Heat: a policy chasm on the route towards net-zero

12 May 2020

Originally posted May 12th.

Introduction

BEIS released a suite of documents regarding ‘clean heating’ policy in April, which included most importantly details of what will follow on from the RHI[1]. This policy consultation comes in advance of a long-awaited energy White Paper and in advance of a heat and buildings framework expected to be released later this year.

We are also awaiting a Government response to the Future Homes Standard Consultation (the standards new builds from 2025) along with details on changes to building regulations in advance of the Future Homes Standard. These changes may bring in new regulations for off-gas grid heating systems as well as an uplift to the energy efficiency requirements for new builds in advance of 2025.

There is already a lot going on and publishing the consultation at all should be congratulated given the extremely difficult and busy times the civil servants are operating in.

The release of information and consultations contained three elements:

Details of upcoming changes to the RHI which for domestic has been given an extra year’s cash and some other notifications[2].
A consultation on the closure of the non-domestic RHI scheme and ongoing questions[3].
A consultation on future clean heat support following the closure of the domestic RHI[4].

The first two elements are primarily administrative but worth a look if you are interested in heating. It’s the 3rd element which is the most interesting with two key and contrasting takeaways: (1) the actual proposal for cash support for low carbon heating systems is minimal and far from aligned with goals for net-zero (2) the language and style of the consultation is transformational.

While the language used may be positive, the actual substance of the proposals appears to be nothing short of terrible for heat decarbonisation in the UK. This is fundamentally because of the proposed quantity of support and based on that, expected deployment.

Background

The UK Renewable Heat Incentive (RHI) first opened to applicants in the non-domestic sector in 2011. Following this, householders could get support through the Renewable Heat Premium Payment grant scheme and the full domestic RHI scheme opened for applications in 2014. The plan was to unleash renewable and low carbon heating, meet renewable energy goals and develop a low carbon heat market ready for mass deployment in the 2020s.

The intention was, as DECC said, that ‘the domestic RHI policy is key in developing the renewable heat market enough to enable successful mass deployment in the 2020s’[5]

Whilst it has always been good to have a renewable heat incentive – a much-needed buttress to the electricity dominated renewable support schemes and because it maintains an open policy space, the RHI has failed. This is because: (1) Deployment overall has been much lower than expected, the NAO report suggested that by the end of the scheme (April 2021) just 22% of the expected number of installations would be completed[6]. (2) The deployment of bioenergy (biogas, biomass, and bio-CHP) has dominated the scheme, at a scale much greater than the more strategically important technologies (heat pumps) and as a much greater proportion of the scheme than was originally suggested[7][8].

Figure 1. Based on BEIS RHI deployment data, my own workings[9]

In 2016, the CCC reported that the domestic retrofit heat pump market, one of the most important markets for growth in the UK’s move towards low carbon heating, had remained roughly flat for the previous few years[10]. This was despite the introduction of the domestic RHI in 2014.

Figure 2. Annual number of heat pumps installed under domestic RHI since 2016. Based on BEIS numbers[11] and my own calculations.

Modifications to the scheme increased the air source heat pump tariff in 2018 and there has been some recent increase in air source heat pump deployment as shown in Figure 2 above. In 2019, the RHI supported 10,667 domestic heat pumps and 360 non-domestic. A total of 11,027.

While the recent increase is positive, in the overall perspective of the UK heating appliance market this is a tiny increase compared to the 29 million existing homes[12]. The RHI data shows that so far across the scheme, both domestic and non-domestic, since 2011, the RHI has delivered approximately 59,000 heat pumps with the vast majority, around 57,000 in the domestic sector. If we assume a similar rate of increase over 2020 and 2021 we can expect around 75,000 heat pumps by the original expected scheme closure date.

The 2013 scheme impact assessment for the domestic RHI suggested around half a million heat pumps by 2050[13] and clearly the scheme is way off track and has been for some time. The issues with the RHI have picked up by many including my myself[14], the NAO[15] and the Public Accounts Committee[16] and with the clear and ongoing failures, one might have thought a more serious revision of the RHI would have happened rather than the tariff changes made in 2018 (which were sensible but clearly not radical enough).

The current consultation

The non-domestic RHI is being closed in April 2021 and the domestic RHI was given an extra years funding in the 2020 budget taking it to April 2022[17]. Beyond that, there has been no further information available on support for renewable and low carbon heat up until the current consultation. The new consultation proposes two elements of support.

The deployment of ‘green gas’ via a levy. This is primarily to support the deployment of biomethane, biogas produced from organic material that is then injected into the gas grid. This policy idea was already announced in this year’s budget[18].
The second element of proposed support is for a ‘Clean Heat Grant Scheme’. This is expected to support small heat pumps and to a limited degree biomass, both up to 45kw capacity. This is proposed to be available for domestic and non-domestic settings and is suggested to be based around a grant payment of £4000.
The shape of both elements comes at no huge surprise. There has been a general expectation that more biogas can be produced from waste, that more support would be offered and that grant support should be used for building level heating systems rather than tariffs.

