Heat Networks (Scotland) Bill

The Convener

Our main item of business this morning is to take evidence on the Heat Networks (Scotland) Bill. I am pleased to welcome our first panel of witnesses. We have Nicola Mahmood, senior business development manager at ENGIE; Eoghan Maguire, director for Scotland and the north with Vattenfall UK; and Claire Mack, chief executive of Scottish Renewables. Good morning, and thank you for giving your time to us today.

Unless anyone on the panel specifically wants to make opening comments, I will move to questions from members. I remind everybody to keep your questions and answers succinct and to give broadcasting staff a few moments to make sure that your microphone is on before you begin to speak.

Alison Harris (Central Scotland) (Con)

Good morning. What involvement did you have in the development of the bill? Are you content with the consultation process and the development of the bill?

Nicola Mahmood (ENGIE)

I sat on the Scottish Government working group, so we have been heavily involved in the development of the bill and we are delighted to see many of the recommendations and much of the feedback that we gave to Government officials reflected in the bill. We broadly welcome the bill and we think that it is a good step forward in helping to put consumer confidence behind heat networks and to help us with the growth of the market.

Eoghan Maguire (Vattenfall UK)

I echo Nicola Mahmood’s sentiments. We were involved in the run-up to the bill and we are happy to see some of the key recommendations coming through. The bill is long overdue and provides a nice framework to allow for wider investment in heat networks as we move towards the decarbonisation of heat. As I am sure members are well aware, with a lot of the issues, the devil is in the detail, but the direction of travel is broadly very positive.

Claire Mack (Scottish Renewables)

We have similar sentiments. We very much welcome the introduction of the Heat Networks (Scotland) Bill. It is very timely, because we can see its strong capability to help us with the green economic recovery that we have been talking about in Scotland. District heat networks are very much a proven and low-regrets solution. With the right policies, they can help to support decarbonisation as well as economic growth.

Alison Harris

Has anything that was considered in the consultation been omitted from the bill? Should anything else be included in the bill?

Claire Mack

We think that, largely, the bill is an excellent foundation to get the infrastructure in place. However, the technology infrastructure perhaps does not have the same consumer demand as its driver that certain other technological roll-outs that we have seen have had. It is different from broadband or even digital television, for example, and it does not have the same consumer demand running behind it. We need to create that demand to make it viable and ensure that we can gain the wider benefits of the heat network roll-out that we are about to see in Scotland.

A few things can be done to make a robust and proportionate licensing regime, including making regulations on obligations to connect; doing work on permitting with local authorities; and strengthening the network assessment process in order to bring forward specific zones in which we can look to develop heat networks.

Eoghan Maguire

On areas in which we think that levels of focus could be increased, and consumer protection in particular, I understand that there are issues around development and powers that might curtail Scottish ambitions to enforce protection levels for the consumer. This is the first pass, but Claire Mack mentioned the obligations to connect and heat network zones. We can look at how those will be enforced and what obligations there would be on local authorities not just to produce studies. If we look at the developments down south, we can see that the Department for Business, Energy and Industrial Strategy heat network policies have resulted in a lot of studies but little action. There is definitely more of a drive from us to be able to see more material obligations on local authorities to push forward with heat network zones where appropriate and suitable.

Nicola Mahmood

We think that the only thing that could strengthen the bill would be considering the potential of a stronger transition period. With the networks that we already have in Scotland—we are currently developing one in Edinburgh—the investment cases have been made based on the current technologies. Currently, the bill does not give protection in respect of the existing investment cases for those specific networks.

We think that the bill is a very strong start, but we would like to see a better definition around the transition from where we are now to the bill and the obligations that that will bring, if that is possible.

Richard Lyle

Good morning, panel. Can you remind the committee what shared group loops are and how extensively they might be used in low-carbon heat networks?

Eoghan Maguire

That is one of those nice technical questions like, “How long is a piece of string?” I will be succinct. The shared ground loop is ultimately a technology relating to the extraction of low-grade heat from the ground. The shared element is that several different individual heat pumps can be applied to that shared ground loop, which allows for various different nuances of heat transfer to be used. It uses a ground-source heat pump to increase the performance of a heat pump, which reduces the cost of the production of that low-carbon heat. There are two ways in which the shared element can work: a communal source can be shared where there is a ground-source heat pump that provides heat for a large number of individual blocks—that would be classed as a shared loop; or there can be ambient temperature loops in a closed-loop system. For example, one building might require cooling, so heat could be transferred to another building that requires heat. It is a case of balancing demand and supply.

Nicola Mahmood

My colleague has made an excellent summary of the technology.

Claire Mack

I will add a wider point around what Eoghan Maguire said. We need to underpin the technology and drive it in the most effective way possible for Scotland; there are lots of different outcomes that we want from that, not only to reduce carbon emissions but to drive inclusive economic growth and drive down fuel poverty in any way possible. The building assessment tools and the information that we gather as we go along this journey are really important to work out how we can aggregate demand in the way that Eoghan just explained and make sure that we can drive a strong partnership between not only industry in an area but domestic heat demand in an area, and to work out whether there are opportunities to attract heat-intensive industries to an area and how they could serve the domestic market through heat transfer and other options of that nature.

The Convener

That sounds sensible.

Richard Lyle

Does the panel have a view on how the definition in the bill could be future proofed to include emerging technologies—for example, sea-source heat pumps and shared group loops, as have been discussed, and on whether the possibility of amendment by regulation is adequate to ensure the flexibility that we may need over the next few years?

Eoghan Maguire

I will take a step back from the question, which focuses on the technologies, and point to heat networks. I will crudely separate them into two different components: the generation side, which I think Richard Lyle refers to, and the heat networks. Richard Lyle is right that it is key that we ensure that those heat networks are future proofed; creating heat networks to be technology agnostic and considering how we can ensure that they are decarbonised, or enable the easiest form of decarbonisation, are ways to do that. We need to look at outcomes rather than inputs; ensuring that the heat generated is measured by its carbon contribution and carbon reduction is one way to do that.

Secondly, there is a technology aspect to that for heat networks; there is a large push for heat networks to decrease their operational temperatures. For the committee’s benefit, a lot of old heat networks used to be run at very high temperatures, which is a facet of the fact that they were running off old combined heat and power plants that were burning coal or gas, so the temperature is a little bit irrelevant. As we move towards low carbon and the next generation of technologies, we can see that the operational temperatures of those networks need to come down. That answers Richard Lyle’s question about how we future proof. If we can ensure that we have a technology agnostic lower temperature network, we can then look at various degrees of how we get the cheapest form of heat generation to use it—sea or ground loop, or river source.

The key driver in that instance—I touch on what Claire Mack said earlier—is that Scotland is fortunate to be blessed with a huge national resource of, for example, wind. We can use that low-carbon energy—green electricity when the wind blows or when the sun shines—to decarbonise the rest of society through heating and transport.

The heat network itself is rudimentary. My engineers give me a lot of grief when I say that it is just plumbing, but it is a simple concept: when the network can store energy as cheaply as it can through hot water, it acts as a key enabler for the modern energy system.

To come back to Richard Lyle’s question, I am reluctant to take a technology-specific approach, but I try to look at the problem as a whole, which comprises electricity, power, transport and the question of where heat networks can enable the energy transition.

Richard Lyle

I have a quick supplementary. Does the panel believe that energy companies and housing developers work together or separately? We could do a lot to develop heating through connecting up energy companies and housing developers. A quick reply is fine—yes or no?

Eoghan Maguire

Crudely, no—at the moment—but there is room for improvement.

Nicola Mahmood

We work quite extensively with housing developers—I grant that it is mainly in Lanarkshire, but we are seeing more of that come through the rest of the country. Developers take a proactive view on heat sources with a view to the decarbonisation requirements. We should absolutely promote and bring forward the development and nurture of those relationships to become closer to developers by helping them design their buildings in a way that gets in the best possible heat technologies.

To go back to the first question, the beauty of heat networks from our perspective is that they are technology agnostic. As Eoghan said, they are a good low-regrets option that allow the generation technology to be swapped out as the existing one comes to the end of its life, and they give us a better opportunity to keep pace with whatever the future developments are. The fact that the bill gives ministers the powers to amend the definitions in the regulations provides a proportionate approach to ensuring that both the regulations and the heat networks keep pace with future emergent technologies.

To go back to Richard Lyle’s supplementary question, our view is that we already do that work and would like to do more of it, as well as developing connections with local authorities and therefore covering social housing as well as private developers.

The Convener

For the avoidance of doubt, when you talk about technology agnostic, you are talking about the heat supply—[Inaudible.]—generation. Does Claire Mack want to add anything?

Claire Mack

No, the point has been covered well. Eoghan Maguire mentioned the requirements on carbon emissions: we need to be really aware of that and keep it at the front of our minds. At the moment, our heat networks will need to compete with fossil fuel gas to be economically viable. We need to ensure a level playing field, and one way of doing that is to measure carbon emissions at the source.

Willie Coffey (Kilmarnock and Irvine Valley) (SNP)

Good morning, everybody. In the panel’s view, what is the public perception of this whole area? I occasionally tell my constituents what I am doing with my time in the Scottish Parliament, and the subject that we are discussing does not register with too many of them as something that they are familiar with or aware of. What do we have to do to raise awareness that heat networks are on the way and that they might be beneficial to people?

Claire Mack

Mr Coffey, you are absolutely correct, in that the decarbonisation of our energy networks has been really successful, but it has been done very much behind closed doors. We are now at a different point, where developments in heat and transport will impact on consumers and households. You are absolutely correct that there is a need to bring people along with us and get them on board.

There has been a lot of recognition in recent times—certainly over the past year or so—of the impacts and risks of climate change. When people ask, “Why are we doing this?” or “Why would we do this?”, that is why. I have already spoken about the need to drive consumer demand, and it is right that you ask that question.

One of the reasons for taking action in this area, and one of the explanations that we need to get out there, is the fact that the future costs of climate change have not yet been calculated and, as with Covid, they will affect everybody. The impacts of climate change will fall in a very similar way to the impacts of Covid—they will fall disproportionately on lower-income households and those in less secure work. The fact that extreme weather events and resilience challenges will impact their ability to work and to travel and the type of housing that they live in means that it is likely that they will suffer more than other people in different areas of society. That is a really strong driver that we need to be clear about.

The other aspect of this is that we are talking about a fantastic opportunity for a fantastic infrastructure project. We need to do it for climate reasons, but we also want to do it for economic reasons. As Eoghan Maguire mentioned, the pumps for heat networks can be manufactured here in Scotland, so we have an existing supply chain, but the huge bulk of the costs of a project and the revenue from a project go into civil engineering works, which we have huge strength in here in Scotland.

When we are thinking about how to modernise our economy and how to get ourselves fit for the future and for a cleaner, healthier, more resilient economy, that is the story that we need to start telling everybody in Scotland to explain why this is necessary and why it is necessary now.

Willie Coffey

Thank you very much for that. Does anybody else want to comment or shall I move on to another question?

The Convener

If you go ahead and ask the next question, people can always add any comments to their answers.

Willie Coffey

I have a really exciting question about regulation. As you know, Ofgem is a UK agency, so the Scottish Government cannot appoint it as the regulator in the bill. Does the panel have any views on that and on whether we should invite Ofgem or someone else to be the regulator? Should the Scottish ministers retain stewardship of regulation in the whole sector? Any views would be welcome.

The Convener

Who wants to lead on that? As there are no volunteers, I will pick on Nicola to start.

Nicola Mahmood

Thank you very much for that question, Mr Coffey. [Laughter.]

We can see that Ofgem has the appropriate skills and expertise to perform that role. We would not say that Ofgem is not an appropriate regulator; it is well versed and skilled. We might consider Ofgem to be the Rolls-Royce of regulation in an emerging market. Perhaps the ability for the Scottish ministers to have a closer eye on how this is progressing in Scotland might be more desirable in the short term.

Claire Mack

I echo what Nicola Mahmood said. Ofgem is absolutely fit for purpose. It would know what to do. However, we need to think more about the wider outcomes that we might want here in Scotland, which could direct us to a different solution. The partnerships that we are talking about will be one of the strongest sets of public-private sector partnerships that we have ever seen in Scotland. For that reason, the role of local authorities is extremely important, which might suggest that we need a different model, in which local authorities can be front and centre as we set the regulation, as we monitor it and as we make sure that it is delivering the outcomes that we want.

One of the key aspects here is the important issue of consumer protection, which I think that Eoghan Maguire mentioned. That is not a devolved power of the Scottish Government; the UK Government is developing regulations in that regard, which could apply to Scotland. However, we could think about whether those regulations should be devolved here, and whether they could be part of a package that would help us to develop a full heat network deal. Such a deal might give us different outcomes, such as social outcomes, along with economic and regulatory outcomes. Those outcomes should be one and the same, but given that we are bringing together a slightly different set of partners, a regulatory system that is more attuned to that could be considered.

Eoghan Maguire

I echo the views of Nicola Mahmood and Claire Mack. The risk of going towards Ofgem is that Ofgem would take a model that is based on electricity and would not necessarily have the skills or experience to apply regulation to district heating. If that were the case, it would need to be upskilled in that area.

The other consideration with any form of regulated business is that you need to balance regulation with strategic innovation. The industry is going through a huge amount of innovation and is going to need to innovate more. As I touched on earlier, you need to ensure that, in integrating heat pumps and heat networks with electricity, time-of-use tariffs and getting better customer protection, you do not get bogged down in the world of old and well-established electricity regulation. In principle, regulation by Ofgem could work, but the detail would need to be fleshed out. As Nicola and Claire said, it might be more prudent early on to keep regulation closer to home.

The Convener

If I can interject, would there be any conflict of interests for the Scottish Government in driving the regulations on what needed doing if it were the regulator? Do customers and organisations need a third party that stands separate from Government, in the way that Ofgem does?

Nicola Mahmood

I can see the benefits of having a third-party organisation. The thing that might need to be considered in that field is the set-up costs for a new regulator, and the on-going running costs. We might not have made it entirely clear how small the heat network industry is. There is probably only a handful of players that operate nationwide; other organisations are much more localised. The cost burden of setting up regulation needs to be considered. We are pleased that the Scottish Government has acknowledged that, in the early stages, those costs might need to be absorbed in other ways. I do not know whether Ofgem or an independent regulator would be needed. What might be needed is a route for appeal or an independent ombudsman.

The Convener

Claire Mack, did you want to add to that?

Claire Mack

No. Nicola Mahmood has covered that perfectly.

Andy Wightman

That conversation was interesting. We are not actually talking about a regulator; we are talking about a licensing authority, and I have a specific question for Eoghan Maguire of Vattenfall on that. Section 11 of the bill deals with the revocation of heat network licences, and it does so without containing any regulation-making powers, so the revocation conditions would be as set in the bill. Section 11 sets that out without specifying any appeal rights.

I note that Vattenfall has sought greater clarity on

“what the circumstances or criteria will be under which a licence may be withdrawn”.

Can you say a bit more about whether you think that that should be included in the bill or covered through licensing? Should there be an appeal right? From the industry’s point of view, what are the kinds of things that end up with companies losing their licences?

Eoghan Maguire

That is a detailed question, and I thank you for it. Where to start?

In broad terms, we think that the licensing measures represent a very good step, and we think that they are needed. One of the reasons why, around eight years ago, Vattenfall was a bit reluctant to come to the wider UK market, and the market in Scotland, was the lack of standards and the potential for the industry to be a bit like the wild west. When we see the upcoming licensing, we know that there will be companies there with a certain level of economic standards and technical standards, as well as consumer protection.

The process of licence revocation could potentially be dealt with through secondary legislation, but I must admit that I am not completely au fait with the ins and outs of the mechanics of the legislation and how it will go through the Parliament.

The question of how firms end up losing their licences is an interesting one. Many of the markets that we operate and run in are regulated, so all the operators—such as ENGIE, ourselves and E.ON—ultimately do business according to regulation and standards. As far as I can see, the only instances in which licences might be lost would be through persistent and continuing negligence of customers and poor performance.

I suppose that it is incumbent on the Scottish Government to be careful about to whom it awards the licences. Any such company should have a sufficient technical, commercial and financial standing so as to be able to deliver on the heat networks, and it should have sufficient experience. That should be a matter for consideration when the licences are awarded.

I am not sure whether I answered your question fully, but I would be happy to take any supplementary questions.

Andy Wightman

Perhaps you could come back to us in writing, but you want more clarity on the circumstances and criteria under which a licence might be withdrawn.

Eoghan Maguire

Yes.

Andy Wightman

Should that be included in the bill, with the criteria being set out as a, b, c, d and e, for instance, or should it be left to regulations, which would make the process more flexible?

Eoghan Maguire

I think that it could probably be done through secondary legislation. I do not have an exact answer for you on that—I do not know where that should sit in the bill—but having clarity on the instances in which revocation would occur would certainly be welcome.

Andy Wightman

That is clear—thank you. I move on to part 2, which concerns the consenting process. The bill stipulates that ministers will provide consents. That is unusual, because consent is planning consent, in a sense, which is usually undertaken by planning authorities. I would like to hear the panel’s views on whether it is appropriate for ministers to award those consents. Should that be done by planning authorities? Should they deal with smaller schemes, with ministers dealing with larger ones, as in the case of, for example, renewable electricity?

Claire Mack

What you suggest would seem to be a very sensible way to do things. As you say, it is unusual for us, in the consenting process, to take a different approach on how we would do planning. We need to recognise that we are discussing a new technology and it needs strong power and drive behind it. It represents a full, wholesale technological change.

I wonder whether it is appropriate, in the circumstances and for bigger projects, to drive the strong message to industry that this work is linked into the Scottish Government’s wider remit, with climate change as a really strong driver for networks to get out there in the early days, as we start to build demand, aggregation and the localised energy networks that Eoghan Maguire talked about.

However, regardless of that, as I said earlier, the strength of the public and private sector partnership will be really important. Local authorities are central to that, so I cannot see them not being part of the development process, if not necessarily at the consenting stage.

Nicola Mahmood

From our perspective, the important part is the recognition of who is an appropriate and fit-and-proper person in relation to licensing and what is an appropriate scheme in relation to consenting. We think that the provisions on the transition and consenting for existing schemes could be strengthened, because they are slightly unclear to us. The fact that there is no right of appeal means that investments could be made in schemes that do not receive consent. That would leave them inoperable and would leave customers stranded without heat, cooling and power. That issue needs to be clarified in the bill.

Eoghan Maguire

I will supplement what Nicola Mahmood and Claire Mack have said. It is unusual, but we think that some of the larger-build developments that are strategically important to national infrastructure should potentially be with the Scottish Government. The concern is that expertise in local authorities on district heating will vary widely. Similarly to the position with Ofgem, if responsibility is devolved to local authorities, there will be an expectation that the people who make the decisions will have experience of district heating.

Andy Wightman

On the point about local authorities having experience of district heating, I note that local authorities act as planning authorities for a range of developments of which they have no direct experience. My question is more focused on the fact that a district heating system has much more of an impact on local residents and businesses, space, house design and so on than offshore renewables have, which affect nobody in the vicinity. Ministers consent to such developments, but my question is whether planning authorities should be eliminated from consideration of quite detailed and complex schemes that will affect a lot of people in the local area. However, those answers were useful, so I thank the witnesses.

The Convener

I will pick up on some of the detail. If the bill does not specify the framework or the timescale for a heat network licence, and if technical standards are not referred to or detailed in the bill, there will be an open season in terms of the Scottish Government consenting to things being built. As Andy Wightman said, there will be an impact on communities in which schemes are built.

Would there be a greater degree of safety if the bill included more specification of the frameworks and timescales for the building of heat networks and the technical standards to which they should be built, or would that restrict the development of heat networks as time goes on? As a starting point, I throw that question to Eoghan Maguire.

Eoghan Maguire

In short, I think that a lot of what you raise could be addressed through secondary legislation. I do not have strong views on that, so I am happy to hand over to Nicola Mahmood or Claire Mack.

Claire Mack

I tend to agree with Eoghan Maguire. Given that this is an evolving situation and we are developing new business models and new local economic models to make the developments work, I agree that secondary legislation would be quite valuable in enabling flexibility, as Mr Wightman identified. That is the benefit of using secondary legislation rather than putting things in the bill.

Zone permits is an area that we could strengthen. Local authorities could be required to state whether they intend to issue zone permits, which would offer a level of certainty on the timeline. There might be enabling legislation to create a heat network and get people to connect, but if you cannot get the local zone permit, that will increase the risk to anybody coming in. The bill could be strengthened to require local authorities to state clearly whether they intend to issue zone permits. If they do not, they should explain why and publish, alongside the zone assessment plan, their plan for commercialising the opportunities and taking things forward.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

This question might be for Claire Mack. How long, on average, might it take to recover the capital costs from a heat network, which is the point at which a transfer competition could take place?

Claire Mack

My colleagues might be better placed to answer that, as they have experience of that abroad, having rolled out such schemes in Europe.

The trajectory that we are going to have to take is clear. As you have identified, we will start off with a set of capital funding that is perhaps subsidised through some sort of public-private partnership, in order to move the project forward. However, there are lots of inclusive growth opportunities in the year for various entities to become involved as electricity services companies and to use that role as a revenue-generation proposition. That includes entities—such as local authorities—that have the right skills and can grow the necessary expertise. There are huge opportunities in that regard.

These are long-term capital and revenue projects, but they will be around for a long time. They are future-proofed solutions, which is what is great about them. One reason why operators in the industry feel so strongly about being technology agnostic is that that approach retains flexibility in heat networks, which means that they will retain their value as assets and will not become tied to a fossil fuel lock-in or an additional risk that we might start to see in future because of legislation that comes forward. For example, at the moment, we are unclear about how we might tackle climate change globally. Programmes around carbon emissions taxation and so on could very much alter the business models of some of the things that are being put in place if we do not set them up in the right way.

Colin Beattie

So you are saying that you do not know.

Claire Mack

I am saying that my colleagues who have experience of developing those networks would be able to give you a more detailed answer.

The Convener

Let us put the question to Eoghan Maguire, as Vattenfall has experience of setting up heat networks.

Eoghan Maguire

The recovery of the capital costs will take double-digit years. We are not getting single-year payback. We are investing in a long-term asset, and the flipside of those long-term investment time horizons is that we end up investing over, say, 40 years.

As Claire Mack said, some of the assets that are in place have been around for a long time. For example, some of the heat networks in Berlin have been around for 80 years—they have been through two world wars and the rise and fall of the Berlin wall. We are talking about long-term assets with a long-term payback.

Vattenfall is happy to invest in those assets at lower returns if we can manage the risk. A key area that the bill is trying to address is regulation, standards and quality in order to manage the risk that allows Vattenfall to invest in an infrastructure asset over a long period. One of our projects is the Millerhill district heating network in Midlothian, which will be in place for a long time, growing over 30 or 40 years in order to enable economic development. That is what heat networks do—they are an enabling technology that enables businesses and buildings to be built with low carbon at their heart.

In short, capital recovery takes a long time. The flipside is that it can take roughly 18 years for some payback. However, we can make those long-term investments if we can manage risk over that period.

Nicola Mahmood

Most of our contracts for development of heat networks are for between 20 and 40 years. As Eoghan Maguire said, it can take up to 20 years to get payback of the capital that has been invested, and there is on-going investment in the infrastructure as well.

Our view is that we should start small with a core number of buildings and look to build out from there. As we do so, it will help to bring down the length of time that repayment takes, so we can speed up the recovery of our capital investment. However, these are long-term investments that have significant on-going capital expenditure investment points in order to maintain them properly and keep them operating effectively. I think that what we are saying is that it is quite an expensive business.

Colin Beattie

I will flip to a different question. In response to Andy Wightman, the witnesses talked about local authorities and so on. Should local authorities be under a statutory duty to carry out the assessment and designation of heat network zones? What value is there in having ministers do that on their behalf? I am happy for anybody to respond to that.

Claire Mack

On ministers doing that work on behalf of councils, I go back to Eoghan Maguire’s point that we are talking about very large, critical, national infrastructure-type projects and the benefit of the weighting of resourcing. We are very aware that heat networks at scale are perhaps not something that local authorities have had to tackle in the past. That is not to say that local authorities will not ultimately grow and deliver those skills, but the need to maintain the pace, given the level of projects that we are looking at, is probably why the resource is set at ministerial level.

Colin Beattie

Okay. Are the timescales in section 38 of the bill adequate? Section 38 states that a heat network zone review must be carried out “as soon as practicable”, and at least every five years.

Nicola Mahmood

Every five years is a good start. I do not think that the review would require to be any more frequent than that after the first has been concluded. Even in the current circumstances, it can take a year to two years to agree on and sign new connections. It is unlikely that there would be significant change over a period of five years, so I would say that that is a satisfactory timescale.

Eoghan Maguire

I agree with Nicola Mahmood on the five-year timeframe, as these projects do not move at rocket pace. As I said, the pace is not quite glacial, but it is slow, so the five-year period is sufficient.

The Convener

Are you happy, Colin?

Colin Beattie

Yes, thank you.

Alex Rowley

I go back to the role of local authorities. Part 5 places a duty on public sector building owners to assess the viability of connecting the building to a network zone and reporting to the local authority. Why does the duty apply only to public sector buildings and not to all non-domestic buildings? Would there be more potential if we were looking at all non-domestic properties in an area?

Nicola Mahmood

Public sector buildings are a good start. They often provide excellent anchor loads to build the district energy network around. We always envisaged that the heat network zones would be developed with a degree of partnership with local authorities; that was how the working group saw it rolling out. Therefore, it makes a lot of sense that public sector buildings would have a duty to assess their ability to be a catalyst for a heat network. It also makes sense to widen that out to other commercial buildings, but there is perhaps a view that that could take longer and might not give us the catalyst that is required to move forward more quickly with the initial schemes.

Claire Mack

We have identified that there is a need to improve the quality and use of information that is gathered from non-domestic buildings and to align that reporting requirement with the heat network zone assessment process so that we can try to develop them in tandem. Although the public sector provides an excellent opportunity for that anchor load because it takes very long-term views that sit on some of the same timelines as the larger heat network projects, it would also be helpful to demand aggregation and move to a place in which we get better-quality information about the non-domestic market and its viability. That is very important.

Alex Rowley

I am in Fife. I do not know whether any of the witnesses have come across the district heating system that takes gases from the Wellwood refuse dump and pumps them into the Carnegie leisure centre, the high-rise flats and a range of other places. That is a good example of a successful local authority district heating scheme.

In its evidence, Scottish Renewables states:

“It is important to recognise that local authority capacity to develop and operate heat networks is constrained at present and it will be vitally important that they are given additional resources and support from The Scottish Government to deliver the activities required of them”.

That rings alarm bells for most people, because we increasingly see new legislation being passed that puts more requirements on local authorities without giving them the resources or support.

In the current economic environment, and given that local authorities are being cut to the bone and are struggling to provide mainstream services, can we be confident that they will have the resources and capacity to do this? Witnesses keep talking about the benefits of a public-private partnership, but what would the private part of that bring? Are we expecting the taxpayer to pay the money out and the private sector to take the rewards, as so often happens in the renewables sector?

The Convener

That is a big question. I will go to Eoghan Maguire first and then to Claire Mack.

Eoghan Maguire

It is a big question, which I will unpick as it involves several areas. We think that local authorities’ resources have been cut back to the bone. If more obligations cascade down to local authorities, their capabilities and resources will need to be considered.

With regard to the deployment of heat networks and where the benefits do, or do not, flow to, a good example is Midlothian Council, which we are working with in a joint venture partnership to deliver a heat network across Midlothian from its Millerhill energy-from-waste plant. The benefits are twofold: it is a joint venture equity investment, so we and the council are investing the same amount of money; and our expertise from the continent brings in risk reduction. Knowing how to do that is a big thing. It is not a question of risk transfer—we are sharing risks, and our role is to manage and reduce them. We bring that experience—for business development, and the design and engineering—to build and manage those contracts in order to deploy the network. Ultimately, the investment is between us and the local authority, hand in hand.

That point goes back to Andy Wightman’s question. Heat networks are very different from an offshore wind farm. They are in the community and are the lifeblood of a community. The pipes go right into the heart and soul of people’s homes, so the concept is fundamentally different. We are aware of that, and without proper local engagement with people, local authorities and all the local stakeholders, it will not be successful.

On the question whether investment and profit flow just to private companies and risk remains with public authorities, I do not think that that is the case in any manner, shape or form. The incorporation of those partnerships with local authorities reduces risk, brings capital investment and offers the benefit that local authorities also invest with the same risk and reward as the partnership, so it is a true partnership in that sense.

Claire Mack

There is very wide engagement by the renewables sector on socioeconomic benefits—including in relation to community benefit and local supply chain use—which needs to be pointed out.

The UK Government has launched a £320 million capital fund for heat networks in England and Wales, through its heat networks investment programme, which seeks to leverage investment of more than £1 billion from the private sector over the next five years. That is one area where there is a return—the programme signals that this is a good opportunity and that the private sector can come in to work with it and bring its money.

As Eoghan Maguire mentioned, the investments are long term, so the revenue streams are not huge. Other infrastructure investments could be made that would potentially give more return over a shorter period of time, but they would not deliver the same certainty as this type of investment. For the public sector, there are wider potential outcomes. I have mentioned that a heat network can be a springboard for other economic growth opportunities. If you decide that you want to draw in the kind of industry that is very heat intensive, heat transfer between buildings, which we have just talked about, is a very attractive option.

Having the strength of the public sector in the partnership allows it to bring the outcomes that it wants, too. We are very aware that clear outcomes are sought for such issues as fuel poverty, and we can see the potential for wider economic growth that would springboard from a heat network.

Alex Rowley

I say to the sector that people in Scotland are increasingly starting to question the renewables sector because the jobs that were promised are not coming. The renewables sector should wake up to the fact that the public will not be on board when they see jobs going to every country but Scotland. The Fife offshore wind farms are a perfect example of that.

I expect that most local authorities will now have data on the energy performance certificates of their buildings. Is it likely that this process will rely on existing data in the EPCs? If so, what are the strengths and weaknesses of that? That is my final question, convener.

The Convener

Who wants to lead? Do not all volunteer at once. Nicola Mahmood, I will go to you to start.

Nicola Mahmood

To be honest, I do not have a view on that. The EPC data is useful and helpful, although sometimes it is not quite as complete as we would want it to be to enable us to make an assessment of heat demand. However, it is a good starting place.

The Convener

Does anyone have anything to add?

Claire Mack

I have a wider point about EPCs. In and of themselves, heat networks are fantastic at doing what they do, but one thing that will go hand in hand with the roll-out of heat networks is serious and significant uptake of energy efficiency measures. That is always the first port of call in any project of the size or shape that we are discussing, because the best kilowatt hour is the unused kilowatt hour. Making sure that our buildings are as energy efficient as possible is important, and having a certification system that reflects that and which rewards it in any way that it can is also important.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

I have questions about part 6 of the bill, which is on the powers of licence holders. Eoghan Maguire, you stated in your written evidence that

“it is difficult to see how the envisaged powers will help in securing connection to anchor loads”.

What reasonable changes to the bill are required to improve the viability of any new heat network scheme? Is it just an obligation to connect, as Claire Mack has mentioned?

Eoghan Maguire

Very simply put, we feel strongly that the obligation to connect would be of benefit for heat networks.

It is important to make a separation between new builds and existing buildings. New builds could be addressed through an obligation to connect in the planning process. There would be an obligation to connect or otherwise, with that “otherwise” being when a heat source that is both cheaper and lower carbon can be found. That would be the standard for not connecting, but the de facto assumption would be that new builds would connect to the heat network.

In relation to existing buildings, we think that the obligation to connect needs to be strengthened. We have touched on anchor loads and how that derisks investment, which allows for longer-term capital investment as well. The obligation to connect for existing buildings is currently not as strong in the bill as we would like it to be, although there is an acceptance that public buildings will, or should be, connected. One reason why we want to see that obligation to connect is that it allows for a bigger view to be taken of the whole heat network, which enables people to invest ahead of need, in different areas at different times. It also enables us to decarbonise.

