Talk title: Heat Networks: The Landscape in Scotland
Speaker: James Hemphill, Scottish Government
Event: CIBSE Scotland Conference 2026: Heating the Future, 27 May 2026
Video: https://youtu.be/GPKCYQe9rMk

[00:00] So, yeah, my name's James Hemphill. I'm one of the unit heads at the Scottish Government's Heat and Buildings Programme, with responsibility for heat network policy, regulation and temporarily the delivery programmes too. So, just can I firstly thank Tanja, Steven and everybody at CIBSE for letting me come and speak today. It's a fantastic chance to speak to some of the folk who'll be really involved in developing the heat networks that we so really need to see over the next 5, 10, 15, 20 years.

[00:30] Nobody's ever going to mistake me for an engineer or a building services professional, but hopefully what I can do to start today is just give you a bit of a summary, an overview of why we're here. We at the Scottish Government think that heat networks matter and what we're going to do over the next period of time to help, hopefully, accelerate their growth.

[00:55] So, everybody knows this as well as I do, so I won't dwell too much on the context and setting the scene, but I do think it's important before we dive into the role of heat networks as a technological solution, it's important we probably situate them in a certain set of circumstances that we're working in. So, Parliament has retained its net zero target for 2045 and that now also requires ministers in the lead-up to 2045 to meet a series of carbon budget emissions, carbon emissions budgets, which will get us on a good trajectory to achieving net zero by 2045.

[01:32] With the plan for meeting those carbon budgets and net zero more generally was recently set out in our climate change plan, which was published in March, and that sets out a range of new and continuing policies that we feel will get us there across all sectors of the economy. The building sector is really crucial to achieving net zero, not just because it's the third-largest cause of emissions in Scotland, but because it's going to directly impact almost all of us in our homes, in our workplaces, and our personal finances for many of us as well.

[02:06] So, it's perhaps the first sector of the economy that's really going to make a material impact and really noticeable impact as we transition to net zero. So, while that experience in climate mitigation has been the key driver for the Scottish Government in supporting heat networks to date, I think it's also really important then that we think about some of the other positive aspects that the development in these schemes can have.

[02:32] So, for example, energy security. We all know the geopolitical context that we're now working in and heat networks have such an important part with the competition. They play in, given their diverse use of fuels, their thermal storage capacity, but also as an infrastructure project, they create jobs, they create economic growth. A recent independent study that concluded for us found that at the peak of heat network build-out, we can expect a GVA addition of up to £350 million per year to the Scottish economy, alongside the creation of 9,000 new jobs each year.

[03:10] And then there's an ongoing residual contribution as well when we get into the operational and maintenance phase of heat networks, which was valued at over £135 million per year and ongoing jobs for 3,000 employees.

[03:28] So, before we achieve that, I guess you might ask, well, where are we today? And what do we know about the heat network sector in Scotland at the moment? So, like me, some of you might be surprised to know that we actually have over 1,300 heat networks in Scotland at the minute. And as we speak, they are supplying over 36,000 homes and over 3,000 non-domestic premises as well. In truth, though, those are mostly communal boilers or very small purpose-built heat networks, so like for serving farms, social housing, college or university campuses.

[04:04] But having said that, like you can see on the slide there, we have done some bigger things, Queen's Quay and Clyde Bank. We've seen a number of larger district heating schemes come forward in Scotland over the past decade or so. I'm not sure they're always quite as nice to look at as Queen's Quay, but it, and I guess some other examples have shown that Scotland is capable of mobilising the public and private sectors to work together to build at scale.

[04:30] We're not yet at the zone or city-wide scale that we would like to see and that we have seen in other European countries, but that's definitely our aim. And probably it's more than a name, actually. It's probably a necessity. So ministers have a legal duty to ensure that heat networks grow substantially over the next decade to meet an increasing proportion of Scotland's heat demand. So we really need to, not only from a technological and economic point of view want to see, and climate reduction point of view want to see these emissions reductions, there is now scrutiny on the Scottish climate.

[05:09] So we really need to see the Scottish Government's progress here because we are under legal duties to grow the sector. It's also important to say that Queen's Quay is a beautiful example of what can be achieved for district heating, but we do really see a role for shared ground loops, ambient ground loops, and smaller scale heat networks too. And we've got an example of this working really well in Paisley, where Renfrewshire Council are working with their partner at the minute to finalise a project that's displacing gas.

