Estimating the costs and impact of decarbonising heat in the public sector

Research completed: January 2025

DOI: http://dx.doi.org/10.7488/era/6366

Executive summary

Scotland’s net zero targets require the decarbonisation of all buildings, and the public sector has an important leadership role in demonstrating ways to reach those national goals. In this report we provide evidence on the costs, opportunities and barriers of decarbonising heat in Scotland’s public sector buildings. We estimate the capital cost of decarbonising all public sector buildings in Scotland by moving to clean heating systems. We also develop a potential range of cost metrics by sub-sector and relevant building type. We gather evidence on the opportunities offered by decarbonising Scotland’s public sector buildings as well as the barriers to doing so by assessing wider themes (beyond costs) including practicalities and operational considerations.

Importantly, the costs we present in this report are not capital costs to be solely met by the Scottish Government nor by the public sector at large, depending on funding models employed. These costs represent the wider investment and economic opportunity to decarbonise public sector buildings, for which the Scottish Government may have potential to leverage a range of funding models.

Findings

We found that the investment requirement to decarbonise the public sector by 2045 ranges from £3.3 billion to £8.8 billion. However, we determined that better data sources would impact the result significantly. Therefore, our estimates are to be read as a high-level indication of the likely range, rather than the realistic investment. This is due to the known limitations of main public sector building databases used in the research.

We found that targeting certain types and sizes of buildings could prove more economically effective from an emissions savings perspective. For instance, the largest 10% of buildings in the public sector have an estimated 37% of the share of greenhouse gas (GHG) emissions and could be decarbonised at an estimated cost of £2 billion.

We estimate that 63% of the investment required could be in urban environments and almost half of the investment could be in buildings constructed before 1919 (Figure 1). This is underpinned by the challenges associated with these respective building categories, such as the amount of space available for low-carbon heating equipment and additional enabling measures in old buildings.

We collated detailed qualitative data on drivers for heat decarbonisation through engagement with public bodies of all types, including NHS, education sector, local authorities and other bodies. Semi-structured interviews with stakeholders identified the following key barriers and opportunities to decarbonising heat in the sector:

Barriers

Information and data: there is no central database of public sector buildings and projects, nor knowledge-sharing of successfully delivered initiatives.

Organisational considerations: sector and estate-specific challenges were raised. For example, large and complex healthcare estates which lack space for heat pumps.

Resourcing: a lack of both staff and required skills were highlighted as constraints which increases reliance on external consultants.

Legislation: it was acknowledged that legislation drives action. However, it was also noted that competing legislative priorities could result in decarbonisation not being prioritised due to a lack of resources and budget. Additionally, a lack of clarity regarding timescales within legislation on heat and buildings presented a barrier to engaging stakeholders to mobilise decarbonisation projects.

Costs: concerns were raised around high capital costs of decarbonisation projects, as well as the operational costs associated with the electrification of heat, additional costs resulting from distribution network upgrades, and the impact all of these have on payback periods for projects, sometimes making for challenging investment decision-making.

Funding, finance and investment was the most prominently discussed theme. Budgets can often restrict multi-year projects, with many sectors unable to carry budgets from one financial year to another. Accessing public funding can be complex, with short time windows and significant resource requirements for funding applications.

Delivery: There is a lack of external supplier availability and mature supply chain to support projects. Scheduling constraints and delays limit when works can be carried out (a particular issue across healthcare and education sectors). A lack of experience (particularly in procurement), infrastructure challenges, and timescales remained as concerns for heat networks. Grid capacity concerns were noted particularly regarding associated cost and timescales. Challenges around timeframes and meeting net zero targets were raised, with a lack of certainty around how long projects could take.

Opportunities

Information and data: Participants called for an increase in the promotion of success stories, showcasing successful funding projects and knowledge sharing.

Stakeholders and partnerships: collaboration with other public sector bodies, as well as public-private partnerships could facilitate decarbonisation projects that also reap benefits for the community.

Resourcing: There is an opportunity for significant retraining and upskilling given the scale of decarbonisation works needed.

Funding, finance and investment: Participants highlighted benefits in increasing the time window for public funding applications, to allow time for project development. They suggested reductions in the complexity of applications down to high-level plans, with more reliance on trust.

Delivery: Procurement concerns were highlighted, but a new procurement framework was suggested as an opportunity to help alleviate issues, such as a lack of confidence and control. This included the suggestion of fixed-fee procurement exercises with three or four suppliers, which could be tweaked based on specific buildings. Heat networks were identified as a potential solution, particularly for large sites.

Recommendations

We have developed recommendations identifying evidence-based actions that address key barriers and opportunities for decarbonising public buildings. These are categorised into four themes:

• Improving data availability and utilisation.
• Clear retrofit and decarbonisation pathways for public buildings.
• Upskilling public sector officers to enable delivery at scale.
• Central coordination to support public bodies on key challenges.

Glossary / Abbreviations table

ASHP	Air Source Heat Pump
BEIS	Department of Business, Energy & Industrial Strategy
CHP	Combined Heat & Power
DESNZ	Department for Energy Security and Net Zero
DNO	Distribution Network Operator
EPC	Energy Performance Certificate
e-PIMS	electronic Property information Mapping Service
GDPR	General Data Protection Regulation
GHG	Greenhouse Gas
GSHP	Ground Source Heat Pump
HVAC	heating, ventilation and air conditioning
kWh	Kilowatt-hour(s)
LHEES	Local Heat and Energy Efficiency Strategy
NDA	Non-Domestic Analytics
NDEEF	Non-Domestic Energy Efficiency Framework
PFI	Private Finance Initiative
SFC	Scottish Funding Council
UPRN	Unique Property Reference Number

Introduction

Context

Non-domestic buildings represent 12% of Scotland’s final energy consumption and 7% of Scotland’s greenhouse gas emissions (Scottish Government, 2021). Of the approximately 230,000 non-domestic buildings in Scotland, 23,000 are public sector buildings. Scotland’s net zero targets require the decarbonisation of all buildings, and the public sector has an important role to play in helping to meet these statutory obligations while also demonstrating national leadership through proactive and early action.

The transition to clean heating systems will involve replacing polluting heating systems with clean alternatives and making necessary fabric and accompanying upgrades to a significant number of buildings across the public sector. The distinct nature of public sector buildings will also present unique opportunities and challenges compared to other buildings.

For example, hospitals have substantial heat demand but also strict tolerances for their operations (e.g. continuous use of critical healthcare buildings), meaning heat upgrades must meet demanding needs without disrupting critical operations. Upgrades to schools should avoid the need to decant or disrupt normal operations, such as by being carried out during holiday periods. Likewise, many public bodies hold critical assets or run nationally critical operations which have unique requirements. Part 4 of the Climate Change (Scotland) Act (2009) mandates emissions reporting for 188 Scottish public bodies, covering practically the entire Scottish public sector. There is a substantial volume and variety of buildings across these organisations, all of which will need to be decarbonised in a way that accounts for their specific needs.

Proposals for a Heat in Buildings Bill consulted upon in 2023 included the potential mandate for public sector buildings to replace polluting heating systems with clean heating systems by the end of 2038 (Scottish Government, 2023a). In 2025, the Scottish Government announced that a revised Heat in Buildings Bill will set a new target for decarbonising heating systems by 2045.

In this context, the Scottish Government recognises it is critical to understand the practical implications of these requirements. Among the chief considerations is the potential added capital (or upfront) cost of decarbonising public sector buildings.

In 2020, the Scottish Government carried out cost analysis as part of the Heat in Buildings Strategy development processes. However, this high-level analysis was intended to support policy and there is now a need for more detailed assessment of costs to inform delivery programmes and funding scheme development. The previous analysis also predates the recent inflationary, supply chain and other market disruptions during and following the Covid pandemic. Therefore, more accurate and up-to-date estimates are required. Aside from previous analysis carried out internally by the government, there has been limited cross-sector evidence on the costs and wider impacts of decarbonising heat in the public sector, although some disparate sources do exist.

Another key requirement of the Scottish Government to inform their delivery programme and funding scheme design is a better understanding of the wider barriers and opportunities which public sector buildings will face as part of this transition. The public sector has already been decarbonising buildings during the past decade and will have learned lessons through these experiences. This information has been shared among public sector colleagues and the Scottish Government via liaison and working groups. However, there has been limited to no formal investigations on these. Carrying out stakeholder engagement, gathering qualitative data and developing structured themes on these topics is important ahead of making commitments to major programmes for accelerating action.

The stakeholder engagement we carried out is not intended to be comprehensive, but rather is a snapshot that can be built upon in more comprehensive engagement as part of policy development for the Public Sector and Heat in Buildings Bill.

Project aim and research questions

This research had two primary aims:

• Estimate the additional cost of decarbonising all public sector buildings in Scotland via transition to clean heating systems. In addition to this, the research also aimed to develop a potential range of cost metrics by sub-sector and relevant building types.
• Gather evidence on the drivers of decarbonising Scotland’s public sector buildings, including the opportunities and barriers.

This is the first such detailed investigation into these subjects within Scotland. Given the relative complexity and depth of the subject areas, our objective was to provide indicative early findings which could help move the discussion forward, rather than to create representative outputs.

The scope of the research was to estimate the cost to decarbonise non-domestic public sector buildings, but not the means and methods of financing these costs. The costs we represent in this report are not capital costs to be met by the Scottish Government or potentially even capital costs to be met by the public sector at large (depending on funding models employed). The Green Heat Finance Taskforce has carried out a detailed review and highlighted funding options for all types of buildings (Scottish Government, 2023b). Further research will be required to review how these models can be utilised to fund costs estimated in this research.

Method

We reviewed existing data and literature, supplementing these findings with primary research to start to build a more cohesive picture of the costs and practicalities of decarbonising heat in the public sector. We critically assessed currently available sources and considered forthcoming sources to highlight evidence gaps and recommendations to fill these in future.

We present an abridged version of the methodology in this section; the methodology is described in detail within Appendix A – Methodology.

Initial steps

This mixed-methods research required different data collation and analysis approaches to address each of the two aims. Our research involved establishing a steering group, a literature review, and stakeholder engagement

Steering group

A steering group was established to provide critical feedback on the findings and outcomes of the research throughout the project. The steering group consisted of representatives from the Scottish Government, ClimateXChange, Scottish Futures Trust, and the Turner & Townsend research team. This group helped to define clear research questions (presented in section 3.2).

Literature review

We began with a literature review covering all relevant data sources available for both research questions. These were recorded in a database of sources and analysed for their quality and relevance based on a standardised scoring criterion. The developmental review (Templier & Pare, 2015) aimed to gather key insights and data gaps to help inform subsequent stages of the research as well as to provide references to test our assumptions. The scoring criteria helped to determine the most reliable and relevant sources to inform the remaining analysis.

Stakeholder engagement

Following the literature review, we developed a stakeholder engagement plan to define who and how we will collate the data, based on the data gaps we required. This plan detailed the people and organisations to target for engagement, a request for the type and format of information required and plan to recruit participants for the qualitative study.

Following this process, the methodology diverged into two strands. These are covered separately in sections 4.2 and 4.3.

Aim 1: Cost of heat decarbonisation

The quantitative methodology for estimating the cost of heat decarbonisation centred around the development of a cost model.

Data collection

We collected data in two broad categories, building data and cost data. The building data was collected through engagement with public bodies as well as Scottish Government sources such as funding schemes and central government datasets. For the cost data, we relied on a diversity of sources from the literature review and our own cost databases. The key sources of cost data included:

• Costs directly from Scottish public bodies we engaged.
• Cost data from programmes and projects delivered by Turner & Townsend.
• Costs from Scottish Government funding schemes.

