³ÉÈË¿ìÊÖ

Yes. The legislation that was passed in the previous session of the Scottish Parliament to get the work under way was done before we knew that the United Kingdom Energy Act 2023 was coming, so we have taken account of some of the changes that took place in that. The committee will be very pleased to know that there were some areas where the Scottish and UK Governments were able to work together on useful changes to that energy legislation, in particular in dealing with some of the consumer protection issues. However, some other changes require us to perhaps reconsider some aspects of how we approach the implementation of the Scottish heat networks act. For example, in the light of the UK legislative changes, we will consider our approach to permitting and consenting and ensure that we have got the balance right. Over the course of time, there will no doubt be other legislative changes.

A critical thing that we are still awaiting from the UK Government is the rebalancing of electricity and gas prices. Whether the current UK Government makes good on that or whether we have to wait on a successor Government, we know that that is one of the critical issues that will spur not only the viability of decarbonisation of heat but its attractiveness. For example, as we decarbonise existing heat networks, some of them will shift over to using devices such as heat pumps as one of their energy sources. If those are using electricity rather than gas, that is great to decarbonise those existing networks, but the rebalancing of prices will be one of the things that are critical to making that viable and attractive to customers.

As I said, we have been exploring a number of different models for the development and operation. We think that it will be an attractive area for private investment, but we also know that there is a need for the public sector to give leadership, particularly at local level, where local authorities understand both the building stock and the energy resources that they can bring to bear. That is why they are leading on the development of LHEES. As I said, we have looked at a range of models, including direct municipal ownership and joint ventures.

Local authorities will produce their LHEES and provide them to Government. I think that they are all to be provided to the committee as well. They will be made public.

It is possible that that is an example of developers simply getting used to these technologies for the first time. I think that, as they become more familiar, basic design issues will become more familiar to developers, whether they are in the social housing sector or elsewhere.

I am not aware of having seen developments where heat pumps have been placed on balconies. I do not know whether any colleagues are able to comment on that. I have seen a number of developments where heat pumps have been retrofitted on the roofs of tower blocks, and new-build properties are now much more likely to have spaces for heat pumps, water storage and so on and to accommodate them within the design of the building from the outset. Those things are becoming pretty familiar and routine exercises for developers.

Yes. We have engaged with local authorities throughout the process, and they have had the opportunity to participate in both consultations.

I come back to the point that the new-build heat standard is just one element of a longer-term programme to decarbonise our buildings. All of that will mean changes to skill sets and capacity, whether in local authorities, developers or the wider supply chain, and doing that right through 2045 will mean that there will continue to be a need to invest not just in those skills but in new skills.

That is consistent with the fact that local authorities as well as the wider industry and stakeholders already need to continue to invest in bringing people on board over time, skilling them up, seeing through their careers and developing their skills and abilities. The long-term approach that we are taking to heat decarbonisation in general is entirely consistent with their ability to adapt.

There are several things to say on that. Most fundamentally, whatever energy system or heating system you install in a home, it has to be done to a high standard, or you will not get good operating efficiency from it. Secondly, the energy performance of the home needs to be really high to reduce demand. On the visits around the country that I have been doing, I have met constituents and other folk who live in new or retrofitted homes that have had investment in really high levels of energy efficiency, and they barely use their heating systems at all. They are the ones who are happiest about energy bills at the moment, because of the energy that they are not using.

We need good-quality installation and design. It will be important for developers to get that right as they shift away from installing gas and towards installing heat pumps. They need to ensure that they have the right kit with the right spec for the right size of home, that they are installing it properly and that they are doing that to a high standard. We need to reduce the energy consumption and the energy needs of the home through high levels of energy efficiency. Those are some of the things that we can do that are within our control right now.

One of the most fundamental things that is not within our control right now is the rebalancing of electricity and gas prices—an issue that has come up time and again. I know that the committee discussed it this morning, and the Scottish Government has raised it year after year. We have had a long-standing acknowledgement from the UK Government that it needs to do that, and several other countries have already done it. At the moment, the price that we pay for electricity is artificially linked to fossil fuel prices. That is problematic for consumers in Scotland and the price that they pay for energy; it is problematic for the transition away from fossil fuel consumption for heating that we need to see here and in the rest of the UK; and it is problematic for some energy companies and financial services companies. You were talking about green mortgages at the end of your discussion with the previous panel of witnesses, and those companies need to know that heat pumps will be a viable investment from their point of view. Running costs are every bit as critical to that as installation costs.

The rebalancing of energy prices is also important in Scotland’s context from a political point of view. We need people to recognise that the transition will be fair and just. Scotland is generating large amounts of cheap and clean renewable electricity—at least, it is cheap to generate—and we should be passing a good proportion of that economic benefit to bill payers. It requires the UK Government to finally get around to what it has committed to doing but has not yet delivered: the rebalancing of gas and electricity prices. That will be critical for running costs. However, even before that has happened, if you build homes to a high level of energy efficiency and you install a zero-emissions heating system such as a heat pump, the price will be comparable, and it can be lower in some circumstances. It is much easier with new build than with retrofit to achieve a really high level of performance.

Fundamentally, we need the UK Government to make good on its commitment to rebalance gas and electricity prices. We hope that it will be willing to listen to the Scottish Government’s point of view on how that should be done, which should be in a way that ensures that it supports the transition to zero-direct-emissions heating.

I am aware of some discussion earlier this morning about various estimates. Our view is that the impact on new-build developments will be in the region of £8,400. The calculation compared current heat pump prices with the installation of a gas boiler, and I would point out that the figure is about 3 per cent of the average purchase price of a new-build residential property.

I would also emphasise that it is based on current prices. Having visited, engaged and worked with energy companies and heat pump developers in Scotland and the UK over the past year or two, I am convinced that they are innovating and investing in research and development and that they are determined to bring—and are confident about bringing—not just more affordable but more efficient heat pumps on to the market. We will see continued innovation in that area that will reduce the cost of installation. There will probably be other ways of reducing that cost, too, as we get better at installing for energy performance and with higher fabric efficiency. As I have said, the current cost estimate is around 3 per cent of the average purchase price of a new build, and my view is that that will come down as innovation continues in that area.

I would just contrast that with the alternative. Allowing the construction of homes with conventional fossil-fuel heating systems to continue might save the developer—say, a social housing provider—a few thousand pounds on the price of a home, but it will also leave them with a higher bill to pay in the long run because those fossil-fuel systems will have to come out. Building more retrofit jobs waiting to happen will increase costs. We absolutely need investors, whether institutional investors that work with housing associations or those that sit behind the commercial housing developers, to be willing to see investment in net zero as a really good place to put their money into. We need them to be confident—and a great many are—that net zero is the way forward and a better bet in investment terms than building more retrofit jobs waiting to happen.

I think that Antonia Georgieva wants to come in as well.

We work very closely with a great many housing providers, including in the social housing sector, and we continually keep under review the amount of support that we are able to provide to them.

I think that Antonia wants to add something.

Other parallel funding streams are available. For example, Scotland’s heat network fund and heat network support unit allow those social housing providers that want to be involved in the development of heat networks to bring their projects to the point of being ready for—and accessing—investment from the Scottish Government, which is another way in which they will be able to help existing as well as new properties meet the standards that are coming in.

Yes, of course.