[05:39] And we've got two really quite large tower blocks out in Paisley. I think it's also important that we understand who's involved in heat network deployment at the moment. So 31 of the 32 council areas in Scotland have at least one heat network. They've often been developed by the local authority themselves or by the registered social landlord in these areas. And that's important to understand that there isn't a legal duty on local authorities to do this at the moment, what's driving that at the moment is probably primarily fuel poverty alleviation and making the most of opportunities that local authorities see to provide that relief from energy bills for the local citizens.

[06:20] But what we do have to support those RSLs and those local authorities at the moment is the likes of Kevin, who you'll hear from later at Scottish Futures Trust, and my colleagues at Zero Waste Scotland, who have formed a really strong collective to help and support our local authorities and RSLs to develop these schemes. So we've got some strong building blocks in place, but I guess what is it we're looking to achieve?

[06:46] What's our overall ambition for heat networks? I think it's important to say upfront we're technology agnostic. We think that heat networks should go where they make the technological and commercial sense. There will be many settings where various types of heat pumps will be much more suitable, as well as bioenergy, or even some of the electric storage heaters that we're seeing begin to have some good innovation that can help and constrain running costs for households and businesses.

[07:13] So that's why, I guess, in the last Parliament, we agreed with local government to introduce and support the Local Heat and Energy Efficiency Strategies Order of 2022. You might recognise this legislation as LHEES. So under LHEES, we asked local authorities to set out, what's your long-term plan for an entire local authority area to decarbonise the building stock? We provided guidance and a methodology to ensure that this was really evident.

[07:39] And consistent, and as part of that process, we asked the local authorities to identify potential heat network zones by considering linear heat density and the availability of local energy sources. So, all 32 local authorities have now completed their LHEES so all 32 local authorities have now completed their LHEES and we have found a collective 15.1 TWh of total heat could be provided through heat networks across Scotland, that's equivalent to about 19% of Scotland's total heat demand as it stands to day.

[08:08] Heat demand as it stands today, notwithstanding a reduction in heat demand that we would hope to see through energy efficiency and fabric improvements at the building level too.

[08:21] To give you a few examples of what was found, Glasgow found over four terawatt hours of Glasgow of heat demand by itself. As you'd imagine, Edinburgh was also found great potential too, over three terawatt hours in Edinburgh, but there was at least one opportunity in every single local authority area across Scotland, including 0.6 terawatt hours in the Scottish borders. So that I think demonstrates, look, this isn't just an urban solution, there are opportunities and potential in rural and remote areas too.

[08:54] I guess it's important to note that under the first iteration of LHEES, we were asking local authorities to identify district heating schemes only. We didn't. We asked them to look at shared ground loop or ambient heat networks too. But we have since worked with Argyll and Bute, with Dumfries and Galloway and with the Scottish Borders Councils to identify a way of, to compose a way of identifying those shared ground loop opportunities. So there's probably more potential still if we take heat networks at their broadest possible definition. But I think for me, the reason to be really clear on what the potential for heat networks in Scotland is that it's going to...

[09:33] Hopefully give some clarity and definition to building owners, who is going to be grappling with decisions soon over the following years about how do I decarbonise my building. And it gives direction to government too about where we're going to have to see heat networks deploy. You know, for example, in areas where planning or technical constraints are going to make other solutions really difficult, we can make sure that we are really targeting our support at those particular areas.

[10:03] So I need to stress that I guess what I've just run through is the technical potential for heat networks, and we think it's really promising. But the reality is that circumstances at the moment mean the majority of that potential isn't being realised at the moment, because there isn't a clear commercial opportunity at present. At the moment, I guess, similar to the rest of the UK, the upfront costs and the risks associated in heat network development requires the Scottish Government to be involved in supporting heat networks. And I think that's really important.

[10:33] I think that's really important. Heat network projects through every stage of development at present, if we want them to materialise. And to be honest, that support is really quite intensive at some point. And I would say that as far as I'm aware, it's not a sector, there's no other sort of renewable or infrastructure sector that sees the same area of support through the whole process as this sector does. So I touched on the role at LHEES to identify potential heat network opportunities, but what I would like to do is respond to that.