Data quality review

The data we collected was from a range of sources and formats, which required normalisation into comparable metrics. We also reviewed and scored each data source for quality and completeness. We then prioritised and created a scoring methodology based on the data source year, relevance and cost details. This helped us determine the weighting of the sources and the way in which we used the data, including any exclusions of data sources.

Building hierarchy

For the building data, we found that there is no complete and reliable data set for public sector buildings in Scotland. The closest dataset we have is Non-Domestic Analytics (NDA), which is based on approximately 18% of Scotland’s non-domestic building EPCs which have been completed. The remaining gap is modelled and extrapolated from this base. This means that, coupled with variability of non-domestic buildings, the extrapolations can result in significant uncertainties at a building level. This NDA faces additional challenges as it is not a representative sample of the building stock because it is biased towards newer properties that have recently been built, bought, sold or had significant retrofit work completed. There is also a geographic bias in the underlying datasets as urban areas have more coverage than rural areas. To increase reliability of the data set, we were able to collate stakeholder data across the NHS and colleges to replace and test the modelled data in NDA. We were also able to rely on a previous Zero Waste Scotland benchmarking exercise which collated real data from public bodies. We collated key metrics such as heat demand and floor area.

Technology hierarchy

Before we could assign a decarbonisation cost to each building, we needed to establish the type of low carbon heating technology which would be most suitable. To achieve this, we engaged with the Scottish Government to agree a set of high-level decarbonisation pathways for the public sector building stock. This entailed four key building level outcomes:

• For buildings with low carbon heating, we recommended no change.
• Then, we mapped all public sector buildings against the most up-to-date Heat Network Zones produced by all Scottish local authorities.
• We then assigned the remaining buildings not suitable for heat network connection with an air source heat pump (ASHP).
• Ground source heat pump (GSHP) was then selected for buildings in more rural settings with high heat demand.

See Figure 14 in Appendix A for an illustration of these decarbonisation pathways.

At this stage, we also applied weightings to data sources accounting for relevance and applicability to Scottish public sector buildings. We prioritised data from stakeholders over other cost datasets.

Cost model

We then combined the building data and cost data by applying the metrics from the cost data to the buildings, depending on each technology type. We applied the high, medium and low-cost estimates developed from the data sources hierarchy. The final step then assigned the costs of a ‘like-for-like’ fossil fuel system which we removed to arrive at the ‘additional cost’ of decarbonising the buildings.

Our cost model did not include the potential costs to upgrade electricity connections or those associated with insulation or other building measures. We also have not accounted for potential discount rates associated with likely reductions in the cost of heat pumps and heat network connections in a growing market. Finally, this exercise was limited to capital costs, though we understand a more complete picture would include an assessment of operational costs along multiple scenarios of electricity and gas price futures.

We used multiple methods to test our findings. This was to examine the scale accuracy of the methodology and to show the results of the additional building data on the underlying NDA data. Finally, we carried out sensitivity analysis to determine any significant changes to the results through small deviations to certain assumptions in the model. Appendix A explores these methodologies in detail.

Aim 2: Drivers of heat decarbonisation

The qualitative methodology for reviewing the barriers to and opportunities in decarbonising heat in the public sector centred on a process of stakeholder engagement and thematic analysis.

Topic guide

In collaboration with the steering group, we developed a set of key priorities and questions. These topics covered the drivers of heat decarbonisation including barriers and opportunities in the public sector.

Participant recruitment

We carried out purposive sampling to recruit a cohort of participants in the public sector. It was important to recruit across sectors (e.g. local authority, healthcare, education, central government), which led us to multiple rounds of recruitment to obtain participants across sectors. There were several considerations, including the potential for engagement fatigue given a limited number of stakeholders in the sector and the challenge of time availability with engaged participants. We focused on energy and estates teams groups across the public sector, with support from the Scottish Government, to recruit from the pool of colleagues most informed and experienced in decarbonisation. We followed GDPR and ethical research principles, which are highlighted in Appendix A.

Data collation

We carried out eight semi-structured interviews following a topic guide, led by researchers experienced in stakeholder engagement and decarbonisation. Due to the time constraints on the target sectors, some participants couldn’t take part in an interview. Thus, we permitted written responses to be submitted. We were sensitive to overburdening public sector officers when requesting engagement as most organisations are under considerable resource stress. Interview data was recorded with permission and transcribed through Teams to allow for direct quotes and to aid analysis.

Framework analysis

The qualitative strand of the research provides illustrative rather than representative views, given the early-stage exploratory nature of the research. We relied on framework analysis (Hackett & Strickland, 2018) a dynamic qualitative analysis technique geared toward producing actionable policy outcomes with high quality standards, to provide these illustrative insights. This involved allowing themes to emerge from the data to guide our analysis.

Cost of heat decarbonisation

Public sector buildings

We began our analysis by understanding the make-up of the public sector stock in our model and the proportion that require upgrading to different low carbon heating systems. For example, buildings which already have an existing renewable or electric heating system are considered ‘decarbonised’ for the purposes of this study as they require no changes. No upgrade is attributed to them in our modelling. This breakdown is shown in Figure 2.

The top three sectors by building number are:

• Community Services^[1] with over 6,000 buildings but only 62% require changing to low carbon heating.
• Education (all levels) with over 5,000 buildings and 75% requiring an upgrade.
• Medical buildings with over 3,000 buildings and 70% requiring an upgrade.

Viewing the building stock by floor area in Figure 3 gives a clearer picture of decarbonisation requirements by floor area, providing a different lens to the subject. Education buildings are now the largest sector and 80% of the area in these buildings require an upgrade. Additionally, all sectors require over 80% of floor area to be upgraded to low carbon heating, except Community Services and Other^[2] at 75%.

The building stock identified is limited by the lack of available data sources from stakeholders that could be matched with the existing Non-Domestic Analytics database (as discussed in section 4.2.3). Where more accurate data from stakeholders was available for NHS and Colleges, it showed a potential undercounting of the floor area by a factor of a half.

Looking at carbon emissions of existing systems, the top four sectors make up 75% of emissions. Therefore, as shown in Figure 4, the relative contribution to reaching net zero by each sector differs significantly. This also further highlights the major role of the education estate in decarbonising heat in public sector buildings.

To map the heat decarbonisation route for public sector buildings, we assigned a decarbonisation route or technology to each building (Figure 14). This entailed either a low carbon heating technology or no change if the building is considered already decarbonised. Figure 5 shows the proportion of public sector buildings that would upgrade to each type of technology when the hierarchy is applied to the buildings data technologies for decarbonisation across all public sector buildings. The largest proportion of buildings are assigned for ASHP, followed by buildings with no change, heat network connection and GSHP.

When reviewing technology upgrades by floor area covered, Figure 6 shows the most significant differences being ASHP, which increases to 72% and buildings with no change required decreases to 14%. Therefore, it is important to note that while a large proportion of buildings do not require a change to decarbonise (e.g. they have existing renewable or electric heating systems), these are primarily small buildings and almost the entire public sector (by floor area) will require some form of change – 86%.

It should also be noted that the heat network connections are based on the latest heat network zoning plans available to us from local authorities in late 2024 as part of their Local Heat and Energy Efficiency Strategies (LHEES). These figures may change should local authorities update their heat network development plans.

Cost benchmarks

The literature review analysed multiple sources of costs for low carbon heating. For ASHP and GSHP, there are two ways to take benchmarks costs, firstly using the average cost per kW and viewing the low and high estimates as a window. Secondly, cost per kW as a range depending on the size in kW of the proposed heat pump.

From the literature review, the average costs per kW for ASHP and GSHP are in Table 1 and Table 2. The detailed methodology is explained in Appendix A.

ASHP £/kW	Low	Medium	High
Cost	1,331	2,401	3,395

GSHP £/kW	Low	Medium	High
Cost	4,015	4,480	5,737

Based on different sizes of heat pump, in kW, the averages are in Table 3.

Heat Pump Size (kW)	ASHP £/kW			GSHP £/kW
	Low	Med	High	Low	Med	High
0 – 20	2,343	4,227	5,978	6,425	7,168	9,179
20 – 50	1,618	2,919	4,128	4,436	4,949	6,338
50 – 100	1,464	2,642	3,736	4,015	4,480	5,737
100 – 500	850	1,534	2,169	2,331	2,600	3,330
500 +	683	1,233	1,743	1,874	2,090	2,677

The resulting benchmark figures show a reduction in cost per kW as heat pumps increase in size, in line with expected economies of scale found in cost data. These benchmarks are not intended or suitable for applying to specific projects. This is because they do not account for granularities of different sectors, building type, size and age, location, sector and other considerations we have factored into the costings in section 5.3. These variables impact the cost of decarbonisation in a substantial way. However, these benchmarks do help to understand the scale of cost to cross reference projects, develop policy, set targets, aid in scheme design, and determine the cost-benefit balance of various projects. Therefore, the most productive use of these benchmarks is at the aggregate level, ideally suited to national-level use.

Cost estimate

Overall cost estimates to decarbonise heat in the public sector in Scotland are based on the ‘marginal’ cost to install low carbon heating measures, meaning the final cost doesn’t include the cost to replace an existing fossil fuel system with a like-for-like system. For example, if the cost estimate is £50,000 to install a low carbon heating system and the cost estimate to install a new fossil fuel heating system is £10,000, the ‘marginal’ cost that makes up the cost estimate in this report is £40,000.

The overall cost estimate to decarbonise heat in the public sector in Scotland is shown in Figure 7. The medium estimate is £6.1 billion with a range between a low estimate of £3.3 billion and high estimate of £8.7 billion. The total estimate for replacing fossil fuel systems with like-for-like is £334 million. Therefore, the total cost of installing low carbon heating systems will be £334 million higher than the estimates shown in Figure 7.

Medium Estimate

The estimated range shows that there are several steps that need to be taken to gain increased certainty on the figures. Decisions yet to be made on type of technology deployment, level of additional enabling measures and installation timeline all have contributed to uncertainty.

The cost estimate can be broken down by low carbon heating technology. Figure 8 shows that through the model’s methodology, ASHP is estimated to cost £4.8 billion, with heat network connections at £761 million and GSHP at £441 million. The model does not determine the exact solution in reality but gives a picture of the proportion of costs attributed to different technologies, with ASHP being found to be the dominant cost.

Due to the assumptions in the model, these proportions could change as policy evolves. For instance, the model does not attribute GSHP to decarbonise any buildings in urban environments. However, urban education campuses, hospitals or other large estates are all suitable for GSHP, which would alter the cost proportion towards GSHP.

In order to understand the overall accuracy of scale of the methodology, we used four other methods to estimate the cost, see Appendix A for full methodology. Comparing methodologies shows that whilst there are differences in the result, the maximum deviation is £1.1 billion at the low estimate and £3.6 billion at the high estimate. Blending the four method results (Appendix A) together gives a deviation of less than £1 billion across low, medium and high estimates. This is shown in Figure 9.

The different methods highlight the uncertainty of the costs with many building-specific factors influencing the actual costs. However, the different methodologies are clear on the order of magnitude of the costs, where no methodology estimate is outside the £3.3 – £7 billion range. Better data will also reduce uncertainty, for example, with Estimate Method 5 (Appendix A), wider data from the NHS and Colleges showed the costs to decarbonise these sectors could increase from a medium estimate of £800 million to £1.5 billion for the NHS and £126 million to £300 million for colleges. Better data will improve the certainty in results also because while multiple methods were used to compare results, these were mainly based on the same underlying building data. A full list of methodology limitations and assumptions can be found in Appendix A 9.2.5.2 and 9.2.5.3.

