Energy and Climate Change Committee
Oral evidence: Heat, HC 743
Tuesday 29 October 2013
Ordered by the House of Commons to be published on 29 October 2013
Written evidence from witnesses:
– Combined Heat and Power Association
– UK District Energy Association
Members present: Sir Robert Smith (Chair); Mr Peter Lilley; Albert Owen; Christopher Pincher; John Robertson; Dr Alan Whitehead
Questions 1-73
Witnesses: Robert Sansom, Representative, UK Energy Research Centre, Dr Peter Bonfield, Representative, Engineering The Future, Liz Lainé, Policy Manager, Consumer Focus, and David Frise, Head of Sustainability, Building and Engineering Services Association, Dr Tim Rotheray, Director, Combined Heat and Power Association, Dr David Hawkey, Research Fellow, University of Edinburgh, Richard Lowes, Public Affairs and Policy Manager, Scotia Gas Networks, SSE, and Peter Hamnett, Policy Specialist, UK District Energy Association, gave evidence.
Q1 Chair: Thank you very much for agreeing to give evidence on heat to us. Some colleagues have been travel-disrupted and may turn up later, but could you please list from the left your name and organisation, for the record?
Liz Lainé: Liz Lainé, Consumer Focus.
Dr Bonfield: Peter Bonfield, Engineering the Future.
David Frise: David Frise, Building and Engineering Services.
Robert Sansom: Robert Sansom, United Kingdom Energy Research Centre.
Chair: Thanks very much. I suppose given that heat accounts for half the UK energy use, what should be the sort of over-arching goal of heat policy?
Liz Lainé: We would say start with looking at heat demand reduction before looking at the source of the heat, so Government policies at the moment are—well, our main concern is around the Green Deal and the extent to which that will incentivise heat demand reduction. It is a financial service. It is not going to incentivise action among consumers. It merely enables investment where people have already decided they want to take action to improve the energy efficiency of their home and reduce their building bills.
Chair: Yes. We will be coming on to that a bit more.
Liz Lainé: I am sure.
Chair: Any other thoughts?
David Frise: I would say from a contractor’s perspective—and we represent about 1,400 contractors—it is the complexity of the scheme. I have here a simple set of logos of the type of accreditation schemes that our members have to be in, so Green Deal is just another accreditation scheme. They already have to be in things like Gas Safe to fit gas boilers, which is compulsory. They see it as just an administrative burden and therefore have largely not participated in the Green Deal, and as they are the people who by and large appear at your house for a distress purchase of a boiler, they should be there promoting that and they are not.
Robert Sansom: I would add that I completely agree with your comments about the need to focus on energy efficiency and getting demand down, but it seems almost unavoidable that we have to consider a massive upgrade of our infrastructure. If we are effectively removing gas infrastructure, which provides the bulk of heat, and it is going to be picked up by electricity or potentially heat networks, then we are talking about a massive amount of infrastructure replacement that we need to consider. We need to plan for that as well, because it will take quite a long time.
Liz Lainé: Could I also underline the particular needs of people who live off the gas network? People who use heating oil are paying half as much again as gas consumers, and LPG consumers are paying double the amount that gas consumers are paying for their heating, so there is a particular need for consumers off the gas network to address their costs.
Q2 Mr Lilley: I declare an interest, I am one of them, but what are you proposing we do about it?
Liz Lainé: In terms of incentivising different heating fuels, we would look for a particular focus on those consumers. That has been included in the development of the Renewable Heat Incentive—that that is focused on consumers who are off the gas network.
David Frise: If I might contribute to your first question, Chairman, as well, I think that we have a new system here. We must think in a system here of demand reduction, of how that is met by an array of energy supply, about how new technologies come through and help avoid things like the rebound effect, which is where humans do not perform as you might anticipate, so how we use technology to help that; about how we use Government policy measures to incentivise and proactively encourage change, while also exploiting things that are driven by commercial interests or by just managing your own energy bills and things like that.
Then, as we have done with the Olympics, as is happening elsewhere, we need to be clear about the system of factors that are in play, to put those into some sort of system that does not prescribe how things are done, but it describes the outcomes we are seeking, so outcomes-based rather than being prescriptive. Then that pulls through all sorts of innovation and new ways to do things that you can learn from over time to address the needs of the system. But there is clearly a lot to do here, a lot to learn about that has not been done before.
Q3 Chair: What sort of outcomes?
David Frise: There are three. One is around cost, so that is a key outcome that we want to try to get a handle on: how do we do this cost-effectively as energy prices are rising around the world? How do we do it in a way that is secure, that meets the needs we have for our energy system for the country into the future? Also with the commitments we have around carbon, how do we do it in a way where those two other factors and the carbon thing come together, so that we also save carbon? So there is a new system in play.
Q4 Chair: Would you say that the Government was adopting a systems approach?
David Frise: The state of the art here is quite weak, because I do not think anybody knows what the solutions are and I think we can do better, and we need to do better—whether it is the Government, the private sector or house-owners or whoever—on understanding the system, learning what works and what doesn’t and why, and improving. You are probably not going to get the system of factors absolutely right for a few years, because we need to go through the learning process.
Liz Lainé: In terms of the system, what we think is lacking for consumers is the very beginning of the process and the end. To mention the Green Deal again briefly, when I first saw the process maps for the Green Deal, there was no mention of what the triggers are and I do not think we ever came to that point where Government said, “These will be the triggers for demand”. So where is that bit of the system? Then, right at the end of the system are the running costs and the controllability of heating. 70% of homes don’t have a full set of heating controls and we estimate that if you did implement those, you would save almost as much carbon as can be saved in ongoing loft insulations, so there is substantial potential there for carbon savings and direct bill savings.
Q5 Chair: So the heating controls would also be saving, as you say, the actual consumer money, so what is missing?
Liz Lainé: What is missing? I do not know whether it is at the moment that building regulations require controls, but there are no useability requirements and it is a sort of fit and forget approach. Consumers are not necessarily advised. We asked as part of the smart meter rollout, or as part of Green Deal advice or ECO advice, that consumers be given advice—or maybe even default settings put into their controls—from some basic questions about how they use their house and when they are in. We were told that the energy advisers cannot do that, because they cannot be expected to understand or know how to use all programmes, but I think if an energy professional cannot use a heating control, how can we expect consumers to use them?
David Frise: What we have basically is a system where we select a series of products, by and large at the lowest price, which closely approximates the design. This is particularly true of new housing, and then nobody checks that it delivers on that, so the point we are both making here is about focusing on the outcomes—for example, did it deliver, not what you said it would do, but did it do it?—but the whole system is predicated on believing that it did what you said it would do, and nobody goes back and checks.
I have a new property at the moment and I cannot get it to operate. If I cannot check it because I do not have access to the electricity meter, the gas meter, the water meter, I have no way of knowing whether my system works and I am not allowed to see the information. I live in an apartment block of 52 apartments. They will not allow me to see a heating schematic of the property. I am not entitled to that information—I am actually not entitled to it; I have checked legally. My first career was in nuclear submarines, so I understand the importance of secrets, and I fail to see the secret of a heating schematic in Crouch End, but somebody does, clearly. We need transparency: “Tell me what it is the designer intended to do and then I can check if they have delivered it”. I think we are all hoping that a smart meter rollout will give us that, but a smart meter will not make a smart customer.
Chair: It will be a step in getting the—
David Frise: Oh, I agree it will be a step, but it will not help me, because I will not have a smart meter because mine are centrally located and I would need a wireless set-up and I cannot do that in the property.
Robert Sansom: If I could comment on your original question, heat is only just being thought about and discussed, essentially. We have been very electricity-focused for understandable reasons and, for example, if you take the Energy Bill, it almost exclusively focuses on electricity. Heat is hardly mentioned, transport is not mentioned at all and it is very difficult to see how you can ignore heat, which is likely to be the subject of enormous conversions as heat is electrified or other forms of heat systems are added to the system. If we do not consider heat with electricity, we end up with sub-optimal systems, so it is not just vertically from source down to consumer, it is also horizontally across the energy sectors. We would add in transport—that transport, heat and electricity should be considered together.
Dr Bonfield: If we look at the progress that has been made over the last five to seven years, the Department for Communities and Local Government set a policy requirement called the Code for Sustainable Homes, which you may be aware of, which set the factors that you need to think about when you are designing a green home. It had energy efficiency, it had materials embodied impact, it had water—the array of factors to think about without prescribing what was to be done. What has happened over a period of time is that housebuilders, notably two of the major—or top six—housebuilders, have looked at how they build their buildings, their homes, and come up with more energy-efficient ways of building them, which retains heat or keeps heat for cooling, improves the quality of the home, and then you can start looking at how you use new technologies and things to generate renewable power.
In effect, that is now reflected in the building regulations that are coming out next year, where for the first time the energy efficiency of the fabric as well as the CO2 arising from the building is included. The outcome of this means that the homes we have are less leaky, they have fewer gaps between windows and blocks and other things, so they are intrinsically more heat efficient as well as being energy efficient without adding cost, or adding very little cost, because if you do that in the right way, you cut out wastage of contractor time on site, you cut out wastage of materials, you can build in a shorter time, so you have less capital deployed.
Again, what we have in the UK, arguably that is at the leading edge of countries around the world, is an increasing awareness and understanding of how to build better to be more heat efficient. Therefore, when you come back to your demand suggestion at the beginning—reducing demand—there are quite practical ways of doing that first, which then put less burden on the electricity supply or heatpump systems or other things that are needed to supply the energy to supply the heat. If we can build on some of the things that are in the code, new building regulations will help too, because they will require people to think about the quality of what they build. That is helpful, but then of course by 2050, more than 70% of our buildings have already been built, so the big challenge—and we started off with some statistics around where heat comes from—is, what do we do with the existing buildings to help them also be more heat efficient?
Q6 Mr Lilley: We have seen written evidence that retrofitting insulation to old buildings, while essential, is very expensive and alone is unlikely to cut demand by more than 40%. Is that correct? I think that is for you, Dr Bonfield.
Dr Bonfield: For me, is it? Sorry, you have to repeat the second part of your question.
Mr Lilley: We are told that retrofitting insultation to old buildings is expensive and unlikely to cut demand by more than 40%, presumably per building.
Dr Bonfield: Okay. The 40% fact I cannot verify one way or another, but I can make some comments about insulating buildings. Of course cavity-wall insulation—I assume you are not talking about that?
Mr Lilley: I do not know what I am talking about, really. I am talking about the written evidence that we have received.
Dr Bonfield: If we look at insulation, you have insulation that goes into the cavity, and the previous CERT scheme effectively delivered a lot of cavity-wall insulation. If you are talking about loft insulation, it is another relatively low-cost way of improving the energy performance of your building. I cannot give you statistics on what the pay-back periods are for that, but they are okay. I can send you some information on precisely what the pay-back periods were.
Mr Lilley: That would be very useful.
