Written evidence submitted by the Kensa Group (DHH0022)
Introductory Comments
The Kensa Group specialises in the manufacture and installation of ground source heat pumps (GSHP). Based in Cornwall, the company is the long-established and undisputed market leader having supplied the appliances for over 40% of all UK GSHP installations in 2019. Established in 1999, the Kensa Group currently employs 110 staff which means it is likely the UK’s largest employer solely focussed on the provision of low carbon heating systems.
In March 2020, Legal and General Capital took a significant minority stake in the Kensa Group to enable their own property businesses to benefit from the technology. The investment also means significant resource is currently being devoted to efforts to highlight the superior performance of GSHPs and to explain why the Government, the environment, the energy system and millions of householders would be best served by the widespread adoption of the technology.
The present CEO, Simon Lomax, joined the company in 2007 and chaired the trade body, the Ground Source Heat Pump Association, from 2013-16. Simon has witnessed all the major policy decisions over the past decade; some have been very peculiar. In 2007, GSHPs were the most popular low carbon heating technology before significant Government interference corrupted market preferences: they are now the least popular and that is an unintended and unwelcome outcome of misguided policy. Current thinking must change and it must change quickly.
GSHPs provide far superior outcomes to air source heat pumps (ASHPs). The running costs are lower which means households will welcome them. Carbon emissions are lower too which supports the Government’s ambitious net zero carbon target. And most importantly, their efficiency on the coldest day is almost twice that of an ASHP which has profound implications on the cost of upgrades to the electricity system.
The optimum deployment of GSHPs is via small GSHP appliances in each property linked to a shared ground array. This system architecture effectively mimics the gas solution. Many entities are keen to commit private finance to the provision of the ground arrays (in return for an annual connection fee, equivalent to a gas standing charge) provided there is modest subsidy support from Government. This approach should be adopted initially in new build and social housing retrofit applications in order to reduce supply chain costs. It would then be possible to transition to private households later in the decade with offers that likely require no upfront contribution.
Ground arrays should be regarded as critical national infrastructure. They provide a long-lasting legacy for any subsidy support. Their installation would likely be delivered by UK Plc so investing public funds in this infrastructure would be an idea post-Covid measure to stimulate the green economy. They are entirely unobtrusive.
Ground arrays should not be regarded as a costly addition to a heat pump system. Instead, they are a national asset. They unlock the opportunity for the UK to benefit from more efficient, more reliable and more durable GSHPs. And any heat pump deployment programme which delivers a greater share of GSHP installations will reduce the costs hugely elsewhere in the electricity system. BEIS should understand these impacts without further delay.
GSHPs were the most popular low carbon heating technology before Government corrupted markets with poor subsidy support policy. A rush towards biomass has been regretted whilst support for ASHPs has failed to deliver any significant deployment volumes because the technology is poorly matched to the UK’s climatic conditions. In both cases, BEIS was attracted by the seemingly lower costs for these technologies without considering wider impacts or user acceptance.
To ensure the right technologies deploy, it is vital that the very brightest scientists and engineers are attracted into BEIS. Currently, many policy advisors have no background in energy or heat and rely excessively on reports from a small cartel of consultants who are understandably motivated only to support the vested interest of incumbents. These incumbents reward them with significant contracts. Civil servants satisfy themselves by following processes but have limited ability to consider or understand outcomes. Often, economists play an excessive role. Rarely is the full cost of any decision understood.
To try and mitigate these issues, a Low Carbon Heating Commission should be introduced to embrace academics, industry, users, regulators and Government. Energy policy is not well-suited to the parliamentary cycle and should not be overtly political. It is commonly agreed that carbon emissions and levels of fuel poverty should fall but insufficient progress is being made, in part because BEIS officials provide poor quality advice and Ministers are content merely to escape a posting without making any critical decisions.
It is also important that the Commission (or BEIS) features a Delivery Unit which has a clear plan for the rollout of low carbon heat. Too often, incentive schemes are too general and result in perverse and unintended outcomes. Far more precision is required. Very simply, low carbon heating systems should be deployed initially in new build and social housing retrofit applications so costs can reduce with access to these ‘volume’ opportunities. Subsidy support should be clear and any offer should be long-lasting: it should not be conditional on absurd competitions or only available if absurd timescales can be met. In all cases, there should be a relentless focus on outcomes for the user as prior subsidy schemes have often provided exceptional rewards for investors at the expense of householders.
