Written evidence submitted by Liquid Gas UK (COL0015)

Cost of living: impact on rural communities in Scotland

Scottish Affairs Committee

Liquid Gas UK submission

February 2023

Introduction

Liquid Gas UK is the trade association for the Liquefied Petroleum Gas (LPG) and renewable liquid gases industry in the UK, representing companies who are LPG producers, distributors, equipment and service providers, and vehicle convertors. It is dedicated to the safe and effective development of LPG and renewable liquid gases. Member companies cover 99% of the total LPG distributed in the UK. Our members have a collective turnover of over £1bn and plan to invest around £600m from 2020 to 2025 in the UK, with over £260m of planned investment in renewable liquid gases.

LPG and renewable liquid gases

LPG[1] is the lowest carbon conventional energy source available to off-grid homes and businesses in the UK, which provides immediate, expedient, and cost-effective heat and energy. As LPG emits more than 33% fewer carbon emissions than coal and 15-20% fewer carbon emissions than oil[2], LPG is a transitional solution to decarbonisation in its own right. LPG emits virtually no NOx, SOx and Particulate Matter, enabling immediate air quality improvements.

BioLPG, alternatively known as biopropane, is a versatile, ‘drop-in’ renewable solution which can provide up to 90% carbon emissions reduction compared to fossil-based LPG.[3] Already available on the market today, bioLPG is chemically indistinct from LPG and can be used as it is, just like conventional LPG. This means it can be seamlessly ‘dropped-in’ to existing supply chains and can be used by consumers in their existing heating appliances, stored in existing bulk tanks and cylinders without any modifications, and transported using today’s infrastructure and skilled workforce. BioLPG is also a drop-in fuel for transport and non-road mobile machinery utilising LPG, and renewable DME (rDME) is also a near ‘drop in’ diesel solution.

Switching to LPG systems today also locks in a seamless pathway to renewable energy use, as bioLPG can directly replace conventional LPG going forward in a hassle-free way. LPG and bioLPG can also be used in hybrid systems, alongside heat pump technology. The Committee on Climate change modelled off-grid hybrids using bioLPG in their leading Net Zero report[4].

LPG can be used across a variety of different industries, including agriculture and leisure, as well as in homes and businesses.

In addition to bioLPG, industry is also investing in renewable dimethyl ether (rDME) produced from renewable or recycled carbon feedstocks. It is chemically similar to propane and butane and is a gas at room temperature and pressure. Like LPG, rDME is easily transported as a liquid in pressurized cylinders and tanks and industry is currently exploring how this innovative new fuel, due to be produced in the UK this year, can support the sector in decarbonising off-grid industry.

General Comments

Liquid Gas UK welcomes the opportunity to contribute to the Committee’s enquiry into the cost of living in Rural Scotland.

Our consultation submission is focussed on one element: the Scottish Government timeline and approach to the decarbonisation of heat in buildings in off grid rural areas and their associated costs.

As the Scottish Government set out in its Heat in Buildings Strategy, there is a need to reduce emissions from homes and non-domestic buildings by 68% by 2030 as compared to 2020. To meet  Scotland’s climate targets, the Scottish Government estimate that over one million existing homes need to switch to a zero direct emissions heating (ZDEH) system by 2030, and the remainder by 2045. The Scottish Government have to date favoured a prescriptive approach to this decarbonisation – through the widespread adoption of heat pumps or heat networks.

The forthcoming heat in Buildings Bill, New Build Heat Standard and Bioenergy action plan will set the course for domestic and non domestic heat in off grid buildings in Scotland. For new build homes off the gas grid, gas fired boilers will currently be banned from 2024. For replacement boilers in existing homes, the ban will take effect from 2025.

Liquid Gas UK disagrees with this approach and favours a mixed technology approach – allowing homeowners a choice as to how best decarbonise their homes.