We have touched on the issue of the public versus the private sector. The obligation on new builds would be the equivalent of the obligation on the public sector to connect, without there being too strong a mandate for retrofits to connect, just as there is not for the private sector. That allows for a balance of connecting between new builds and retrofits.

One of our networks is in Amsterdam. When it started more than 20 years ago, 85 per cent of the projects were new builds—that was through a planning obligation—and 15 per cent of them were retrofits. Today the balance is about 50:50. The planning obligation is still in place, and we see that the obligation to connect is tightening in relation to existing buildings. For example, as boilers come to the end of their life cycles, buildings connect to the heat network. The obligation to do that is increasing, because there is a carbon tax, too, so people see connecting as beneficial.

An obligation is not a question of stating “thou must connect”; it should be a case of considering how we factor in the costs of delivering gas and ensuring a level playing field. That is something that should be addressed in secondary legislation.

Gordon MacDonald

What changes need to be made to wayleave rights so that connections can be made?

Eoghan Maguire

As it stands, the bill has strong advocacy for wayleave access and rights, so we are happy with that. The bill gives heat network operators similar obligations and powers to the ones that water or electrical utilities have. That is a positive step.

Gordon MacDonald

My understanding is that heat networks are long-term investments—over 20 to 40 years. You suggested that an obligation to connect would derisk investments. Are you in danger of creating localised monopolies? What needs to be in place to ensure that pricing will continue to be competitive in the long term and that consumers will be provided with a minimum level of service?

Eoghan Maguire

I am happy to take that question; Nicola Mahmood will probably have a view, too.

Yes, there is a risk of creating monopolies. We advocate that there should always be a level of regulation to manage that. We are used to operating in Amsterdam, for example, which is a good example in relation to consumer protection on pricing. A price cap is put in place.

We try to ensure that there is an obligation to try to connect but not necessarily an obligation in relation to volume or pricing. Again, I think that the obligation in relation to service and standards will come through the consumer regulatory aspects, to ensure standards on pricing and service that are sufficient to protect the consumer. That is absolutely needed, too.

I suppose that the discussion is always about there being an obligation to connect or otherwise—by which I mean, in essence, that if there is another viable solution that the consumer can put in, which is lower carbon and cheaper, they should be able to try to do that.

I am happy to give Nicola Mahmood space to come in on this; I am sure that she has a view.

Nicola Mahmood

This is part of the beauty of having to hold a licence to operate. A licence might be removed if the heat price is not competitive or there is a failure to deliver the expected standard of service.

It is worth remembering that heat networks are not a regulated industry just now, but there are heat networks throughout the country—not just ours; there are other providers. Thousands of domestic customers as well as commercial buildings are connected to networks. We have contractual standards of service in place that cover all the commercial buildings, and we register all our heat networks that have domestic residences connected to them with the Heat Trust. That is a voluntary approach; we have chosen to do that because we feel that it is the right thing to do.

It is absolutely right that there will be monopolies, given the nature of how the investment is made and how the connections are made. That is partly why we welcome the bill: it should give confidence that appropriate standards are in place and that fit and proper people are operating heat networks. In some way, that should take the sting out of the tail of a network being a monopoly.

Gordon MacDonald

My final question is about provision for compensation. In evidence to the committee, a local authority expressed concern about compulsory purchase powers and the impact on green space, biodiverse areas and forestry that might need to be removed to make way for new district heating networks. Concern was also expressed about the impact on archaeological sites, scheduled monuments and listed buildings. Are there safeguards that would force developers to remediate in such areas?

The Convener

Is that question directed to someone, Gordon?

Gordon MacDonald

It is directed to whoever is willing to answer.

Claire Mack

One of the beauties of the planning system that we already have in Scotland is that it is very robust. All the developers who have Scottish Renewables membership are aware of their requirement for a social licence to operate, as well as a regulated one. Whether on sites of special scientific interest, in forestry or in biodiversity, wider environmental considerations have always been part of projects. They are also part of the thinking when budgets are put together, in how developers make reparations and in how they work with—and not against—the environment they are working in.

As an industry, we do not want to be part of the problem, and we are very aware of our needs and responsibilities.

Nicola Mahmood

I want to point out that heat networks operate best in dense urban environments. Therefore, they are generally probably more of a pain to bus lanes and traffic than to green spaces. However, Claire Mack has covered the issue perfectly: from the perspective of reputation, we would absolutely want to avoid those types of issue.

Dean Lockhart (Mid Scotland and Fife) (Con)

I would like to ask the panel about what projections are available for the heat networks in Scotland for meeting heat demand. There are some estimates that heat networks might supply 6 to 7 per cent of heat by 2025. Are there projections available for what that percentage could look like in the longer term, over a 30-year period, by 2050?

Claire Mack

I do not have projections for percentages up until 2050. However, our commitment in Scotland is to reach net zero by 2045, and heat is a huge part of that.

We will have to apply different treatments to different areas in Scotland. As Nicola Mahmood said, heat networks work best in dense urban areas. We are used to working in those environments because of other roll-outs that we have done in which density of population has been a key variable to whether things have moved fast or slow; I am thinking about mobile networks. There will be different treatments and solutions in different areas. Heat networks will not be the entirety of what we will do: we will also look to other low-carbon heat solutions.

Some 55 per cent of Scotland’s energy demand is for heat. We have 113 existing heat networks that supply the equivalent of 1 per cent of Scotland’s total heat demand. The reason why there are so many networks, and why that quantum looks so unusual, is that the networks are relatively small because they have been built around the constraints. That is exactly what this bill is trying to unlock, and that is what is so good about it. It will unlock the constraints and allow us to get more bang for our buck.

Scottish Renewables did some research that has identified 46 potential heat networks across all of Scotland’s cities and towns. Another great aspect of heat networks is that they are very targetable to places where we might want to see development happening.

What is interesting about heat as a whole is that we can apply an industry—[Inaudible.]. There is that capability because we have manufacturing here, and because the bulk of the work is in civil engineering. That means it has a different supply chain profile to other renewables, which is one reason why it has such strong potential from a green economic recovery perspective.

Our research suggested that the 46 heat networks that we have already identified could provide 8 per cent of Scotland’s heat by 2030. That is a very rapid expansion and also a rapid decrease in carbon emissions. For 2030 and beyond, I am not sure. Perhaps Nicola Mahmood and Eoghan Maguire have projections from their companies that might be valuable here.

Eoghan Maguire

Thank you for the question. As a short response, how far we get ultimately depends on what stimulus the bill provides to give a framework and confidence for investment in the heat networks. Crudely, heat networks are the cheapest and best-value way to deliver low carbon heat in densely populated and urban areas, and we think that they could provide up to 20 per cent of low-carbon heat by the late 2040s. As I said, the change does not happen overnight. It builds up slowly, but you need to start making the investment decisions now and grow from there.

Dean Lockhart

Thank you for those helpful answers. I understand that projections are always subject to variability, but the targeted nature of the projects gives us hope that those projections have some degree of accuracy.

I would like to ask briefly about the just transition impact of the development of heat networks. Are there estimates of how many jobs could be created and of how many might be lost in traditional heating areas? What other impacts on the wider economy might we see from that just transition?

Claire Mack

The energy transition needs to be a just transition. That is absolutely clear, and people need to be at the heart of it. That has never been more at the forefront of our minds in renewables than it is right now, because of the difficulties that the oil and gas sector is experiencing and the potential for us to create further pipelines in that offshore space.

Renewable heat will still require maintenance. There will be the opportunity for people who currently work in heating to get a dual set of skills. They can work on both the electrical and the gas side while we make the transition and then change fully to the electrical side as we move into that majority-of-low-carbon space.

As a trade association, we would certainly advocate for the management of that transition. In the past, we have seen energy transitions that have not been managed, and we know the catastrophic effects of that. We now have an opportunity to manage the transition and perhaps to think about a renewable transition training fund to help people who are currently working in heating to pick up the dual set of skills that I talked about.

Lessons from continental Europe tell us that ahead of decarbonising heat we will need to switch our homes away from gas, and we will also need advanced insulation. The energy efficiency programme that I was talking about has a lot of near-term jobs in it. It can be kicked off relatively quickly and create jobs in the nearer term.

There is also an opportunity to transition our tradespeople to become all-round energy advisers—to widen their role and add higher-skilled opportunities such as working with homeowners to optimise their energy systems in order to reduce bills and micromanage their energy use, perhaps using solar power to charge electric vehicles and then using the vehicles to power heat networks. That is a really exciting prospect for the future, which will need to be supported.

Nicola Mahmood

The heat networks industry council has put proposals to the UK Government in the past few weeks that suggest that there could be 20,000 to 35,000 new jobs in the sector by 2050. I do not have the breakdown of how that would play through into Scotland, but presumably it would be proportional to the number of heat networks that we are able to develop here. Given that we are ahead of the curve in terms of the regulation and stimulus for heat networks, we hope that more of those jobs would appear here in the shorter term.

The Convener

Andy Wightman has a short extra question.

Andy Wightman

It is on permits. The committee has to give Parliament a recommendation on whether we agree with the general principles of the bill, but it is still not clear to me how the permit system will operate.

As I read it in the bill, there is no explicit requirement for a permit holder to have a licence, or for consent to be in place, and yet those are grounds for a permit to be revoked. Can a permit be awarded, for example, to a person other than a licence holder who has sought consent over an area? What would happen there?

You all have experience of implementation. Is the model in which there is a licence holder, a consent process and a permit that operates in zones a novel one, or does it replicate systems that operate elsewhere? If it does, there are presumably no problems, but I am still a little unclear as to how the permit system will operate. Can anybody help me by illuminating that area?

The Convener

Who is an expert on how permit systems operate? Do not all volunteer at once.

I will start with Eoghan Maguire, and then work my way around all of you.

Eoghan Maguire

In short, I am no expert on permits, but I am happy to submit supplementary evidence to the committee if you wish on how systems operate in different countries—for example, in Sweden, Germany and the Netherlands.

Given some of the points that Andy Wightman raised earlier, there seems to be a slight disjoint with regard to clarity on permitting versus the situation with licensee awards. We perhaps need to form a better view on that in order to understand a little more what the issue is there.

The Convener

You can come back to us on that, or we can write to you. Does Claire Mack have any clear views on permits?

Claire Mack

That is one of the areas in which we think that there is scope for clarification and strengthening. Licences and permits need to work in tandem, as having the infrastructure in place and a licence to operate it without the permit part would introduce a potential barrier. The reasons for that, and the situations and circumstances around it, need to be clear.

We felt that, if local authorities decided not to issue those permits, it would mean that the network would not go ahead. It would need to be stated clearly why the specific circumstances meant that that was the case, because the process would be quite far down the road at that point. There is potential for further clarification and strengthening of that aspect of the bill.

Andy Wightman

Just to be clear, it is the Scottish ministers, not local authorities, who award permits.

The Convener

That is clearly an area that we need to get our heads around to ensure that we understand it, so that whatever ends up in the bill—if it is approved at stage 1—will make the situation clear and will not create a black hole or a gap that might raise problems down the line. Does Nicola Mahmood want to add anything?

Nicola Mahmood

Our understanding from the discussions was that those things should be aligned, but I recognise that the wording in the bill does not convey the intent. Such a system does not exist anywhere else in the United Kingdom, and there are always challenges in forging a new path.

The Convener

Absolutely. It may be that we need to revisit the wording to ensure that the intent is clear and that there is no lack of transparency in the way that the provisions are presented. Is Andy Wightman content with that for now?

Andy Wightman

Yes, but it is an area that we need to explore further.

The Convener

Absolutely.

Thank you, everybody—I have no other bids for questions. I am aware that we are quite time constrained this morning, and that we may well have other questions in the light of some of the conversations that we have had. We can potentially get back in touch with the panel with any further questions.

In the meantime, I thank the witnesses for their time today; the session has been a useful start to our inquiry into heat networks. We will now take a short break.

11:10 On resuming—  

The Convener

We continue to take evidence on the bill. I am pleased to welcome Michael King, who is director of Aberdeen Heat and Power. Unfortunately, Colin Reid is not with us, due to illness; Michael, I am afraid that you are on your own. As a panel of one, you will have plenty of opportunity to give us your thoughts on heat networks and the bill.

Alison Harris

Good morning, Mr King. I want to ask about projections for heat networks in Scotland over the next 30 years. What contribution can heat networks make to achieving net zero greenhouse gas emissions and tackling fuel poverty?

Michael King (Aberdeen Heat and Power)

Good morning, and thank you for your question. Earlier in the year, in March, the Scottish Government published a policy memorandum on the bill, in which it suggested that, in the absence of legislation, heat networks could grow to deliver about 4 per cent of delivered heat by 2050. It was suggested that with minimal intervention the proportion could grow to about 8 per cent and with stronger intervention, particularly by using waste heat and renewables, it could reach 12 per cent.

Aberdeen Heat and Power has a fairly secure forward pipeline of about 1,000 connections over the next three years, which will grow our network by approximately 30 per cent. I emphasise that that is the confirmed, secure pipeline; the likelihood is that the approach will snowball.

Alison Harris

In terms of financial investment, are there any investments—sorry, are there any estimates of what can be achieved?

Michael King

Will you clarify the question? What do you mean by “investments”?

Alison Harris

Just any financial investment. I am looking to find out whether there is any investment as we look to the next 30 years. Are there any figures in relation to that?

Michael King

I believe that there are, but I do not necessarily have them. The opportunity is there and there is a great deal of interest from investors in the sector. The problem has been how to address the risk. Indeed, that is one of the purposes of the bill.

Alison Harris

Yes, and in the context of a just transition, I am thinking about the impact of the development of heat networks. Could jobs be created? How many job losses are there likely to be among traditional heating professionals? Do you have thoughts or comments on that?

Michael King

I think that, in the earlier part of your meeting, Nicola Mahmood commented on an estimate from the heat networks industry council, which—if I recall—was in the region of 73,000 jobs.

There is a snowball effect. In Aberdeen, we created five jobs directly ourselves, but there is also a supply chain of local plumbers, for example, who are installing systems in people’s homes. More jobs are created outside the industry.

Alison Harris

Thank you. I appreciate your response.

Richard Lyle

Aberdeen Heat and Power is a shining example of what can be done. I have always believed that we can do more with heat networks, with developers and house builders promoting the approach.

We all know that a heat network is either a district heating network or a communal heating system. Could the definitions in the bill, and the bill as a whole, be future proofed to cover technologies that will emerge over the years?

Michael King

Eoghan Maguire said this morning that heat networks are an infrastructure that is agnostic to the heat source. Consequently, they facilitate the development of new technologies. For example, the development of hydrogen is proposed to decarbonise heat, but the Committee on Climate Change has suggested that hydrogen will not be widely available until 2035. That would leave us only 10 years to hit the target that the Scottish Government has set, but if we expand the use of heat networks, it would be much easier to retrofit hydrogen plant into centralised plant rooms on heat networks than to visit each building. As a consequence, that would facilitate the advance of the new technology.

Richard Lyle

Is the possibility of amendment by regulation adequate to ensure that we have the flexibility that we need?

Michael King

The definition as it stands is adequate. Other witnesses have referred to the issue of temperature, and the general move to lower-temperature systems throughout the heat network industry in Europe and North America would help in respect of connecting technologies such as heat pumps into the system. That will happen anyway, so I am not sure that it is necessary to define it in the bill.

Richard Lyle

Thank you very much for your answers to my questions.

Willie Coffey

Good morning. I will ask about your views on regulation. Nicola Mahmood, who was on the previous panel, said that the heat networks industry is not regulated. If you feel that there should be regulation, who might provide it? Ofgem is a UK body.

Michael King

It was said elsewhere that heat networks are a natural local monopoly, and monopolies need to have regulation to balance things out. The industry is unregulated at the moment, which can lead to instances of abuse. The industry is trying to address that through the creation of the Heat Trust, but that is voluntary and only goes so far.

The Department for Business, Energy and Industrial Strategy has proposed that Ofgem should become the regulator, which has tensions with what is proposed in the bill. First, consumer protection is a reserved matter, so that would need to be addressed through engagement between the Scottish and Westminster Governments. Secondly, the Westminster Government is taking a slightly different approach, so having the Scottish Government as the regulator is probably prudent. Nevertheless, as matters advance, it will be necessary for the two Governments to liaise closely.

The last point is about the pace at which those matters are moving. Although the Department for Business, Energy and Industrial Strategy has indicated that Ofgem will be the regulator, I understand that that is not likely to happen for another three or four years, due to the pace of change. What is proposed under the Heat Networks (Scotland) Bill will be much more rapid. Consequently, in the absence of regulation from Ofgem, it is appropriate for the Scottish Government to take on that responsibility.

Andy Wightman

Aberdeen Heat and Power is operating a heat network just now. If the bill is passed, are you clear that you will have to apply for a licence and comply with the bill’s laws, even though your organisation is already in existence? Is that your understanding?

Michael King

Yes, that is my understanding.

In respect of obtaining the required licence, permits or consents, our concern is that there will be a regulatory burden on us. We are a not-for-profit organisation. We aim to be a very lean machine, so we do not have large reserves. Our objective is the alleviation of fuel poverty. Any additional cost of such requirements will be passed through to end users, which we want to avoid as much as possible.

Andy Wightman

You mention that issue specifically in relation to your organisation as an existing provider, and there are issues with how existing providers can fast-track becoming licence holders, given—[Inaudible.]—schemes already have the consents. As a not-for-profit organisation that is focused on fuel poverty, do you think that that poses questions about the bill and the players that may or may not be able to come into the market and focus, as you do, on social ends?

Michael King

That is a very good question. I have raised concerns elsewhere about how the cost burden that I referred to earlier might impact not on existing networks but on new networks that are community based and serving small villages in rural areas. That is a concern.

Andy Wightman

I note that the bill contains provisions that allow regulations on the issue to be made, which could exempt or partially exempt certain organisations from the full rigour of the licensing regimes. However, that is not spelled out in the bill.

I will ask a bit more about the fuel poverty dimensions of the bill. The need for heat networks is being driven by a need to decarbonise heat and provide more affordable and reliable heat sources for people. What role can heat networks have in the alleviation of fuel poverty more generally across Scotland?

Michael King

Thank you for picking up on that point. I beg your pardon, but I did not pick up the second part of your previous question, which was about fuel poverty. It is a concern to us that it does not appear in the bill. The bill mentions decarbonisation but not fuel poverty. In order to lock in future Administrations, we think that it would be helpful if a reference to fuel poverty appeared in the bill.

In respect of your second question about how the bill can help to address fuel poverty, in the main, the focus has been against a benchmark of current fuels, such as fossil gas or electricity. However, studies by consultancies such as Element Energy and Fortec found that most pathways to the decarbonisation of heat will result in an increase in the cost of heat for the end consumer. The one exception to that is heat networks associated with waste heat, energy from waste plants and suchlike, where the cost is equivalent to business as usual, if not negative. Out of all of the technologies, that is probably the best one for addressing fuel poverty.

Andy Wightman

How many years has your scheme existed for?

Michael King

We were established in 2002 via Aberdeen City Council to address fuel poverty in the council’s high-rise blocks, of which it has 59. We have treated more than 50 of those. Starting from nothing, we now have 15km of pipe networks, approximately 7MW of combined heat and power capacity, 30MW of thermal capacity, five plant rooms, five employees and a turnover of £4.4 million. We hope that we are making progress.

Andy Wightman

So your company is wholly owned by Aberdeen City Council.

Michael King

No. We are a company limited by guarantee and, as such, we have a membership structure. There are five members, of which Aberdeen City Council is one. It is a minority owner of the company.

Andy Wightman

Presumably you needed planning consent to do a lot of the physical works that you have done. Is that correct?

Michael King

That question came up in the previous session. I think that there is a distinction, because heat networks are below ground, and that aspect does not require planning consent. However, the plant rooms, which of course are above ground, do require planning consent. I think that all the issues that you raised in the previous question would need to be addressed, in respect of environmental protection. I understand that the Scottish Environment Protection Agency is a recognised consultee for that, so hopefully that would address those issues. As a plant room is within the community, it is right that that should be addressed by the local planning authority to ensure that it beds into the local community.

Andy Wightman

Just to be clear, part 2 of the bill is about heat network consents. As it stands, it is the Scottish ministers who make decisions about heat network consents, which carry with them, as I understand it, a deemed planning consent. Would it be your view that, certainly for some schemes, if not all—you can maybe clarify that—those consents should be awarded by planning authorities rather than by ministers?

Michael King

No. With respect, I think that you have misunderstood me. The heat network is the bit that is below the ground, and that would be covered by the consent. It may be that no plant rooms are required because the heat is being drawn from some other source. For example, Aberdeen City Council, in association with the county council and Moray, is constructing an energy-from-waste plant, which we anticipate we would take a connection from. In that instance, we would not need to have planning permission to connect to that. That is a wholly different matter. It is only if the plant room was in our ownership that we would have to pursue consent. In that instance, it is probably most appropriate to go to the local planning authority.

Andy Wightman

Thank you. That is a useful clarification.

Colin Beattie

On average, how long might it take to recover the capital costs of a heat network, so as to allow a transfer competition to take place?

Michael King

That is a good question, and I do not want to seem to be trying to avoid it but, often, the payback varies from project to project. There is no standard in that respect. It is about the size of the load, the number of buildings that are connected, the capital that is required to install the plant room and to connect the buildings to it, and how long the revenues from those loads will take to recover that capital.

In the main, it is not a short-term payback. At a minimum, it is around seven to eight years; at a maximum, it can be over 20 to 30 years.

Colin Beattie

Previous witnesses gave timescales that varied widely, from 18 to 40 years. From a planning point of view, if one is investing capital, that creates a lot of uncertainty as to when one will get it back.

Michael King

I absolutely agree. One of the purposes of the bill is to increase investor confidence, so that investors have some certainty about recouping that investment.

Colin Beattie

Yes; it is a very patient investment.

What do you think of the strengths—[Interruption.] Sorry?

Michael King

I beg your pardon. Please continue.

Colin Beattie

I was going to develop another question; if you have something to add, please do so.

Michael King

In many places, at the outset, the principal investor has been the public sector, either directly, as local authorities, or through grant programmes at national level—and now through the energy company obligation. We have benefited from free capital, if you like, from those. That has enabled us to move forward.

Colin Beattie

In reality, will 40-year capital investment come from the private sector?

Michael King

What will probably happen—in the general way that things happen in the UK—is that, at first, these things will be public sector led, or at least public sector influenced, through the development, construction and early operational phase. Once the project has been de-risked, the public sector will have the opportunity to refinance it. At that point, there will be appetite from institutional investors, such as pension funds, to come in, because it will fit their risk profile and give them the sort of stable, albeit low returns that they typically find helpful in their portfolio.

Colin Beattie

You used the term “de-risk”. Will you define that?

Michael King

Once all the costs and revenues have been stabilised and people understand what their costs are likely to be and what revenues are coming in—they have two or three years of understanding what those might be—at that point, a project could be refinanced.

Colin Beattie

What are the strengths and weaknesses of a transfer system, as set out in the bill, and how should a company be protected?

Michael King

We are concerned about that. Under the licensing regime, if a company or organisation is no longer considered to be fit and proper, its assets will need to be transferred to another company so as to provide security of supply to the end consumer—there will need to be a supplier of last resort. We do not quite understand that. Those assets actually belong to us as a company. Is it proposed that they would simply be taken away from us, or would we be compensated for them? How will that work? We do not know.

Colin Beattie

Assuming that we have reached the end of the period during which there is a concern about the stability of the revenue and the capital costs, surely whoever takes that over is in effect buying a source of revenue, which—[Inaudible.]

Michael King

That is the basis of refinancing, yes. There is no suggestion, however, that that will be paid for.

Colin Beattie

Would the public sector hand the assets across for free?

Michael King

One would need to address that.

Colin Beattie

I am assuming that the public sector will get a return, particularly as the repayment period goes through. Let us say that it is 40 years: at some point in that period, a surplus will be triggered, and either that surplus will be reinvested into the company or it will come back into the public sector in some way.

Michael King

Yes. Pardon me; we are talking about different issues. I think that you are correct on that point, but I wanted to say that more clarity is needed in cases where a licence is withdrawn.

Colin Beattie

Okay. We note the fact that you feel that. I am trying to explore how the actual transition will take place at the point at which the private company moves in. I am assuming that there will be a transfer of some value to the public sector.

Michael King

That would depend on whether the asset was being sold in its entirety. It might be that the public sector would sell only a percentage of the equity, which would be bought by a private investor, such as a pension fund, as I suggested. The management would remain the same, but the ownership structure would change.

Colin Beattie

So, the actual management of the company would not change; there would simply be a background change of ownership.

Michael King

Yes.

Colin Beattie

We do not know yet whether the public sector would hire someone from the private sector in order to run the business for it.

Michael King

That is a possibility. All sorts of options are open to the public sector.

Colin Beattie

My concern is to ensure that the public sector gets value for money in investing in those assets, and then in transferring them, in whole or in part, to the private sector.

Michael King

If the public sector invested in the asset, it could take the option to retain 100 per cent ownership, in which case it would get the revenue. It could decide that it wished to exit from it, in part by selling a share of the equity, or it could exit entirely by selling 100 per cent of the equity.

There is a great example in the city of Toronto, where the city council, in association with its pension fund, developed a heat network, taking heat out of Lake Ontario and cooling it. They developed the network downtown and then sold the whole lot to Brookfield Asset Management. In the process, the city council made a $300 million profit. There is the opportunity for the public sector to benefit from the approach.

Colin Beattie

Thank you.

The Convener

An issue that has come up is whether the licensee should be a person or a legal entity. The bill seems to suggest that it should be a named individual—a fit and proper person, as in the approach to alcohol licensing. Should the approach be extended or changed to make the licensee the legal entity, that is, a limited company or an organisation, rather than an individual so that, as individuals come and go, it is the company that has the licence to operate?

Michael King

Thank you for the question. I suppose that the approach is similar to the licensing of pubs; it is the individual landlord whose name is above the entrance but it is the company that provides the service. Our concern is that people in companies change; we wondered whether there would be a cost associated with reassigning a licence to a new individual.

The Convener

For alcohol licensing, an exam goes with the process, to show that someone is a fit and proper person. The applicant has to tick boxes in a mini-exam, to show that they know what is required and so on. We perhaps need to explore that issue.

Michael King

Yes. That would be helpful.

Alex Rowley

You talked about fuel poverty in response to questions from Andy Wightman. Should more be done to ensure that fuel poverty is considered when heat network zones are designated and permits are issued?

Michael King

As I understand it, that will be dealt with in the secondary legislation. In particular, in relation to the issuing of licences and consents, an applicant will have to demonstrate that they are a fit and proper person and come forward with a proposal and business plan that seeks to build a heat network over the whole area, while providing some form of price benefit for the end consumers. As that is not actually in the bill, I think that the bill should contain a reference to fuel poverty, which would hook seamlessly into the secondary legislation.

Alex Rowley

There will be the opportunity to lodge amendments to the bill, and your proposal is worth taking on board.

Michael King

In our submission, we suggested a particular point in the bill at which such a reference could be included.

Alex Rowley

Thank you. I asked the previous panel about requirements in relation to publicly owned buildings. I talked about the scheme in Fife that I know well, which links a community asset, the Carnegie leisure centre, with high-rise flats. Will you give us a feel for your scheme and how it works? Do you have an anchor building?

Michael King

Our approach is to have a framework agreement with a city council that gives us exclusivity to build a combined heat and power plant in its buildings. It was initially focused on the high-rise estates that I mentioned, but it also includes administrative offices and schools.

The high-rise blocks tended to be in clusters, so we could develop a heat network island that was financially sustainable and viable serving just that island. The housing estates became our anchor loads, which we connected together and then picked up other buildings along the way. A lot were public sector but now, because new connections to the gas network will be banned from 2024, we are getting inquiries from private developers about how to connect to our networks.

Alex Rowley

You are saying that there is a potential opportunity, and we should not restrict the network to just publicly owned buildings. Section 38 of the bill says that each local authority must

“carry out a review to consider whether one or more areas in its area has the potential to be designated as a heat network zone”

and that that should be done “as soon as practicable” after section 38 comes into force, and at least every five years after that. Is that adequate?

Michael King

Yes, it is. A difficulty of rolling out heat networks in towns and cities across Scotland is that there has been no statutory duty. Aberdeen Heat and Power provides an example for lots of towns and cities, but not many have followed it. In the main, that is because, from a strategic point of view at the top of a local authority, it is not a statutory requirement, so why should the authority do it? Making it a statutory requirement would encourage authorities to focus on that area and I hope that they will understand the opportunities that it will bring to address climate change, fuel poverty and urban regeneration.

Alex Rowley

From what you have said, I am reaching the view that local authorities are absolutely key to the issue. To deliver heat networks, the local authorities must be totally on board and driving them. Do you agree? My second question is about where the expertise exists; some authorities have not driven renewables forward not for a lack of will but because they do not have the expertise. Where does that expertise sit?

Michael King

You are right. Commentators throughout the world have recognised that municipalities and local authorities are key to the development of heat networks. They have the vision for the whole of their area rather than just the edge of a development site. They are the planning authority and have the ability to shape the town in terms of the mix of use, the size of anchor loads and this, that and the next thing. The local authorities own a great many buildings that can be put into the mix to provide an anchor load and underpin a network financially and technically, and they tend to be at the centre of a web of relationships with people in their locality.

Local authorities are key, but the issue about competence and skill is a problem. People refer to heat networks as a new technology but it is not; it is very mature in other parts of Europe but not in Scotland. As a consequence, there is a lack of expertise here, particularly in the local authority sector. The bill has addressed that issue; if the local authority does not have the competence to develop heat networks, the Scottish Government can step forward and take over that responsibility. We would want to ensure that the Scottish Government had the requisite skills to be able to deliver that on behalf of the local community.

Gordon MacDonald

To continue on the theme of buildings—Alex Rowley is big on that—part 5 of the bill places a duty on public sector building owners to undertake an assessment of the viability of connecting their buildings to a heat network. Are energy performance certificates sufficient to assess actual performance as well as whether a building is suitable for connection?

Michael King

It is key that we are able to understand demand for heat in a building, not only in absolute terms, but in terms of the shape of demand—in other words, what demand is over the course of a day or a year. Owners of large buildings with EPCs will have derived the data that they need to generate that information from the current typical heat source, which is gas. Simply reviewing their gas bill would provide owners with the information that they would need to make an assessment of connecting their building to a heat network.

Gordon MacDonald

You have already mentioned that no new gas connections will be allowed from 2024 and that you are beginning to get inquiries from privately owned commercial properties. Have any of those inquiries come from customers who are already connected to your network? What length of contract would need to be entered into? What are the additional benefits that customers would get from Aberdeen Heat and Power?

Michael King

I will address your last question first. Aberdeen Heat and Power has been in existence for 18 years. Over that period of time, we have developed the competencies to be able to provide a good, reliable and secure service, which would be the attraction for potential customers. At the moment, no private developers are connected to the system, but we are in conversation with them. The responsibility for interacting with the end consumer is a very challenging area. In the main, my company would prefer to be able to sell bulk heat, and that it would be for the end consumer to establish a vehicle to manage the heat network on their development.

Gordon MacDonald

The bill places a duty only on public sector building owners. Should all private building owners have to carry out an assessment to encourage them to think about connecting to heat networks?

Michael King

The public sector is a good place to start, but I anticipate that the requirement would need to be rolled out to other major buildings as well.

Gordon MacDonald

Are any public buildings outwith the scope of the bill? Back in the 1980s and 90s, a lot of councils outsourced their services to arm’s-length external organisations. For instance, in Edinburgh, Edinburgh Leisure runs all the sports facilities. Would those buildings be included in the definition of publicly owned buildings?

Michael King

I guess so, because it is the management that has been outsourced, not the ownership. I presume that such buildings would still qualify as public sector buildings.