In the second half of the decade, business models benefitting from the reduced GSHP installation costs will emerge to serve the private housing retrofit market. By then, other steps that will increase the appeal of heat pumps against gas, including the re-setting of energy prices, will encourage adoption. In the meantime, there should be no focus on the private housing market served by gas.
Worryingly, the ill-conceived and poorly-timed Heat Pump Demonstrator Project will deliver underwhelming running cost outcomes as it is focussed on displacing gas prematurely. There is a real danger that the gas lobby will use these outcomes as support for their belief that green gas or hydrogen will somehow deliver more compelling outcomes to householders.
Government should:
Government should understand that GSHPs can be deployed in virtually every UK building. Almost every property, from every era, is suitable and deployment should start in localities where the underlying geological conditions, or surface features, are most conducive to lower cost installations.
ASHPs do not have the same universal appeal. Regulations, which are rarely enforced, prevent their deployment in high density housing estates due to the potential noise nuisance and because they are unsightly. Individual ASHPs also cannot be installed easily on apartment blocks. Colder air temperatures in Scotland, and elsewhere, mitigate against their efficient performance in certain regions and the salty atmosphere in coastal environments cause significant corrosion that can dramatically shorten their lifespan.
ASHPs should not be regarded as the inevitable ‘starter’ heat pump technology even though they are often considered to be relatively simple and plumbers can install them without involvement with a ground array. Indeed, the opposite is true. GSHPs are easier to install than ASHPs if the ground array is already provided; plumbers have no involvement in the supply of the gas network, and they need not be involved in the supply of neighbour-hood scale ground arrays for GSHPs. Despite huge efforts from global companies, ASHP deployment numbers in the UK are still very modest simply because they are not efficient, quiet, reliable or durable, which means the running costs and ownership costs cannot appeal to the UK consumer. For these reasons, they should not be the technology that is central to the heat decarbonisation policy: they should be replaced by GSHPs.
Hybrids featuring an ASHP and gas boiler should play no part in the heat decarbonisation strategy as they have no appealing outcomes. The superior ‘hybrid’ technology mix is a GSHP and a heat battery, as this will manage the peak load issue more effectively, and deliver lower running costs and lower carbon emissions. Gas boiler/ASHP hybrids have been promoted by the gas sector in a desperate bid to prolong the utility of their network. Any reasonable analysis of their potential would have identified their lack of appeal to any householder. They are a crude solution but it has found favour because most Government officials lack the necessary engineering credentials to differentiate between options. Worse, when Government did commission consultants to consider a future role for hybrids, stand-alone GSHPs or hybrids involving heat batteries were not modelled as a counter-factual.
Any Government decision to invest in the ground array infrastructure will ensure the market will naturally gravitate towards GSHPs.
In order to reach this understanding, Government must:
Low carbon heating has to be seen as more appealing that any incumbent heating system. Very simply, ASHPs will always struggle to deliver that outcome. They are noisy and ugly and there are concerns around reliability and durability. They are also hopelessly inefficient on the coldest day which means households may be cold, any heat will be expensive and the impact on the grid could be profound. Prolonged efforts by major global corporations have failed to create a market, despite favourable support via the RHI, because the technology simply doesn’t work well enough in the climatic conditions typical to the UK. It is just absurd to presume that using freezing air to heat a home is sensible! They cannot be the long-term solution.
Householders aren’t keen on heat networks either: they prefer having control over the heating appliance in their home. Government has been very keen on heat networks and some stakeholders, including investors, have been very keen locking households into lengthy contracts which provide no choice and deliver heat at extortionate prices. When BEIS officials are asked why there is such enthusiasm for heat networks, they claim they deliver lower cost and lower carbon heat because of the project scale. When they are asked for evidence of either outcome, they return empty-handed. Heat networks are not the solution.
Instead, there needs to be a renewed focus on GSHPs. They are almost twice as efficient on the coldest day which means far less generating capacity is required. They are more reliable and durable simply because they are installed under cover. They are entirely unobtrusive, can operate when the grid can best accommodate them, will utilise waste heat effectively and can provide cooling in a fashion that reduces running costs and carbon emissions. And they can be supplied at the same cost as an ASHP if the cost of the ground array is divorced from that purchase.
Their deployment is supported by major energy companies and pension funds. Sadly, BEIS has unintentionally removed all subsidy support for shared ground loop installations with the cancellation of the non-domestic RHI in March 2021. It does intend to provide support under the Clean Heat Grant scheduled for introduction in April 2022 but officials have conceded they did not intend to leave the application without any support. This oversight is typical of the carelessness which characterises the development of subsidy support schemes.
