16
Examination of witnesses
Alex Schoch and Mark Robson.
Q25 The Chair: Good morning and welcome to this third evidence session of our inquiry into the Government’s Boiler Upgrade Scheme. We are very pleased to have two representatives from the energy suppliers with us today. Thank you very much for joining us.
We have two panels. Our second panel is starting in an hour’s time with other panellists with other industry experience, to give us their understanding. The first two panellists are Alex Schoch, Head of Flexibility from Octopus Energy, and Mark Robson from OVO Energy. We are very pleased to have you both with us. I remind you that a transcript will be taken, which you will have sight of and can review. This session will go out on parliamentlive.tv and will subsequently be made available on the parliamentary website.
Without further ado, because we have a tight timeline, I will ask the first question. Clearly, in getting to our low-carbon objectives, a number of actors have different roles to play. Perhaps you could set out what you see as the role of the energy suppliers in the overall move towards low-carbon home heating.
Alex Schoch: Thank you very much for having me and for giving us the opportunity to give testimony here today.
If we look at where energy suppliers sit in the realm of actors in accelerating the decarbonisation of the energy system, but specifically homes, we see the role of Octopus in accelerating that demand and facilitating the transition for homeowners, in the provision of the actual kit and the actual transition to hardware and the installation of heat pumps, and in combining running costs. That ties into electricity tariffs and helping consumers understand how they can save money and future-proof their home with the electrification of heating.
Mark Robson: Good morning, everyone, and thank you for the invitation. I am from OVO Energy. I look after a range of businesses that we call zero-carbon living solutions. These cover the hardware in homes but also fixing the fabric of the property and how we go about financing that via, for example, the ECO scheme, and taking payments.
At OVO we have set ourselves quite a precise and ambitious mandate. We call it Plan Zero. We aim to be fully net zero by 2035. That sets our mandate and a lot of the culture within the business, as well as our ways of working. It is hugely challenging to do that. We will have to decarbonise the homes of between 2 million and 3 million customers who are on gas, which is a predominant cause of carbon. Our role here is very top-down. That is not to underestimate the difficulty, as Alex outlined.
First, there is a lot to be said about education and giving customers the right information, especially about air source heat pumps, which are quite a complex heating device, and the hardware. On top of that is the differentiator that energy companies such as OVO and Octopus can bring: we can potentially reduce the running costs. Relevant here is the fabric of the household. I see from prior evidence sessions that that has been talked about. Fixing the fabric of the household and not putting an air source heat pump into an inefficient home is critical. For us, the education piece is the first thing, so that consumers understand how exactly these products work, and the eligibility of the household.
The second piece is around simple products and services. How can we deliver an air source heat pump to a customer? How do we fulfil it, and how do we fix the fabric of that household in the first instance?
The third piece for us, and critical in our Plan Zero agenda, is to leave no customers behind. We have a broad spectrum of customers. Unfortunately, the customers with the lowest affordability levels are biased towards the most inefficient properties. We see it within our mandate to support those customers to finance those houses so that they can have comfortable, warm homes that are supported by green energy.
Q26 The Chair: Mark, you mentioned the heat pump tariffs. Are there any barriers to further innovation in this market—innovations such as heat as a service, and areas like that? Do you want to respond to that, Alex?
Alex Schoch: We have the foundations already in place to enable those types of tariffs, especially smart tariffs. At Octopus we have a long history over the last few years, since our inception, of developing and bringing to market innovative smart tariffs that help consumers save money on their electricity bills by being able to shift demand around, based on when energy is greenest and cheapest, without inconveniencing their lifestyle.
In answer to your question as to whether there are barriers, the core foundation is the rollout of smart meters. That allows us to be able to monitor energy usage and bill actual consumption, not estimates. As the national rollout is continuing to progress, that core foundation, combined with the ability to bring to market smart tariffs, will help customers save money. For example, we already see that, on a flat electricity tariff, running an air source heat pump is £200 cheaper per year for the average home than the gas boiler equivalent. There is an even further upside with the introduction of smart tariffs. We already have several in the market and plan to release more imminently.
