Six priorities for cleaning up UK heating

This is an Inside Track long read by Dr Richard Lowes, Professor Mari Martiskainen and Professor Sara Walker.

Whatever colour the next government is, decisions about how we transform the way we heat our homes will feature prominently in the new energy secretary’s red case.

Since the coalition government entered office in 2010, annual domestic gas production in the UK has fallen by around a third, with imports filling the gap. If the terminal decline of UK gas reserves continues as expected, the UK could be almost fully reliant on imports within 15 years.

Yet, since 2010, most new homes, over 1.6 million, have been connected to the gas grid, a problem exacerbated by cancelling the Zero Carbon Homes standard in 2015. Over a million homes have connected to the gas grid since then.

Following the cutting of so-called ‘green crap’ in 2013, the deployment of energy efficiency measures has fallen off a cliff. All of this happened, absurdly, when UK climate targets were strengthened from 80 to 100 per cent net reduction by 2050.

The stop-start nature of policies and heating and building decarbonisation programmes has failed to direct the industry, and left households unable to find energy efficiency and clean heating installers, finance or advice, primarily because the market is so small.

Historic failings are catching up with us

The gas crisis and its costs, running into tens of billions of pounds for the UK, has highlighted the exposure of the energy system to global geopolitics. Emissions from residential buildings have remained relatively flat since 2010, when they need to be reduced with haste. Six out of eight of the Climate Change Committee’s indicators for buildings are ‘off track’.

Some policy progress on heating has been made, eg the Boiler Upgrade Scheme. Its heat pump grants have increased in value and secured long term funding. Although the market has responded well, the deployment of building fabric energy efficiency measures and heat networks remains poor. In reality the rate of heat pump deployment is not much better. The next UK government has some obvious policy opportunities following the election, if there is no progress in the coming months. We propose six priorities:

1. Hurry up with the Future Homes Standard

The single biggest switch to stop the continued growth in gas heating has still not been flicked. Seven years after the Zero Carbon Homes standard was supposed to come in, the government has now committed to the Future Homes Standard, with the current consultation suggesting it will start in 2025. It will ensure emissions associated with energy use in new homes will be 75-80 per cent lower than under current building regulations. Yet, with up to 12 months of bedding in and another year transitional period proposed, delays seem likely. Even if regulations are laid immediately, there could still be fossil fuel heating fitted in new homes for two years or more. Regulatory timescales could be tightened but laying this legislation quickly deserves prioritisation.

2. Rebalance energy prices

How can it be that when the government is trying to encourage the electrification of heating, transport and industry, electricity faces taxes and levies that gas does not? Policy has ensured that the energy market actively disincentivises electrification. The government has recognised this problem. In 2021, it even committed to a call for evidence into ‘fairness and affordability’, with decisions due in 2022, but nothing has yet been published.

To energy economists, the current situation is incomprehensible and should be a priority for any climate-concerned government. This is not necessarily about new money but about moving incentives around. A pragmatic approach might be to remove all levies from electricity and eventually shift them onto gas, with the government saddling some short term costs.

Rebalancing prices should happen in the context of a fairer, more affordable energy system. Policies like the Winter Fuel Payment need reviewing, and we recommend options for further capital and bill support for the most vulnerable.

3. Show us the money with zero cost loans

Decarbonising buildings is undoubtedly capital intensive upfront but has long term paybacks. Private finance is already available for retrofits via specific green loans and mortgages, but these are niche offerings and unsuitable for certain tenures and residents who can’t afford them. In Germany, low cost, long term loans, including some subsidy, have been available for years for household energy efficiency and heating system retrofits. The Climate Change Committee has called for a similar approach in the UK.

The Green Deal policy of 2012-15, based around a loan with payback through fuel cost savings, failed to deliver efficiency anything near the scale expected and it was eventually scrapped, partly because of high interest rates. Nothing since has replaced its ambition.

A government-backed low cost loan system to support energy efficiency, heat pumps and solar for households is a no-brainer and would involve only administration costs. If heat and buildings are an infrastructure priority — which we think they are — the government should use its financial power to support it.

4. Drive local planning and resource local authorities better

Most local councils have declared a climate emergency but don’t have the power, expertise or resources to do anything about it. Although the 2023 Energy Act introduced powers to support heat network zoning, much more local involvement is needed.

The lack of local focus is a known issue with the 2021 Heat and Buildings Strategy. While Ofgem is taking steps to corral networks and the Future System Operator around more local issues, it’s still not apparent where local politics fits in.

The issue is multifaceted, with complex stakeholder management and no obvious solution, but it is a vital part of the heat and buildings puzzle. Policy innovation and place-based delivery models are needed. The local area energy planning expertise of the Energy Systems Catapult, which the government has poured resource into for years, is a good place to start.

5. Fund targeted communication and advice

With the government heralding a heating transformation, one might expect there to be a central service advising people how to switch to greener heating systems and make their homes more efficient.

There are some resources and a phone number on the government’s website but recommendations tend to be generic and impractical. It unhelpfully proposes, for instance, that someone who lives in Cornwall should consider using a solid wall insulation company in Sheffield.

Austerity saw the Energy Saving Trust’s funding cut by half. More funding is critical to provide clear and independent advice, a service the trust previously offered. Linked with the local community, planning and health authorities, advice centres could, alongside centralised advice for homeowners, help to reduce local fuel poverty and greenhouse gas emissions.

6. Regulate the networks for consumer-focused delivery of net zero.

Ofgem now has a legal duty to ensure its decisions support the Climate Change Act goals and carbon budgets; the Energy Act has also given it responsibility to protect heat network customers.

This year, Ofgem will carry out a price control review to determine the next investment and business plans for gas distribution and transmission and electricity transmission networks. This will be complex; gas distribution networks need to be regulated to shrink them while the electricity transmission system is expanded rapidly. At the same time, network performance needs to be enhanced to simplify connection of renewable generation, heat pumps and vehicle charging. It can still be painful to even get a basic network fuse upgrade to allow a heat pump.

Alongside tighter regulation to grow power and heat networks, consumer-focused performance regulation is needed. The imminent strategy and policy statement from the government to Ofgem could certainly help.

Governing to join the dotsThese six priorities are basic requirements to clean up UK building energy use. But there are other policy needs, including upping the installation of building fabric efficiency measures, the refinement of the expected Clean Heat Market Mechanism and cross sector action to increase flexibility and storage between buildings, electric transport and the wider electricity system.

The heat transition is a major undertaking that warrants sufficient civil service capacity and parliamentary time. But, even with extra capacity, it’s not clear that existing structures are capable of this change in such a short time.

Central oversight of the transition and the various regulatory and government organisations involved is needed. Beyond proposed reforms to National Grid ESO, which appear positive, there’s no sign yet that the government is joining the dots. As proposed by expert researchers over four years ago, the UK needs a central co-ordination body, like an Energy Transformation Commission. The complexity of heating and buildings is a prime example of where this role is desperately needed.

 

Richard Lowes is senior associate at Regulatory Assistance Project, research fellow at Exeter University and specialist advisor to the Environmental Audit Committee, focused on clean heating and buildings.

Mari Martiskainen is professor of energy and society and director of Energy Demand Research Centre (EDRC) at the University of Sussex Business School.

Sara Walker is professor of energy at the University of Birmingham, and co-director of EDRC, with a research interest in the active role of buildings in integrated energy systems.