Written submission from Future Energy Networks (SCB0043)

Dear Environmental Audit Committee

Call for Evidence – Seventh Carbon Budget (CB7)

Future Energy Networks (FEN) represents National Gas, Cadent Gas, Northern Gas Networks, SGN and Wales & West Utilities and Northern Ireland associate members (Evolve, Gas Networks Ireland, Kinecx Energy, Mutual Energy, Phoenix Energy). 

We welcome the opportunity to respond to this call of evidence. Gas networks fully support the net zero transition and can play an active role in delivery whilst helping to manage costs, minimise disruption to consumers and enable economic growth. Effective utilisation of the gas networks can help to deliver net zero in a fair and affordable way, whilst maximising consumer choice. We have insight into consumer attitudes as well as evidence of opportunities to make the transition more efficient for the UK.

1a. The Climate Change Committee (CCC)’s assumptions

CB7 advises government on the levels of emissions to deliver legally binding milestones. It must be “deliverable”; however, it is not an implementation plan. In CB7 over three quarters of the required emissions reductions are from demand-led sectors, placing more burden on consumers and more focus on costs. Previous carbon budgets have been dominated by improvements in energy supply.

We acknowledge the challenging role the CCC undertake, especially given the modelling bounds they must work within. With our experience of the energy system and consumer behaviour, we have concerns about the CCC’s assumptions and the deliverability of the proposed balanced pathway.

a.                   Heat pumps – CB7 states that by 2030 450,000 heat pumps will need installing annually, increasing to 1.5million by 2035. These numbers are significantly different from CB6’s 600,000 and 910,000 respectively. Regardless of the target, uptake is nowhere near this rate, with only 60,000 installations in 2023. Subsidy has unlocked some demand for heat pumps with installation numbers rising, though this seemed to stall between 2024 Q4 and 2025 Q1.

Evidence shows consumers are not moving to heat pumps at the rate required[1],[2]. The barriers to heat pump installation include upfront cost, technical constraints and disruption. Additionally, there are not enough skilled engineers to install heat pumps at pace[3],[4]. The focus on heat pumps for domestic heat is proving to be undeliverable. We encourage support for a broad range of home heating solutions to maximise consumer choice and ensure the most efficient solution for each property.

The 11TWh of biomethane capacity connected to the network is equivalent to the heating demand of ~1million households, which is significantly greater than those heated by heat pumps. Despite this, green gas solutions do not feature in CB7 when it comes to heat decarbonisation. We encourage support for:

• Hybrid heat pumps – reduce gas demand and emissions significantly[5],[6]. Hybrids use electricity most of the time, with gas to backup during the coldest parts of the year when the electricity network is likely to be stretched and the performance of the heat pump is lowest. Residual gas consumption can be carbon neutral (even negative) if the gas in the network is green. Hybrid heat solutions can be significantly cheaper and less disruptive to install as well as save consumers money on bills, as evidenced by a recent trial in the Netherlands which found that, on average, households could save €1000 a year in running costs from a hybrid compared to a gas boiler[7]. Hybrids encourage a gradual transition to fully electric heat pumps as they allow consumers to become familiar with the technology, building consumer confidence.
• Policy incentives – for more green gases (biomethane and hydrogen) in the existing gas network. More green gases would reduce emissions associated with gas consumption, having a compounding positive benefit to net zero. The biomethane sector is well placed for rapid expansion which could reduce emissions sooner than waiting for electricity upgrades. Policy support could include recognising biomethane at as a net zero fuel in the UK Emissions Trading Scheme when injected into the gas grid and moving more quickly to deliver hydrogen blending.

b.                   Behaviour change – The CCC place significant expectations on demand-side measures and consumer practices such as moving to heat pumps and taking fewer car journeys. 

The evidence of the public’s willingness to change is insufficient to include this a realistic component of a deliverable pathway. Behaviour change is unlikely to be motivated if the payback is only realised in 2040. Most consumers are only incentivised to change when payback is much quicker[8]. Consumers want choice when it comes to decisions around their home heating solutions[9]. The CCC have not factored this in - an oversight that could risk the deliverability of CB7 and net zero. We encourage the use of policy which builds trust and participation e.g. broadening the Boiler Upgrade Scheme (BUS) to include hybrid heating and supporting more biomethane injection into the grid.

c.                   Peak Heat – According to the CCC, by 2040 66% of emissions reductions will come from low carbon heating.

We are concerned that the CCC has not modelled a peak year for heat demand, only an average year. If more homes electrify, heating these will put greater strain on the electricity system, making it more susceptible to the impacts of extreme weather, renewable supply fluctuations and high consumer demand periods. Gas networks are designed to maintain supply up to a 1-in-20 peak demand day – the estimated coldest year in a 20-year period. The electricity system isn’t designed to this standard meaning there are risks to security of supply on the coldest days if this isn’t addressed. As more heat is electrified this highlights the need for green gas to be used as a backup to ensure that if renewables are unavailable, electricity can be produced from gas.

