Written evidence submitted by Greater London Authority (DHH0067)
Dear Chair,
DECARBONISING HEAT IN HOMES – CALL FOR EVIDENCE
I welcome the Committee’s inquiry into decarbonising heat in homes and I am pleased to provide evidence to guide your inquiry.
London was one of the first global cities to set a net zero carbon target, with policies and programmes in train, and has proven itself as a global city leader in tackling the climate emergency.
Thirty-six per cent of London’s emissions come from domestic buildings and decarbonising heat is the single biggest challenge to getting these emissions down to zero. However, the demand for change has never been greater amongst Londoners, business and London’s boroughs. That is why earlier this year, the Mayor announced his ambition for London to be net zero by 2030.
Given this accelerated ambition, the electrification of heat is a priority, through a mixture of technologies: individual heat pumps at a building level and district heating supplied by large scale heat pumps in denser neighbourhoods. We do not see hydrogen as a major mechanism for decarbonising heat in London within this time frame, unless Government swiftly provides the clear and coherent policy framework for making this happen.
A key piece of evidence I want to draw attention to is my ‘Heat pump retrofit in London’ report, which is accompanied by an Options appraisals for heat pump retrofit in 15 London buildings. Taken together, these reports demonstrate how heat pumps are the primary technology choice for decarbonising heat in London’s existing buildings. The report and options appraisals demonstrate the need to address energy efficiency at the same time as heat decarbonisation, maximising the financial rewards to customers that are flexible in the timing of their heat demand. Focusing on these elements will also have positive benefits for those in fuel poverty, which affects over a million Londoners.
As well as the substantial evidence base the report provides, there are a series of recommendations to government which I hope will inform the work of this Committee, including to:
I am also providing a copy of our response to the Government’s ‘Future support for low carbon heat’ consultation. This provides further evidence on actions the Government needs to take, including:
These recommendations for government fit with wider changes the Mayor has been calling for to support the decarbonisation of heat:
Electrifying the supply of heat will also have co-benefits, such as improving air quality, and particularly in the case of heat networks, improving overall system flexibility, thus reducing the cost of integrating increasing levels of renewables.
The Mayor has been calling for a step-change in support and funding from national government, along with devolution of powers to drive the decarbonisation of heat. By giving local authorities and utilities a key role in the planning and delivery of low carbon heat to all buildings, they will be able to deliver locally appropriate solutions that generate the jobs and local supply chains needed. This is the approach being taken by the Dutch government. In the light of a drive for a much-needed green economic recovery from COVID-19, it is more important than ever that the national government recognises the key role local government must play in delivering on this agenda.
I hope this inquiry will help to develop a strategic way forward that can rapidly deliver the cuts in emissions needed.
Yours sincerely,
Shirley Rodrigues
Deputy Mayor for Environment & Energy
Response from the Mayor of London
Summary
We are in the midst of a climate emergency. This decade must be one of action. The UK is not on track to meet its fourth and fifth carbon budgets and actively needs to tackle emissions from buildings. How we heat our buildings is central to tackling emissions from buildings, but heating cannot be seen in isolation from other measures that are needed to deliver zero carbon buildings. Government’s approach to decarbonising buildings must be joined up. This incentive needs to form part of a coherent, funded and concerted effort to deliver zero carbon buildings across the country, not just in a minority of places, such as off-gas grid buildings.
Given the UK government’s decarbonisation ambitions and its recently stated ambitions for a green recovery, the proposed measures contained in this consultation in relation to the Clean Heat Grant are way off the mark, even as a first step, for the following reasons:
Consultation response
No. Renewable heat at a large scale will be a crucial element in the UK reducing its emissions to net zero. Support must continue to accelerate the uptake of heat pumps operating at a communal level or at a heat network level. Larger heat pumps should continue to be supported through the non-domestic RHI until a successor scheme is in place. We welcome the recent move to extend the non-domestic RHI for a further year. However, a coherent long-term strategy for decarbonising buildings of all sizes is urgently needed to give building owners, heat network operators and technology providers the certainty needed to start making significant progress in delivering low carbon heating solutions and consequently reducing building emissions.
