Please note that this research was conducted before gas prices increased at the end of 2021.The analysis is based on energy prices and installation costs at the time the research was undertaken, in late 2020.

The Scottish Government intends to develop new building standards to ensure all new homes use zero emissions heating at the point of use from 2024. Similar requirements are also due to be phased in for non-domestic buildings.  

This report looks at the costs of delivering zero emissions heating in domestic and (as far as possible) non-domestic new buildings. It identifies the factors that influence these costs and how they are split between different actors, including building developers, building owners and building users over the lifetime of a technology. 

We used a literature review and stakeholder interviews to inform a cost analysis model, which was used to analyse six new build scenarios: Scenario 1: Private housing development; Scenario 2: Mixed-use build-to-rent development; Scenario 3: Social housing development; Scenario 4: Small-scale rural development; Scenario 5: Student accommodation; Scenario 6: Primary school.

The cost analysis considered six zero emissions heating technology options within the cost analysis: air source heat pumps (ASHPs); ground source heat pumps (GSHPs); on-demand direct electric heating (dry system); direct electric heating (wet radiator system); new district heating network; and connection to an existing district heating network. It also considered building-level solar PV as an additional electricity source to feed into the selected electric heating system.

Key findings

Cost analysis

• In all six scenarios, the use of zero emissions heating technology options represented lifetime cost increases ranging from 25%-231% compared to the equivalent lifetime cost of heat supply using gas boilers.
• There is a significant difference in the cost optimum zero emissions heating solution, depending on whether it is considered in terms of capital expenditure (CAPEX), electricity running costs or lifetime costs.  
• Individual ASHPs appeared cost optimum on a lifetime cost basis in the scenarios with less dense developments. Lifetime costs were significantly lower in the scenarios where it was assumed that new developments could connect to an existing district heating network. A new district heating network also appeared cost optimum in the high-density mixed-use development.
• Since grid constraint costs were excluded from the analysis, wet and dry electric heating options offered a significantly lower capital cost, but with higher electricity running costs. 

Stakeholder analysis

• The stakeholder interviews highlighted how the choice of which zero emissions heating technology to use in developments was driven by more than just cost considerations. Commercial delivery models and the role that a developer played in a development after construction  were also key factors.
• Delivering zero emissions heating was perceived as a significant change in existing development processes for some interviewees; design and delivery processes were still being optimised and refined. There was greater evidence of innovation in the social housing sector. 
• This study highlights a potential gap in the sector for energy service organisations to deliver technology options with higher capital costs but lower running costs (i.e. optimising use of lowest lifetime cost).