Dr Bonfield: They are proven ways of improving the insulation of the home. The challenge now, and some of the things that the Green Deal is focusing on and ECO, is how we deal with the harder to treat homes, so homes where you have a solid wall structure. We have millions of homes in the country built in Victorian times, wonderful homes to live in, beautiful homes to live in, but often quite leaky from a heat perspective. What do we do with them? Then, when you start looking at how you insulate them, then there is more challenge because partly it is aesthetic, and if you live in a lovely Victorian home, putting insulation on the inside—you might not be able to put insulation on the outside for planning reasons or heritage reasons—can take away space and also ruin your lovely décor.
If you look at the types of systems available now, some are fairly cost-effective, which can be relatively thick insulation forms. Then there are new ones coming into play, for example, there is a new product that was used to insulate space suits called aerogels, which is very energy efficient or very good at insulation, and you can potentially have it much thinner, but at the moment the costs are very high. When you get volume coming through, the potential cost will come down. But there are costs and other blocks, if you like, for insulating solid wall, hard to treat homes now. Over time, as energy bills rise, and no doubt because Government policy measures and things encourage practice and learning, the costs will become better understood, the quality of delivery of the solution will improve and things will be better.
Q7 Mr Lilley: But how do we get the costs down before we have committed huge expenditure to using the high-cost method to clad our homes or insulate our homes in the vague hope that in the process, it will become cheaper for other countries to take on the technology?
Dr Bonfield: I imagine what will happen is, as has happened before, Government help and incentives to drive progress, as there are at the moment, help subsidise the learning. You then get an industry, as I mentioned with the two housebuilders who have learned how to build code level 4 homes more cheaply. The learning comes through, the need for skills and training comes through and the private sector becomes more able to deliver cost-effective solutions. They have gone through the learning journey and investment journey. Of course in terms of a pull for it, as energy prices rise, that provides more market pull—whether you are a house owner, whether you are a real estate owner or whether you are a local authority or a school headmaster or headmistress—to spend more of your capital investment in energy efficiency measures, because it pays off. But you need to go through the learning curve, and some things will never work—
Q8 Mr Lilley: We get told this on every front. We get told that, if we spend billions of pounds on windmills, which are at the moment twice as expensive as fossil fuel, it will bring down the cost of windmills. Someone else will get the benefit of that, because we will have spent billions of pounds on inefficient windmills. We are told the same on nuclear, we are told the same on now on cladding and so on. Isn’t there anything that we can do where we get the benefit of this learning rather than our subsidising inefficient high-cost processes, so that by the time we have already used the inefficient high-cost processes, someone else will be able to enjoy low-cost efficient processes?
David Frise: I would say we have the evidence from the PV market, where you have a growth in the market and you have greater volume, then the unit cost drops markedly. We have millions of houses to insulate and you have to do fabric first. That has to be the answer, because at the moment, UK energy policy is to decarbonise the electricity network so that you can then install heatpumps, which are a carbon-free solution to that. We are in a halfway house because we are not there with windmills, with nuclear build. We are going to biomass. We have to rely on the gas network for longer and other fuel sources, so there is a period when we are going to have to deal with those properties and we are going to have to insulate them. We will get the benefit because we are doing so many. It will be us that benefits most from it.
Q9 Mr Lilley: What do you think of the Government’s three schemes for this area, ECO, the Green Deal and the Renewable Heat Incentive?
David Frise: Green Deal—over-complicated, not understood by the consumers, unfortunately, but I think there might be some good news in there somewhere about people getting Green Deal, not accreditations, but inspections or assessments done, and then funding it themselves rather than through the Green Deal funding, which looks on the face of it expensive.
ECO I think is something we have to do to help fuel poverty, although I think Liz might have a view on how effective it is on that.
The RHI I think is a good scheme, but has been delayed and delayed. On the commercial side, it was delayed for a long time. Domestic is not yet up and running, but it will be, and I think that will drive, particularly in rural communities, a greater uptake on these technologies, but particularly biomass, and we welcome that one particularly.
Dr Bonfield: Could I respond to both those—the first question and the second question? On the first question, which was sort of about paying for things that others might take advantage of, one thing with heat that is an opportunity is that, in Sweden and in Denmark and in Germany—different context, different energy supply mix, but there is quite a lot of learning. One of the things we can do more of is look to those countries and bring here some of the learning, so that we do not make the same mistakes, and we exploit what they have learnt. Some of that is going on. I think we could do more of that.
On other things, some of these measures may cost more and it may be that we are paying for things in advance that other countries might take advantage of, but if that is a domestic need, maybe it is worth the investment.
The third thing is just a reflection back on the Olympics. One of the outcomes of the Olympics was that, for many of the engineers, designers, contractors and others, because they were challenged to deliver against the system that David Higgins put in place, their capability has grown and they are now working in Rio on the next Olympics, they are working in China and there is some export potential from this, I would suggest, bravely.
Q10 Mr Lilley: Good. Nice to think all the money we spent is helping the Brazilians and the Chinese.
Given that everybody—as Members of Parliament, we know this—is very concerned about their heating bills, do you not find it odd that there is not more interest in something like the Green Deal or, as Mr Frise was saying, are they doing it themselves? Is there a lot of activity by people insulating their homes themselves, at their own expense to reduce their heating bills?
Liz Lainé: That is one thing we would certainly make a specific recommendation on, that Government start collecting the figures on the measures that people are installing on the back of Green Deal advice, but are paying for through their own means. That is being lost at the moment, and I also understand that there is some dual reporting going on—that some measures are being reported to ECO, other measures are being reported to Land Registry and there is not one database that is holding a record of all the improvements that are being made to the housing stock. That is particularly important, because local authorities and Green Deal providers are able to run reports from the housing stock database that is held by Landmark. If that is not up-to-date, people are going to start getting approached with offers that just are not relevant, because they have already had measures undertaken. So there is an issue of confusion and lost marketing costs there, but also Government is not able to report on the success or not of its policy.
Mr Lilley: There is little doubt that the Nordic countries and Germany seem to have more experience of building energy-efficient homes. How about their experience in raising the energy efficiency of existing old buildings? I saw a reference ages ago—I have been unable to track it down—to a report in Germany on their expenditure on insulation, which found that it had not been cost effective and had therefore been hidden in the department, the same way as we hide bad news in this country. Is that familiar to any of you? Have we learnt anything at all from foreign countries’ retro-insulation of buildings?
It is funny, I am known as a Eurosceptic, but I always look abroad for evidence. In this country, it is hard to persuade British officialdom to do so. I think that is enough from me.
Q11 Dr Whitehead: Can we talk about thermal energy storage? It obviously comes in different forms, ranging from good old night-storage heaters to thermal mass storage—obviously the hot water tank changing in terms of prevalence with combi-boilers and what have you—but what would you say the benefits and drawbacks of those different forms are at the domestic scale, i.e., in principle, domestic thermal storage, but in terms of the deployment of different systems?
David Frise: Space. They take up a lot of space, by and large. In new builds, I think in the current housing review, we are talking about having minimum standards of living room. Certainly I would not like my cupboard where my hot water storage tank is to be any bigger, that is for certain, so that would be the biggest contraint on new build, but there are plenty of opportunities in schools or public buildings or larger properties where this can be developed.
Dr Bonfield: I concur with the space issue and also the opportunities for commercial buildings, but also when you come to more district level or flatted developments and things like that, there is potential to use storage, but it is difficult for individual dwellings for heat.
Liz Lainé: On the domestic side, I am lucky enough to live in a high thermal mass passive solar gain house, so the thermal mass can be built into the fabric of the house. That helps smooth heat in the summer, and you retain the heat and that is given off by the thermal mass in the winter, so it keeps the property comfortable. Obviously, that is relevant only to new homes, but unfortunately that benefit is not recognised in SAP, so it is not particularly attractive to housebuilders.
We have been looking at storage as well from the perspective of smoothing peak demand, and of all the incentives that are coming through, there is nothing that incentivises power or heat storage, so we are starting to think about what is it that encourages people to make that space in their house or in their community, because there is just no encouragement at the moment, and whether that fits in with the capacity market, because if you are able to store the power or the heat, you might be able to reduce that peak demand. That might be of interest, but it is at a very early stage. However, it seems there is something missing in the policy mix.
Robert Sansom: I agree with that point. The other key issue is that, if you start looking at heatpumps, they need more storage in terms of the way they operate and that could be between 200 to 500 litres per household. A typical hotwater tank is about 130 litres, so you are looking at a fairly significant increase, particularly if you want to be able to use that storage to help avoid the peaks.
Q12 Dr Whitehead: You have the distinction between hot water tanks, which are relatively inefficient thermal storage modes, decreasing in prevalence in terms of the insulation and combi-boilers. Purpose-built thermal stores occupy roughly the same space, but I understand are much more efficient in terms of the heat exchange element in them, and then you have the question of whether you can build in thermal storage within a building. Does that all suggest some form of building reg incentive or do you think that that perhaps is a step too far, bearing in mind the space that is required?
David Frise: I would refer back to our earlier responses about building regulations. If you leave it to the designer to innovate by focusing on what it delivered rather than being prescriptive at the start and saying, “You should have this” or, “You should have that”.
Dr Bonfield: Yes, some consideration of this in the system would be helpful—how you use the thermal mass of the building to help. As in this building here, these, I presume, are designed to give more surface area, to be more massive and it is a practical thing then. There are some other new materials coming through, which as yet are very expensive, but things like phase-change materials, which go through a physical change at about 20 degrees centigrade, which you can use in ceiling tiles or inside your building to regulate temperature. There are some new things coming through, not yet dealt with by building regulations and other mechanisms. That is where the outcome, rather than prescription is a good way, a better way perhaps of thinking about things, and pulls through innovation.
Q13 Dr Whitehead: Seasonal thermal storage in terms of cooling in the summer, heating the thermal mass under the building, warming in winter, taking from the thermal mass, how effective is that, in your view, and might that be something—
David Frise: Certainly on ground-source heatpumps, it is very effective if you can replenish the store at the ground during the summer period. You can do that, but that is not included in the Renewable Heat Incentive, so you have to disconnect that.
Dr Whitehead: You anticipated what I was about to say.
David Frise: Yes, but that is a European requirement. The Renewable Energy Directive will not allow that to be included, so I think part of our recommendation is that we try to lobby to get that included, because it is a sensible thing. You have the heat, put it back into the ground so you have a better store for the winter—it makes sense—and cooling for the summer, which in new build houses is a bigger problem than heating. Heating loads are reducing very rapidly. Hot water demand is the biggest load and cooling is an issue in the summer.
Q14 Dr Whitehead: The only problem with cooling in the summer I guess is the extent to which one might wish to encourage a national regime of potentially more intensive cooling, even if it has a consequence in subsequent heating. Is that a zero sum game at that point, or are there overall advantages in terms of total energy deployed?
David Frise: I think there are overall advantages. Some buildings will need cooling because of what they do in the building, not just domestic properties, but commercial properties. They will need cooling because they have significant heat loads within the building as well as solar gain.