Mark Robson: From a smart tariff perspective, there is a distinction between type of use. You can isolate the hardware: you can isolate the air source heat pump and push a tariff just for that in isolation to that piece of kit. That protects the kilowatt hours in the household, so you can price differentially just for that hardware. On top of that there is flexibility of services, whereby you choose when to import or export power to the household, so you can balance the grid, or pull when electricity is greenest.
The type of use tariff we have in place now for air source heat pumps is part of a trial, and it is fair to say that it is a challenge to derive flexibility services around air source heat pumps because of the way they work and the way you need to keep efficiency optimised. We have a lot of emphasis on batteries and discovery of these tariffs, but I draw a distinction between type of use and flexibility services.
The second thing, especially around heat as a service, is that we would love to solve the problem of giving customers an affordable air source heat pump tariff that brings in the upfront cost, and then the ongoing service, maintenance and actual charge of kilowatt hours. Ideally, as Alex says, that should be below your existing gas usage to make it a rational decision for customers.
The challenge for the industry is in a couple of things. What happens if customers move? What happens to that obligation? I think the Green Deal stepped into that space previously. Should there be a charge on the property? There is a range of considerations. It also plays into the space of having a longer-term relationship with the customer, supporting them with an upfront cost and then having it paid back over time. That is often in their interest, but then you have to play into the factors around switching, and those considerations.
Q27 Baroness Boycott: What are the aftercare deals that you offer people for problems and long-term assistance if anything goes wrong? Do they come back to you, or do they go to the equivalent of Yellow Pages and find a boiler repair man or heat pump repair man?
Mark Robson: At the moment we install hundreds of air source heat pumps a year. We do it via local authorities and housing associations. As part of that contract, we are in one of the MCS certification schemes as well. In our engagement with businesses and housing associations we take an aftercare perspective. Because it is an immature market in what we would call the business-to-consumer space, we would approach it similarly to boiler servicing warranties, while meeting the obligations of the MCS accreditation.
Baroness Boycott: Can you give me an idea of how long your involvement would last? Would it be six months, or a year?
Mark Robson: It is specified in the MCS. Perhaps I could come back to you on that.
The Chair: If you could write to us on that, it would be helpful.
Lord Lucas: Alex, you said that it is £200 cheaper to have a heat pump.
Alex Schoch: On an annual running cost basis.
Lord Lucas: Is that something that you can document for us? Can we look at it in terms of the real cost of energy, because the electricity price is such a weird thing at the moment? We are trying to look long term at the real cost of green generation and whether that is a differential that is actually there or is just a creation of the markets. It is not the same as some of the other data that has been provided to us. We would love to look at that. Also, on time shifting, are heat batteries practical? If so, on what sort of timescale?
Alex Schoch: I would be happy to submit detailed follow-up evidence on the analysis. We can submit that via your office.
On your macro question about the energy cost, if we take a step back and look at the actual generation cost of a renewable electron, we see that it is already substantially cheaper than the fossil fuel equivalent kilowatt hour. On a medium-term timescale, we are already at a 40% renewable energy system. As that climbs to 50% and 60%, the commodity cost on average will continue to go down. Of course, there are challenges in balancing the grid, as Mark mentioned, but we are at the forefront of solving that issue because these things are intertwined. Providing benefits to consumers in how their heat pumps are used, for example, or that overall flexibility, is absolutely crucial.
I do not want to go off at too much of a tangent, but just last night we had the second event of the new demand flexibility service called on by National Grid, where home owners are able to participate via their suppliers or third-party aggregators. In the first session, which we ran last week, Octopus customers alone reduced over 100 megawatts-worth of power for an hour, which is the equivalent of Leicester shutting down for an hour. That was just showing the potential for consumers of being part of a flexible, cheaper, greener energy system, and is part and parcel of how we think about the electrification of the home and the electrification of heating.
Lord Lucas: Can you share that with us, too?
Alex Schoch: Absolutely.
Lord Lucas: Are heat batteries a practical technology?
Alex Schoch: There is a wide range of technologies under the electrification of heat banner. Heat batteries definitely have a place. Our area of focus is air source heat pumps, as we see that as a viable, ready-to-use technology that can be deployed today in UK homes across the country.
