Scottish Biomass Support Scheme specifically to encourage renewable heat use by businesses and in district heating demonstrators.

6.1. Introduction

6.1.1. The Scottish Government recognises the significance of renewable heat in achieving our renewable energy targets. Heat demand accounts for some 45% of all energy use, with electricity accounting for 26%. The Scottish Government recognises the importance of developing renewable heat if we are to progress towards the 20% target for final consumption of energy from renewable sources by 2020.

6.1.2. It could be argued that the focus hitherto in the UK on support for renewable electricity without similar mechanisms or measures for renewable heat has failed to acknowledge the challenge that will have to be addressed by the heat sector if wider climate change targets are to be met. The EU target for 20% of all energy (electricity, heat and transport) to be sourced from renewables has introduced a new and welcome focus on the need to support renewable heat. Deployment is at a very early stage, however, and the sector poses particular challenges for Government policy. Unlike electricity, heat cannot travel for long distances without significant losses and expense so most deployment is de-centralised and local. It does however proffer significant benefits in terms of local employment and carbon efficiency. Because heat is typically generated on-site, the market consists of fuel, equipment and services - there is at present no heat unit price or traded sector as there is for electricity. Currently, fuel for heating is supplied in a range of forms ( e.g. gas, oil, coal) by a wide range of suppliers, including many small operators particularly in areas off mains gas. For these reasons, Government policies on renewable heat are not as well defined as those for renewable electricity.

6.1.3. It is also important to recognise that while renewable heat is an important option for future moves towards a low carbon economy, it is not the only option for heating - and in many circumstances may not be the most efficient. For example, in the case of the significant proportion of our urban housing stock which was built before modern space heating standards became standard practice, it will be more often be more efficient in both economic and carbon saving terms to invest in energy efficiency measures than in new renewable heat sources. In terms of overall carbon savings, there may also be opportunities to exploit non-renewable "waste heat" from industrial processes. The wider issue of waste heat is being considered by the Scottish Government separately and does not form part of this consultation. However it is worth mentioning here that the Scottish Government is at an early stage of developing its approach to heat, and will undertake work on how to promote the use of waste heat from industrial processes, on promoting combined heat and power plants (with renewable and fossil fuel energy), and on promoting the infrastructure required to carry such heat to consumers. We will learn from others addressing the same issues, including the UK Government. This issue will be addressed in the new draft guidance for thermal applications for electricity power generation under s36 of the Electricity Act.

6.1.4. Nonetheless, the Scottish Government believes that renewable heat should be given priority where it makes sense to do so. There is a particular opportunity to develop renewable heat in large scale public buildings such as hospitals, and in suitable district heating (including off the gas grid) where heat needs are constant over long periods. It will also be important to ensure that renewable heat is developed in a manner which delivers where possible, energy saving opportunities.

6.1.5. Microgeneration technologies such as solar water heating and ground-source heat and air pumps will also play an important role in increasing renewable heat in Scotland. We already support the installation of these technologies through the Scottish Community and Householder Renewables Initiative, including the largest heat pump district heating scheme in Scotland in Tranent. We can learn from best practice elsewhere in Europe where heat pumps are being installed in volume. We will need to consider the skills implications for the installation market if the market expands (see recommendation ix) particularly in remoter areas.

6.1.6 However, in terms of scale, the main technologies to increase renewable heat in the UK are likely to be biomass-based, such as renewable energy from waste and biomass-fuelled Combined Heat and Power plants, which would also deliver a proportion of renewable electricity. It is also important to consider the role of biogas, which, following adaptation, could use the existing infrastructure and perhaps be more efficient to use than biomass. The Scottish Government has recently undertaken a study to evaluate the cumulative impacts of biomass boilers on air quality, in particular in urban areas with pre-existing air quality management issues. While the report confirms that the overall impact of biomass generation on air quality is minor, the study recognises the need to minimise any impact in particularly sensitive urban areas, and will provide guidance on appropriate abatement measures.