Cost estimate analysis

We have analysed the cost estimate by Local Authority Area through both the total cost and the cost per capita in each area. Figure 10 shows the breakdown with four areas having a significantly larger overall cost estimate than the other authorities: Glasgow City, Fife, Aberdeenshire and South Lanarkshire. However, when we look at the cost per capita, this is greater for the more rural local authority areas; Na h-Eileanan Siar, Moray, Orkney Islands, Shetland Islands, and Argyll & Bute. This demonstrates the impact of rural location on cost.

Total Cost per Local Authority Area

Figure 11 shows the medium cost estimate against the remoteness variable. 63% of investment is estimated to be in Urban environments, of which 82% is for ASHP and the remainder is Heat Network Connections. The model method assumes no GSHP in urban environments. However, there will be certain buildings and cases where a GSHP is the best solution in an urban environment. The estimation of cost does not preclude GSHP being the best solution in reality.

For heat network connection, 89% of cost is estimated to be in urban environments. This aligns with heat network zoning and the principle of economies of scale found in urban environments with high heat demand in close geographical proximity.

Figure 12 shows the cost estimate broken down by building age. We found that 47% of costs are estimated to be for buildings pre-1919, due to the high proportion (45%) of public sector buildings being pre-1919, highlighting the potential challenges of decarbonising the public sector. The cost estimate has been adjusted for age. However, potential additional enabling measures to improve energy efficiency in older buildings are more likely to be required, therefore increasing uncertainty in the overall costs required. Costs for energy efficiency measures are not included in the cost estimate.

Targeting buildings

Analysing the costs in line with the highest heat consuming buildings gives an insight into the potential for an efficient and targeted approach. Analysis shows that targeting the largest building by heat demand can have additional benefits compared to an approach that does not prioritise buildings according to specific factors.

Decarbonising the top 10% of buildings by heat demand tackles 37% of total carbon emissions from heating in the public sector building portfolio. This would cost an estimated £2 billion, 34% of total estimated spend for the medium scenario estimate.

Largest 10% heat demand buildings

Next largest 10% heat demand buildings

Remaining 80% buildings

Tackling the top 20% of buildings will impact buildings with 57% of carbon emissions and cost £3.1 billion. The remaining 80% of buildings would cost the remaining £2.9 billion and impact 43% of carbon emissions. This is displayed in Figure 13. To target efforts even further, this shows that by decarbonising the top 1,600 buildings (10% of the total), this will impact 37% of the public sector estates Scope 1 carbon emissions.

While the estimated cost of the remaining 80% of buildings has a lower cost estimate associated with them to decarbonise, there are challenges remaining. These include organisation and building ownership, resource, supply chain, and others which are not considered as part of the cost estimate.

Sensitivity analysis

The sensitivity of results has been tested to show changes in the result with changes to underlying assumptions. Two key tests conducted were on the Optimism Bias assumption at 21% and on Peak Heat load in design of heat pumps at 37% peak above standard demand. These assumptions were adjusted in the model in 5% increments higher and lower than the medium estimate. Optimism bias is determined to not be highly sensitive, with a 15% adjustment yielding only a 3% change in the result. Heat Pump sizing also performed similarly with 4% result change from an 18% adjustment. Therefore, the sensitivity in the model is low and the results will remain similar if assumptions change in the future.

Drivers of heat decarbonisation

Outputs from the qualitative data collection were analysed using thematic analysis. High level themes and topics were identified from the interview transcripts, as shown in Table 4. Full findings and opinions within the public sector can be found in Appendix B. These should be read as illustrative findings, not representative views of public bodies, bearing in mind the limited sample size and research objective. A summary of the barriers and opportunities from these broad themes follows.

Theme	Topic
Information and data	No central database
	Sharing of successes
Legislation	Competing priorities
	Timescales
Stakeholders and partnerships	Collaboration with other public sector bodies
Costs	Capital costs
	DNO
	Payback period
Organisational considerations	Estate challenges
Funding, finance and investment	Budgets
	Accessing funding
	PFI Models
	Feed in tariff
	Funding stream issues
Resourcing	Lack of staff and capacity
	Skill shortage
Delivery	Supplier availability
	Scheduling constraints
	Heat networks
	Grid capacity
	Time
	Procurement

Barriers

Information and data: there is no central database of public sector buildings and projects, nor knowledge-sharing of successfully delivered initiatives.

Organisational considerations: sector- and estate-specific challenges were raised. For example, large and complex healthcare estates which lack space for heat pumps.

Resourcing: a lack of both staff and required skills were highlighted as constraints, which increases reliance on external consultants.

Legislation: it was acknowledged that legislation drives action. However, it was also noted that competing legislative priorities could result in decarbonisation not being prioritised due to a lack of resources and budget. Additionally, a lack of clarity regarding timescales within legislation on heat and buildings presented a barrier to engaging stakeholders to mobilise decarbonisation projects.

Costs: concerns were raised around high capital costs of decarbonisation projects, as well as the operational costs associated with the electrification of heat, additional costs resulting from distribution network upgrades, and the impact all of these have on payback periods for projects, sometimes making for challenging investment decision-making.

Funding, finance and investment was the most prominently discussed theme. Budgets can often restrict multi-year projects, with many sectors unable to carry budgets from one financial year to another. Accessing public funding can be complex, with short time windows and significant resource requirements for funding applications.

Delivery: There is a lack of external supplier availability and mature supply chain to support projects. Scheduling constraints and delays limit when works can be carried out (a particular issue across healthcare and education sectors). A lack of experience (particularly in procurement), infrastructure challenges, and timescales remained as concerns for heat networks. Grid capacity concerns were noted particularly regarding associated cost and timescales. Challenges around timeframes and meeting net zero targets were raised, with a lack of certainty around how long projects could take.

Opportunities

Information and data: Participants called for an increase in the promotion of success stories, showcasing successful funding projects and knowledge sharing.

Stakeholders and partnerships: collaboration with other public sector bodies, as well as public-private partnerships could facilitate decarbonisation projects that also reap benefits for the community.

Resourcing: There is an opportunity for significant retraining and upskilling given the scale of decarbonisation works needed.

Funding, finance and investment: Participants highlighted benefits in increasing the time window for public funding applications, to allow time for project development. They suggested reductions in the complexity of applications down to high-level plans, with more reliance on trust. Heat networks were identified as a potential solution, particularly for large sites, however a lack of experience (particularly in procurement), infrastructure challenges, and timescales remained as concerns.

Delivery: Procurement concerns were highlighted, but a new procurement framework was suggested as an opportunity to help alleviate issues, such as a lack of confidence and control. This included the suggestion of fixed-fee procurement exercises with three or four suppliers, which could be tweaked based on specific buildings. Heat networks were identified as a potential solution, particularly for large sites.

Conclusions

Our research shows the additional cost to decarbonise heat across all Scottish public sector buildings will range from £3.3 billion to £8.7 billion, with a medium estimate of £6.1 billion. We determined that more detailed data sources could impact these estimates. Using the same data but applying different cost estimate methodologies resulted in medium estimates of between £3.3 billion to £7 billion, showing consistency in the order of magnitude of the main results.

	Low Estimate	Medium Estimate	High Estimate
ASHP	£2,582,165,462	£4,872,114,852	£6,999,980,390
GSHP	£394,383,797	£441,551,505	£569,107,412
Heat Network Connection	£353,767,914	£761,797,204	£1,169,826,494
Total	£3,330,317,173	£6,075,463,561	£8,738,914,297

Our model has shown that targeting certain types and sizes of buildings can help to develop strategies for cost-effectiveness with respect to carbon savings. For instance, the largest 10% of buildings can be decarbonised at an estimated £2 billion, impacting 37% of carbon emissions in the public sector. We also found that 63% of costs will be in urban environments and 45% of the costs overall will be in buildings constructed before 1919. There will be challenges with these building categories, such as uncertainty around space for low carbon heating technologies, additional enabling measures in old buildings and technology type decisions by individual building owners.

Qualitative analysis of semi-structured interviews with stakeholders across the public sector identified that key drivers for decarbonising heat in the public sector span key themes such as information and data availability and use, costs, funding/finance and investment, public sector skills and capacity, stakeholders and partnerships, delivery constraints, and organisational considerations specific to each organisation type (Education, Healthcare etc).

Recommendations

We have developed recommendations based on the qualitative and quantitative findings of this research. These recommendations identify evidence-based actions which address key barriers and opportunities for decarbonising public buildings. They are categorised into four themes:

• Improving data availability and utilisation.
• Clear retrofit and decarbonisation pathways for public buildings.
• Upskilling public sector officers to enable delivery at scale.
• Central coordination to support public bodies on key challenges.

Theme	Recommendation	Source
Data availability and utilisation	Improve the central database for building energy: despite efforts to improve data quality, we faced several limitations which limit practical use of data for organisations or buildings. A robust and up-to-date dataset would enable evidence-based retrofit pathway planning at a national and local level. This could build on the dataset we compiled including Building Assessment Reports (BARs), the Scottish Government’s future potential asset management platform, targeted data collation efforts across public bodies, meter data acquired directly from suppliers, and smart meter integrations. Data standardisation: implement requirements for unique property reference numbers (UPRN), classifications, and units of measure to be utilised across public sector building documentation and databases, allowing data sources to be linked (e.g. local datasets from individual public bodies to be aggregated using UPRN ).	Limitations identified in the research. (9.2.5.2 – Bullets 3, 9 & 10, 9.2.5.3 and 9.4.1)
Retrofit and decarbonisation pathways	Establish building-level pathways: our analysis was limited to capital costs of key heat decarbonisation scenarios, but this is impractical to do in isolation. Using the improved data set, work with public bodies to conduct a holistic analysis which considers all measures relevant to retrofitting their respective buildings beyond heat decarbonisation. This would include energy efficiency, controls, optimisations, flexibility, renewables, storage, lighting and others. Using scenario-based analysis, determine the capital, operational and replacement costs as well as emissions impact for different retrofit pathways. Building pathways should consider the role of funding and finance for a more accurate representation of the financial impact. A roadmap: without a clear organisation-level plan it is challenging to appraise investment cases. To address this, further analyse pathways to align with up-to-date place-based considerations (LHEES delivery areas and heat network zones) and asset management approaches (estate strategies, organisational objectives, maintenance cycles, budgets, priorities and other factors). This would allow the selection of a preferred pathway for each building and that could be organised into an organisational retrofit roadmap. This roadmap would entail a time-bound programme of retrofit, defining what measures the public body would install and when into a clearly set out investment pipeline. Roadmap development may involve iterations until measures are refined to suit the final deliverables aligned to carbon and financial metrics. This could enable intra- and cross-sector planning (e.g. aggregation through combining pipelines at local or national levels) which could help target procurement and funding support.	Limitations identified in the research and information received from stakeholders in the qualitative analysis. (9.6.1, 9.6.2 and 9.2.5.2 – Bullet 10)
Upskilling	National training and upskilling programme: this will provide learning and development opportunities which better equip public sector officers in identifying, developing and delivering retrofit programmes with minimum or no reliance on third party consultants. This could involve multiple tiers of training to help officers progress to increasingly more complex and challenging sites. Avenues to share best practice: the ability to exchange knowledge with peers and share case studies will support sector-wide activity. This would also work synergistically with upskilling and training efforts.	Information received from stakeholders in the qualitative analysis. (9.2.5.2 and 9.9)
Supporting public bodies and supply chain providers	Private-sector finance: considering the scale of capital costs, provide attractive financial products which reduce or eliminate the upfront costs that public bodies are unable to shoulder. These should not be debt-based (or on balance sheets), considering existing financial pressures on borrowing and the inability for non-borrowing entities to access this. This may entail carrying out development work and pilot projects (e.g. trialling fund or service-based products). Clarity, confidence and certainty on policy: provide public bodies with a supportive policy environment, with firm long-term objectives, communicated clearly. This includes being clear on the exact regulations, levers and timelines which impact public bodies via the Heat in Buildings Bill, including on heat network connections and requirements for heating system end-of-life. Clearer policy also includes restructuring funding support toward five-year or longer commitments alongside broader application windows to enable development work for more mature projects and minimise effort losses. Supply chain: supply chain capacity has been identified as a key limiting factor to delivery and costs. Support the development of a stronger supply chain through a more consistent pipeline of projects, which give businesses confidence to invest. Provide training and upskilling support for SMEs which is planned and delivered with consideration of the limitations of these businesses. Support the sector to mature and grow alongside a scaling programme of public sector retrofits, with a specific focus on rural Scotland.	Information received from stakeholders in the qualitative analysis. (9.6, 9.9, 9.10 and 9.11)

 

References

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Appendices

Appendix A – Methodology

Initial steps

Steering group

We established a steering group to guide the research with critical feedback on the findings and outcomes. The steering group consisted of representatives from the Scottish Government, ClimateXChange, Scottish Futures Trust, and the Turner & Townsend research team. The group was consulted on a bi-weekly basis and also provided critical input via a feedback workshop.

