Mapping the UK heat sector and understanding the business risks of heat decarbonisation

21 Feb 2018

Mapping all of the businesses in the UK’s heat sector was, as it turned out, a slightly bigger challenge that we had initially anticipated.

Within our latest paper from the Heat, Incumbency and Transformations project: ‘A transformation to sustainable heating in the UK: risks and opportunities for UK heat sector businesses’ we have shone light, for the first time, on the businesses present in the UK heat sector.

Alongside this we have developed an interactive map which displays many of the companies active in the sector, providing information on business interests and company size.

This should prove to be a useful tool for policy makers and others working on the decarbonisation of UK heat, but we emphasise that the map is not, and could never be complete, as in reality the market is large and ever changing. 

Figure 1. Screen grab from the heat business map of the transportation sector
Understanding the UK’s heat market

While the map has inherent value, it was primarily developed as a tool to help us understand the sectors within the UK’s heat market, and to consider the risks and opportunities that these various sectors faced from heat decarbonisation. The potentially transformative nature of heat decarbonisation and the speed at which change is required, implies significant impacts for companies active in the sector.

The mapping process produced data regarding the size of key business sectors in the UK heat system. The chart below shows the size of each of the sectors identified and within the paper we provide further detail on the sub-sectors within each sector. Interestingly, in terms of market value, the upstream fuel production sector is by far the largest component of the UK’s heat sector followed by energy networks (transportation).

Figure 2: The value of businesses active in the UK heat market split by sector

Based on financial data for year 2015/2016. Data does not include consultancies or industrial heat users. The heating engineer/installer industry has not been considered as data is limited. Fuel producers includes UK companies who produce coal or gas and electricity, other fuels are not included.

The risks and opportunities of heat decarbonisation

Following the mapping exercise, we considered the risks and opportunities of decarbonisation for each of the identified sub-sectors. There are currently two key pathways seen to have the potential to decarbonise heat; one involves the electrification heat use and the utilisation of district heat networks, the other involves converting the gas grid to run on low(er) carbon hydrogen. We therefore considered the opportunities and threats posed by each pathway to each of the sub-sectors and presented this as a traffic light style risk analysis.

The results of this analysis are explored in full in the working paper. Overall, the results highlighted major differences between the risks and opportunities posed by each pathway to the business sectors identified. For sectors primarily involved in gas – be they transportation networks, suppliers or producers – the electrification and district heat pathway poses a higher level of risk than a pathway which uses hydrogen in the existing gas grid. It is also worth noting that some companies are threatened by both pathways, whilst others appear to face an only very limited threats and significant opportunities from heat decarbonisation.

Our developed hypotheses

From our mapping and risk analysis we have developed four hypotheses.

  • We expect that incumbents put at risk by heat decarbonisation using electrification and district heat will be opposed to this pathway (hypothesis 1).
  • We expect incumbents who see a reduced risk under a low-carbon gas and hydrogen pathway to be supportive of this pathway (hypothesis 2).
  • We expect incumbents who face a risk from both pathways to be opposed to both pathways (hypothesis 3).
  • We also expect that the largest sectors (with significant access to resources) to be the most active in their activity around heat decarbonisation policy, innovation and investment (hypothesis 4).
Incumbent behaviour as a response to identified risks and opportunities

Alongside the development of this risk analysis and mapping exercise, we have been carrying out a large number of interviews with organisations working on heat decarbonisation including incumbent businesses. Our final working paper to be released in May will consider the findings from these interviews alongside the hypotheses we have developed in this working paper. The paper will consider the behaviour of incumbents  in light of the risks and opportunities that heat decarbonisation introduces and what this may mean for the overall process.

Perhaps most interestingly, the final paper will also consider the extent to which incumbents have actually driven the emergence of a ‘low-carbon gas’ pathway and moved the discourse around heat decarbonisation towards a pathway based on the continued use of gas.

The working paper can be accessed here along with an executive summary.