In a terraced housing development constructed in 1999 in Glenalmond Street, Glasgow, Shettleston Housing Association has successfully integrated geothermal energy and solar panel heating. The site is close to public transport and shops and is located in the middle of a traditional housing area in the east end of the city. . Heating for hot water is provided by pre-warmed water (12°C) piped up from an old coalmine which is 100 metres below the site. The water temperature is boosted by a heat pump and stored in a large insulated storage tank (10,000 litres). The temperature is additionally topped up by 36 m2 of solar panels. The water is used to supply low temperature radiators (45°C) and warm water via storage cylinders. Tenants can also raise the temperature of the hot water using electric immersion heaters which avoids the need for expensive metering controls. The charge for communal heating is included as a basic service charge within the rent. Monitoring of the heat store has shown that it is performing better than expected. There are many sites in Scotland which are over old mine workings so that harnessing the potential of geothermal energy becomes a viable option.

6.2. Scottish Action Plan on renewable heat

6.2.1. In Scotland, the Forum for Renewable Energy Development in Scotland ( FREDS) sub-group on renewable heat looked carefully at this issue over the course of 2007, and in March 2008 produced a report: "Scotland's Renewable Heat Strategy: Recommendations to Scottish Ministers". FREDS identified key goals of any Scottish renewable heat strategy which highlighted the importance both of a supportive policy, planning and regulatory framework and of the setting of a target as a benchmark against which progress can be measured. The FREDS report acknowledged that the renewable heat market in Scotland is in its infancy, and that the very nature of the wider heat market - including the entrenched position of the dominant fossil fuel technologies, and the lack of a single market - will act as obstacles to sectoral growth. But the report also pointed out the particular market opportunity in Scotland where a significant of households, especially in remote areas, do not have access to the gas grid.

6.2.2. An initial assessment of policies to reduce emissions, prepared by AEA Technology, is due for publication in the autumn. This was a scoping exercise, looking forward to 2050, largely based on a review of existing literature and interviews with experts to deliver an initial assessment of the impacts of policy options in terms of their cost, reduction potential, feasibility and public acceptability. The report makes 23 recommendations to the Scottish Government for action to promote renewable heat, ranging from capacity building in local communities to a review of financial incentives. The Scottish Government is responding with the Action Plan for Renewable Heat set out below which considers the FREDS recommendations in the context of wider policy development at a Scottish as well as at a UK level, and related research such as the Scottish Government study "Mitigating Against Climate Change in Scotland: Identification and Initial Assessment of Policy Options" (produced in relation to the 2050 emissions reduction target) .

The Scottish Action Plan for Renewable Heat: Scottish Government actions

i. Legal Powers

The FREDS report seeks clarification as to whether responsibility for the promotion of renewable heat in Scotland is a reserved or devolved matter.

In general terms "heat" is not a reserved matter. However, heat is not of itself (usually) a transferable nor saleable commodity. Heat relies on generation at a local point and this involves fuel. Scottish Ministers could legislate in relation to the generation of heat from renewable sources. However, any proposal which relates to the generation of heat from fossil fuels could be covered by reservations in Schedule 5 of the Scotland Act relating to oil, gas and coal. The generation of heat from electricity (itself generated from the use of another fuel) also falls with the reservations. Thus we first need to consider proposed actions and then determine whether they would fall under reserved or devolved powers. This is considered further below in relation to a Renewable Heat Obligation.

ii. Information provision

One of the major findings of the FREDS report is the lack of information available on renewable heat - not only to consumers but to potential developers and local authorities wishing to make the best use of local resources and to match supply with demand. The Scottish Government agrees that better information needs to be provided, and that heat mapping of resources may be of benefit to local authorities and developers in planning heat use. To address these issues, the Scottish Government is:

• supporting Scottish Renewables to produce a consumer information pack outlining what the key renewable heat technologies are as well as explaining the important factors to bear in mind when considering which may be appropriate for specific applications;
• developing case studies showing best practice on the exploitation of renewable heat both in Scotland and further afield;
• making available an indicative heat map of Scotland online at: http://www.scotland.gov.uk/About/FOI/Disclosures/2007/10/AEAHeatMap2007 .