LPG[5] is the lowest carbon conventional energy source available to off-grid homes and businesses in the UK, which provides immediate, expedient, and cost-effective heat and energy. As LPG emits more than 33% fewer carbon emissions than coal and 15-20% fewer carbon emissions than oil[6], LPG is a transitional solution to decarbonisation in its own right. LPG emits virtually no NOx, SOx and Particulate Matter, enabling immediate air quality improvements.

The LPG industry is committed to fully transition to net zero by 2040 with the implementation of renewable liquid gases – with bioLPG and rDME. Renewable ready boilers and hybrid systems powered by renewable liquid gases offer up to 90% reductions in carbon with low levels of NoX, SoX and particulate matter. For the Scottish Government to ban replacement or new boilers in 2024 and 2025 respectively locks off the use of renewable liquid gases and prevents the reskilling of thousands of refinery workers in Scotland to the production of renewable liquid gases. It prevents homeowners from making a choice about the best system to heat their homes, forcing them into costs of up to £30,000 to install a heat pump with deep retrofit, as opposed to around £2000 for a renewable ready boiler as recently highlighted in the press[7].

Divergence in approach

There is a significant risk that the approach taken by the Scottish Government will result in a divergence between rural communities in Scotland and rural communities elsewhere in the UK. The proposed 2024 date for business and 2025 for homes, banning the installation of new boilers is ahead of the timetable for the rest of the UK and ahead of the bans for on gas grid properties. This unfairly penalises off grid rural homes in a way that it does not those in more built up areas, for example in the central belt.

The Scottish Government may also take a different approach to bioenergy than Westminster, further penalising rural Scottish homeowners and businesses to come when you consider the costs of installation and retrofit of a ZDEH like an air source heat pump and the cost of deep retrofit required. We believe this to be a significant component of the ongoing cost of living for rural Scots and one in which the committee should consider.

Both elements of divergence have the potential to significantly increase the cost of living disproportionately for rural Scots when capital expenditure, running costs and potential debts incurred to comply with these mandates are considered.

Movement from the Scottish Government

In a recent Parliamentary question Patrick Harvie MSP did admit that around 40,000 countryside homes – nearly a quarter of Scotland’s 170,000 off-grid properties – were not suitable for the installation of air source heat pumps, although did describe this as a ‘minority’.

In a letter from Patrick Harvie MSP to the Convener of the Rural Affairs, Islands and Natural Environment Committee Finlay Carson MSP on the 25th January, the Minister for Zero Carbon Buildings said “For the minority of homes where a heat pump is not viable, alternative options could include other forms of electric heating, or in limited circumstances, sustainably sourced bioenergy.”

Liquid Gas UK would argue that 40,000 of the 170,000 homes in Scotland constitutes a significant minority, and the figure may well be higher. For the 130,000 homes where a heat pump may be suitable, the costs for many homeowners will still be prohibitive.

Costs to Rural Scottish Homeowners of low carbon heating systems.

Independent research conducted by ecuity in 2021 on behalf of liquid gas UK showed that a renewable ready boiler had the lowest levelized cost (combining capital expenditure and operating expenditure) of any heating system. The full Scottish Archetype report is attached as an appendix to this submission and provides an overview of the projected running costs and capital costs of replacement heating systems in three different types of Scottish dwelling.

For more information please contact James Calder, Public Affairs Manager, Liquid Gas UK

James.Calder@liquidgasuk.org

February 2022

LGUK – Scottish Archetype Analysis

9th July 2021

Introduction

In line with net-zero emissions targets and the resulting necessity to decarbonise the housing sector, the Scottish Government is in the process of outlining regulations on the sale of new, carbon intensive heating systems.

Specifically, households not connected to the gas grid often depend on higher carbon sources of heating, such as oil and coal. Banning the sale of these highly carbon intensive forms of heating in the imminent future, provides the fastest decarbonisation pathway to a net-zero heating system. However, the low-carbon alternatives often come at a high capital cost and low-income households are prohibited in their ability to transition to an expensive low-carbon alternative such as a heat pump. LPG is a fossil fuel, but with a much lower carbon intensity to oil and gas. BioLPG, being produced from more sustainable feedstocks, provides an even lower carbon alternative. BioLPG boilers can therefore be offered as an attractive compromise. Being a low-carbon heating source and available at low capital costs, bioLPG boilers offer a more financially feasible low-carbon heating source for many households, particularly low-income households.

