Response from the Liquid Heating Fuel industry – how to reduce electricity requirements in Northern Ireland
About our Industry
OFTEC (The Oil Firing Technical Association) and UKIFDA (The UK and Ireland Fuel Distributors Association) are the representative trade bodies for businesses that deliver vital heating services to households and businesses. This includes liquid fuel distributors, appliance and tank manufacturers, training providers and heating technicians.
Liquid fuel (kerosene) has been the dominant fuel for homes in Northern Ireland for over 25 years. The fuel distribution sector in Northern Ireland has more than 150 oil distribution businesses employing over 2,500 people directly in fuel distribution to the c.526,000 homes (60% of the total) across Northern Ireland that rely on a liquid fuel for their home heat and hot water needs. Most are small and medium size often family-owned businesses.
Locally we also have several large manufacturing companies (Clarehill, Firebird, Grant, Kingspan, Warmflow) manufacturing liquid fuelled appliances and storage tanks and over 3,000 installers and service technicians working on liquid fuelled boilers in the homes of Northern Irish residents.
Introduction
We thank the Committee for their interest on this policy area and their engagement to-date. This submission addresses the thrust of the inquiry’s Call to Evidence and sets out what we see as a solution which would reduce the additional electricity requirement in Northern Ireland.
While all options are still being considered for the decarbonisation of Northern Ireland’s oil heated homes, the potential impact on electricity generation requirement is significant.
The Northern Ireland Utility Regulator currently quotes an average electricity consumption figure of 3,200kWh per home. Based on our research[i] and an average kerosene heating oil consumption of 1,800 litres for a typical Northern Ireland home, converting a home to a heat pump would require an additional 4,600kWh of electricity per home.
This would add an additional 2.5 billion kWh electricity requirement to Northern Ireland all of which would need to be supplied by zero carbon generation in order to meet carbon budgets. To put this into context it would be the equivalent of 413 2.5MW onshore wind turbines at an average capacity factor of 27%, ignoring any intermittency issues.
A recent report commissioned by the Department for Energy Security and Net Zero highlighted the concept of complex to decarbonise (CTD) homes[ii]. The report takes into account a number of different aspects including the type of property, location, availability of skilled labour, supply chain constraints and the ability of the householder to pay. The authors identified an estimated 10 million homes in the UK which are difficult to insulate or improve by conventional means and that the sheer diversity of homes means there is no one-size fits all solution.
Given that 70% of bungalows, 50% of semis, 53% of detached and 44% of terrace houses in Northern Ireland are in SAP Bands D – G, we believe most, if not all of these will fall into a similar complex to decarbonise band. Most of these will be rural, off grid oil heated homes.
This paper outlines a different approach which would reduce the additional electricity requirement by replacing kerosene heating oil with a renewable liquid fuel. In addition, this approach would reduce the overall cost to the consumer, reduce disruption and meet the UK carbon delivery plans quicker.
The industry solution
The industry has for the last three years successfully demonstrated an alternative technology using a Renewable Liquid Fuel called Hydrotreated Vegetable Oil (HVO) in 150 rural premises across the UK including Northern Ireland.
The technology does not involve removing boilers or tanks but instead straightforwardly replaces the fossil fuel kerosene with HVO, which can reduce carbon emissions by up to 88%. The upfront cost to the consumer would be c.£500, to make some simple changes to the existing boiler.
The industry has now highlighted to the UK government it is ready to commercialise this approach. We already have the equipment, support and a workforce capable of applying HVO conversions at scale and maintaining distribution of the fuel through existing channels across the UK including Northern Ireland.
We also know that this is a popular solution that households want. A recent survey by the Future Ready Fuel Campaign[iii] has shown that over 95% of off-grid households want a greater choice of low carbon heating solutions and over 88% of respondents on oil heating said they want the option of switching to a renewable liquid fuel.
Cost to the Consumer
Our own research, using a UK Government cost estimation tool, shows that installing a heat pump, including full retrofitting costs, will cost oil-heated homeowners an average of £24,000.[iv] Even if heat pump prices do fall, they will remain at many times the cost of an oil boiler. This number is backed up by third party research including the UK government heat demonstration project.
The industry renewable liquid fuel solution requires an upfront cost to the consumer of c.£500, to make some simple changes to the existing boiler.
The average home in Northern Ireland currently consumes 1,800 litres of kerosene per year. Based on the current cost (75 pence per litre) the average annual bill would be £1,350. Based on the electricity calculation above the additional electricity cost of a heat pump based on the current Ofgem price cap would be £1,329. Factoring in the up-front costs to install a heat pump and the associated retrofitting of £24,000) required, there is therefore limited financial benefit of moving to a heat pump.
While the upfront cost of using renewable liquid fuels is minimal (because of the lack of structural change and the continued use of existing boilers), the cost of the fuel itself is significantly higher than conventional heating oil and acts as a barrier to consumers.
We welcome the Government’s commitments under Section 159 of Energy Act 2023 to hold a consultation on the potential of a Renewable Liquid Heating Fuel Obligation (RLHFO) for home heating which will go some way to reducing the costs of the fuel to the consumer.
This will - if delivered rapidly and in full - replicate the mechanism used to encourage the use of similar fuels in transport (Renewable Transport Fuel Obligation (RTFO)). The RTFO has been highly successful in supporting a market for renewable fuel since its introduction in 2008. Renewable fuels supplied under the RTFO currently contribute a third of the savings required for the UK’s transport carbon budget.
The RLHFO mechanism is therefore well understood by industry. The supporting legislation has already been written - as it is based on the RTFO - and could be implemented quickly for home heating. The industry is primed to respond to this consultation and support the implementation of a RLHFO.
