Turning up the heat on energy strategy

Although heating accounts for almost 50% of UK total energy consumption, it remains strangely absent from the renewable energy debate. Former Energy and Climate Change Secretary Amber Rudd brought it up last November, but only as a begrudging admission that slow progress was putting us way off track to meet 2020’s 15% Renewable Energy Directive (RED) target. Yet just a week later, Rudd’s ‘policy reset’ speech contained no major goals on renewable heat – instead, it signalled renewed support for gas to replace coal-fired electricity generation backed by streamlined regulatory and consenting requirements for hydraulic fracturing.

There is still an urgent need for action if we are to bring our heating industry in line with our Climate Change Act targets. In the short term, the task looks hard enough – according to Government’s non-binding, but published RED target, 12% of all heat should be from renewable sources by 2020. The latest figure (published by the now defunct DECC for 2014) is just 4.8%. To meet the UK’s legally binding Carbon ‘Budgets’, by 2050 almost every household will need to have switched to a low carbon heating system. As a recent paper by Imperial College explains, the scale of the technical and behavioural challenges means that we require a long-term plan if we’re to transform heating. So what might the shape of that plan be?

The levy was nigh

A significant part of it needs to focus on energy efficiency (EE), which facilitates the optimal operation of many renewable heat technologies (RHTs) that generate heat at lower temperatures than gas boilers. The Energy Company Obligation (ECO) has arguably been relatively successful, and with plans in place for ECO2, it appears that support for EE in lower income households will continue. For the ‘able to pay’ sector, the demise of the Green Deal and the limited success of the Domestic Renewable Heat Incentive (RHI) leave something of a policy vacuum.

There are around ten million non-condensing gas boilers in UK households, and five million highly inefficient gas boilers. As things stand, older gas boilers are typically replaced by new condensing gas boilers; these improve efficiency somewhat, but tie households into fossil fuelled heating for a further 10–15 years. These long-term commitments mean that the market needs some clear signals as soon as possible, even if the policy details emerge over time.

Any policy lever rising to the challenge of decarbonising heat is likely to be controversial.  On the one hand, it must provide a platform for one or more nascent renewable heat technologies to establish a greater foothold in the market; on the other, it needs to dis-incentivise the use of fossil fuels. Ultimately, it’s hard to see an alternative to some form of politically unpalatable levy on heating fuels, set at a level high enough to drive behaviour change, rather than just to provide sustained tax revenues.

A key concern about any levy would be its regressive effect – it would hit the poorest hardest. To minimise this, revenues from the heat levy could be ‘recycled’ back into funding installation of both RHTs and EE measures, starting with lower income households. Better insulation and more efficient heating would help to maintain or reduce the overall level of heating bills.

It’s important to recognise that while gas is cheap it will be difficult for RHTs to become mainstream. Government should begin signalling this as the long term policy direction; but equally importantly, must acknowledge that the time for a levy has not yet arrived.

Efficiency begins at home

For a levy to drive change, rather than just increase costs, we need to lay the groundwork for a transition to RHTs. The first phase is to improve the energy performance of buildings – the ‘efficiency first’ principle – helping cut energy use in the short term and allowing RHTs to be effective. We also need to stimulate the installation of heat distribution equipment so that houses are ready to handle the lower-grade heat from RHTs. The exclusion of these costs from the calculations of tariffs under the Government’s RHI has been a major contributor to RHTs remaining financially unattractive.

Research on the RHI carried out by Eunomia for DECC indicates that the domestic renewable heat market is almost exclusively of interest to early adopters with capital to invest. Few able-to-pay households took up of EE measures under the now defunct Green Deal: by February 2016, almost 700,000 households had paid for Green Deal Assessments, but only 14,060 had Green Deal Finance Plans in progress. Some used other sources of funds to pay for EE measures identified during an assessment, but the overall total is likely to be disconcertingly low.

Any new approach needs to learn from the Green Deal’s failure, or it will surely repeat it. Our research for DECC suggests targeting householders at key decision points, such as when they sell, buy or renovate a home. Awareness-raising could be channelled through key stakeholders such as mortgage providers, estate agents and home improvement retailers.

Energy Performance Certificates (EPCs) for households could also help drive change. Nearly 10 million households and businesses would be affected if required to achieve an EPC of at least C rating at the point of sale. Another approach might be to introduce a ‘NegaWatt’ tariff, of the kind proposed by the Green Alliance, incentivising households to reduce their energy use by rewarding them with a tariff per kWh of energy saved.

Even without a significant deployment of RHTs, these policy initiatives could drive significant carbon savings in the next decade through reduced gas consumption. Meanwhile, the RHI should continue to encourage off gas grid properties to convert to RHTs.

RHT time

As we boost take-up of EE measures, there needs to be parallel progress on moving RHTs out of the margins and onto the main page of policy. Despite attractive RHI tariffs, take up is miniscule: in the last two years, just 19,000 RHTs have been installed in households, compared to three million condensing gas boilers.

The UK needs to be piloted away from reliance on gas heating. Photo: s_p_a_c_e_m_a_n (CC BY 2.0) , via Flickr.

Policy levers tend to consider RHTs for households on a standalone basis, which is also the assumed business model for the RHT supply chain. This makes little sense: many RHTs only deliver optimum performance when installed as part of an integrated, whole-building solution, alongside EE and heat distribution changes. Innovation in RHTs has been underfunded and slow moving and, as it stands, there is no emerging competitor ready to break gas’s stranglehold on the heating market.  Funding streams, such as Innovate UK, should be encouraged to support R&D in this field.

Some current RHTs (e.g. heat pumps) require significant electrical input, signalling a further challenge. Government acknowledged in its ‘Heat Strategy’ that the UK would need up to five times the current total electricity generating capacity if heat were to be largely electrified. Without a major policy reset and increased support for renewable generation, this would need to come from an improbably large expansion of nuclear capacity – or additional gas-fired plant, which would rather undermine the rationale for RHTs.

Networking opportunity

An alternative to electrical heating in every home would be to increase the use of local heat networks. Imperial College’s recent paper considers whether these are viable when fuelled by RHTs, but our reading is that systems based on heat pumps (along with biomass and waste heat) offer relatively low returns to investors, and remain challenging to finance. Economically and environmentally, it is mystifying that most Government funded studies (via the Heat Network Delivery Unit) are focused on gas CHP as the fuel source: this offers very marginal benefits over domestic condensing gas boilers, at enormous cost.

We need to innovate more widely to uncover new, more promising solutions. For starters, techno-economic analyses should be carried out on:

• Inter-seasonal heat storage, like the CHOICES project Eunomia has recently helped develop in Bristol;
• Infrared heating panels within electrically-heated houses;
• Nanotechnology insulation and coatings for walls and windows;
• Hybrid approaches to low carbon heating, such as:
  • Integrating gas absorption heat pumps (GAHPs) and CHP units in existing residential building boiler rooms; and
  • Integrating solar PV with solar thermal in the same panels, giving a renewable electrical boost to the heat of the water that is produced.

Though 2050 may feel far off, the long term plan to decarbonise heat needs to start now. In the next decade, that means more efficient use of natural gas, with EE measures driven by new policy mechanisms for those able-to-pay (and ECO2 for those who aren’t). At the same time, we need to fund innovation in both EE and RHTs, and build our electricity generation strategy. Come the mid-2020s, better, more competitive RHTs will be available, and our houses will be better suited to using them. Finally, these RHTs need to be pushed into the mainstream, probably through a fossil fuel heat levy. All of a sudden, 2050 doesn’t seem so far away.

A version of the article first appeared in Energy World Magazine, and is published here with kind permission.