Written evidence submitted by Bulb (DHH0060)

Pre Consultation Questions

This is a public response and can be published in full. In this response, Bulb only responded to the questions we are well-placed to answer.

Summary

To reach the Government’s net zero target, we need to make 2,000 homes carbon neutral every day between now and 2050. Energy suppliers are well-placed to help deliver these interventions and drive behaviour change with our customers. Decarbonising heat in homes will require a combination of increased uptake of electrification, energy efficiency and green gas and green hydrogen in homes. The cost of this transition must not be unfairly placed on domestic consumers. To deliver electrification of heating fairly , Government should:

1. Incentivise electrification by taking policy costs off electricity bills and moving these costs to general taxation or gas bills.
2. Make zero carbon heating options cost competitive, by expanding the UK Emissions Trading Scheme (ETS) and carbon floor price to include natural gas for heating.
3. Expand and extend financial incentives that encourage people to retrofit and increase energy efficiency measures in their homes.

We also think that information exchange and debate between industry and public decision-makers about how we decarbonise home heating should increase. As part of this inquiry, we think the Select Committee  should explore stakeholder responses to the following questions:

1. What steps can Government and industry take to increase take up of existing incentive schemes, such as the Renewable Heat Incentive (RHI) or Energy Companies Obligation (ECO) scheme?
2. How we can make sure consumers are made appropriately aware of the need to decarbonise heat in homes, and the action we all must take?
3. What are the barriers consumers face in making the transition to decarbonise their home heating? Is it knowledge about the problem, knowledge about the solutions, funding or hassle?
4. What lessons can we learn from previous schemes in the UK and abroad and how can they be applied here?
5. What extra protections should be considered to make sure that fuel-poor consumers aren’t left behind?
6. To what extent can the market deliver without the right regulatory framework from the Government?

Q.5 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?

The costs of decarbonising heat in homes must benefit consumers and not leave consumers unfairly out of pocket. To reach the Government’s net zero target, we need to make 2,000 homes carbon neutral every day between now and 2050, which will require increased uptake in homes of:

1. Zero carbon heating options facilitated by electrification
2. Increased use of green gases,
3. Energy efficiency measures.

This will require investment. To achieve this, the Government should incentivise electrification by taking policy costs off electricity bills and onto general taxation or gas bills. This encourages consumers to switch to electric heating solutions, makes the cost of electrification more affordable for consumers, and more accurately reflects the carbon impact of the fuel being used. With companies like Bulb offering options to install batteries in homes and offer cost-effective electric vehicle tariffs, we can meet this demand.

At the moment, the price paid by consumers for electricity is artificially kept higher than the cost of natural gas because of the policy costs. To achieve net zero, we must take carbon out of heating. Electrification, hydrogen and green gas have the potential to displace natural gas as the most common method of home heating. This would save 33.1 million tonnes of CO2e emissions a year by 2050[1], equivalent to 10% of total UK emissions. Bulb was the largest buyer of green gas for homes in 2019.

We have outlined our view on the Government’s proposed green gas levy both on our blog and in a detailed consultation response to BEIS. We welcome more incentives for green gas, but we don’t think the Green Gas Levy proposals will meaningfully and fairly help us reach net zero heating by 2050. We do not support increasing consumer bills with a non-volumetric levy. There are three reasons for this:

1. We need an electrification plan alongside the new levy. New policies must incentivise the electrification of heating where possible, as natural gas becomes an increasingly small part of heating by 2050.
2. We do not support a regressive levy on gas consumer bills that will hit the poorest hardest. Any levies on energy bills must be volumetric to incentivise the right consumer response.
3. We’d like to see greater ambition on green gas, closer to the UK’s potential to produce 20TWh biomethane by 2030.

Q6. What incentives and regulatory measures should be employed to encourage and ensure households take up low carbon heat, and how will these need to vary for different household types?

The Government must be more ambitious in its schemes to increase take up of low carbon heat options. These include electrification (covered in detail in the previous section); heat pumps; ‘green’ hydrogen and biomethane; and expanding the UK ETS. Energy suppliers are ideally placed to deliver these changes in a sustainable way. Energy efficiency measures are also essential to reduce the demand for heating and cooling. The Green Homes Grant is a good start but we need to see more ambition with a longer term commitment to energy efficiency to run alongside the extended ECO scheme and bringing forward the Future Homes Standard.

