Review of the Heat and Buildings Strategy

Last month the government announced the long awaited Heat and Buildings Strategy [1] which sets out plans to convert this sector to net zero GHG emissions. This came out almost at the same time as the wider Net Zero strategy [2]. One aspect I was particularly interested to see was the plan for hydrogen in heating – there is still indecision in this area we will have to wait until 2026 for more certainty. Another aspect is the balance between electricity and gas energy costs, also support for retrofitting heat pumps into homes and building up the supply chain for retrofit. There are definitely some good things in this policy but some serious gaps.

Scenarios: high hydrogen, high electric or in-between? 

The future role of hydrogen is still uncertain and the Net Zero Strategy refers to three scenarios for heating in the future. In all cases, heat pumps have a very large role. As well as the net zero in 2050 target there is an interim target to reduce GHG emissions from this sector by about two thirds by 2035.

By 2035, the target is for 13 million homes to be on low carbon heating of which two million will be on heat networks. For the rest there are different scenarios. If hydrogen does not work out, almost all the rest will be on heat pumps. If hydrogen does work out, then we can expect up to 4 million on hydrogen gas by 2035 and 7 million on heat pumps. Or, it could be something in-between.

Whatever happens, at least a third of homes in the UK need to be heated by heat pumps by 2035 – a lot more than on hydrogen.

Where will the two million homes on heat networks get their heat?

Low carbon heat networks are useful for high density developments or apartment blocks with a suitable source of local heat. This could be a heat pump or other low carbon fuel, but local waste heat sources are even better so these decisions have to be made locally. For example, abandoned and flooded mines are under consideration in a number of areas [4]. The Heat and Buildings Strategy mentions schemes in the North East region and the Tees Valley. It also mentions a report which was published recently on opportunity areas for district heating [5]. This discusses using heat from power stations (low carbon nuclear, biomass and biogas); waste heat from industry such as cement factories and crematoria and waste incinerators as well as lower grade sources such as the aforementioned mines, data centres and electricity substations.

Decisions on hydrogen in 2026, first town by 2030 maybe.

The HyDeploy trial of heating an area with a blend of 20% hydrogen by volume in the gas grid has already completed successfully [3]. But given that hydrogen is low density compared to gas, 20% by volume is only 7% hydrogen by energy.

The first major trial of 100% hydrogen in homes in the pipeline: the H100 trial in Fife, Scotland should complete in 2023. This will involve about 300 homes. The next scale up will be a village trial in 2025 and plans will be made for a town trial in the same time frame. If the town trial goes ahead it should be in place by ‘the end of the decade’. However, ‘strategic decisions’ will have been made before this is complete, in 2026 [1]. (I am not holding my breath). If hydrogen is to go ahead, then from 2026 onwards only hydrogen-ready boilers will be allowed to be installed. (Ultimately the grid will be switched to hydrogen in chunks and this is impractical until all the boilers are ready for a speedy conversion.)

A consultation on how to level up energy costs between electricity and gas.

Currently, unit costs for electricity are four to five times that for gas so even with the energy efficiency advantage of heat pumps they are going to be more expensive to run. However, it is worth remembering that heating with hydrogen gas will be more expensive than we are used to with natural gas. Even the cheapest low carbon hydrogen, made from methane with carbon capture and storage could easily cost twice as much [6]. 

In the meantime, while we are on natural gas, we have a problem, or at least we will do assuming the current high price of gas is a spike and not a new normal. The government is going to consult on options to rebalance energy prices so that heat pumps are not more expensive than gas this decade. Options may include shifting environmental taxes such as the Energy Companies Obligation (that funds energy efficiency measures for low income households) and the Feed in Tariffs, possibly to gas. This consultation will be called the Fairness and Affordability Call for Evidence.

EPC C is good enough for heat pumps

The consensus seems to be that a heat pump can be retrofitted with reasonable efficiency in homes with an EPC rating of C or above. That is not to say further improvements are a bad thing, just that they are not necessary for low carbon heating. There are lots of other benefits from energy efficiency.

However, the majority of our homes are not yet at this level. The strategy has a nice map (Figure 5) which shows the proportions of homes at EPC C or above in each region of England. This ranges from 35% up to 45%.

Figure 5 from [1] Proportion of homes rated EPC band C and above, by region (England) 

Support for low income households and off gas grid homes

Help is/will be provided with fabric improvements – with funding boosts over 2022-2025:

• for low income households via Local Authority Delivery schemes (£500m already provided)
• for off gas grid homes, the Home Upgrade Grant from 2022 (£950m extra)
• for social housing stock that is currently below level C through the Social Housing Decarbonisation Fund (£800m extra)

The Minimum energy efficiency standard for the private rented domestic sector will be raised to C; B for non-domestic.