Funding the green gas scheme via a levy on gas bills makes sense and arguably more costs (perhaps even the legacy costs of the RHI or the clean heat grant costs) should be put on gas bills. This could (in part) reflect the carbon impact of gas and rebalance gas and electricity pricing, an important issue highlighted by the Energy Systems Catapult[19]. The details of the green gas levy scheme are still being worked through – very much one to watch.

Detailed analysis

Overall the funding allocated to the ‘green gas’ levy far outweighs the support for building level heating systems with around £2.2 billion for the green gas levy and £100 million for the clean heat grant. These numbers can’t be directly compared because the green gas levy lasts for four years compared to the two of the clean heat grant. This may simply have been decided because the levy is funded by bills rather than Government funds which pay for the grant (this looks better for Government finances). However, as the impact assessment recognises, the carbon savings per pound spent are much higher for the clean heat grant than for the green gas levy. A serious rethink on allocations of funding would be sensible. Just because something looks better on Government accounts does not make it good policy.
In considering the previous point, it is also worth considering that the scale of biomethane is limited because of the limited waste resource, something recognised in the consultation impact assessment[20]. It is very important that the scheme doesn’t support the use of energy crops. There are also questions over whether the best use of this biogas is in homes and generally the role for biogas for space heating is seen to be limited whereas electrification is likely to be more important simply because electrification can be scaled up, biogas resource is limited and electrification of heat is likely to be cheaper than using biogas. This is reflected in various system cost-optimisation models and if you want more information on bio-energy and its limits I’d recommend the CCC’s 2018 biomass review[21]. It is fair to say that the scope for electricity to decarbonise UK space heating is much higher than bioenergy/biogas. This policy announcement does not reflect that.
The new ‘Clean Heating Grant Scheme’ takes one sensible steps for UK heat policy. For many years now, people have been calling on the RHI to become a grant based scheme[22][23]. It is good that this change will happen because an issue for most is access to capital. It does however feel a bit backwards that when we should now be aiming for mass deployment using markets, we are moving back to a more basic policy measure. But we are where we are.
The big questions of course are, what is the right amount of support for each heat scheme, and how much should the total amount of support be? The consultation proposes a flat sum for ground source, air source and biomass boilers of £4000, an amount suggested by parts of the heat pump industry. As Andrew Rendel has pointed out, concerns over ‘picking winners’ of different heat technologies does not mean Government should necessarily provide a flat level of support to all heat pump and biomass technologies[24]; bigger heat pumps cost more and ground source are more expensive – but with bigger systems the benefits are bigger too. This needs a careful re-think.
Care also needs to be taken on how biomass boilers are regulated. Current proposals suggest they will only be allowed in buildings where heat pumps are not suitable. With the level of retrofit required for net-zero, only very few buildings should not be suitable for heat pumps in a net zero world. The CCC’s net-zero support suggests an extremely limited role for biomass combustion in buildings, limited to hybrid systems in a deep decarbonisation scenario[25].
Hybrid systems appear not to be supported. On the face of it, this may be a good thing because of concerns over gaming (i.e. one could have a hybrid system, get your £4000 and then never use the heat pump). But, hybrid systems may have value in certain locations, in particular in big leaky homes on the gas grid where heat pump could be backed up by a lower carbon form of gas. Perhaps some support should be available for hybrids, maybe just a bit less?
Solar thermal is not expected to be supported. This is a complicated issue and is not followed up in this blog. I will come back to this in the following months.
The consultation impact assessment, based on budgets, suggests the policy will support the heat pump market at roughly the same rate as the RHI currently does. The numbers expected deployment numbers are shown below in Figure 3. Fundamentally, the Government is proposing to support heat pumps at a level already deemed to be failing and which is in no way commensurate with net-zero by 2050.

Figure 3. Projected deployment under clean heating grant, p18[26]

A disappointing level of ambition

With the domestic RHI extended to April 2022 as is, the Clean Heat Grant scheme proposes funding for the two years following its closure. This is already a short investment horizon. Figure 3 above shows expected deployment under the scheme for each technology.

Aiming for a central scenario of 12,150 heat pumps a year is basically aiming for current levels of deployment. It is also extremely important to remember that this is a demand-led scheme and there are currently no regulations (sticks) to drive home and building owners away from fossil fuels. It is very possible people won’t use these grants.