Dr Bonfield: Or just because it is warm in the summer and they are more efficient, they are less leaky in terms of airflow, they are more difficult to cool, not because of any heating load, just because that is how they are now designed. Getting the ventilation right and, while you are designing for having an efficient heat requirement in the winter, also thinking about how it would work in the summer is important, otherwise the risk is you end up bolting on air-conditioning systems and things like that to keep cool. So the ventilation element of this is important to get right too, and for health. You do not want to be building or retrofitting buildings that do not have the right air circulation that negatively impact on people’s health. There is a risk if you do not think about the system that that is an outcome. That is why the building regulations are important, because they deal with the wake effects or the unintended consequences of needing to do something about energy efficiency, for example.
Also life safety—what are the potential life safety impacts of putting insulation in homes or other buildings for firefighters and for occupants? We need to think about that in the system. It does not mean we do not do it, you just have to think about how you best manage it in the system. That is why I again come back to my starting point, which is that it is difficult to think of what the outcomes are, but if you can think about the outcomes and have a system against which people innovate, you are much more likely to get the right results than if you try to pick things off and be very prescriptive about how things are done.
David Frise: There is another element to this, which is planning requirements, so on top of building regulation requirements, there is usually a planning requirement for some onsite generation, so that is when you see solar thermal panels or solar PV panels on the roof of a building or inappropriate technologies used—typically heat pumps on the gas grid in social housing so they can trigger funding because they need to do that to get planning. You get this tick-box mentality and you are selling products and nobody is checking whether that product that you have installed works within a system. All these systems only promise energy and carbon savings if they are properly installed and maintained, otherwise they fail on that promise. So we see planning as a big driver to inappropriate technologies being installed.
I get back to my property: I have a big solar thermal array on the roof. It does not work, but I did notice it was entered for an award that I was judging claiming huge savings, which was pretty good, considering it had no water in it for the whole summer, but they were a bit unlucky, my being a judge. But by and large, nobody goes back and says, “Did this work?” but the planning officer can tick the box and say, “Well, those are the carbon savings in the bag. Thank you”.
Q15 Dr Whitehead: Just a final point on the user-friendliness of thermal storage. One of the issues about, say, combi-boilers is that they appear to be efficient in that you appear to just use the energy when you need it and indeed are very responsive, apparently, whereas the question of thermal storage has always been dogged by the idea that it is turned on on 21 April and turned off on 3 October or whatever, and that is the end of you as far as that system is concerned. What would be your views on the comparative advantages of different storage techniques?
David Frise: I couldn’t answer that particularly well, but I think the combination boiler or the gas boiler market has been a big success. We heard earlier about the economies of scale. By mandating condensing gas boilers in the gas market, we transformed the market not just in the UK but in Europe and it is a big success that has made a big difference because it works and people can see that it works. It is tangible. The danger with some of the other pieces is that, because nobody is checking they work, you do not get the saving, but that is a real example of where Government can influence to good effect.
Liz Lainé: I would say it is down to controls again. Do consumers need to control when things go on and off or do they need to control that their house is warm when they are at home? Do they need to know about the thermal store under their house or how their house is built? They just need to be able to control that it is warm when they need it.
Chair: Yes. It is the outcome that matters, not the mechanism.
Robert Sansom: Just on storage, one of the benefits of heat networks is the potential to put huge quantities of very cheap storage on the system, and in countries like Denmark you will find heat storage the size of gasometers that we are familiar with in the past and they are very efficient as well—efficiency is very high. The experience with Denmark is that they are able to use that storage to help manage wind generation. When there is lots of wind, it can be dumped into the heat store. That is an example of a whole-systems approach, taking electricity and heat together as opposed to looking at them individually.
Dr Bonfield: It is sort of horses for courses. If you are on the gas grid and you have a combi-boiler and you want to reduce heat demand it is about insulation and draft-proofing and measures like that, not heat pumps and things; whereas, of course, if you are off the gas grid, looking for heat pumps or other mechanisms for storage is more important. There is a lifestyle change thing happening here as well, because we have an increasingly ageing population, some of whom are working but they may be at home for longer. They might find low-grade heat that is supplied through the day, something that is more comfortable; whereas many other people are having longer days, more time away from the home and wanting to come back and give things a quick blast so it feels comfortable. That is important.
The other factor is—again, picking up your point—about how you use thermal mass and how you design that in sensibly so that the building has a way of regulating itself. That is another option. Then the final thing is, as these energy meters and things are installed at scale across the country, the opportunity for feedback that comes on to your smart phone and things like that that helps you control in a simple way what you have. That is what happens with these phones, isn’t it? We all find ways of using them. I think that will change things. I don’t think there is one answer. I think you have to plug-and-play the answer.
Q16 Chair: On the larger scale though, the district or national level—you mentioned Denmark and thermal storage there on a bigger scale—there is a general consensus that storage would be a good thing for the network, but no one seems to be feeling that it is their job to provide it. What sort of changes of policy or strategy would be needed to?
Robert Sansom: Are you talking specifically or—
Chair: I suppose in our system it is probably electricity as well.
Robert Sansom: Yes. The key thing is getting the demand side involved and making sure that demand is treated in the same way as generation and recognising the flexibility that demand can provide. It is having those mechanisms in place, those incentives in place, which allow them to do that. I think we have some way to go at present. We could clearly use hot water storage in people’s homes as a way of helping to control the system, offering balancing-type services, but there are all sorts of issues in terms of consumer acceptance as well as the technology issues associated with managing millions of hot water heaters.
Liz Lainé: I mentioned the capacity market earlier. There is a focus on energy efficiency versus generation capacity, but where does storage fit into that and will it be able to compete in the capacity market? I am not clear on that yet.
Q17 Chair: Do any of you have any thoughts on the effectiveness of power to gas as a story, electric power used to generate gas?
Robert Sansom: In other words, using power to electrolyse hydrogen and then injecting it into the gas mains? There is one example I am aware of in Germany that has just been commissioned. It is novel technology, I think. It is something that we need to have a look at, but there is a big question that we raise in our submission about the gas system itself because, as we go towards 2050, it is difficult to see that we can have much gas consumption that does not have its carbon removed through CCS-type technology if we are to meet our 2050 targets. So what will the future be for the gas grid? We need to give some thought to that. What sort of life is there going to be for the transmission system or distribution system? Clearly, if there is a role for a distribution system, you can start thinking about things like biogas or synthetic gas, other forms of gas that could be used on the distribution network.
Q18 Chair: Is it possible to store high-grade heat for industrial purposes or is that too much of a challenge?
Robert Sansom: It is not my area of expertise, but I do know it is a challenge. We are just about to push out a report on storage in the next month or so that will cover both low-grade heat and high-grade heat.
Chair: How soon will that report come out, just in terms of what the timing is?
Robert Sansom: The draft is out for peer review at present. I would hope that during November we can get that out.
Chair: If we could have a copy that would be good.
Robert Sansom: Yes, definitely.
Q19 John Robertson: What level of investment is needed in the grid before heat pumps can make a substantial contribution?
David Frise: The plans are ongoing. It requires the decarbonisation of the network, which was the strategy and still is, I believe. I would say that basically that investment is being made to decarbonise the network and then heat pumps become a very good option, but they do require system changes for properties. In the retrofit market, they are a difficult sell because you have to either upgrade the radiators or install under-floor heating—not desperately practical in a property—in order to make them operate properly. Therefore, the default is to go to biomass if you want to claim the Renewable Heat Incentive, because that is easy to do.
Q20 John Robertson: You would not say then that it would be the case that all different types of energy generation should be involved; it would just be certain things like nuclear or—
David Frise: It is those technologies, the generation of technologies that are decarbonising the network.
Q21 John Robertson: What you are saying is there is going to be billions of pounds of investment?
David Frise: The best thing you can do is not use the energy in the first place. Energy efficiency should be our biggest focus, rather than focusing on generation. I think the policies are in place for generation to decarbonise the network and I am pretty sure we are committed to that now. We are committed to nuclear build; committed to much of the wind farms and the biomass.
John Robertson: The energy efficiency would be fine if all houses were the same and you could do that, but there are particular inconsistencies like mine where this is not possible.
Liz Lainé: Just in terms of grid investment for heat pumps, it partly depends where the heat pumps are. My understanding is there is no record at the moment of where heat pumps are going in, so we will not know where the peaks in electricity demand will be for heat. I made the point earlier about keeping better reporting on where measures are going in so that we know where the pressure points will be on the grid.
Dr Bonfield: Reducing demand needs to be right up there in terms of an outcome we are seeking but also, supporting your point, people’s homes are very different. Coming up with solutions that work for different building types, for different income levels and for different locations in the country is an essential part of reducing the demand side. It is not a hopeless case. There is reasonable evidence out there on what to do now, but we just need to be very focused on coming up with information that helps people make the right choices.
Robert Sansom: If I could pick up on network investment. One of the biggest challenges is if you get a cluster on the distribution network because the rating of the distribution company itself makes an assumption that there is quite a lot of diversity so that it is not rated to take the maximum demand for the houses connected to the distributed circuit. Today, we work around about 5%. That means that your house could take 20Kw, but on average it is 1Kw. If we start to add heat pumps to it, that can make a lot of difference, which means that you may need to reinforce the cable fairly significantly. If you do not have an idea of how the heat pumps are going to be adopted, that presents significant challenges from a network point of view.[1]
Q22 John Robertson: If electricity keeps taking more and more of the work, what happens to the gas then?
Robert Sansom: That comes back to my earlier point that we need to give a lot of thought to the gas system itself. Clearly, if electricity is used instead of gas then the local gas network operator is going to see a decline in gas usage on the network and they are going to need to think about, “What are we going to do with our gas network?” The sooner we start thinking about it, the sooner we can start planning in terms of how we manage any transitions that need to take place.
Q23 John Robertson: My last question is, is it possible to answer what the relative benefits of a decarbonised gas grid are compared with a decarbonised electricity grid? Is it practical to invest in both or should the Government just pick what the best one is going to be?
Robert Sansom: When you say decarbonise the gas grid, do you mean decarbonise the gas grid or decarbonise heat?
John Robertson: The question I have here is “decarbonise the gas grid”.
Chair: Such as biogas.
Robert Sansom: Yes. That makes an assumption that we are still going to be using fairly significant quantities of ordinary natural gas beyond 2050 and it will be a challenge, if not impossible for us to hit our carbon targets if that is to be the case. There may be a transition scenario whereby up to 2050 you might be looking at using biogas to help reduce the carbon content of the gas, but it is not something that we could do beyond 2050 and hit our carbon targets.
Chair: Do you share that view?
David Frise: I think we will probably be using gas for a long period yet.
Q24 John Robertson: Do you think the Government is doing enough to ensure that there will be enough gas?
David Frise: I don’t know, is the answer to that.
Q25 Chair: Do you think we will be using gas because we will not achieve our goals or—
David Frise: It is easy to use and it is likely to be cheaper, I think.
Robert Sansom: People like gas for heating.
David Frise: Yes. You have something like 43 million domestic gas suppliers. That is a big investment.
John Robertson: As the gas central heating person I would like to see gas keep going.