The Clean Growth Strategy already committed to improve as many homes as possible to EPC level C by 2035 ‘where cost-effective practical and affordable’. However without regulation it is hard to see how this can be achieved. The Net Zero Strategy commits to uprating the Privately Rented Homes standard to EPC C by 2028 (currently it is E) and they hope that the funding above will bring owner occupied fuel poor homes up to the same standard by 2030. For commercially rented schemes, the minimum standard is to be level B by 2030.

Increasing house value could (!) be an incentive for the rest of us.

There is not much here for people who do not qualify for low income benefits. The Heat and Buildings Strategy seems to think that it will happen by itself because upgrading homes increases their value. They mention research that shows that EPC C is worth 5% more than EPC D but they do not give a reference for this and I have not found it unless it is this one from 2013 which was not very clear cut even then. (I wrote about it here.) Money Supermarket reckons on a difference of 2% between D and C on average but this varies by region, depending on market conditions. The price premium is lowest in London and the South East, highest in the South West.

The Boiler Upgrade Schema is a grant for installing heat pumps.

The Renewable Heat Incentive will finish in April next year and will be replaced by something called the Boiler Upgrade Scheme, providing grants of £5000 for replacing boilers with heat pumps. I must say it is rather confusing calling a grant for heat pumps by this name. I have not found any details on the conditions for this grant – I predict a minimum EPC rating of C. £5,000 is only going to be enough for quite small homes that are already energy efficient - see my earlier post How much does it cost to install a heat pump . However, costs are supposed to decrease over time.

Yes, the supply chain could grow fast enough to do all this - if all goes well.

Previous attempts to ‘kick start’ the retrofit economy have failed miserably mainly because schemes were short lived. It takes continuing support to persuade the industry that it is worth investing in the training necessary, and in wading through the bureaucracy involved in taking part in government grant schemes.

Given convincing signals, we are told that existing builders will retrain as necessary for retrofits and heating engineers are likely to retrain as heat pump installers. This I can well believe. Retrofitting energy efficiency measures into homes requires standard builder skills, though some of the methods will change. Surveying and planning retrofits is a different game entirely and we are sorely lacking in retrofit assessors and coordinators as well as installers. 

The expectation for heat pumps is 600,000 installs per year by 2028. Scaling up estimates from the Heat Pump Association this will mean 20,000 installers. Given a starting pool of 140,000 plumbers and heating engineers this should be doable. Training for heat pumps is often provided by the manufacturers – they say they have capacity for 7,000 courses per year. However, other organisations also provide courses that are less product specific and are often preferable.

On the retrofit side we need another 100,000 installers, 15,000 assessors, and 10,000 retrofit coordinators. A lot of courses have been setup recently alongside PAS 2030 and PAS 2035. 

As well as installers, the supply chain also needs products. The government is hopeful that manufacturers will set up in this country to supply the domestic market and export to other countries too. Innovation is an important part of the plan and there is funding for this via the Net Zero Innovation Portfolio (NZIP) with £1 billion funding. However that fund is not just for buildings and heating, it is for all the net zero technologies including carbon capture and storage, future wind energy, hydrogen and industrial fuel switching.

Summary: the good and the bad.

Hydrogen is being kicked into the long grass again. The important thing is the recognition that the requirement for a rapid transition can only be met by heat pumps and other existing technologies, at least for the next decade or so. Even in the high hydrogen scenario the target is for 7 million homes on heat pumps by 2035 - about a third of the stock.

The lack of financial support for fabric efficiency except for low income homes is sad, and the lack of incentives for owner occupiers more so. Levelling up the prices of gas and electricity will help a lot as it make energy efficiency more financially attractive to householders currently on gas. But we have to wait longer for that as the Fairness and Affordability Call for Evidence has not even been launched yet. Relying on increasing house value from increasing efficiency rating is laughable.

The Boiler Upgrade Grant (for heat pump installation) is a huge improvement on the Renewable Heat Incentive because it is paid up front when you need to pay for the install. I imagine the fixed level of grant will reduce the paperwork and incentivise the industry to reduce their costs. Hopefully this will be enough to stimulate growth in both demand and supply for heat pumps. But this seems a bit of a gamble.

We still have an uphill struggle in convincing home owners that they need to take action now. We are very good at banging the table for industry to get its plans for net zero in place, but less so for ourselves. Obviously not everyone has the means right now but if you do, now is a good time to get on with it. Personally, I have a heat pump in my house at last (though I have not had it long enough to report usefully on its performance.)

[1] Heat and buildings strategy (www.gov.uk) Oct 2021

[2] Net Zero Strategy: Build Back Greener (www.gov.uk) Oct 2021

[3] First UK trial of hydrogen blended gas hailed a success (Hydeploy) Sep 2021

[4] How flooded coal mines could heat homes (BBC) July 2021

[5] Opportunity areas for district heating networks in the UK: second National Comprehensive Assessment (www.gov.uk) Sep 2021

[6] Hydrogen production costs 2021 (www.gov.uk) Aug 2021