Yes, but with caveats.
A grant does overcome one of the key perverse incentives associated with the RHI, namely that it discouraged energy efficiency measures, since improving the energy efficiency of a building before installing a heat pump would mean the building required less heat and as a consequence the building owner would get less financial support. This is contrary to the optimal operation of a heat pump, which would see the building optimised for energy efficiency before a heat pump is installed. Analysis[3] undertaken by Carbon Trust for the GLA on the costs of retrofitting heat pumps in a number of building typologies across London shows that in many cases, the level of support through the proposed grant is actually lower than with the RHI tariff, particularly as the size of the heat pump gets larger, or if a ground source heat pump is used. So, whilst a grant may be a preferable option, the level of the grant needs further consideration. As outlined in the responses to later questions, it is our view that giving a grant for a proportion of the cost would be much more likely to result in the installation of appropriate heat pumps.
In addition, the grant should only be paid where it can be demonstrated that not only is the heat pump efficient but that the technology being installed is optimal for the setting. This grant should be increased to cover energy efficiency retrofit improvements and be accompanied by energy use intensity (EUI) thresholds that detail the kWh/m2 that should be achieved through the works as a condition of receiving funding. This will help drive a reduction in energy demand alongside the decarbonisation of the energy system.
It is right that the grant is technology neutral, so that the building owner installs the most appropriate type of technology for their building and given the heat sources available to them. This is why the heat interface unit should also be an eligible technology as it allows for the building to be connected to a low carbon heat network, where one is available, as part of an area-wide approach to decarbonisation. However, given some technologies are more expensive than others, paying a proportion of the costs would seem more appropriate. Please see the response to Q.26 for further elaboration on this point.
However, more fundamentally, the grant should be increased and reframed to support the transition to zero carbon homes by funding an appropriate combination of heat pumps and heat interface units, combined with retrofit measures that together deliver a target energy use intensity.
No. The analysis undertaken to come to the £4,000 proposed grant should be revisited, as should the aims of the scheme focusing solely on heat pump deployment. Our analysis has shown that the £4,000 grant does not make heat pumps (and the required accompanying retrofit measures) cost competitive over 40 years compared to natural gas boilers in any of the domestic building typologies for which a detailed assessment was undertaken. Analysis by the Carbon Trust has shown that this grant would need to be increased by ~200-300%, to £7,000-£12,000 per property to make the required energy efficiency measures and heat pumps cost competitive, in the current policy and fiscal framework.
Similarly, the low Carbon Cost Effectiveness figure estimated for this scheme of £25/tCO2e should be an indication that insufficient funds are being targeted at this most difficult area. For comparison, in London, the proposed carbon offset price for development is £95/tCO2e which has been tested for viability through the London Plan. This price was set based on a review we commissioned independent consultants AECOM to undertake to establish an approach to offset pricing in London[4]. Some London boroughs have chosen to set their own, higher, offset prices, e.g. Lewisham, which has an offset price of £104/ tCO2e.
In terms of the aims of the scheme, the scheme should not be focused only on heat pump deployment but should be linked with support for energy efficiency so that the two can be undertaken in tandem. As detailed in other parts of this response, heat pumps cannot be targeted in isolation of energy efficiency measures. Energy efficiency measures will be needed to be undertaken in many cases where there are big carbon savings arguments for installing a heat pump. Indeed, the biggest emissions savings can be achieved by targeting the buildings that are currently most energy inefficient. Energy efficiency measures are not cheap, which is why a more holistic approach to reducing buildings emissions would be preferable, in which support for installing energy efficiency measures with long paybacks (such as solid wall insulation) can be combined with support for decarbonising heat.