David Frise: If you insulate houses well and use a condensing gas-fired boiler you are pretty energy efficient. You are doing pretty well, probably better than many heat pump installs that go in that do not perform properly, or biomass installs that do not perform properly. You kind of delude yourself a bit that you are making carbon savings when you are not.
Dr Bonfield: That is why, again, the early outcome focus has some learning around it. With heat pumps, we have a lot to learn. We have some idea of the costs of doing that. We know the sorts of efficiencies we are getting. We need to practise more and learn as we are doing so, so that we optimise performance, but there is some work still to do there. That will happen.
Q26 John Robertson: Is it fair then to say that we are in the early days with heat pumps; there is still a long way to go?
David Frise: Yes. Good technology, really good technology, but we are in the early days on these things and I talked earlier about the complication of doing it. If you are a gas-fired boiler installer, you are in Gas Safe. That is it, pretty much. To install that solar thermal array on the roof of my building you need to be in three schemes: the Microgeneration Certification Scheme, the Renewable Energy Consumer Code and a competent person scheme like BESCA; three schemes all requiring fees and inspections to do one thing, except you don’t in this case because it is larger than 45Kw in size. Are you confused by that? Installers are. Consumers certainly are. You are not exactly encouraging the uptake and the training required to move on to new technologies when there is an easy default, which is to put another boiler in.
Q27 Christopher Pincher: You mentioned summer issues earlier. My room is in One Parliament Street, just through there. It is a Victorian building whose heating system you might say has been sympathetically restored so that we have round-the-clock cooling and round-the-clock heating, so it is sweltering hot in summer and freezing cold in winter. What can engineers do to best ensure that buildings are well designed so that you minimise energy use for both heating and cooling?
Dr Bonfield: There is a whole host of things one would like to reply to that question. There are three important factors. One is how the building is designed or how it is retrofitted or how the systems are maintained. That is important for non-domestic. The second thing is how the building is managed. How competent and capable is the facilities manager in operating the building? You have to learn. The third impact is around human behaviours. Heat and the need for heat or the need for cool is materially impacted by how people behave and what is starting to happen is that measurement of those three factors is starting to occur.
My company has developed a product called BREEAMing Use that allows those three things to be measured. That is being used now by real estate owners who are non-public sector across Europe because they want to look at their capital investment plan to think how they not only spend now on making the place look good with paints and new doors and carpets but what they invest from their capital budgets to ensure that they are getting green outcomes, because greener buildings can be worth more, which is good for balance sheet, and can cost less to run, which is good for P&L. Then, having done that, how do you make sure you are getting the return on your capital employed? By having competent facilities managers running it. Then, what is it we need to do to the people who are in the building to help them perform in a way that keeps the building cool or warm? So they are three factors and I will probably stop there. Yes, could contribute more.
Q28 Christopher Pincher: That is very up-to-date and all-embracing, but in terms of the design of new buildings as opposed to retrofitting into old buildings, which I appreciate is going to be much more challenging and expensive, how expensive or difficult is it to design buildings so that air-conditioning is not necessary?
Dr Bonfield: I could give you an example, which is on the Olympic Park. You have the Olympic velodrome that has particular needs for temperature at track level to do world record times, 28 degrees for the human body to work and for wind resistance to be lower. The normal air-conditioning load on a building like that would be quite high but, if you look at it, you have slots cut in the wall, in the cladding, which bring air through and if you look under your seats, when you sit there, you will see little slots there, too. The designers for that building combined passive ventilation, which draws air through for cooling mainly, along with a much lower air-conditioning load than you normally have to create a building that really performs and it did perform because we have lots of world record times. Again, it is part of the innovation of how you combine passive measures and active measures to reduce air-conditioning requirements and to exploit natural ventilation of things.
Q29 Christopher Pincher: If you want a certain level of heat—and let us say it is quite a reasonable level of heat—at that low level, how do you ensure that it is not trapped so that you then have to use more energy to cool the place down? Is there a danger that you trap heat, which then requires you to use more energy to cool down the place?
Dr Bonfield: I think that is linked to how the ventilation is designed, to avoid that type of occurrence.
Liz Lainé: Can I just underline that is possible at the domestic level as well, by building with high thermal mass to smooth temperatures through the year? So it is not just commercial.
Dr Bonfield: No, it works in domestic. It is important for domestic also for health reasons. You have to have the right ventilation coming through to keep the building cool and to get the air exchanges so people living there are healthy.
Q30 Christopher Pincher: Is the use of cooling growing in the domestic sector? Obviously we have it. You could hear it squeaking away just a moment ago in here, I think. Is the use of cooling growing in the domestic sector?
David Frise: Yes, it is.
Christopher Pincher: By what degree?
David Frise: I don’t know, is the answer to that, but I do know it is growing. We have seen increasing demand in our members to install and quite a lot in new build. Back to my flat in Surrey, summer temperatures of 34 degrees centigrade and the calculation that they use, your SAP calculation, says, “Solar gain: Thames Valley, negligible”. Well, we are south-facing full-glazed. It does not take a genius to work out that can’t be true, but we could get away with this if we had some solar shading or something else passive rather than installing air-conditioning. The default, I fear, will be to install a little package unit on each apartment, pretty much, which is a nonsense.
Dr Bonfield: This is going with the design. Being sensible about the design and how you use natural things to keep cool or warm is important and then to think about what the method is. The other thing that is happening in domestic and housing is there is more use of mechanical ventilation heat recovery systems, which basically ventilate the building and transfer either heat or cool from either incoming or outgoing air to retain heat or retain cool.
Q31 Christopher Pincher: I appreciate that over the term of that building’s use you can reduce energy costs by implementing these things, but what sort of cost are you building into the building when it is built and, therefore, the cost to purchase? Is it significant or is it—
Dr Bonfield: That is a helpful question because, of course, what happens with a lot of these measures in the beginning is it costs more money and then what happens over time, like with the homes built against the Code of Sustainable Homes, you value engineer. You find ways of doing it more cheaply. One of the problems we have with public procurement at the moment is it is very much focused on first costs not whole-life costs. The difference between building a BREEAM excellent school and a non-BREEAM excellent school is tiny, whereas the operating and energy savings for heating are very significant. So something that allows capital first costs and whole-life costs to be better considered when we are spending money is important. It would be helpful in getting the right sort of long-term measures built into buildings that will do something about reducing heat and associated energy needs.
Liz Lainé: The benefit of some of these passive mechanisms is there is very little additional cost. High thermal mass can just be denser concrete blocks. You are still using the same brick. You use the same skills for the buildings, but there is not a huge amount of additional cost; whereas maybe companies would prefer to put in air-conditioning and that will need different skills and different qualifications. It is just valued differently, I think. Sometimes gadgets have a higher value to people.
Dr Bonfield: The maintenance is important. It is quite interesting. In some of the research we are doing, you put some of these things in and they work very well but you have to change the filters right and you have to make sure they are in the right part of the building. Again, these are not insurmountable problems at all. You just have to think about them in the system and innovate and share the learning and the skill set so that they work as intended.
David Frise: We see an awful lot of poorly-commissioned buildings because commissioning programmes traditionally get compressed from six weeks to six days to six hours in some cases, and what it forgets is that we build a new product every single time. We do not build like cars. Each one is unique and you have to learn because the client also does not use the building the way they said they would use it when you were designing it. There is a good programme called Soft Landings that allows the user and the installer and the designer to work together to optimise the performance of the building and you should regularly re-commission the controls because things change and you learn. There are self-learning systems, all of which will mean that the building performs as the design. There are some figures from CarbonBuzz where I think buildings are 1.5 to 2.5 times off design—the performance gap is how we are looking at it now—and much of that is about fit and forget instead of saying, “We need to continually focus on how the building is performing and how we adjust the controls to make it work”.
Dr Bonfield: If I might add to that. One of the things I hope the Committee will support is, as we get lots of data from individual buildings, now with IT and systems we can draw that back in and learn from it, model it against what was predicted, tailor it out through iPhones and things like that to individual user needs and get the outcomes we are seeking. Otherwise, the point you have raised, you could have great design and all the right intent but the outcome is not what you get because humans simply do not perform as you expect. The opportunity for us now, the real need and opportunity, is to recognise that problem and use meters and other systems to bring data back, push it back out to those who need to change their behaviours and then try to get the outcomes.
Liz Lainé: In terms of a data collection meter, it is important to also ask the residents how comfortable they are finding the house. One of my concerns with the Green Deal and whether people are getting the savings that they have been promised is that it is very easy for the providers to say, “It is down to consumer behaviour”. We have to ask the consumers how they have found it to live in the house, because if the work has not been done properly they will explain, “No, we have to sit in this corner of the room because the windows are still so draughty”, or something. That will not appear on any data monitoring. It is important we talk to residents about their experiences.
David Frise: There is an excellent Government programme at the moment based around building information modelling, which is a revolution that is coming into construction where you can model a building, and Government, very sensibly, have tied it in with Soft Landings. They are saying, “There is your model. You have built it, however you have built it—maybe off-site, maybe on-site or whatever—and we are going to tie you in to see how it works”. That is a sensible thing and the hope, and I think it is working already, is that that drives it into the private sector as well so you get good practice flowing through a Government programme. That is to be welcomed.
Robert Sansom: I was going to add a point to the price of heat as well as cooling and that is that heat must be treated as a local type issue. When you do that, you can take advantage of things like natural sources for cooling or for heat, wasted heat and opportunities for storage—shallow reservoir storage for example. Again, this is probably one of the key roles that a local authority can have in terms of it understands its area, understands the people who live in the area and often is in a better position to make those sort of decisions.
Q32 Christopher Pincher: Can I just finish off very quickly? You rightly say that human reaction to designing a building can skew data. Obviously local authorities have a role in providing useful local feedback. What about the role of central Government in affecting the way buildings are designed? For example, the Renewable Heat Incentive does not apply if it is thermal energy storage, does it? Does that affect that particular technology and its development and rollout?
David Frise: It has greater impact through things like building regulations than through something like that on the Renewable Heat Incentive. I don’t think that would make a huge difference to it because in things like heat pumps it is quite often incorporated to have thermal storage in a buffer vessel.
Robert Sansom: There is an incentive to get good performance heat pumps and to deliver good performance or better performance and heat storage will help. So there is some kind of incentive but it is not particularly strong.
Chair: Than you very much. It is a fascinating subject and one that may be a bit of a Cinderella at times. If there is anything you think you wanted to get across that you have not, please send us further written evidence, and we may well be back with questions if there is anything we have not covered. Thank you again for your time.
Examination of Witnesses
Witnesses: Dr Tim Rotheray, Director, Combined Heat and Power Association, Dr David Hawkey, Research Fellow, University of Edinburgh, Richard Lowes, Public Affairs and Policy Manager, Scotia Gas Networks, SSE, and Peter Hamnett, Policy Specialist, UK District Energy Association, gave evidence.
Q33 Chair: Thank you for agreeing to give evidence to the Committee’s inquiry on heat. Please introduce yourselves for the record, starting on the left, with your name and organisation.
Dr Hawkey: My name is David Hawkey. I am from the University of Edinburgh.