Literature review and cost data

Following the formation of the steering group, we began with a developmental review of the literature. We chose this as the preferred technique as it helped us develop policy research-oriented ideas that are grounded in previous research (Templier & Pare, 2015). The developmental review was well-suited to this research as it goes beyond simply synthesising prior studies; its novelty lies within proposal of new ideas and an output that can solve an extant problem, and thereafter be generalisable throughout the domain of applicability.

We reviewed data and literature from known sources as a baseline of the research. This included datasets and benchmarks to cover gaps. It also included the most up-to-date data and insights from the Local Heat and Energy Efficiency Strategies (LHEES) Review we conducted for the Scottish Government, which includes all heat network zones and decarbonisation drivers represented in all 32 LHEES and Delivery Plans.

In addition, we drew from retrofit cost datasets based on our data from programmes including the Retrofit Accelerator – Workplaces (RA-W). This has data points of real-world costs of heat decarbonisation and energy efficiency from over 600 projects. We also utilised our cost database through the Turner & Townsend Cost Management function, which stores large volumes of real cost data from projects delivered across Scotland and the UK.

We included or excluded evidence based on an evaluation of its applicability. This was primarily evaluated on its ability to help answer the research question and objectives with queries such as: is it relevant and timely to the cost of heat decarbonisation landscape? Is it up to date? Does it shed light on barriers in data collection?

We created a data log to assess the literature and data sources, this recorded the following information on each data source to support quality review checks and assimilation into the research:

1. Core focus/theme
2. Author
3. Year published
4. Region(s)
5. Measures covered
6. Asset identifiers
7. Usable energy data
8. Cost data included
9. Quality: methodology
10. Quality: data
11. Relevant type/granularity
12. Modelling input relevancy
13. Assessor comments
14. Methodology

We removed data sources that we planned to access but were unavailable. As part of the review, the quality of evidence (e.g., data sourcing and methodology) was appraised. If poorer quality evidence was determined to negatively affect the quality of the results, it was excluded or superseded see Section 9.2.4. Finally, we tested the data to our Cost Management data, which has asset lifecycle costs based on asset type included. This step was carried out as a sense check only and didn’t impact the final model calculations.

Stakeholder engagement

A Stakeholder Management Plan was created to identify stakeholder engagement methodology, approach and plan. Two phases of engagement were carried out: data collection and drivers of heat decarbonisation.

This also defined our approach to aligning the qualitative research with GDPR and ethical research guidelines.

1. We stored personal data securely and with permission from individuals, including interview recordings and written responses.
2. We clearly communicated the research goals with participants, informing them why they are being engaged, and what this research informs.
3. We informed all participants of their right to decline at any point during the research.
4. We committed to anonymise all responses and deleting information in a prompt manner.
5. We only engaged with participants after they consented to the research and were clear on these five points.

Beyond this point, our methodology diverged into two approaches, each covering one research aim.

Aim 1: Cost of heat decarbonisation

This section describes the methodology for developing the estimated cost of heat decarbonisation.

Data collection

We engaged participants to provide datasets covering assets (building characteristics and energy data) and heat decarbonisation projects (completed project costs, quotes for installation, and other costs). A Request for Information (RFI) was issued to stakeholders to collate this data (Table 7).

Evidence provided was included or excluded based on an evaluation of its applicability, primarily based on its ability to help answer the research question and objectives. This considered whether it was relevant and timely to understand the cost of heat decarbonisation.

We contacted 116 stakeholders across 75 public sector organisations in our engagement activity. In addition, we engaged with the Steering Group and leveraged data through contacts within Scottish Government and Scottish Futures Trust. Finally, we also leveraged relationships from within Turner & Townsend. The breakdown of stakeholders engaged by sector is in Table 6. In total, we collected data (additional to NDA) for over 1,400 buildings and 65 decarbonisation projects.

Sector	Engaged	Responded	Provided Data
Local Government	36	11	5
Further Education	9	5	3
Central Government	2	1	0
Other	12	6	3
Higher Education	5	1	0
NHS	11	7	4

Information	Description
Cost breakdowns on energy efficiency, renewables and low carbon heating projects covering current and past five years (real project costs, quotes and feasibilities)	Include year of purchase/installation/quote, breakdown of costs for equipment, installation, enabling costs etc if possible. Also including building UPRN, type, age, location, construction type, use, floor area.
Quotes received for grid connections and DNO upgrades	Including the type and size of upgrade.
Design costs and preliminary costs pre project	Include relevant RIBA stages.
List of estate buildings (building asset register)	Including UPRN, postcode, eastern/western, coordinates, EPC, floor area/GIA, typology, expected life, heating system end life date, gas & electricity consumption, current heating technologies, existing energy efficiency measures/renewables installed.
Overview of budget for retrofit/heat decarbonisation projects, planned capital works	If possible, include 3 previous years spend on retrofit/heat decarbonisation projects, number of buildings, future budget and details of any planned works, number of buildings which will be targeted.

Data quality review

Data sources were reviewed for completeness and quality. In the data log, the data sources were analysed by ranking the quality of the methodology and quality of data from a rank of ‘Poor’, ’Average’ and ‘Good’. The data source was also reviewed against relevancy of type/granularity of data and relevancy to the Cost Model, this was on a scale of ‘Low’, ‘Medium’ and ‘High’.

Building hierarchy

We created a building data hierarchy to determine the best source of data to be prioritised to represent the building stock. This ‘layering’ helped to increase the confidence of the datasets and provided a more accurate representation of public sector buildings before the cost estimates were applied to these. We preferred data from Building Assessment Reports (BARs) and the datasets provided by public bodies over NDA. The preferred points of data (e.g. heat demand and floor area) replaced the data from NDA. The rationale for this hierarchy is set out in Table 8.

Data Source	Quality	Relevancy	Hierarchy
Building Assessment Report	High	High	1
Building-level asset reports from central or public sector bodies	High	High	2
Non Domestic Analytics (NDA)	Medium	High	3

Technology hierarchy

We created a technology cost data hierarchy to determine the weighting of each cost source into the model. This is set out in Table 9 & Table 10. We gave the strongest weighting to data source from stakeholder data because it is most applicable in terms of location and building type, and it includes total costs of decarbonisation projects. Thereafter, data sources rank higher if they include enabling costs and have higher relevance to the research in comparing types of building and location to the public sector in Scotland. Costs from the cost data sources have been adjusted for inflation using Office for National Statistics Consumer Price Index (CPI) data (Office for National Statistics, 2024).

In addition, optimism bias used by BEIS for other low carbon heating projects at a rate of 21% was used for the cost metrics (BEIS, 2023).

ASHP: Data source ranking	Source date	Includes total costs	Source Relevance	Ranking	Weighting
Renewable Heat Incentive (RHI) (BEIS, 2021)	2020	No	Low	5	3%
Energy Systems Catapult (Energy Systems Catapult, 2021)	2021	No	Medium	4	6%
RA-W	2021	Yes	Medium	2	25%
Stakeholder Data	2023	Yes	High	1	50%
BEIS – Updated Evidence on costs (BEIS, 2022)	2022	No	Medium	3	13%
SPONS 2020 (AECOM, 2020)	2020	No	Low	6	3%

GSHP: Data source ranking	Source date	Includes total costs	Source Relevance	Ranking	Weighting
Renewable Heat Incentive (RHI)	2020	No	Low	4	6%
Energy Systems Catapult	2021	No	Medium	3	13%
Stakeholder Data	2023	Yes	High	1	50%
BEIS – Updated Evidence on costs	2022	No	Medium	2	25%
SPONS 2020	2020	No	Low	6	3%
SPONS 2024 (AECOM, 2024)	2024	No	Low	5	3%

We agreed a building technology decision tree with the Steering Group to cover the main categories of heat decarbonisation technology Figure 14. Where a building has existing low carbon heating, there will be no cost given for decarbonisation. Where a building is in a heat network zone and has a heat demand over 75kWh/m², it will connect to a heat network. Where buildings are not in these heat network zones, are rural and have a heat demand of over 200kWh/m², this will have a GSHP. In all other scenarios, the building will have an ASHP.

Cost model

The cost model used data from two main datasets which we developed: the building dataset and the costs dataset.

The building dataset comprises all Scottish public sector buildings and consists of data from stakeholders and national databases such as Non-Domestic Analytics (NDA). The cost model is made up of project data from stakeholders and other data sources from the literature review. A public building was defined as having the public sector flag from the NDA database, but not including the building type ‘Place of Worship’.

Throughout the process, we constantly reviewed and revised sources where we found data gaps, opting for the best data available. This included synthesising and checking the data sources against similar datasets.

For the cost dataset, we created a database of public sector decarbonisation projects and collected key variables for each project including:

1. Building Type
2. Location
3. Organisation
4. Floor Area
5. Size of low carbon heating (in kW)
6. Building Age
7. Remoteness – Rural/Urban ranking
8. Type of low carbon heating

We used these variables to strip away metric factors from the base cost of each project to get a baseline cost for each project. This allowed a baseline cost to be produced to use for analysis on average costs and benchmark costs across the sector and technologies.

The variables were sourced during the literature review and referenced for their sources, see Appendix C. We identified variables which were then compared and combined to form metric factors which are applied to the costs in the cost model, and then applied to the costs in the building model.

The base cost for each technology was applied to the building assigned with that technology. The variables are then applied to the base heat demand for each site and multiplied by the cost metric for each technology. Each technology has a ‘low’, ‘medium’ and ‘high’ cost metric based on the cost model analysis. Each has been applied to the buildings and three costs have been produced, this gives a main cost with banding around a range of potential costs.

Secondary methods are used to test the main methodology and giver tolerance percentages. This checked for errors as well as the scale of difference in methods. These secondary methods are:

1. Costs per m2.
2. Costing low carbon heating based on changing cost per kW variable depending on the overall size (kW) of the heat demand.
3. Testing the heat demand of the site using benchmark heating hours.
4. Utilising more reliable sector-specific building data sources (only NHS and Colleges were available).

