Meeting of the Parliament (Hybrid) 03 December 2020
It is welcome to finally be here deliberating legislation to advance heat networks in Scotland, although I feel that it has been a long time coming; so long, in fact, that I had to check when the subject was first raised in the Parliament, and the honour falls to Sarah Boyack for raising it back in 2003.
For my own part, and to declare an interest, I started building heat networks back in 2007. I am a firm believer that all members should bring real-life experience into the Parliament, but I guess that I might be in the minority who has literally been in the trenches of district heating. Unfortunately, I do not believe that the minister and his team have built a heat network, which is perhaps reflected in some parts of the bill, which I will come to later.
However, the principle of the bill is to encourage greater use of heat networks, which is welcome. I hope that when the bill is passed, it will encourage the development of heat networks. So far, Scotland’s performance has been woeful in hitting only half of its target of heat produced by renewables. However, we welcome the elements in the bill addressing consumer protection and the wish of both the committee and the minister to use Ofgem, which is seen as the Rolls-Royce of regulation in an emerging market. We also have no issue with the many technical definitions in the bill.
There are, however, a number of concerns about the bill, which fall into two clear parts. The first is existing schemes, of which there is no mention. As an aside, I find it extremely concerning that the exact quantum of schemes and consumers is not known, with figures given of 800 schemes and possibly 20,000 consumers. However, in a written answer to Tom Arthur on 29 October, the minister said that that figure was nearly 30,000. That seems a large discrepancy and a large number to be overlooked by any bill.
The minister said that existing schemes will be covered by proposed UK legislation, but there is a concern about whether they will be covered in the same way as this bill will cover them and what happens until that UK legislation is passed. Furthermore, many schemes are continuing to expand, so I would be grateful if the minister could make it clear whether any expansion of an existing scheme will require a licence and, further to that, how any existing part of the scheme not covered by the bill will then interact with the part of the scheme that will now be covered by the UK legislation. There is a vague assurance from the minister that the bill will not have a disproportionate impact on existing schemes, but clarity on those points would be most welcome.
On new schemes, I will focus on two areas that demonstrate a lack of knowledge of the sector. The first is the identity of the supplier of last resort, which the Scottish Government views as a key outcome of the bill. The suggestion is that, as part of a licensing requirement, an operator would have a third party obligated to take over and ensure continuous operation of the scheme. That is a welcome consumer protection, but we must look at how that would work in practice.
The third-party supplier of last resort, who one assumes would already be a licence holder and therefore a competitor to the existing operator, would have to take on an obligation to step in and take over a scheme in the event of insolvency or another failure of supply. Leaving aside the effects of insolvency and creditors’ claims on a network’s assets, that third party’s obligation is a financial risk that would sit on its balance sheet and would therefore require the constant due diligence of a competitor’s financial and physical performance.
Aside from commercial confidentiality, the cost of that could be prohibitive or, worse, could be passed on to consumers, with negative consequences for fuel poverty. Again, I would be grateful if the minister could give clarity on the detail of that aspect. Is he saying that the Scottish Government will always be the supplier of last resort?
The second aspect requiring further explanation is around heat zones. There are physical and practical components of a heat network that complicate that element. As a brief explanation, the generating building, fuel store and emerging pipework sizes must all be calculated and sized accordingly at the outset of a project. Although some additional capacity can be added and distributed, it is not nearly as straightforward as expanding an electrical or gas network, which much of the bill appears to be based on.
A heat network’s available capacity, and even the location of that capacity around the network, is not straightforward and subject to change with every new connection. The idea that new buildings in a designated area can simply connect is, I am sad to say, fantasy. One new building might well have a different heat load to another, requiring physical differences in both the pipe size and the hydraulic interface unit, or heat exchanger, which will mean financial differences, too. That all means varying connection charges.