Peter Hamnett: I am Peter Hamnett from the UK District Energy Association.
Dr Rotheray: Tim Rotheray from the Combined Heat and Power Association.
Richard Lowes: Richard Lowes from Scotia Gas Networks.
Q34 Chair: As I say, thanks for turning up. We heard in the earlier session about trying to get a whole system approach to heat. What do you feel about that as a fairly obvious channel and what are the challenges of actually achieving it?
Dr Rotheray: I think we probably need a system approach to energy, of which heat is a big part. It was mentioned earlier that heat has not really been considered generally by a lot of energy policy. I suppose a system approach to energy really is starting with the users and where they are, the householder in the middle of an urban area or an industrial park. You need to look at where they are and what their needs are and then find the best way to meet their overall energy needs as opposed to having a series of silos, one for electricity, one for gas, one for energy efficiency. You need to look at the whole site and find the best way to meet those needs. In terms of policy, the silo nature of policy probably has prevented that system approach. As we look to a more decarbonised energy system, which will involve more electricity use, that probably will make for a more expensive system unless we can break down those silos. It is the interplay between, for example, heat demand, which will partly come to electricity, and normal power demand that needs to be addressed.
Richard Lowes: I certainly agree with Tim on the consumer point. Consumers have been very much overlooked in heat policy and strategy. If you look at the long-term projections for the rollout of heat pumps and district heating, the difficulty you get with those major system changes is how you get people to sign on to it and get them to pay for it. It is a very difficult question for Government. There is also a question around the wider system. We are seeing greater interaction now between the gas and electricity systems, with the power to gas that was mentioned earlier, with storage issues and also changes to the transport system with the potential for gas-powered vehicles as well as electric-powered vehicles.
Peter Hamnett: I think the challenge for heat is the same as the greater energy challenge. It is decarbonisation, energy security and cost effectiveness. As Tim said, again it is how heat plays into that as part of the solution—it is not a separate issue.
Dr Hawkey: I think it is worth thinking about a systems approach in terms of what that means. A system is a collection of components arranged in a certain configuration, and part of a systems approach is thinking about what that configuration is and how that impacts on the overall outcome as well as what the individual components are. There is a wide range of interactions across different technologies that could be influential on UK energy systems broadly. There are interesting examples where there is greater deployment of district heating in other countries, such as Denmark, where district heating plays an important role in balancing electricity systems. Thinking about systems in this way creates a bit of a challenge because the configuration of a system is something that could evolve autonomously or it could be something that is planned to achieve certain objectives. Thinking about district heating systems, there is a question as to whether the deployment of district heating takes place as a patchwork of small networks or whether larger networks are deployed that bring certain kinds of economies of scale and scope.
There are important questions around the systems approach to do with how certain configurational outcomes are achieved and there is a question mark there around the role of Government in setting out that vision or enabling that to form a co-ordination to achieve those kind of system-wide impacts.
Q35 Chair: We are going to come on to district heating and CHP, but you say, “What is the role of Government?” We wondered whether you had an answer to that question.
Dr Hawkey: If the role of Government is restricted to reconfiguring the market-based incentives around the deployment of particular technologies, under that kind of scenario Government is not playing much of a role in determining the configuration of the system that emerges. That is being left to market forces and it is not clear that those market forces would achieve configurations that have the cost, environmental and fuel poverty outcomes that are desired. That is the negative case. There is a wide range of options for what the positive case for the role for Government could be.
Taking a spatial approach to policy development, particularly around heat, would help there and there are various ways in which that can be done, the extreme example being the Danish experience where the Danish Government mandates local authorities to carve up parts of the map and determine that particular energy systems would be deployed there. That is highly effective but is something that might be quite difficult to envisage in the UK. There are other more intermediary approaches. I think in written evidence I mentioned the Norwegian system for licensing district heating systems, which in effect grants concessions to operators of district heating networks to exclusive rights to operate district heating in a particular area. That gives them a degree of business stability and confidence that enables them to expand into that area and have a planned expansion. It also gives comfort to the subscribers to that network that they are subscribing to a network that has received a certain degree of endorsement. What I am trying to say is that there is a wide range of options that are worth exploring and the key is that there is a spatial dimension to the way that policy is developed.
Q36 Chair: Can you get a system-wide approach from Government when there are so many Departments of Government that are probably necessary to be part of that system?
Dr Rotheray: It is the age-old problem, isn’t it, the joined-up Government? It is joining up within DECC as well as with the Departments like Defra and the Department for Transport. I think we have to. If we start to look at the cost of the system that we will end up with without joining up, then we need to make sure that we can. We have to put those structures in place within Government so that policy development happens in that way otherwise we will end up with quite a costly system. Heat particularly, as was noted by Robert earlier, is very much a local issue. If you don’t up end up with your joined-up series of policy areas, a lot of opportunities will be missed.
I know of an example where there is an industrial site that as part of the industrial process uses a lot of high temperature heat, but they have heat that is rejected to the environment. They can’t use the heat, they can’t return it to the system, and it is at 90 degrees centigrade. They would be happy to provide that kind of heat to buildings that were going to be built just next door but there is no system approach for ensuring that that happens. There needs to be a way in which policy can capture that value because that heat is currently not being captured. Instead, we will just see gas boilers going in and that is totally unnecessary. The cost argument should be the driver for ensuring that we do deliver a joined-up policy.
Peter Hamnett: I think it is worth considering just how relatively nascent the district heating industry is in the UK. We have talked about cases like Denmark and Finland where there is a very mature district energy market. Even looking at less mature district energy markets, France has approximately 7%, Germany 12%, Austria 21% of their citizens served by district heating. It is not a like-for-like comparison but district heating is about 2% or less than 2% of the UK’s total heat use. It is a very nascent industry here and there is an enormous gap up to the technical potential and the economic potential that can be delivered. That is costly at the moment because it is nascent. The installation market is so young and immature and there is no competitiveness there. I think it is expensive now to install but there is enormous potential that is genuinely technically and economically viable.
Q37 Dr Whitehead: There is enormous potential. It looks very viable in terms of the efficiencies and the way that the combination of gas and electricity and recycling of heat and so on works, but it does not always work, does it? What would you say are the circumstances under which CHP does and does not work?
Peter Hamnett: I will take district heating networks as a part of that question first, and that is not necessarily just CHP. There are many different technologies that district energy can use. The network itself doesn’t really mind. It is indifferent as to where the heat comes from. There are a number of low carbon technologies and low cost technologies you can use, but the networks themselves are most viable in what we call high heat density areas. The concept is that there is a high amount of heat use for any given area. This has been measured academically in a report in 2009 and they came up with this idea that if there is, I think it is 3,000 Kw per square kilometre, then it is viable. If there is not that heat density, it is not. Much more subjectively, it can work if you have a high concentration of users, such as a city centre, or if there is a number of residential tower blocks together. It is not going to work if you have row after row of detached housing, put very simply. District energy is no panacea but there is huge technical potential that is currently unfulfilled nonetheless.
Dr Hawkey: Another aspect of where district energy works best is where not only do you have high heat density but you have diversity of heat loads, so you are not just serving particular peaks in the day but when some buildings require energy it can be supplied and then at other parts of the day other buildings can be supplied. That then leads on to another one of the key challenges, and in a way it is a challenge of system thinking. Often when you have heat load diversity, that is achieved because you have different kinds of heat user, which means that you have multiple organisations connected to the same heat network. If there is an established heat network and you are trying to bolt on some additional users, that is more straightforward than the case where you are trying to establish a new system, and trying to develop an agreement among these different organisations is a key challenge. There are windows of opportunity that open up. It relies on persistent skilled negotiation in a context where there is not a standardised approach, so it is done on an ad hoc basis, and in which no organisation has clear responsibility to do this, so it requires unusual leadership, very often, from individuals within particular organisations to try to make that happen.
Richard Lowes: District heating works best in densely populated areas but in the UK the most densely populated areas are places with gas networks already in place. The difficulty you then have is can you switch people who are on gas, which is the cheapest and most efficient source of heat that we have at the moment, on to something that is centrally controlled, you don’t have as much control over your prices and is potentially more expensive, depending on how it is subsidised? There is very much a question of whether you can switch those consumers over to the district heating network in the first place and they don’t have to accept it. If you do not have that critical mass there for people to connect to the network, it is not going to make financial sense for a developer.
Dr Rotheray: There were two parts to your question. There was a heat networks question and a CHP one. All of the points that have been made on district heating are valid and there are some tricky questions to be addressed but they need to addressed. Particularly on CHP, it is very important to separate the infrastructure of a heat delivery system, be it a steam network in industry or a heat network in a town, and the generation kit, so CHP, a heat pump, solar thermal or whatever. The reason that CHP is good—and most people that you meet generally say it is good—is because it is a very efficient way of making heat and electricity. It is more efficient to do it in one process than to have a power station over here and a boiler over here. You save between 10% and 30% of energy, so that is why it is worth having.
It works really well in industry. 70% of energy use in industry is heat, 20% of our total heat use is in industry and it is 32% of the CO2 emissions. Industry is a real area where we need to look at decarbonising heat and it is really hard because, unlike other technologies like solar thermal and heat pumps, you can’t make steam with those technologies so you have a limited choice. CHP is basically the big energy efficiency step change that you can make in industry. About a third of the chemical sites, most refinery sites—Grangemouth that has just been in the news is fed by a major CHP plant. Interestingly, when they were talking about the barriers in the UK, one of the key points that was cited by the chief executive there was rising energy prices. This year we have seen that the industrial CHP plants across the UK have had a two to three times greater tax rise than all the other fossil plant on the system as a result of the carbon price floor and the removal of levy exemption certificates, and it is really start to hurt industry.
At the time that we all say we need to maximise energy efficiency, we have Government policy, the carbon price floor and the removal of this exemption, that has hit CHP hard and it has created a really negative investor sentiment in terms of new CHP investments. We are all talking about we need to improve the efficiency of British industry but if Government policy undermines that kind of investor confidence then it is going to be a struggle to get new CHP built. One CHP plant at the Isle of Grain came on in 2013 and it was expecting to receive incentives until 2023. It received them for one year. That is going to make those investors think hard about whether it is worth investing a second time round. We are approaching a point where significant new CHP investment is going to be needed because a lot of industrial plant are coming to the end of their lives. They need to be reinvested. I think one thing for the Committee to consider is whether there needs to be something to sort out that loss of incentive, because it has had a very negative impact.
Q38 Dr Whitehead: You have mentioned the question of the most efficient use of CHP and the concentration of heat load. One of the issues is precisely that question of the efficiency of CHP in providing a constant base load. Where you have a relatively variable base load, the tendency of CHP may well be to overspecify and therefore to under-optimise the plant use. Do you think that is a—
Dr Rotheray: In industry, CHP broadly operates base load. If you wish to, you can make CHP power output exceedingly flexible. In district heating where CHP, certainly in the near term, is going to be the driver for district heating networks, it is really important that they are properly specified. Energy storage is going to be a key behind that because otherwise you do risk oversizing plant. I think that would be a key thing.