A combination of regulation and grant support is needed to promote uptake. At the moment, there is only a grant – regulation is absent, as is wider encouragement. If the Government is keen to make progress in the decarbonisation of the off-gas grid sector this decade it’s also important to note that with around 1 million homes using oil heating, the number of installs proposed won’t get very far. It’s not clear what the number of systems supported relates to or whether it has just been based on available budget.

The longer-term context here is that the CCC has said that 19 million heat pumps are expected to be needed by 2050[27]. A straight line trajectory from 2020 implies around 630,000 heat pumps a year. Clearly the ambition in this consultation will not meet the net-zero goal.

Furthermore, with new homes being connected to the gas grid at a rate higher than the deployment of heat pumps, the UK is still going backwards in relation to the decarbonisation of heating homes.

The Future Homes Standard (FHS) is intended to change this but doesn’t come into force until 2025 – and at that time no new home is expected to be able to have fossil fuel heating. That’s still 5 years away and whether or not it will be implemented is also open for question given that the zero carbon homes standard was supposed to be introduced in 2016 and was scrapped before its introduction.

Perhaps there is another side to this story?

The rhetoric and language within the consultation is very positive, even if the reality of the numbers is poor. Plenty of suggestions of greater regulation, use of market structures, role for electrification and so on. The civil servants who wrote it clearly get all the issues. There’s talk of all these big things coming up including the future home’s standard, the ban of fossil fuel heating in off-gas grid areas, and a ‘heat and buildings strategy’ expected later this year. They are even explicitly clear how importantly they view heat pumps:

‘Heat pumps are one of the primary technologies for decarbonising heat. Looking towards 2050, heat pumps could enable us to almost completely decarbonise heat alongside the decarbonisation of electricity generation. We are also researching the safety and feasibility of using hydrogen in the gas grid as an alternative way of providing heat at the scale required for net-zero. However, while that work is ongoing it is not an option for the short-term.’ P26

The £9 billion for energy efficiency which was first mentioned in the Conservative manifesto is also discussed in the consultation document. That’s good stuff of course but £9 billion over a decade represents £1 billion a year. The Committee on Climate Change have suggested a figure of £15 to £20 billion a year investment in buildings is needed for decarbonisation[28]. We are miles away from where we need to be.

While the mood music may be good, industry and homeowners can’t invest in mood music alone. Transformative policy is needed.

Of course, this transformative policy development may (one can hope) be going on behind the scenes, but the consultation document alarmingly provides no clear sight of it.

Conclusion

A research paper I’ve written which is about to be published in journal Energy Policy shows that policy makers view the issue of UK heat decarbonisation as fundamentally disruptive and uncertain with little upside for consumers[29]. I’d be very surprised if the Government was, behind the scenes, preparing for transformative policies of the scale needed if it is also at the same time publicising support for 12,000 heat pumps a year.

It would be very valuable for both the industry, researchers and society to know what is going on within the Government with respect to net-zero and I really hope the upcoming ‘heat and buildings strategy’ provides some desperately needed clarity. Currently, it looks like we’re planning for failure. Heat decarbonisation timescales are extremely tight, but we do have three decades to act.

While of course work must get underway on the longer-term policy and governance reform needed to deliver a heat and energy efficiency transformation, the immediate priority now should be to ensure that the proposals for the clean heat grant are significantly strengthened with higher deployment planned for. Serious thinking also needs to happen with regards to how low carbon heating is financed. The funding allocation split between ‘green gas’ and the clean heat grants is a very important ongoing issue and there is the potential here for much greater creativity, reflective cost allocation and therefore wider market impacts.

As Catherine Mitchell pointed out on Twitter, this heat problem is fundamentally a leadership issue. It should come as no surprise to anyone working in this sector that there is no strong political will for heat decarbonisation. Without political will, clearly change will be limited.

If you want to get this policy changed then, the only thing to do is to try and increase that political will. Success can happen but only if passionate and interested people make the time to do it and take a leap. While it might not have been a huge success, the RHI had strong political momentum and was supported by industry and environmental NGOs eventually speeding up its introduction in 2011[30].

There are a few things interested parties can do:

Contact the civil servants and respond to the consultation
Contact the politicians, both MPs and relevant ministers
Organise or form coalitions. Together people are stronger
I’ll be developing a consultation response so do get in contact. Feel free to quote this blog and of course let me know if you think anything is wrong or needs updating

Thanks to Professor Catherine Mitchell for commenting on an earlier version of this blog. In particular, you were right to say that shaping a blog on heat decarbonisation around Lady Gaga’s best song, ‘Born this way’ may not be appropriate. Apologies to readers for any proofing errors.