Cost estimate methods

Method 1 – Estimating heat demand on building type

This primary method is based on utilising the Building Type and Floor Area to determine a required size of low carbon heating for each building. The heat demand is comprised using datasets on average heat demand for different building types and introducing assumptions to include typical design of low carbon heating solution. We used the following assumptions:

• The heat demand uplifted by 8% to account for hot water demand (Department of Business, Energy and Industrial Strategy (BEIS), 2018).
• Peak load has been accounted for by reviewing typical peak:mean ratio in a winter day of 1.37 (Love, 2017).
• Used a redundancy design for each building consisting of three heat pumps, where if one were to fail the remaining two would meet the demand. In effect, this increases the installed heat pump capacity by a third.
• The peak heat demand will be covered by the proposed low carbon heating source.

We then applied the metrics to the heat demand on the following building characteristics:

• Age
• Insulated or Uninsulated
• Location

We then applied the high, medium and low-cost estimates developed from the data sources hierarchy. In the final step, we removed the costs to replace the existing fossil fuel system with a ‘like-for-like’ system, leaving only the additional cost of decarbonising heat. Where a building is connected to the gas grid, we used the costs for a gas boiler, otherwise the ‘like-for-like’ system is an oil boiler. Costs for gas and oil boilers are taken from SPONS 2024 (AECOM, 2024). The high-level methodology for developing the cost model is:

• Collect stakeholder data
• Strip away identified variables
• Combine with other data sources
• Apply to Public Sector buildings
• Apply variables from Step 2

Method 2 – Estimating heat demand on energy consumption

We used a different methodology for estimating the heat demand of each building. We used kWh consumption from the building dataset and combined this with CIBSE data on building types (CIBSE, 2012). We then used 30-year average heating degree days (DESNZ, 2024) to convert this to heat demand of the building. Costs from the cost data hierarchy are then applied to the heat demand of each building.

Method 3 – Estimating cost on floor area

We utilised cost data on estimates for a cost per metre squared variable instead of a cost per kW. The cost estimates are applied to the floor area of each building with the same age, location and insulation metrics as in methods 1 & 2.

Method 4 – Estimating cost on variable heat demand

Method 4 is similar to Method 1 with one change: we used a sliding scale cost benchmark depending on the size of the proposed low carbon heating system. The sizes are placed in ‘buckets’ and given a cost metric for each bucket. These are show in Table 11.

Min kW	Max kW
0	20
20	50
50	100
100	500
500	+

Method 5 – Comparing with stakeholder building data

We used the more accurate data received for NHS and Colleges estates to compare outputs from the model to the stakeholder building data for the number of buildings and gross internal area (GIA) of these buildings. The change in these overall figures was used to calculate revised cost estimates for the NHS and Colleges respectively.

Heat network cost estimates

We estimated the costs for the subset of buildings connecting to a heat network through a different methodology. We mapped the buildings dataset alongside all heat network zones developed by local authorities, which were shared with us as part of the LHEES Review. These zones were the first iteration produced by 31 Scottish local authorities. The buildings which fell within the boundaries of these zones were marked for heat network connection.

Using the NDA dataset for urban/rural ranking, costs for pipework were estimated using ‘hard’ or ‘soft’ cost estimates for digging. Hard refers to paved areas for laying pipework, and soft refers to non-paved areas. These estimates are given along a sliding scale with a greater proportion of costs estimated as ‘hard’ for urban environments and lower proportion for rural environments.

The estimates assume a pipework length required for connection of 100m with the low estimate assuming 50m and high estimate assuming 150m. The cost estimates are based on recent project costs available to the research and based on 2024 figures.

The cost to connect to a heat network will typically be through a network ‘connection cost’, which will include capital investment costs. Other capital and ‘connection costs’ were not included in the methodology due to being highly subjective to the pricing mechanism used by each heat network operator. The cost of Heat Interface Units (HIU) was not included, however, for the average building, including the costs would increase overall investment by 3%.

Identifying gaps and limitations

There are several limitations to the research which should inform the interpretation of the results. These include:

1. The technology costs are derived from a range of sources, and some sources include enabling costs while others just include the cost of the heat pump technology.
2. Data sources on costs are prior to or during the period of high inflation experienced between 2021 and 2024. While inflation has been factored into the year of the data source, the high level of inflation leads to the possibility of greater uncertainty or variability of costs across the specific technologies. The real costs could be greater or lesser than our inflation-adjusted figures based on the technology and the level of inflation it experienced. Further, the costs we provide are 2024 costs and these would need to be further adjusted for future reference. However, the quality of the data would further degrade and increase in uncertainty with subsequent adjustments and it is prudent to seek more up-to-date cost data instead.
3. NDA data is known to have limitations and is not a reliable reflection of the reality of the number, floor area, energy consumption or exact type and use of each building. Since only 18% of non-domestic buildings in Scotland have an EPC, the modelled data far exceeds the actual data, often resulting in significant variance from the real building characteristics. It is clear from receiving estates datasets from NHS and Colleges, that there are significant differences between these and NDA. For example, for NHS data there is a variance of double or more for floor area between NDA and NHS sets.
4. The decarbonisation pathway developed for each building is built on a series of assumptions about the most suitable technology. There could be more cost-efficient methods to decarbonising each specific building than our assumptions, such as meeting base load with a heat pump and peak heat demand with a cheaper alternative such as thermal storage or an electric boiler. In addition, larger, more complex buildings could have a combination of GSHP and ASHP as a peaking plant. There are various approaches which should be factored in at design stage that this research could not consider for a national-level model.
5. No costs for additional energy efficiency measures or renewables have been included and, therefore, the costs are only for heat decarbonisation. In reality, many buildings will have energy efficiency measures suitable to reducing energy demand proposed as part of decarbonisation works, along with renewable technology options. Therefore, the overall cost of the low carbon heating measure may be reduced with reduced demand and the overall cost of the project may vary depending on the package of measures selected by the public body.
6. The cost estimates are a snapshot in time of research and these results could change with improvements to the underlying data quality and availability.
7. A flat rate for hot water consumption is applied due to uncertainty of the existing data for heating to hot water ratios. In reality, this will vary significantly depending on the building use. For example, leisure centres with swimming pools may use significantly more hot water.
8. Sources of sector building heat demand uses temperatures from Berlin geographical measurements.
9. Availability of data: Building Asset Registers from Local Authorities were not available for data use. e-PIMS data was also not available for analysis.
10. Changes to the current proposed heat network zones will affect the results and the research would need to be updated in the future as the zones go through iterations. Ultimately, the number of buildings connected to het networks may vary depending on how they are developed across Scotland. Furthermore, we are unable to account for possibility of small-scale heat networks and ground loop systems outside of heat network zones. We are also unable to determine the buildings within a heat network zone which are unable to connect to a network.
11. This is because metrics for assumptions in the model are evidenced and the outputs have withstood various tests and sensitivity analysis. However, the data is not reliable for use at a more granular level and will vary on a building-by-building level. It cannot be used as a metric to determine cost effectiveness or performance of sector, organisation, or building projects.
12. Our estimates do not apply a discount rate or programme this cost over multiple years that it will likely be met. As the market for decarbonisation matures, we expect to see a reduction in costs with economies of scale, procurement strategies, growth in skills and capacity, market efficiencies and multiple other drivers for cost reduction.
13. Our analysis does not consider the operational cost of decarbonisation. The future of energy markets and electricity pricing is unclear. Subject to policymaking and infrastructure investments, these costs may reduce and result in a strengthening business case for decarbonisation. A reduction in operational costs is likely to drive demand for electrification of heat, shifting the perception of heat decarbonisation from a cost to an investment. This is expected to be coupled with a further reduction in the capital costs for heat pumps and heat networks (subject to sound supply chain support and regulations).
14. There are approximately 2,100 buildings in NDA data that has insufficient data to analyse as part of this research. We have assumed that these building require no change and therefore, no decarbonisation costs have been attributed to these buildings.
15. For the cost estimate for buildings connecting to a Heat Network, costs for HIUs have not been included. Taking one source and the average building heat demand of 150kW gives HIU cost of £9,000 per building (AECOM, 2024). The average cost for a building connecting to a Heat Network is £280,000, therefore HIU costs add 3% onto the overall cost. The cost increase is a maximum £25,000 for the largest buildings.

Methodology assumptions

The methodology for this research was shaped alongside the Steering Group, who agreed a list of assumptions. These assumptions were necessitated by the limitations as well as the available data and scope of the research.

1. Hot water decarbonisation is assumed to be covered by the new low carbon heating solution.
2. Cost estimates do not include the ‘like-for-like’ costs for replacing the fossil fuel heating system. The cost estimate will only cover the ‘additional cost’ of replacing the fossil fuel system with a low carbon heating system by subtracting the cost of the fossil fuel system.
3. All buildings in heat network zones are assumed to connect to a heat network as their decarbonising pathway. Refer to Figure 14, for full decision tree.
4. Costs are be based for all buildings in today’s money, the immediate cost for decarbonisation.
5. Costs for decarbonisation via heat network are based on only the connection costs, and not any required heat network construction or decarbonisation.
6. Technology costs are based on standard air-water ASHP and generic GSHP installations.
7. DNO costs are excluded from the main cost output. Previous research from ClimateXChange can be viewed for further information ^[3].
8. The scope was limited to only heat decarbonisation, excluding energy efficiency measures and renewables.
9. Significant enabling measures for specific buildings are excluded, for example, ventilation, thermal stores, heating emitter replacements, temporary boilers and building closure.
10. For Method 2, existing boilers were assumed to have an efficiency of 90%.
11. For Method 2, hot water heating hours were assumed to be 500 hours per annum.
12. Carbon emissions have been calculated using kWh figures from NDA and using Government carbon emissions factors (DESNZ, 2024).
13. Heat Network cost estimate: heat exchanger costs have not been included. On analysis, these would increase overall costs by approximately 3% for the average building.
14. The cost to connect to a Heat Network for the public sector building owner, is usually a connection fee, which can include the pipework costs, other investment costs and charges. Therefore, the costs will vary on a network by network basis.

Aim 2: Drivers of heat decarbonisation

This section describes the methodology for developing themes associated with drivers for heat decarbonisation.

Topic guide

We developed a topic guide to support 45-minute semi-structured interviews. The objective was to understand the key drivers for decarbonising heat, including the barriers and opportunities. We agreed on the following questions with the steering group:

1. In your experience, what are the key barriers for the following elements to decarbonising the public sector estate?
2. Costs and financing
3. Timescales
4. Stakeholder buy-in
5. Resourcing
6. What are the key opportunities for the following elements to decarbonising the public sector estate?
7. Costs and financing
8. Timescales
9. Stakeholder buy-in
10. Resourcing
11. What are the key drivers for heat decarbonisation in:
12. Your organisation / across your estate?
13. Public sector organisations across Scotland / the wider public sector estate?
14. What can Government do to remove these barriers / increase opportunities?

Participant recruitment

Following initial outreach with public sector stakeholders to facilitate data collection, we invited participants to engage in a semi-structured interview to discuss their experiences of heat decarbonisation projects completed to date and in progress. Many participants had already provided project-specific data or case studies which were utilised as a starting point for discussion. We used purposive sampling to recruit a cohort of participants, opting to recruit participants across as many sectors as possible.

We were not able to engage with participants in every major sector but covered most sectors via a combination of written responses and interviews. A limitation of the recruitment is that smaller organisations with limited resources could not engage with the research and therefore, their challenges were not identified. The breakdown of participants engaged by sector is in Table 12.

Sector	Written Communication	Interviewed
Local Government	7	3
Further Education	3	3
Central Government	0	0
Other	2	0
Higher Education	0	0
NHS	4	2

Data collection

We held Teams interviews with the participants. These were automatically transcribed and checked. We used a semi-structured approach to allow the identification of key themes and dive deeper into key areas and novel findings. The interviewer was able to facilitate comparison between the answers of different participant, allowing flexibility and exploration of topics in greater depth where appropriate. The four key discussion points in the topic guide provided structure to the conversations:

1. Barriers to decarbonising the public sector estate,
2. opportunities arising from decarbonising the public sector estate,
3. drivers for heat decarbonisation in public sector organisations, and
4. what stakeholders believe Scottish Government could do to remove identified barriers and maximise opportunities.