Lord Colgrain: Mark, you referred to it as complex hardware. We have been told that putting in a pump can take up to two weeks, and that that is one of the things that is putting off some prospective purchasers. Is there any evidence that the hardware is becoming refined and getting smaller, and so will be easier and quicker to fit?
Mark Robson: I would say yes, and I would have to think carefully about how I demonstrate the evidence. Certainly from our perspective, we are repeatedly installing air source heat pumps, especially in the same archetype of property, and we do it in what we call an area-based scheme, where the properties have similar fabric qualities. We fix the fabric first and then we undertake the air source heat pump install. That timeframe is then significantly reduced because you fully understand the piping, the insulation requirements and the siting of the air source heat pump. You have a good understanding of, for example, the existing gas boiler or whether it is electrically heated. You effectively design a project to be undertaken at velocity. The intervention in a customer’s home is obviously the pain point that we need to solve.
Air source heat pumps are becoming smaller. We recently saw the prototype of a potential internal air source heat pump. I will not go into the technical detail, but I can ask people to give you an update on that. On the whole, there is a lot of ambition in the industry to drive down costs, drive up efficiencies and deploy at scale.
Q28 Lord Whitty: Following this through, for the average householder or landlord it is quite a confusing picture. People are talking about heat pumps, but they are also talking about direct electrification, hydrogen-based solutions and so forth.
What is your view as to what the mix of technologies is going to be? The Boiler Upgrade Scheme, which we are focusing on, deals largely with air source heat pumps, partially ground source heat pumps and potentially biomass, but people are being bombarded with alternative solutions for different sorts of properties. What is your view as to what the eventual mix will be, and how far is the particular scheme on boiler upgrades appropriate in the majority of premises?
Alex Schoch: There are a couple of things, fundamentally. If we think about what the challenges are in the transition to decarbonised heating, we have a great opportunity as a country to focus on what is the most efficient and first-principled solution. At Octopus, we took the view of looking at all the solutions that are available in the market or are in various stages of R&D. Our conclusion was that, given the fact that we have this tremendous opportunity to reimagine how heating is done in a decarbonised world, we would go with the most efficient solution. That efficiency is air source heat pumps for the vast majority of UK homes. That is proven by multiple independent scientific journals and studies.
I completely appreciate that there is a lot of noise and a lot of different solutions. There need to be different solutions because everything should be tested. That said, the Boiler Upgrade Scheme is very well constructed in the way that it is focused on enabling, at point of sale, a near-term reduction in the cost as the cost of the hardware comes down and as the all-in installation cost and timeframe comes down, as opposed to schemes that have been implemented in other countries or previous schemes here in the UK. That point-of-sale, direct rebate is simple for consumers to understand. It is a clear endorsement. It helps galvanise the industry to scale-up and that is a very powerful signal to send.
Lord Whitty: In most cases, you will need to convince the householder that it is the most appropriate for them. They are also being bombarded by people with hydrogen-ready boilers saying that they expect the gas system to be translated into a hydrogen blend, and others are looking at local networks, and so forth.
We will come to other evidence in the second session on the appropriateness of heat pumps to rather more than a minority of homes; at least, if it is a minority, it is a large minority. That does not seem to be touched by this scheme. For example, others are arguing that, in a terrace of 10 houses, only the end terrace would be appropriate for an air source heat pump. Is that your general view? There are a lot of terraced houses in the country.
Alex Schoch: We focus specifically on the average UK home and not on the detached or semi-detached home. Therefore, to your point, we have focused our efforts specifically on terraced houses. I myself live in a mid-terraced house and I had my heat pump survey just last week. There is absolutely no issue with the installation of an air source heat pump in a mid-terraced home.
Lord Whitty: We will interrogate others on that.
Mark Robson: I endorse Alex’s comments that, for a scaled solution, air source heat pumps are here now. They are proven and are getting better. Certainly, the Boiler Upgrade Scheme is very supportive in pushing scale.
We acknowledge that we are here to electrify heating and that there are alternatives. For example, we recently launched a trial around a zero-emission boiler that lends itself to flexibility services. Again, it is type of use. You can isolate the hardware and it has flexibility services so that you can access green energy at the right time. It has fewer of the issues around the ongoing heat requirements of an air source heat pump. It is not a perfect solution. It is expensive, or can be, and its efficiency is not yet at the same level as the air source heat pump. It is effectively one for one, whereas an air source heat pump COP can be 2 and 2.5 to 3, and some people say up to 4. There are alternatives out there, and we will trial them with customers.