For all the reasons that I mentioned, and because of the public sector’s aims and objectives, the public sector can take a long-term view, so the likelihood is that these spine mains or putative projects will develop on the back of a public sector load. It makes sense that such projects would be extended to large commercial buildings—using the EPC definition of “large”. That would bring into place a heat network in most of Scotland’s towns and cities, to the point that when fossil gas was withdrawn, other, much smaller buildings would have the opportunity to connect to a heat network and get low or zero-carbon heat from that at a reasonable price. If we do not build up the networks now, those smaller buildings, including residential buildings—homes—would not have that opportunity. It is about building a platform now.

Dean Lockhart

In practical terms, is the bill likely to encourage your organisation to invest more in heat networks? If so, can you explain why?

Michael King

A barrier remains that I think has been referred to this morning, which is the obligation to connect. The wayleave right, as outlined in the policy memorandum to the bill that was published by the Scottish Government in March, indicates that it would be possible to build a heat network up to an anchor-load building. However, you would not be able to oblige that building to connect.

One argument is that while that extension was happening, a contractual negotiation could take place between the heat network operator and the anchor-load building owner. The fact that the pipework network was coming up to that point would facilitate that discussion.

Secondly, there could be a change of ownership. A new owner may want a low-carbon source of heat, which would then be available to them, because it had been built up to their doorstep.

Thirdly, there could be a change of boiler. If the current heating equipment expired, that would be an opportunity.

The difficulty with that is that I do not think that people—including Aberdeen Heat and Power—would invest money in such an open-ended scenario. If you or I were to take £100 out of our building society to invest in a project, we would need greater certainty—in this case, that the building was going to connect and provide the revenue stream to repay the capital investment that we had made.

Dean Lockhart

That is very useful.

I have a follow-up question. In the earlier evidence session, we heard about a fairly significant increase in provision from heat networks to meet heat demand. Are those projections optimistic, or are they realistic?

Michael King

I think that they are realistic, but I would refine that. The figure that is quoted in the Scottish Government’s financial memorandum, which is based on Scottish Government research, suggests that provision could be 12 per cent of delivered heat by 2050 across the country as a whole. Because heat networks tend to be an urban technology, the percentage is likely to be higher in towns and cities.

Dean Lockhart

Is there anything that policy can do to help with the wider distribution of heat networks, or is it largely driven by the economics of the investment?

Michael King

Overall, that is largely driven by the economics, which is, in turn, driven by the density of buildings in a particular area, the mix of buildings, the presence of an anchor load, the presence of sources of waste heat, such as from energy-from-waste plants and power stations, ambient heat from rivers and the sea, and heat from the land through ground source heat pumps. All those things should be captured in the latent heat energy storage proposal for producing a heat network zone. You would have to encapsulate them all to define the heat network zone, and as the process begins to derisk the proposition, it makes it much more attractive for the investor, whether public or private.

I would like to follow up on one more point about the obligation to connect. There is a resistance among certain building owners because of competition law and other such things, so a softer option would be for the bill to include an obligation on those building owners to explain why they cannot connect to a network. That could force them to engage in contractual negotiations with the heat network operator to justify their position.

Dean Lockhart

That is understood. That is valuable feedback; I appreciate it.

The Convener

Richard Lyle just has one more quick question to ask.

Richard Lyle

I am just trying to unmute my microphone.

The Convener

You are unmuted.

Richard Lyle

I am sorry; I was trying to unmute myself.

We have failed to exploit various opportunities to use waste because of environmental concerns. If we had more drive and determination, we could change that. Do you agree—yes or no?

Michael King

Are you referring to waste?

Richard Lyle

Yes. I will not bore you with the detail but there was a proposal for a waste-to-heat plant in my constituency and my constituents were against it. However, other cities and towns, and other countries, have waste-to-heat plants. Have we failed to tackle environmental concerns?

Michael King

I am afraid that I have to duck that question because I am a heat network person, not a waste management person. The decisions lie further upstream and are down to people who know about such matters. However, if we decide to go down the energy-from-waste route—and I believe that that is SEPA policy nowadays—that should be done as efficiently as possible, including through the provision of a heat offtake, if not immediately then within a certain amount of time, which I understand to be about five years. That would create the opportunity for a heat network operator to come in, capture the heat and distribute it to the local community. However, the decision on waste is not ours to make.

Richard Lyle

Yes, you mentioned that. Thank you very much.

Michael King

You are welcome.

The Convener

We are coming to the end of the session. We have asked a lot of questions and covered a fair bit of ground. Is anything missing from the bill that you would like to be in it?

Michael King

I think that I have covered that. First, we really want a reference to fuel poverty in the bill. Secondly, as I mentioned to Dean Lockhart, there is the issue about the obligation to connect.

The Convener

It is just those two aspects that you really want to be included in the bill.

Michael King

Yes.

The Convener

Okay. In that case, and given the time, I thank you for your time. It has been really helpful to speak to someone who has delivered and is running a heat network. We will decide what recommendations to include in our report to Parliament, but your evidence, both written and oral, has been helpful.

That completes our public session. I thank anyone who is watching, and I thank broadcasting for supporting the transmission of the meeting.

The Deputy Presiding Officer (Linda Fabiani)

The next item of business is a debate on motion S5M-23564, in the name of Paul Wheelhouse, on stage 1 of the Heat Networks (Scotland) Bill.

The Minister for Energy, Connectivity and the Islands (Paul Wheelhouse)

I am delighted to open the debate on the bill and that we have reached this point in the process. I thank the Economy, Energy and Fair Work Committee for its careful scrutiny of the bill and I welcome its recommendation to approve the general principles of the bill. I am also grateful to the organisations and individuals who have given evidence, the convener and members of the Delegated Powers and Law Reform Committee, and the heat networks regulations working group, which was a strong source of support to us in preparing the bill.

Before I talk about the bill itself, it would be beneficial if I were to briefly set out what a heat network is, how it differs from the heating systems that we are more familiar with in Scotland and the benefits that it can bring. Put simply, a heat network is a distribution system of insulated pipes that carry hot water or steam from a central source and deliver it to homes and businesses. Heat networks are best deployed in denser, more built-up areas where there is more concentrated demand for heat, but they can also work well in rural contexts. The technology is well known across Europe, predominantly—but not exclusively—in large cities such as Copenhagen, where it supplies heat to 98 per cent of buildings.

Heat networks are generally more efficient than individual gas boilers and, in the right circumstances, can deliver fuel savings, helping to lower bills and tackle fuel poverty. The heat can come from a wide range of renewable and low-carbon sources, including large-scale heat pumps in our rivers or even waste heat recovered from industrial processes such as whisky distillation. There are also health and safety benefits, as there is no need for any combustion to take place inside the building, thereby avoiding fire and carbon monoxide poisoning risks.

As heat networks are long-lived assets, they can create long-term local jobs in maintenance and administration. When deployed in suitable areas, heat networks have many benefits, the most important of which might be their capacity to remove the emissions that are caused by heating our buildings, and to reduce bills and so help to tackle fuel poverty. The Committee on Climate Change, along with other key actors in the sector, has advised us that there is real scope for making greater use of renewable and low-carbon heat networks.

Given the opportunity that the technology presents, the overall aim of the bill is to accelerate development of heat networks in Scotland and so drive down emissions and tackle fuel poverty. The bill seeks to do that by creating a new licensing regime to ensure that operators are solvent, fit and proper, while also driving up standards across the sector. The bill introduces new processes for consenting, zoning and permitting to ensure that new networks are developed where they will have the most benefit; that they are tailored to the needs of an area; and that they can provide greater certainty to developers and investors to attract investment. We are levelling the playing field with other utilities by creating new rights for heat network developers and operators, which will help to reduce the costs and risks associated with construction. Finally, the bill puts in place arrangements to protect network users by enabling a transfer of operational rights to occur to ensure continued supply.

The bill and its provisions have been developed following extensive consultation with stakeholders and communities, including our island communities, and are based on advice and recommendations from an expert working group of stakeholders. The Economy, Energy and Fair Work Committee has made helpful recommendations throughout its report and I have responded to the committee in what I trust is an equally helpful manner.

The bill is lengthy and complex, so I will concentrate on covering four important areas that are addressed in the committee’s stage 1 report: consumer protection, fuel poverty, community engagement and the division of responsibilities between local and national Government.

I will also listen carefully to the points made by members in the debate today on all areas of the bill. If the bill progresses to stage 2, I will write to members of all parties so that I can hear the views of Parliament in further detail. As I have said from the outset, I want the process to be collaborative so that we produce a piece of legislation of which we can all be proud. I am confident that we can and will do that.

The committee has highlighted the challenges relating to consumer protection, which, as members are aware, is not currently within the competence of the Scottish Parliament. I very much welcome the committee’s scrutiny of the issue, and I reassure members that we will not enable the mass deployment of such schemes without commensurate protection for homes and businesses.

Earlier this year, the United Kingdom Government signalled its intention to legislate in order to introduce a set of consumer standards for the sector, which will apply across Great Britain. That is very welcome. I continue to work closely with my UK counterparts to ensure that the proposals are fit for Scotland.

I have written to Kwasi Kwarteng MP, who is Minister of State for Business, Energy and Clean Growth, to seek new powers for the Scottish ministers to determine which body oversees the consumer standards in Scotland. That would ensure that that body, whether it is the Office of Gas and Electricity Markets or another organisation, is one and the same as the licensing authority that is created by the bill. In that way, we will achieve coherent regulation in Scotland while harmonising standards for businesses and consumers across the borders.

Graham Simpson (Central Scotland) (Con)

Does the minister think that Ofgem would be the appropriate body?

Paul Wheelhouse

We are very supportive of Ofgem providing the role. Obviously, it is not within our gift to appoint a body that is constituted under a UK statute. We are seeking to work with UK ministers to get the powers so that the Scottish Parliament is able to appoint Ofgem to that role. We have had early discussions with Ofgem, and we believe that it is supportive of performing the role.

I had hoped to have a response by today, in time for the debate, but I do not, for which I apologise. I am waiting for Mr Kwarteng’s response, but I do not read anything into that—it is perhaps just a bandwidth issue. We will continue to keep the committee and Parliament updated as we progress. Meanwhile, I hope that members agree that the bill will improve the current situation by regulating the market for the first time and enabling conditions of licence and consent to be placed on operators and on individual sites.

I turn to the important issue of fuel poverty, which has rightly been raised in the committee’s report. Heat networks have an important role to play in helping to eradicate fuel poverty. The business and regulatory impact assessment that accompanies the bill notes that heat networks can provide average fuel savings of 17 per cent for households and, in the right circumstances, savings of up to 36 per cent.

I recognise that the bill does not make explicit reference to fuel poverty, but I assure members that contributing to the eradication of fuel poverty has been an absolute priority for the Scottish Government as we have developed the bill. To put that beyond all doubt, I propose to lodge amendments at stage 2 to parts 1, 2 and 3 of the bill to ensure that consideration of fuel poverty is embedded explicitly throughout the bill. My officials and I are liaising with the chair of the Scottish fuel poverty partnership forum and with Energy Action Scotland to inform those amendments. Should the bill pass, I will continue to work with fuel poverty stakeholders to ensure that the regulatory framework, as it is further developed and implemented, helps to tackle fuel poverty.

The committee has recommended that the bill include stronger provision for community engagement. I have reflected on that, and I recognise that the bill could be strengthened to ensure that the views and needs of local communities are accounted for. To ensure that local views are considered from the inception of a potential project, I will lodge an amendment at stage 2 that will require developers to provide real evidence of their engagement with local communities alongside their application for a heat network consent. As we develop subsequent regulations in that area, it will be important for us to draw on the expertise and insight of communities and organisations such as Citizens Advice Scotland, and I commit to working with them as we progress work in that area.

I note the committee’s recommendation for the balance of powers between the Scottish ministers and local government to be modified over time. As introduced, the bill makes the Scottish ministers responsible for approving new heat network developments through the consenting system. I want to be clear that that will not undermine the role of local authorities. Rather, the intention is to ensure proportionality by not requiring local authorities to take on that function at this time, while the heat network sector is still developing and when such systems will not have equal distribution across the country. The intention is also to make use of the Scottish Government’s existing capacity within the energy consents unit, which already performs a similar function in approving new renewable generation and electricity transmission projects. That will enable us to realise economies of scale and to proceed as quickly as possible in approving new schemes, in view of the global climate emergency.

The committee’s recommendation on that issue is very sensible and practical. I agree that local authorities should be empowered as far as possible, particularly in the case of heat networks, which are local assets by their nature. I will therefore lodge a Government amendment at stage 2 to enable responsibility for the award of heat network consents to be transferred to local authorities in future. However, the amendment will also allow local authorities to choose to leave the responsibility with the Scottish ministers, if that suits their circumstances.

Of course, the bill is only one part of our work to tackle fuel poverty and reduce emissions from Scotland’s homes and buildings. We have the most ambitious and comprehensive fuel poverty legislation and retrofit programmes in the UK, and we are committed to investing £1.6 billion during the next parliamentary session to expand and accelerate our heat and energy efficiency programmes as part of a green recovery.

We have already launched a £50 million green recovery low-carbon infrastructure transition programme call, and we will invest £25 million in heat networks as part of the Clyde mission. This year, we are also providing funding of £20 million to social landlords so that they can improve their properties by making them warmer and greener. Last month, in addition to opening a £4 million renewable heat cashback scheme for small and medium-sized enterprises, I announced a new £4.5 million cashback incentive to help people install renewable and energy efficiency measures in their homes.

We will shortly publish a consultation on our 2024 standard for new buildings, requiring them to use only zero-emission heat. That will open up a new market opportunity for the renewable heating sector, and will be an important step forward in encouraging the connection of new buildings to heat networks.

We will also shortly publish our heat in buildings strategy for Scotland, which will set out a vision for the roll-out of energy efficiency and heat decarbonisation in Scotland. The strategy will set out an ambitious set of new actions that will accelerate the decarbonisation of our building stock, including new commitments to support the deployment of heat networks. I encourage all members to consider that important document closely when it is published.

I hope that I have demonstrated to colleagues that the Heat Networks (Scotland) Bill will play a crucial role in our package of programmes as we take steps to ensure that Scotland’s buildings are warmer, greener and more efficient. The bill is an important step in supporting the deployment of heat networks at the scale that is needed to help us reach our net zero carbon targets. The bill will provide confidence for consumers, investors and the supply chain, creating a sustainable market for district heating, and I commend it to Parliament.

I move,

That the Parliament agrees to the general principles of the Heat Networks (Scotland) Bill.

Gordon Lindhurst (Lothian) (Con)

Heat networks are hardly a new idea. The first modern district heating system was pioneered in a town in the state of New York in 1877. Birdsill Holly, a friend of Thomas Edison, observed the abundance of thermal energy in urban areas, and he realised that heat from industrial processes could be piped into homes to meet public demand. Waste not, want not. A triumph of the free market, we might say, but this is a committee report and I could not possibly comment.

The Scottish Government has presented us with a doorstop of a bill. It extends to 85 sections and 42 pages. I am pleased to say that our stage 1 report is two pages shorter. In the words of Horace,

“Whatever advice you give, be brief.”

It is, however, pleasing that the minister has heeded so much of our advice. It is fair to say we are not overly familiar with the words

“The Scottish Government accepts the Committee’s recommendation”,

but credit where credit is due: that phrase appears in almost double figures in Mr Wheelhouse’s written response to us. He and his officials are to be commended for taking such a constructive approach.

The bill is a technical bill with substantial delegated powers. In broad terms, it seeks to regulate the supply of thermal energy via heat networks. It has a single purpose, but that single purpose covers a plethora of policy areas, including energy efficiency, renewables, land rights, planning, and climate change.

I want to focus on a handful of matters that we highlighted in our scrutiny. The first and most fundamental matter, which also featured in our energy inquiry, is public engagement. The Committee on Climate Change has advised the Scottish Government to prioritise behaviour change. Our committee agrees. We also want the Scottish Government to take the lead by example to facilitate new social norms.

We want to address the disconnect between public support for carbon reduction and a lack of awareness of the role of heat, and to ensure community buy-in, consumer confidence and what we might term social licence.

Citizens Advice Scotland saw the intentions of the Bill as “admirable” but said that

“it could go further to guarantee good outcomes for consumers.”

CAS cited the experience of one community in north-west Glasgow, an area where more than 90 households had their heat turned off after falling into arrears. The provider had put up its price but had failed to appreciate the vulnerability of those customers. That is why we need a clearer commitment to local input in the growth and development of heat networks, which I think the minister recognises. That must be at the heart of the bill and central to its ethos.

We welcome the minister saying that developers should provide a community engagement report and the indication that he will lodge an amendment to stipulate that in the bill. Again, we credit him with taking a positive stance. He has agreed that provisions on fuel poverty, which a number of witnesses wanted, should be included in the bill.

The Nordic experience, notably in Denmark and Norway, is an acknowledged influence on the bill. In other circumstances, we would have liked to see the results of that experience for ourselves, but coronavirus prevented that. We were grateful, however, to the Danish energy agency for providing us with a written submission in the absence of an opportunity to make a site visit. The Danes described heat networks as a “low-regret investment” that is “agnostic to the heat source” and is adaptable to technological developments in areas such as waste heat and hydrogen.

Municipalities in Denmark oversee the consent process for heat networks and, together with consumer co-operatives, own most of the networks. The balance of power between the national and the local is certainly not like that in the bill. We feel that it would be desirable if that could be modified over time and, yet again, the minister has accepted our recommendation. He recognises that local authorities should be “empowered as far as possible” where they are willing and able. He accepts that heat networks are essentially “local assets” and he says that he will seek to amend the bill to enable the future transfer of consents to councils.

I might offer the minister even more compliments, but I am already in excess of my quota, so I will move on to a question. What is on the wallpaper today? I am told that that is what a Dane asks when they want to know what is on the agenda. On what is left of my wallpaper, I will cover a robust critique of some of the bill’s drafting.

We heard detailed evidence in relation to wayleaves, legal definitions, and the creation of real rights. Professor Roddy Paisley specialises in land law and he impressed even Andy Wightman. We will no doubt hear Andy’s comments shortly.

Professor Paisley made observations on various aspects of the bill. Here are just a few. He said that it is

“somewhat oddly drafted and lacks clarity”

and also that

“I think it will be overly sanguine to expect the builder’s shovel to conform in every or even most situations with the lawyer’s pen.”

He described the bill as

“a half-baked import … In Scotland we can do better than this”

and lastly said:

“It would not be a good idea to model what you propose to do in the bill on what is already in legislation, drafted by the Westminster Parliament”.—[Official Report, Economy, Energy and Fair Work Committee, 1 September 2020; c 7.]

That was an interesting contribution and one that we felt ought to be stress tested with another academic. We then presented both sets of views to the Scottish Government. Did the minister respond in a defensive or a derisory way? I am almost dismayed to say that he did not. He described the views as “valuable”. He believes it “crucial” to consider the transparency of wayleave rights and he says that he will seek to amend the bill to address such issues.

Heat networks are hardly a new idea, but a minister who listens—now there is an innovation. We recommend that the general principles of the bill be agreed to.

Alexander Burnett (Aberdeenshire West) (Con)

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.

Paul Wheelhouse

Will the member take an intervention?

Alexander Burnett

If I can have the time back, certainly.

Paul Wheelhouse

The member rightly identifies that we need an accurate understanding of what the heat load and the demand load would be, building by building. Does he appreciate that, as a first step, we are looking at using public sector buildings in order to produce building assessment reports to inform local heat and energy efficiency strategies and give accurate data? I hope that we will, for anchor loads—at least for public buildings—be able to give investors confidence that there is sufficient demand to justify the investment.

Alexander Burnett

I welcome that reply. I also note for the record that I welcome the minister’s offer in previous conversations to be as constructive as possible on the bill.

The minister mentioned existing loads. Those are subject to change, an issue that I will touch on now. There can be varying connection charges, which might not be known at the outset. However, building users might also change, with different heat demands, leading to obvious implications for the operator. A shed with a micro-distillery has a very different heat profile than if its use was to change to storage only. The same could apply to the public sector buildings that the minister just mentioned—their uses might change over time.

All that leads to issues over the connecting and charging obligations for the operator and the potential consumer, which do not appear to have been given any meaningful consideration.

A significant issue is how local authorities will resource their new heat zoning obligations, with funding needed for the specialist skills that are required. I know that other colleagues will speak about that. For my part, I hope that we are not going down the Government’s familiar route of devolving responsibility without the matching resource.

Other submissions raise the point that the bill is based on single entity and operator schemes, whereas multi-operator schemes are quite normal, so clarity is also required on licence-holding requirements. Similar questions were raised about the revocation or refusal of a licence, the transfer of assets process, the valuation and compensation mechanisms and, most worryingly, the lack of an appeals system.

I hope that the minister will significantly improve his knowledge of how heat network systems are built and do everything in his power to ensure that his legacy is not the death knell to consumers and developers of heating networks.

Despite the many reservations about the bill, it must become one that will increase heat networks and protect consumers. The bill must be welcomed and we will support it at decision time.

Claudia Beamish (South Scotland) (Lab)

I thank Paul Wheelhouse for introducing the Heat Networks (Scotland) Bill. I welcome the bill as an opportunity to address concerns around the sector and as a move towards decarbonising heat. It is also an opportunity to lift thousands of families out of fuel poverty.

I will leave the committee members who are speaking today to outline the recommendations, which we support, during this important stage 1 debate.

I am pleased to open the debate for Scottish Labour. We will support the bill at stage 1, but we believe that it has so much more potential. We face a climate emergency, and heat from buildings accounts for a quarter of Scotland’s climate emissions, yet none of the statistics around renewable heat in Scotland seem to match the urgency for action. So far, the progress in this area has been far too slow. The target of 11 per cent seems quite measly given our understanding of the climate change emergency, and the fact that it has been missed is disappointing.

Heat networks can and must be part of the transition to a net zero society, but the estimates are of only between 7 and 17 per cent of Scotland’s heat demand being met from renewable networks, which is not enough. That will not drive the large-scale changes that are needed to tackle the climate crisis. We need ambitious targets for a green recovery.

It is notable that, in its recommendations, the committee invites the Government

“to reflect on whether its ambitions for the impact of the Bill are on a level with those it has already set out for tackling climate change and pursuing a green recovery.”

That needs further attention, and consideration must be given to the recommendation of WWF Scotland that targets and a clear delivery plan should be included in the bill and not just in guidance.

There is certainly consensus that heat networks are a way forward as part of a mixed renewable energy solution. However, if the sector is to be a success, a number of factors must come together. I will be listening carefully to discussion of those in the debate.

The bill presents an opportunity to drive up consumer confidence, and we know that low confidence is a significant barrier to developers and uptake. A regulated sector with robust licensing, service standards and consumer protection would improve confidence among developers and investors, who are reluctant to take risks without measures that create licence holders with statutory powers similar to those of other utility providers. In its report, the committee has asked to see

“a clearer commitment to consumer protection”,

which is a view that is supported by Ombudsman Services.

I ask that consideration be given to including in the bill provision for what should happen in a situation when a customer enters into a heat network without the ability to switch suppliers. I hope that the minister and the committee will address that issue as the bill progresses. Having more information about service, customer engagement, minimum standards and price, as well as other information such as licence conditions, in the main body of the bill would be a way of ensuring such protection.

Further, as other members have said, having a co-ordinated approach by local government and the Scottish Government will be necessary. In its report “Renewable Heat in Scotland, 2011”, the Energy Saving Trust acknowledged that clarifying the role of local authorities should be a priority. Although the bill does consider the role of local authorities, there is a lack of reference to community engagement, so that aspect must be given greater priority. Again, the committee has recognised that.

Advice and funding will also be critical to ensuring that councils have the capacity and knowledge to develop municipal, community or co-operative not-for-profit heat network companies. I welcome hearing the minister’s commitments on those areas. Consideration must also be given to achieving a just transition and to ensuring that skills and knowledge are in place to respond to the challenge and expand the sector. Those include the skills to develop technology, install it and maintain it.

Given the benefits that heat networks could bring in reducing domestic fuel costs, it is a relief that the minister has today agreed that provisions to address fuel poverty will be included in the bill.

In Drammen, Norway, district heating via a heat pump delivers the city’s collective heating needs, using fjords as a resource. Some 50 per cent of the system is owned by a commercial energy company and the remainder is owned by a municipal company. Indeed, in many European countries there have long been district heat networks, which are embedded in their cultures with no concerns about a lack of individual control, because people work together on such schemes. We must recognise that, as we develop networks here in Scotland, there must be support and clear information for our communities. It is encouraging for the development of our manufacturing base in relation to heat networks that it was a Scottish company, Star Renewable Energy—which I know the minister and other members have visited—that made the Drammen system possible.

There is much to be positive about in the bill. If the gaps are addressed, it will enable us to grasp fully the local, national and global benefits that heat networks offer.

The Deputy Presiding Officer (Christine Grahame)

I call Andy Wightman to open the debate on behalf of the Scottish Greens. You have up to five minutes, Mr Wightman.

Andy Wightman (Lothian) (Green)

Scottish Greens welcome the bill. I thank the committee’s clerks and all those who gave evidence. As the convener did in his opening remarks, I thank the minister for his constructive engagement and positive response to the committee’s stage 1 report.

As we know, Scotland is a northern country in which it is wet and cold for much of the year. We have a persistent problem with fuel poverty, but we also need to keep warm. Some years ago, I was lucky enough to visit the Soviet Union on a number of occasions. One year, I was skiing in Siberia when I encountered interesting and quite substantial heat networks with vast pipes snaking across cities and leaks of warm air condensing in huge clouds in the streets. The homes of Soviet citizens were warm, even in the most hostile climate on earth. That is not unusual. Many—indeed, most—European countries, and certainly all the northern ones, have long embraced heat networks, and developing the policy behind the bill has involved drawing on the experience of a number of such countries. The bill is therefore a welcome one, and it represents an important step towards addressing Scotland’s energy needs.

We know how little time we have in which to address the climate crisis, and making our heating systems more efficient and climate friendly is one of the key challenges that faces us, together with transport and land use.

The committee has identified a large list of areas where improvements could be made. Again, I thank Mr Wheelhouse for his constructive response to the committee’s recommendations, and I will reflect on a few of them. First, it has been suggested that the function of tackling fuel poverty should be in the bill as an objective and criterion for the regulatory process and the awarding of consents. I welcome the Government’s agreement on that and look forward to debating the formulation of words to achieve that.

Secondly—and this is the Scottish Green Party’s principal concern—the bill centralises power with Scottish Government ministers. Much of the evidence from the Scottish Government in relation to the bill drew heavily on the Danish model of heat networks. As the convener mentioned in his opening remarks, the Danish energy agency provided useful written evidence to the committee, which I have here. It indicates that, under the key elements of heat networks, municipalities—local authorities—have

“mandated responsible authority for heat planning and approval of heat projects.”

The document goes on to say:

“The pipe network for distribution and transmission of heat is owned predominantly by municipalities”

—two thirds of it—

“while consumer-owned cooperatives own most of the”

remainder.

An important feature of the Danish heat network system is the concept of the

“‘not-for-profit’ requirement. This has been part of heat networks regulation since heat planning became a municipal responsibility. The not-for-profit requirement stipulates that heat network companies can only charge the consumers a price equal to the actual or ‘necessary costs’ of producing and transporting the heat—profit is deemed an unnecessary cost.”

Although the private sector no doubt played a useful role in New York, the Danish evidence shows that municipal enterprise can play an equally productive role in heating our homes. I am pleased that the Government has agreed to amend the bill to allow for the future transfer of regulatory functions to local authorities, but I believe that it should go further.

In the Local Government and Communities Committee yesterday, cabinet secretary Aileen Campbell said:

“We are committed to local decision making”.—[Official Report, Local Government and Communities Committee, 2 December 2020; c 2.]

In my view, the bill should presume that local government should be the competent authority as the default, unless it decides not to be. In such scenarios, local authorities may decide that they wish the Scottish Government to perform the relevant functions on their behalf, or they may decide to share services and expertise with neighbouring local authorities, as they do now.

Public engagement has also been mentioned in relation to what will be a dramatic change in infrastructure and how we heat our homes. In the absence of a formal role for communities and local authorities regarding planning and consent, a robust plan for engaging with and taking feedback from relevant individuals is important. Again, I welcome the Government’s response on that.

The committee heard significant evidence on the legal aspects and drafting of the section on wayleaves. The convener mentioned a few of those. Professor Paisley told us that section 60 needs “wholesale redrafting”, and that references to the words “owner” and “occupier” are “English inspired nonsense”. I should say that it is very good when witnesses appear before committees and tell us exactly what they think. [Laughter.]

As the convener said, the committee is very interested in and keen to see that evidence being tested properly, and we did that by inviting Scott Wortley, who was the committee’s adviser on the drafting of the Title Conditions (Scotland) Act 2003. Professor Paisley said that that was one of the Scottish Parliament’s finest legislative achievements.

Finally, we touched on the issues of building regulations and the green recovery, among other matters. However, I will leave it there. I confirm that the Scottish Green Party will support the bill at stage 1.

Liam McArthur (Orkney Islands) (LD)

I hope that the Deputy Presiding Officer might grant Andy Wightman a closing remark, so that he can explain why he was on special manoeuvres, skiing in Siberia. [Laughter.]

Like others, I thank the Economy, Energy and Fair Work Committee for its work on the bill, as well as those who provided evidence. In the light of the comments by Andy Wightman and the convener, I, too, thank Paul Wheelhouse for his characteristically constructive engagement with the committee on the matter.

I was delighted that committee members managed to visit Orkney as part of their evidence gathering. That is always to be encouraged, and I am sure that it helped to inform the recommendations in the stage 1 report. Indeed, the islands that I represent have shown themselves to be pioneering in the generation and use of energy in ways that cut emissions and lead us towards net zero. Of course, achieving that in relation to heat, as in transport, remains one of the biggest challenges that we face. That is why the bill, which the Scottish Liberal Democrats strongly support, is crucial, and it is why the point that Claudia Beamish made about adequate resourcing of the provisions in the bill was well made.

The Orkney example also illustrates the tension in the bill between national oversight and local delivery. I accept that the consent process needs to ensure that we have the right projects in the right places and that we have a proper balance between environmental objectives and efforts to reduce fuel poverty. However, communities and local authorities must have a formal role in the planning and consenting of schemes, because, without that, public buy-in becomes difficult and, as CAS and others have pointed out, decisions could be taken that either ignore or override the interests of local residents, some of whom might be vulnerable.

Given the higher levels of fuel poverty in our island and rural areas, the bill’s provisions demand rigorous island and rural proofing. As various witnesses made clear to the committee, we need to avoid overly bureaucratic regulation, but we also need to ensure that customers across Scotland have access to the same low prices for energy.

Denmark has made a success of a decentralised process, and, as members have observed, there is no reason why Scotland cannot and should not do the same. I therefore welcome the minister’s assurances about transferring consenting power to local councils that wish to have it and about requiring meaningful engagement by developers with local communities. I was struck by Andy Wightman’s position in relation to a presumption. That approach has been taken to planning for aquaculture development, so there is a precedent.

On the theme of island proofing, I ask the minister to investigate why Shetland Heat Energy and Power’s treatment on rates appears to be at odds with the treatment of projects elsewhere in Scotland. That might not fall into his ministerial responsibility, but, even if it does not, I am sure that my colleague Beatrice Wishart, as well as Shetland Heat Energy and Power, would welcome some clarification on that.

The bill makes sensible proposals on definitions and licensing. I echo the points about the benefits of having a consistent approach across the UK, which would point to Ofgem being the obvious choice as a licensing authority. However, on the question of conditions, I think that we can be bolder in the bill, and that can be done under the guise of consumer advice, which is devolved to the Parliament. I see no reason why the bill should not include more detail on licence conditions such as information about service, price, customer engagement and minimum standards. More importantly, CAS, Energy Action Scotland and the ombudsman also see no reason why that should not be the case.

During the passage of the Climate Change (Scotland) Act 2009, Scottish Liberal Democrats worked with others to deliver important amendments prioritising action on heat networks. We believe that setting stretching targets in the bill is again the right approach and the best way of achieving those ambitions, as WWF and others have argued. I look forward to working with the committee and the minister and his officials to make the necessary improvements at stage 2.

I confirm, once again, that Scottish Liberal Democrats will be happy to vote in support of the bill at decision time this evening.