Framework analysis

We analysed the raw qualitative data from stakeholder interviews using framework analysis using the following steps:

• Familiarisation of raw data: the research team acquainted themselves with the raw data and began to identify emerging themes.
• Identifying themes: themes and sub-themes were formulated into a coherent thematic framework and discussion points and issues were identified. These were consolidated and interrogated to formulate the drivers for heat decarbonisation. Broad themes were defined first, and then broken down into sub-themes based on common threads of discussion identified across multiple interviews – e.g. ‘Cost’ as a broad theme was then broken down into ‘Capital costs’, ‘DNO costs’, and ‘Payback periods.’
• Indexing: the research team then used qualitative coding to categorise the data according to final themes.
• Charting and summarising: data was arranged into a discernible order.
• Interpretation/Mapping: the framework analysis concluded with researchers linking the data to the research questions by summarising participant viewpoints and developing an overarching narrative presented in this report.

Appendix B – Stakeholder views

Information and data

Central database

Many participants cited a lack of a central database of relevant data on buildings and projects (e.g. energy data, building asset registers). They highlighted that useful or reference data relating to projects or assets is dispersed across different teams or databases and collating it would require a significant amount of work.

“…we don’t currently collate all that information into one database so tying it all together will be a massive piece of work for over [all] non domestic buildings.”

Local Authority

This claim is also backed by our review of datasets as part of the data collation exercise for this research. For example, where asset registers were provided by public bodies, they did not comprehensively cover key information in a standardised format, such as UPRNs, floor area or heat demand for each building. The quality of data varied across public bodies and many datasets typically lacked full coverage for the key information across all buildings.

Sharing of successes

Several participants suggested that more could be done with the information surrounding positive outcomes of works delivered this far. This included publishing successes alongside public sector climate change reporting duties and sharing and promoting successful initiatives. Participants acknowledged that Scottish Government currently publish quarterly reports on successful publicly funded decarbonisation projects. However, they suggested that this could be strengthened through in-person visits to learn about successful decarbonisation projects. This would enhance awareness and understanding of low-carbon solutions and how they operate.

“We should be promoting what we have already done; getting people to come and look at the new plant. Showcasing successful funding projects too – we currently publish a quarterly guide but that’s it.”

Further Education

“We have an opportunity to showcase as an organisation what we’ve done and what is achievable. There is an opportunity to become a sector and even national leader, to prototype things.”

Further Education

Supporting the above finding, greater knowledge-sharing and collaboration has also been a theme throughout several council’s LHEES, including Fife, Aberdeenshire, Moray, West Lothian and The Highland Councils. These councils suggested that a data sharing model or platform could be implemented to improve awareness of building performance, and share best practice.

Organisational considerations

Estate challenges

Some participants with larger buildings or sites pointed to space constraints which preclude obvious solutions to heat decarbonisation.

“Our large hospital sites….have about 50% of all our NHS emissions. That one, multi-building site is our main acute hospital…The amount of heat produced at the moment to serve these sites is a difficult challenge with a heat pump and that coupled up with the lack of space on site…We don’t really have any space on site anywhere to install heat pumps, so there is going to have to be a change somewhere.”

Healthcare

This is not universally the case, as one participant in Further Education identified, some are “fortunate to have newer buildings up to standards and heat pump ready” and a “massive plant size” (capacity and floor space) compared with the boiler previously installed.

A Healthcare participant referenced the need to reconfigure current plants at large sites, which currently have biomass, CHP and steam boilers, to which governance arrangements through Private Finance Initiatives (PFI) may pose a challenge.

“It would be a nice tick in their [the PFI’s] box to decarbonise, but it’s not what they’re contracted to provide.”

Healthcare

An additional concern for the Healthcare sector was electricity demand resulting from machine upgrades.

“As time goes by, there are bigger and better machines that we keep purchasing. Specifically, in the imaging side…that comes at a cost of electricity as opposed to…power. So we can do a vast amount of upgrades of LEDs and variable speed drives and various other technologies, and then somebody comes along and goes ‘We’re going to put in a new CT scanner’ and you go ‘Oh well, thanks for that. That’s just reversed our progress’”.

Healthcare

In this context, the participant was indicating that there are competing demands for limited electrical capacity available. A requirement to install medical equipment will likely outweigh the case for heat pump installation. In a similar vein, one local authority participant expressed that strategic estate decisions could impede progress towards net zero and decision-making.

“Recently in the local authority there have been a number of new buildings that the council have upgraded or taken possession of, increasing their overall estate size. There are consultations to reduce the estate size, however, these recent acquisitions have been larger than those that are being removed. The renovation of the [building name redacted] has significantly increased the energy consumption of the estate with [the building] requiring precise conditions, meaning the plant runs near constantly. An additional acquisition of a sports centre will also increase the estate size.”

Local Authority

This can cause conflicts in capital planning in terms of the need for new facilities versus the need to decarbonise heat in existing buildings. New construction can potentially be more attractive option, out-competing retrofitting for limited budget. It should be noted, however, that with initiatives such as Single Scottish Estate, it is likely that the public sector property footprint will reduce in the longer term.

The characteristics and makeup of estates according to their varying function within the public sector often present unique challenges when planning for decarbonisation interventions. Case-specific and bespoke approaches are required to address these challenges.

Government policy

Competing priorities

Concerns were raised that as the Government introduces new legislation, local authorities must reconsider where to direct resources, sometimes to the detriment of decarbonisation initiatives.

“With such a large estate, plans are required to try and budget and plan resources for projects. This however, changes with new projects, failing plant, new government initiatives such as the free school meals and early years projects diverting resources away from decarbonisation projects, inadvertently increasing the consumption of the estate.”

Local Authority

However, participants noted that national net zero and public sector specific decarbonisation targets do drive action. The accountability of public reporting was highlighted as a particular motivation to act.

“[The driver] for us is looking at our carbon footprint…because we have a public duty to report on an annual basis…so there’s an understanding within the organisation that we have to look at the measures.”

Further Education

One participant drew attention to the need for greater policy focus on infrastructure requirements (e.g. grid upgrades). They highlighted the need for clarity and investment into electrical grid upgrades to facilitate decarbonisation of heat.

“Barriers are going to be the infrastructure and how long that’s going to take…unless there’s massive drive by legislation…it’s going to be the best part of another 25 to 35 years.”

Further Education

“Funding infrastructure is a massive part to play in this as well. If the network can’t cope with what we’re prepared to do, then we go down a route of battery storage etc.”

Further Education

One participant mentioned the link between legislative drivers and budget allocation, suggesting that legally binding targets were required as a “lever to take to senior managers” (Local Authority) to ensure decarbonisation projects were given ample weight amongst spending priorities. This participant highlights that clear regulations with legally binding targets are seen among the prominent organisational drivers for action.

Regarding national budgets, participants suggested that targets should also be accompanied “with a package of funding and realistic timescales” (Local Authority), asserting the link between legislation and funding to facilitate deliverability. Additionally, greater emphasis might be placed on infrastructure upgrades (both in terms of policy and funding provision) which will facilitate the implementation of low-carbon heating installations across public sector estates at scale.

Timescales

Local authorities raised that a lack of clarity with regard to the requirements and timescales within legislation on heat in buildings presented a barrier to engaging stakeholders to mobilise decarbonisation projects. The perception of deliverability is impingent upon a clear target in the regulation, accompanied with ample support and funding routes. The lack of these may present a barrier and potentially lead to inaction.

“That’s a year now since the [Heat in Buildings Bill] consultation came out…there’s an uncertainty about what it is we have to achieve and by when…until we get the legislation in place, that Council would say, why would we need to go and do this?”

Local Authority

“We’ve gone by the 2038 target that they talked about in the Heat in Buildings Strategy, but at one point in the consultation…they were talking about even bringing that forward…unless it’s going to be achievable, then people won’t even try.”

Local Authority

“It’s a strategic objective…unless we get actual legislation with timescales and that comes with a package of funding…people maybe won’t even try.”

Local Authority

This is exacerbated by the transitory nature of electoral cycles, which impedes the creation of long-term targets and strategic plans by making them vulnerable to change with new governments. One participant hypothesised about upcoming elections, stating that decarbonisation policy is often a casualty of changing cabinets. They stressed the need for consistency in policy across governments.

“The budget was announced yesterday for 25/26, so the end of this current session of parliament. March 26, the Parliament will be dissolved for elections in May. So it’s got to be something that transcends electoral cycles and party politics…and that’s the difficulty for the politicians. How do you make long term targets…strategic plans when the Parliament is re-elected every five years?”

Local Authority

This theme is consistent with discussions in local authority LHEES. Many councils raised issues around the uncertainty around policies in the Heat in Buildings Strategy/Bill, expressing that this depleted the influence they could exert for timely upgrade of buildings. Interviewees suggested that regulatory enforcements that are comprehensive, with consistent timescales, legally binding targets and accompanying funding and support, could all help address these barriers.

Stakeholders and partnerships

As an opportunity, one participant raised that collaboration with other public sector bodies, as well as public-private partnerships (PPPs) could facilitate decarbonisation projects that also reap benefits for the community.

“We’re going through an exercise at the moment engaging with private sector partners and other public sector like Scottish Water, to install renewable heat and battery storage systems on our sites now…There could be, and it’s likely there will be a community benefit element of that. So there’ll be some of those funds allocated to the area, to support communities.”

Healthcare

In other words, the participant saw an opportunity for collaborative or place/area-based decarbonisation projects, including heat, to create social value, in addition to the immediate benefits such as those to their organisation’s emissions, and relieving strain on grid capacity in the area.

Costs

Capital costs

A key theme amongst participants was lacking capital to initiate decarbonisation works.

“If someone gave me a magic wand and a big pot of money, a lot of this would have been done a long time ago.”

Further Education

“It’s going to cost how many millions to electrify heat? And we certainly don’t have it.”

Healthcare

This issue was closely associated with a reliance on public funding. One participant suggested that funding for non-domestic projects in the public sector needed to be increased. There were comments on the complexity, time and resource requirements of public funding applications. There was also recognition that various funding models might be required, including consideration for private sector investment. However, that was not considered as a clear and readily available option.

“The non-domestic side has very little capital funding available…if they want us to do it, funding needs to be made available – the way that it looks, they’re pushing us towards a self-private finance type arrangement because there’s just not enough money in the public funds.”

Local Authority

Supplier markup

A challenge arising later in the project development pipeline raised by one participant was a ‘markup’ pertaining to suppliers’ awareness that projects are being publicly funded.

“As soon as people find out you’re getting funded and it’s going through a funding stream, there seems to be a massive markup on that”.

Further Education

While participants called for more funding for non-domestic public sector decarbonisation, this participant identified that there is a risk that this could exacerbate capital costs by suppliers who increase their pricing.

Distribution Network Operator

Many participants specifically saw Distribution Network Operator (DNO) costs as a barrier, especially given the variability and lack of knowledge around these costs. One council stated that their DNO costs had been anything between £3,000 and £100,000 on various projects, while asserting that the higher costs and greater issues often occurred in areas with poorer grid infrastructure. Another healthcare participant felt that their area provider had ‘very high costs’.

