Net zero is nowhere in sight for UK clean heat policy

air-source-intextThis post is by Jan Rosenow and Samuel Thomas of the Regulatory Assistance Project (RAP). It was first published in Utility Week.

For months, we have been waiting for the UK government’s proposal for the future of clean heat policy. After committing to a net zero carbon target for 2050, the need to take aggressive action now to drive down emissions from heating became clear. Surely the government would announce something bold or step up support for climate friendly heating technologies? We could not have been more disappointed.

The proposals finally came out last week. Under the current plans, 12,500 homes a year would receive support for switching to low carbon heating solutions, largely air source heat pumps, in the financial years 2022-23 and 2023-24. Let’s put that into perspective: last year, 1.7 million gas boilers were installed in British homes, up 1.8 per cent from 2018. At that rate, for every one new low carbon heating system, more than a 120 gas boilers will be installed.

Graph 1 - heating systems

Less than two per cent of UK homes have low carbon heating
At the moment, fewer than 500,000 UK homes have some form of low carbon heating, when not counting closed stoves or wood used on open fires. This is not even two per cent. By 2050, the new policy would only support low carbon heat in an additional 1.5 per cent of the existing housing stock. At that rate, it would take more than 1,500 years to install the 19 million heat pumps that the Committee on Climate Change says we will need to meet the net zero emission goals.

Clearly, this is incompatible with the government’s net zero target for 2050. However, the consultation document claims that “these proposals strike the right balance between making an appropriate contribution towards our legally-binding carbon budgets, supporting the supply chain for low carbon heating […], strengthening value for money, and protecting the interests of consumers.”

This is particularly disappointing as there is an immediate opportunity to reduce emissions from heating: the UK is a leading country when it comes to the decarbonisation of electricity in Europe and has made great strides towards zero carbon electricity. On heating, the UK also stands out, but unfortunately as being amongst the laggards in Europe. Only Ireland and the Netherlands are performing worse. This is a tragedy because the opportunities for reducing carbon emissions from heating have never been greater: electricity is now so clean that electrification of buildings makes a lot more sense than ten years ago. Compare the UK to the Netherlands, which faces a similar challenge, with almost 90 per cent of their eight million homes heated by gas. The Dutch government announced in 2018 that, by 2022, 200,000 homes a year will be transitioned off natural gas to alternative sources of energy.

Analysis by Imperial College shows that heat pumps can deliver a unit of heat, with carbon emissions being more than two thirds lower than gas heating. And this figure will only increase with the additional electricity emission reductions the government predicts. At RAP we recently published our thinking on the principles and policies for accelerating beneficial electrification of heating and found significant immediate potential.

graph 2 - share renewable heat
Source: https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20200211-1?inheritRedirect=true&redirect=%2Feurostat%2F

How should the change be funded?
There is some good news in the proposals too. Previously, payments for clean heat under the Renewable Heat Incentive (RHI) were made over several years, following the installation of a low carbon heating system. For those with limited capital, the upfront cost barrier often stood in the way of converting from fossil to clean. Under the new scheme, payments will be upfront in form of a grant. This simplifies the system and addresses the cost barrier.

The Clean Heat Grant will be paid for through exchequer funding, as opposed to a levy on electricity bills. This is also a welcome step, however consumers still pay a lot more of the costs of the energy transition through their electricity bills than their heating bills, with gas carrying a much lower cost burden than electricity.

The excellent work by Jake Barnes of Oxford University’s Environmental Change Institute demonstrates that this unequal sharing of costs between electricity and gas makes heat pumps less financially attractive because of the higher operating costs. Unless consumers can see a financial benefit in the form of lower operating costs, it is unlikely that a modest upfront grant will provide sufficient incentive. Experience from countries such as Sweden and Finland shows that once fossil fuel heating is no longer the cheapest option the market changes rapidly. The UK should take note.

Regulation also needs to play a central role in accelerating change. There are simply not enough public subsidies to pull the market in the right direction and away from fossil fuel heating. Other countries have led the way: Norway has banned oil-fired heating systems in all buildings, new and existing, from 2020. Oil boilers will need to be replaced everywhere. Poland has introduced tight emissions standards in most of its regions, covering all existing buildings. A softer approach involves only prohibiting the replacement of heating systems with specific technologies. The German government has announced a ban on the installation of oil heating systems by 2026, if a low carbon alternative is technically feasible.