The Deputy Presiding Officer

We come to the open debate.

John Mason (Glasgow Shettleston) (SNP)

We face a number of challenges around heat. They include the need to decarbonise heat and the fuel poverty that many of our constituents face. Heat networks, and in particular district heating systems, definitely have a big part to play in tackling those challenges. I say in passing that I hope that we continue working on hydrogen as an option, using the existing gas pipework if possible. I find it tremendously exciting to hear about the H100 pilot project in Fife, although I accept that a lot of the technology on hydrogen is still at a relatively early stage of development.

I have been a member of the Economy, Energy and Fair Work Committee and its predecessors on and off since 2011. I was hugely impressed when, some time ago, we visited the University of St Andrews district heating system, which has its heat production facility at Guardbridge, some 4.6 miles away from most of the university buildings. The network is about 10.6km in length. Frankly, I had not realised that hot water could be transferred so far with such little loss in temperature. I suspect that I am not unusual in not fully understanding the systems.

The committee found a bit of a disconnect between the undoubted public support for climate change reduction measures and the lack of awareness of the role of heat. When district heating is mentioned, some of us perhaps think of the sort of hugely inefficient Soviet-era system that Andy Wightman referred to, leaking steam and heat all over the place, with little or no control for the individual household. However, a modern district heating system is completely different.

In its response to paragraph 143 of the committee’s report, the Government refers to a report entitled “Public awareness of and attitudes to low-carbon heating technologies: an evidence review”, the findings of which include the fact that the two main factors that put people off low-carbon heating systems are the expected cost and uncertainty about performance. I guess that that will gradually be overcome as such systems become more common and more people have them or know other people who have them and are benefiting from them.

In my constituency, the Commonwealth games village was an extremely desirable housing development, with a mix of owner-occupied and social rented housing. Of course, it was built to a higher than normal specification and was subsidised, so it was very attractive to prospective residents. I suspect that most of them moved in despite the district heating system rather than because of it. We had various complaints early on, especially about the charging system. At least to start with, the heating charges were set to match traditional heating costs, because the operators did not know what the actual costs, such as the cost of long-term maintenance, would be. I do not think that we have had any complaints about the system recently.

The hope is that heat networks can be one way of reducing fuel costs and therefore fuel poverty, so I welcome the Government’s response to paragraphs 131 and 132 of the committee’s report, which recommended that that aim be made more explicit in the bill.

A related issue is how we will deal with the existing heat networks when the new licensing system comes into play. The committee raised that topic in paragraph 86, and I welcome the Government’s response, which talks about possible exemptions, which could be time limited, the exclusion or modification of licence conditions, and the adaptation of fees.

Andy Wightman was particularly concerned that local authorities and communities should be as involved as possible with district heating. I have a lot of sympathy with that point of view, so I welcome the Government’s commitment to lodge an amendment at stage 2 to enable responsibility for the award of heat network consents to be transferred to local authorities if they wish that to happen.

There is a lot more that could be said—for example, about an obligation to connect and other issues—but I will leave it at that. Like the rest of the committee, I am very happy to support the general principles of the bill.

Edward Mountain (Highlands and Islands) (Con)

I refer members to my entry in the register of interests.

It is interesting to take part in the debate as somebody who has not been involved in the committee process on the bill but has read some of the information that has come out. During my professional career as a chartered surveyor, I have witnessed the emergence of heating networks and have seen the practical benefits that they can bring.

As we all know, individual boilers take up significant space in homes and offices. Connecting up to a heating network means that people can remove not only the boiler, but the relevant alarms and the need for annual safety inspections. Overall health and safety can be improved, because the risk of fires and carbon monoxide poisoning is reduced or eliminated.

I believe that it is time for heating networks to be expanded, especially as the early adopters of such schemes have shown real promise. For example, in the Highlands, the Wick district heating scheme has been blazing the trail when it comes to delivering renewable and affordable energy. It is that energy that powers Caithness general hospital, Pulteney distillery, Wick assembly rooms and homes that are owned by Cairn Housing Association, which proves that such schemes are reliable and provide a sustainable source of heat for homes, businesses and our health service.

Although Wick is leading the way, Scotland has been falling behind when it comes to expanding heating networks. I believe that estimates suggest that only 1 per cent of Scotland’s total heat demand is met by heating networks. Scotland has a long way to go when we compare the situation here with that in Denmark, where 63 per cent of households are powered by heating networks, or that in Finland, where such heating accounts for 50 per cent of the total heating market. I truly believe that the Scottish Government has missed a trick in not legislating sooner for heating networks, and I am pleased that its work in the area is now gathering momentum.

The Government promised to create a licensing body for heating networks back in 2013, but such a body has not yet been delivered. If the Government had done so, the industry could have accelerated its expansion, which would have helped to reduce carbon emissions and household bills even more. There has been a seven-year delay. In that time, how much heat has been generated by distilleries in Speyside and squandered by being pumped back into the rivers, thereby increasing river temperatures by two or three degrees?

Paul Wheelhouse

I am grateful to the member for giving way; I will not take much of his time. I very much agree with him about the need for pace. I do not disagree with that at all. I merely highlight that we, the UK Government and indeed colleagues in Northern Ireland have needed to emerge with a framework for consumer protection that works for all parts of the UK. I do not say that to criticise, but I hope that the member appreciates that that is an important part of what we are discussing today.

Edward Mountain

I thank the minister for that, and I agree. Whoever is slowing it down and wherever the slowness is, I will criticise those people, because it is a great scheme, as we have heard this afternoon.

The Economy, Energy and Fair Work Committee’s report identifies that there is no formal role for communities or local authorities in planning and consent for heat networks. I am pleased to hear that the minister has taken steps to change that, because local democracy is an essential part of the planning process and it should never be undermined. Local communities should be involved at all levels.

If we are to reduce emissions and meet Scotland’s climate change targets, we require a mixture of renewable energy solutions, and heating networks have a key role to play. I am delighted that my party and, it appears, all the other parties support the general principles of the bill, which is, I believe, long overdue.

Richard Lyle (Uddingston and Bellshill) (SNP)

As ever, I begin by welcoming the opportunity to contribute to this important debate.

Scotland and, by extension, this Scottish Government have a proud record of taking world-leading action to address climate change and tackle fuel poverty, and the Heat Networks (Scotland) Bill paves the way for even greater action on those priorities. In passing the bill, Scotland will be the first country in the United Kingdom to legislate on the development of heat networks in order to help to meet climate change targets and tackle fuel poverty.

The bill will introduce regulation and a licensing system for district and communal heating in order to accelerate the use of heat networks across Scotland. As many members will know, district or communal networks deliver heat from a central source through insulated pipes to local homes and other buildings, and they have the potential to reduce or remove emissions from the heating of buildings and homes across Scotland.

Heat networks are generally more efficient than individual gas boilers. They can be run wholly from renewable sources and they reduce the need for customers to procure and maintain their own boilers. Those are incredibly important elements of the bill. I will shortly outline why the fact that heat networks can be run wholly from renewable sources is particularly important given our global obligations to our climate.

As a member of the Economy, Energy and Fair Work Committee, I am particularly pleased that the committee has recommended that the Parliament agrees to the general principles of the bill, because it can make a difference.

We are facing a global climate emergency and we must reduce the emissions that are associated with heating our homes and businesses if we are to achieve our aim of net-zero emissions by 2040. One of the main challenges is to reduce and ultimately stop the impact from heating our homes and buildings, which is currently where more than half of the energy that we consume as a society goes.

In order to fully deliver on those ambitions, however, we need clarity from the UK Government on the future of the gas grid. In the meantime, Scotland will make full use of our devolved powers, and that will include the development of heat networks where they are appropriate. Heat networks will play a key role in supplying Scotland’s heat in future, and the bill will create the circumstances that are needed to unlock the full potential of the sector and support its growth.

It is welcome that the proposals in the bill were developed based on recommendations from an expert group of industry, consumer group and local government representatives, and that they are in line with the statutory advice that was received from the Committee on Climate Change.

The benefits of heat networks are not only environmental. However, heat networks are often more efficient than individual fossil fuel heating systems, as I mentioned, and they can be run fully from renewables, recovered waste or surplus heat sources. They can allow the heat source to be changed to one that is compatible with Scotland’s world-leading climate change targets without further disruption to the heat users, and they have the capacity to reduce or remove the emissions associated with heating buildings. The Committee on Climate Change has recommended that heat networks should form a part of Scotland’s future heat supply.

Heat networks can save space and remove combustion risk in buildings, and they have been shown to save householders and businesses up to 36 per cent of fuel costs, with consequent benefits for tackling fuel poverty and reducing costs faced by businesses and public bodies.

The Competition and Markets Authority found that costs for 90 per cent of heat network customers were similar to or less than the costs for those who used gas or electricity, and the evidence gathered for the impact assessments suggests that heat networks can result in fuel savings of up to 36 per cent.

The SNP Scottish Government has done much to support the sector in recent years. Between 800 and 1,000 heat networks are estimated to be up and running in Scotland. The bill marks the beginning of a transformational change as we seek to create a supportive market environment for the necessary expansion of our heat networks—an environment that supports the achievement of Scotland’s target to deliver 11 per cent of non-electrical heat demand from renewable sources by 2020, and the Scottish Government’s target that 50 per cent of all energy consumption should come from renewables by 2030.

Ultimately, these actions will contribute to our shared goal of dealing with our global climate emergency and creating the world we all want to see, which is sustainable and fit for our future.

The Deputy Presiding Officer

I have a little time in hand, so I am giving quizzical looks if members go over their four minutes. I am not upset.

Daniel Johnson (Edinburgh Southern) (Lab)

Thank you for that reassurance, Presiding Officer. I speak on behalf of all members when I say that we do not like upsetting you at all.

Members: Hear, hear.

Daniel Johnson

I echo Edward Mountain’s comment. As a non-committee member, one can feel a little like an interloper, especially on a subject such as this. I would say, however, that any debate that can take one from the poet Horace to skiing in Siberia is worthy of every member’s consideration.

This area is of interest to me. One of the great privileges of this job is that we get introduced to areas with which we had perhaps not been familiar but which become very important and interesting to us. I am certainly very thankful to David Somervell and Transition Edinburgh who, early on in this parliamentary session, invited me to a briefing that outlined the early progress that the University of Edinburgh had made in developing heat networks.

As members may or may not know, the University of Edinburgh has three combined heat and power pumps across its campus, the first of which was installed in 2000. In basic terms, they have been able to improve the university’s energy efficiency by more than a third, partly through the more efficient use of heat from power generation but also through the reduction of power loss by having power generated immediately next to where it is consumed. That has generated savings in excess of £1.5 million a year for the university.

That is not the only such scheme in or close to my constituency. Slateford Green, which is a housing association development of 60 flats in my constituency that was developed in 2000, had a heat network built as part of it. Tynecastle school, which is just outside my constituency, is heated using waste energy from the Caledonian brewery, which is much in line with the distillery schemes that Edward Mountain alluded to.

Despite the progress that we have had in Scotland and the benefits that have been outlined, heat networks provide only 1 per cent of Scotland’s heating. It is imperative that we do better and that we improve our ability to heat our homes in an energy-efficient way. Quite simply, as Andy Wightman pointed out, Scotland is cold. The fact that CO₂ emissions from heating our homes are a quarter of our total emissions, as Claudia Beamish set out, is something that we have to tackle.

The improvements that we gain from efficiencies decline, so we need investment and infrastructure if we are going to remove gas boilers from our homes. In our cities in particular, heat networks can be an incredibly valuable part of that. The bill is therefore welcome. It provides a framework for the construction and running of heat networks, and it is a necessary starting point.

As has already been said, there is concern that the bill is permissive rather than enabling. I was encouraged by the minister setting out the range of other measures that the Scottish Government is seeking to take forward so that the bill is not simply a single shot but is part of a suite of initiatives. However, we need to go further.

If the University of Edinburgh example points to anything, it is that efficiency and carbon neutrality can go hand in hand in addressing fuel poverty. It is clear that, if savings of a third can be passed down to all consumers and communities, that will be advantageous as we seek to tackle fuel poverty.

The committee convener’s contribution was remarkable for a great number of reasons. Not least, I was struck by his conversion to municipal socialism. The example of Denmark and the way in which such schemes work in Scandinavian countries is important. We do not want large corporate investment that does not pass on benefits to our communities. The schemes work best when they are owned and controlled by local communities.

Andy Wightman

I am very glad that Daniel Johnson mentioned that. Does he agree that what we are seeing in countries such as Denmark is an example of municipal enterprise, not socialism?

Daniel Johnson

By the means of our collective endeavour, we achieve more than we do alone. I do not care much if we want to call that municipal socialism or co-operative enterprise; it sounds like a good thing.

I am encouraged by the sentiments from all parties across the chamber that we should build on the bill, build a means of building heat networks so that all communities benefit, tackle climate change and tackle fuel poverty.

Willie Coffey (Kilmarnock and Irvine Valley) (SNP)

I think that Daniel Johnson has just condemned Gordon Lindhurst to banishment by describing him as a municipal socialist—but there we go.

I welcome the chance to say a few words in this stage 1 debate on the Heat Networks (Scotland) Bill. Before I say anything about the bill, it is worth saying something about the public perception—or the lack of perception—of what this is really all about. If members talk to constituents about heat networks and why the Parliament is legislating on them, they are unlikely to get a great deal of acknowledgment or even much awareness of what networks are and why we are legislating. Therein lies a problem for all of us as we take the bill forward. The help of all MSPs is needed to start to bring these matters to the attention of our electorate.

We are talking about a system of supplying heat that involves hot water or steam being piped to networks that connect to our houses. It does away with central heating boilers that burn gas to heat our homes, which most of us have. That is it in a nutshell. We have to start a discussion with the public at large about how we and they can go about all of that.

The aims and reasons behind the idea are clear enough. As many members have reminded us, we face a climate emergency and we need to reduce the emissions that are associated with our domestic homes if we are to make good progress towards our target of net zero emissions over the next 20 years.

During the committee’s evidence sessions, we heard that half of Scotland’s entire energy consumption was to create heat, with over 80 per cent of all our houses dependent on gas. We have also heard that about 50 per cent of Denmark’s entire heat demand is met by district and local heat networks. In Scotland, the figure is only about 1 per cent—I think that that is similar to England’s figure. We know that, for a variety of reasons, Denmark started off on its journey much earlier than we were able to. The challenge is formidable, but the prize can be even greater.

The bill is mainly technical, but it has a number of key provisions that are essential to allow us to begin the process. It starts us off on the necessary journey of regulating the heat network sector by creating a licensing system that heat network operators will be bound by. That provides for consumers the essential protection that those operators are fit and proper companies to deliver those services.

The bill also creates a consent system to make sure that local factors and local assets are taken into account before the approval of any new developments, although there was some discussion in the committee about the extent to which the public themselves may be able to give such consent. The bill will also allow us to identify potential heat network zones in which it would be appropriate to establish a heat network. Among a few other provisions, it will also require public sector building owners to assess the potential of their estate to connect to a heat network so that they can begin to make progress in that regard.

One of the issues that came up was who the regulator for the sector should be. The discussion centred around Ofgem, which is a statutory body that was established under UK legislation. It is fair to say that everyone, including the Scottish Government, I believe, was happy for Ofgem to provide those regulatory duties for us, provided that it applies whatever the Scottish ministers determine as appropriate criteria for the sector here in Scotland.

There was also a discussion about licensing, including the regime to be put in place, and who the licensing authority should be. There was a good bit of discussion about whether Ofgem could, or should, occupy both the regulatory and licensing roles, and whether there would be a conflict if it did so. It would be worth while hearing the minister’s further thoughts on those key duties and how we best set up and support those functions.

I will end where I started. In engaging with the public on such important work, local people will want to be involved and not feel that things are being done to them. We need to provide the means by which local people can participate in the whole transition to heat networks and feel that their interests are at its heart. They will want to know more about how existing systems in their homes could be decommissioned, and whether any support will be available to help with that transition. People will also want to know that what we end up with is not only better for the environment but much more efficient and cost effective for their homes and families.

I am happy to support the bill at stage 1.

Dean Lockhart (Mid Scotland and Fife) (Con)

It is perhaps fitting that we are having this debate while many parts of Scotland are seeing the first snow of winter.

I was a member of the Economy, Energy and Fair Work Committee when it started gathering evidence on the Heat Networks (Scotland) Bill, but I left the committee before the report was published, although I confirm that there was no connection between those two events. I thank the clerks for all their hard work, not only on the bill but across a wide range of topics over the four years that I was a member of the committee.

As Gordon Lindhurst said, it is a technical bill and my colleague Alexander Burnett demonstrated that, when it comes to the technical details of the bill, he knows his onions. As he said, the bill covers a wide range of policy areas, including fuel poverty, climate change and delegated powers to local authorities. It is those areas that I will briefly touch on today.

The minister gave his commitment that fuel poverty was an “absolute priority” in the development of the bill. However, the evidence of Citizens Advice Scotland was compelling about the limitations of the bill when it comes to addressing fuel poverty. CAS said that the bill

“cannot guarantee lower fuel costs for heat network consumers as it does not have competency over pricing.”

It also said that

“the Bill cannot oblige heat networks to publish their tariffs so that consumers can compare what they are paying in the same way gas and electricity consumers can”

at the moment. It said that

“while heat networks are ... able to provide lower cost heating, ... consumers will not be guaranteed that”

that lower cost will be passed on for their benefit.

To be fair, not all those powers are in the minister’s gift. In his response to the stage 1 report, and in his opening remarks today, he undertook to consider what changes could be made at stage 2 to make the bill more explicit with regard to how heat networks will contribute to reducing fuel poverty. That is all very welcome.

As other members have said, addressing the fuel poverty issue will be an important part of developing the bill and ensuring that it has effective outcomes. Therefore, I encourage the minister to carefully consider the evidence that was given by Citizens Advice Scotland on that matter.

Outside of the bill, I know that the minister is working on other policy measures to address fuel poverty. However, it is now more than three years since we heard an announcement about the publicly owned energy company, which was announced as the primary answer in addressing fuel poverty in Scotland. Again, I know that the minister has been working hard to turn that announcement into a feasible working plan; perhaps in his closing remarks he will provide an update on when in the near future we might see the publicly owned energy company. For the record, and to continue the collegiate nature of the debate, I do not hold the minister himself wholly responsible for the delays in that policy, because I suspect that its announcement was cobbled together by a special adviser in order to grab headlines for the announcement of the programme for government. Perhaps the minister will confirm whether that was the case.

The second area of concern that I want to highlight is the support that local authorities will require in order to implement the legislation. Paragraph 181 of the report rightly states that

“The importance of the role of local authorities ... should not be underestimated”

in delivering targets.

The minister told the committee that he wants to “strike the right balance” between local authorities having the necessary powers and the Government giving them the necessary resources. A significant number of respondents gave feedback in the consultation to suggest that local authorities lacked the necessary resources and the necessary expertise to deliver the proposed targets that were set out for heat networks. In their written evidence to the committee, Glasgow City Council and Highland Council warned that

“Care must be taken not to overload local authorities”

in delivering targets. I will conclude on that point. Local authorities have done a tremendous job in responding to the Covid crisis and I think that we would all encourage the minister to make sure that they have all the necessary additional support, resources and expertise that are required to implement the proposals.

I am happy to support the bill’s general principles at stage 1.

The Deputy Presiding Officer

I call Colin Beattie, to be followed by Bob Doris. [Interruption.] I think that you are on mute, Mr Beattie. While we are waiting for things to be sorted at that end, I call Bob Doris.

Bob Doris (Glasgow Maryhill and Springburn) (SNP)

It is just as well that I was paying attention, Presiding Officer.

I am pleased to speak in the debate and to highlight the very real opportunities to boost consumer protection that the licensing of heat networks, which is the central aspect of the bill, may bring.

The minister knows that I have a direct constituency interest in the matter. In November 2019, he visited Maryhill to hear about the issues facing residents of the Wyndford estate in my constituency, which are referenced in paragraph 133 of the committee’s report.

Households in Wyndford receive their heating and hot water through a heat network. Such households have less protection than energy customers; that is clear. My office was contacted by many households who were about to be disconnected or were seeking to get their supply reconnected. In what should have been a flagship scheme, residents had been cut off by SSE due to arrears—which were often disputed, it has to be said—for heating and hot-water charges. There were issues around SSE’s punitive £274 reconnection fee and the high level of the up-front payment—routinely of around 50 per cent of the debt owed—that it required before a household could be reconnected.

In the run-up to Christmas 2018, my office, along with Glasgow North West Citizens Advice Bureau, secured some reconnections by persuading SSE to show flexibility, and I warmly welcomed the actions that SSE took at that time. At the height of the situation, 121 households were disconnected, but the figure dropped to 46.

I very much hope that the licensing regime in the bill, along with the wider UK consumer protection framework that we have heard much about, can drive up the consumer experience, so that the situation in the Wyndford estate is not repeated in future. I want to be clearer about how that can happen and what needs to go in the bill to drive that expectation.

One of the key issues that customers in Wyndford faced was the daily accrual of debt through standing charges, even if they did not use heating or hot water. Low-usage households were particularly impacted. SSE was persuaded to introduce a low-usage, low-income tariff without daily standing charges—it was not ideal, but it was better than what had been in place. The definition of what constituted a vulnerable household was too narrow, and SSE extended the criteria to include households with children under five. I pay tribute to the Wyndford tenants union, which persuaded SSE to increase the threshold for residents seeking to qualify for the low-usage tariff, and which drove further changes to the criteria for access to that tariff.

I am keen to ensure that there is suitable regulation and levers of influence in the bill and the licensing regime so that, for example, reconnection fees are not a barrier to reconnecting constituents to heating and hot water, and that companies’ repayment plans are not unreasonable.

More important, there should not be disconnections in the first place, of course, and there should be a fair and consistent approach to protecting vulnerable groups. Standing charges accrue daily for users of heat networks, and we should remind ourselves that they also pay standing charges for electricity. We must not penalise users more generally and certainly not low-usage, low-income households.

In paragraph 135 of its stage 1 report, the committee wanted clarity about what the bill can do to drive that kind of change—and it is that kind of change that I would be hugely supportive of in the bill. I want to be very clear about how the bill will improve the lot of people on the Wyndford estate in my constituency and across Scotland in relation to existing heat networks, as well as how it will drive more heat networks, which we all want to see.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

Tackling our need to decarbonise heating systems must be a major priority for us all. To date, we have been fairly successful in decarbonising our electricity needs through wind farms and other renewable sources, but a comprehensive solution to decarbonising our heating has been more elusive.

We are facing a global climate emergency and we need to think of innovative ways to reduce the emissions that are associated with heating our homes. Heat networks will have a key role to play in supplying Scotland’s homes with heat in the future, and that is why we need to focus on unlocking the potential of the sector and supporting its growth. Heat networks have a huge potential to reduce our carbon emissions and provide a more efficient and environmentally friendly way of heating our homes. I was happy to take part in the Economy, Energy and Fair Work Committee’s evidence taking in this key area.

The subject is very close to my heart, as I have long advocated making better use of our natural resources to provide the energy that is needed to run our heating systems. I give my constituency of Midlothian North and Musselburgh a quick plug. We have an abundance of flooded mine shafts, which creates the opportunity to develop geothermal energy from the water that they contain and to provide my constituency with jobs and relatively cheap heating sources.

I would like to highlight one or two points that arose from the evidence that the committee gathered. First, given the landscape around the opportunity to develop local heat networks, we need to consider carefully the likelihood that a variety of different designs and technologies will arise, depending on the heat source and the mode of extraction. It is vital that all those designs and technologies are capable of talking to one another and integrating at a national level. Although we are talking about “local” heat networks, it is important that they do not operate in isolation.

The committee had concerns about the regulatory framework and we need to consider whether there needs to be a Scottish regulator or whether Ofgem could be modified to take up the task—that issue is still to be resolved.

Companies investing in local heat networks would enjoy a virtual monopoly that might last as long as 20 or even 40 years as they recovered their costs. I emphasise the importance to consumers of a monitoring or price-matching system to ensure value for money and prevent excessive price hikes.

Fuel poverty is a real concern and is likely to feature more prominently, given our current economic situation. Evidence from the BRIA shows that heat networks can lead to fuel savings of up to 36 per cent. There are already many Scottish Government investments in the area, such as the heat networks early adopter challenge fund, and we need to ensure that such funds are utilised to support the transition to achieving net zero emissions by 2040.

I was pleased to hear the minister’s commitment that local councils and communities would be completely involved in the development of heat networks. Given the likely impact on local employment, the environment and energy supplies, there needs to be solid local buy-in for projects to be a success—and I am not talking about the contrived local consultations that have been the norm in some places; we need consultations that actively promote participation.

I foresee difficulties in implementing local heat networks where multiple landowners and stakeholders with conflicting interests are involved. The possibility of compulsion exists, but I am ambivalent about whether that is the best route to take in the interests of the wider community. There is an attraction in resolving issues in that way, but it can also create hostility and problems among local residents, so a form of statutory negotiation—with compulsion as the back-up position—might be the best solution. We might need to consider the all-too-common situation of there being no clear ownership of a necessary piece of land—compulsory wayleaves or purchase are obvious solutions.

Overall, the committee carried out a thorough and comprehensive investigation into local heat networks, which is particularly commendable given the disruptions that have been caused by Covid-19 and its fallout. The Scottish Government has been keen to review all the points that have been raised with it, which will result in effective and workable legislation, enabling Scotland to take the lead in developing the abundance of opportunity that is available.

I am happy to support the bill at stage 1.

Lewis Macdonald (North East Scotland) (Lab)

As members have said, the Heat Networks (Scotland) Bill is a welcome and long-awaited development. Today’s debate has shown that there is broad support for its general principles. There is also consensus that the bill will need to be amended substantially if it is to achieve the desired results, and I am glad that the minister has acknowledged that so clearly today.

Local councils already play a number of roles in relation to district heating, whether as investors in networks, customers, landlords of customers or partners with commercial or not-for-profit network operators. The bill gives councils new responsibilities, and it is important to get those right from the start. I am glad that there now appears to be broad agreement that councils should be consenting authorities if they wish to be so. They are also critical to delivering the engagement of the communities that they represent.

The bill rightly promotes carbon reduction and increased energy efficiency, which are key public policy objectives, but currently makes no mention of fuel poverty. Therefore, it is welcome that the Government is intent on embedding the tackling of fuel poverty in parts of the bill. The bill should go beyond merely mentioning fuel poverty and should actively and positively encourage heat networks to be designed expressly to address it.

Evidence to the committee at stage 1 proposed that tackling fuel poverty should be a statutory consideration for local councils in deciding whether and where to designate heat network zones, and I hope that that is one of the areas that the minister is looking at with regard to addressing fuel poverty in the bill.

If we are to achieve a just transition to a low-carbon economy, carbon reduction and increased energy efficiency must go hand-in-hand with fuel poverty reduction. The opportunity that the bill offers to put all those objectives on an equal footing should not be missed.

The bill requires the availability of waste heat and renewable sources of energy to be taken into account, but they are not the only possible options.

If we succeed in putting new heat networks in place, they will undoubtedly help Scotland to meet the challenge of climate change but, first, we need to get the networks built. Once they are there, in the ground and in people’s homes, the source of energy and the technology employed can be changed at source without disruption to the end user, unlike more conventional technologies, such as gas central heating.

In the north-east of Scotland and elsewhere, a huge amount of investment is already being made in hydrogen, in the hope that it can replace hydrocarbons in the existing gas grid. Hydrogen might be a key fuel for future heating networks, too, although it is not there yet.

The bill must not get in the way of that, or of any other switch in fuels in future, by overspecifying what types of sources should be taken into account in designating and developing heat network zones in the short term.

The economics of network development also require a degree of certainty before the pipework is put in place and the investment is made. If a network is built up to the perimeter of a potential anchor-load building, there is currently no obligation on the operator of that building to connect, even if it is in a designated heat network zone. That lack of obligation potentially creates a high level of risk for the network operator. As Michael King of Aberdeen Heat & Power told the committee, there should at least be an obligation on owners of anchor-load buildings to explain their reasons if they choose not to connect. Such a statutory obligation would certainly concentrate the mind.

Finally, the bill can and should address the issue of community engagement. Currently, network customers rely on the efficiency and prudence of their network operator. If networks are built as purely commercial undertakings—as envisaged by the bill—there is an obvious risk that the interests of the operators and those of the customers could diverge over time.

As Ombudsman Services suggested, and as Claudia Beamish and Liam McArthur mentioned, better accountability of operators to customers is an alternative approach that could be achieved through requiring the provision of consumer advice, as opposed to consumer protection, and could make such provision a licence condition for new network operators.

I have followed the fortunes of Aberdeen Heat & Power since it was set up as a not-for-profit company in 2002, with a mission to reduce fuel poverty and cut carbon emissions. It supplies over 3,000 tenants in 50 high-rise blocks, and many public buildings besides, making AHP the largest operator of its kind, not just in Scotland, but anywhere in the UK. Clarity about the impact of the bill on existing networks is therefore important. The bill will allow other parts of Scotland to follow that lead, and so it is to be welcomed. The bill can be improved, and Labour looks forward to that being done as it proceeds through Parliament.

Graham Simpson (Central Scotland) (Con)

I am glad that I turned up today, because the debate has been very interesting. On the face of it, that might not have been expected, but there have been some very interesting speeches and I thank everyone who has taken part. We started with Gordon Lindhurst gushing like mad about the minister—we will have to have words with Mr Lindhurst about that. We discovered that Mr Lindhurst has a new role as a municipal socialist. I suggest that, for his next holiday, Mr Lindhurst could go with Andy Wightman to Russia—I am sure that the two comrades would make a very happy couple.

Daniel Johnson

Is the member proposing to send his colleague to the gulag? It sounds rather like it.

Graham Simpson

It has often been suggested. [Laughter.]

Gordon Lindhurst

The assumption is that we are not in a gulag already.

Graham Simpson

Let us get serious now. I was struck by Alexander Burnett’s speech. It is good to hear from someone who has hands-on experience of heat networks and I hope that the minister listens to him. The minister should consider Mr Burnett a critical friend—he was genuinely trying to be positive.

The bill was introduced on 2 March and provides for a regulatory and licensing system for district and communal heating, to accelerate its use in Scotland. That would be a good thing. We can easily see how there might be issues for consumers if there were no regulatory back-up. The bill is an inherently good idea, but, as Citizens Advice Scotland has said, it is limited in what it can do. There are currently very limited consumer protections in place for heat network consumers. Consumer protection powers are reserved to the UK Government. The Scottish Government therefore cannot legislate for those, although it can introduce a licensing system.

I have thought about the issue a lot in regard to buyers of newly built homes. They, too, have few protections if things go wrong. People need to be protected, so it is encouraging that the UK Government is considering a framework for consumer protection in that area. It needs to get on with it. Once someone has signed up to a heat network, they could be tied to a provider for a long time; essentially they are off grid and unable to switch supplier if the price gets too high or they are not happy with the service. Claudia Beamish mentioned that issue.

What does the bill do? As we have heard, it is a pretty hefty bill. There are seven parts to it, and I will go through them quickly, because no one has yet done so. Part 1 provides key definitions, sets out a requirement for a heat networks licence and makes it an offence to supply thermal energy through a heat network without a relevant licence; part 2 establishes the heat network consent process for specific projects; part 3 places a duty on councils to consider undertaking the designation of heat network zones; part 4 builds on the designation of heat network zones by allowing ministers to award a heat network zone permit; part 5 places a duty on public sector building owners to assess the viability of connecting their building to a heat network; part 6 provides heat network licence holders with various special rights and powers; and part 7 requires that ministers identify the key assets of each heat network consent application that they receive. Heat networks have the potential to play a significant role in the green recovery and the just transition.

As I said at the start of my speech, there were a number of really good contributions from members. I slightly joked about Mr Wightman’s visit to the Soviet Union, but he saw at first hand the heat networks there, and he rightly spoke about fuel poverty. Liam McArthur mentioned the pioneering work that is being done in Orkney and the islands. John Mason mentioned his constituency experience in relation to the Commonwealth village.

