Written evidence submitted by National Housing Federation (DHH0046)

Introduction

The National Housing Federation (NHF) is the voice of housing associations in England. Our members own over 99% of housing association homes in England, providing 2.7m homes to around 6 million people. Members also invest in a range of neighbourhood projects that help create strong and vibrant communities.

We welcome the opportunity to respond to the BEIS Select Committee inquiry into decarbonising heat in homes. We would also welcome the opportunity to provide oral evidence to the Committee.

In preparing our response we have consulted with members, drawn on NHF survey data and conduced secondary research.

NHF response

Residential housing contributes around a fifth of all UK carbon emissions, and social housing contributes around 10% of this. The vast majority of these emissions are generated by heating and hot water. Given the size and scale of the sector, decarbonising social housing will be critical to achieving the Government’s ambition of net zero greenhouse gas emissions by 2050.

The social housing sector has a good track record in delivering thermally efficient homes. As our submission to HM Treasury on the forthcoming Spending Review makes clear, a retrofit revolution led by the social housing sector would not only cut carbon emissions and help fight climate change but would also create jobs, support local economies, cut fuel bills and help tackle fuel poverty. This could also pave the way for a nationwide rollout of an ambitious retrofit programme across all tenures

There are, however, significant challenges to overcome if we are to retrofit at scale and pace and decarbonise our heating and our homes by 2050. Our response explores some of these challenges.

Committee’s questions

What has been the impact of past and current policies for low carbon heat, and what lessons can be learnt, including examples from developed administrations and international comparators?

One of the key lessons to learn from recent experiences is the need for policy consistency. As the Institute for Government noted in a recent report, policy-making in the UK is notoriously short-termist. The lack of consistency, the lack of long-term planning, the constant change in personnel and lack of co-ordination across government departments have all undermined previous efforts to decarbonise heat. The decision to abandon the zero carbon home standard in 2015, one year before it was due to come into effect, is a good example of this and undermined confidence in the government’s commitment to decarbonisation.

We also need long-term funding solutions that are well designed, fair and sustainable. In the early 2010s, the Green Deal was the Government’s flagship energy efficiency programme in the UK – but this was closed within a couple of years and widely regarded as a failure: the interest rate was too high, the application process too difficult and the finance provided often not covering installation costs. In large part, as the NAO conclude, the design and implementation of the scheme was poor. More recent initiatives, such as the Renewable Heat Incentive (RHI), also show the need for well-designed solutions: currently RHI payments often do not cover the full costs of moving to a renewable heating system and the phased payment approach (whereby payments are made over 7 years) can also cause problems with cashflow.

Members have also reported some challenges with the new Green Homes Grant scheme and the Social Housing Decarbonisation Fund Demonstrator.

Green Homes Grant

We have welcomed the new Green Homes Grant scheme and the fact that social landlords are eligible for funding. However, the requirement that works funded under the scheme must be complete by 31 March 2021 has made it next to impossible for most members to use the scheme to retrofit additional homes and install low carbon heating systems given the time it takes to plan, procure and deliver works. The impact of coronavirus has made this even more of a challenge as, for example, many residents do not want installers in their homes at this particular time. One way to manage this particular challenge (on securing access to properties during coronavirus) would be to use the scheme to fund retrofit work in void properties. However, this is not allowed under the scheme due to resident eligibility requirements.

The delivery deadlines also fail to recognise the reality of undertaking retrofit work on the ground. For example, undertaking external wall insulation in the winter, in wet conditions, is far from ideal.

We have also heard reports that the scheme has driven up prices. One member has reported that once the Green Homes Grant scheme was launched, prices for the installation of measures such as air source heat pumps increased on average by around £5,000, compared to quotes received before the scheme was announced.

Extending the scheme for another year or more would address many of these challenges. It would enable members to plan with confidence, would allow more time for engineers and installers to gain the necessary certifications and would mean that work can be scheduled more efficiently and effectively.

Social Housing Decarbonisation Fund Demonstrator

In advance of the promised £3.8bn Social Housing Decarbonisation Fund, the £50m demonstrator fund is an opportunity to test different approaches and learn important lessons before the roll-out of the main fund.