In addition, the Scottish Government is engaging with COSLA (under the Woodfuel Taskforce recommendations - see Section 9) on mapping biomass resources.

iii. Target

The FREDS report recommends that the Scottish Government conducts further analysis of the potential heat markets 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. Such analysis has been carried out in the context of Scotland's existing 2020 target of 50% of gross electricity consumption to be sourced from renewables, and an assumed 10% UK biofuels aspiration. Taking these electricity and transport renewables targets, and using UK growth rates and projections, Scotland will need to produce 11% of heat from renewable sources, in order to meet an overall target of 20% energy demand from renewable sources. Views are being sought in this consultation on whether this is the right target and how it should be achieved.

iv. Links with waste treatment policy

The FREDS report recommends the prohibition of waste biomass from industrial and commercial processes to landfill in order to promote its use for energy production; the encouragement of heat recovery in energy from waste; and the establishment of a fuel standard(s) for materials from waste derived sources to enable appropriate materials to be treated as non waste fuel.

On 24 January 2008, the Cabinet Secretary for Rural Affairs and the Environment made a statement to Parliament on the future direction of waste policy in Scotland. This statement made it clear that waste management priorities should be preventing waste in the first place and high levels of recycling and composting. The statement also said that there was a limited role for energy from waste, so long as the plants had high levels of efficiency (the heat is captured as well as the energy). The Scottish Environment Protection Agency ( SEPA) are currently preparing revised guidelines on the thermal treatment of waste, which will give detailed information on the type of efficiency levels that are expected.

Mr Lochhead also announced on 24 January that the Scottish Government would prepare a new National Waste Management Plan for Scotland. There will be full consultation on this Plan which, amongst other issues, will consider the scope for banning more materials from being sent to landfill.

In Scotland decisions on the applicability of waste legislation are for SEPA. Waste is highly heterogeneous and of variable composition. A standard for fuels derived from mixed waste sources in general would therefore be almost impossible to arrive at. It may be easier to consider a standard which relates to a narrow selection of waste inputs, for example non-contaminated wood from construction and demolition. It is also important to note that technology developments such as sewage works which co-digest organic fractions of commercial waste can create supplies of biogas.

SEPA has recently published a review of waste biomass arisings in Scotland. This study indicates potential arisings of around 10 million tonnes of waste biomass as process residues in the agricultural and forestry sectors as well as materials currently going to landfill from commercial, industrial and municipal wastes. The study modelled a range of potential energy recovery scenarios. The scenarios looked at a combination of anaerobic digestion and standard thermal combustion technologies at varying efficiency levels calculating the useable electrical and heat energy outputs and carbon reduction benefits of each scenario. The study highlights the potential energy and carbon reduction benefits from the proper management of waste biomass in Scotland.

Further work to improve the volume estimates of the potential resource from biomass waste streams is ongoing under the Scottish Government's woodfuel taskforce.

v. Fuel Poverty

The Scottish Government has provided funding to pilot the installation of renewables-based central heating properties that are off the gas grid across Scotland. The pilot aims to assess the impact of renewable technologies on fuel poverty; assess people's reaction to using these technologies; and to evaluate the potential costs and benefits of including them in the fuel poverty programmes. The interim findings show that renewable technologies can be a cheaper alternative to oil and electric heating but that the installation costs are prohibitive. The link to the interim findings, published November 2007, can be found at:
http://www.scotland.gov.uk/Publications/2007/11/21152714/2

The final report is due to be issued shortly and the Scottish Fuel Poverty Forum will consider its findings. The Forum has been asked to present options for the future direction of fuel poverty policy/programmes to Ministers by the autumn. Part of that will be to consider what role renewables should play, taking account of the findings of the pilot.