On the appropriateness for properties, I also live in a mid-terrace. Unfortunately, it would be hard for us to install an air source heat pump. In the archetypes of UK properties, around 30% are terraces and 30% are semi-detached. They are all in a very different state of disrepair, repair and insulation. It is great that we can install air source heat pumps in terraces, but we have to think very carefully about the siting. We should access as many as possible, but we should remember that there will be some properties that need alternatives.
There are also affordability measures. In some cases—for a vulnerable customer, for example—right now it might be best for them to have a highly efficient boiler for their circumstances. We have to think about it in the mix.
Baroness Boycott: What do you have in your house? Why will the heat pump not work, when it apparently works for Alex’s mid-terraced house?
Mark Robson: My home has a glass-fronted back, so the siting of the air source heat pump is the issue. I would like to solve it. I have not given up.
Baroness Boycott: What is wrong with the glass back, except that it would release loads of energy? Is it because you would have to look at the pump, or what?
Mark Robson: It could be sited on a roof, for example; it could be sited on a wall. For my particular persona, when we upgraded our home seven or eight years ago, we did not consider an air source heat pump. Now, I would desperately love to get an air source heat pump into my property. I will try to make it work but it will not be easy.
Baroness Boycott: What kind of heating do you have?
Mark Robson: I have an efficient gas boiler.
The Chair: I thank the witnesses for being prepared to disclose personal information.
Mark Robson: I am very happy to.
Baroness Boycott: Sorry. One of you said that it worked and one that it did not.
Mark Robson: I considered my house for the zero-emission boiler. I would love to get one of those in my home. I am considering all manner of decarbonisation hardware for my property.
Baroness Boycott: But even you find it quite a difficult decision.
Mark Robson: For my particular property.
The Chair: That is a particular instance.
Mark Robson: In my particular instance. If I was to go backwards and make again the architectural decisions I did, I would think about designing in an air source heat pump. That is how we need to think about it.
Q29 Baroness Boycott: Sorry, this is slightly diverging from the question, but do OVA and Octopus have dealings with big-scale builders such as Barratt for designing in things like that?
Alex Schoch: Recently we announced a partnership with ilke Homes, a new home developer, and together we have developed a proposition called zero builds. These are fully electrified new homes, with a solar battery and an air source heat pump. The home owners are able to have a guaranteed zero electricity bill for the first five years, and that can be extended.
Baroness Boycott: What is the name of the company? I did not catch it.
Alex Schoch: It is ilke Homes.
Baroness Boycott: It does not sound English.
Alex Schoch: It is English.
Baroness Boycott: Do you know of any other company that is doing something similar?
Alex Schoch: Following that announcement, we are in discussion with multiple new home developers across the country for a replication of this scheme.
Lord Colgrain: You are saying it is a proposition that can be put to potential buyers. Does that mean it will be more expensive than a traditional heating system, or not?
Alex Schoch: The solar battery and air source heat pump are part of the package when you buy the home, and then you have no utility costs. Of course, there is water, because we are not optimising water just yet.
Lord Whitty: Are any of the builders that you are in contact with one of the big six?
Alex Schoch: Yes; pardon me if I cannot disclose any more.
Baroness Boycott: That is really interesting. Can you send us something about ilke and how it works?
Alex Schoch: We would be happy to follow up.
Baroness Boycott: It would be really useful.
Q30 Lord Lucas: Are you monitoring the results of your installations? Do you go back a year later to see how it has worked out, whether the customers are actually saving, and, if not, what you could have done better. Do you have a self-improving system in place, or do you just install and then that is that, and you talk to them again in 10 years’ time?
Alex Schoch: We have invested up and down the value chain in the electrification of heating, from recently acquiring a heat pump manufacturer in Northern Ireland, called RED, through to investing £10 million in an R&D and training facility in Slough, where we can train over 1,000 installers a year. We have in-house installation teams that we are currently expanding rapidly across the country.