References

[1] https://www.gov.uk/government/consultations/future-support-for-low-carbon-heat

[2] https://www.gov.uk/government/publications/changes-to-the-renewable-heat-incentive-rhi-schemes/changes-to-rhi-support-and-covid-19-response

[3] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881625/non-domestic-renewable-heat-incentive-2021-reforms-consultation.pdf

[4] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881622/future-support-for-low-carbon-heat-consultation.pdf

[5] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/211978/Domestic_RHI_Impact_Assessment.pdf

[6] National Audit Office, 2018. Low-carbon heating of homes and businesses and the Renewable Heat Incentive [WWW Document]. URL https://www.nao.org.uk/wp-content/uploads/2018/02/Low-carbon-heating-of-homes-and-businesses-and-the-Renewable-Heat-Incentive.pdf

[7] Lowes, (2018) The RHI: What could you do with £23 billion? April 2018 | Scottish Renewables Conference, Scotland | Slides

[8] National Audit Office, 2018. Low-carbon heating of homes and businesses and the Renewable Heat Incentive [WWW Document]. URL https://www.nao.org.uk/wp-content/uploads/2018/02/Low-carbon-heating-of-homes-and-businesses-and-the-Renewable-Heat-Incentive.pdf

[9] https://www.gov.uk/government/statistics/rhi-monthly-deployment-data-march-2020-quarterly-edition

[10] Committee on Climate Change, 2016. Next Steps for UK heat policy [WWW Document]. URL https://www.theccc.org.uk/wp-content/uploads/2016/10/Next-steps-for-UK-heat-policy-Committee-on-Climate-Change-October-2016.pdf

[11] https://www.gov.uk/government/statistics/rhi-monthly-deployment-data-march-2020-quarterly-edition

[12] https://www.theccc.org.uk/wp-content/uploads/2019/02/UK-housing-Fit-for-the-future-CCC-2019.pdf

[13]DECC, 2013. Domestic RHI Impact Assessment ( IA ) Summary [WWW Document]. URL https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/211978/Domestic_RHI_Impact_Assessment.pdf

[14] Lowes, (2018) The RHI: What could you do with £23 billion? April 2018 | Scottish Renewables Conference, Scotland | Slides

[15] National Audit Office, 2018. Low-carbon heating of homes and businesses and the Renewable Heat Incentive [WWW Document]. URL https://www.nao.org.uk/wp-content/uploads/2018/02/Low-carbon-heating-of-homes-and-businesses-and-the-Renewable-Heat-Incentive.pdf

[16] Public Accounts Committee, 2018. Renewable Heat Incentive in Great Britain [WWW Document]. URL https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/696/696.pdf

[17] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf

[18] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf

[19] https://es.catapult.org.uk/case-studies/rethinking-decarbonisation-incentives-for-net-zero-policy/

[20] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881623/future-support-for-low-carbon-heat-impact-assessment.pdf

[21] Committee on Climate Change, 2018. Biomass in a low-carbon economy [WWW Document]. URL https://www.theccc.org.uk/publication/biomass-in-a-low-carbon-economy/

[22] Committee on Climate Change, 2016. Next Steps for UK heat policy [WWW Document]. URL https://www.theccc.org.uk/wp-content/uploads/2016/10/Next-steps-for-UK-heat-policy-Committee-on-Climate-Change-October-2016.pdf

[23] Lowes, (2018) The RHI: What could you do with £23 billion? April 2018 | Scottish Renewables Conference, Scotland | Slides

[24] https://www.linkedin.com/pulse/beis-plans-clean-heat-good-bad-ugly-andrew-rendel-cfa/?trackingId=HtJciumFSYKLojnIHDjPBg%3D%3D

[25] Committee on Climate Change, 2019. Net Zero Technical report [WWW Document]. URL https://www.theccc.org.uk/wp-content/uploads/2019/05/Net-Zero-Technical-report-CCC.pdf

[26] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881623/future-support-for-low-carbon-heat-impact-assessment.pdf

[27] Committee on Climate Change, 2019. Net Zero: The UK’s contribution to stopping global warming [WWW Document]. URL https://www.theccc.org.uk/wp-content/uploads/2019/05/Net-Zero-The-UKs-contribution-to-stopping-global-warming.pdf

[28] Committee on Climate Change, 2019. Net Zero: The UK’s contribution to stopping global warming [WWW Document]. URL https://www.theccc.org.uk/wp-content/uploads/2019/05/Net-Zero-The-UKs-contribution-to-stopping-global-warming.pdf

[29] Lowes and Woodman, (2020), Disruptive and uncertain: policy makers perceptions of UK heat decarbonisation. Energy Policy. In press. Let me know if you’d like a preprint.

[30] Lowes, R., Woodman, B., Fitch-Roy, O., 2019. Policy change, power and the development of Great Britain’s Renewable Heat Incentive. Energy Policy 131, 410–421. https://doi.org/10.1016/j.enpol.2019.04.041

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