To help, Kensa has submitted proposals for subsidy schemes which provide far superior value than anything conjured up by BEIS. In part, this is because many entities, including energy companies, water companies, local authorities and pension fund managers, want to fund, own and maintain the underground infrastructure in return for income via a long-term connection fee. They are attracted by the durable nature of the asset and the modest and predictable ownership costs. These factors allow them to take a long-term view.
To maximise appeal, the key is to ensure the connection fee is modest so the overall running cost is more attractive than gas. To do so, some modest subsidy support is required to seed the market but at levels which should be hugely attractive to Government. This support will create a long-lasting legacy and the deployment of more efficient, and more flexible, GSHP’s will help reduce the costs of upgrades to the electricity system. The ground arrays would also be delivered by UK Plc and their installation could be a central element to any post-Covid economic recovery. They should be regarded as the 21st century equivalent to the gas network. They will last 100 years.
A small heat pump will be installed in each dwelling. In most anticipated models, the householder will own and maintain the appliance and will have the choice to purchase electricity from any supplier. Many suppliers are launching heat pump centric tariffs which focus operation when electricity is lower cost (and lower carbon) so the running costs are already lower than gas. That advantage will magnify once Government has imposed taxes on the cost of gas.
The right choices will attract private sector finance and the right choices will minimise the cost burden that will fall on consumers. BEIS is not focussed on the right choices because it views subsidy policy through a narrow prism whereby it assumes that low cost must equal high value. It also prevents obvious initiatives through absurd ‘red tape’. An example will be illustrative.
Social landlords would happily commit to low carbon heating upgrade programmes if they could charge a slightly higher rent for the more energy efficient home. GSHPs could easily deliver running cost savings (against night storage heaters) of £400 per annum. Against that backdrop, it would be reasonable for the landlord to increase the rent by £200 per year and pocket the £200 as a return on the investment. Sadly, these ‘pay-as-you-save’ schemes are frustrated by ‘red tape’.
This application is also bedevilled by bungled policy. There was an intent to allow co-funding between the Non-Domestic RHI and the Energy Company Obligation (ECO) but conflicting eligibility conditions across the two schemes means it is virtually impossible for any property to qualify for both. This was an unintended outcome but is indicative of the issues the sector has faced.
Purchasers of new properties and tenants at social properties will have the decision made for them. It is merely important to ensure they receive outcomes which are attractive and encourage them to report positively about their experiences to other households. Modest subsidy support is required to deliver volume opportunities and to drive down costs.
Some novel regulation will be required elsewhere. For the shared ground array idea to work for private housing later in the decade, it is vital to adopt a street-by-street approach, rather like the rollout of the gas network some fifty years ago. To support the economics for the ground array owner, and to keep annual connection fees at a sensible level, regulations would be required to ensure households connected to the array at the earliest opportunity. This could be done by eliminating any new gas boiler installation but this blunt approach ignores some realities.
When a boiler fails, the household requires a swift remedy so there would be a natural desire to repair rather than replace with a heat pump. For this reason, it would be necessary to encourage an upgrade before the gas boiler fails. To ensure entire streets can act quickly it would require an opportunity to upgrade at zero or modest cost to embrace those households with no access to capital. In time, this outcome should be possible.
Asset owners will fund the heat pump installation and will likely offer the householder heat for a slightly lower price than delivered by the gas boiler. By the second half of the decade, it is presumed that taxes will ensure that heat from a gas boiler will be far more costly. As a result, there would be a significant running cost saving when using a GSHP equipped with heat storage and using smart controls to take advantage of a time-of-use tariff. In this case, the asset owner will pass on some of this saving but will retain the remainder to support the upfront installation cost of the appliance. The householder is getting heat at a lower price than gas without having to fund any of the installation.
This outcome would be a politically attractive way to transition whole communities from gas without any negative reaction that heating bills have increased: it would also lower carbon emissions by around 80%. It is the most appealing way to deliver low carbon heating at scale and only GSHPs, with their superior efficiency, reliability and durability would appeal to the asset owners.
The Committee should be aware that the incumbent gas lobby has continually suggested that any rollout of heat pumps would cause disruption inside the home. They use this argument to encourage support for green gas and hydrogen. It is nonsense.
Two points should be understood:
Government announcements have dampened interest in heat pump technology by persisting with the wholly inaccurate myth that heat pumps are only suitable for well-insulated homes. This is not true. Homes with inferior insulation specifications will simply need larger radiators in order to achieve the required room temperatures. There is a more important point too, conveniently ignored by the incumbent fossil fuel boiler manufacturers who take full advantage of the BEIS ignorance.
