Update on Heat in Buildings Strategy and EESSH2

Last week, SFHA launched its Housing Now, Housing's Future strategic event series, with the first day focussing on Climate Change and Sustainability. The following day, the Scottish Government also published its long-awaited Heat in Buildings Strategy which proposes over 100 actions to ensure our buildings achieve zero emissions by 2045.

While this a draft strategy, which is open for consultation until the end of April, it emphasises the need for accelerated action if we are to meet Scotland’s ambitious climate targets. However, as reflected in many of the discussions during last week’s event, it is also critical that the costs of addressing the climate emergency are not borne by those least able to afford it. 

For social landlords, the draft Heat in Building Strategy confirms that, in addition to improved standards for the new homes, the path to net-zero will require significant improvements in energy efficiency in the existing stock combined with accelerated deployment of zero or low emissions heating systems. Across all tenures, this will involve converting over 1 million homes to zero or low emission technologies (e.g. heat pumps and heat networks) by 2030. New homes will also need to achieve zero emissions from heat by 2024 as already set out in live consultation.

While the proposed regulations for existing homes in the private rented sector having been delayed twice due to the pandemic, the draft strategy also confirms that a new regulatory framework will set standards for energy efficiency and zero emissions heating across all tenures between 2023 and 2025. 

We know our members have been leading the way on energy efficiency, with 56% of social sector homes already achieving an EPC band C or above compared to two-fifths (40%) in the private rented sector and owner-occupied sector (41%). Long-term targets for existing social housing have already been set out as part of EESSH2, however, the strategy confirms that this now needs to be strengthened and realigned with the Scotland’s wider net-zero ambitions. It has therefore been proposed that the formal review of EESSH2, initially scheduled for 2025, should be brought forward by two years to allow better alignment with the forthcoming Local Heat and Energy Efficiency Strategies (expected to be in place by 2023) and potential reforms to Energy Performance Certificates, following a further consultation later this year.

These changes will have important ramifications for social landlords, and, just last month, SFHA held a roundtable with members and civil servants in the Scottish Government to discuss various aspects of EESSH2. There were overall concerns about timescales, costs, the impact on tenants and making sure investment decisions are in the tenant’s best interests. While the draft Heat in Buildings Strategy now provides additional information on some of the issues raised, including the regulatory approach for other tenures and the proposed reforms to EPCs, the Scottish Government also confirmed that the EESSH2 Working Group would be re-established to explore members’ other concerns and finalise the current draft guidance over the coming months. The impact of the revised review date on the Scottish Housing Regulator’s approach to monitoring compliance was also raised in the discussions and in the responses to the recent consultation on the proposed EESSH2 indicators.   

It is vital that the shift towards net-zero also considers those who are most vulnerable and that the targets are aligned with Scotland’s ambitions to eradicate fuel poverty. The Scottish Government’s final Fuel Poverty Strategy, which has been delayed for some time, is expected later in the year, although the latest statistics show that around a quarter of households in Scotland are in fuel poverty . Recent modelling  suggesting that this may have increased to around 30% due to the pandemic. As part of the Existing Homes Alliance, we are therefore calling for funding for fuel poverty and energy efficiency for the coming year to be increased from to £145.6 million to £244 million to make sure no-one is left behind in this transition. 

For the social housing sector, the recent Infrastructure Investment Plan commits £100 million to the Social Housing Net Zero Heat Fund over the next five years. SFHA welcomes this longer-term funding, however, this is only a small proportion of the investment needed with the Scottish Government’s own modelling showing that it could cost at least £3.7 billion for only half of the social housing stock to reach the current EESSH2 target (band B Energy Efficiency Rating).

With the proposed changes to EPCs, which would require further consideration of the environmental impacts and a greater deployment of low or zero carbon heating systems, the expected costs are even higher with Air Source Heat Pumps (ASHP) estimated to cost between £9,000 and £11,000  per property and a typical Ground Source Heat Pump (GSHP) costing around £14,000 to £19,000.

There are opportunities for savings through shared systems and heat networks, however, even with these estimates, if social landlords were to provide 50% match funding, the proposed £100 million fund would be equivalent to installing around 20,000 ASHPs or 12,000 GSHPs over five years. While the target of 1 million conversions by 2030 applies to all tenures, if social landlords are to help pave the way for the private sector in the shorter term, the current funding will offer only a small contribution to this target.  

We recognise the Scottish Government’s commitment to working in partnership with the sector to understand the impact of previous funds, like the Social Housing Net Zero Heat Fund, and look forward to further discussions on the cost implications of upgrading the social housing stock following the publication of our ongoing research with Changeworks (due in the Spring). This will provide important evidence to be used in our response to the draft Heat in Buildings, the current call for evidence on the Low Carbon Infrastructure Investment Programme and our ongoing conversations with government, including the ongoing Housing to 2040 work which the Scottish Government is also due to report on later this year. 

In addition to the research with Changeworks, we would like to invite any members who would like to share any examples of new build projects with low or zero carbon heating systems which offer useful insights for the upcoming consultation on the New Build Heat Standard.

The Scottish Government is also currently consulting on its ‘Net Zero Nation’ public engagement strategy, and we would like to hear about any examples of social landlords who have been engaging with their tenants on climate change more generally.  

Please contact me at cdove@sfha.co.uk if you would like to get in touch to discuss any aspects of our ongoing work in this area or if you would like to share any examples.