Edward Mountain talked about the benefits of not having a boiler; that was also mentioned by Richard Lyle. Daniel Johnson, who is always interesting to listen to, talked about the heat networks at the University of Edinburgh and elsewhere in the city. Bob Doris—thankfully, minus his moustache—talked about the problems that his constituents had when they got disconnected from a heat network, which is clearly a potential issue.

The committee raised a number of questions with the minister, to which the minister responded positively. There will be a lot of work at stage 2, and I will be on the committee that will deal with that. There is work to be done, but we welcome the general principles of the bill. I look forward to dealing with the bill, in conjunction with other members and the minister, at stage 2.

Paul Wheelhouse

I thank all members for their contributions to today’s debate. I particularly thank Gordon Lindhurst for probably ending my career by giving me so much praise in the early part of his speech.

I will use my closing remarks to respond to a number of the points that were made today, as well as to set out our intended approach to the remaining stages of the bill, and beyond, should the Parliament agree to its general principles, which I am grateful to say looks likely.

First, I will briefly recap on the need for the bill. I appreciate that there are challenges in delivering the bill. We are addressing a number of issues collectively and constructively with members across the chamber. We should not forget that the Parliament is taking on quite a task. This is a complex area. We all agree—including Mr Burnett, who is delivering heat networks—that the bill is badly needed. We are the first country in the UK to take such a bill through the parliamentary process. That is not to say that other Administrations across the UK are not looking at the issue—they are—but we are, in some ways, trialling the legislation, and I hope that some of the measures that we take will benefit others thereafter.

As we have heard, the bill represents a chance to unlock and enhance the latent potential of the heat networks sector in Scotland. I repeat Richard Lyle’s point that we have had fantastic input from the expert working group and stakeholders in shaping the bill. The input has not purely come from me, as someone who does not benefit from a heat network and has not built one; we have benefited from those who benefit from heat networks and those who have built them. We have taken on board the lived experience of people in the sector.

It is absolutely necessary that we pass the bill. As we have heard, only about 1.5 per cent of properties in Scotland are connected to a heat network, although there are some tremendous examples of such networks around Scotland, as we heard from Daniel Johnson, John Mason and Lewis Macdonald. My colleague Kevin Stewart is very familiar with Aberdeen Heat & Power and has previously filled me in on its work.

I was struck particularly by the networks around the University of Edinburgh that Daniel Johnson mentioned. We are not just talking about domestic projects; that project is benefiting a major institution in Scotland’s capital and it is great to hear about the savings that have been made for the university that mean money going into education for the public’s benefit.

All the Administrations across the UK would agree that we have to do better, and the bill is essential in providing the framework to do that. We know that renewable and low carbon heat networks are one of the technologies that we will need to install in order to remove the emissions that are caused by heating in our buildings. Willie Coffey rightly cited the figure that more than half of the energy that we consume is required to provide heat. We know that we will need to focus particularly on those systems during the remainder of the decade if we are to contribute to the interim targets set in the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019.

Denmark’s experience was cited by a number of members, including Andy Wightman and Willie Coffey. The trigger for its massive expansion of heat networks was the energy crisis during the early part of the 1970s. We are not facing an energy crisis, but we are facing a climate crisis and I hope that the need to act quickly will help us to power forward and develop networks at pace. I need to be honest with the Parliament and say that it will be challenging to achieve the level of coverage that Denmark has, and there are a number of geographic and demographic reasons for that, but I think that we can outperform the 17 per cent upper end of the range that is being cited, although it will require concerted action from all parties.

I am pleased to note the broad agreement that we have heard in today’s debate about the role of heat networks and the role that this bill, in particular, can play. As I say, the bill could be an example of an area over which our Parliament can come together as a collective in support of a shared objective, and do a good job in doing so.

In that spirit, I welcome the Economy, Energy and Fair Work Committee’s helpful stage 1 report. We have genuinely endeavoured to take on its recommendations, including through making commitments to amend the bill. I am pleased that that has been welcomed by members in the chamber today.

I trust that the changes that I outlined at the beginning of the debate in our response to the report will also be welcomed by stakeholders. As I said in my opening statement, I want the bill to be one that we can all be proud of, and I genuinely mean that. I am therefore happy to take any opportunity to co-operate with members and listen to any constructive suggestions that they might have to strengthen the bill, to benefit from the experience of those who have developed and delivered heat networks, and to hear from members who are concerned about fuel poverty, local engagement, community awareness and other matters that have been raised today.

I have listened closely to the issues that have been raised today and I will try to respond to a few of them in the time that I have available to me. One of the main issues that was raised in the chamber today was about community involvement in decision making. Colin Beattie, John Mason, Liam McArthur, Andy Wightman, Edward Mountain, Claudia Beamish, Dean Lockhart, and Lewis Macdonald all mentioned that—I apologise if I have missed anyone off that list. It is one of the most important issues that was raised today and, under the bill as introduced, local authorities will be able to designate heat network zones within their local areas, a measure which one witness described in their written evidence as the biggest enabling feature within the bill.

I also note the committee’s desire for the balance of powers between the Scottish ministers and local government to be modified over time, and we intend to do that. I should state that our starting point for developing the bill was largely influenced by the situation in Norway, which is a more centralised model, but we are listening to the aspirations of the Parliament and we are reflecting that in our approach. The points raised in the debate re-emphasise the importance of that issue, and, as I set out in my opening statement, we intend to amend the bill at stage 2 in response.

Alongside that, we have committed to lodging an amendment that will require developers to submit evidence of real engagement alongside the heat network consent application, and provide powers for the Scottish ministers to issue guidance on effective community engagement. I hope that members can see my commitment to further strengthening local involvement in decision making within the regulatory system.

Many members have mentioned fuel poverty today, and I recognise that it is a very important issue. I reassure members that, although the bill as introduced does not specifically mention fuel poverty, it is our intention that the heat network developments should be deployed to eradicate fuel poverty in Scotland where possible. In that respect, the not-for-profit model was discussed by Andy Wightman, and Daniel Johnson and Dean Lockhart asked about a public energy company. We continue to work on that and some of the issues that have been talked about in today’s debate are very much the issues that we are now trying to take on board. We are looking at changing the utilities market, rather than preparing a company to deliver today’s utility market, and we are looking at heat as a service. There could be a role for a public energy company also to provide heat networks. I give the commitment that we are still working on the issue and taking it seriously. I will happily engage further with members on that matter as time goes on.

We will also be happy to provide details of the work that we are doing with the Scottish fuel poverty advisory panel in developing the relevant amendments on tackling fuel poverty that we wish to include in the bill. Prior to stage 2, we will engage with members who have a strong interest in that.

Presiding Officer, how much time do I have left?

The Deputy Presiding Officer

How much are you asking for?

Paul Wheelhouse

As much as I can get.

The Deputy Presiding Officer

I will give you a minute.

Paul Wheelhouse

In that case I will not be able to respond to some of the points that have been raised.

I will come back on the real rights issue, which was raised by Gordon Lindhurst. We are taking steps to amend the bill to address that. We must ensure that our approach is not disproportionate and that it does not act as a cost deterrent to projects. We are working with Registers of Scotland to ensure that licence holders would be required to make information about wayleave rights publicly available. We commit to a consultation on how that requirement will be implemented so that we hear the views of all the parties that are interested in that complex area.

I hope that these and my earlier comments will give the Parliament confidence that we are listening to stakeholders and members as we consider the provisions of the bill. We will plan secondary legislation. We do not intend to pre-empt the parliamentary process, but we have begun initial work to inform the development of regulations so that we can put the new regulatory system in place as quickly as possible and so that we can support the deployment of investment in the sector, should the bill be passed. Our response to the stage 1 report gives more detail about that work.

I hope that my remarks are helpful to members. I will try to communicate more with members about the issues that have been raised today. I repeat my commitment to meet interested members ahead of stage 2 to allow further opportunities to discuss the provisions of the bill and, in considering their support for the general principles of the bill, I ask members to bear that commitment in mind.

The bill seeks to address two crucial issues: climate change and fuel poverty. I thank members for their generous remarks today and for their supportive contributions to the debate. I hope that all members feel that they can get behind the bill and that they will vote in favour of the motion. I invite members to support me in agreeing to the principles of the Heat Networks (Scotland) Bill so that we can move to detailed consideration at stage 2.

The Deputy Presiding Officer

That concludes the stage 1 debate on the Heat Networks (Scotland) Bill.

The Deputy Presiding Officer (Christine Grahame)

There are four questions to be put as a result of today’s business. The first question is, that motion S5M-23014, in the name of Christine Grahame, on the Solicitors in the Supreme Courts of Scotland (Amendment) Bill, be agreed to.

As the motion is on a bill, we must move to a vote. I suspend the meeting to allow members to access the digital voting system.

The Deputy Presiding Officer

I ask that members now vote on motion S5M-23014, please.

For

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Balfour, Jeremy (Lothian) (Con)
Ballantyne, Michelle (South Scotland) (Ind)
Beamish, Claudia (South Scotland) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bibby, Neil (West Scotland) (Lab)
Bowman, Bill (North East Scotland) (Con)
Boyack, Sarah (Lothian) (Lab)
Briggs, Miles (Lothian) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Cameron, Donald (Highlands and Islands) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Constance, Angela (Almond Valley) (SNP)
Corry, Maurice (West Scotland) (Con)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Davidson, Ruth (Edinburgh Central) (Con)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Finnie, John (Highlands and Islands) (Green)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Golden, Maurice (West Scotland) (Con)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greene, Jamie (West Scotland) (Con)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harper, Emma (South Scotland) (SNP)
Harris, Alison (Central Scotland) (Con)
Harvie, Patrick (Glasgow) (Green)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Johnson, Daniel (Edinburgh Southern) (Lab)
Kelly, James (Glasgow) (Lab)
Kerr, Liam (North East Scotland) (Con)
Kidd, Bill (Glasgow Anniesland) (SNP)
Leonard, Richard (Central Scotland) (Lab)
Lindhurst, Gordon (Lothian) (Con)
Lochhead, Richard (Moray) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Macdonald, Lewis (North East Scotland) (Lab)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Mason, Tom (North East Scotland) (Con)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McArthur, Liam (Orkney Islands) (LD)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McNeill, Pauline (Glasgow) (Lab)
Mitchell, Margaret (Central Scotland) (Con)
Mountain, Edward (Highlands and Islands) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Rennie, Willie (North East Fife) (LD)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Rumbles, Mike (North East Scotland) (LD)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Russell, Michael (Argyll and Bute) (SNP)
Sarwar, Anas (Glasgow) (Lab)
Scott, John (Ayr) (Con)
Simpson, Graham (Central Scotland) (Con)
Smyth, Colin (South Scotland) (Lab)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, David (Highlands and Islands) (Lab)
Stewart, Kevin (Aberdeen Central) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Tomkins, Adam (Glasgow) (Con)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wells, Annie (Glasgow) (Con)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Wightman, Andy (Lothian) (Green)
Wishart, Beatrice (Shetland Islands) (LD)
Yousaf, Humza (Glasgow Pollok) (SNP)

The Deputy Presiding Officer

The result of the division on motion S5M-23014, in the name of Christine Grahame, on the Solicitors in the Supreme Courts of Scotland (Amendment) Bill, is: For 109, Against 0, Abstentions 0.

Motion agreed to,

That the Parliament agrees that the Solicitors in the Supreme Courts of Scotland (Amendment) Bill be passed.

The Deputy Presiding Officer

The next question is, that motion S5M-23564, in the name of Paul Wheelhouse, on the Heat Networks (Scotland) Bill, be agreed to.

Motion agreed to,

That the Parliament agrees to the general principles of the Heat Networks (Scotland) Bill.

The Deputy Presiding Officer

The next question is, that motion S5M-23140, in the name of Kate Forbes, on the financial resolution on the Heat Networks (Scotland) Bill, be agreed to.

Motion agreed to,

That the Parliament, for the purposes of any Act of the Scottish Parliament resulting from the Heat Networks (Scotland) Bill, agrees to—

(a) any expenditure of a kind referred to in Rule 9.12.3(b) of the Parliament’s Standing Orders arising in consequence of the Act, and

(b) any charge or payment in relation to which Rule 9.12.4 of the Standing Orders applies arising in consequence of the Act.

The Deputy Presiding Officer

I propose to ask a single question on the two Parliamentary Bureau motions, unless any member objects.

As no member objects, the question is, that motions S5M-23574 and S5M-23589, in the name of Graeme Dey, on behalf of the Parliamentary Bureau, be agreed to.

Motions agreed to,

That the Parliament agrees that the following change to committee membership will apply from 7 December 2020—

Neil Bibby to replace Anas Sarwar as a member of the Public Audit and Post-legislative Scrutiny Committee

That the Parliament agrees that—

Gordon MacDonald be appointed to replace Gail Ross as a member of the Local Government and Communities Committee;

Gail Ross be appointed to replace Willie Coffey as a member of the Public Audit and Post-legislative Scrutiny Committee;

Christine Grahame be appointed to replace Annabelle Ewing as a member of the Culture, Tourism, Europe and External Affairs Committee; and

John Mason be appointed to replace Shona Robison as a member of the COVID-19 Committee.

The Convener (Gordon Lindhurst)

Good morning, and welcome to the third meeting in 2021 of the Economy, Energy and Fair Work Committee. Agenda item 1 is consideration of the Heat Networks (Scotland) Bill at stage 2. We have with us the Minister for Energy, Connectivity and the Islands, Paul Wheelhouse, who will be assisted by his officials.

Section 1—Meaning of “heat network”

The Convener

Amendment 1, in the name of the minister, is in a group on its own.

The Minister for Energy, Connectivity and the Islands (Paul Wheelhouse)

Good morning. Section 1(7) of the bill as introduced enables the Scottish ministers to

“modify the meaning ... of ‘heat network’, ‘district heat network’ or ‘communal heating system’”.

That is necessary so that any technological changes that occur in future can be taken account of without the need for primary legislation. The Law Society of Scotland appeared to agree with that view in its stage 1 evidence. It considered the definition to be “sufficiently neutral” to address a variety of heat networks, and it noted:

“Secondary legislation is probably the only way to retain the level of flexibility required to adapt quickly to future markets, given the constraints on parliamentary time”.—[Official Report, Economy, Energy and Fair Work Committee, 1 September 2020; c 3.]

However, the committee heard evidence at stage 1 from witnesses who were concerned that so-called ambient, fifth-generation or shared-loop systems were not captured by the definitions in section 1 and were, therefore, not subject to regulation by the bill’s provisions now or in the future.

I believe that it would be prudent to add “thermal energy” to the terms whose meanings may be modified by the regulations under section 1(7). That is what amendment 1 would do. That is necessary in order to maximise the flexibility that future Administrations will have to apply or, indeed, disapply the regulatory requirements that the bill creates, as might be appropriate in time. I trust that committee members will be sympathetic to future proofing the bill in that way.

Regulations that are made under section 1(7) are subject to the affirmative procedure, thereby ensuring that the Parliament will be able to carry out maximum scrutiny, should the power need to be used in the future.

I move amendment 1.

Amendment 1 agreed to.

Section 1, as amended, agreed to.

Sections 2 to 4 agreed to.

Section 5—Heat networks licence applications

The Convener

The next group is on fuel poverty: contributing to fuel poverty targets and consulting the Scottish fuel poverty advisory panel. Amendment 2, in the name of the minister, is grouped with amendments 3, 50, 64 to 66, 131 and 132.

Paul Wheelhouse

This group of amendments seeks to meet the recommendations in paragraphs 131 and 132 of the committee’s stage 1 report, which invited me to

“reflect on the evidence, discuss further with the”

Scottish fuel poverty partnership forum, and

“bring forward a proposal for how best to address the policy imperative of fuel poverty within the ... legislation.”

The report also asked me to consider where recognition of fuel poverty in the bill would create the most impact.

I have lodged several amendments that will embed consideration of fuel poverty throughout the bill, given the importance that the Scottish Government, the committee and, above all, those in fuel poverty have placed on tackling the issue.

Amendment 3 will amend section 5 so that the licensing authority, in assessing an application for a heat networks licence, must consider the applicant’s ability to operate heat networks in a way that

“contributes to meeting the fuel poverty targets”.

In that way, we will make it clear to the licensing authority and operators that fuel poverty is equally as important as reducing emissions, which is already specified as a consideration in section 5.

In practice, the requirement to operate a heat network in a way that contributes to meeting the fuel poverty targets could be evidenced in a number of ways that would address the four drivers of fuel poverty. For example, that might include a special tariff for those in fuel poverty; a wider service to provide energy efficiency installations; or the provision of advice on the use of the system or on home energy use more broadly.

Amendment 2 makes a technical drafting change to accommodate amendment 3.

Amendments 50 and 66 require the Scottish ministers to consult the Scottish fuel poverty advisory panel in developing regulations that provide for making and determining applications relating to heat network consent, and on guidance relating to the designation and variation of heat network zones by local authorities. That is an acknowledgement that, although fuel poverty has been a priority of the utmost importance for the Scottish Government, and for members of the Scottish Parliament more widely, the panel exists in statute to bring the public, private and third sectors together to understand the issues that face those in fuel poverty in Scotland, and to advise on potential policy changes that may be required. I believe that, by involving the panel in the development of regulations and guidance, it can help to ensure that new heat networks in Scotland are designed with those in fuel poverty in mind from the outset.

Amendments 50 and 66 also require the Scottish ministers to consult local authorities in the development of the regulations under section 27, and guidance under section 45. I believe that that is right, given that the bill as introduced—and the amendments that have been lodged, which we will come to later—will create the potential for local authorities to have responsibility for designating heat network zones and determining heat network consents. It is important that local authorities are assured of their involvement in designing the functions for which they may become responsible.

Amendment 64 seeks to reflect the fuel poverty imperative in part 3 of the bill by providing that, in considering whether to designate a heat network zone, a local authority or the Scottish ministers must have regard to

“the potential for a heat network in the area to contribute to meeting ... fuel poverty targets”.

Heat network zones will have the potential to carry real consequence, taken together with the provision for permits under part 4 of the bill, and with the potential for their delivery to be supported by obligations on non-domestic buildings owners under powers in the Climate Change (Scotland) Act 2009 and the Non-Domestic Rates (Scotland) Act 2020, on which we have committed to consult later this year as part of our climate change plan update. It is therefore important that the zones are underpinned by public consultation, for which section 39 of the bill already provides, and by extensive analysis.

Section 39 specifies a number of the matters that local authorities—and the Scottish ministers, under sections 40 and 44—must consider in determining whether to designate an area as a heat network zone. Those include the availability of waste heat or renewable generation sources; the presence of anchor buildings; and the information that is contained in any building assessment reports that are undertaken under section 54.

As the policy memorandum to the bill sets out,

“The Scottish Government is ... seeking to contribute to eradicating fuel poverty as part of the Bill by ensuring that new heat networks develop where evidence shows that they can reduce fuel costs for householders and businesses.”

I had intended to deliver on that by specifying fuel poverty as a matter to be considered in the designation of heat network zones, under the regulation-making powers at section 39(1)(e). Indeed, our partners at Zero Waste Scotland are currently developing a first draft of the method that may be used to designate heat network zones, and fuel poverty is a major aspect of the criteria in evaluating projects under that method. However, on reflection, it would clearly provide greater reassurance if that requirement was specified in the bill. Amendment 65 therefore makes a consequential change as a result of amendment 66.

Amendments 132 and 133 are consequential on amendments 3, 50, 64 and 66, and insert necessary definitions of fuel poverty targets and the Scottish fuel poverty advisory panel in the interpretation section of the bill.

I urge members to support each of my amendments in this group.

I move amendment 2.

Graham Simpson (Central Scotland) (Con)

I welcome the minister’s comments. A lot of that sounded quite technical but, in essence, it is quite simple: we must have regard to fuel poverty and ensure that district heating networks deliver against fuel poverty targets. People might think, “That is obvious—of course that is what they do,” but unless that is stated in law, there is a danger that that could slip. I welcome the minister’s useful amendments. As someone who worked on the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019, I am pleased to see that the amendments also refer to the Scottish fuel poverty advisory panel—that is very important. These are positive amendments that I could support.

Alex Rowley (Mid Scotland and Fife) (Lab)

As we sit here on a cold January morning, it is tragic that there are thousands of people all over Scotland who are cold and living in fuel poverty. The Government’s fuel poverty act was not ambitious enough, and I have argued that case with members of the Local Government and Communities Committee, including Mr Simpson, who, like me, is a former member of that committee. Nevertheless, we need to tackle fuel poverty, which is why these amendments are crucial. I am grateful that the minister has listened to the committee and to many others who want to see the eradication of fuel poverty in Scotland. I will support these amendments.

Richard Lyle (Uddingston and Bellshill) (SNP)

I agree totally with my colleagues. We must all care about fuel poverty and take the time to resolve it. Perhaps the United Kingdom Government could look at why people living in some postcode areas get money to help with fuel poverty and people in other areas do not.

The Convener

I invite the minister to wind up.

Paul Wheelhouse

I thank members for their positive remarks. I also thank the committee and witnesses who gave evidence, because I hope that they have helped us to strengthen the bill by making the references to fuel poverty clear and explicit. From the outset, it was one of the underpinning priorities of the bill, but the committee has helped us to strengthen the bill, and I am grateful to its members and the witnesses who supported the work of the committee in preparing its report.

Amendment 2 agreed to.

Amendment 3 moved—[Paul Wheelhouse]—and agreed to.

The Convener

Amendment 145, in the name of Claudia Beamish, is grouped with amendments 149 and 152. Alex Rowley will move amendment 145 and speak to all the amendments in the group.

Alex Rowley

Convener, my understanding is that my colleague Claudia Beamish has had discussions with the minister and, as a result, the intention is to lodge an amendment at stage 3 on the just transition principles. Therefore, I do not intend to press amendment 145 in the name of Claudia Beamish.

I move amendment 145.

The Convener

Does any member object to amendment 145 being withdrawn?

Graham Simpson

On a point of clarification, is Alex Rowley withdrawing all three amendments?

The Convener

Mr Rowley, are you withdrawing all three amendments?

Alex Rowley

If that is the way to do it, yes.

The Convener

I am happy for it to be done that way; I think that that is fine. Does any member object to Mr Rowley withdrawing those three amendments?

As no member objects, amendment 145 is withdrawn.

Amendment 145, by agreement, withdrawn.

Section 5, as amended, agreed to.

Section 6—Heat networks licence standard conditions

The Convener

The next group is on heat networks licence standard conditions. Amendment 134, in the name of Alexander Burnett, is the only amendment in the group.

Alexander Burnett (Aberdeenshire West) (Con)

Good morning. Before I speak to amendment 134, I refer members to my entry in the register of interests, particularly in relation to my involvement in developing one of Scotland’s first district heating networks, which I began in 2004.

As I said at stage 1, I welcome the ability to deliberate the proposed legislation to advance heat networks in Scotland. I am pleased to see that the principle of the bill aims to encourage greater use of heat networks. I have concerns about whether some of the amendments will achieve that, and I will get to those points accordingly.

As to why amendment 134 is needed, when a regulatory body agreement is being set up, that agreement should include service standards that clearly establish communication protocols and decision-making timescales that will ensure that the regulatory process is conducted in a timely and transparent manner. The Scottish Government needs to fully determine how the bill is going to be regulated and what role the Office of Gas and Electricity Markets will play in that, such as whether it will be the licensing authority. Whatever body it is, it must be agile and responsive, and therefore clarity is needed in regulating that policy in the devolved Scottish context. That clarity would ensure that heat networks would be effectively deployed within the devolved powers of the Scottish Government. Doing all that will ensure that heat networks contribute to progress toward the Scottish Government’s net zero target, which will ensure that Scotland’s future heating needs are met by low-carbon energy.

With regard to how the provisions that are set out in amendment 134 would work, the clerks have interpreted them as a reference to the regulation body agreement and the licensing regime, in order to look at how heat networks are regulated. The amendment aims at including certain provisions within the standard conditions for a heat networks licence, so the service standards, communication and decision-making protocols are clearly set out for all who are involved in the sector.

I am grateful to the minister for his discussion of all the amendments and all the bill throughout the bill process so far. It has been done in a most constructive manner at all stages. I was grateful for the conversation that we had regarding my amendment. Because of a couple of points that he made, I will not press amendment 134 at this stage; I will edit it and resubmit amendments at stage 3 to correct those issues, I hope with his support.

The first correction that we would like to see in working with the minister is to define “heat network operator”, which is referred to in subparagraphs (i) and (ii) of the paragraph that amendment 134 would introduce. We used that term when drafting the amendment with the clerks, but it has been pointed out that there is no definition of that term in the bill, so it might cause some confusion. We would look to change that so that there is a definition that is understood in the rest of the legislation—it will be something along the lines of being the licence holder.

At stage 3, I will probably look to split the amendment, because subparagraph (iii), which relates to

“decision-making protocols to be agreed between the operator and the licensing authority”,

may not be quite as clear as we intended. Following discussion with the minister, I appreciate that, if the licence had been issued but protocols were still to be agreed, there would be a dilemma regarding the impact and enforcement of the licence. The intention of that part of amendment 134 was that there should be timeous conversations about the licence, and I sought to address the timing of that to-ing and fro-ing between the operator and licensing authority through protocols. With the clerks, and in discussion with the minister, we will look to make that clearer at stage 3, when I will lodge another amendment to that effect. The minister’s assistance with the amendment has been very welcome.

I move amendment 134.

Paul Wheelhouse

Alexander Burnett has summed up the situation well, and I was pleased to work with him. Hopefully, we will be able to continue to work together to address the drafting issues that he referenced. I agree with his assessment of the drafting difficulties, and I welcome his decision not to press the amendment. I put on record that my officials and I will seek to work with him to address the valid points that he makes about providing certainty about the timing and nature of exchanges between the heat network licence holder and the licensing authority. I am pleased to confirm to the committee that I will work with Mr Burnett to address the issues.

The Convener

Mr Burnett, do you wish to press or withdraw amendment 134?

Alexander Burnett

I will withdraw the amendment for the reasons stated, and I will look to resubmit it at stage 3.

Amendment 134, by agreement, withdrawn.

Section 6 agreed to.

Section 7—Heat networks licence standard conditions: supplementary

The Convener

Group 5 is on minor and technical amendments. Amendment 4, in the name of Paul Wheelhouse, is grouped with amendments 7, 8, 39, 52 to 60, 128 and 129.

Paul Wheelhouse

Largely, the amendments in this group relate to drafting changes following the review of the bill and consequences of the amendments that have been discussed in the remaining groups. I thank the Law Society of Scotland for pointing out matters relating to the heat network consents that required clarification, which are also addressed by the amendments in this group.

Amendment 4 will make technical changes to the word order of section 7(4)(b). The amendment has no substantial effect.

Amendment 7 corrects an omission to require a licensing authority, where one is designated under section 4 of the bill as an alternative to the Scottish ministers, to

“have regard to any guidance issued”

by the Scottish ministers under section 14. The guidance is important—for example, it can provide general direction with regard to setting out processes of assessing the heat network licence applications.

Amendment 8 is a technical change to the wording of section 17(1) to reflect that heat networks may be constructed or operated by another person on behalf of the consent holder.

I turn to amendments that were inspired by the feedback provided by the Law Society of Scotland in its written evidence in relation to the enforcement of heat network consents. We reflected on the feedback, and amendments 52 to 60 will amend sections 29 and 30 to recognise that a person may be exempt from the requirement to hold a heat network consent, and to clarify that enforcement action cannot be taken in certain cases.

Lastly, amendments 128 and 129 aim to reflect the further regulation-making powers that are introduced by other stage 2 Government amendments relating to: appeals against revocation of heat networks licence; appeals against notice of revocation given by local authority; the call-in of heat network consent applications et cetera by the Scottish ministers; appeals regarding applications for heat network consent et cetera to local authorities; applications and decisions under part 2 where there is more than one appropriate consenting authority; section 32(1); appeals against revocation of heat network zone permit; and registration of network wayleave rights.

Those powers allow the modification of primary legislation, and amendments 128 and 129 will provide for the application of the affirmative procedure when regulations make textual modifications to primary legislation.

I ask members to support each amendment in the group and I move amendment 4.

Amendment 4 agreed to.

Section 7, as amended, agreed to.

Sections 8 to 10 agreed to.

Section 11—Revocation of heat networks licence

The Convener

The next group is on revocation and appeals against revocation of heat networks licences. Amendment 5, in the name of the minister, is grouped with amendment 6.

Paul Wheelhouse

The amendments that are in the group will address the recommendation that the committee made in paragraph 84 of its stage 1 report, in which it asked the Scottish Government to reflect on whether there was scope to introduce at stage 2 an appeals process for heat networks licences. I agree that we can address that today.

It is important for businesses to be treated fairly by the new regulatory system that the bill will create. Amendment 5 provides the Scottish ministers with powers to amplify or expand on the procedural protections that will apply before a licence can be revoked under section 11. That section makes provision about the revocation of a licence, to give licence holders a degree of certainty that licences cannot be revoked without good reason.

Without amendment 5, any revocation process would be limited to what section 11 provides for. It is necessary to have the flexibility to modify the revocations process, should that be required in the future. It may be, for example, that other persons should be informed of the licensing authority’s intention to revoke a licence or that a process should be set out for considering representations. In any event, the powers will be there to ensure that any further procedural protections that are considered appropriate can be set out in legislation, rather than being simply administrative arrangements.

Amendment 6 creates a new power for the Scottish ministers to establish an appeals process against the revocation of heat networks licences. I appreciate that the power is broad, but subsection (2) of the proposed new section provides examples of the matters that could feature in regulations and therefore in the appeals process. They include: who may appeal; why an appeal may be brought; how appeals are to be lodged; the information that may be required; and how decisions are to be determined.

Such regulations would also specify who heard appeals. We intend to use the powers under section 4 to specify a body to act as the licensing authority under the bill, which means that the Scottish ministers will not be responsible for administering the licensing system. In turn, that creates the opportunity for regulations to be laid under the proposed new section in amendment 6 for the Scottish ministers to appropriately determine the merits of a decision that the licensing authority made to revoke a licence.

Given the broad consensus that Ofgem would be suited to the role of licensing authority, assurances are being sought from UK ministers, as the committee might be aware, about our request to the UK Government for powers to amend Ofgem’s role and about the timescales for the necessary legislation. Those assurances would be welcome. I repeat that our intention is that the Scottish ministers would hear appeals about the revocation of heat networks licences by a third-party licensing authority, but I offer those comments for clarity on the need for subsection (3) of the proposed new section.

I urge members to support each amendment in the group.

I move amendment 5.

Alexander Burnett

I thank the minister for the set of amendments. They are in tandem with amendment 134, which I spoke about and did not press. The sector has looked for clarity about the process and procedures not just for applications but for revocations and appeals against revocations.

I am grateful that the minister has listened and addressed the situation by lodging amendments to improve the procedure and process for the people involved, so that they can see where they stand during a process. I welcome that and ask that, when they come into play, those processes are taken in tandem with the process for applications, so that there is consistency not just when people are applying for and being granted a licence but when they are appealing against any revocation.

Paul Wheelhouse

I welcome Mr Burnett’s comments. We will do all that we can to address his final point about trying to work the processes in tandem. I will bear that in mind as we progress the regulations around the bill. I thank Mr Burnett, whose experience as a developer of heat networks is welcome. It has been useful to have his insight into some of the issues and I look forward to working with him and other colleagues in developing the secondary legislation that will support the bill, should it pass.

Amendment 5 agreed to.

Section 11, as amended, agreed to.

After section 11

Amendment 6 moved—[Paul Wheelhouse]—and agreed to.

Sections 12 and 13 agreed to.

Section 14—Guidance for licensing authority

Amendment 7 moved—[Paul Wheelhouse]—and agreed to.

The Convener

The next group is on heat networks licences: existing heat networks. Amendment 146, in the name of Maurice Golden, is grouped with amendments 147 and 148.

