District heating, also known as a heat network, is a distribution system of insulated pipes that takes heat from a central source and delivers it to a number of domestic or non-domestic properties.
In Scotland district heating networks only provide around one per cent of Scotland’s total heat demands. Compare that to Denmark where they provide heat to 63 per cent of Danish households, and Finland where it accounts for 50 per cent of Finland’s total heating market, and it is clear there is room for improvement.
As Heat Networks can be run from renewable sources or waste heat sources, they have the ability to reduce emissions and thus help Scotland to reach its climate change targets.
So why do we not see housebuilders embracing these systems?
There are two key factors restricting their use: the significant capital cost required up front, and the lack of regulation which has made them unpopular with consumers and investors.
The Scottish Government is the first within the UK to take steps to address the current concerns with district heating by publishing the Heat Networks Bill.
All operators of a heat network are now required to hold a licence. This is to ensure operators are competent, fit and proper and provide their services in line with certain fixed conditions.
A licensing authority will govern the operators and will provide ongoing monitoring and enforcement where conditions are breached.
Operators and developers will need to work together as a specific consent is required for each new network with planning permission being built into this process.
Applicants will need to consider how their proposal addresses reduction in greenhouse gas emissions, reduction in fuel poverty, use of local waste heat and storage capacity amongst others.
Local authorities will be able to identify and designate heat zones or ask the Scottish ministers to do so on their behalf. The aim of this is to provide awareness of development opportunities and to use strategic planning to identify areas where sources of waste heat can be utilised or renewable energy can power the network.
A permit to operate within the zone will be allocated to a sole provider following a competitive process. This gives operators the comfort that they can operate in that zone exclusively to enable them to recover initial capital costs.
The public sector will also be obliged to assess whether the buildings they own can viably be connected to a heat network. Large buildings with a large heat demand can be an ‘anchor load’ as it provides a long-term secure customer for the operator.
The Bill is certainly a step in the right direction and will place heat networks on a more level playing field with other heat providers.
However, consumers want to know that the service they will be provided with will meet certain standards and this is an area the Bill falls short on due to devolution issues.
As consumer protection is not a devolved matter the Bill cannot, at this stage, provide for minimum consumer standards. The Scottish Government is pressing for the devolution of consumer protection for this area, so watch this space.
The increase in regulation will certainly give more assurance to end users and also investors, hopefully resulting in the uptake of use of district heating systems which in turn can help us reach our climate change goals.
However, for housebuilders this is going to need to become a factor for consideration at the outset of their projects as it is clear that strategic planning is required in order to make the most of the opportunities available.
There is also likely to be an increased requirement for co-operation between private and public entities to make the most of the “anchor loads”.
How this pans out remains to be seen – but as climate change climbs higher on everyone’s agenda, the option to offer a connection to a district heating system may just be the additional selling point that seals the deal for home buyers in the future.
Sarah Stewart is a Senior Associate, Burness Paull