DNO engagement was a primary aspect of many councils’ LHEES strategy. They engaged in communication around electricity grid capacity as this was among the major risks for decarbonisation. These councils recognise that early and ongoing engagement may facilitate greater understanding of what the requirements and associated DNO costs are. This would also benefit public sector organisations as they approach heat decarbonisation projects.

Payback Period

Participants indicated that it was difficult to manage long-term payback periods. This meant careful consideration was required with respect to the most cost-effective approach for their organisation, as opposed to always following the ‘fabric first’ principle.

“There’s a massive cost [to fabric measures] and are we going to get a return on investment at the same time when we could invest in decarbonisation of our gas systems?”

Further Education

By contrast, many saw the operational costs of heat pumps due to the higher cost of electricity as an important barrier to address.

“Because the price of electricity is so high, to put in a heat pump into one of our buildings actually results in an increase in our utility bills…It’s hard to convince someone to install a technology which is going to cost you more in the long run.”

Further Education

“Last financial year we were looking at about £20m for gas, and £39m for electricity, so £2m [of financial support] will help us to do some elements, but it’s at the margins when you look at those kind of figures.”

Healthcare

Accordingly, one participant highlighted the review of electricity market arrangements (REMA) as a major opportunity to evolve the energy markets by incentivising the electrification of heat through lower operational costs. This could address the challenges around the cost of electrifying heat, potentially making decarbonisation more cost-effective than a like-for-like replacement with a gas boiler.

“The UK Government [are in the]…third consultation about the review of the energy markets and they need to be doing something that’s going to incentivise the electrification of heat…to say it’s going to be cheaper in the long run.”

Local Authority

Broadly speaking, balancing considerations of upfront versus operational costs and payback period makes it difficult to plan how and when to decarbonise. The strongest incentive may be through evolving the energy market (a policy area reserved to the UK Government) to drive down operational costs.

Funding, finance and investment

Budgets

Participants highlighted several challenges around budgets within public sector organisations. Notably, tight public sector budgets restrict the possibility of delivering decarbonisation works and increase reliance on central government funding.

Participants also highlighted issues around budget schedules, including misalignment between budget cycles and the time required to complete major capital works. Decarbonisation of major assets can potentially extend into multiple financial years, when including planning and delivery. However, the restrictions on spending and availability of budget in limited annual cycles with an often unclear forward outlook can make projects more challenging.

“We can’t hold any reserves, so the funding that we get a year needs to be spent in that year if we were to as a college make any commercial monies…So we cannot save money for any major projects, so that is a stumbling block for us.”

Further Education

This participant noted that in the past colleges had often held reserves in the hopes of delivering a future project. The multi-year issue is compounded by the variability of funding throughout the year. A delay in grants being paid out may present issues for grant recipients who do not have significant amounts of money in their own reserves which would allow them to pay contractors and then wait several months for reimbursement. The same participant identified that this could reduce confidence in the current system of funded decarbonisation works. The variability and uncertainty of public sector budgets over long-term periods can also lead to missed opportunities to pursue long-term contracts which facilitate decarbonisation. This could include opportunities such as power purchase or heat supply purchase agreements, as one Further Education participant identified.

“There was a system…which was extracting energy from storage, networking through a type of heat pump system. But in order for us to tie in, it would be well supported and scalable to tie in with that company for a period of 20 years, and I don’t think anybody would be in a position to tie in a contract for as long as that.”

Further Education

These issues create a need for investigation into longer-term funding and alternative funding models, both, for organisational budgets and within funding schemes. This is also evident via local authority LHEES in which councils express a requirement to set out a long-term decarbonisation plan and accompanying long-term resourcing to facility its delivery.

“LHEES Strategies have been tasked to ‘set out the long-term plans for decarbonising heat in buildings and improving their energy efficiency across an entire local authority area’. Therefore, long-term resources are required within local authorities to allow the successful delivery of LHEES.”

Local Authority LHEES

Accessing funding

Access to public funding was frequently mentioned as an important facilitator to decarbonisation projects in the public sector. However, many participants had found these schemes to be challenging to access.

“We’re trying to meet government targets with one hand tied behind our back, and that comes down to how we can access funding and how can our board of management take these calculated risks, whether it is interest free loans or capital monies or a combination of both.”

Local Authority

One issue identified was timing applications and developing projects to the stage required to apply for public funding, which requires a great deal of at-risk funding in itself. Many participants’ outlook on funding schemes is that their current structure is not as conducive to the development of a healthy, predictable and long-term pipeline of projects. Participants highlighted the need for a shift toward more developmental and supportive funding style.

“[Funding has] a six week window for you to apply, and you pretty much have to have a shovel-ready project just waiting to go, which doesn’t really work if you’re trying to decarbonise a school because these projects need to be organised years in advance…So having these windows of opportunities for funding where everybody gets their application in in six weeks for a project that’s ready to go in March just doesn’t really add up at all.”

Local Authority

“I think they should make the funding easier to get as well…Give us a bit longer to try and make the application because we don’t have the time or the resources to go and work up projects and stick them on the shelf.”

Local Authority

Similarly, the resource requirements to complete a complex application within the brief window creates a significant strain on public sector organisations and requires the input of consultancies. The nature of these schemes could often result in additional work being created to deal with the application and administration, diverting the energy and money from decarbonisation projects.

“We need so many feasibilities up front…we’ve got consultants involved….we’re doing monthly monitoring claims. We generally need a full-time person and post to administer that fund.”

Local Authority

This is coupled with the requirement for matched funding contribution in most cases, which often means that sometimes only a limited portion of project costs are covered with the awarded funding. As a result, the same participant felt that public funding bids were often not worth the resource requirement put into them from within the Local Authority:

“It was less than a quarter of the actual project cost we’re getting through. I think generally the consensus is we won’t go for it again because it’s just been so, so difficult to pull the money through, so time consuming and it’s lining the projects up to that sort of funding as well.”

Local Authority

This sentiment was echoed by a participant who had sought funding through the Low Carbon Infrastructure Transition programme. They highlighted the lack of trust and rigorous evaluation regimes can add administrative burden, leading to additional resource allocation, delays and other issues.

“I’d say it [the Low Carbon Infrastructure Transition Programme] is maybe a little bit overly complex. I think the whole process of identifying projects right now, a business case, apply for funding, waiting on the funds being approved then getting approved in about September doesn’t really feel like a joint approach. It’s more like Government saying ‘Right, we’ve got some money, but you need to absolutely justify exactly what you’re doing and then we need to evaluate it’.”

Healthcare

The participant proposed an alternative, more simplified approach involving higher trust given to public sector organisations as partners.

“It should really be: ‘Develop your high-level plans and we will just give you the money every year’. Doing that they could cut six months of the year out and a whole process. And if it was a bit more collaboration reports, and a bit more trust in the seniors, with money allocated to each board to spend purely on decarbonisation, we’d get a lot more done a lot quicker.”

Healthcare

Greater efficiency was seen as important given the pressing timescales public sector organisations are working towards. One participant expressed that the process of allocating funding needs to change to facilitate meeting 2030 targets for NHS organisations.

In addition to simplifying public funding application processes, some participants felt that greater resource was required in key funding pots, especially in the non-domestic sector.

“The non-domestic side has very little capital funding available…there’s going to have to either be funding made available or the way that it looks, they’re almost pushing us towards a private finance type arrangement because there’s not enough money in the public funds.”

Local Authority

One Further Education participant also raised the sector-specific issue of restrictions on borrowing powers, stating they were unable to “apply for things like Salix (loans)”. The lack of a capital financing facility means a reliance on limited central government schemes and internal budgets.

In general, participants asserted that the funding landscape is complex, requiring them to pursue various limited funding routes to facilitate decarbonisation projects. They called for greater capital funding facilities to be made available and complex application processes to be simplified to break down barriers for delivery.

Financing models

As an alternative to relying on public funding, some participants felt that private finance initiatives (PFIs) presented an opportunity for public sector organisations with limited budgets to deliver retrofit works, with the right interventions from Scottish Government.

“…A PFI model where a company would come in and decarbonise everything at a cost and then a return, I think you might find it would be less keen to take that risk…. unless the Scottish Government came in and said we’ll underwrite this at a fixed price cost if you can manage that cost. Any cost rises over that 20-year period is down to the Scottish Government rather than us as an individual institute.”

Further Education

In the Healthcare sector, one participant already maintained two PFI relationships to manage their sites and felt they had ‘good relationships’ with these contractors. However, complexities were raised around long-term contracts and contract inclusions.

“They’re set in contract for 30 years to deliver our heat with the life cycles in place. And if we then ask for a change to contract there are complexities around that…I imagine it would be a nice tick in their box to decarbonise, but it’s not what they’re contracted to provide.”

Healthcare

At present, financial cases typically rely on energy efficiency measures which demonstrate direct financial savings over time. As such, private investment is viewed as a likely option or potentially even an inevitable eventuality, though it remains ambiguous as an opportunity for heat decarbonisation. While not currently widely utilised in the public sector, private funding models may present an opportunity to reduce or eliminate the major barrier of upfront costs. However, participants understand that these models need careful consideration and backing from the Scottish Government before they consider adopting them.

Resourcing

Capacity shortage

A key finding from our analysis was the impact of constraints on staff resource and lacking capacity to deliver multi-million-pound decarbonisation works. Those who did engage often identified that their usually small team would struggle to expand their current work remit to projects at scale.

“Even if somebody said tomorrow that to next year you have £50 million to deliver all the things you’re saying…we could never do it anyway because we don’t have the in-house resource, the technical skills.”

Further Education

From our experience of conducting this research, we found that many public sector officers responded to an initial request for information with supportive messages about our work. However, they stated that they did not have the capacity to collate data to a great level of granularity (especially when this was dispersed, see 9.4.1). They cited their ongoing struggles with delivery resources in their typically undersized teams. These issues were flagged by a range of PS bodies, including larger organisations such as local authorities.

Capacity challenges were exacerbated by high staff turnover, leading to continuity issues. Staff turnover was seen as a particular issue in Education estates teams, reducing confidence in decision making and the ability to plan and deliver major long-term decarbonisation programmes.

“We’ve got quite good continuity in the senior management team…. there are quite a few changes in other colleges and people come and go as estates people, and that doesn’t give confidence to the people that actually sign off these projects, if you’re changing your estates manager every couple of years.”

Further Education

Skills shortage

In addition to a capacity shortage, participants also highlighted a lack of skilled professionals in public sector organisations able to deliver heat decarbonisation projects. This can often lead to greater reliance on consultancy-based support, which comes at an extra cost to the organisation. Although, one participant highlighted that this support can be funded via grant schemes, but it still introduces limitations and reliance on third parties.

“In Facilities it’s predominantly catering and [Project Officer’s] background in office estates, so neither of us are experts in the decarbonisation field. So we need the support of people like [Consultant] to take us through this…the funding for that came through GPSEDS as well.”

Further Education

“We don’t have really internal expertise as such…so using the NDEEF framework and [Consultant] is really the only option for us.”

Further Education

Furthermore, when the complexity of public funding (discussed in 9.9.2) is met with a lack of expertise, this can further complicate the application process.

“There’s not a direct link between the Non-Domestic Energy Efficiency Framework and the GPSEDS process…so for the non-estates people and finance people, people [didn’t understand] how this is going to work.”

Further Education

Accordingly, one participant suggested that simplifying the terminology used around funding applications and providing clearer resources on how they work and what processes look like may support organisations who are newer to applying for public funding, and/or do not have internal expertise in this area.

On the other hand, one participant identified an opportunity to retrain professionals to meet the need for low carbon heating skills.

“You would think we’ve got a large housing stock and a large non-domestic estate, so if it could be funded, there’s massive opportunities in terms of skills, retraining, all that sort of stuff…We’ve got a lot of gas engineers….so they would need to be reskilled.”