Maurice Golden (West Scotland) (Con)

Amendment 146 addresses the obvious need for the Government to deal with retrospective changes to existing heat networks. That is a particularly unclear area of discussion, given that there is no certainty on what retrospective changes will be applied to existing heat networks. Will those networks require licences? Will consent be required in order to continue operating?

As things stand, we simply do not know. At a practical level, that creates unnecessary confusion for network operators, not to mention the potential extra burden of balancing two sets of operating requirements. Nor does it help to solidify renewable heat at a time when we are not just looking at our mid and long-term net zero goals but seeking to kick-start and sustain a green recovery from the pandemic.

As Scottish Renewables has pointed out, in order to address the issue we need a clear statement of intent from the Scottish Government as to how existing heat networks will be integrated alongside new ones. Providing such certainty is the key to successfully integrating existing heat networks alongside new ones, making operations as smooth as possible and giving investors the incentive needed to involve themselves in the Scottish market over the long term. All that, in turn, drives forward the green recovery and the low-carbon job creation that we all want to see.

Amendments 147 and 148 are minor technical amendments that aim to facilitate amendment 146.

I move amendment 146.

Paul Wheelhouse

The subject of existing heat networks was discussed at length during the scrutiny of the bill at stage 1. In fact, I note that Mr Golden rightly raised it during my own evidence session.

Before I comment on amendment 146, I highlight that the licensing provisions in the bill as introduced did not differentiate between new and existing heat networks for a reason. The provisions in the bill respond to the Competition and Markets Authority’s market study, which examined existing schemes and found that there were issues present that had to be addressed ahead of the expected growth of the sector. The bill therefore provides for a framework that is applicable to all new and existing schemes, albeit with powers to tailor the requirements appropriately as a regulatory system is fully developed in secondary legislation. It is through secondary legislation that we would look to create exemptions and protections for existing heat networks as necessary.

That approach also avoids pre-empting decisions by the UK Government, which has indicated its intention to introduce consumer protection legislation for heat networks; we expect that that will also apply to existing networks. We are still awaiting a response from the UK Government to our proposal on how best to address the consumer protection provisions, and it is therefore important that we maintain flexibility in the bill, so that, if passed, it is compatible with consumer protection legislation that is introduced by the UK Government.

That being said, I recognise that people who already operate a heat network in Scotland are looking for information on how the licensing regime might apply to them—I noted Mr Golden’s references to Scottish Renewables’ concerns about that. Amendments 146, 147 and 148 would provide just that, and for that reason I support the amendments in principle.

Regrettably, however, I have some concerns about the detail, specifically the references to retrospective applications and the definition of “existing heat network”. That means that I cannot at this time recommend that committee members support the amendments. In respect of references to retrospective applications, the bill will not apply retrospectively. We are aware of several projects that are under development but will not be operational before the bill obtains royal assent, assuming that it is passed. These types of project would not therefore be covered under the proposed definition, and I trust that that is not Mr Golden’s intention.

As well as that, amendment 146 does not appear to recognise that heat network licences will be granted to organisations rather than specific projects. Therefore, reference to extensions of heat networks is not applicable in the context of the licensing system. That is why, if Mr Golden will consider not pressing amendment 146 at this time, I would be happy to work with him with a view to reintroducing his proposals at stage 3, to ensure that we take account of existing heat networks in the context of the licensing system.

Should Mr Golden press amendment 146 and move amendments 147 and 148, I urge members not to support them, for the reasons that I have given, even though I agree with their underlying principles.

The Convener

Mr Golden, you may wind up and indicate whether you wish to press or withdraw amendment 146.

Maurice Golden

I thank the minister for his comments and his agreement in principle that we need an efficient and effective regulatory regime for existing heat networks. I will take him up on his offer to work with me to ensure that, at stage 3, the broad principles contained in amendments 146 to 148 can be achieved at stage 3. On that basis, I am happy not to press amendment 146 and I will not move amendments 147 and 148.

Amendment 146, by agreement, withdrawn.

Amendment 147 not moved.

Section 14, as amended, agreed to.

Section 15 agreed to.

Section 16—Interpretation of Part 1

Amendment 148 not moved.

Section 16 agreed to.

Section 17—Requirement for heat network consent

Amendment 8 moved—[Paul Wheelhouse]—and agreed to.

The Convener

The next group is entitled “Local authority as heat network consent authority”. Amendment 9, in the name of the minister, is grouped with amendments 10 to 30, 135, 136, 31, 33, 36 to 38, 137, 138, 41, 139, 140, 51, 61, 62, 150, 63, 124 to 126, 130, 133, 144 and 157.

Paul Wheelhouse

I apologise in advance, as this will probably be the lengthiest contribution that I will make in the debate.

The amendments in the group that are in my name are intended to meet the recommendation that the committee made in paragraph 136 of its report that, in respect of heat network consents, the bill should provide

“for the balance of powers between Ministers and local government to be modified over time”.

I have been happy to meet that recommendation.

Members might be aware that, when the idea of heat network consents was initially proposed, we suggested that local authorities would be well placed to take on that function, given their existing role as planning authorities and given that heat networks are local assets by their nature. We moved away from that view following the findings of the independent analysis of the consultation, which found that some local authorities do not have the necessary resources to manage the consents process and noted that there were suggestions for a central body to issue and manage consents.

In its recommendations report of December 2019, the heat networks regulation working group, which supported the drafting of the bill, said that it

“felt that the consenting proposal should be reconsidered in order to reduce burden on ... local authorities … and to reduce the risk of Local Authorities effectively self-regulating.”

I also note that, in my officials’ engagement with Convention of Scottish Local Authorities counterparts prior to the introduction of the bill, no objections were raised to the balance of responsibilities in part 2 of the bill relating to heat network consent. However, the committee’s recommendation and the amendments that I have lodged and will speak to represent a sensible position for us to reach. They would enable local authorities that wish to be empowered with that responsibility to become so while ensuring that the Scottish Government can carry out that function elsewhere in Scotland, where that is the will of the relevant local authority.

I must apologise, as I have quite a few amendments to speak to.

Amendments 10 and 11 would primarily give effect to the committee’s recommendation by introducing the concept of a consent authority that is responsible for the award of heat network consents in its area and would replace the Scottish ministers’ responsibility for that area.

Amendment 10 would create a power for the Scottish ministers to designate a local authority as the consent authority for its area. Subsection (3) specifies that, before doing so, the Scottish ministers must have consulted that local authority as well as any other persons “as they consider appropriate”. We think that that is important.

Amendment 11 sets out the default position that the Scottish ministers will act as the consent authority in those areas where the local authority in question has not been designated as the consent authority for its area.

With those new powers available to local authorities that wish to have them, it is important that they are able to recover the costs that they incur in exercising those new functions. Accordingly, amendments 124 and 125 would amend section 77 of the bill so that the Scottish ministers may make regulations about the payment of fees to local authorities for carrying out their functions under part 2.

Amendment 126 is a consequential amendment to section 81 that provides that the new power to designate a local authority as a consent authority is subject to the affirmative procedure.

Amendment 130 is a consequential amendment that will add “appropriate consent authority” to the list of definitions in section 83.

Amendments 12 to 31, 33 and 41 are consequential amendments as a result of the power to designate a local authority as the consent authority for its area. They will replace references to “Scottish Ministers” with “appropriate consent authority” and make some grammatical changes as a result of that. Although they are consequential amendments, they are important, as they ensure that all the necessary powers under part 2 in relation to consent are exercisable by the appropriate consent authority rather than the Scottish ministers. The powers combine to enable local authorities to perform the function of a consenting authority competently.

Amendment 51 deals with the possibility of joint working between local authorities. It is a broad power for the Scottish ministers, by regulations, to determine how applications for heat network consent are to be made and determined, in the event that the proposed development crosses local authority boundaries or might expand to cross them.

The power is necessarily broad, as engagement with local authorities will inform agreements on how such applications might be handled, and as the likely frequency of such applications will not be known until the designation of heat network zones under part 3 of the bill is undertaken. Nevertheless, it is prudent to make such provision to future proof the bill in anticipation of large-scale heat network developments, which have the potential to span a number of areas. Without prejudgement of the outcome of the analysis and of public engagement, which will inform the designation of heat network zones, we might, for example, see a development that spans Rutherglen in South Lanarkshire and adjacent areas in Glasgow. Provision is already made for local authorities to work jointly on the designation of heat network zones under section 43.

A number of consequences will result from the enablement of local authorities to act as consenting authorities, which amendments 9, 36, 37, 38, 61, 62 and 133 deal with.

Amendment 36 will provide the Scottish ministers with the power to call in applications for heat network consent. That is similar to section 46 of the Town and Country Planning (Scotland) Act 1997, which allows the Scottish ministers to direct that a particular application, or class thereof, be referred to them for decision. That power is thought to be necessary to cover the potential that such a decision might affect matters of national importance.

So that the Scottish ministers can make effective use of that power, amendment 37 will provide them with powers to, for example, restrict local authorities from determining those applications for a period of time; direct local authorities to provide information on applications and include specified conditions when granting such applications.

The intention of those powers is to provide the Scottish ministers with the necessary time and information to determine whether to call in an application under the power that will be introduced by amendment 36. A further consequence of the designation of local authorities as consenting authorities is that it will allow the Scottish ministers to hear appeals against any decision by a local authority to decline an application for consent.

Amendment 38 will create powers for the Scottish ministers, by regulations, to establish an appeals process in respect of decisions that a local authority has made on heat network consent applications or modifications. The amendment is proposed in line with the evidence that was heard at stage 1 and noted in the committee’s stage 1 report, that the Scottish Government should reflect on the appeals processes in the bill. Those recommendations were primarily in respect of the revocation of heat networks licences and consents, but I trust that the committee agrees that an opportunity should be provided to appeal regarding the initial decision to award a heat network consent when possible.

Amendments 61 and 62 are needed consequential changes, so that deemed planning permission under section 35 might be provided or amended if ministers award or modify heat network consent following a successful appeal. Amendments 9 and 133 are also consequential to amendment 38 and will adjust references to heat network consent through a recognition that it might be granted on appeal.

Amendment 63 will create a new power for the Scottish ministers to streamline the process for applications to a local authority when applications for both a heat network consent and planning permission would require to be made to the local authority. The purpose of that power is to simplify the administrative burden on local authorities and heat network operators and developers so that we can move new schemes to construction as quickly as possible—subject to appropriate scrutiny—in response to the global climate emergency.

I believe that those amendments combine to provide a pragmatic solution to the question of the role of local authorities, which has rightly been raised in the scrutiny of the bill.

I turn to Andy Wightman’s alternative amendments 135, 136, 137, 150, 144 and 157, which, in summary, dictate that local authorities would become responsible for heat network consents in perpetuity within five years. I have sympathy with the principle of Andy Wightman’s amendments. I agree that, as far as possible, local authorities should be empowered as the decision makers on local matters. However, in this specific case, I believe that the amendments that I have lodged and to which the committee’s report led us are the most suitable approach. There are several reasons for that, not least a lack of clear indication from local authorities that they want the functions to be imposed on them.

First, at this point in time we simply do not know where, or the extent to which, heat network developments will take place across Scotland. Our view is that they will not take place uniformly. The viability of a heat network is dependent on having sufficient heat density and interested customers, and the designation of heat network zones will clarify where heat network developments are most likely to take place. That, in turn, is likely to weigh heavily in a local authority’s view on whether it would wish to become a consent authority.

We are making progress in developing a method for designating heat network zones and, in our heat in buildings strategy, we will commit to producing a heat networks investment prospectus during 2021. That will include a first pass of heat network opportunities across Scotland that we and local authorities can subsequently build on. Ahead of that, I am reluctant to require local authorities to invest in developing a consenting function when there is the very real chance that evidence will show that, for some, that investment will be underutilised, as there will be few, if any, networks to consider.

Secondly, while we have worked to estimate the costs of heat network consent functions as part of the financial memorandum that accompanies the bill, I am aware that those costs will necessarily increase with the creation of up to 32 consent authorities. I am sure that members will agree that it will be important that we work with local authorities and the Convention of Scottish Local Authorities to come to a definitive view on the estimated costs, and to agree the resources that need to be put in place to enable local authorities to take on that important function.

The amendments that I have lodged would allow a period for those discussions to take place before any regulations are laid. I am concerned that amendments that would specify local authorities as consent authorities by default would put local authorities at risk of being made to fulfil that function without assurances about adequate support being in place.

Thirdly, I note that a 2020 Energy Saving Trust report found that, because heat networks are not a common technology in Scotland, there are gaps in skills in local authorities when it comes to district and communal heating. I would be keen to work with local authorities to build capacity in the lead-up to laying regulations that would make them consent authorities, so that those who wish to do so are well placed and the need for procured consultants, with associated costs, is minimised. If we do not do that, and we make local authorities the consent authorities by default, with skills in that area currently being scarce, costs may be further increased by local authorities competing to source appropriate staff.

Fourthly, I am aware that some local authorities are likely to be undecided about or unaware of the potential for them to become consent authorities, as there has not been consultation on that at present. It may be that those local authorities would wish for time in which to consider the possibility. If the function were to be undertaken by the Scottish Government’s existing energy consents unit on behalf of those local authorities in the meantime, in a similar way to Norway’s initial national approach, local authorities would have the opportunity to witness the function in action before coming to a more informed decision as to whether they wish to act as the consent authority for their area.

Finally, there are several technical and drafting issues with Mr Wightman’s amendments in their current form. For example, there is no provision for the role of a consent authority to automatically transfer back to the Scottish ministers in future should a local authority want to do that. What about heat networks that cross local authority boundaries? There appears to be no provision for local authorities to work together.

The amendments also make no provision for how part 7 is to operate in relation to the very important provision of transfer schemes if consent functions were to transfer to local authorities by default. I would also be very concerned about sections 19 to 24 and section 35 of the bill being commenced immediately upon royal assent, given that we and networks that are under development are not prepared for sudden implementation and that part 2 would not be commenced coherently.

The five-year period to which Mr Wightman’s amendments refer could, however, help to overcome some of the issues that I have raised and would provide the opportunity for us, collectively, to anticipate and adequately plan for and resource the deployment of heat networks that we can expect. In light of that, I invite him not to move amendments 135 to 137, 144, 150 and 157 but to work with me, together with COSLA, to build on his amendments and mine by inserting a clear trigger point or opt-in provision at stage 3 so that local authorities are empowered to take on the function, should they wish to.

I am happy to offer my support to Mr Wightman’s amendments 138 and 139, although I ask him not to move amendment 140, which duplicates the effect of part of amendment 50, which has already been agreed to. Amendment 50 requires the Scottish ministers to consult local authorities and the Scottish fuel poverty advisory panel, alongside other appropriate persons, in developing regulations under section 27.

If pressed, I urge members not to support amendments 135 to 137, 140, 144, 150 and 157 on the understanding that I have agreed that my officials and I will work with Mr Wightman to bring back an alternative amendment at stage 3. Instead, I urge members to support amendments 9 to 31, 33, 36 to 38, 41, 51, 61 to 63, 124 to 126, 130 and 133, as well as supporting amendments 138 and 139.

I move amendment 9.

The Convener

Graham Simpson will speak to amendment 135 in the name of Andy Wightman and other amendments in the group.

Graham Simpson

I am in the slightly unusual position of speaking to and moving amendments that are not in my name but are in Andy Wightman’s name. Had they been my amendments, I would have been listening to the minister very carefully, which I did, and possibly responding to him on the basis that the amendments were mine.

I also find myself in the position of almost having to make an executive decision on amendments that are not mine. Let me first explain what the amendments do. Andy Wightman has nine amendments in the group, the main one being amendment 135.

We are told that the Danish experience was an inspiration for the bill. In written evidence to the committee, the Danish Energy Agency noted that Denmark’s 98 municipalities are responsible for heat planning and approval of heat projects, and that two thirds of the pipe networks are owned by the municipalities.

In the minister’s stage 1 evidence to the committee on 6 October 2020, he stated:

“we have not aimed to take a radically different approach from that taken in Denmark”—[Official Report, Economy, Energy and Fair Work Committee, 6 October 2020; c 58.]

However, the bill contains 60 or so ministerial powers and only five powers are left in the hands of local authorities. In contrast to the Danish experience, the bill takes a radically different approach by placing virtually all the powers in the hands of ministers and none in the hands of local authorities, where they substantially rest in Denmark.

The stage 1 report recommends that provisions should be introduced to the bill to allow for the balance of powers between ministers and councils to be modified over time, and I welcome the minister’s amendment 10, which introduces a regulation-making power to transfer the consents process to local authorities. However, I believe that we should not rely on ministers using that power at some unspecified future date of their choosing. Instead, the bill should make explicit provision for the consenting powers in part 2 that currently sit with the Scottish ministers to transfer by automatic force of law five years from the date of royal assent. Local authorities would therefore have five years in which to decide how to administer the powers, which they could do by themselves, as part of a joint specialist unit or whatever. In short, that is what the amendments seek to achieve.

Amendment 135 is the substantive amendment. It would transfer all consenting powers under sections 19 to 23 to local authorities five years after the date of royal assent, which is quite a period of time. Amendment 136 is consequential.

Amendment 137 would provide the powers to revoke heat network consents to local authorities. Amendments 138 to 140 would provide that ministers must consult local authorities before making regulations about how applications for consent are to be determined and how compensation provisions on modification or revocation are framed.

Amendment 150 would disapply the deemed consent powers in section 35 after five years. Amendments 144 and 157 would amend section 84 on commencement and stipulate that all the previous amendments commence on the day of royal assent, giving effect to the trigger for the five-year period, after which consenting powers would transfer to local authorities.

Were he speaking today, Mr Wightman would invite the committee to support all those amendments to properly reflect ministers’ intentions to not take a radically different approach from Denmark. I can see where he is coming from with that.

I will end there, convener. As I said at the start, I am having to make a decision for Andy Wightman and I did not hear anything from the minister to suggest that he has had any discussions with Mr Wightman. I feel that I should help Mr Wightman to get over the line on the issue and accept the minister’s offer to work with him. I have no idea whether Mr Wightman will be happy with that but, knowing him, I feel that he probably will be.

I therefore take the minister up on his offer to support amendments 138 and 139, and I will not move the others in the group in Andy Wightman’s name. I encourage the minister to pick up the phone to Mr Wightman as soon as he can.

Alex Rowley

Graham Simpson articulated Andy Wightman’s intentions for his amendments very well. I am happy to go along with what Graham Simpson proposes, but it is important to signal to the minister that valid points have been made and that he needs to pick them up with Mr Wightman before stage 3.

Paul Wheelhouse

I certainly want to honour the spirit of the discussion that we have had with Mr Simpson and Mr Rowley. I appreciate that it is a difficult situation with Mr Wightman not being present for me to direct my points to him. I am grateful for the approach that Mr Simpson has taken. I want to reward the faith that he has put in me as minister, and I confirm that I will want to work with Mr Wightman to address the legitimate issues that he has raised.

We support the five-year period that Mr Wightman’s amendments intend to create. It is a welcome development, but we believe that there is a better way and we will work with Mr Wightman to put that into effect.

The approach that Mr Simpson has signalled will protect the integrity of what we have sought to do in meeting the committee’s request to work with local authorities to be the consenting authority, but to do so in a way that does not mean things happening immediately on royal assent, which could be problematic.

I will not go through all the points that I have made previously. I just confirm that my officials and I are keen to work with Mr Wightman. I know that he is a diligent member and we will work closely with him to make sure that we get agreed wording that will support Mr Wightman’s intentions at stage 3. I thank Mr Simpson and Mr Rowley for their comments and reassure them that I will take the approach that they have suggested.

Amendment 9 agreed to.

Section 17, as amended, agreed to.

Section 18 agreed to.

After section 18

Amendments 10 and 11 moved—[Paul Wheelhouse]—and agreed to.

Section 19—Heat network consent applications

Amendment 12 moved—[Paul Wheelhouse]—and agreed to.

Section 19, as amended, agreed to.

Section 20—Determining heat network consent applications

Amendments 13 to 19 moved—[Paul Wheelhouse]—and agreed to.

Section 20, as amended, agreed to.

Section 21—Heat network consent conditions or limitations

Amendments 20 and 21 moved—[Paul Wheelhouse]—and agreed to.

Section 21, as amended, agreed to.

Section 22—Transfer of heat network consent

Amendments 22 to 24 moved—[Paul Wheelhouse]—and agreed to.

Section 22, as amended, agreed to.

Section 23—Modification of heat network consent

Amendments 25 to 30 moved—[Paul Wheelhouse]—and agreed to.

Section 23, as amended, agreed to.

After section 23

Amendment 135 not moved.

Section 24—Revocation of heat network consent

Amendment 136 not moved.

Amendment 31 moved—[Paul Wheelhouse]—and agreed to.

The Convener

Amendment 32, in the name of the minister, is grouped with amendments 34 and 35.

Paul Wheelhouse

These amendments are similar to those in group 6 relating to appeals against the revocation of heat networks licences. Members will recall that those amendments sought to address the committee’s recommendation that we introduce an appeals process for licence holders in the event of a licence being revoked by the licensing authority. The committee noted that there might be scope to introduce a process for appeals against the revocation of a heat network consent and asked the Scottish Government to reflect further on whether that was something that could be addressed at stage 2.

In light of the group of amendments that we have just discussed in relation to local authorities as consenting authorities, I am happy to move amendments that would create an opportunity for appeals against the revocation of consents by a local authority. That would be achieved primarily by amendment 35, which would provide the opportunity for consent holders to appeal to the Scottish ministers against a proposed revocation where a local authority acting as a consenting authority gave notice of revocation of a consent.

Amendment 34 would amend section 24. Proposed new subsection (5)(b) would require a notice of revocation to specify a date when revocation would take effect. That delay would allow time for an appeal to be made, and proposed new subsection (2) would ensure that consent was not revoked until the appeal had been heard. Of course, if the appeal were successful, the consent would not be revoked. Proposed new subsection (4) specifies a number of matters that regulations that would create the appeals process might be expected to feature, and proposed new subsection (5) would enable those regulations to provide for inquiries or public hearings as part of the appeals process, should that be thought appropriate.

In light of the committee’s views on appeals in relation to heat networks licences, I trust that members will welcome the proposed changes. I am sure that members will agree that having procedural protections in place before a decision to revoke a consent is taken would be right and efficient. These procedures would allow the holder of a heat networks consent to make their arguments, if faced with a proposal to revoke consent.

During stage 1 evidence, my officials and I spoke to the committee about section 24 of the bill as introduced, and we noted that its broad nature could allow for a wide range of provisions to be made regarding the process involved in revoking a consent. On reflection, and mindful of the significant investment that is often involved, I want to provide greater certainty to operators and developers by making clearer provision for the procedural protections that they could expect before their right to operate their investment would be revoked. Amendment 34 would do that by amending section 24 to require that notice be given to consent holders about the intention to revoke a consent, that the reasons for that decision be specified and that consent holders have an opportunity to make representations against such a decision. The ability of the Scottish ministers to make further provision about the process for revoking heat network consents is retained, to allow for any adaptations that might be needed in future. As well as increasing fairness in the regulatory system, the amendment would provide consistency with section 11 of the bill, on revocation of heat networks licences.

Amendment 32 is a consequential amendment, which removes the ability of the Scottish ministers to specify the manner in which heat networks consents may be revoked, given that amendment 34 would make provision for giving notice of proposed revocation and confer power for regulations to specify additional procedures. I ask members to support each of the amendments in the group.

I move amendment 32.

Amendment 32 agreed to.

Amendments 33 and 34 moved—[Paul Wheelhouse]—and agreed to.

Section 24, as amended, agreed to.

After section 24

Amendments 35 to 38 moved—[Paul Wheelhouse]—and agreed to.

Amendment 137 not moved.

Section 25—Compensation on modification or revocation of heat network consent

Amendment 39 moved—[Paul Wheelhouse]—and agreed to.

Amendment 138 moved—[Graham Simpson]—and agreed to.

Section 25, as amended, agreed to.

Section 26—Form and manner etc. of applications under Part 2

The Convener

Amendment 40, in the name of the minister, is grouped with amendments 42 to 49.

Paul Wheelhouse

The amendments that I have lodged in this group are concerned with the processes for applying for and determining consent.

Amendments 40, 42 and 43 will allow the Scottish ministers to introduce a clear pre-application requirement for developers to engage with local communities before they seek consent for a new development. Following compelling evidence from Citizens Advice Scotland about the value that greater community engagement could have had in avoiding the real consumer detriment that has emerged with a network in Glasgow, the committee asked me to reflect on its belief that community engagement

“should not just be about online consultations or seeking views at the start of the process; it must be a matter of social licence, securing public confidence, and putting the concerns of communities like the one in Glasgow at the very heart of the Bill.”

I have been happy to accept that recommendation, and amendment 40 is the primary amendment which gives effect to it. It will enable the Scottish ministers to require developers to include a “community engagement report” as part of an application relating to a heat network consent. Scottish ministers will be able to determine the types of application to which the requirement would apply.

Where such a report is required, the developer will need to describe the community engagement that it has undertaken in relation to the proposed application and how it has taken account of any representations that were received by virtue of that engagement. By requiring such a condition, we can ensure that new networks are designed with their users in mind and are future proofed to avoid consumer detriment, because the circumstances of the local community will have been considered and developers will have had to make any mitigations that might be appropriate. Those provisions present an opportunity to pre-empt the sort of problem that Citizens Advice Scotland rightly highlighted in its stage 1 evidence, which I have been working with my colleague Bob Doris MSP, the local citizens advice bureaux and Home Energy Scotland to address.

We have discussed amendment 40 with Citizens Advice Scotland. It has indicated that it agrees that community engagement provisions are best placed in part 2 of the bill, given that they relate most directly to new schemes and schemes that are most likely to be developed. We also note that our amendment meets the suggestion of Citizens Advice Scotland, in its pre-stage 1 debate briefing for MSPs, that incorporation into the bill of community engagement could be done in various ways, including mandating that developers and suppliers provide evidence that they have sought the views of residents in the area and taken those views into consideration.

I draw to the committee’s attention that amendment 40 does not make a community engagement report mandatory for all applications, as that will not always be appropriate. For example, if a proposed heat network is to service an industrial estate or a new build housing estate, there might not be a community with which to engage.

We will, of course, engage with Citizens Advice Scotland, developers and others before making a determination under section 26. However, the intention is that the engagement requirement will apply as widely as possible. That engagement is intended to be undertaken with the community at large, who might be affected, and not only with those to whom heat is, or will be, supplied.

Amendment 43 creates a new section, which will provide the Scottish ministers with a power to issue guidance in relation to the preparation of a community engagement report. The purpose of the section is to allow an opportunity to specify what constitutes “effective community engagement”, including who must be consulted. Although proposed new subsection (2)(b) makes clear that engagement will include consultation, it is clear that that is not the only form of engagement that may be considered effective for the purposes of evidencing the local community’s views.

I reaffirm the commitment that I gave during the stage 1 debate that the Scottish Government will work closely with Citizens Advice Scotland on the development of the guidance under this section in order to deliver on the committee’s view, which I share, that it must be about more than consultation. I am aware of recent research that CAS has undertaken into community engagement for infrastructure projects, and I believe that we can build on that in the development of the guidance.

Amendment 42 will make a consequential change to section 26(4) so that the definition of “relevant application” applies to the new section to be inserted by amendment 43. Amendments 44 to 49 make a number of refinements to the bill’s provisions that enable the Scottish ministers to make regulations relating to heat network consents. Amendment 45 provides that the Scottish ministers may by regulation make provision about the procedure to be followed in deciding, on their own initiative, to modify existing heat network consents. That will improve transparency in relation to such decision making. Amendment 44 is a technical drafting change to accommodate amendment 45.

Amendment 46 provides that the Scottish ministers may by regulations make provision about the publication and notification of decisions to modify heat network consents on their own initiative. Amendment 47 is also a minor drafting change to reflect that Scottish ministers may make provision about determining applications.

Amendment 48 makes clear that any regulations making provision about the consideration of emissions reductions and fuel poverty may also apply in relation to decisions by the Scottish ministers to modify a heat network consent on their own initiative. Amendment 49 seeks to embed the bill’s twin objectives of fuel poverty alleviation and emissions reductions in the determination of new heat networks in the consenting system by specifying that the regulations may, in particular, make provision about the consideration to be given to those matters in determining an application. I ask members to support each of the amendments in the group.

I move amendment 40.

The Convener

Thank you, minister. Graham Simpson wishes to come in at this point.

Graham Simpson

I listened with interest to the minister, and I think that this is an important set of amendments, because consultation is vital. However, I have just a word of caution for the minister, although I am sure that he knows this well. We have seen in the planning system that where consultation exists, it is often a box-ticking exercise. Applicants can organise events that hardly anyone turns up to, but they can say that they have held the event, so the box is ticked. We need to avoid that kind of thing happening for heat networks, but I think, from what the minister said, that he is alive to that risk.

I heard what the minister said about not needing to have consultation in all areas, which is sensible. For example, if a heat network is in an industrial estate, there will be nobody to consult. However, I caution him that when he introduces regulations, which are the right way to proceed, they must pin things down so that any consultation is meaningful.

The Convener

Minister, do you want to say anything further in response?

Paul Wheelhouse

I agree with Mr Simpson’s sensible comments: we obviously want any consultation to be meaningful and I take his points on board. It is certainly our intention to ensure that the guidance that is issued makes the engagement and consultation with communities meaningful in order to achieve the ends that he suggested. I agree that we need to avoid the risk that he indicated.

Amendment 40 agreed to.

Amendment 41 moved—[Paul Wheelhouse]—and agreed to.

Amendment 139 moved—[Graham Simpson]—and agreed to.

Amendment 42 moved—[Paul Wheelhouse]—and agreed to.

Section 26, as amended, agreed to.

After section 26

Amendment 43 moved—[Paul Wheelhouse]—and agreed to.

Section 27—Regulations about determining applications under Part 2

Amendments 44 to 50 moved—[Paul Wheelhouse]—and agreed to.

Amendment 140 not moved.

Amendment 149 not moved.

Section 27, as amended, agreed to.

After section 27

Amendment 51 moved—[Paul Wheelhouse]—and agreed to.

Section 28 agreed to.

Section 29—Power to require information about activities on land

Amendments 52 to 54 moved—[Paul Wheelhouse]—and agreed to.

Section 29, as amended, agreed to.

Section 30—Enforcement notice

Amendments 55 to 59 moved—[Paul Wheelhouse]—and agreed to.

Section 30, as amended, agreed to.

Section 31 agreed to.

Section 32—Appeals against enforcement notice

Amendment 60 moved—[Paul Wheelhouse]—and agreed to.

Section 32, as amended, agreed to.

Sections 33 and 34 agreed to.

The Convener

As we have been proceeding for an hour and a half now, we will take a 10-minute break and reconvene at 10:40.

The Convener

Welcome back. We continue our consideration of amendments to the Heat Networks (Scotland) Bill at stage 2.

Section 35—Deemed planning permission on granting or modifying heat network consent

Amendments 61 and 62 moved—[Paul Wheelhouse]—and agreed to.

Amendment 150 not moved.

Section 35, as amended, agreed to.

After section 35

Amendment 63 moved—[Paul Wheelhouse]—and agreed to.

Section 36 agreed to.

Section 37—Power to designate heat network zone

The Convener

The next group is on the designation of heat network zones by local authorities. Amendment 151, in the name of Mark Ruskell, is the only amendment in the group.

Mark Ruskell (Mid Scotland and Fife) (Green)

It is pretty clear that the designation of heat network zones has to happen if we are to get at least a fifth of homes and half of non-domestic buildings connected up, as the bill aspires to do. However, often the priority for councils is, understandably, not what it would be nice to do but what they are legally required to do. Clearly, resourcing can be an issue here. It has already been brought up in the meeting, and I am sure that the committee will return to the issue later when it considers Graham Simpson’s amendment 156.

However, the will of councils to consider zones with regard to the process under section 39 is not guaranteed under the bill as it stands. My concern is that there might come a point, perhaps in a few years’ time, when the scale and pace of change that are required on climate action mean that we need to move a lot quicker. If, by that point, heat network zones have not been delivered, a vital piece of the jigsaw will be missing. That could be the case in relation to changing climate change plans that might come at the midpoint of this decade, especially if hydrogen does not materialise in the gas grid.