The following report outlines analysis which compares the capital, operational and levelized costs of various low-carbon heating systems to determine which is the most financially attractive to households. The analysis compares three different archetype properties and assesses the relative suitability of each heating system. It also considers the ‘consumer journey’, addressing how the hassle of transitioning to a new heating system is also within consumer interest.

Results

Archetype 1:

• Detached house
• Pre-1918
• Floor area: 198 m2
• No major renovations (assume solid walled – uninsulated, some room-in roof loft insulation)
• Energy needed for heating: 142 kWh/m2*year (28,116 kWh/year)
• Comparable to archetype #13 from the Scottish Government report1,2

(There are over 20,228 properties that correspond to this archetype)

Cost Breakdown:

Table 1 - Archetype 1:

*Archetype 1 renovations: loft insulation (£3,100), solid wall insulation (£11,500), UPVC double glazing (£8,300) – total capital: (£22,900).

New cost of ASHP (+R) = £8,090. New cost of hybrid system (+R) = £8,370

Analysis:

• The lowest capital cost heating system is a bioLPG boiler. All other (low-carbon) heating systems require a substantially higher upfront cost, with the next lowest cost system (hybrid), being over seven times more expensive.
• The heating system with lowest operational cost is ASHP + R (with renovations), followed closely by a hybrid system + R. However, the upfront cost of these systems, with expensive renovation costs, are highly prohibitive.
• As well as having the lowest capital cost, bioLPG boilers have the lowest levelized cost of any low-carbon heating system. This means that, not only are they the most affordable heating system with respect to upfront cost, but they are also the most cost-effective heating option over the system’s lifetime.
• For this archetype, due to the very high cost of renovation, the levelized costs for the ASHP/hybrid + R are higher than without renovations.
• BioLPG boilers also have the fourth lowest carbon intensity of any of the low-carbon heating systems, with significantly lower emissions than any of the high carbon heating systems.

Deriving heating system affordability via household disposable income:

Graph 1: The line graph in black shows the percentage of Scottish households existing within a certain annual disposable income range. The dashed lines are constants representing the upfront cost of each heating system. The point at which the dashed lines intersect the solid black line indicates how affordable each heating option is, with the percentage of households able to afford the system displayed along the x-axis.

Table 2: Displays the approximate percentage of Scottish households that have an annual disposable income greater than the capital cost of each of the low-carbon heating systems, for the archetype 1 property.

Consumer Journey:

Consumer journey measures the amount of time required throughout all stages of the installation process of a new system, indicating the amount of hassle associated with each option.

Table 3: Displays the consumer journey of each heating system for the archetype 1 property.3

Archetype 1 – renovation time:

Loft insulation (0.25 days), solid wall insulation (10 days) and UPVC double glazing (5 days).

Archetype 2:

• Terraced house
• 1965-1980
• Floor area: 85 m2
• No major renovations (assume cavity wall with no insulation)
• Energy needed for heating: 96 kWh/m2*year (8,160 kWh/year)
• Comparable to archetype #17 from the Scottish Government report – but applied to an off-grid setting1,2.

Cost Breakdown:

Table 4 - Archetype 2:

*Archetype 2 renovations: loft insulation (£1,900), cavity wall insulation (£505) – total capital (£2,405).

New cost of ASHP (+R) = £5,870. New cost of hybrid system (+R) = £7,270.

Analysis:

• The lowest capital cost heating system is again the bioLPG boiler. All other low- carbon heating options have upfront costs at least five times higher.
• The heating system with the lowest operational cost is an ASHP + R system, followed closely by a hybrid + R. These cheap to run systems however, have the highest upfront costs of any system, potentially making them prohibited to a select consumer income range.
• Despite having the highest operation costs, bioLPG boilers have the lowest levelized cost of any low-carbon heating system due to the low capital costs.
• BioLPG boilers also prove to be a much less carbon intensive option than oil, coal or LPG boilers, with emissions over four times lower.