Wide uptake of heat pumps

Heat pumps are particularly effective at cutting household emissions, and energy suppliers can deliver the rollout. The Committee on Climate Change (CCC) has suggested that the UK would require 15 million homes to be fitted with heat pumps or hybrid heat pumps by 2035[2] to electrify home heating. To facilitate this, the Government must widen the Clean Heat Grant to include hybrid heat pumps. The Government could also look to put in place a scrappage scheme for old, inefficient boilers to encourage the take-up of newer models and provide more efficient alternatives, such as hybrid heat pumps and hydrogen-ready boilers. Suppliers like Bulb could help advertise this to members.

Installations require a trained workforce which could boost the green recovery. We welcome the Government’s commitment to expanding the green workforce and their ambition to create 2 million green jobs. We are proud to be working with the Government’s Kickstart scheme to help young people get into work.

Facilitating green gas with a carbon floor price and an ambitious UK ETS
Additionally, the Government should look to take steps to make zero carbon heating options, such as green hydrogen and biomethane, cost competitive with fossil fuels. Consumers should be incentivised to take up these low carbon heat options. For example, the Government could expand the carbon floor price and future UK ETS to include natural gas for heating. Combined, biomethane and hydrogen have the potential to supply 104TWh by 2050, saving 19.1 million tonnes of CO2 emissions a year, equivalent to 5.5% UK emissions[3].

The UK’s carbon price was a large driver of the recent decline in coal power[4], which decreased by 70% between 2015 and 2017[5]. If implementing a carbon floor price on natural gas for heating achieved the same decline in production as coal, it could result in emissions savings of up to 49m tCO2e a year, equivalent to 14% of UK emissions. Alternatively, we could look to Finland and France, which have carbon taxes covering all sectors, with a price closer to €50/tonne CO2.

The UK ETS must be wider in scope than the existing EU ETS, and expanded to include natural gas from heating. It should be agile and able to swiftly remove excess credits when they appear.

Incentivising electrification and green gases

Government should review environmental levies to make sure costs are distributed fairly. As we wrote in the previous section, the Government should consider adjusting policy and network costs on energy bills, taking them off electricity and putting them onto gas.

Incentivising uptake of energy efficiency measures

Government should implement tax rewards to reduce bills and lower carbon emissions. A quarter of energy used in homes today could be saved through cost-effective energy efficiency measures by 2035. This would result in 16.3 MtCO2e saving, equivalent to 4.6% UK emissions[6]. Consumers also need to be informed about energy efficiency benefits - Bulb provides energy efficiency advice to every house we install a smart meter. We have installed more than 200,000 smart meters since February 2019.

We would also like to see the Government be more ambitious in subsidies to increase energy efficiency in homes. Bulb welcomes the Green Homes Grant. But the scheme is  too complex, particularly for time-poor consumers and there is poor availability of installers across the country. The Green Homes Grant needs to be broadened to include subsidies for solar panels and energy storage systems to encourage full take up on low carbon heat through electrification, not just efficiency measures. 

Additionally, we think that the ECO scheme should be extended, and not just for the fuel poor. We know the immense value of boiler replacements to reduce people’s bills and lower emissions. And with many households, not just the traditionally fuel poor, facing hardship due to the coronavirus pandemic, this scheme could benefit many in need.

To help fuel poor communities specifically, the Government needs to increase and put in place further subsidies. With 17% of households in the UK living in social housing[7], funding needs to be made available to achieve the decarbonisation of all social homes. Schemes such as the Government’s £50 million pledged to the Social Housing Decarbonisation Fund must appropriately match this need. Government could also look to encourage banks to lend green mortgages or into offering fuel poor households a lump sum relative to their property’s current EPC rating. On the latter, the Government could coordinate large-scale projects at neighbourhood level to reduce costs. Benefits would create multiplier effects, boosting investment and job opportunities in such communities.

More widely, the Government should bring forward the Future Homes Standard too. The Government's own preferred option to uplift energy efficiency standards and requirements would lead to an average 31% reduction in carbon emissions compared to the current standard[8]. We know that retrofitting homes later can be five times more expensive than making homes zero-carbon when they are built[9]. To save on time and money, homes should be zero-carbon from the beginning.

November 2020