Given one of the barriers to take-up of energy efficiency measures is the wish to avoid disruption and hassle, the government should be seeking to use the installation of replacement heating systems to maximise energy efficiency works. Such an approach would be in line with the ‘low-regrets’ approach taken on Mayoral programmes. Where it isn’t possible for a building to reach zero carbon in one go, the approach is to take the most sensible steps to put the building on a trajectory to zero carbon. This reduces costs over time by not over-sizing heating systems, or by not having to undo and redo work subsequently. This missed opportunity to put in place such an approach in this scheme is likely to increase the time and cost to meet the UK’s legally binding carbon reduction targets.
As mentioned elsewhere in this consultation response, energy efficiency is an infrastructure priority. It also represents an important opportunity to stimulate the economy in response to the economic downturn caused by COVID 19, by creating jobs and a market for energy efficiency products and materials. Every opportunity should be taken to significantly transform our poor building stock by installing heat pumps alongside energy efficiency measures. This should not just be in domestic buildings but also in commercial buildings, many of which may get redesigned or repurposed in a post-COVID world.
No. A flat rate grant level is likely to result in a sub-optimal type of heat pump being installed in a particular building, with a preference for a smaller, cheaper system that may not necessarily give the best technical outcome or lifetime cost. Recent analysis[5] undertaken by the Carbon Trust for the Mayor of London showed that the most cost optimal type of heat pump installed in a building over the long term may have more expensive up-front costs, such as ground source heat pumps.
A better approach would be to give a grant for a proportion of the upfront costs (which could also include the required energy efficiency measures, if a more integrated approach to decarbonising buildings was being taken). Our analysis showed that a 20 per cent reduction in all up-front costs (including energy efficiency measures) on top of a £4,000 grant would make heat pumps cost competitive over their lifetime with natural gas boilers, in a domestic setting. This 20 per cent reduction could be achieved through stronger incentives, VAT removal and or other effects that would result from a stronger push in this market, such as bulk purchases and capital cost reductions due to maturation of the market.
In contrast to this scheme, the Feed in Tariff previously required that a building had to reach a minimum EPC level before the support could be accessed. Whilst EPCs are not always the best indicator of actual energy efficiency, incorporating a criteria which requires that the building is adequately efficient for the optimal operation of a heat pump makes sense.
Expanding this scheme to support heat pumps and energy efficiency in tandem and combining it with a target energy use intensity level, would be extremely desirable. It would provide the opportunity to drive buildings towards a target energy use intensity at the same time as supporting low carbon heating solutions. Using an energy use intensity metric such as a threshold kWh heat demand per m2, which the building must meet (or go lower than) through the works (which should extend to energy efficiency measures) would provide this. So far, there is nothing in this proposed scheme that drives increased energy performance of the building. Your consultation document references international comparisons which show that the UK has less efficient buildings and therefore needs bigger heat pumps. This will mean oversizing the heat pump, rather than installing energy efficiency measures. This is more inefficient and will create additional pressures on the electricity grid. This is a particular issue in London where there are already parts of the distribution grid which are constrained and where government schemes continue to fail to deliver energy efficiency at scale.
Variation by capacity should be considered to ensure that heat pumps are appropriately sized for buildings and chosen dependent on the available heat sources. An upper level cap could still be included. Inappropriately sized heat pumps risk householders being very unsatisfied with the thermal performance of their heat pump or paying too much to run them. Ensuring heat pump type is selected and sized alongside optimised energy efficiency measures is the only way to ensure that applicants don’t just choose the heat pump with cheapest up-front costs and fail to consider the long-term running costs. As outlined elsewhere, incorporating a maximum energy use intensity which the building must fall below in order to receive the grant would ensure that heat pumps were being installed in optimal situations and that the scheme really is putting buildings on a zero carbon pathway.