The intention of amendment 151 is to keep the door open so that ministers could require that a council must deliver a heat network zone under certain conditions, which could be specified by future regulation. Should the conditions specified in any regulation not arise, councils could continue to consider establishing zones under the provisions in section 39. In essence, amendment 151 is about putting in place a backstop to require a rapid scale-up, if required.

I move amendment 151.

The Convener

Minister, do you wish to respond?

Paul Wheelhouse

Yes, but I will keep my comments brief. I understand that the underlying intention of amendment 151 is, as Mark Ruskell has set out, to maximise the instances in which heat network zones are designated, which will in turn help to grow the sector. I acknowledge that the amendment is well intentioned and entirely in line with the objectives of the bill, so I am happy to support it in principle.

However, the way in which amendment 151 is currently drafted is such that it is not easily reconciled with other sections in part 3. There is the specific issue of how the obligations on local authorities that it seeks to introduce would interact with the discretionary powers in section 38(3). In addition, there is the question of whether, and how, the duties in section 39 to consider certain matters would apply in the context of an obligation to designate an area because, as well as being required by amendment 151 to designate an area that they consider meets

“such conditions as the Scottish Ministers may by regulations specify”,

local authorities would require to consider the matters set out in section 39.

The inconsistencies between the effect of amendment 151 and the existing provisions of part 3 of the bill would mean that, if it were to be agreed to, a number of amendments would be required at stage 3 to address that conflict or other unintended consequences. That said, I found Mr Ruskell’s explanation of his intentions and of the conditions that would apply helpful.

I also note that amendment 151 would remove the degree of choice that part 3 of the bill provides to local authorities to reflect the extensive analysis and engagement that might be necessary to designate heat network zones, and the fact that many local authorities will already have an understanding of the potential for heat networks in their area.

I appreciate that the approach for which the bill currently provides introduces the risk that opportunities could go unidentified, which is why section 38 enables local authorities to request that the Scottish ministers undertake that function on their behalf. Section 44 of the bill provides a further safeguard.

Amendment 151 would help to further mitigate the risk of opportunities not being identified, but in the light of the significant inconsistencies between amendment 151 and the existing approach that is taken in part 3, I ask Mr Ruskell not to press it at this stage. My officials and I will work with him in advance of stage 3 with a view to him lodging a workable amendment then, to which the Scottish Government could lend support.

Should Mr Ruskell press amendment 151, I urge members not to support it at this time, but I make the point that we are keen to work with Mr Ruskell to ensure that we address the good intent that he has set out by stage 3.

Mark Ruskell

I welcome the fact that the minister backs the intention behind amendment 151 and am keen to enter into further discussions ahead of stage 3. On the basis of Mr Wheelhouse’s comments about how the amendment would need to be more fully reconciled with part 3, I will not press it.

The Convener

I think that you need to withdraw the amendment.

Mark Ruskell

With the permission of the committee, I would like to withdraw amendment 151.

Amendment 151, by agreement, withdrawn.

Section 37 agreed to.

Section 38 agreed to.

Section 39—Designation of heat network zone by local authority

Amendment 64 moved—[Paul Wheelhouse]—and agreed to.

The Convener

The next group is on heat networks delivery plan and supply targets. Amendment 141, in the name of Mark Ruskell, is grouped with amendments 154, 142, 155 and 143.

Mark Ruskell

As MSPs, we have probably all lost count of the number of bills that have considered targets and action plans in various sessions of Parliament. Fundamentally, we all want to see some form of direction and ambition in bills. There is a recognition that, at least in some areas of policy, targets provide certainty, not least for investors, and they have been shown to work in the area of energy—the renewable electricity target is clearly a successful example of the application of such a target.

In an ideal world, I would like the bill to include a terawatt hours target, as is proposed in Maurice Golden’s amendment 155. In reality, a more accurate target could be developed once the work on heat network zones has been done on the ground and there is a more granular understanding of the heat resource that is out there waiting to be harnessed. That work might result in a more ambitious target that sends an even stronger market signal to the sector.

Amendment 142 is my target amendment. I believe that it puts in place the right framework for setting a bottom-up target, and I urge members to support it. However, I will be interested to hear from the minister and Mr Golden on two issues: the timescale for establishing targets in relation to the bill and the need for parliamentary scrutiny.

From my perspective, Mr Golden’s amendment 154 on establishing a heat networks delivery plan appears to be very supportable. It seeks to deliver the kind of clarity that is needed and would fit nicely with the provision of a headline set of future targets under my amendment 142.

I move amendment 141.

Maurice Golden

I thank Mark Ruskell for his contribution and his commitment to reaching net zero. My amendment 154 would require ministers to set out a delivery plan to put the bill into action, which is an obvious but fundamentally important part of ensuring that the bill succeeds in its aim of developing low-carbon heat networks in Scotland.

The bill is an important step in driving forward renewable heat in Scotland, and I very much welcome it. However, it alone will not be sufficient to enable heat networks to reach the needed scale in Scotland. For that to happen, many different actors will need to come together—national Governments, local authorities, private investment, local energy policies and more. With so many moving pieces on the board, it is vital that we have a co-ordinated delivery plan to ensure that each is where it needs to be and that Government policy successfully co-ordinates and links up all the various actions.

A delivery plan would also provide the framework to deal with practical concerns, such as measuring outputs from heat networks, specific policy choices to drive uptake and use, and how those policies, and heat networks in general, will fit in with Scotland’s overall climate goals. Importantly, ministers would keep the delivery plan under review to observe the evolution of low-carbon heat networks and how policy might have to adapt to changing circumstances.

Finally, much like the statement of intent on retrospective changes, a delivery plan would help to provide investor certainty. Knowing what the ground rules are and that there is a solid foundation for low-carbon heat networks over the long term is crucial in order to attract the investment that is needed to enable networks to expand at pace. Amendment 154 provides a straightforward means to provide that certainty.

Amendment 155 seeks to introduce clearly defined delivery targets in order to assess the success of the bill in developing low-carbon heat networks in Scotland. We know that decarbonising heat will be a big step in reaching net zero in Scotland, and one of the stated aims of the bill is to develop the low-carbon heat networks that are needed to do that. However, without delivery targets, we will have no way of assessing the pace or quality of the development that takes place.

That is why the targets that are cited in amendment 155 follow research from Scottish Renewables and are broadly in line with industry growth estimates. They represent a doubling of output from current levels by 2025, then an increase to 6 terawatt hours by 2030. I appreciate that some might have concerns about setting specific targets right now, even when those targets follow industry’s lead. However, amendment 155 and Mark Ruskell’s amendment 142 point to the same basic principle: targets, regardless of whether specific numbers are set right now, are important for the bill’s aims to succeed. Targets will allow us to ensure that we are on track and that heat plays its part in reaching our 2045 net zero goal.

However, delivery targets are important in the here and now, too, because they sit alongside a delivery plan in providing the investor and operator certainty that I mentioned previously. While a delivery plan sets the rules, targets provide a clear space for operation, with the knowledge that the Government is behind them in order to reach the goal. That is not just for private investors; the setting of local policy and planning objectives will be more assured if public bodies know that the decisions that they take are within a clearly defined policy goal.

All of that creates opportunities for a green recovery, especially in terms of job creation and transferable skills for those in declining industries. Setting sensible targets now will provide consistent rewards across the lifetime of the bill’s provisions.

Graham Simpson

I am comparing and contrasting amendments 142 and 155. Both deal with heat network supply targets, but Mr Golden’s amendment 155 is more specific than Mr Ruskell’s amendment 142. It seems to me that they cannot both be agreed to. Amendment 142 would allow ministers to make the regulations, but amendment 155 is far more specific and, arguably, more ambitious. We would expect nothing less of Mr Golden, would we not? [Interruption.] Members may well laugh, but that is what I would expect from Mr Golden.

Mr Ruskell and Mr Golden can consider my comments as an intervention on both of them. What do they think about what I have said? If Mr Golden’s amendment 155 were agreed to, Mr Ruskell’s amendment 142 would not work—and vice versa. I would like to hear from both members on that.

The Convener

Before I bring the minister in, I am happy to go back to Mark Ruskell if he wants to respond to Graham Simpson and then go to Maurice Golden for his response.

Mark Ruskell

I could do so, but I would like to hear the minister’s points as well and then make closing remarks if I get the opportunity.

The Convener

Maurice Golden is nodding his head in agreement with that suggested approach. We will go to the minister now and I will bring Mark Ruskell and Maurice Golden back in after that if they want to comment.

Paul Wheelhouse

In general terms, I welcome Mr Ruskell’s and Mr Golden’s amendments in this group. Indeed, their ambition for the growth of heat networks is welcome. In essence, they seek to make the Scottish ministers more accountable for the delivery of the bill’s overall aim through the greater deployment of heat networks in Scotland as well, which is a laudable aim. Although I am one of the ministers who the amendments aspire to be held to that standard, I welcome such scrutiny because, ultimately, what is measured gets done.

The draft heat and building strategy that we will publish shortly includes a commitment to set a target for heat network deployment in the final version of the document, following consultation on the draft. That is so that the national comprehensive assessment of the potential for heat networks, which we are undertaking alongside the UK Government’s Department for Business, Energy and Industrial Strategy, may be taken into account. That assessment will give us the evidence base to establish the potential demand for heat networks in Scotland and, indeed, across England and Wales for the UK Government.

We will also publish a heat network investment prospectus in the next financial year. It will include the first nationwide assessment of the potential for heat networks. It will be a first cut, if you like, and is intended to provide local authorities with evidence to build on as we move towards implementing part 3 of the bill. It will also be relevant to the setting of any target for heat networks.

I am happy, however, to embrace the challenge that a statutory target for heat network deployment will bring. Mr Ruskell’s amendments 142 and 143 enable a target to be set by ministers and approved by the Parliament—it will enable the scrutiny that Mr Simpson was looking for—that is well informed by the evidence that I have just mentioned, as well as what might emerge when local authorities consider the potential for heat networks at a more local level, bringing in, for example, their understanding of local sentiment and other issues.

Prior to today’s meeting, Mr Ruskell and I spoke about the need for well-evidenced target setting so that targets are meaningful and help to stretch delivery ambitions. I know that such an objective is also supported by others such as the Liberal Democrats, who are not present at the discussion today. Amendments 142 and 143 will enable that, as well as providing for the full scrutiny of Parliament in setting that target, which is why I am happy to support those amendments.

Should targets be in place, it is only right that the contribution that new heat networks might make should be considered. Amendment 141 will enable that to happen when heat network zones are being identified by local authorities, and again, I am happy to support that.

Turning to Mr Golden’ s amendments, in light of what I said about the need for an evidence-led target being set in this space, I cannot support amendment 155. Although it sets specific targets that—I am sure—have come from a credible source, they simply have not been verified by the local knowledge and public engagement that Mr Ruskell’s amendments would allow. I am also concerned that amendment 155 does not provide any scope for the target to be amended up or down as the evidence tells us might be appropriate in future. I therefore urge Mr Golden not to move amendment 155.

I am, however, happy to support amendment 154 on the preparation of a heat networks delivery plan by ministers. It is important that investors, supply chains and consumers alike are informed of, and have confidence in, the Government’s plan, particularly when it comes to large and costly infrastructure projects such as heat networks. The setting of targets will help with that, but amendment 154 will ensure that those groups are sighted on exactly how the Scottish Government intends to ensure that our ambition, and, seemingly, that of the rest of Parliament, will be delivered. I also agree that it will be helpful with supply chain development.

The heat in buildings strategy to which I referred earlier will set some of that out but, in supporting amendment 154, I am happy to commit to ensuring that a fully comprehensive and dedicated heat networks delivery plan is published by April 2022.

I therefore urge members to support Mr Ruskell’s amendments 141, 142 and 143, and Mr Golden’s amendment 154, but I ask Mr Golden not to move amendment 155 for the reasons that I have given. If amendment 155 is moved, I urge members to resist it.

The Convener

Mr Ruskell, I do not think that you need to come back in light of the minister’s comments. Mr Golden, do you wish come in?

Maurice Golden

I welcome the minister’s comments and support for amendment 154.

If amendment 155 were passed today, I would seek to work with the Government to ensure that we have better evidence-based targets. The targets that I have outlined in amendment 155 are from industry and its evidence base, and they could help to provide the signal and ambition on which many of our other net zero targets rely. That is the thinking behind amendment 155.

The Convener

At this stage, I will go back to Mr Ruskell in any event to ask him to wind up and to say whether he wishes to press or withdraw amendment 141, so he can make any comments he wants to in response to the minister.

Mark Ruskell

I confirm that, on this issue, there is little difference in ambition between me and Mr Golden. I think that we both want to get to the same place; the issue is just about the process by which we get there.

It is good that there is consensus on the need for a strong plan, as incorporated in amendment 154. The minister’s commitment to deliver the plan by April 2022 is critical in sending a strong signal to industry.

On whether an individual target should be in the bill, I note Mr Golden’s comments that the figures in his amendment 155 are broadly in line with the growth estimates that are established by industry. However, what convinces me is the minister’s comments about the detailed work that is happening at the moment on the potential for heat networks. Detailed work is being done on the ground and an evidence base is building. As I said in my initial comments, I hope that we can get a more ambitious target that is much more focused on the reality of the assets and the potential on the ground.

The only point that I will make is about whether there might be scope for further discussion ahead of stage 3 on a starting date for any target that could then align with the development of the plan and its launch by April 2022. If the minister and Mr Golden want to have further discussions ahead of stage 3, I would be more than happy to be part of those. In the meantime, I urge Mr Golden not to move amendment 155, and I will press amendment 141 in my name.

Amendment 141 agreed to.

Amendment 152 not moved.

Section 39, as amended, agreed to.

Section 40 agreed to.

After section 40

The Convener

Amendment 153, in the name of Mark Ruskell, is in a group on its own.

Mark Ruskell

Amendment 153 is potentially quite controversial, given where the bill has arrived at in trying to navigate the devolved and reserved competences, particularly on consumer protection. However, I want to raise the issue of demand risk, which the committee took evidence on at stage 1. That is the risk that owners of large anchor buildings with vast heat loads might be quite happy to continue to heat the sky without there ever being an obligation on them to harness the benefits of that waste heat for communities. In the past, I have shared frustrations in my community, where we tried to encourage a distillery to consider options for a heat network but that led to nothing happening at all. With the climate emergency, time is against us, so we need to do something quickly.

I admit that amendment 153 is stark. It would mean that councils would make the decision on which buildings would be suitable for connection and would have the power to make that happen. I point out that the intention is not to include individual domestic buildings. If there is a concern in that regard, amendment 153 could be refined to make that more explicit.

However, we cannot continue to have large public and private sector buildings waste heat in the middle of a climate emergency, particularly when we face unacceptable levels of fuel poverty and a need to build in energy security for the future.

Although the bill sets the right framework for things to happen where organisations want to and have the financial backing to do those things anyway, it does not demand progress. For example, the section 58 powers on wayleaves will help to push a network further where one is already being developed, but it will not shift a major anchor building owner to become the foundation stone of a brand new heat network.

To pre-empt what the minister’s response might be, I will ask the question, if amendment 153 is not the solution, what is? I ask that he identifies the solution. Is it about ensuring that buildings under public procurement are the priority, as is the case in Liam McArthur’s amendment 158? Will the answer be in the heat and building strategy? I would very much welcome the minister’s thoughts on that.

I move amendment 153.

Graham Simpson

I hear where Mark Ruskell is coming from, but he has accepted that amendment 153 is controversial. When we are dealing with legislation—you know this, convener, as a lawyer—words matter. The amendment says:

“A local authority may require any suitable building within its area to connect to a heat network”.

Despite what Mark Ruskell said, that could include domestic properties, because of how the amendment is worded.

Even if the amendment did not apply solely to domestic properties, we have the issue of a council in effect forcing any building owner to connect to a heat network, whether they want to or not. That could be at some cost to them.

I think that Mark Ruskell accepts that amendment 153 is perhaps not the best way to achieve what he wants. I simply invite him on that basis not to press amendment 153.

Paul Wheelhouse

I have a great deal of sympathy for Mr Ruskell’s amendment on the basis that the more we can do to create demand for heat networks, within reason, the more likely we are to secure the growth that we are all seeking in this morning’s discussion. However, I cannot suggest to committee members that the amendment is supported. There are two major reasons for that, which have been broadly touched on and which I will briefly cover.

First, amendment 153 is extraordinarily wide ranging—so much so that it is highly likely to be outwith legislative competence.

Although paragraphs (a) and (b) of subsection (1) of the amendment would act to provide limited constraints on the power conferred to require a building to connect to a heat network, it remains a wide power and there are several questions that remain unaddressed.

The fundamental question is, what would mandatory connection entail in practice? Would it require changes only to the fabric of the building, or is it envisaged that the owner of the building must also use the system? If the latter, on what terms? How are the terms of supply to be entered into and regulated? When should the mandatory connection take place? What rights might there be to alter or terminate the supply?

If it is intended to be just a duty to install the physical apparatus and infrastructure necessary for the building to be linked to a heat network, who would carry out such works and pay for them? What timescales are envisaged?

If the intention is that connection to a heat network would also require that the building use heat from the heat network, what could the local authority do in order to require that? Is it a requirement to enter into supply contracts with a heat network operator? Does the power extend to requiring heat network operators to supply heat to the building? If so, on what terms and conditions?

There is also no indication of what might make a building “suitable”, or how that might be ascertained. The power would apply to all buildings, including domestic properties, as Mr Simpson has just outlined, in a heat network zone, if they are considered to be “suitable” buildings. However, suitability does not depend on there being a building assessment report for the building, so it is not clear how a building’s suitability would be determined.

That might not have been the intention, given the reference to building assessment reports at subsection (2), but the powers that are set out in the amendment would apply to the domestic sector and to any other buildings that do not have a buildings assessment report.

I would have concerns about that not only due to the current lack of consumer protection, which we are unable to provide for in the Scottish Parliament, but due to the heat network sector having often told us that it does not want such powers to exist over residential buildings. That is because it considers that the connection of homes would have a marginal effect on the business case for a new heat network and it does not believe that that is conducive to a positive relationship with potential customers.

The amendment makes no provisions for building owners to make representations to inform or challenge the decision of a local authority. It would seem reasonable to me that building owners and businesses should be allowed to put forward their views on how their own building might be heated. For example, that might be to highlight that there is already a functional heating system in the building or that the building already uses renewable heating, which around 50 per cent of the non-domestic sector does, if we include the use of electric heating.

It is not clear from the amendment what is meant by “competitive cost”, nor does it indicate how a local authority might ascertain what is a “competitive cost” for a building.

What is considered to be a “competitive cost” is subjective, too. It is likely that there would be disagreement between the owner of the building required to connect and the heat network operator. The local authority might also have a different view.

Furthermore, it is not clear whether the power to require connection would impose duties on heat network operators to extend their networks to suitable buildings and whether it would require heat network operators to supply heat at a “competitive cost”.

I know that Mr Ruskell is looking for guidance on what the Government will do to tackle the issue. Notwithstanding the challenges that I have set out, we are committed, as set out in our climate change plan update, to consult this year on the use of existing powers to strongly encourage anchor building owners in heat network zones to connect to and use local schemes. That includes, for example, the potential use of section 15 of the Non-Domestic Rates (Scotland) Act 2020 to create reliefs for those buildings that connect, or supplements for those that do not. The latter might be similar to the non-connection charge that operates in Denmark, as the committee will be aware.

I appreciate that the commitment to consult later this year sits outwith the timescales of the bill, and comes after the Scottish Parliament elections in 2021, but I am sure that members will agree that the introduction of changes, such as the potential ones that I have suggested, warrant extensive consultation with building owners before such provisions are introduced.

Finally, I note that the bill already seeks to reduce investment risk and reduce overall costs by creating heat network zone permits, which will provide a chance to compete to develop and operate a system in a prime area with information and confidence about the customer base in it, as well as enabling the pipework costs to be repaid in line with their long-lived use; and by providing new rights to licence holders under part 6, which will quicken the construction of networks and reduce the significant civil engineering costs that are faced.

It is important that we strike the right balance between supporting and enabling heat network development and consumer protection. I regret that I am not sure that Mr Ruskell’s amendment strikes that balance at this time.

Although I am sympathetic towards the intention behind Mr Ruskell’s amendment, I do not believe that it offers a workable or legally robust solution to the issue of demand risk. In a sense, in seeking perfection, it potentially puts at risk, and gets in the way of, achieving a good outcome; it puts that in jeopardy.

I strongly urge members not to support Mr Ruskell’s well-intentioned amendment 153 in the interests of the passage of the bill as a whole.

The Convener

I call Mark Ruskell to wind up, and to press or withdraw amendment 153.

Mark Ruskell

Amendment 153 is a classic probing amendment, and some of the contributions are welcome. There is a debate about what a “suitable building” is. I think that it is quite clear that there will be anchor buildings—this applies to the owners of anchor buildings, too—that are suitable, that are wasting heat and that need to be connected to the heat network. How we address and encourage that—in some cases, strongly encourage—those building owners to connect in is critical.

There are different ways to do that. The minister reiterated the possibility of using rates relief as a driver to nudge building operators towards playing ball and connecting with a heat network—or at least considering it. Consideration is needed of what the industry requires to de-risk investment. If there are long-term concerns about whether anchor building operators are going to play ball and be part of the consideration of heat network zones, that creates uncertainty, which could impact on the bankability of projects with investors. With that in mind, I am sure that there will be more to come from the Scottish Government, and the issue could be considered in the heat action plan as well. On that basis, I will not press amendment 153.

Amendment 153, by agreement, withdrawn.

Sections 41 to 44 agreed to.

Section 45—Guidance

Amendments 65 and 66 moved—[Paul Wheelhouse]—and agreed to.

Section 45, as amended, agreed to.

Sections 46 to 49 agreed to.

Section 50—Heat network zone permit: revocation

The Convener

The next group of amendments is entitled “Revocation of heat network zone permits: process and appeals”. Amendment 67, in the name of the minister, is grouped with amendments 68 to 72 and 127.

Paul Wheelhouse

The amendments in the group are similar to my amendments in groups 6 and 9 on appeals against revocation of heat networks licences and heat network consents, respectively. Members will recall that the amendments sought to address the committee’s recommendation to introduce the opportunity for licence holders to appeal in the event of their licence being revoked by the licensing authority. The committee’s recommendation did not extend to revocation of heat network zone permits.

Section 46 of the bill allows for a person other than the Scottish ministers to be designated as the permit authority. In the light of that, and for consistency throughout the bill, it is right to amend the bill so that regulations can be made to allow for appeals in the event of the permitting authority’s revoking a zone permit.

That would be achieved primarily by amendment 71, which will create for the Scottish ministers a new power to create an appeals process for revocation of heat network zone permits. It is a broad power, but the proposed new subsection (2) clarifies a number of matters that such regulations and, therefore, such an appeals process, would feature. Those include: who may appeal; why an appeal may be brought; how appeals are to be lodged, and the information that will be required; and how decisions are to be determined. Those regulations would also be able to specify who would hear appeals.

Section 46 makes it clear that the Scottish ministers would act as the permitting authority for the purposes of part 4 of the bill, unless they were to designate, by regulations, another person to take on that function. We have not yet formed a view on whether another body should take on that role, and we plan to consult on that as part of our consultation on the secondary legislation later this year, subject to the passage of the bill.

However, given that the possibility exists that the Scottish ministers would not, or would not always, take on that function, as with heat networks licences, it seems to be appropriate that powers exist so that appeals against revocations may be heard by the Scottish ministers. I trust that members welcome the proposal, in the light of the committee’s views about there being a deficit in terms of an appeals process in relation to heat networks licences.

Amendment 72 would enable regulations to be made in respect of compensation in consequence of revocation of a heat network zone permit in certain circumstances. Proposed new subsection (2) specifies a range of matters that the regulations may include, such as

“the circumstances in which compensation is payable, ... the calculation of compensation, ... the procedure”

for

“claiming compensation”

and

“the review”

and appeal of

“decisions made under the regulations.”

Amendment 72 would not only introduce the opportunity for compensation to be paid to those who have had their zone permit and, in turn, their right to operate a heat network in the relevant zone removed, it would also ensure consistency with section 25, which enables compensation to be paid to heat network operators or developers that have had a heat network consent revoked.

Amendment 127 would amend section 81 of the bill so that the regulations that may be made about

“Compensation on revocation of heat network zone permit”

are added to the list of delegated powers under the bill that are subject to affirmative procedure. That is in keeping with the procedure that is to be used for other regulation-making powers in relation to compensation within the bill, at sections 25, 63, 67 and 75.

Section 50 currently provides that a heat network zone permit may be revoked in the event of a heat networks licence or a heat network consent being revoked. Amendment 69 would enable the circumstances in which a zone permit may be revoked to be extended by regulations. That is felt to be necessary as a precaution to cover certain situations—for example, when the basis on which an application for a permit was granted later turns out to have been inaccurately represented.

Section 50 also ensures that there is a rigorous process in place before a zone permit may be revoked. It ensures that the permitting authority must notify the permit holder of its intention to revoke, and that permit holders have the chance to make representations against revocation before a final decision is made.

Amendments 67 and 68 would make minor drafting changes in consequence of amendment 69.

Finally, amendment 70 would allow the Scottish ministers to expand in regulations on

“the procedure to be followed in connection with the revocation of a ... zone permit”.

For example, it may be that other persons should be informed of the permitting authority’s intention to revoke a zone permit, or that a process should be set out for how representations are to be considered. In any event, the powers are to ensure that any further procedural protections that are considered to be appropriate can be set out in legislation, rather than simply being administrative arrangements.

I ask members to support all the amendments in the group.

I move amendment 67.

Graham Simpson

I support the amendments, but I have a question for the minister to answer in his summing up. He says that the people who hear the appeals may not be Scottish ministers; it could be somebody else. I am guessing that he is not suggesting that a new body should be set up to hear the appeals. I do not think that we will be inundated with appeals of this nature. It is not like the planning system, in which there is a steady stream of appeals; I imagine that there would be a handful in a year. If we are not talking about setting up a new body, will the minister clarify what he is thinking of? Will it be an existing body, if it is not to be ministers?

The Convener

I ask the minister to wind up and respond to that point.

Paul Wheelhouse

Mr Simpson’s understanding of the situation is correct. We are not, at this point, planning to establish another body. The proposal merely gives us a space to consider what are the proper arrangements to put in place for that. I hope that that reassures Mr Simpson, but I will be happy to discuss the matter with him between stage 2 and stage 3, if he has more concerns.

The Convener

Thank you.

Amendment 67 agreed to.

Amendments 68 to 70 moved—[Paul Wheelhouse]—and agreed to.

Section 50, as amended, agreed to.

After section 50

Amendments 71 and 72 moved—[Paul Wheelhouse]—and agreed to.

Section 51 agreed to.

Before section 52

The Convener

The next group is on the supply of thermal energy by means of a heat network to state-funded educational buildings. Amendment 158, in the name of Liam McArthur, is grouped with amendment 159.

Liam McArthur (Orkney Islands) (LD)

Amendments 158 and 159 are, arguably, alternate amendments. Their purpose is to add emphasis and focus to the job of decarbonising Scotland’s learning estate. They do that by clearly setting out new duties as we consider how to connect schools to green heat networks as part of a bid to drive decarbonisation of the school estate. The amendments would embolden parts of the bill that already exist.

The proposals have been championed by Teach the Future, which campaigns to put the climate emergency at the centre of education in Scotland and to arm the next generation with the facts and tools that they need in order to combat the climate crisis. As part of that campaign, students are saying that all new state-funded Scottish educational buildings should be net zero from 2022, and that all existing state-funded Scottish educational buildings should be retrofitted to be net zero by 2030.

The group states:

“If our education system is to teach students about sustainability, the buildings they learn within must be sustainable”.

Indeed, many school buildings are ideally situated to work with heat network technology. The proposed approach is one that the Parliament and Scottish Liberal Democrats have taken before, recognising the public sector’s duty and responsibility to promote and show confidence in green technologies. When we were debating the Climate Change (Emissions Reduction Targets) (Scotland) Bill, I successfully made the same argument on public procurement of electric vehicles. Amendments 158 and 159 would apply similar logic.

The public sector has significant influence over green technology uptake. Not only does it hold the key in choosing environmentally friendly options for its infrastructure, but showing confidence in those options helps to normalise such ideas.

Amendment 158 goes further than amendment 159, in that it would directly import the targets of the Teach the Future campaign. 2022 is the date that has been settled on by the campaign, based on its reflections and research. The choice of 2030 reflects the interim target that was set by the most recent climate change legislation—the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019—and it is the date by which much of the work will need to have been done, if Scotland is to have any hope of meeting its commitment to net zero by 2045.

Amendment 159 simply makes it clear that the obligations in part 5 of the bill have particular relevance to the learning estate. It would strengthen existing ambitions for very little additional burden.

Beyond the obvious support from Teach the Future, WWF and the National Union of Students Scotland have also welcomed the proposed changes.

As I said at stage 1, I acknowledge and welcome the collaborative and consultative approach that has been taken by the minister in relation to the bill to date. I know that he has reservations about the proposals, but I remain happy to work with him and, indeed, with colleagues on the committee, to adjust and refine the details, where necessary. In the meantime, I look forward to hearing colleagues’ comments.

I move amendment 158.

Graham Simpson

I thank Liam McArthur for lodging his amendments. I think that they are important because they send out a signal that we are ambitious to deliver a low-carbon economy. One of the ways that we can do that is by getting our state buildings—in this case, schools—connected to heat networks.

Liam McArthur is right that his two amendments are slightly at odds with each other. Amendment 158 goes much further than amendment 159, so when he is summing up, it would be useful if he could indicate which approach he prefers.

Amendment 158 says that, from next year, all new state-funded educational institutions should be connected to a heat network, and that by April 2030, which is not that far away, all existing state-funded educational institutions should be connected to a heat network. I think that it would be possible to achieve the former. In the area that I represent, many new schools have their own renewable energy sources or are connected to a network. The ambition is not unachievable.

However, amendment 158 also says that all existing buildings should be connected. Let us have a think about that. Some schools and colleges are quite old, and some are, for example, in city centres; there is such a school just up the road from where the convener is sitting right now in Parliament. I imagine that it would be quite difficult to connect some existing buildings to a heat network. The practicalities of that ambition would present some problems.

I would like to hear what the minister and Mr McArthur have to say about that. I can see that there would be issues with amendment 158, but not with amendment 159.

Paul Wheelhouse

I appreciate the comments that have been made by my colleagues. I should say at the outset that, from what Mr McArthur has said and Mr Simpson’s sympathies, I understand the rationale for lodging the amendments. They have certainly stimulated debate.

In many respects, my views on Mr McArthur’s amendments are similar to those that I expressed when we debated Mr Ruskell’s amendment in group 13. Mr McArthur might not have heard that debate, however, because he was appearing at the Justice Committee.

I note for Mr McArthur that we will, through the work that we committed to in the climate change plan update on consulting this year on use of existing powers, seek to strongly encourage anchor building owners, which might include educational buildings and communities within heat networks, to connect to and use local schemes. We have also set out a number of provisions on how we might incentivise potential connection for non-public buildings.

I will not rehearse my concerns about the group 13 amendments, although I briefly note that proposed new subsection (1) in amendment 158 raises concerns about what the Scottish ministers are to require of those buildings, and how they can make it happen. I have some questions on which it might be useful to have Mr McArthur give some feedback.

Would ministers have to require that the necessary equipment, apparatus and so on be installed within the building, or would they need to require actual use of the system? If it were the former, there is the risk that significant sums would be spent on installation of kit that goes unused, which would be unhelpful to the local authority. I must again ask how the relationship between the building owner and the heat network operator would be regulated, if the latter were to be the case.

In the interests of moving the debate forward, I will not linger on those issues. Rather, I will raise some practical concerns about amendment 158. It would place a duty on the Scottish ministers to ensure that educational buildings connect to heat networks. It is unclear how that would be achieved, and whether it would be required if there is no local heat network available to connect to, or if the costs of creating a new network for the sole purpose of serving an educational building were to be obstructively high.