There was an earlier question on service plans. We have a five-year minimum warranty on parts and labour, and then incremental warranties and extended warranties available for that. We think about it on a whole-lifecycle basis and not just a fire and forget, as you imply.
Lord Lucas: But you are not going back a year afterwards.
Alex Schoch: We are monitoring their energy consumption, because most of the customers are also an energy customer.
Lord Lucas: That is feeding into the question: “Have we done this right?”
Alex Schoch: Yes.
Mark Robson: I have to say the same. In all our domestic trials we seek to understand the performance of the air source heat pumps—the COP—and the kilowatt-hour usage versus what they were using previously, whether that was gas, oil if they are off-grid, or electric heating sources that are less efficient, and finally the price and cost to the customer.
Q31 Lord Browne of Ladyton: I am interested in the degree to which what you are doing is impacting people’s awareness of this particular technology. The whole climate change environment is full of what has come to be known as techno-optimism—we are all going to wait until something turns up, like Mr Micawber used to do. This is tried and tested technology, but surprisingly not well known about. It is a very niche deployment in certain places. Mark, you take an area-based approach to this.
Mark Robson: You can, yes.
Lord Browne of Ladyton: To what extent is that impacting on the community where you are deploying this technology? Is there growing awareness, increasing demand and increasing understanding? Are you testing that? Perhaps Octopus does the same thing.
Mark Robson: For our area-based schemes, just about all the residents—they are not necessarily OVO customers; it is open to the area—tend to have affordability issues and poor housing stock. We do not just go in and install an air source heat pump. We fix the fabric of the house and retrofit it. In some cases, it involves solar panels, roofing, double-glazing, doors and an air source heat pump. Sometimes, we remove gas from the property; we fully decarbonise the property, especially when there is solar and an air source heat pump. In other cases, the customer or the resident can be on alternative fuels such as oil. In some cases, they are burning peat for heat, which is very inefficient. When the scheme is designed, it is designed for a certain outcome that is good for the customer and good for the local authority and the housing association. In a lot of those cases, an air source heat pump is the best outcome.
Lord Browne of Ladyton: This is a slightly different question. Are people coming and asking for it?
Alex Schoch: Yes.
Mark Robson: Yes.
Alex Schoch: As a datapoint, we have over 30,000 customers who have requested an air source heat pump, with essentially no marketing.
Q32 Lord Lilley: Alex, when your boss came and spoke to the Net Zero Scrutiny Group, a rather hostile audience in many ways, he won them over very effectively. He said a couple of things that I would like to get on the record.
First, he gave us some numbers about the proportion of houses that could install heat pumps without insulation; the proportion that would need simple insulation in the roof and cavity walls; the proportion that would need more; and the proportion insulation could not be done at all. If you have figures like that, it would be useful for us to have them, either now or later.
Secondly, he said you were engineering down the cost of heat pumps very substantially. I said that if they are prevalent in Germany and so on, why have the Germans—who are rather good engineers—not engineered down the heat pumps? He said something about the structure of the engineering or the heat pump market, or whatever it is, in Germany that made it uncompetitive. If you could tell us anything about that, it would be interesting.
Thirdly, when I got home and told my wife that these things were really terrific, she displayed an extraordinary knowledge that I had not realised she possessed, and said, “So you mean you are going to rip up the floorboards and put different diameter pipes through the house, and we’re going to have bigger radiators”. She thought I was about to install them, which I cannot afford. Perhaps I can turn that into a question: is it disruptive to install heat pumps, with the associated radiators?
Alex Schoch: I will follow up in detail on housing stock numbers. Our view is that there are already 15 million homes in the UK that can have an air source heat pump installed with minimal incremental fabric work. As the committee members all probably know, the BUS requires a certain level of insulation in homes. That is part and parcel of speeding it up, but we will definitely follow up with detail on that.
On the engineering question, perhaps I can give a quick background. I spent quite a lot of time scaling-up electric vehicles and battery storage around the world, primarily as a former employee of Tesla. Look at disruption of existing industries and the core heat pump manufacturers that exist today; they already have more demand than they can meet. There is zero impetus for them to invest in how to engineer down the cost because their order books are already full for the next two years. In Germany, you cannot get a heat pump for love nor money until sometime late next year, so strong is the demand.