If a voucher scheme is used, there would need to be clear processes in place to safeguard against fraud. There may be lessons that can be learned in this respect from the Green Deal Home Improvement Fund where there were many allegations of mis-selling, unnecessary or inflated administration fees and anticipated financial returns not materialising.
Under the Cleaner Heat Cashback[6] there were a number of processes put in place to ensure quality, value for money and guard against fraud:
We welcome that BEIS is trying to make the scheme administratively light touch for people, particularly given that they won’t be receiving a large grant and administration should be proportionate to the level of support. However, one risk of the light touch initial checks is that people could go ahead and invest and then be unable to get the money. More checks at the start could mitigate against this.
In terms of data collection from applicants, this should be set out in a way that will help inform future development of the schemes. One of the issues BEIS has raised is the lack of information about the costs of systems, which acts as a barrier to having a more nuanced scheme of support available. As such, and particularly if this is just designed to be a short-term scheme, BEIS should consider maximising the amount of data collected about cost and system efficiency, as well as the types of buildings which are applying.
We agree with requiring heat pumps to have a seasonal coefficient of performance of at least 2.8.
However, whilst it is important that high quality heat pumps are installed, it is also important to make sure that the likely performance of the heat pump in situ is taken into consideration. Repositioning this policy to drive zero carbon buildings and supporting energy efficiency alongside heat pumps would help address this issue. Putting in place a target energy use intensity (kWh heat required per m2) which a building must meet or exceed through heat pumps and/or energy efficiency measures, in order to receive the grant would address this issue and help reposition this policy to drive zero carbon buildings. Realigning the policy in this way would require a larger integrated grant that supports heat decarbonisation measures alongside energy efficiency measures.
Without ensuring that appropriate technology is installed in appropriate situations by also driving energy efficiency improvements, there are not just risks in terms of increased operating costs to building occupiers, but also risks to the credibility of heat pumps as a decarbonisation option.
We agree that electricity metering should be required alongside more information on the building itself, for example what energy efficiency measures have been installed, not installed and pre- and post-EPC rating. This data would be very valuable to BEIS in understanding the effectiveness of its policies.
In broad terms we support the concept of limiting the applicability of the grant scheme for biomass to niche uses. That said, given that existing biomass burning is already the single largest contributor to national particulate matter emissions any incentive that further supports biomass must be treated with extreme caution. As noted elsewhere we would support a more holistic approach that included energy efficiency measures alongside heating technology replacement, taking this approach could also reduce the number of “hard to treat” properties that would be eligible to receive a grant for biomass heating.
A review of the ONS Rural-Urban Classification data shows that there are areas classified as rural abutting and even within the GLA boundary, so the separation may not be as great as anticipated. It is also the case that the impacts of air pollutant emissions are not solely local: over distance NOx can be converted into particulate pollution by atmospheric chemistry processes and fine and ultra-fine particulate matter can travel long distances into distant urban areas. It is therefore the case that while the idea to bar grants for biomass in urban areas is necessary it may not be sufficient to remove the negative impacts of biomass grants on urban air quality. Overall the case for supporting any biomass is not strong and the niche proposed is potentially too large. A better solution for hard to treat properties might be to provide enhanced grants focussed on efficiency measures or, where appropriate, connection to better sources of heat or power.
The retention of emissions limits from the RHI schemes is welcomed in principle but there are issues of detail to be considered. Specifically; are the emissions measured in the right type of units: this is partly important because the type of unit selected affects how the appliance is allowed to perform in practice and partly important because different emission units are not wholly or easily translatable so comparison with other technologies and/or standards may not always be possible.
Emissions per unit of energy out are not commonly used in air pollution where the normal preference is to restrict the mass of emissions per unit of time or per unit of expelled air. The EU ecodesign regulations have adopted standards based on emissions per unit of expelled air. Given the difficulty of translating between unit types it has not been possible to assess how the current RHI emission limits (which are proposed to be retained) compare with the ecodesign limits. Ideally grants should only be paid out for installations that exceed the ecodesign limits, so as to incentivise the use of the least polluting available options.