Local Authority

Delivery

Supplier availability

Another major barrier to decarbonisation projects is the limited supplier and installer availability. Participants found the limited options for suppliers to impact not only deliverability but also price competitiveness. One participant highlighted that this situation has created a dilemma where the lack of a mature supply chain limits the ability to deliver projects, which in turn will not be able to develop until there are enough projects. These issues can be exacerbated in rural areas which require added installers travel times.

“Low number of suppliers available for heat pump installation means that always the same names responding to tenders – reduced competitiveness on price and also a capacity issue.”

Local Authority

“We’re lacking a mature supply chain – but it’s a chicken and egg situation – you won’t get [the supply chain] until there is a guaranteed pipeline of projects, so how is the market going to gear up?”

Local Authority

However, one participant contradicted this by stating they did not face supply chain issues as they relied heavily on internal resources with sufficient skills, connections and capacity. However, this organisation was well-placed with a rare level of relevant internal skill and capacity to be able to leverage the supply chain.

“Finding suppliers and resourcing is not an issue – plenty of people out there doing that type of work. Our staff come from construction background so know what’s what, and who we can purchase from. We’ve been doing this since 2008 so have a proven track record. It’s not new technology – it’s coming off the shelf basically, we’re ready to go.”

Education

The lack of sufficient supply chain capacity also echoes across local authority LHEES. Virtually all councils have identified a substantial green skills gap and supply chain issues. Specific roles and areas which are lacking include: heat pump installers, servicers and maintainers, post-installation support, specialists for historic/pre-1919 buildings, HVAC (heating, ventilation and air conditioning), plumbers, surveyors, retrofit coordinators and understanding of whole building approach. This is particularly noteworthy as this research identifies that 45% of the estimated decarbonisation costs will be associated with buildings built before 1919.

Similarly, a 2020 study highlighted by South Lanarkshire Council found that heat pump manufacturers were confident in their ability to scale up operations as demand increases, but upskilling and training were of concern (Eunomia, 2020).

Scheduling constraints

Participants from multiple sectors highlight that their scheduling constraints have proven to be a barrier when trying to carry out decarbonisation projects. Low-carbon heating installation works are intrusive to regular operations as they typically mean a lack of operational heating for a period. This becomes more complicated with other measures such as fabric and window replacements. This can pose limits for many building types, especially those which serve a core function for the public body. One way to address this is by conducting this work during less busy times, but this is not always possible and these opportunities may not be sufficient for the scale of works and number of buildings which require upgrades.

“There aren’t enough summer holidays between now and 2045 [to complete required works to reach net zero].”

Local Authority

“With most of the energy consumption throughout the Council estate coming from school buildings, they have been a priority in decarbonisation. The time required to change the heating system over from gas/oil to an ASHP requires either several phases for larger schools or can be done over summer for smaller schools. This requires a lot of planning in how rooms are decanted if required for phased works, and may require external decant space, which again, requires further funding.”

Local Authority

“The issue is we have a live hospital and live wards, and it’s difficult even doing windows – how can you replace windows in a live ward? Plus, you’ve got noise, vibration, and dust that all have to be scrutinised before we can progress. On top of that we have a varied building stock from the 1970’s and 80’s which come with a lot of challenges”

Healthcare

Similarly, uncertainties or delays with equipment deliveries are common, and cause similar issues. Unplanned disruptions to core services can impact project costs and viability as well as decarbonisation programmes as a whole.

“Our first of two projects took a year to complete. Both projects at different points impacted students during term time, with noise, disruption, and the heating down. Long lead in times impacted things too – windows took 16 weeks, ASHP were delayed, windows were coming from Germany, [and] planning permission.”

Education

“Lead times for some pieces of equipment still have long lead times of upwards of 2 months which can put projects on the back foot.”

Local Authority

Heat networks

The topic of investing in heat networks was raised by participants as both a barrier and an opportunity to decarbonising heat in the public sector. Some participants suggested that heat networks may be an opportunity for larger sites where funding otherwise is not available.

“The other campuses that are larger and within [the city] are more likely to need larger amounts of money that currently isn’t available, so there isn’t really any point looking too hard at those. There are district heating schemes, and one of the campuses is within an area that’s about to go into a district heating scheme…so that’s always been the focus.”

Further Education

Furthermore, one participant highlighted the potentially critical role which public sector anchor loads can play in enabling heat networks to emerge. Signing up to a ‘heat purchase agreement’ with a heat network operator can help the public body decarbonise its buildings, while also supporting the heat network development with a reliable public sector customer.

“As well as PPA, people have been starting to talk about heat purchase agreements as well…For their [heat network operator] financial modelling, we will underpin most of their strategies, if they can get a baseload onto their books, and that allows expansion or unlocks further opportunities in the area.”

Healthcare

The same participant mentioned that LHEES had helped drive these discussions, recognising the critical role which area-wide decarbonisation plays. This explores the idea of the public sector as a leading example and enabler of wider decarbonisation in the area, particularly through providing investment confidence.

“There’s been a lot of work undertaken through [LHEES] and being such a large geographic health board…we are across six local authority areas and there’s been a lot of engagement from them going back to that district heat network opportunity.”

Healthcare

However, this new opportunity also presents new challenges, notably on how to procure ‘heat purchase agreements’, with no prior experience in this area to draw on. It also raises the risk of being tied into an agreement with a single provider (i.e. the heat network operator) without an easy route to switch providers.

“There’s the procurement aspect: how do you, if you’ve got a single supplier in an area who says I can sell you heat, verify that is the best deal you can get?”

Healthcare

More broadly, participants referenced the infrastructure challenges of heat network development, specifically the timescales associated with this and unclear nature of the investments a present.

“Part of the local heat energy efficiency strategy highlighted we were a key anchor point for a district network heating system….but the barriers are going to be the infrastructure and how long that’s going to take.”

Further Education

The participant suggested that a “massive drive by legislation” as well as support with costs were necessary mitigation strategies to overcome this. This indicates the increasingly important role of the emerging regulatory regime pursuant to the Heat Network (Scotland) Act as well as the role of Ofgem as the regulator for heat networks and other legislative drivers.

Heat networks present a significant opportunity in providing economies of scale that will help decarbonise large sites and potentially large areas. This includes those organisations which may not have sufficient capital funds available to pursue an independent solution. However, more work is needed to develop appropriate infrastructure and better knowledge on procurement routes which will facilitate this in a cost-effective and reliable manner.

Grid capacity

Grid capacity concerns were frequently raised by respondents, highlighting that this can be a significant and potentially unavoidable barrier in decarbonising their heat. In cases where capacity needs to be increased, upgrades can take a long time, can have high costs and require significant engagement with the DNO. This is largely due to the complexities of managing network capacity, keeping the grid stable, and sometimes making substantial investment into the grid infrastructure.

“Similar to the supply chain concerns, lead times for connection into the electricity grid can be lengthy. A previous project changing a small primary school from oil heating system to ASHP took 9 months to receive an increased supply from the DNO. A connection for larger schools to connect into the network may require upgrades to substations, increasing the cost and timescales of a project.”

Local Authority

“Grid capacity is a barrier – [DNO] have very high associated costs.”

Healthcare

Alternative to grid upgrades are limited, uncertain and require significant innovation. However, some public bodies are considering these, especially in areas where grid upgrades will take a long time or will be cost-ineffective.

“If the network cannot cope with what we want to do, then we have to go round a route of battery storage or something similar.”

Education

“We have sites where there is no capacity available to install heat pumps, so we will have to come up with innovative ways to reduce the current [power draw] on the grid.”

Healthcare

These barriers have also been raised extensively throughout local authorities’ LHEES, where in many cases grid capacity issues have already prevented delivery. For example, in some areas properties are already suitable for heat pumps; however, as the grid was already at capacity none can be installed. This resonates with the experience of our participants and raises questions about the possibility to meet decarbonisation targets without substantial efforts in removing grid constraints.

Time

In addition to scheduling constraints, challenges around time frames and certainty were raised as concerns. With net zero target quickly closing, there is uncertainty around whether the scale of work requires will be possible in these timeframes. One participant raised that their target was likely at risk given what is possible within reason.

“… with only 5 years left to reach our interim 2030 target and 20 years to reach net zero. Projections have been conducted to determine how many projects are required to reach both targets and without [funding and resources] in place it would be unlikely that the 2030 target is met in the timescales.”

Local Authority

Additionally, a lack of certainty around how long projects will take to complete can compound the issue. This can have knock-on impacts with regard to stretching funding timeframes too. The planned timeframes often do not account for unexpected delays and unforeseen barriers in the way, meaning projects can take substantially longer than expected. For one participant, such an experience has raised questions about deliverability of decarbonisation measures at the estate and national levels.

“Timescales [can be an issue] with these things – we applied for funding for a project over 4 months and were contracted to do that, but it took over 2 years; there can be naivety around how long things will take. Scottish Government are flexible about this, but it was supposed to be spent withing the financial year.”

Healthcare

Procurement

Participants highlighted concerns around procurement processes, with a particular focus on the scale of procuring for the whole public sector. A procurement framework was suggested, fixing fees to avoid overpricing and taking advantages of economies of scale, rather than conducting procurement exercises for individual project. A lack of confidence in procurement exercises was also raised, largely owing to a feeling of lack of control when relying on contractors and consultants.

“Driving down costs through economies of scale would be most beneficial in this regard – could Scottish Government do a fixed fee procurement exercise with three or four suppliers that specialise and then would just need to tweak it based on the buildings they go to… If there was a cost already agreed, it might take some of the overinflated pricing out of it.”

Education

“Using NDEEF framework … was only option for us [for procurement] – it makes other colleges nervous that you have to give everything over to a consultant, as it becomes out of your control but it’s still your name on funding applications etc.”

Education

Appendix C – Additional Literature Review References

Additional Literature Review Sources	Reference
CIBSE Energy Benchmarking Dashboard	(CIBSE, 2021)
Building Energy Efficiency Survey	(BEIS, 2016)
Scottish Public Sector Decarbonisation Tool	(Zero Waste Scotland, 2022)
Non-domestic Energy Performance Certificates	(Scottish Government, 2024)
Energy Systems Catapult: LAEP Guidance and datasets	(Energy Systems Catapult, 2022)
Rural / Urban Definition	(Scottish Government, 2024)
Cost Location Factors	(Turner and Townsend Cost Management, 2024)

How to cite this publication:

Waheed, H., Hartfield, B., Green, N., Hunt, V., Sandles, B., King, D. (2025) Estimating the costs and impact of decarbonising heat in the public sector ‘, ClimateXChange. DOI: http://dx.doi.org/10.7488/era/6366

© The University of Edinburgh, 2025
Prepared by Turner & Townsend on behalf of ClimateXChange, The University of Edinburgh. All rights reserved.

While every effort is made to ensure the information in this report is accurate as at the date of the report, no legal responsibility is accepted for any errors, omissions or misleading statements. The views expressed represent those of the author(s), and do not necessarily represent those of the host institutions or funders.

This work was supported by the Rural and Environment Science and Analytical Services Division of the Scottish Government (CoE – CXC).

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1. Community Services include Crematoriums, Halls, Community Service Centres, Job Centres, Law Courts, Prisons and Waste & Recycling Centres. ↑

2. Other includes various residential and transport buildings. ↑

3. Network investment costs of the domestic heat and transport transition in Scotland. (ClimateXChange, 2023) ↑

Note: This research was carried out in 2024/25, based on data available, policy and market conditions at that time. Findings should be understood in the context of the market, data availability, and policy landscape having evolved since this research was conducted.