In addition, we have asked the Chancellor in his forthcoming budget to urgently resolve the tax treatment of renewable liquid fuels for home heating which currently represents an anomaly to Treasury treatment of similar fuels used in transport as the renewable fuel attracts a duty whereas the kerosene equivalent does not.
The numbers above should be taken in the context of both higher fuel poverty and lower disposable incomes in Northern Ireland compared to the rest of the UK.
Lower disruption and workforce ready to commit.
According to OFTEC research, c.60% of household boilers in the UK are distress purchases where lengthy planning for a heat pump is impractical.[v] Furthermore, a NESTA report concluded that “due to the time taken to design, receive the necessary components and install a heat pump, transitioning to a heat pump is currently all but impossible at times of distress.” [vi]. The UK Government heat demonstration project identified that 47% participants decided not to proceed with a heat pump installation because of disruption.
The industry renewable liquid fuel solution provides limited disruption and the conversion can take place at an annual boiler service.
Up to 60,000 heat pump installers are required in the UK within the next decade[vii], with a further 17,000 required in Ireland[viii]. This targets is recognised as being very challenging, and in addition to the need to develop a trained workforce for the maintenance of heat pumps and a workforce required for the fitting on insulation and other retrofit measures.
In contrast the liquid fuel industry is already to install renewable liquid fuels into homes, the workforce already exists and standards and training materials have already been prepared.
Lower impact on the grid
As identified, installing heat pumps in every oil heated home in Northern Ireland would require a substantial increase in electricity generation.
In addition, there will be significant impacts on the local grid networks. Some households will not be able to switch due to limitations on local electricity supply and infrastructure. In its 2020 Future Energy Scenario (FES) report, National Grid estimated that up to 1 million off-grid properties in the UK will require a solution other than heat pumps, due to the high cost of local network upgrades.[ix]
A Delta EE report for UK Government[x] reported that on an average peak winter day, the LV (low voltage) network could support heat pumps operating in 82% of dwellings. This was reduced to 41% of dwellings on a 1-in-20 winter peak day. If a 90% capacity factor is introduced (to provide for redundancy) nearly 25% of the networks would be overloaded on a normal winters day and 35% in a 1 in 20 winter peak day.
These grid issues along with the additional cost can be avoided by the industry solution.
Meets Carbon Budgets
The UK government published its carbon delivery plan in March 2023, which assigned a carbon target for the off-grid sector in the UK.
The Renewable Liquid Heating Obligation within the Energy Act 2023 would allow for the introduction of a renewable liquid fuel blend to be introduced into all home oil heated homes in the UK.
Even if a blend of renewable liquid heating fuel was introduced at the current RTFO rates (12.15% in 2025 rising to 14.60% in 2032), Carbon Budgets 4 and 5 for off-grid homes would be met and exceeded:
The principal reason for this over delivery is the Carbon Budgets were set based on a heat pump roll-out of 7% per year starting in 2026. The roll-out of Renewable Liquid Heating Fuels could start sooner and would impact all existing oil heated homes at the same time.
The industry believes it could go further which would make an even greater contribution in reducing emissions from oil heated homes and to meeting the Government’s Carbon Budgets.
About HVO
Hydrotreated Vegetable Oil (‘HVO’), is one of a number of renewable liquid fuels which are derived from sustainable sources such as waste cooking oil and achieves an 88% equivalent carbon reduction compared to traditional kerosene heating oil.[xi]
Production is increasing globally:
- Production of HVO in the US has grown by 550% to c.10 billion litres in the last five years and is expected to increase to 22 billion litres by 2025.
- In Europe production of HVO is expected to double in the next 2 years to 11 billion litres.
- Used cooking oil in the UK could provide feedstocks to meet c. 10% of heating oil requirements, offering the potential to build a UK domestic industry in HVO.
- The UK’s renewable heating fuel supply chain is starting to grow. Renewable liquid heating fuel is already produced in Ellesmere Port; Petroineos have started to investigate HVO production at Grangemouth[xii] and Phillips 66 is co-processing HVO at its Humber Refinery.
HVO is independently assessed in terms of sustainability and also passes the strict UK Government benchmarks as a sustainable fuel. HVO used for domestic heating purposes must comply with British Standard EN 15940 and PAS 5420.
In February 2023, the UK Government announced it would revoke the anti-dumping and countervailing duties on HVO originating in the United States of America.[xiii] This will significantly increase the availability of HVO in the UK. The first US consignment of HVO was delivered to the UK in March 2023.
A report by Portland Analytics based on data from Imperial College London[xiv] and the US Department of Energy (DoE) comprehensively analysed the availability of feedstocks used to produce RLF in Europe and North America up to 2030 and compared these to predicted biofuels demand for transport as set out by the International Energy Agency. [xv]
The report provides conclusive evidence that the UK domestic heating oil markets could easily be accommodated within the overall requirement for renewable liquid fuels and that the lifecycle greenhouse gas emissions reductions achieved would range between 82% and 88%.
Next steps
We would welcome the opportunity to set out the case in oral evidence for renewable liquid fuels, which offers rural households in Northern Ireland a ready-made solution to the issues they face when it comes to decarbonisation, allowing them to decarbonise in an easy, affordable and non-disruptive way, while taking pressure off its electrification requirements.
We would welcome the opportunity to show the Committee how this works in action and invite them to one of the demonstration sites in Northern Ireland where we have proved the efficacy of renewable liquid fuels as a solution for home heating decarbonisation.
January 2024