News

On the 18th October the Heat and Buildings Strategy was published alongside the Net Zero Strategy. In the article below Meysam Qadrdan and Jianzhong Wu provide their initial thoughts on the heat strategy.

Prior to this, on the 7th October the Scottish Government published their Heat in Buildings Strategy you can read a response to this by Christian Calvillo and Jamie Stewart here.

The long awaited and much needed strategy for decarbonising heat and buildings in the UK has finally been released by the Department of Business, Energy and Industrial Strategy (BEIS).

The Heat and Buildings Strategy proposes £3.9 billion of new funding over the next 3 years. This budget will support the decarbonisation of heat and buildings through five key schemes: the Social Housing Decarbonisation Fund, the Home Upgrade Grant scheme, the Boiler Upgrade Scheme, the Heat Networks Transformation Programme, and the Public Sector Decarbonisation Scheme.

Key points from this strategy are:

• An early scale-up of the roll out of heat pumps will be supported through a £450 million fund. Homeowners willing to replace their gas boilers with heat pumps can apply for a £5,000 grant.
• A decision on the potential role of hydrogen for heating buildings will be made by 2026, after learning from the ongoing hydrogen trial projects.
• As many homes as possible are to achieve EPCband C by 2035 where cost-effective, practical and affordable. As many fuel poor homes as reasonably practicable will achieve a band C rating by the end of 2030.

Three keywords: simple, fair, and cheap

In the press release on 18^th of October, BEIS recognised the importance of decarbonising the heat sector in a simple, fair, and cheap way.

The emphasis on a gradual transition ensures different stakeholders from consumers to technology providers, manufacturers and heating engineers will be prepared and play their roles. Considering the scale of the change needed, the next 14 years seems a reasonable timescale in which to address the multifaceted challenges of heat decarbonisation, including training the required skilled workforce, and scaling up the technologies and supply-chain that consequently pushes costs down. Most importantly, this timescale will allow consumers to make decision about adopting low carbon heating system when it is convenient and affordable for them.

One of the key conditions for convincing homeowners to switch to heat pumps, is that the life cycle cost of heat pumps become cheaper than gas boilers. The Heat and Buildings Strategy hopes to achieve this by providing access to a £5,000 grant in the short-term and reducing the electricity price by shifting levies away from electricity to gas. Eventually heat pump cost reduction is expected due to supply-chain scale-up.

Hydrogen vs Heat pump: the ‘Mortal Kombat’ of the energy transition

While the policy and incentives to support the roll out of heat pumps are clear, the Government’s position regarding hydrogen for home heating is ‘wait and see’ until 2026. Owing to its ‘no-regret’ approach, the Government is not making any commitments to support hydrogen for home heating just yet. However, this delay could mean that, even if hydrogen for home heating gets the green light after 2026, its potential seems to be limited due to:

• The emphasis on the need for reducing Britain’s reliance on fossil fuels, which has been highlighted by the recent volatile global gas prices, will have an implication on the colour of hydrogen that might be used in future home heating, i.e. ruling out blue hydrogen which is produced using steam methane reforming of natural gas.
• If the installation of heat pumps is successful, there might remain a very limited role for hydrogen in home heating. Considering the capital-intensive infrastructure needed for transporting hydrogen, unless there is high density demand for hydrogen, it may not be economically competitive with other low carbon heating technologies.

Targets vs delivery plan

The targets for improving the energy efficiency of buildings and for the installations of low carbon heating systems are reasonably ambitious and yet pragmatic. On the delivery plan, however, the proposed funding falls short. A £450 million 3-year Boiler Upgrade Scheme is proposed to incentivise homeowners to install efficient and low carbon heating systems such as heat pumps. Under this scheme, people who choose to replace their existing gas boiler with a heat pump can receive £5,000 towards the cost of their upgrade. The £450 million over the next 3 years translates to supporting the installation of 30,000 heat pumps each year which is far less than the target of installing 600,000 heat pumps every year by 2028 outlined in the PM’s 10 points plan announced in 2020.

In the early stage of implementing the Heat and Building Strategy, there is a need for a well-thought funding package to support the roll-out of heat pumps. This can be seen as oiling the wheels of the supply chain to achieve a significant cost reduction in the mid- and long-term up to 2035. The Government expects that early scale-up and mass manufacturing brings the cost of heat pumps down – the same trend that was observed for photovoltaic technology around 2010, and for offshore wind turbines around 2017.

The extent to which such a cost reduction can be achieved for heat pumps is however uncertain. To shed light on this aspect, UKERC is conducting a Technology and Policy Assessment evidence review of costs trends and cost reduction expectations for heat pumps. The project’s main research question is: What is the potential for cost reductions in heat pumps for decarbonising domestic heat supply? The project scoping note is available here.

[1] https://www.gov.uk/government/publications/heat-and-buildings-strategy