In that case, you can see that there is no strong driver to drive down costs when, in that market specifically, there is already such strong demand. That being said, we see tremendous opportunity. That was the reason for our investment and acquisition of RED, the heat pump manufacturer in Northern Ireland, so that we can drive down the actual bill for material costs so that they are even more effective for UK homes.
Lord Lilley: What about disruption internally, if you are having to replace all the radiators and the piping?
Mark Robson: Many properties, as Alex says, are air source heat pump ready, and so have limited disruption. If you have underfloor, water-based heating, for example, with a gas boiler, depending on the pipework it could be minimal disruption. It is down to the persona of the property. We are investing a lot of time in trying to understand not just our customers and their eligibility around affordability and access to ECO, for example, but what those properties look like and how we could target customers who are eligible because of their property as well as their personal circumstances.
We are just about to launch a really interesting scheme with a community charity called Hubbub, where we will seek to work with a local community in Glasgow to upgrade all the houses in their street. The Boiler Upgrade Scheme will be a fundamental opportunity, assuming eligibility is okay, for those residents potentially to afford air source heat pumps in their property. It will be fascinating to see how we go about undertaking that scheme.
Lord Lilley: My expert adviser, Lady Lilley, told me that most properties need bigger radiators and bigger pipes. Is that so?
Alex Schoch: You do not need bigger pipes. The difference is the diameter of the pipes. Generally, properties built after 1990 have microbore piping, so the diameter is smaller, which requires a higher pressure and a higher flow of temperature. I believe one of the next witnesses is an installer, who I am sure will be able to illustrate in detail. We are just finalising our testing on microbore, the smaller diameter, to make sure that it meets our own internal stringent requirements. We expect to be installing early in the new year.
The Chair: What about the radiators point?
Alex Schoch: Radiators may need to be upgraded and expanded. That is a subject, as Mark pointed out, on a per property-type basis. It all depends on the age of the property and the last time, if ever, the radiators were changed.
One way that we think about it is this: what is the most efficient, long-term future-proof solution for houses? Mark made an excellent point that property types are at different stages of fabric and energy efficiency. As we think about the transition to decarbonised heating, it is also about future-proofing housing stock. It is how we think about that, because that is the crux of the matter and why we are so invested in the solution.
Q33 Lord Lucas: What are your hopes for the Boiler Upgrade Scheme, and to what extent do you expect them to be realised? What are the pros and cons of the current design and administration of the scheme? Is the scale of the scheme appropriate alongside other measures that are in place?
Mark Robson: We fully support the scheme. Anything that we can do to help make this hardware more accessible and affordable is essential. If I was to draw a line, I would ask—as I think we have said publicly before—whether rather than having £5,000, it could be increased. There is still a significant outlay for customers. If there was no particular requirement for the home—no need to put in new radiators, et cetera—it is still quite significant but closer to a boiler replacement. However, if you need to address some factors in the home, whatever they might be, it is a significant expenditure.
As ever, we would always ask for more in the scale of the scheme, to help more customers. I think it is equivalent to 30,000 a year. The established low level of demand is around 30,000 a year, so are you generating incremental volume with the scheme? Uptake has perhaps been lower than people anticipated. I hope that the money rolls over each year because of the acceptance of air source heat pumps. As Alex and I have said, they are in demand—we have consumer demand. It is around getting the right engineers into those properties who have the right skill sets, et cetera. Rolling over the money would be a great outcome.
Alex Schoch: I have touched on a few points already in previous answers. On the pro side, there is very clear endorsement and support from government to enable the industry, not just companies such as Octopus or OVO but small and medium-sized businesses, to galvanise around this and invest, to create more jobs and drive it across the country. That is a very clear sign of support that will allow the industry to galvanise around it further.
It is simple to understand. The actual ability to explain the scheme is incredibly easy and can be easily packaged into consumer communications, which are very important. That especially true if we compare it to some previous schemes and support systems that could be gamed or that led to potential mis-selling. I think that is a very strong positive.