One key lesson is that the main fund must be directly accessible by housing associations. Currently only local authorities, or local authority-led consortia, are eligible to bid into the demonstrator fund. This has proved to be a significant barrier to many members engaging in the demonstrator and accessing funding. Most housing associations have good relationships with local authorities and local agencies, and we are keen to encourage and support local partnerships on the green housing agenda. But in order to make the fund widely accessible we are asking government to ensure that housing associations are able to bid directly into the full Social Housing Decarbonisation Fund when established.

The tight deadlines within which to prepare bids, and the process of bidding, has also proved a challenge to members.

This reinforces the need for a sustainable, long-term funding solution so that the social housing sector can plan effectively, work collaboratively and properly engage residents.

What key policies, priorities and timelines should be included in the Government’s forthcoming Buildings and Heat Strategy to ensure that the UK is on track to deliver net zero? What are the most urgent decisions and actions that need to be taken over the course of this Parliament (by 2024)?

The forthcoming strategy needs to provide a comprehensive plan for the sector. As we set out in our submission to HM Treasury on the forthcoming Spending Review, to enable the sector to plan and deliver with confidence, the strategy needs to provide a policy “road map” to 2050, setting out the standards and requirements that housing associations will need to work toward to achieve the net zero ambition. In particular, the strategy needs to:

• provide a clear definition of net zero for the sector, and clarity on how net zero should be calculated;

• provide long-term clarity and certainty on policy, regulation, reporting and funding regimes. This includes what minimum EPC levels will be expected, and by when. This also needs to address the concerns expressed by members around the long-term suitability of EPC and SAP;

• set clear milestones;

• set out what forms of low carbon technology the Government is championing;

• address how we will invest in supply chains, and increase skills and capacity. This will also need to provide some certainty around long-term funding if supply chains are to have the confidence to invest in recruitment, training and innovation;

• address quality concerns, and how we can assure ourselves that works delivered are safe, effective and to the required standard; and

• set out how we will engage and inform consumers and residents.

The strategy needs to set out how government will work together to deliver the net zero ambition. BEIS leads on energy efficiency, including in homes, but MHCLG holds all the policy levers that are key to improving existing and new housing stock (such as building standards, supply and planning). And HM Treasury hold the purse strings.

The strategy also needs to recognise the diversity of the sector, and provide a framework that works for housing associations around the country, both urban and rural.

The strategy also needs to make the case for more ambitious environmental standards for new homes, as set out in our submission on the proposed new Future Homes Standard. If we are to achieve our ambitions on tackling climate change, then we need to build new homes to a net zero standard as soon as reasonably possible.

Which technologies are the most viable to deliver the decarbonisation of heating, and what would be the most appropriate mix of technologies across the UK?

There seems to be consensus that a mix of different technologies – including heat pumps, heat networks, hydrogen and biogases – will be needed to decarbonise heating systems.

For many of our members, hydrogen would be the easiest and least disruptive solution, although we recognise this would require significant infrastructure investment and present supply challenges. Many members are starting to install heat pumps, although this is costly and disruptive to residents. It also requires residents to adapt to the new technology and change their behaviours. To implement a heat pump solution at scale would also require local energy grids to be upgraded. Some members have reported that the introduction of largely electric based systems is placing large demands on the national energy infrastructure that, in many cases, is outdated and unable to cope with the increased demand.

We urge the government to outline in the forthcoming Building and Heat Strategy the mix of technologies, and associated funding mechanisms, that will be prioritised going forward.

What are the barriers to scaling up low carbon heating technologies? What is needed to overcome these barriers?

The NHF conducted a survey of members to understand the key barriers to decarbonisation faced by housing associations. This includes challenges around installing and scaling up low carbon heating technology. Many of the barriers faced by the social housing sector will be similar to those in the private rented sector and to those faced by homeowners.

The key barrier is cost. The overwhelming majority of members – nearly three in every four who responded to our survey – told us that concerns around funding were a key barrier to retrofitting at scale and pace.

Concerns around government policy were also cited as a major barrier. Over half of members who responded to our survey said that unclear government policy made it difficult to plan effectively or with any degree of confidence.