Clean heat has to be combined with greater energy efficiency
Finally, clean heat will only be achievable at scale if combined with aggressive energy efficiency improvements across the entire building stock. Since 2012, energy efficiency installation rates have collapsed and, despite government commitments, levels of efficiency are far below pre-2013 rates. RAP has looked at the potential for energy efficiency, in previous work with the UK Energy Research Centre, and demonstrated there is still substantial potential for energy savings. The government has yet to publish its proposals for upscaling energy efficiency, but what is clear already is that, similar to clean heat, business as usual just won’t cut it.

The opportunity for the UK to decarbonise heating is great. Doing so would cut carbon, improve air quality and people’s comfort and health, and help us to achieve the legal net zero goals. This will require bold leadership and policy makers are tasked with setting out how to make it happen. It is laudable that the clean heat consultation document acknowledges “the need for a consistent, long-term policy framework” and that it “is clear that regulations will be needed to underpin the transformation of our building stock”. The Heat and Buildings Strategy, due later this year, will lay out immediate actions for reducing emissions from buildings. This needs to go far beyond the current proposals for clean heat.

[Image of air source heat pumps. Source: Flickr]

6 comments

  • You discuss upfront costs, but in the absence of legislation that forces upgrades to heat pumps out-of-pocket running costs contribute heavily to whether people decide to convert. If an upfront cost is recouped by five years of running cost savings, many people would convert without grants. If it takes ten years to recoup upfront costs, many more people will put it off. Energy efficiency achieved by insulation is only one part of this.
    If running costs for a new system are significantly higher than running costs for an existing system, then grants and taxation have to focus on ensuring that running costs reflect environmental costs of different systems more than on reducing the upfront costs.
    Heating systems are also “mission-critical” in the sense that if a heating system fails, it’s something a home-owner usually will want to fix as soon as possible. It’s a big plus for a new system if its reliability is demonstrably better than the reliability of an older system. Reliability is difficult to assess, however, and even may be concealed as a business secret, so that people are more inclined to stay with a system they think they know. On the same subject, not that gas repairs are cheap, but maintenance and repair for heat pumps has the appearance of being a premium service because uptake has been amongst people who can tolerate a higher cost.
    Sorry, I’m no expert, but whenever I’ve looked at household upgrades that factor in environmental sensitivity I’ve been struck that it is often very difficult to make comparisons and that without discretionary financial resources that many people do not have it is often very difficult to justify the upgrade. Just finding ways to give grants to persuade the upper middle classes to upgrade is hopeless.
    Best wishes!

  • Dear Peter, You pick up on some important points, none of which we would disagree with. These sorts of issues highlight the need for market transformation, driven by a comprehensive portfolio of policy measures, including reforms to energy pricing and some form of regulatory backstop to force through demand. Only in this way will buildings heat decarbonisation solutions become the new normal, driving down prices, familiarising users with new technologies and encouraging financial products to develop that allow the significant investment costs to be paid off over the long lifetimes that these measures will last for. Thanks, Sam

  • This is one of the factors that makes the case for carbon rationing so compelling.

  • A very timely article on de-carbonising heat and the massive opportunity to develop a UK zero carbon heat transition capability for home use and for export rather than buying in green technology from abroad as BAU – every crisis presents an opportunity.

    However, there are other options beyond electrification of heat. If all heat needs were converted to electric heating, plus the uptake of electric vehicle charging et al, the national grid would not cope, even if upgrades started today. This would also make the UK energy infrastructure more vulnerable to a single source of failure and attack.

    We need to have a diverse energy base, so need to include, for instance, hydrogen as a replacement for natural gas (perhaps delivered differently), as is being extensively investigated and tested by Northern Gas Network, Keele University, and other hydrogen infrastructure projects (H21, H100, etc).

  • Cara Jenkinson

    Good article and your point about whether the Clean Heat Grant will be sufficient incentive seems to be reflected in the Government’s own impact assessment of the proposed grant on page 18 of the Impact Assessment document
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881623/future-support-for-low-carbon-heat-impact-assessment.pdf.

    According to this, they are expecting less than 3000 Ground Source Heat Pumps and around 22,000 Air Source HPs to be installed by 2024 – this is way under what it needs to be for Net Zero.

  • Some important points mentioned. Interesting to see how we rank compared to other countries in 5 years time.

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