I also question why the Scottish ministers would be responsible for ensuring that all educational buildings would be connected to heat networks, given that local authorities and others within the public sector are primarily responsible for our educational buildings.

I will also highlight some technical issues in the amendments. There is no definition of “state-funded educational buildings”, which means that amendment 158 could have the unintended consequence of going beyond schools, colleges and universities. There are also questions about whether the requirements of subsection (1) of amendment 158 would apply to, for example, community centres where adult evening classes take place or other facilities where state-funded or partially state-funded education takes place. Would grant-aided schools be captured, for example?

On the face of it, amendment 159 is less concerning, given that its general effect would be to make further provision on building assessment reports that are conducted for “state-funded educational buildings”. The public sector should certainly lead by example in decarbonising its building stock, including the Scottish Government’s estate. As I outlined at the beginning of the meeting, we are keen to take forward such work through the climate change plan update, in a way that would extend not just to public buildings but to other anchor buildings.

However, my overriding concern with the amendments in group 16 is that I cannot see a compelling reason for treating the learning estate as a subsector that is somehow different from other public sector buildings. I take on board Mr McArthur’s well-intentioned comments on the educational aspects, but there is no convincing reason to create a subset of requirements for educational buildings.

I accept the well-intentioned point that schools could make good anchor loads for heat networks, in particular if they have a swimming pool attached, as some have. However, the same could be said of hospitals, leisure centres, prisons, other government buildings, local authority headquarters and so on. For that reason—in addition to my previous concerns in respect of group 13, which, I appreciate, Mr McArthur might not have heard in full—I ask him not to press amendment 158 and not to move amendment 159. I ask members not to support either amendment, if they are taken to a vote.

I would be keen to work with Mr McArthur prior to stage 3 to see whether there is a means of finding a way through the issue; at this point, I do not have a defined view of how we could achieve the outcome that he seeks. I simply reiterate that we will undertake significant work through the consultation that will follow the climate change plan update, in which I hope we could pick up the important issue that he and Mr Simpson have raised.

Liam McArthur

I thank Graham Simpson and the minister for their constructive comments. Graham Simpson referred to the importance of signalling our ambition, and the minister rightly acknowledged the need for the public sector to lead by example.

I hear, and understand, the concerns that have been expressed about amendment 158, which I accept is more challenging, and amendment 159. I apologise to you, convener, and your committee colleagues that as a result of my commitment to vote on the Defamation and Malicious Publication (Scotland) Bill in the Justice Committee, I was not able—as the minister mentioned—to listen in to the exchanges on group 13, including Mark Ruskell’s amendment.

I would be happy to be involved in discussions with the minister, Mark Ruskell and any other colleague—possibly Graham Simpson—about how we might move the matter forward. I recognise that there is a case for the public sector as a whole to take the lead, but I think that there is an expectation among the younger generation that we will kick-start our ambitions on heat networks, and there is no better place than the learning estate in which to exemplify that, although I do not seek to hold back progress in other areas.

For the time being, I am happy not to press amendment 158 and not to move amendment 159. I will be happy to take part in discussions, as I mentioned.

Amendment 158, by agreement, withdrawn.

Section 52—Building assessment reports

Amendment 159 not moved.

Section 52 agreed to.

Sections 53 to 57 agreed to.

Section 58—Network wayleave right

The Convener

Group 16 is on network wayleave rights. Amendment 73, in the name of the minister, is grouped with amendments 74 to 84, 86 to 120, 122 and 123.

Paul Wheelhouse

Such is the length of this group that I have been caught out in trying to find my speaking note. I have now found it.

The subject of network wayleave rights was discussed at length at stage 1 following the evidence that was provided by Professor Roderick Paisley, solicitor and chair of Scots law at the University of Aberdeen, and by Mr Scott Wortley, solicitor and lecturer in commercial law at the University of Edinburgh.

As discussed during my appearance in front of the committee at stage 1 and during the stage 1 debate, we have reflected on the critique that was made of the provisions on network wayleave rights, and the amendments in this group seek to deal with many of the issues that have been raised.

Amendment 81 provides that a network wayleave right constitutes a real right. Amendment 99 will remove provision about persons who are bound by network wayleave rights that is no longer necessary as a result.

Amendments 73, 74 and 76 will make refinements to the description of the right that is being conferred. Amendment 73 provides that the primary right is a right for a licence holder

“to convey steam or liquids in land for a purpose connected with the supply of thermal energy by means of a heat network by the licence holder.”

Amendment 74 provides that the rights that are currently listed in sections 58(1)(a) and 58(1)(b) become rights ancillary to the primary right, and amendment 76 will insert a new paragraph to avoid having a closed list of ancillary rights, which will allow the licence holder to carry out any necessary or incidental works.

We have also reflected on the evidence that was given about the possible ways in which network wayleave rights can be created. Amendment 77 provides that, in addition to a network wayleave right being created by agreement between the owner of the land and the licence holder, it may be created by unilateral grant of the owner.

Amendments 86, 90, 92, 93, 94, 97, 98, 100 and 122 are consequential to changes that will be made by amendment 77, to reflect that a network wayleave right could also be conferred on a licence unilaterally.

Amendment 86 includes a definition of “owner”, and consequential amendment 122 will adjust the interpretation provisions in the bill as a result.

Amendment 78 refers to the possibility of a network wayleave right being created by positive prescription. That is as a result of amendment 80, which applies section 3(2) of the Prescription and Limitation (Scotland) Act 1973 with the necessary modifications. That follows recommendations from Professor Paisley in his written evidence to the committee.

Amendments 79 and 88 have been lodged to enable development conditions to be imposed as part of the creation of a network wayleave right. Amendment 79 will ensure that that applies to voluntary network wayleave rights that are created by a wayleave document, and amendment 88 provides that a necessary wayleave may also include such a condition. A development condition is a condition that would restrict or regulate the development or use of the land, as may be required to prevent interference with the exercise of the network wayleave right, particularly to prevent damage to apparatus or disruption to service.

Amendment 82 provides that the installation of apparatus over property does not confer ownership of the heat network apparatus on the owner of the land. That will avoid the possibility of a licence holder losing ownership of apparatus as a result of placing it in or on the land.

I turn to the subject of notices that are associated with necessary wayleaves. Before applying to the Scottish ministers for a necessary wayleave, the licence holder is first to seek a network wayleave right from the owner. The normal position is that the licence holder is required to give notice to the owner of the land setting out the licence holder’s request to acquire a network wayleave right. However, there might be cases in which the licence holder cannot ascertain the name or address of the owner of the land after reasonable inquiry. Amendment 91 provides that, in such cases, the licence holder is to give notice in such form and manner as may be specified by the Scottish ministers by regulations. Amendment 89 is a technical drafting change to accommodate amendment 91.

Amendment 95 will make a consequential change that is needed as a result of amendments 77 and 91. Amendment 96 will also make a consequential change that is needed as a result of amendment 91.

The registration of wayleave rights is one of the key issues that was discussed during the committee evidence sessions. Professor Paisley recommended in his evidence that wayleaves should be registered in the land register of Scotland to make them real, principally for the purpose of transparency. However, Mr Wortley highlighted that not registering in the land register would be consistent with the general approach to wayleaves in other contexts, and he noted that requiring network wayleave rights to be registered might raise issues. For instance, there could be issues in relation to who would be required to bear the costs of registration.

I considered that matter in the context of the aim of the bill, which is to help to stimulate deployment of heat networks across Scotland and meet our ambitious emission reduction and fuel poverty targets. Amendment 104 will provide the Scottish ministers with a power to make provision by regulations

“about the registration of network wayleave rights.”

In particular, the regulations may make provision about

“how a network wayleave right is to be registered”,

“who is required to establish and maintain the register”

and

“any fees payable in connection with the registration”.

That will provide flexibility and allow time to consult the industry about the best solution. I trust that that approach is satisfactory and that it offers the best way forward to meet the aims of the bill, as well as addressing the comments that were made at stage 1, notably by Professor Paisley and Mr Wortley.

Amendment 101 makes provision for the variation of network wayleave rights. It provides that a network wayleave right may be varied only by agreement between the parties or by the Scottish ministers following an application by the licence holder or the owner of the land.

Variation of a network wayleave right might have consequences for an owner or occupier of land, and amendment 102 will therefore insert a new section that provides that compensation may be recovered from the licence holder in respect of the variation. That would occur where the Scottish ministers grant a variation of a network wayleave right following an application by a licence holder

“so as to place or increase a burden”

on the owner or occupier.

Amendment 103 provides that a network wayleave right

“may only be discharged by the licence holder entitled to the benefit of the network wayleave right, either—

(a) by agreement with the owner of the land, or

(b) unilaterally.”

It also provides that

“A licence holder must discharge a network wayleave right”

if it relates to

“apparatus that has ceased to be used for the purposes of a heat network.”

Amendment 105 relates to the requirement to remove apparatus when notified. It will require a person who has the right to remove all or part of a heat network apparatus to give notice to the licence holder if they wish to enforce the removal. That is most likely to occur because there is no valid network wayleave right in respect of the installation of the apparatus. Removal of apparatus that is still in operation clearly has potential to disrupt or interrupt the supply of thermal energy by the heat network. The existing provisions of sections 62(6) to 62(8) are unaffected; they will enable the licence holder to apply

“for the grant of a necessary wayleave”

or submit

“a compulsory purchase order”

to establish a right to retain the apparatus in place.

I have lodged a number of technical amendments that are largely consequential to the changes that I have outlined. Amendments 75, 87, 110 and 111 are technical drafting changes to clarify what is meant by references in the bill to the placement of apparatus in land. Amendments 83 and 84 adjust the definition of heat network apparatus to make it clear that it

“includes any structure for housing, or for providing access to, such apparatus”.

Lastly, amendments 106 to 109, 112 to 120 and 123 remove unnecessary references to persons acting on behalf of licence holders and make necessary consequential changes.

I ask members to support all the amendments in the group.

I move amendment 73.

The Convener

Thank you, minister. There are no questions from other members, but I have a question. Are you convinced that the amendments that you have just gone through will fulfil their purpose of simplifying and clarifying the particular aspect of wayleaves in the bill? I am sure that you will be able to respond to that without having to repeat everything that you have said. I ask you to respond to that and wind up on the group.

Paul Wheelhouse

We believe that we have provided suitable clarity but, equally, I will welcome engagement with members after stage 2 if they believe that there are matters that require further clarity.

Amendment 73 agreed to.

Amendments 74 to 84 moved—[Paul Wheelhouse]—and agreed to.

The Convener

The next group is on road works powers of certain holders of heat network licences. Amendment 85, in the name of the minister, is grouped with amendment 121.

Paul Wheelhouse

The amendments that I have lodged in this group relate to the additional rights that certain licence holders will be granted to carry out road works.

Amendment 121, which I committed to lodging at the introduction of the bill to the Scottish Parliament, will serve the important purpose of placing certain licence holders on the same level footing as other statutory undertakers by granting them road works rights.

As is set out in our policy memorandum, research by the Energy Technologies Institute found that civil engineering, such as the digging of trenches and the laying of pipes, accounts for roughly 40 per cent of a network’s capital costs. Those costs can be reduced through granting greater utility rights to heat network developers, and that in turn can reduce costs for consumers and facilitate investment in projects.

To develop amendment 121, we worked closely with colleagues at Transport Scotland and the Scottish Road Works Commissioner, and we consulted the wider road works policy development group, which includes organisations such as the Society of Chief Officers of Transportation in Scotland, representatives of major utility companies, selected roads authorities and trade bodies such as Street Works UK. That work was essential to ensure that any new statutory undertaker rights were aligned with existing practices of the road works community.

Amendment 121 will insert a new section into the bill that provides that those licence holders with road works rights may carry out road works. That will include works that involve opening or breaking up a road; opening or breaking up a sewer, drain or tunnel under a road; or tunnelling or boring under a road. It will also include works that involve removing or using all earth and materials in or under a road for the purposes of installing heat network apparatus in a road; inspecting, maintaining, adjusting, repairing, altering or renewing heat network apparatus that is installed in a road; changing the position of heat network apparatus in a road; removing heat network apparatus from a road; and other works that might require such works.

The meaning of “road works” is consistent with that in part 4 of the New Roads and Street Works Act 1991, meaning that a licence holder with those powers will be a statutory undertaker for the purposes of that part, and licence holders will have to comply with the obligations under that part in relation to the carrying out of the road works. That includes the giving of notice, inclusion of the works in the road works register, and the application of the Scottish Road Works Commissioner’s guidance.

Amendment 121 also includes provisions for the placing of any structures for housing any other heat network apparatus on, over or along a road. Additionally, it clarifies the procedure for opening or breaking up roads that are not public roads. The provision is modelled on the current practices of electricity utilities and it requires consent from a road works authority unless the works are emergency works.

I draw the committee’s attention to the fact that powers to carry out road works will be awarded only to certain licence holders who pass relevant additional checks to ensure that they meet the statutory undertaker obligations such as being able to reinstate roads to their previous condition. All remaining licence holders will be able to carry out road works by obtaining permission under section 109 of the New Roads and Street Works Act 1991.

Amendment 121 addresses concerns that were raised during the consultation, but also in responses to the committee. SCOTS noted:

“whilst statutory powers function well for large utility companies, they have been less successful for smaller operators. For example, they are granted to all holders of electricity generator licences but small wind farm operators are generally not set up to exercise these powers as they would only normally install apparatus once and are better suited to applying for permission from the roads authority under section 109 of the New Roads and Street Works Act.”

In effect, the amendment will limit the number of licence holders that are granted road works powers as it requires that those rights will have to be specified in their licences. We will work with the prospective licensing authority and the Scottish Road Works Commissioner to develop the scrutiny that is necessary to award such rights via licences to those who wish to obtain them. That will be necessary to ensure that companies have sufficient financial capacity and knowledge to comply with the existing practices of other statutory undertakers in Scotland.

I also draw the committee’s attention to the issues of placement of pipework and decommissioning of heat network apparatus in public roads. We have considered those concerns and agreed that they can best be dealt with through subsequent guidance and secondary legislation.

Amendment 85 is a consequential amendment to clarify the definition of land in the context of the network wayleave rights in section 58 and confirm that, in this instance, the land does not include the roads. That is deemed necessary in the light of amendment 121. I urge members to support both of my amendments in the group.

I move amendment 85.

The Convener

Thank you. It appears that the only question will be from me. Has consideration been given to the issue of roads being opened multiple times by various companies? Will there be something, perhaps in guidance, that looks to minimise that in order to minimise both environmental waste of resources and disruption for people who use the roads and pavements?

Paul Wheelhouse

That is an important point, convener. We all recognise that frustrating situations occur in that regard. I understand that the matter is covered in the Scottish Road Works Commissioner’s guidance, but we can certainly ensure that it is reflected in any guidance that is issued in relation to its application in respect of heat networks. We will ensure that that important point is emphasised in order to reflect the committee’s views.

The Convener

Thank you. Do you need to wind up on the group?

Paul Wheelhouse

I am happy to leave it there.

Amendment 85 agreed to.

Amendments 86 and 87 moved—[Paul Wheelhouse]—and agreed to.

Section 58, as amended, agreed to.

Section 59—Acquisition of necessary wayleave

Amendments 88 to 98 moved—[Paul Wheelhouse]—and agreed to.

Section 59, as amended, agreed to.

Section 60—Persons bound by network wayleave rights

Amendment 99 moved—[Paul Wheelhouse]—and agreed to.

Section 60, as amended, agreed to.

Section 61—Assignation of network wayleave rights

Amendment 100 moved—[Paul Wheelhouse]—and agreed to.

Section 61, as amended, agreed to.

After section 61

Amendments 101 to 104 moved—[Paul Wheelhouse]—and agreed to.

Section 62—Requirement to move apparatus when notified

Amendment 105 moved—[Paul Wheelhouse]—and agreed to.

Section 62, as amended, agreed to.

Section 63—Compensation in connection with network wayleave rights

Amendment 106 moved—[Paul Wheelhouse]—and agreed to.

Section 63, as amended, agreed to.

Section 64—Power to carry out survey

Amendments 107 and 108 moved—[Paul Wheelhouse]—and agreed to.

Section 64, as amended, agreed to.

Section 65—Power to enter land to replace or repair apparatus

Amendments 109 to 118 moved—[Paul Wheelhouse]—and agreed to.

Section 65, as amended, agreed to.

Section 66—Restrictions on powers of licence holders

Amendment 119 moved—[Paul Wheelhouse]—and agreed to.

Section 66, as amended, agreed to.

Section 67—Compensation for damage or disturbance

Amendment 120 moved—[Paul Wheelhouse]—and agreed to.

Section 67, as amended, agreed to.

After section 67

Amendment 121 moved—[Paul Wheelhouse]—and agreed to.

Section 68—Interpretation of Part 6

Amendments 122 and 123 moved—[Paul Wheelhouse]—and agreed to.

Section 68, as amended, agreed to.

Sections 69 to 76 agreed to.

After section 76

Amendment 154 moved—[Maurice Golden]—and agreed to.

Before section 77

Amendment 142 moved—[Mark Ruskell]—and agreed to.

Amendment 155 moved—[Maurice Golden].

The Convener

The question is, that amendment 155 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Golden, Maurice (West Scotland) (Con)
Lindhurst, Gordon (Lothian) (Con)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Simpson, Graham (Central Scotland) (Con)

Against

Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)

The Convener

The result of the division is: For 4, Against 4, Abstentions 0. I exercise my casting vote in favour of the amendment.

Amendment 155 agreed to.

Section 77—Fees for applications etc

Amendments 124 and 125 moved—[Paul Wheelhouse]—and agreed to.

Section 77, as amended, agreed to.

After section 77

The Convener

We turn to the final grouping. Amendment 156, in the name of Graham Simpson, is the only amendment in the group.

Graham Simpson

I shall be brief, because amendment 156 is itself brief and straightforward.

When we pass legislation, we often impose costs on other bodies. In this case, councils would be affected. Amendment 156 says, very simply, that

“The Scottish Ministers must prepare a strategy setting out the costs to local authorities in relation to their duties under this Act.”

I do not think that anyone could possibly disagree with that. It also says that they

“must set out the approach”

that they

“intend to take to fund”

councils

“to fulfil their duties under this Act.”

It is entirely right that councils should be given help if costs are imposed on them by our passing legislation. I see nothing controversial in amendment 156, so I intend to press it.

I move amendment 156.

The Convener

No member has indicated that they wish to speak on amendment 156. I invite the minister to do so.

Paul Wheelhouse

Resourcing of local authorities is an important topic, which we discussed at stage 1.

The financial memorandum sets out estimated costs for the regulatory measures that the bill seeks to introduce. Some of the amendments that we have discussed today, such as those in relation to heat network consents, will place additional duties on local authorities. After stage 2 the Scottish Government will update the financial memorandum to take account of any relevant amendments that have been agreed to.

The financial memorandum also sets out the Scottish Government’s proposed strategy for resourcing local government. It makes clear our commitment to funding local government in areas such as heat network zoning, noting that

“these costs will be covered by the Scottish Ministers and therefore it is not expected to bring an additional burden to local authorities”.

I acknowledge that the costs that have been set out are estimates and that the exact level of funding and the mechanism for distributing it have not yet been determined. Those matters will be subject to discussion with local government colleagues as we develop the regulations to give effect to the new regulatory regime. I remain very much committed to ensuring that appropriate funding is in place.

Graham Simpson’s amendment 156 is no doubt well intentioned, but I remind him that the Scottish Government has a strong partnership arrangement with local government. Developing and maintaining a close and constructive partnership between central and local government has always been a Scottish Government priority, so that we can respond quickly and positively to the needs of councils and their communities. That partnership also enables us to jointly determine the costs of any new duties and how they will be distributed fairly.

The strategy setting out the costs and funding arrangements that Graham Simpson’s amendment proposes would not only duplicate that agreement but it would dictate how local government should spend the funding that the Scottish Government provides, which runs entirely counter to the spirit of our current partnership.

I appreciate the reasoning behind amendment 156. I recognise that it is well intentioned and that the member is concerned about the resourcing of the new duties that the bill will create. I agree that we need to have a dialogue and ensure that we get that right. I am happy to put on the record my commitment to working with local government partners to ensure that local authorities are appropriately resourced to deliver the new functions that we are asking them to undertake. However, I do not believe that that needs to be put into statute, because it would cut across existing agreements between the Scottish Government and the Convention of Scottish Local Authorities and bind the hands of a future Administration, which should be free to determine and work collaboratively with local government on how funding is allocated.

To further reassure the member, I note the Scottish Government’s support for the general principles of Andy Wightman’s member’s bill, the European Charter of Local Self-Government (Incorporation) (Scotland) Bill. If passed, that will introduce a duty on the Scottish ministers to act compatibly with the charter articles. One of those articles—article 9(2)—states:

“Local authorities’ financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.”

All that points towards amendment 156 not being required. As I have set out, in line with the resourcing strategy that is outlined in the financial memorandum, the Scottish Government remains committed to working with local government to ensure that adequate resourcing is in place. The amendment is not required because it will create unnecessary duplication, is not in line with the existing arrangement between the Scottish Government and local government, and will bind the hands of a future Administration.

I am sorry that I cannot be more supportive, but I ask Graham Simpson not to press amendment 156. If he presses it, I urge members not to support it, for the reasons that I have given.

The Convener

I call Graham Simpson to wind up the debate and to say whether he wishes to press or withdraw amendment 156.

Graham Simpson

The minister, having been so collaborative up to this point, departs from that approach and has not come up with a single argument against my suggestion. He talks about existing agreements, but there is some dispute about that. Every single year, COSLA and the Scottish Government butt heads over the amount of funding that goes to councils.

The minister talks about Andy Wightman’s bill, but that has not yet become law. That is not an argument against amendment 156. If that bill was law, the minister might have a point, but it is not law and it has not been passed. It might well be passed—I hope that it is—but it has not yet gone through.

My amendment 156 is sensible. It merely says that, if we are to impose costs on councils, we should set out the strategy for that and say how we intend to fund them. There is nothing controversial about that. The minister has not even offered to work with me on the issue, which is unusual, as he has offered to work with members in relation to other amendments throughout stage 2. As far as I can see, he has not come up with a single argument against amendment 156, so I will press it.

The Convener

Let us see whether the amendment is controversial or not. The question is, that amendment 156 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Golden, Maurice (West Scotland) (Con)
Lindhurst, Gordon (Lothian) (Con)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Simpson, Graham (Central Scotland) (Con)

Against

Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)

The Convener

The result of the division is: For 4, Against 4, Abstentions 0. I exercise my casting vote in favour of the amendment.

Amendment 156 agreed to.

Sections 78 to 80 agreed to.

Section 81—Regulations

Amendments 126 and 127 moved—[Paul Wheelhouse]—and agreed to.

Amendment 143 moved—[Mark Ruskell]—and agreed to.

Amendments 128 and 129 moved—[Paul Wheelhouse]—and agreed to.

Section 81, as amended, agreed to.

Section 82 agreed to.

Section 83—General interpretation

Amendments 130 to 133 moved—[Paul Wheelhouse]—and agreed to.

Section 83, as amended, agreed to.

Section 84—Commencement

Amendments 144 and 157 not moved.

Section 84 agreed to.

Section 85 agreed to.

Long title agreed to.

The Convener

That ends stage 2 consideration of the bill. The bill will now be reprinted as amended at stage 2, and the amended bill will be published on the Parliament’s website at 8.30 am tomorrow.

The Parliament has not yet determined when stage 3 will be held. Members will be informed of that in due course, along with the deadline for lodging stage 3 amendments. In the meantime, stage 3 amendments may be lodged with the clerks in the legislation team.

The committee will now move into private session.

The Presiding Officer (Ken Macintosh)

The next item of business is stage 3 proceedings on the Heat Networks (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2, the marshalled list and the groupings of amendments.

As usual, the division bell will sound and proceedings will be suspended for five minutes for the first division of the afternoon, and there will be a one-minute vote on any division. Members who wish to speak in the debate on any group of amendments should press their request-to-speak button as soon as I call the group.

Section 2—Requirement for heat networks licence

The Presiding Officer

Amendment 5, in the name of Paul Wheelhouse, is in a group on its own.

The Minister for Energy, Connectivity and the Islands (Paul Wheelhouse)

Part 1 of the bill creates a licensing system for those who are supplying thermal energy by means of a heat network. That is crucial, as it will ensure that those who are supplying the essential service of heat and, in some cases, hot water via a heat network are solvent, skilled and fit and proper persons.

The system will also provide for the imposition of licence conditions, so that networks are developed and maintained to the highest standards. As such, section 2 makes it an offence to supply thermal energy via a heat network without a licence. On reflection, I believe that it would be appropriate to insert a “reasonable excuse” defence for that offence, which is what amendment 5 will do. Allowing for a defence of reasonable excuse will ensure that, for example, we do not penalise people in the event that a company reorganisation inadvertently means that a licence is no longer in the name of the company that is supplying heat.

There may be other cases in which specific circumstances mean that an offence is committed unintentionally. Of course, it would be for the courts to determine what is a reasonable excuse for supplying thermal energy via a heat network without a licence. However, at this stage, I trust that members agree that, rather than create a strict liability offence, it is proportionate to allow a defence to be made when it can be shown that the person in question has a reasonable excuse.

I move amendment 5.

Amendment 5 agreed to.

Section 5—Heat networks licence applications

The Presiding Officer

Group 2 is on the just transition principles. Amendment 3, in the name of Claudia Beamish, is grouped with amendment 4. I call Alex Rowley to move amendment 3 and to speak to both amendments in the group.

Alex Rowley (Mid Scotland and Fife) (Lab)

Amendments 3 and 4 seek to embed the just transition principles throughout the bill. The amendments refer to just transition principles as set out in section 35C of the Climate Change (Scotland) Act 2009. The principles describe the importance of equity in taking action to reduce net Scottish emissions of greenhouse gases and require that that is done in a way that supports

“sustainable jobs ... low-carbon investment and infrastructure”,

that engages

“with workers, trade unions, communities”

and others, that

“creates decent ... and high-value work”,

and that

“contributes to ... sustainable economic approaches which help to address inequality and poverty.”

Amendment 3 would add to sections 5(3) and 5(4). Section 5(3) provides that the licensing authority may grant a licence application only

“if it is satisfied that the applicant has the ability to perform”

the licence activities.

Section 5(4) requires the licensing authority to “have regard” to certain matters in so far as that is relevant in making that assessment. Amendment 3 would add to those provisions the applicant’s ability to operate a heat network in a manner that

“takes account of the just transition principles”.

Amendment 4 would add to section 76A, on the heat networks delivery plan. The amendment would require the just transition principles to be considered by the Scottish ministers when preparing, reviewing and revising the heat networks delivery plan and when reporting to the Parliament on the plan. Embedding the just transition principles at those stages and at the heart of the network’s development would ensure that the benefits of the networks would not come at the expense of equity. In fact, the multiple benefits and opportunities for local people could be seized.

The shortcomings of capturing fair work in the renewables industry have been clear to see, so putting the just transition principles in the text of the bill is meaningful. Claudia Beamish appreciated being able to refine the amendments in discussions with the minister, Paul Wheelhouse, between stages 2 and 3.

Securing a just transition remains the key goal of Claudia Beamish and the Labour Party in Scotland. Every step on the journey to a net zero emissions economy should be tested against the principles of equity.

I move amendment 3.

Paul Wheelhouse

In 2019, the Climate Change (Scotland) Act 2009 was amended to enshrine in law our commitment to transitioning to net zero, in line with the just transition principles. Those principles set out the importance of taking action to reduce Scotland’s net emissions of greenhouse gases in a way that supports sustainable jobs and low-carbon investment, that develops and maintains social consensus, that creates fair and high-value work, and that contributes to sustainable economic approaches that address inequality and poverty, as Mr Rowley set out.

Our commitment to those principles is unwavering. The just transition principles are at the heart of our recovery towards being a fairer, greener and more prosperous Scotland. It is right that, in lodging amendments 3 and 4, Claudia Beamish asked the Parliament to consider how those principles might be applied to the development of the heat networks sector. In its interim report, the just transition commission highlighted a heat network in Aberdeen as a good example of what is possible when equity is considered alongside the need to reduce emissions.

I am happy to support Ms Beamish’s amendments, having discussed the topic with her prior to and since stage 2, as Mr Rowley explained. I ask members to support them, too. The principles will inform the licensing system as we plan for the long-term and large-scale delivery of heat networks across Scotland.

Amendment 3 agreed to.

Section 6—Heat networks licence standard conditions

The Presiding Officer

Group 3 is on standards of service by license holders. Amendment 50, in the name of Alexander Burnett, is the only amendment in the group.

Alexander Burnett (Aberdeenshire West) (Con)

My amendments in this group and the subsequent one relate to clarity and guidance for licence holders. The points that I made about that subject at stage 2 are on the record and I see no reason to repeat them.

I did not press my amendments at that stage. I have since worked to improve the definitions and to make the amendments compatible with the rest of the bill. I am grateful to the minister and his team for assisting me to achieve that.

I move amendment 50.

Paul Wheelhouse

I thank Alexander Burnett for his positive engagement on the matter. As he indicated, as a general principle at stage 2, we tried to avoid putting standard conditions in the bill. The main reason for that was the need to retain flexibility and to ensure that, whoever the licensing authority is in the future, it has the ability to shape licence conditions as required.

Nevertheless, I recognise the desire for a reference to standards of service to be specified in the bill. Mr Burnett’s amendment will ensure that standards of service are clearly set out as a matter that the standards conditions may make provision for. I am happy to support amendment 50, as the clarity will help developers, and I encourage members to do so, too.

Amendment 50 agreed to.

Section 14—Guidance for licensing authority

The Presiding Officer

Group 4 deals with guidance for the licensing authority. Amendment 1, in the name of Maurice Golden, is grouped with amendments 2 and 51.

Maurice Golden (West Scotland) (Con)

I thank the minister and his officials for working with me on amendments 1 and 2.

The bill currently provides that the

“Scottish Ministers may issue guidance to the licensing authority about the exercise of its functions”

under part 1. Section 14(2) provides that the guidance

“may, in particular, include guidance relating to the matters mentioned in section 5(4)”,

which concerns matters for the licensing authority to have regard to in assessing an applicant’s

“ability to perform the activities that would be authorised by the licence.”

The amendments specify that the guidance may also, in particular, relate to how functions of the licensing authority should be fulfilled

“in relation to the supply of thermal energy by means of an existing heat network”.

With regard to those provisions, ministers may give the licensing authority guidance about the way in which its functions in relation to the licensing of the supply of thermal energy by existing heat networks should be carried out. Those functions include how applications for licences are to be considered and the nature of both standard conditions and of other conditions that may be imposed, excluded or modified.

The guidance will be able to define what is considered to be an existing heat network for the purpose of such guidance. The licensing authority must have regard to any guidance that is issued. Any such guidance would also be published.

I move amendment 1.

The Presiding Officer

As Alexander Burnett has indicated that he does not want to speak to amendment 51, I call Paul Wheelhouse.

Paul Wheelhouse

I thank Maurice Golden and Alexander Burnett for working with me since stage 2 to produce their amendments for today. I will turn first to Mr Golden’s amendments, which concern the important matter of how the implementation of the bill will affect existing heat networks, of which we estimate there are around 1,080 across Scotland. I know that those who are operating schemes today are eager to know, for example, whether they will have to obtain a licence and what might happen should such an application be refused. The Competition and Markets Authority has made it clear that regulation of the heat network sector is required, and the licensing regime in the bill will also provide the mechanism for decarbonising the sector. At this stage, I cannot provide the concrete guarantees that existing operators and developers seek about how they will be affected by the bill, but I can assure them that we will work with them as we develop secondary legislation to put in place the full regulatory framework that is provided for in the bill. That will ensure that the system is proportionate and that impacts are properly understood and mitigated as appropriate.

There are mechanisms already in the bill that allow exemptions to be made. Under section 3, there is a requirement to hold a heat networks li