Other major challenges highlighted by housing associations include concerns around unproven technology or approaches; the need to deal with other organisational priorities, such as supporting residents through the Covid-19 crisis and safety remediation work; skills shortages and supply chain concerns; and the absence of a sustainability strategy or net zero plan within the organisation.

The full survey results are set out below.

How can the costs of decarbonising heat be distributed fairly across consumers, taxpayers, business and government, taking account of the fuel poor and communities affected by the transition? What is the impact of the existing distribution of environmental levies across electricity, gas and fuel bills on drivers for switching to low carbon heating, and should this distribution be reviewed?

We recognise that costs will need to be shared between consumers, taxpayers, landlords, business and government. It will be important however, that those on the lowest incomes and those in fuel poverty – many of whom live in social housing - are not penalised or excluded from retrofit programmes.

For residents living in the social housing sector fuel poverty is a significant issue. Nationally (across all tenures) 10% (2.4 million) households live in fuel poverty, and after paying energy costs are left with a residual income that is below the official poverty line. Policy decisions on decarbonising heat in homes must take into account the financial needs of low-income households, and seek to address the broader issue of fuel poverty in tandem with net zero-carbon targets.

As the CBI argue, there is benefit in the state providing public funding to drive decarbonisation in the social housing sector. We have made the same argument. The sector is well placed to deliver a retrofit revolution: it has the experience, it has the ambition, it has the scale and it plans for the long-term. Supporting social housing in the short-term would also help build skills and supply chains and make the roll-out of a national decarbonisation programme in the medium-term more achievable.

What action is required to ensure that households are engaged, informed, supported and protected during the transition to low carbon heat, including measures to minimise disruption in homes and to maintain consumer choice?

We know that lack of consumer demand is a barrier to retrofitting, and unless addressed will delay the transition to low carbon heating. This is as significant a challenge in the social housing sector as it is in other tenures.

Members are engaged in a wide range of activities to engage and inform residents: running information campaigns, hosting events and road-shows, appointing local green champions, co-creating sustainability strategies with tenants, and much more. But we recognise there is more work to do

We know that consumers are largely unaware of the environmental impact of domestic heating and its contribution to the UK’s carbon footprint. There is also a low level of awareness around the different types of low carbon heating available. For example, research recently published by National Grid suggests that only 5% of consumers identified heat as a major contributor to UK carbon emissions, and only around one in five were familiar with heat pumps.

To address this, there needs to be a concerted and long-term campaign to inform and educate and incentivise all consumers, including residents, and to drive demand for low carbon heating. We know the government is supporting www.energyadviceservice.org.uk as an impartial energy advice service, but a website and helpline alone will not deliver the change in hearts and minds that is required.

Where should responsibility lie for the governance, coordination and delivery of low carbon heating? What will these organisations need in order to deliver such responsibilities?

If we are to achieve our net zero ambition, then all key stakeholders and organisations must work together and play their part. In the social housing sector, this means national and local government, housing associations, residents, investors, lenders, suppliers and others.

Delivery is often best left to local agencies, who will understand their communities better and know which technical solutions and approaches are best suited to local housing stock. This includes housing associations who are often anchor institutions in their local communities. To enable local agencies and housing associations to deliver, they will need clear targets and timescales, appropriate resources and the authority to act.

There is a need for oversight and coordination at a national level. However, this should not be left to government alone. This is why the NHF has called for a Decarbonisation Task Force, made up of key stakeholders, to advise Ministers and oversee progress. Others have made similar calls. The CBI have called for the creation of a new National Delivery Body, led by individuals from key sectors and organisations, to work with government on creating, coordinating and delivering an overarching national heat decarbonisation programme. Policy Connect have called for a Central Delivery Authority to coordinate delivery at a regional level. National Grid recommend the creation of a Heat Transformation Council to assess the deliverability of various low carbon heating options and to advise government. These are all slightly different approaches, but all support the same principle: that key stakeholders must be represented and involved in the design and oversight of the national decarbonisation plan. With 2.5m homes in total, this has to include housing associations and their residents.

Rob Wall

Head of Policy

National Housing Federation

November 2020