In addition to what Mark mentioned, we see the funding levels of £5,000 for the air source heat pump as very much a steady-state type of funding. We have talked about vulnerable, fuel-poor customers and lower income households. One thing that could be interesting to explore is how you could apply different subsidy levels based on ability to pay, maybe packaged together with low-interest loans or other solutions. As we get to volumetric install volumes, we should see a cost reduction overall. Therefore, we should be applying the support to the households that need it most. That could be an interesting area to explore.
Q34 The Lord Bishop of Oxford: Thank you for your evidence. I am sorry I cannot be with you in person.
We have identified four barriers to take-up, and I think you have identified at least two more in your evidence this morning. We have identified public awareness; the availability of installers; the cost; and the hassle, which colleagues have referred to. You referred to the availability of the pumps themselves and investment to enable the scale-up. In your mind, are there any other barriers that will prevent this massive expansion of the rollout of heat pumps? How can all of those barriers best be overcome as we move forward?
Mark Robson: I have a quick response: careful thought about the ongoing running cost, whatever that might be.
Alex Schoch: I think it is about public awareness. As I mentioned before, we have 30,000 customers who have put themselves down without any marketing. I can point to some independent polls. The PA news agency did a survey for Barclays that found that only 20% of the respondents would not consider an air source heat pump as their next heating solution at the end of life of their current solution. We welcome BEIS’s marketing campaigns that are planned to start in Q1. We also see the role of industry and suppliers, as evidenced in the first question, as market actors to drive awareness and communicate it clearly to the public and their customers.
On the availability of installers, I would flip it around. At our training centre, we can train at least 1,000 engineers a year. That is our first training centre, and we have had 3,000 applicants since we opened the training centre. We have already trained hundreds, and they are in the field today. Interestingly, a lot of the engineers who come to us are current boiler engineers who are very keen to be retrained, to be able to future-proof their own livelihood and skills on a go-forward basis.
The Lord Bishop of Oxford: Could you both identify what you think is the single biggest obstacle at the moment to a smooth rollout?
Mark Robson: Do you mean the scale of the rollout?
The Lord Bishop of Oxford: Scaling-up the rollout.
The Chair: Effectively hitting the Government’s targets.
The Lord Bishop of Oxford: The number of installations by 2030.
Mark Robson: We would point to a 600,000 target, with the availability of engineers, but I am obviously encouraged by Alex’s comments.
Alex Schoch: The single biggest issue is overall support and the clarity of messaging. What is it that we are trying to achieve as a country? As a country, we are trying to achieve the decarbonisation of heating, with no small tinge of energy security thrown in.
The Lord Bishop of Oxford: That is really helpful. Thank you.
Q35 Baroness Boycott: This just a bit more on the question of how it gets publicised. Given the fact that the Government have not, as a lot of European countries have, given people advice about cutting back on energy, do you feel that they are not really behind you on this?
I was really interested that Octopus provides training for up to 1,000 people. How do you feel the Government are doing in training this new workforce? Obviously, if we are going to get to the government target, it is going to need a really big workforce, which presumably you would not be able to supply through your 1,000 engineers a year. It is a two-part question.
Alex Schoch: I will address the second part of the question. Those would be our own installers who are part of our own installation business, Octopus Energy Services. The evidence tends to show that the throughput of one company or entity to train up and provide—
Baroness Boycott: You will provide a completely wraparound, discrete service from, so to speak, cradle to grave of your boiler.
Alex Schoch: Correct.
Baroness Boycott: Would you expect other companies to do similar things to take over the market from beginning to end?
Alex Schoch: There is a raft of different business models and commercial decisions that can be made. I do not think it is on us to tell others how to run their business.
Baroness Boycott: Go back to the Government training boiler engineers.
Alex Schoch: We are working with BEIS on the Clean Heat apprenticeship scheme. We are very encouraged by the Government’s investment and commitment on that. Overall, we see that type of apprenticeship programme scaling very well for the next generation of installers.
Baroness Boycott: What about government information on what is available, and how clear all that is or how extensive?
Alex Schoch: There is always room for continued iteration That said, it is important that the companies and service providers that provide these services to consumers also provide information and communicate with them.
I come back to the previous example about the new demand flexibility service that National Grid has launched, and how suppliers can communicate the benefits of that to their energy customers, where customers who want to can reduce their energy consumption at specific times and be rewarded for it. Possibly the entity that is the energy supplier is better placed to communicate that value to the consumer than a blanket statement from government.