Newcastle University was commissioned by the CCC to model the resilience of the future energy system. We are concerned that a “simple bucket model” is referred to when discussing meeting peak heat demand which we would argue needs significant integration to stress test this concept[10]. Additionally, their report states the need for very high amounts of energy storage which can’t feasibly be met by any other means than a gaseous fuel (40 – 60 TWh hydrogen storage). They state that investment in hydrogen storage should begin straight away. This is not used in CB7 (only 5-9TWh of hydrogen storage is accounted for) and causes a risk as the assumption that peak heat can be delivered by electrification alone without investment in other energy vectors or storage solutions is flawed. To support resilient, secure energy supply to meet consumer needs across a broad range of demand scenarios, significant investment in hydrogen and gas storage is required urgently.

d.                   Incomplete cost assessment – The CCC provide limited cost information and comparison for their balanced pathway.

The CCC hasn’t taken account of the full costs of electrification (including transmission and distribution network costs) or gas network decommissioning. They refer to Arup’s study done for the National Infrastructure Commission[11] which underestimates decommissioning costs. Decommissioning was considered based on hydrogen uptake scenarios and made broad assumptions about network requirements. The CCC do not account for decommissioning in CB7 at all as they say it will happen after the budget period. This is misleading. Consumers will pay for accelerated asset depreciation in the run up to 2050, should decommissioning be needed.

The CCC don’t recognise the benefits and costs savings associated with repurposing the gas network or using it with green gases. Their budget focuses on a limited range of decarbonisation options, prioritising electrification. The assumptions made in favour of electrification which are not fully substantiated include:

• Electricity costs will reduce over time. In a recent ESNZ Select Committee evidence session, energy suppliers outlined that electricity costs were expected to increase markedly, even if wholesale electricity price reduces[12]. Investment needs in the electricity network are significant. There is no reason to think that electricity prices will fall in the near term (or even beyond that).
• Heat pumps costs exclude ancillary consumer costs for home upgrades and assumptions that the costs of heat pumps will reduce is not being seen[13],[14]. Installation costs are around £13,000 per property currently. In 2023 in addition to the £7,500 subsidy British Gas customers paid an additional £5,690 per installation[15].
• Electricity network costs are not transparent and consistent with previous carbon budgets. In CB6, network costs were a £162 billion line item. It is now bundled into electricity supply, this has seen a £108bn reduction vs CB6. Expectations of network costs are unclear.

Recent studies show that gas can be a critical component of a cheaper transition to net zero[16]. Where an energy system which includes significant amounts of biomethane can reduce the costs of delivering net zero by 10-20%, delivering cumulative savings of £150-220bn. This should be accounted for when developing pathways to net zero.

1b. Critical interdependencies

With biomethane, there are critical interdependencies between government departments DESNZ, DEFRA and DFT. We perceive risks to the delivery of net zero due to departments not working together to understand the holistic benefits to energy, agriculture and HGV decarbonisation of anaerobic digestion to ensure policy and regulation is aligned.

Another critical consideration when comparing net zero solutions is land use and availability. Up to 120TWh of biomethane can be produced sustainably without taking land out of use for food production[17]. This contrasts with solar which would reduce available land for food as it is permanently taken out of rotation given the nature of solar installations.

For hydrogen there are risks that DESNZ and the Department of Business and Trade are not joined up enough. The CCC argue hydrogen will play a limited role in industrial decarbonisation and should be focused on specific hard-to-abate sectors such as ceramics and limited to industrial clusters. This position restricts industry and risks decarbonisation through offshoring, which has already been documented[18]. At least 50% of industry operates outside of clusters and many industrial processes need gaseous fuel. Something being technically possible to electrify doesn’t consider other aspects of investment decision-making when it comes to energy sources. As with domestic consumers, industrial users need to have a choice of energy vector to allow them to make the best decision for their business.

2a. Technology choices

We advocate for technology agnostic, diverse energy vector solutions to the country’s energy needs. We caution the over reliance the CCC’s pathway has on heat pumps and battery vehicles. A technology being proven doesn’t mean it’s the right solution for every use case e.g. 20 – 40% homes aren’t suitable for heat pumps3.

The CCC focus on heat pumps as a “proven” net zero technology yet largely ignore the gas networks. Our gas infrastructure is 99.99% reliable and delivers energy to 85% of GB’s homes, with the ability to transport green gases such as biomethane. This requires no changes for consumers yet is being overlooked by the CCC with the assumption that gas distribution networks will be decommissioned.

Government need to blend the CCC’s pathway with what they’re seeing from public engagement in net zero and recognise the benefits the gas network and solutions like hybrid heating can play in reducing emissions today and through the transition.