[11:03] I'll just briefly touch through where we go from there. So from there, we encourage local authorities to apply to our heat network support unit for pre-capital support to develop these opportunities further. So the support typically includes feasibility studies, business case support, procurement and legal advice, as well as the identification of a delivery model. And it is very tailored and bespoke to what that project needs at that particular point in time. And it can be a very iterative process. You know, we may see local authority apply to us several times to develop a robust project. We're currently supporting eight local authorities through the support unit, and we've identified several really robust projects. And then when a project is feasible, it can then apply for up to 50% capital grant from Scotland's Heat Network Fund. And that provides gap funding to ensure that the project can provide a competitive cost of heat for end users, as well as a sufficient return on investment for financers. So the Heat Network Support Unit is available, not just to allow local authorities, but also, we've also seen we're supporting private developers, registered

[12:08] Social landlords as well through that programme, where a really kind of demonstrably viable project can be identified. These policies and programmes are then supplemented by support available to building owners themselves to connect to local heat networks. The Home Energy Scotland Grant and Loan Fund, the Business Energy Scotland Loan and Cashback Scheme and our Green Public Sector Escape Institute. Both of these, are part of a multi-state decarbonisation scheme. Each allow households, small and medium enterprises and public sector organisations, respectively, to access funding and finance to connect to a local heat network project. To date, this kind of combined approach has led to large projects in Shaw Fair, Midlothian, Toray, Aberdeen, Amids and Paisley, which have demonstrated the applicability of heat networks in Scotland and started to develop somewhat a supply chain here too.

[13:02] Yes, it's worth being aware, though, that the development cycle from project identification through to commissioning isn't the whole picture. Once we have an operational heat network from January of this year, new legal requirements now apply for owners of heat networks that they must secure an authorisation from Ofgem. And that requires the operators and owners to meet minimum consumer standards.

[13:27] So that includes the likes of handling of complaints and rules over outages. So things that the gas and electricity customers, of which I'm one, have enjoyed for a long time. The authorisation system will also require network owners to ensure that they're operating efficiently through compliance with our technical assurance scheme, which will be phased in by the early 2030s. This scheme sets out minimum operational and maintenance standards to place a downward pressure on costs.

[13:57] To consumers, but also to facilitate interconnection of networks in future when we get to that stage. We've worked really closely, Ofgem and the UK government, on those standards. And they're really welcome because they close gaps that have existed in the sector for too long. And I guess ultimately threaten, if we hadn't closed them, to undermine consumer confidence and willingness to transition from gas and electricity to what we think are really beneficial systems.

[14:26] So. So very briefly, what do these programmes that I've just described look like in practice? So to take both the heat network fund first and move on to the heat network support unit. Let me briefly talk through a project that we're doing with Aberdeen City Council. So Aberdeen City Council recently received funding to decarbonise heat. The heat provided to the existing Hazelhead heat network by utilising air source heat pumps and waste heat from Aberdeen crematorium.

[14:56] And to construct a local heat network. And to build a low carbon energy centre at the new Hazelhead Academy School development. The network is going to deliver low carbon heat to Hazelhead Academy, Hazelhead Pavilion, Hazelhead Park Pets Corner, 45 retirement apartments and 180 flats. The project is expected to complete final commissioning by July. And it will reduce emissions by an estimated 37,000 tonnes of CO2 equivalent over its 40 year lifespan.

[15:24] The total heat demand from all connections is about £1,000. Looks like 8 gigawatt hours in the summer. It seems to me that this promises adequate Rapid Poweruts in dreaded facilities, up to £5. Which is really a good alternative to theiva. And the potential for future expansion as well in the scheme. Which is really a good alternative to thehea. Like Hazelhead primary school and Hazelhead gardens housing estate, which has 83 homes situated there. The existing energy centre there located in the old Hazelhead Academy will be demolished as part of the development plans for the new school campus leading to the requirement for relocation and construction of a new energy centre.

[15:56] And then turning to the heat network, Coll Columbus andadorson. Switch back over on to the P puddle. Sportsresort, football court, sports5 and boards. And also part of our budget across the islands under a new dirt road,ader Allez Stewardour Argh Extra on the alar. Support Unit. Stirling Council have a really interesting project with us at the moment, so their fourth side heat network was initially delivered in partnership with Scottish Water Horizons through the Scottish Government's Low Carbon Infrastructure Programme or LCITP. It was first of a kind in the UK because it had a mix of kind of innovative technologies, it used wastewater recovery from wastewater treatment process and that's been operational since 2019. Stirling Council received a grant from us for £50,000 for a feasibility study to explore the potential for expansion of the network. The expansion is focused on the west leg which is circled on the slide there, due to significant planned new residential and commercial developments that will take place there as part of the fourth side master plan, as well as existing public and private buildings including council offices, homeless accommodation and Historic Environment Scotland.