It is also unclear what is meant by “particulate matter” in both this context and for RHI emissions certificates. For air pollution purposes it is usual to consider specific PM fractions which are associated with health effects (e.g. PM2.5) and we would strongly recommend that standards are explicitly set for PM2.5 and PM10. It may also be desirable to set standards for larger visible smoke fractions for aesthetic reasons.
The size of appliance suggested to be supported by the grant funding means it is unlikely that Environmental Permits would be needed to operate the appliances. Other mechanisms must therefore be put in place, or the permitting scheme extended, if there is to be any chance of ensuring ongoing maintenance and emissions requirements are met in practice.
With respect to fuels we understand that Defra are pursuing detailed regulations to control the supply of solid fuels in quantities under 2 cubic metres. Any sustainability and quality requirements for this scheme should be aligned with those new regulations.
There is an increased risk of fraud through an upfront grant. A voucher scheme reduces the risk because you have to evidence that the installation has happened – there is more control and certainty. This approach may also be particularly risky at the moment, given the wider uncertainty around Covid-19, as we don’t know when or if people will able to get works done.
If the voucher is backed by Ofgem/government, then industry should be in a position to put together proposals that will allow for finance packages etc. However, given the small scale of support being provided (in terms of the target market), the industry might not feel it is worth setting up those schemes.
Whilst we understand there is a need to protect the scheme and funding levels, it is our experience through discussions with industry that this can create wider uncertainty for the industry around degression timetables (i.e. an expectation that in later grant windows, the amount of funding would be reduced), as was the case with the Feed in Tariff.
Whilst it may not be appropriate to support process heating with this support mechanism, emissions from process heating do need to be tackled (along with all emissions from our economy) so an alternative support package should be considered.
No. We do not understand the rationale for excluding solar thermal systems under the clean heat grant. The rationale given is that solar thermal is not a standalone solution for phasing out fossil fuels within buildings. However, as argued in this response, heat pumps, in most cases, are not standalone solutions either – they will require improvements to building energy efficiency. It is a mistake to consider these technologies and measures in isolation as together they are much more powerful and able to deliver the building decarbonisation required. Rather than excluding solar thermal, perhaps it is better to continue to support people to install it in the situations where it makes most sense, rather than removing any support from it at all. If domestic solar thermal is not supported here, where is it supported?
There is a risk of gaming the system, whereby installers inflate the cost of the system on the basis that the overall cost will be lower once the clean heat grant is factored in. Requiring multiple quotes to have been received before providing the grant could be one approach to dealing with this. BEIS could also consider publishing anonymous cost data for different systems or sizes. This could help stimulate competition and give people ballpark costs to benchmark against.
The degression points can also create pressures within the market, as was found with the Feed in Tariff. These primarily relate to a rush to meet the required milestone to claim for the higher level of support, which can have an adverse effect on the due diligence and quality of the installations. Depending upon how the scheme is managed, there could also be issues with fraud where applications are purported to have met the required deadline for the higher tariff when they haven’t done so.
There are risks of fraud and non-compliance if the grant is given out prior to installation of the system.
Protections need to be put in place to try and reduce the risk of non-compliance upfront, which would then reduce the emphasis on audit or need for encouraging compliance. Measures could include:
[1] https://www.london.gov.uk/what-we-do/environment/climate-change/climate-action-plan
[2] This report is being published by the GLA in July 2020 and will be sent to BEIS in the next couple of weeks.
[3] This report is being published by the GLA in July 2020 and will be sent to BEIS in the next couple of weeks.
[4] https://www.london.gov.uk/sites/default/files/london_carbon_offset_price_-_aecom_.pdf
[5] This report is being published by the GLA in July 2020 and will be sent to BEIS in the next couple of weeks.
[6] https://business.energysavingtrust.org.uk/cleaner-heat-cashback