Deriving heating system affordability via household disposable income:

Graph 2: The line graph in black shows the percentage of Scottish households existing within a certain annual disposable income range. The dashed lines are constants representing the upfront cost of each heating system. The point at which the dashed lines intersect the solid black line indicates how affordable each heating option is, with the percentage of households able to afford the system displayed along the x-axis.

Table 5: Displays the approximate percentage of Scottish households that have an annual disposable income greater than the capital cost of each of the low-carbon heating systems, for the archetype 2 property.

Consumer Journey:

Consumer journey measures the amount of time required throughout all stages of the installation process of a new system, indicating the amount of hassle associated with each option.

Table 6: Displays the consumer journey of each heating system for the archetype 2 property.3

Archetype 2 - renovations:

Loft insulation (0.25 days) and cavity wall insulation (0.25 days).

Archetype 3:

• Semi-detached house
• 1965-1980
• Floor area: 123 m2
• No major renovations (assume cavity wall with no insulation)
• Energy needed for heating: 137 kWh/m2*year (16,851 kWh/year)
• Comparable to archetype #1 from the Scottish Government report – but applied to an off-grid setting1,2.

Cost Breakdown Table 7 – Archetype 3:

*Archetype 3 renovation time: loft insulation (£3,100), cavity wall insulation (£905) – total capital (£4,050).

New cost of ASHP (+R) = £7,930. New cost of hybrid system (+R) = £8,390.

Analysis:

• The lowest capital cost heating system for archetype 3 is again a bioLPG boiler. All other low-carbon heating options have upfront costs over five times higher.
• The heating system with the lowest operational cost is the ASHP + R system, followed closely by a hybrid + R system.
• Once again, bioLPG boilers have the lowest levelized cost of any low-carbon heating system, consistently proving itself to be the most affordable option over the system’s lifetime, for all three archetypes.
• BioLPG boilers also provide a low-carbon heating option for archetype 3, with only biomass, hybrid + R and ASHP + R systems having slightly lower carbon intensities. BioLPG is also a clean burning fuel with low air pollutants, unlike biomass for example, which results in a significant quantity of PM, SOx and NOx emissions.

Deriving heating system affordability via household disposable income:

Graph 3: The line graph in black shows the percentage of Scottish households existing within a certain annual disposable income range. The dashed lines are constants representing the upfront cost of each heating system. The point at which the dashed lines intersect the solid black line indicates how affordable each heating option is, with the percentage of households able to afford the system displayed along the x-axis.

Table 8: Displays the approximate percentage of Scottish households that have an annual disposable income greater than the capital cost of each of the low-carbon heating systems, for the archetype 3 property.

Consumer Journey:

Consumer journey measures the amount of time required throughout all stages of the installation process of a new system, indicating the amount of hassle associated with each option.

Table 9: Displays the consumer journey of each heating system for the archetype 3 property.3

Archetype 3 – renovation time:

Loft insulation (0.25 days) and cavity wall insulation (1 day).

Discussion of Results

Heating system cost:

From a consumer perspective, the cost of a heating system is usually the primary consideration in driving heating system choice.

This cost can be divided into the upfront capital cost of the heating system and the ongoing operational costs. Consumers will pay a higher upfront cost if it results in lower ongoing costs and they are able to break-even on their higher initial investment within a sufficiently short time-period.

The levelized cost of the heating system encompasses both the capital and operational cost and is therefore a useful measure of the financial attractiveness of the system, with the lower levelized costs being of greater appeal.

This analysis has found the annualised capital expenditure, the operational expenditure and the resulting levelized cost of various heating systems for three contrasting property archetypes.

The heating system types can be divided into ‘carbon intensive’ forms of heating and ‘low- carbon’ forms of heating. Often, the carbon intensive forms of heating prove to be more financially attractive than the low carbon alternative, however, in line with Scottish Government announcements, these carbon intensive options are not considered to be a viable option and exist only for the sake of comparison.