[16:55] By expanding the network, what the council is hoping to achieve is an increase in the ratio of renewable heat used and to improve the overall carbon performance of the network. The study provided a strong technical and economic case for the network expanding and demonstrated for capex of just over £4 million, the preferred scenario was identified that could result in a return on investment of 11%.

[17:25] Assuming grant funding from the Scottish Government. The recommended next step for this project is to move to outline business case and it's anticipated the project will progress to this stage and onto construction in the near future.

[17:39] But I guess we know, and you out there will know too as well as we do, that we're not seeing the sort of level of activity that we want to see and that we need to see. This is largely driven by financial and economic realities and conditions out there, so behind me is a very basic sort of business model for a heat network. You can see that there's very significant capital expenditure in early years before revenues start to come online and even then it's going to take many years to recoup that initial capital and operating costs are also higher than we would like to see.

[18:13] So we're trying to address both capex, opex and revenue through arranging new policies. On capital costs we've committed to extending Scotland's heat network fund to 2030 and we understand that's starting to provide more confidence to larger projects that will have longer lead-in times because we can offer a bit more flexibility with that longer lifespan for that programme. But we're also consulting on proposals for a new licensing system for heat networks where operators will voluntarily be able to come to us and apply for rights such as compulsory purchase powers, way leaves and access to the roads, which should hopefully reduce the risk involved in those earlier years and start to get revenue to accrue earlier than is happening at the moment. And then on operating costs to be honest we've got limited powers in this space but we are working with the UK government to make the case for rebalancing the policy costs from electricity to gas bills and not in the non-domestic sector in the same way that we recently saw in the domestic sphere. But we are in the meantime considering

[19:15] How we can best make use of recoverable waste heat such as from energy from waste plants, wastewater treatment facilities or data centres and that could potentially include through new regulations too. And then to support project revenues, subject to the introduction and passage of the draft heating buildings bill which was published last November, we plan to introduce regulations that would require large public and commercial buildings to connect to a local heat network. In practice that's probably going to apply to public and commercial sector buildings when they're located within a designated heat network zone which we'll work with local authorities to identify, but also those that have significant annual heat demand, perhaps over 100 megawatt hours per year because those are the ones that really can kind of anchor a new expanded heat network project.

[20:09] So coming to a close I guess the points that we keep in mind for the rest of the day in the event are that from a technological point of view heat networks are as critical to decarbonising the building stock and in fact net zero more generally as EVs are or as other technologies are they are that critical we will not net zero without a really healthy and larger heat network sector. The good news is that hopefully we've shown that the potential for them is high here in Scotland but the reality is that the commercials are really challenging at present and we have to bear in mind that we're competing for investment not only from other countries who have got much more established frameworks for doing this but also from other renewable technologies as well which perhaps carry a wee bit less risk than we do at the moment.

[20:52] The underlying cost of energy does lie out where we're in control and it's going to be so crucial to see that rebalancing of gas and electricity costs but we will be doing everything we can in the meantime to de-risk projects as far as we can be in the powers of the Scottish Parliament in the meantime with our partners we're going to continue to be proactively involved in supporting whatever projects can continue to come forward with us to take something to materialise and I guess the message I would leave you with is that this support that I've outlined today, it's open 24-7 around the clock, we don't have application windows, this is permanently on so if you do have an opportunity that you think you could take forward, please come and talk to us we've got a really good team sitting up towards the back there who can help with that and provide great support along with Kevin and Scottish Future Trust and the folks at Zero Waste Scotland so thanks for listening I hope you found that a helpful overview of the landscape in Scotland before you get

[21:53] Much more detail on what it actually means and takes to develop a heat network project in Scotland from some of the later speakers my email address is just about to come up on the screen I'm really happy to follow up with anyone afterwards and I say that the team are too we can refer on to the team if and when we need to so I look forward to chatting with you later in the morning.