Q39 Dr Whitehead: I want to come to networks in a moment. Does anybody else want to say anything about—
Dr Hawkey: I suppose the other issue that is pressing in the use of natural gas CHP is that the carbon savings of natural gas CHP depends on a comparison between the generation of electricity via other means and the generation of heat using gas. As the grid decarbonises, that comparison becomes less favourable. There is an important issue there of what is the role of gas CHP outside of industry. If it is positioned within a systems approach whereby gas CHP, because it is a proven technology, because financially it can stack up in the short term, that can support the development of heat networks that then future proof cities to all sorts of other kinds of heat sources being deployed that would be lower carbon. That would be a far more desirable outcome than a series of small patchwork networks that are not large enough to support the economies of scale for those other kinds of technologies and so lock into gas CHP.
Q40 Dr Whitehead: The issue is steam, isn’t it, what produces steam and puts the stuff into the network and how efficiently that is done?
Dr Rotheray: For industry, you mean?
Dr Whitehead: Yes.
Dr Rotheray: Industrial heat temperature. Yes.
Q41 Dr Whitehead: At the other end of the scale, micro CHP, Stirling engine boilers and—I can’t remember the name but the roll fill mechanisms and various other methods of producing miniature CHP plants, since those are very much gas CHP plants you may lock people into high carbon energy use over a period of time even though the initial efficiency compared with the traditional boiler is pretty good. What is your view on that? What is your view on the potential rollout of micro CHP? Some people have claimed you can have 30 million micro CHP boilers installed over the next 20 years.
Richard Lowes: There are two issues for micro CHP, and the other one is micro fuel cell CHP I think you were referring to. The capex of the actual investment is 10 times as much as a gas boiler potentially. Although you can incentivise through the feed-in tariff to run your micro CHP, as a consumer proposition, spending that much money when you could have spent £1,000 on a gas boiler, is not very appetising for a consumer. The other issue is that the efficiency and the carbon savings from the micro CHP are very dependent on the property it is used in. The most suitable properties for micro CHP are big leaky houses because you only get the overall efficiency and have the high heat load in a house that has quite a high heat demand. That is when you get the low carbon electricity produced.
The potential number of situations where micro CHP would save carbon are limited. However, that is not to say I don’t think it is something that should be investigated and encouraged more because there are only a few thousand of these that have been installed in the UK so far. They are more efficient systems and they can be made to be very good. It is certainly not going to fix every gas boiler and make every gas boiler lower carbon but it is something that should be investigated. Some of the next generation gas appliances that we are seeing come on to the market, such as gas heat pumps that are very similar to electric heat pumps but use a gas fuel source to heat ammonia rather than using an electric generator to compress refrigerants, are going to be probably much more efficient and in the next five to 10 years they will be the key area for growth in gas industries. They are not currently incentivised and that is something that we would support because whichever way heat policy goes, there are going to be quite a lot of people on the gas network.
Dr Rotheray: The key thing is the right thing in the right place. If you think about micro CHP, it is the next stage on from a condensing gas boiler. A condensing gas boiler went from 80% to 90% in making electricity, so the efficiency calculations don’t come out in the same way but you basically get another step change in efficiency. There probably has been quite a lot of talk about when the market is going to really develop. The big challenge, if you talk to the people who are manufacturing it, is basically moving from batch production to mass production, and that will be the thing that triggers the falling cost. There is no doubt at the minute they are fairly high cost.
The other thing that is worth thinking about is we tend sometimes to see 2050 and assume that we should only do something now that is compatible with the energy system of 2050. We do have to transition, so progressive energy efficiency measures are extremely valuable. You want to avoid a high carbon lock-in but you do have to ask the question how quickly is the electricity grid going to decarbonise and how often do I change my boiler. My boiler is not a 40-year asset. It is designed for 10 or 15 years or whatever it may be. So there may well be a significant role to play in terms of using those bits of equipment.
Q42 Dr Whitehead: Assuming we are going to have gas around for quite a long time in the future.
Dr Rotheray: Yes. I think the heat strategy, the Meeting the challenge, identified that we are not going to remove what is a very valuable asset. When you come back to industry, gas is going to be a key fuel for meeting industrial processes because there are very few options. It is gas biomass and then I suppose carbon capture and storage in the medium term, but for homes as well gas will be important, particularly in the suburban area where there are real options.
Chair: Can I just remind the Committee of my entries in the Register of Members’ Interests of the oil and gas industry and in particular a share holding in Shell?
Richard Lowes: If I may add to Tim’s point. If we look at the history of energy policy for heat, which is about three years long so not very much, and you compare that to the history of electricity—we have had renewable subsidies for 10 years now, non-fossil fuel obligation way back—there has been a lot of learning for renewable electricity that has allowed it to inform policy decisions and incentive structures going forward. It almost feels like decisions are being made on incentivising particular technologies, whether it is a heat pump or something else, but we do not have the evidence base yet to make those decisions. It feels like there is probably a few more years of learning. I think the Renewable Heat Incentive is the tool to do this, but there are a few more years where we need to learn how the appliances work, what their is impact on the network, what their is impact on consumers, before you can start making decisions about the longer term. There is a target of 2050, but I don’t think we are yet able to determine what 2050 actually looks like for a national heating system because we don’t know what all the technologies look like that make it up.
Q43 Dr Whitehead: Turning to district heating networks, they are not new and indeed heard mention that they are far more extensively deployed in a number of other European countries, although in some European countries they were deployed in a very inefficient way and have been effectively taken out. What are the costs and benefits of district heating networks, particularly in terms of the cost of installing a new network and taking the consequences of that?
Peter Hamnett: In answer to your point during that, district heating networks are not new. No, granted, they are not new as an idea but the piping technology that is installed is relatively new in the context of the district heating networks we have in this country. There may have been many networks put in in the 1950s, for example, supplying social housing but many of the piping systems used there are now effectively defunct whereas the piping systems that are being put in the ground now are pre-insulated, extremely high efficiency, very low heat loss, very resilient and very long lived. That really ties into this future proofing aspect of that heat network. You may use gas-fired CHP or maybe biomass or another technology now that is the best available economically viable technology to use. Once that network is in the ground, it is going to last many lifetimes of your central plant so you can effectively do a bit of a heart transplant if you will. You take out that old technology once it has hit the end of its life and you put in the new best available technology and you continue to progressively decarbonise the whole area that way. Instead of relying on individual consumers to do piecemeal action every time a bit of plant dies, you are wholesale decarbonising all of these consumers with one fell swoop really.
In terms of the cost benefits, the cost of the networks is high. This is definitely one of the biggest barriers at the moment. DECC commissioned some very good work on barriers to delivery of district heat networks, and I am sure we will touch on it later that the Heat Networks Delivery Unit at DECC is intended to address a large number of those barriers. The one that is not addressed is the cost of the heat networks. We submitted a written response that included figures along these lines but it can cost anywhere between £800 and £1,500 per metre of network to install this, so it is very high intensive capital investment and it is a very long term investment, therefore. To make this viable you have to look at it on a whole life cost basis and that is something that a lot of people do not necessarily want to do so you have to look at clever business models to make sure—
Q44 Dr Whitehead: Is that a question more of long-term investment and known payback and the kind of investors in district networks rather than a disincentive per se? As you say, it is a bit like building a port and you will change from people unloading ships by hand to large cranes on container vessels but the port is still there. Is it just a question of a mind-set on the investment rather than particular incentives?
Peter Hamnett: Yes, I think so. There are certainly successful people who have used these business models that work, and Southampton is a great example of that in particular, as you well know, where this scheme has been running for over 25 years now. That initial investment has certainly been recovered but then there is continuing more investment as that network grows. It started with just a deep geothermal well and the civic centre in Southampton as the first consumer. Now there is over 40 consumers across the city and there is a large scale use of CHP as well. It saves in the region of 10,000 tonnes of CO2 per annum for this one scheme. That is impressive when you consider where it came from 25 years ago and also how that has been replicated across a number of different local authorities utilising very similar or the same business model. If you look at the UKDE members, as much as district energy is nascent in the UK, we have schemes in Birmingham, Coventry, Exeter, Leicester, Liverpool, Manchester, Milton Keynes, Newport, Newcastle, Nottingham, Sheffield, Shetland, Southampton, Woking, London, using not just CHP but energy from waste and biomass and many other technologies. So there are definite success stories in the UK that we can learn from. We don’t have to ship everyone out across the oceans to find successful district energy schemes, but it is just about getting that growth now and trying to accelerate that in the UK.
Q45 Dr Whitehead: In that context, would you or the panel generally consider whether, bearing in mind such a lot of the cost of a network is in basically digging things up and backfilling and putting it all back again, having that accessibility built into planning regulations, either having areas district heating ready or at least building in accessibility in general as a future planning consideration?
Peter Hamnett: On a local scale, we have seen the success of similar policy. Again, coming back to Southampton—pardon me if it gets a bit boring if I continue to do that. It is one of the schemes I know best—
Dr Whitehead: And no money has changed hands.
Peter Hamnett: Yes. Southampton has a policy whereby new developments in the city, where it is economically feasible to do so, must connect to the district energy scheme unless they can do something themselves on site that is at least as good in terms of carbon emission savings. The developer is free to do what they want as long as it is at least as good as the district energy connection. What we see is the business case for connecting to these district energy schemes, where it is done in the most appropriate manner in the most appropriate places, is that it is the developer or the consumers of the heat that save money. Their costs of heat are less than the all-in costs of heat from a conventional system. There is no green premium there where these schemes are done correctly and therefore people are incentivised to connect.
Dr Hawkey: I would like to add one thing in terms of the cost structure of district heating systems. As Peter said, it is very upfront costs within a long period to recover that cost, which makes the financial viability highly sensitive to the rates of return that the network is required to achieve, which then relates to questions about how it is financed and what the governance systems around it are. That broader distinction between whether the public sector plays a leading role in developing, governing and financing these kinds of systems, in which case the returns required are generally lower, which I suppose increases the scale of the potential and also creates possibilities to move networks into areas that from a commercial perspective might be less lucrative but have the benefits that policy is trying to achieve, particularly around fuel poverty and expanding the deployment of low carbon heat. An important issue to bear in mind is that it is not just the cost but it is the return that is required.
Dr Rotheray: Local authorities currently have the legal right to require developers to put in measures that go beyond existing building regulations, and that has been a key driver for the uptake of district heating. London basically has a whole plan based on looking at the system as a whole and then finding the most cost effective way of delivering a lower carbon and more efficient energy system. That has driven a lot of interest in heat networks. They have those planning abilities within their system. I think the key to it is that it has to be planned but it also has to deliver value to the user. The user needs to have better value heat. That is really important.