vi. Building standards

The Scottish Government is also using building standards and the planning system to help achieve low carbon buildings. The Sullivan report ¹³ recommends staged increases in energy standards for new buildings to substantially reduce emissions, with a route-map to the goal of zero carbon buildings. The impact of the recommendations are currently being investigated and it is intended that proposals for changes to the energy standards will be issued to consultation early next year, with a view to changes being introduced in 2010.

vii. Air Quality

The Scottish Government recognises that renewable heat technologies can benefit air quality in situations where they replace oil and coal heating. When assessing planning applications for such technologies, local authorities are expected to take into account air quality considerations, particularly if the development is to be located in or adjacent to a current or potential Air Quality Management Area. However the Scottish Government recognises that there is presently insufficient information on the relationship between biomass boilers and particulate emissions to allow local authorities to effectively assess potential air quality implications of such developments. In this context, the Scottish Government has recently carried out research on the impact of biomass emissions on air quality, particularly in sensitive urban areas, which includes best practice guidance to local authorities and developers on abatement measures.

viii Planning

SPP6

Scottish Planning Policy ( SPP6) sets out how the planning system through the preparation of development plans and determination of planning applications should promote renewable energy and assess individual proposals. More detailed information on planning can be found at section 10.

Scottish Sustainable Communities Initiative

The Scottish Government launched the Scottish Sustainable Communities Initiative in June 2008 to seek to achieve a step change in design, quality and environmental standards of new housing-led developments, and to lead to the creation of exemplar projects which provide a basis for demonstration and learning.

The Initiative invites the submission of proposals and provides guidance on the issues to be addressed by new sustainable communities including meeting identified housing requirements, locational considerations, relationship to a sustainable transport network, principles of design and construction, environmental considerations and delivery.

The primary focus of Scottish Government support will be to minimise the regulatory burden. There is no budget for direct Scottish Government financial support. The SSCI document proposes that sustainable communities should provide for an efficient energy supply, such as low carbon district heating, combined heat and power or other forms of renewable heat and micro-generation technologies providing communal energy generation.

ix. Renewables Obligation (Scotland)

The Renewables Obligation is designed to incentivise renewable electricity generation, not renewable heat. However, changes being proposed at a UK as well as at a Scottish level to be introduced in April 2009 provide an opportunity to encourage renewable heat through greater reward to combined heat and power plants, as well as to the biomass sector. The Scottish Government is consulting at the moment on amendments to the Renewables Obligation (Scotland), and encourages as many stakeholders as possible to respond.

The details of the banding measures related to biomass which should help grow the sector are set out in Section 9 (?).

x. Regulatory and financial incentives

The Scottish Government believes that there is a clear role for an incentive mechanism to promote renewable heat. As highlighted above, the UK Government is currently consulting on forms of incentive as part of its Renewable Energy Strategy. The Scottish Government is not repeating this information here but will be informed by that consultation in considering next steps. The use of a scheme to promote the uptake of renewable heat is a new step for the UK and involves certain challenges given the nature of the UK heat market. The key characteristics of potential models for a renewable heat obligation ( RHO) and renewable heat incentive ( RHI) can be summarised as follows:

Renewable Heat Obligation

Scheme design

• Suppliers of non-renewable heating fuels are obliged to present a quantity of Renewable Heat Certificates ( RHCs) demonstrating the production of heat from renewable sources, as determined in proportion to the total quantity of fossil fuel for heating that they supply. These RHCs will be obtained from producers of renewable heat.
• For small installations, eligibility for RHCs is likely to be deemed; for larger installations it could be calculated accurately using a heat meter.
• Compliance with the obligation would be monitored by a regulator, with penalties for energy suppliers not meeting the obligation.
• Could apply to all suppliers of non-renewable heating fuels, including suppliers of non net-bound fuels such as heating oil, or limited to suppliers over a certain size.
• RHCs could be purchased by energy suppliers within a market for certificates or secure through direct involvement in renewable heat projects.
• A buy-out price could be used as a 'safety value', limiting the costs of compliance.
• Cost of scheme passed through by suppliers to all buyers of non renewable heating fuels via fuel bills.
• Government will determine the amount of renewable heat delivered by the scheme.
• Buy-out monies channelled into renewable heat investments.