For all three archetypes (defined above), bioLPG boilers consistently demonstrated to be the cheapest option when defined by both capital and levelized cost. This means that they are the most affordable in terms of upfront cost to the consumer, as well as the most cost- effective option over the heating system’s lifetime.

Renovating the properties to improve their thermal efficiencies, alongside the installation of an air-source heat pump is usually advised. This is to allow them to operate more efficiently and provide lower operational costs. The same is true for a hybrid heating system. For archetype properties two and three, these renovations resulted in significantly lower operational costs and reduced the overall levelized cost, (compared with the non-renovation option). However, for archetype 1, despite significantly reducing the operational expenditure, because the cost of the necessary renovations is so high, the levelized cost actually increased for this option.

Heating system affordability via household disposable income:

The option of paying a higher capital cost for lower operational costs and long-term financial gain, beyond the breakeven point, is considered differently depending on a household’s level of disposable income. Whilst one heating system may provide a lower levelized cost and greater financial gain over the system’s lifetime, the capital cost may be prohibitive to lower income households. Capital cost is therefore an important metric to analyse to determine the heating system’s short term financial accessibility. This was done here by comparing the capital cost with household disposable income.

The household disposable income was derived from the household gross income using the following formula:

Household Disposable Income = Household Gross Income – Household Costs – Typical Spending

The household gross income was taken from the Scottish Government’s ‘Additional poverty analysis 2021’ publication. This publication uses unequivalised gross annual household income data taken from the 2018 Family Resource Survey HBAI dataset, which are categorised into deciles4,5.

For each gross income decile, an expected ‘household cost’ was derived, consisting of housing (rent/mortgage payments), as well as fuel and power costs, and this was then subtracted from the corresponding gross income decile. The additional ‘typical spending’ of each income decile was also predicted and subtracted from the gross income, resulting in a final ‘household disposable income’ value.

The affordability of the heating system was then defined. This affordability measure relies on two assumptions:

1.      The household income of all three archetypes can be represented equivalently by the national income average.

2.      If the capital cost of a heating system exceeds the annual disposable income of a household it is deemed ‘not affordable’.

Realistically, the household incomes will vary between the three archetypes. A more tailored archetype income analysis would demand a more detailed dataset of Scottish Household Income by property type.

The results of the analysis show that bioLPG boilers are a more affordable option to a significantly higher proportion of Scottish households than any other low-carbon heating system.

For archetype 1, bioLPG boilers were found to be affordable to 67% of households in Scotland, compared to the next most affordable heating system option, Hybrid, only being affordable to 31% of households.

For archetype 2, bioLPG boilers were found to be affordable to 75% of households in Scotland, compared to the next most affordable heating system option, ASHP, affordable to 43% of households.

For archetype 3, bioLPG boilers were found to be affordable to 72% of households in Scotland, compared to the next most affordable heating system option, Hybrid, being affordable to just 39% of households.

These results demonstrate bioLPG boilers to consistently have far more accessible upfront costs compared with any other low-carbon heating system option.

Consumer Journey:

The other important consideration from a consumer point of view is the ‘consumer journey’. This is here defined by the amount of time required to organise the replacement of the old system, the time required for the installation/renovation process, the ongoing maintenance requirements over the system’s lifetime, and the regularity at which the system needs

replacing. Effectively, the consumer journey measures the convenience of the overall operation, which can also impact on the consumer’s choice of heating system.

The amount of time for each stage of the process was estimated for each heating system and for each archetype, based off estimated ranges made in a previous study that considered the consumer journey in detail.3

For the heating systems which include renovations (ASHP + R and hybrid + R), these renovation times were also included.

These renovation times for each archetype varied significantly; 15.25 days for archetype 1,

0.5 days for archetype 2 and 1.25 days for archetype 3. These renovation times were determined by adding together the amount of time predicted for each aspect of the renovation process.

