Economic Value of Clean Heat in Scotland

The overall aim of the study was to establish a baseline to enable future monitoring of growth in the Clean Heat sector and to better understand the companies active in the sector. This is fundamental to ensuring that the delivery of the Heat in Buildings Strategy benefits the Scottish economy and provides useful insights in the context of the Heat in Buildings Supply Chain Delivery Plan.

Specific research objectives were:

• Estimate the size and growth of the sector, and sub-sectors, including:
  • Define current and historic turnover, jobs and economic impact
  • Identify projected trends in turnover and jobs to assess growth prospects
  • Quantify current exports (value and geography) and export intentions
  • Identify innovation projects/ new products
  • Identify barriers and opportunities to growth
    

• Identify the existing companies in the sector and understand how the sector operates, i.e.:
  • Identify companies (primarily from existing databases)
  • Analyse companies by size, geography, role in the supply chain and sub-sector
  • Understand their upstream supply chain
  • Understand their downstream supply chain
  • Identify their opportunities and aspirations for the Clean Heat sector

The research methodology used in this study consisted of the following key stages:

• Building a list of companies that represent the total Clean Heat sector in Scotland
• Gathering published information on these companies, including a breakdown of activity by Clean Heat sub-sector and position in the supply chain
• Conducting a telephone survey to gather primary information directly from a sample of companies to address all the specific research objectives
• Analysing the resulting data to estimate total turnover, employment, GVA and exports and a breakdown by Clean Heat sub-sector and position in the supply chain
• Grossing up this sample data to a population level

The Scottish Clean Heat sector consists of over 470 companies, with 8,300 direct employees and generated £1.66bn of turnover, annually, in the last financial year. This contributes £0.69bn of gross value added (GVA) per annum, to the Scottish economy. In addition to these direct economic impacts there will also be significant indirect impacts, arising from the use of Scottish based suppliers and induced impacts, arising from employees spending wages in the local economy.

The sector has experienced significant growth over the past three years, with employment increasing by 68%, turnover by 52% and GVA by 69% . Expectations for future growth are also very positive amongst the companies interviewed, with nearly three quarters expecting turnover to grow over the next three years and one quarter expecting this growth to increase company size by more than 50% compared to current levels. Significant continued growth in employment is also anticipated, with over half of companies expecting the number of jobs to increase over the next three years and one fifth expecting this growth to increase company size by more than 50% compared to current levels.

Just over one in ten companies export their Clean Heat products and services, compared with an estimated 3% of overall businesses in Scotland that export. An estimated £0.26bn is generated from sales of Clean Heat products and services from Scotland to export markets outside of the UK, in the most recent financial year. Three quarters of current exporters expect export sales to increase over the next three years, with one third expecting this increase to be more than 50% of current levels. Around 5% of companies expect to begin exporting Clean Heat products and services over the next three years, with Ireland, Germany and the USA being key markets identified. Sales of Clean Heat products and services from Scotland to the rest of the UK are estimated to be £0.29bn, slightly higher than exports to the rest of the world.

The Clean Heat sector is very active in innovation, with one third of companies stating that they are currently developing/planning a new Clean Heat product or service. The UK Innovation Survey 2023 identifies that 16.4% of all Scottish businesses state that they were active in product innovation between 2020 and 2022.

Whilst the Clean Heat sector consists of a number of sub-sectors, heat pumps, building energy efficiency and biomass/biogas/anaerobic digestion account for more than 80% of employment in the sector. Nearly half of employment is in manufacturing and over 20% in installation. District and heat networks was highlighted by respondents as the sub-sector with most future interest in becoming active, with one quarter indicating an interest in entering this Clean Heat sub-sector in future. The sector faces a number of barriers to growth. The most significant of these relate to lack of market demand caused mainly by the cost of electricity compared to natural gas and the lack of capital and revenue/tariff support for customers considering Clean Heat solutions. The opportunities to grow the sector, identified by the companies, mainly relate to overcoming these barriers.

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