Renewable Heat Incentive

Scheme design

• Any heat user who can prove they have generated heat from a renewable source is entitled to claim a set payment per MWh from a central fund or from the obligated fossil fuel energy supplier.
• Could apply to all suppliers of non-renewable heating fuels, including suppliers of non net-bound fuels such as heating oil, or alternatively only to suppliers of a certain size.
• Output likely to be deemed for small installations
• If suppliers make payments to claimants directly, a methodology for balancing of payments across fossil fuel suppliers ensure all suppliers of fossil fuel for heating bear a proportionate share of the total costs of the RHI support.
• Alternatively the policy could be operated by a central body which makes all payments to renewable heat users and collects its revenues from suppliers according to their share of costs.
• Cost of scheme passed on by suppliers to all buyers of non-renewable heating fuels.
• Financial support paid to installer of renewable heat would be known in advance but total amount of renewable heat coming forward would depend upon uptake of the offer.

More details on the above models can be found at Chapter 4: Heat of the UK Renewable Energy Consultation Document¹⁴

The Scottish Government expressed its early view in March in relation to the UK Government's earlier Call for Evidence on Heat. We suggested that a RHO seemed preferable to a RHI, on the basis that it is consistent with the Renewables Obligation approach for electricity; that it allows comparisons with the Renewables Obligation on the cost of carbon saved; that it gives us the ability (potentially) to tailor support to Scottish needs; and finally that it allows the market to seek out the most efficient approach and should encourage innovation. We argued that the main attraction of a RHI was that it might offer a degree of certainty to investors which could encourage them to bring forward applications. However, we felt that if the price was set too low, then no projects would emerge, whilst if set too high then firms would make excessive profits. If the price were guaranteed, then excessive profits could be locked into the system.

Our response above highlights our concerns around the detail of implementation. The Scottish Government will pay close attention to views expressed in the UK consultation in developing its own policy and in dialogue with the UK Government. The views of consultees on any issues of special relevance to Scotland would be helpful.

Any regulatory support mechanism is however likely to take time to phase in. In the meantime, the Scottish Government considers that, the market for renewable heat needs to be kick-started with support for biomass heat use by businesses and demonstrator district heating projects. Support is available to encourage micro-generation and community projects. The case for support for businesses to encourage use of renewable heat has been highlighted by the Woodfuel Taskforce (in relation to biomass), and in the report "Mitigating Against Climate Change in Scotland: Identification and Initial Assessment of Policy Options". The need for support for renewable heat in district heating projects was highlighted in the FREDS report. We recommend a further round of the successful Scottish Biomass Support Scheme in order to promote these two important areas with the business focus on smaller businesses who may find it harder to meet up front capital costs.

xi. Skills and Training - jobs

The Scottish Government's Skills Strategy has set clear expectations for Sector Skill Councils ( SSC) in Scotland to identify and articulate employers' skills needs; to work with employers and stakeholders to develop skills solutions; to produce robust labour market intelligence for their sector; and to contribute to the development of vocational qualifications. A Sector Skills Agreement ( SSA) is developed by SSCs in consultation with employers and other key stakeholders. It is the vehicle used to outline the skills needs in the sector, and the steps to address these. SSC lead on the delivery of the actions identified in the SSAs, working in partnership with all major stakeholder organisations such as Skills Development Scotland as well as further and higher education institutions.

The Scottish Government is supporting the Sector Skills Councils to undertake major new research on the future skills needs of the renewables sector, including renewable heat, in order to inform policy.

Skills Development Scotland is raising awareness of career opportunities in renewable energy through its "The Path is Green" initiative for schools. This highlights the drive towards the increasing use of renewable energy, supporting the global commitment to tackle climate change and the economic advantages that Scotland is well placed to exploit thanks to its natural resources and its people. The Path is Green encourages secondary school pupils to look at the wide range of jobs that are now associated with sustainable energy and the environment. It provides case studies of real jobs and guidance on the qualifications that might be necessary to pursue those careers, in order to build the workforce capacity to meet the challenges and fill the opportunities posed by the government's aspirations for transformation of the heat, electricity and transport energy sectors.