Very simply, the size of the radiators required to heat a home with less-than-ideal insulation should not vary between a heat pump and a fossil fuel condensing boiler provided the latter is designed, as required, to operate in condensing mode. The efficiency advantage of a condensing boiler is only delivered if the return temperature is around 50oC. That is the same temperature that can be achieved with a heat pump. Annoyingly, most condensing boiler systems are not set up this way. Instead, installers routinely set the flow at 80oC so the return temperature is well above the temperature to permit condensing. The advantage is smaller radiators: the disadvantage is a loss of efficiency. There has been no enforcement at all to ensure condensing boilers are set up to achieve the outcomes expected by the legislation that mandated their use.
Hybrids featuring an ASHP and gas boiler should play no part in the heat decarbonisation strategy as they deliver far less appealing outcomes than an alternative ‘hybrid’. The superior hybrid is a GSHP and a heat battery as it will manage the peak load issue more effectively, and deliver lower running costs and lower carbon emissions. Gas boiler/ASHP hybrids have been promoted by the gas sector in a desperate bid to prolong the utility of their network. Any reasonable analysis of their potential would have identified their lack of appeal to any householder. They are a crude solution but it has found favour because BEIS officials lack the necessary engineering credentials to understand their outcomes.
BEIS officials have seemingly fallen for the appeal of hybrids based upon one poor-quality report (the Freedom Project) which was presented by fossil fuel incumbents who want to see continued utility for the gas network. Why would any householder want two appliances, each with a relatively short design life, to take the place of their single gas appliance? The only possible answer is a reduction in running/ownership costs but that will not be the case.
Right now, if a householder wants lowest running costs from any gas boiler/ASHP hybrid, the gas boiler will handle virtually all of the load if standard tariffs are used. The Freedom Project conceded this outcome and some of its scenarios reflected a possible future pricing position to justify the appeal of its hybrid but reality is more compelling. Many of the households who received a free ASHP have asked for it to be removed as they realised it was increasing their bills.
Moving forward, a time-of-use tariff might ensure the ASHP is the low-cost space heating solution whenever there are windy conditions. It would also likely be the lower cost solution during summer when a modest amount of heat is used to deliver hot water. That said, the GSHP would deliver the same space heating at lower cost (due to the increased efficiency) and these savings would more than cover the slightly higher cost of delivering a small amount of hot water in summer.
Of course, some observers argue there are two other benefits to justify a gas boiler/hybrid:
Firstly, the CCC suggest that many properties will not have sufficient internal space to house a hot water cylinder so the gas combi boiler would need to remain to provide hot water.
Secondly, the gas lobby suggest that there won’t be sufficient capacity to run the ASHP’s at times of peak demand so the gas boilers would provide essential backup.
Both arguments survive little scrutiny and both issues disappear with the use of a superior ‘hybrid’, namely a GSHP and heat battery. This set-up requires no space inside the house and can be installed exactly where the ASHP would have been positioned. Whereas an ASHP will disfigure the property and make a noise, a GSHP/heat battery can be installed within a shelter that has been designed to blend with the property’s appearance. And this hybrid would easily overcome the peak demand issue as the heat pumps could switch off and utilise the stored heat in the battery. A GSHP is more reliable and durable than an ASHP: a heat battery is more reliable and durable than a gas combi boiler. The combination would result in lower running costs, lower ownership costs (as replacement would be required less frequently) and lower carbon emissions (as there is no gas combustion at all).
This novel hybrid arrangement does not suit the fossil fuel incumbents: it does suit a householder and the environment and those are the outcomes which should most interest Government.
Householders will engage if you give them something better than their incumbent system at a price that is attractive to them. The Government should recognise that householders should embrace low carbon heating choices rather than have them forced on them by regulation or the actions of incumbents who offer sub-optimal solutions. GSHPs are the right solution for the vast majority of properties and the Kensa Group submission to the recent Environmental Audit Enquiry on heat pumps provides all the supporting evidence. That submission and its addendum can be found here and here.
A Low Carbon Heating Commission must be established. It should be staffed by the brightest scientists and engineers working for experienced programme managers. Civil servants should be some distance removed from the Commission.
The Commission will need clear support from Government. There should be early sight of expected future energy prices and details of long-term subsidy support schemes which are tapered so that they reward ‘early adopters’ and provide a decreasing level of support as the supply chain drives down costs.
The Commission will also need a regulatory regime which restricts the opportunity for ‘hard sell’ companies with no experience of the technologies to operate in the markets.