The Chair: Three members want to squeeze in, so let us be brief.
Q36 Lord Browne of Ladyton: We have heard consistent evidence that the skills and capacity issue in the pump and low-carbon heating industry is probably the biggest barrier to acceleration. Every witness that we have had up until now has said that. It is utterly commendable that Octopus has the capacity to train 1,000 engineers a year and that you are oversubscribed. Is anybody else doing this at this scale, or are you alone?
Alex Schoch: To be perfectly frank, I do not spend my time scanning the market.
Lord Browne of Ladyton: I am certain somebody in your business does.
Alex Schoch: What I mean is—
The Chair: We will pick that up with other witnesses. It is a good question, but you may not be the right person to frame it to.
Q37 Lord Lucas: To answer Lord Browne, Eastbourne and OHM Energy are, and the local college is there on a slightly smaller scale, but it is happening.
Could anything be adjusted about the scheme that would encourage manufacturing investment in this country in the kit needed for air source heat pumps?
Alex Schoch: Before I address that, I think one scheme improvement, especially for smaller installers in the market, would be to look at the speed at which the vouchers are actually reimbursed. There is a significant cash-flow challenge if vouchers are submitted and then the payment timeframes are not kept up. Fundamentally, if smaller businesses do quite a few jobs a month and are then out £20,000, £30,000 or £40,000 while they are waiting to receive reimbursement, it is a challenge to deal with that kind of cash-flow issue.
Currently the scheme is quite manual, with Excel sheets and PDFs that need to be filled in, scanned and uploaded. We are encouraged that there is an online portal that should be launched by the end of this month, which will speed that up. It is worth stressing that the timeframes for reimbursement of the vouchers is definitely something that should be looked at.
I will come back to you on the question on local heat pump manufacturing, and, if we can, submit a written response in a more comprehensive form.
Q38 Lord Colgrain: Alex, could you help with the basic mathematics? A thousand people being trained a year is a very impressive figure, but how many installations can each engineer do in the course of a year? We are trying to see whether the Government have any hope of meeting their own targets.
Alex Schoch: What we focus on from an installation capacity perspective is how we continue to optimise the survey and installation workload, and how we can speed it up. We have a stated internal goal of continuously cutting down the amount of time required for the installation team to be on-site to complete the job. Our stated goal is to achieve a two-day installation, which we are already achieving with some of our installations; in and out in two days, and for those two days there are two to three installers, depending on the skill sets—a plumber, an electrician and a lead. They are not all required at the same time.
Lord Colgrain: Where are you at the moment towards that goal?
Alex Schoch: We are already achieving two-day installations in some of our installs, and overall we are driving it down consistently across the country.
Lord Colgrain: That is really interesting because it is quite different from the timescales that we have been given with previous evidence.
Alex Schoch: It is a comprehensive effort. It is a non-trivial effort, I should say, but it is part of our commitment to be able to drive down costs for consumers.
Lord Colgrain: Going back to the engineers, three engineers would be involved for two days for one installation. Is that the sort of figure that we should have in mind?
Alex Schoch: Two and a half to three.
Baroness Northover: Does that include the survey?
Alex Schoch: It does not include the survey.
Baroness Northover: If you include the survey, which presumably involves the same engineers, how long would that take?
Alex Schoch: In our current operational set-up, we have dedicated, trained surveyors. A survey takes about three hours for the average three-bedroom home, because of the requirements of the BUS for a detailed heat loss analysis of every single home. We are minded to move and to use more technology to see how we could speed that up further. Obviously, that is three hours that we should shave down to one, and then to zero, and do it all via technology, but it is a phased approach.
Lord Lucas: On that mathematics, 1,000 engineers can do 30,000 installations a year, optimistically. At your rate of training, if you carry that on for a couple of years, there will not be a shortage.
Alex Schoch: Assuming 100% labour utilisation, with no sickness and no illness.
The Chair: Thank you. I will bring this session to a close in order for us to prepare for our second panel today. I thank Octopus Energy and OVO very much for sending representatives along, and for your forthright answers, both in a company capacity and indeed your personal reflections, which we really appreciate. Thank you for your time.