The Action Plan for Renewable Heat takes into account related policy development on community renewables ( see Section 7) and on the biomass sector ( see Section 8).

Summary of Actions

i) Legal Powers

• We will continue to work with the UK Government as they refine the potential for regulatory support for renewable heat, and this work will clarify whether such support falls under reserved or devolved powers.

ii) Information Provision

• By the end of March 2009, we shall support Scottish Renewables to produce a consumer information pack on renewable heat, and we shall produce case studies on best practice.
• We have made available on line an indicative heat map of Scotland.

iii) Targets

• By April 2009, we propose to introduce a target of 11% of heat demand to be sourced from renewables by 2020.

iv) Links with waste treatment policy

• We are preparing a National Waste Management Plan for Scotland which will consider the scope for banning more materials from being sent to landfill, including waste biomass.
• We are undertaking further work to improve the volume estimates of the potential resource from biomass waste streams as part of the follow up to our Woodfuel Taskforce, which is due to report to Ministers in early October.
• By the end of the year, SEPA will publish Thermal Treatment guidelines which will include details of efficiency levels expected at energy from waste plants.

v) Fuel Poverty

• We have funded a pilot project installing renewables under the Central Heating Programme in off gas grid areas, and the Scottish Fuel Poverty Forum will consider the findings and make recommendations to Ministers by the end of the year.

vi) Building Standards

• Following the Sullivan report, proposals for changes to energy standards will be issued for consultation in early 2009, with a view to changes being introduced in 2010.

vii) Air Quality

• We are carrying out research on the impact of biomass emissions on air quality in urban areas and will develop best practice guidance to local authorities and developers on abatement measures and expect to publish a report shortly.
• Forestry Commission Scotland will develop an Air Quality Decision toolkit as part of the work being undertaken in the Regional Biomass Advice Network project

viii) Planning

• We are supporting the implementation of measures within SPP6 on the installation of microrenewables.
• We have launched the Sustainable Communities Initiative to lead to the creation of exemplar projects.

ix) Renewables Obligation

• We are currently consulting on measures to amend the Renewables Obligation Scotland, including the banding of biomass in line with UK proposals, and cross-referring to the new SEPA Thermal Treatment guidelines where appropriate.

x) Regulatory and Financial incentives

• As at i) above, we will continue to work with the UK Government as they refine the potential for regulatory support for renewable heat, in order to ensure that Scottish needs are taken into account.
• We already provide support to the renewable heat market in Scotland through schemes such as the Scottish Community and Householder Renewables Initiative ( SCHRI), and the Scottish Rural Development Programme.
• In addition, over the next two years, we propose to run a second round of the Scottish Biomass Support Scheme ( SBSS) focussing on heat-only projects by businesses and on demonstrator district heating schemes.

xi) Skills and Training

• By the end of March 2009, we will support the Sector Skills Councils to undertake major new research on the future skills needs of the renewables sector, including renewable heat, in order to help inform policy.

Conclusion

6.3.1. The Scottish Government's Action Plan for Renewable Heat highlights activity across a wide range of areas which will contribute to the promotion of this sector in Scotland, including at a UK level, and new grant support. However, the Scottish Government is under no illusion as to the enormous scale of the challenge which must be faced. Heat may have been the poor relation to electricity in the renewables policy arena thus far, but it will need to be pushed to the head of the family if we are to aspire to the huge increase necessary to meet our proposed 2020 energy target.

Questions for debate

• Do consultees agree that we should work towards a target of 11% for renewable heat?
• What more could we or other parties so to encourage renewable heat deployment specifically with regard to: air quality, awareness raising, planning, other areas?
• Do consultees agree that renewable heat should be promoted through a regulatory incentive mechanism? Do consultees consider that there are Scotland specific issues in the choice between a RHI and RHO?