There is quite an interesting study that has just been completed for the GLA by Buro Happold that looks at opportunities for recovering waste heat. They say there is enough waste heat in London to provide all of London’s heat needs. The question is really about accessing it, taking it from existing sources like the environment and the river or taking it from maybe the Tube, data centres, hospitals and so on. If we can capture that, you can deliver good value heat. An example I have seen just recently is at the Royal Free Hospital. They need high temperature steam for the hospital. It is 180 degrees centigrade. Utilyx, which is the company that was doing it, took the heat from the exhaust, which was 180 degrees. They pulled it down to 120, took that heat and shipped it over the wall, and it is now providing low cost heat to vulnerable customers in social housing that will stabilise their heat costs and they will not be so concerned now about heating costs that will have been controlled. Also it provides an income stream to the hospital of £1 million a year, so it is a real win win. It is planning but also you have to think about delivering value to the consumer. We have to make sure we deploy these systems, as well as all the other technologies, in the right place.
Q46 Dr Whitehead: But all you need is a heat network to do all that?
Dr Rotheray: In cities you need a heat network. In other areas, it is going to be heat pumps and biomass and there is going to be gas boilers. You need a real mix.
Richard Lowes: I think there is a real question around how you deliver heat networks at scale in the UK. We have quite a piecemeal approach at the moment where it would be a local housing scheme or a particular council wanting to do it. If you want to get to scale, I think DECC are talking 20% or 30% of heat coming from heat networks by 2050. That is 10 million, 15 million homes, potentially. To get to that sort of scale, I don’t see how there can be anything other than a centralised approach to delivering heat networks. We are a long way from talking about that in terms of policy at the moment but without Ofgem or its potential equivalent doing something along the lines of delivering heat networks, I think it is very difficult to see how we can get to that sort of level of connection.
Dr Rotheray: How you make heat networks investable at scale is a big question. It is interesting to note that the energy regulator does not have heat within its vires. I am not suggesting that with such a nascent industry we want to do down that route but it is interesting that they are not supposed to consider heat and that is part of our tradition of where we have come from the silos. The Central Electricity Generating Board was not allowed to do heat, which is why you end up with no CHP. It has definitely been the thing that has been ignored.
Dr Whitehead: So Off-heat?
Dr Rotheray: Yes, Off-hot.
Q47 Albert Owen: That links nicely to my issues with regards to areas that are off the main gas grid and not protected by the regulator. I think this is a natural next step, to be absolutely frank. You have just highlighted the reasons why it does not look after heat is because in the 1950s, 1960s and 1970s it was a central electricity generator and we do not have this system. That is something that we should look at when we talk about reform of the regulator. I raise this specifically to this inquiry. The earlier contributions brought examples from other countries. The question I have to ask on that, before I come on to implications for our gas and electricity grid, is was there a retrofit in many of these countries, like Norway, or did they start from scratch? Historically we have had coal. It was cheap, it produced relatively cheap electricity and that was the reason why we did not experiment in other forms of heating and various things. Can you answer that first? Has Denmark come from a different place than us or has it converted from other fossil fuels into these combined heat and power, more efficient heating systems?
Dr Hawkey: A classic account in Denmark is that it was a response to the oil crisis. There were a lot of homes heated by oil and there was an awful lot of retrofit in the conversion to district heating. A key aspect of the success of the Swedish experience was the role of municipalities in energy, electricity and heat at a local level but also that they were able to co-ordinate that with their role in house building programmes. There was a mix there. Being able to use new developments to anchor these networks if they were—
Q48 Albert Owen: We have just heard it is piecemeal in this country and there is a concern that it might not develop, but you are saying it was piecemeal but they were larger pieces.
Dr Hawkey: They were larger pieces and there was more scope for the local authority to play a role co-ordinating what was happening, not only in terms of co-ordinating different users on to a heat network but co-ordinating the development of that heat network with the electricity network development.
Richard Lowes: If you look at the UK in comparison to some of the other EU countries, we have a dense population and we have the large supplies of North Sea gas, and that is how we ended up where we are. Despite having the leakiest homes in Europe, our energy bills are not actually that bad and that is because we have locally sourced gas. Those pressures are elsewhere. I guess in Denmark they did not have a gas network and they did not have their own supplies of gas at the time.
Q49 Albert Owen: But Norway did. Norway had cheaper oil and gas.
Richard Lowes: Yes, but they did not have the dense population. The other issue is the housing stock in the UK. We have some of the least efficient housing stock in Europe and that is partly because of the old Englishman’s castle home type situation. We like our old buildings and people have aspirations to live in Victorian townhouses, which are the least efficient buildings you could live in. That is a different social issue to elsewhere in Europe. It is a social, geographical and technical difference that we have between these countries.
Dr Hawkey: There are examples where, certainly in the Netherlands there is quite extensive use of gas but there are also heat networks that are still somewhat nascent but growing at a faster rate than in the UK. The comparison with Norway is interesting because although they have large reserves of oil and gas, that is largely an export commodity for them. District heating in Norway competes with electric heating. They have very cheap electricity due to the large hydro reserves they also have. They are blessed with all the energy resources. Norway is an interesting example because there is an incumbent dominant technology that everybody is familiar with, yet it is the country where the growth of district heating is the fastest in the world at the moment.
Dr Rotheray: This point on regulation I think is important but I would not want to leave the Committee with the impression that the industry, being relatively small—other industries were transferred when they were large wholesale into a regulated position. To do that for heat networks would be a mistake. One of the things that we as an association, with industry and Consumer Futures and others, have been working on is developing an independent heat customer protection scheme, which we have just launched as a consultation, as a way to help investors in heat networks find them more investable because they know that consumers under such a system would have protection because it is not regulated, and also to ensure that consumers are willing and able to be informed about signing up to joining a heat network. We want to ensure that their prices are fair and transparent and that consumers have access to the kind of information that they have if they are on the gas or electricity network, and that is available now.
Q50 Albert Owen: Moving on to the implications for the British grid, as I read Government policy going forward, we have the electricity market reform, decarbonisation of big electricity generation, and the electrification of surface transport in the future and also of heating systems and reliance on imported gas, and shale obviously. I think there is that sort of overview. How do you see the gas and electricity grids adapting in the future for heating of homes and business?
Richard Lowes: As a gas network, I should probably declare an interest in this question. Fundamentally we expect change. We have seen reductions in demand over the past few years of around 15% off what people have been using. None of that has been caused by people switching away from gas to anything else. That has primarily been caused by cost increases and energy efficiency. We are already seeing a reduction in demand and I think we expect to see a continued reduction in demand. What we don’t quite envisage—
Q51 Albert Owen: Is that efficiency more efficient boilers or a backlash—
Richard Lowes: It is a combination of Government and CERT and CESP plus the combi boilers. We believe the biggest driver is cost and people have just been turning down thermostats or using their heating less. We expect the reduction in demand to continue until energy efficiency is rolled out, depending on how far it is rolled out. What we definitely don’t envisage at the moment, certainly in the next 10 years or so, is people switching away from the gas network to go to electric forms of heating or to district heating. Fundamentally, they are going to remain more expensive, as far as the models show, forever and there is going to have to be some kind of incentive that is big enough to pull people off gas on to something else or an incentive on gas that is big enough to drive people away from gas. So we don’t really see a reduction in the scale of connections to the gas network in the short to medium future and even in the long-term future it is difficult to see that happening.
We were a partner in the Poundbury project, which was the UK’s first commercial biomethane project. We are actively promoting projects like that, and not just biomethane but also looking at things like low carbon gases, synthetic gases, hydrogen and, as you say, I think shale gas. There is potential there to offset some of the imports, so that does change the national sphere somewhat. As I mentioned earlier, I think the biggest—
Q52 Albert Owen: That is the short term. The medium and long term is slightly different.
Richard Lowes: It is difficult to see from a consumer perspective—and it is the consumer that has to be central to this, and Tim is right—for someone who has a gas boiler that is relatively cheap, and natural gas prices are not going up. It is cheaper than an electric heating system, whether it is a heat pump or something else.
Q53 Albert Owen: But you are missing a big chunk of my constituents who do not have mains gas. They have coal, oil or LPG and other variables. If there was a commercial drive for heat pumping for those people who are not on the grid—new houses were built with geothermal and the commercial price of geothermal heating came down significantly—that would have an impact on the gas grid and on gas distribution in the future. These people are forgotten people. You are talking about people we hear about, and will this afternoon from the energy companies about dual fuel and these great savings you can make by buying from the same company, but that does not apply to a lot of the country. I am suggesting if we are going to have this massive shift then we should be investing in some of these periphery rural areas where people want to live but are finding it very difficult to heat their homes because they don’t have cheap gas, as there is now, but they also don’t have cheap alternatives to gas.
Richard Lowes: I completely agree and one of the things that we are asked as a company is, “Can you connect us?” That is the main thing the stakeholders say, “Can you extend the gas network?” and that is completely in the face of Government policy, which is to move people on to electric and district heating, off grid, and there is huge room for cost reduction and carbon reduction, innovation in heat pumps off grid, absolutely.
Q54 Albert Owen: Any comments on the future of the grid, electricity and gas, if we are starting moving towards combined heat and power?
Dr Rotheray: For the electrification of heat—and there is going to be some of that—the challenge for the actual structure of the grid and the physical asset is very large and almost always underestimated. Peak demand for electricity currently is about 55 gigawatts. Peak demand for heat is seven times that. So if you electrify all heat you will end up with a massive network if you don’t do any kind of mitigation. The thing that is mitigation is storage. If you think about transport, we store the energy in our fuel tanks. If you think about gas homes, we store it in the pipes. One of the key things that was picked up in the earlier session is we need to think about storage. At a household level for off gas grid homes, I think the Renewable Heat Incentive has a clear driver for driving that particular sector of the economy but also of improving efficiency. We know that things like micro CHP with LP gas is something that is coming on. There are key things that need to be done there.
In urban areas, I think it would be unwise to try to pit these technologies and these networks against each other. Heat networks clearly have a role to play and they are very valuable in terms of particularly thermal storage. If you put thermal storage on a heat network its flexibility is very much greater and you can do a huge amount to facilitate a much leaner electricity network. But the idea that we are going to completely move away from the gas network is something we will struggle to deal with, particularly especially when you consider about those high temperature processes in industry. We may see less gas in urban areas; there is clearly a role for it in suburban areas. We are going to have a mix and we have a tendency to always want a silver bullet. The reality is this is a very heterogeneous kind of set-up and we are going to have to have a range of technologies and infrastructures.
Peter Hamnett: I support entirely what Tim said there. I think he has hit the nail on the head. There is that mixture that needs to be meted out to the appropriate areas.
Q55 Albert Owen: I know we have some schemes now. How are we going to encourage more of the district heating systems? We are not really having the answers to that at the moment. If gas prices continue to rise as they are, many people are going to be priced out of the gas markets in the future if it carries on like it is. There is the reliance and it is not that secure in some of the places we get it from. What is the Government not doing quite right now that people are not going for the combined heat and power systems? Is it down to regulation or planning? Are local authorities just sitting back and doing nothing in this country whereas in other countries they are more proactive?