For all three archetypes, bioLPG boilers prove to have the shortest amount of time required by the consumer throughout the installation process. The operational lifetime of a bioLPG boiler, at 15 years, is slightly less than a biomass boiler, at 20 years, and a ASHP (+R) system, at 18 years, meaning over a 60-year period it may need replacing one more time. However, such long time periods are of less concern to most consumers.

Overall, bioLPG boilers provide an attractive consumer journey compared with other low- carbon heating system options, with low-labour requirements required over the course of the installation process.

Additional Consideration - costs of electrical supply and network upgrades:

Additional to the direct consumer cost of installing a new heating system, it is important to consider the consumer and network costs associated with upgrading electricity supply.

Single phase electricity supply is more prominent in Scottish homes. This poses a challenge for the installation of certain larger heat pumps, and needs addressing to prevent malfunctions of other electrical appliances.6

Not all installations require connection upgrades, but typically in properties with a large peak heat demand (100-150 W/m2 and higher), which require a larger heat pump, upgrades to 3 phase supply are a realistic requirement. This adds to the upfront capex for the consumer, with upgrades varying in price but typically costing more than £3,000 per job.7

Additionally, DNOs are facing local network costs associated with the integrating electric vehicles and heat systems. Whilst disruption is less of a challenge and cost in rural areas, analysis suggests that DNOs will need to upgrade over 130,000 km of underground or overground cable – a greater length of network than DNOs serving urban areas.8

Summary of Results:

1.      Cost Breakdown:

BioLPG boilers consistently demonstrated to have the lowest capital cost of any low-carbon heating system, making them the most accessible low-carbon heating option with the majority of households from each archetype being able to afford the capital.

Despite having slightly higher operational costs, bioLPG boilers also have the lowest levelized cost of any low-carbon heating system, making them the most affordable option over the system’s lifetime.

2.      Sustainability:

BioLPG boilers have carbon emissions over four times lower than any of the high-carbon heating systems (oil, coal and LPG boilers). With the present-day carbon intensity of electricity supply, they also result in less carbon equivalent emissions than both ASHP and hybrid systems. Despite not having as low a carbon intensity as biomass boilers, bioLPG is a much cleaner burning fuel with far fewer air pollutant emissions.

3.      Consumer Journey:

BioLPG boilers also prove to have the most appealing ‘consumer journey’ with less time required over the total installation process than any other low-carbon heating system option.

References:

[1] : Technical Feasibility of Low Carbon Heating in Domestic Buildings – Scottish Government report (2020)

Element Energy.

[2] : TABULA Web Tool: TABULA WebTool (building-typology.eu)

[3] : Holdaway, E., Samuel, B., Greenleaf, J., Briden, A. and Gardiner, A. (2009) “The Hidden costs and benefits of domestic energy efficiency and carbon saving measures” ECOFYS.

[4] : Rural Scotland Key Facts (2021) – People and Communities Services and Lifestyle Economy and Enterprise,

National Statistics.

[5] : Additional Poverty Analysis (2021) The Scottish Government.

[6]   Kensa Heat Pumps (2015) Heat Pumps and Single Phase Power.

[7]   UK Power Networks (2021) Upgrade electricity:  Time and cost

[8]   Vivid Economics and Imperial College (2018) Accelerated electrification and the GB electricity system.

Appendix:

[9] : BEIS (2018) Energy Company Obligation – Eco3: 2018-2022, Final Stage Impact Assessment. [10]: LPG Gas Boiler & Central Heating Costs 2021 Price Comparison (householdquotes.co.uk)

[11] : BEIS (2018) Non-Domestic RHI and Domestic RHI monthly deployment data.

[12] : Element Energy (2017) Hybrid Heat Pump, report for BEIS.

[13] : SAP 10.0 (2018) The Government’s Standard Assessment Procedure for Energy Rating of Dwellings.

[14] : CCC (2019) Net Zero Technical Report.

[15] : DEFRA (2018) UK Government GHG Conversion Factors for Company Reporting.

Appendix:

Capital Costs:

Fuel Price:

Heating Lifetimes:

Carbon Intensity Factors: