The tax hitch slowing efforts to grow district heating in Scotland

Industry News
13 September 2019

Full article originally published in The Herald – Scotland

One of the most obvious alternatives to inefficient single-home gas boilers are district heating systems, where hot water is pumped around multiple properties. However, there is a tax disincentive for such schemes. One that has put local and national authorities at loggerheads.

Glasgow City Council, which has set itself a target of getting to zero-net carbon by 2030, wants to invest in district heating. However, if it does so, it will have to pay out non-domestic rates. That is because district heating systems are regarded as businesses and taxed – remarkably, say city insiders – more than the utilities which supply gas or electricity to personal boilers.

The city bought and paid for a district heating system for the neighbourhood created as a legacy of the 2014 Commonwealth Games. This hefty gas-fired system heats hundreds of homes as well as the landmark Emirates indoor sports arena. That comes with a tax bill of first £137,000 a year and now – thanks to a Scottish Government cut – £70,000. The city has decided to take this on board, so that residents do not pay. But officials stress they cannot foot the tax bills of the network of district heating systems they would like to encourage, perhaps under a municipal energy firm.

Councillor Anna Richardson explained: “District heating systems have clear potential to deliver cheaper, cleaner energy into people’s homes. Having communities across the city linked to single sources of warmth, rather than homes relying on individual boilers, would undoubtedly support Glasgow’s effort to decarbonise. But the way district heating systems are treated in the local tax system acts as a deterrent to them being used more widely. Unfortunately, under present rules, installing district heating systems brings in significant new non-domestic rates and that adds unduly to the cost of heating homes. Most district heating systems and individual gas boilers both draw their energy from the gas network, but homes heated from a district system are effectively penalised. At the Commonwealth Games Village, a 50% rates rebate agreed by the Scottish Government has helped, but until district heating systems are competitive with conventional gas heating we won’t be able to move forward. We need the government to cut through this problem if district heating systems are to contribute to the city’s drive to achieve carbon neutrality.”

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