Peter Hamnett: I think there are certain local authorities that are very proactive, there are certain local authorities that are not; there are some in the middle that might want to be but don’t really know where to go, and the Heat Networks Delivery Unit is meant to help that third class. How you drag along those that could do something but don’t is maybe a more contentious and difficult question. Celebrating those schemes that have already succeeded, those local authorities, those areas that have already succeeded, is something we can certainly make more of in this country. In terms of the near future, look at schemes like the Renewable Heat Incentive. It has certainly already started to have a change on those district heating schemes that are going out there. There are more district heating schemes based around biomass, for example, but it is still fundamentally more difficult to deliver a renewable district heating scheme compared to just a renewable piece of plant in a single building. It is more expensive, it is more problematic, there is more paperwork to do. It is a pain, frankly.
Dr Hawkey: In terms of that question about what are local authorities in the UK doing, there are some who are working very hard on these kinds of issues. The historical restrictions on what local authorities are able to do under the ultra vires principle, which is unusual in Europe, and the lack of direct service provision that local authorities find themselves in is the context they are in now, because we have moved to this model whereby local authorities generally enable others to provide services rather than provide them themselves. What I was talking about in Sweden, where municipalities could co-ordinate the heat demand, is much harder in the UK. That leads on to thinking about why it is that we end up with this quite piecemeal approach in the UK. An important aspect of it is that it is so difficult, even among public sector organisations, to negotiate an agreed approach to developing a heat network, because very often it is seen as something that is done on an ad hoc basis. Advice from consultancies and contractors is often very difficult to compare with each other. I think that is one of the issues that the Heat Networks Delivery Unit is intending to try to support local authorities through.
There is also a question on whether it makes sense at this stage to try to encourage the whole of the population of local authorities to be proactive in this space or to direct energies on those local authorities that are doing something, given the economies of scale that attach to district heating networks. Perhaps focusing where there is already activity and trying to push that even further would have more significant impact than trying to have a more diffused approach.
Q56 Mr Lilley: Turning to industrial heat, the chief executive of Ineos at Grangemouth said earlier this month, “It is fine being very, very green but not if you are interested in manufacturing. The UK is already disadvantaged on the wholesale cost of energy and then it puts taxes on it. Anybody who is an energy user is just going to disappear.” Is there a risk that Government’s environmental targets will drive industry abroad?
Dr Rotheray: If policy is not developed correctly then, yes. I mentioned earlier and the Ineos site is one of them—Ineos has a significant, highly efficient CHP plant. It runs on gas but the tax rise that it had in April was two to three times that of an equivalent gas plant.
Q57 Mr Lilley: Could you explain that?
Dr Rotheray: Yes. There are two things. There was relief from a tax that CHP had and it was guaranteed until 2023, and in 2011 the Chancellor announced that it would be removed. That happened in 2013. At the same time, CHP plant had the carbon price floor applied to them, just like all other fossil-fired power generation assets, but it was the combination of the loss of that relief plus the tax that means that their relative tax bill has jumped by so much more than the comparator. That particular site, which is receiving heat and power from its plant, will have experienced a very substantial increase in tax, which is odd because they are the most efficient gas plant in the UK, so there is an issue there.
Q58 Mr Lilley: If they are the most efficient gas plant in the UK, why did they need a tax subsidy in the first place?
Dr Rotheray: It is this classic question between investing in energy efficiency, the long-tem and the short-term costs. They cost more to build. It costs about 25% more than a power station to build, but also our energy system is designed for very large centralised power stations. They are restricted because they have to supply heat load and they end up being smaller, and participation and access to the electricity market, which this Committee has highlighted as an issue for smaller plant, is something that means that they often struggle to get fair value in the electricity market. If you have a market that is a level playing field and heat and electricity are equally valued then CHP does very well; you can look at Finland where CHP is just a natural choice. It is not in the UK, but the market structure has led to a situation where that has not happened and Government has then said it merits incentivisation.
Q59 Mr Lilley: You lost me somewhere there. If it is the most efficient plant, why did it need a subsidy? I have lost that.
Dr Rotheray: Let me give you an example of where it does not have a subsidy. If I am onsite, I have an industrial site and let’s say I have an amount of electricity and heat demand, we are seeing that market, where people make CHP plants just to meet their own energy needs, is really strong. People are installing those quite small CHP plant. People are not building a CHP plant to meet all of their heat need and therefore start exporting electricity on to the market. The reason is they are not able to access the market because the market, as I say, was designed for these very large plant where you get the economies of scale of very significant trading. If you are doing something where electricity generation and trading in the market is a very secondary activity to manufacturing beer or refining oil to make petrol, they often are struggling to get fair value in the market.
Q60 Mr Lilley: Fair value? Surely there is just a tariff for electricity. Why might they not get the same price as anybody else?
Dr Rotheray: You get significant economies of scale if you are trading very large volumes of electricity than if you are trading rather small volumes. When you add that on to all the regulatory barriers, say you have the regulatory barriers but that is for your entire fleet, you might have all the same regulatory requirements but just for one asset. If you look at the cost of operating—
Q61 Mr Lilley: That is a different matter. Let us focus on the tariffs again. If you have a power station and you feed electricity in the grid, you are saying that you get a lower tariff if you are a small power station than if you are a big power station?
Dr Rotheray: It is not that you get a lower tariff. It is that you will struggle to trade in the market.
Q62 Mr Lilley: Electricity, whether it comes from a small plant or a big plant, is exactly the same. Why should anyone pay a different price?
Dr Whitehead: It is clip size and discounts on contracts that are the biggest, in my view.
Dr Rotheray: Exactly. This is the whole question of market liquidity and can small players participate in the market. This is why the whole question of a backstop PPA has been suggested for independent generators. There is an issue with independent and smaller scale participants in the market achieving a decent price for their power in the market, and that is a real issue. You add that on to a regulatory issue and that is why you are not seeing these plants go ahead. You do see them when they are not playing in the market.
Q63 Mr Lilley: Well, that is very interesting. We have discovered something new. What about the Energy Intensive Industries Compensation Package? It has always struck me as slightly odd that people who use a lot of energy are protected from the penalties that we impose on people who use a little energy. Do you think that is sensible? Does it work? Is it a good thing?
Dr Rotheray: I am very happy for others to comment but I imagine that I may be one of the few that deals with industrial energies. That compensation package is really for electro-intensive users. It is designed for people who use a large amount of electricity, and 70% of industrial energy use is heat. I can understand why that compensation package has been proposed and it is to do with the fact that these are trading on international markets. Particularly the carbon price floor is a unilateral tax in the UK and it has no impact on prices outside of the UK, so it does risk making British industry less competitive. Germany does the same thing. Germany reduces their taxes on heavy industry because of their international competitive nature. There is genuinely a question about industrial heat users and what they can do. We incentivise low carbon energy generation, don’t we? We provide things like the renewable obligation and so forth. For energy use we use sticks, so we just use taxes. The idea of incentivising industry to do more efficient things is something that we generally don’t think about. Maybe we need to think how can we help industry be part of a more efficient, lower carbon solution as opposed to saying, “You use too much energy, you must reduce, you must reduce”. At the end of the day, a lot of processes require a certain amount of energy for them to operate.
Q64 Mr Lilley: So there are heat intensive industries that are not protected by this compensation package?
Dr Rotheray: Yes.
Q65 Mr Lilley: Which would they be?
Dr Rotheray: Petrochem, chemicals, paper, food and drink and ceramics would be the top ones that spring to mind.
Q66 Mr Lilley: There was recently some package announced for ceramics, was there not?
Dr Rotheray: Yes. There was a specific relief from climate change on ceramics.
Richard Lowes: We were mentioning earlier, before we came in, that the electricity price incorporates a lot of incentives, taxes including the carbon tax, the renewables obligation, and suppliers often put most of the environmental levies such as ECO and all the Green Deal financing associated on to the electricity price and the gas prices. The gas price the consumer actually pays, apart from supply profits, does not incorporate anything else and that is why—just to back up Tim’s point—the package to compensate large energy users was primarily for electric energy users.
Q67 Dr Whitehead: Because gas is not burdened with that?
Richard Lowes: Yes, because all the burden of levies primarily goes on electricity rather than gas.
Q68 Chair: It makes those living off the gas grid pay a higher level of burden.
Richard Lowes: Indeed.
Dr Rotheray: It is interesting, though, that we have seen the debate on energy costs and we talk about people choosing between heating and eating and then we talk about green taxes that are on electricity. It just shows how the focus of the debate has tended to be on electricity, but in terms of gas there are no incentives on it, there are no costs on it.
Q69 Mr Lilley: The carbon floor tax does not apply to gas?
Dr Rotheray: It applies to gas used for power generation.
Mr Lilley: Just for power generation but not for heat generation? That is strange.
Richard Lowes: Whereas the EU scheme would apply to a large gas user, potentially.
Q70 Mr Lilley: There is apparently substantial low grade heat from industry that is presently not used. Is there potential for low temperature heat to electricity devices?
Peter Hamnett: I think I would rather see as much use made of the heat in district heating networks, first of all. We have certainly seen products out in the marketplace that can turn low temperature heat into electricity, but we could use that heat for heating and lose that conversion process that includes certain losses within it as well.
Dr Rotheray: They will be limited. There will be some. You need high temperature heat to make power. There are some things like the Organic Rankine Cycle and they can be valuable in an industry. Putting things like those on exhaust gases and things that you can’t get below a certain temperature for regulations can be valuable but there is not a huge scope. There is probably much more scope for capturing that heat, delivering it to local homes and taking them out of fuel poverty.
Q71 Mr Lilley: Mr Lowes mentioned that you do not envisage people moving away from the gas grid domestically. What beyond efficiency savings is possible for industrial heat to meet our 2050 GHG reduction targets? Is there some alternative to gas?
Richard Lowes: I am not sure. I don’t know, I am afraid. I don’t know of anything that would be able to provide that.
Q72 Mr Lilley: A little bit of biomass, or felling trees as we humans call it?
Richard Lowes: Potentially biomass, but even the heat you can get from gas can be higher than from biomass.
Dr Hawkey: In terms of gas use, that then adds imperative to make the effort to recover the residual heat from those industrial processes that are locked into gas and make the best use of that energy.
Mr Lilley: And indeed to develop fracking.
Chair: Thank you very much for that evidence. If there is anything you think we have missed, certainly write to us. We may well have some questions that occur to us when we go through the evidence and we will be back in touch. Thanks again for your time.
Oral evidence: Heat, HC 743 15
[1] Note by witness: The low voltage distribution cable which connects the local substation to houses has a load rating based on a peak coincident factor (PCF or diversity) assumption of around 5%. So whereas an individual house may have a connection which is rated at 20kW (typically), the average demand at peak for all the houses connected is 1kW/house. So a 200kW distribution cable can supply 200 houses. The problem with heat is that the PCF is much higher perhaps 80%and even a small heat pump will take a 2kW. Hence the average demand at peak becomes 2.6kW/house. This might be manageable for a few heat pumps but as the “cluster” increases reinforcement will be necessary. This may involve laying a new cable alongside the existing cable and then splitting the load between both circuits. If the cluster is high then the load may need to be split more than once. In addition upstream reinforcement will be required. The timescale for reinforcement could be years depending on the circuit to be reinforced. At present there is no coordination of heat pump installation with network reinforcement.