Emerging technologies will need to be used alongside existing technologies to deliver net zero at the most efficient cost. A technology agnostic approach to allow industry, businesses and consumers to make the right decisions should be the aim.

2b. Contingency or resilience measures

Our gas transmission and distribution networks are well equipped to support the transition. As a result of the Iron Mains Risk Reduction Programme, two thirds of the gas distribution network has been upgraded to plastic. Additionally, SGN’s LTS Futures project has shown that steel pipelines are suitable for distributing hydrogen[19].

Continuing to invest in gas infrastructure alongside electricity transmission expansion is critical to ensure availability of fully flexible, responsive energy storage which will deliver resilience and security of supply. Green gases can cut consumers’ carbon footprint without the need for behavioural change, encouraging acceptance of net zero. Growing the contribution of green gases to the energy mix also significantly reduces the cost of electricity transmission build out which would be required in a fully electrified future. This electricity transmission infrastructure would be unused most of the time meaning significant asset underutilisation, bringing costs and risks. Continuing to use the gas network for gas transportation and storage is a much cheaper solution and more reliable in times of low wind and solar generation.

We must continue to fund the gas network to ensure safe, reliable transport of energy to homes, businesses and industry. Gases will be required beyond 2050 to ensure hard-to-decarbonise industry isn’t offshored and to ensure electricity generation is possible at times of peak demand and low renewables output.

3a. Costs, policy choices and economic implications

Net zero must be fair for people working in the energy industry and for all consumers. Gas networks employ over 17,000 people directly (oil and gas employs 120,000 people[20]) and with 85% of homes heated by gas, making sure people are not forgotten in the transition is critical.

Our suggestions of support are:

• Expand the BUS to include hybrid heating solutions – the hybrid subsidy could be £2,500 meaning for every electric heat pump you could subsidise three hybrids. Hybrid solutions are usually cheaper to install as there are fewer changes required to homeowners’ properties. It would also help more people join the transition earlier saving emissions sooner, which would have a compounding effect into the future.
• Extend the Green Gas Support Scheme beyond 2028 to incentivise production of biomethane which will reduce emissions from gas consumption and support the rural economy with income from additional crops, reduced fertiliser prices and high skilled jobs on anaerobic digestion facilities.

3b. Costs of inaction

Assuming widespread electrification is required to deliver net zero when the true costs of this is unknown is a significant risk. The costs of decommissioning the gas network have been underestimated as well, which means that the full costs aren’t well understood.

By increasing sustainable biomethane production and optimising the use of the gas network it could save up to £220bn in the transition, including reducing the cost associated with building out the electricity network to a standard already delivered by today's gas network.

4. Public engagement

We need a pragmatic approach from government, supporting consumers with education to aid their understanding of the net zero challenge and preventing losing support for the agenda altogether.

A simple way government could engage the public would be to expand the BUS to include hybrid heating solutions, promoting them as an effective decarbonisation measure. This will mean more people can join the transition sooner. Fully electric heat pumps cost around £13,000 to install of which £7,500 is covered by a subsidy from government [21]. Hybrids are cheaper to install and would only require a £2,500 subsidy meaning three households could be supported for the same price as an electric heat pump, with 60% - 90% of the emissions savings delivered. With green gases such as biomethane, this can be a 100% decarbonisation measure. This would demonstrate that the energy transition is not only for the rich and is attainable for more people. Consumer behaviour tells us that fully electric heat pumps aren‘t desirable, feasible or affordable for a significant proportion of people. We need to give consumers decarbonisation choices and consider how the homes which are not suitable for heat pumps are going to be decarbonised[22] .

Another way to increase buy-in for the transition would be to support green gases and maximise the utilisation of our existing world class gas network. Utilising assets which have already been invested in and maximising the transport of green gases which require limited changes at the point of use for the consumer, is a clear way to engage people in the journey. Electrification is necessary in all scenarios, but maximising use of the gas network will minimise the build out of the electricity transmission network which requires a large amount of above ground infrastructure which can turn the public against the cause. Utilisation of the gas network to reduce expenditure as part of the transition does not get enough consideration from government or the CCC. This is a missed opportunity.

Conclusion

FEN support the transition to net zero and see a significant role for the gas networks. Our response outlines areas for improvement to ensure carbon budgets are credible, deliverable and affordable. Our examples maximise the use of gas infrastructure to manage the costs of electricity grid upgrades whilst delivering investment, jobs and other income streams for rural communities, helping to support local growth and tackle climate change.

FEN encourages the use of a whole systems approach with multiple energy vectors meeting energy demand. Supporting green gases and hybrid heating solutions can keep the cost of the energy transition low, deliver real carbon savings today and ensure more consumers can engage in the transition sooner.

Yours sincerely 

James Earl 

Chief Executive Officer 

Future Energy Networks 

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