Written evidence submitted by the UK & Ireland Fuel Distributors Association Ltd (DHH0070)

ABOUT UK AND IRELAND FUEL DISTRIBUTORS ASSOCIATION (UKIFDA)

The UK and Ireland Fuel Distributors Association (UKIFDA) is the trade association for the liquid fuels distribution industry in the UK and the Republic of Ireland. 

It provides members with a collective voice for the industry at national level, services to assist members in optimising their business efficiencies including depot audits, certification schemes and tanker driver training.  UKIFDA also promotes best practice in the industry through the UKIFDA Code of Practice.

UKIFDA represents at least 76% of the volume distributed in the UK. The UKIFDA membership base delivers heating oil to residential homes, as well as marine, agricultural, commercial, retail, and industrial businesses. Distributor members range from national companies down to small independent distributorships jointly employing almost 9,135 people in the UK and Ireland and a combined turnover of £12bn. 

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

UKIFDA believes that past policies including RHI and ECO 3 vastly ignore workability, housing stock, accessibility and the significant investment required to upgrade the entire UK network should electrification for home heating be favoured overall.

The Government’s current solution for decarbonising domestic heating is its Clean Heat Grant – the replacement scheme for the Renewable Heating Incentive (RHI). But a recent policy briefing by the UK Energy Research Centre (UKERC) outlines how, in its current form, the Grant will only support 12,500 homes per year to switch to low-carbon heating. This falls far short of the level needed, stated as a little under one million homes per year. As of August 2020, only just over 80,000 new low carbon installations had been approved via RHI in a six-year period.

The Government has stated that they are technology neutral but BEIS’ initial direction, outlined in the ‘Clean Growth Strategy’, did not appear to be technology neutral as it seemed to only encourage moving rural households and businesses - currently using oil heating - to electrically driven heat pumps to cut carbon emissions from the heating sector. Expectations in deployment have been very optimistic as consumers are starting to understand the reality of the high retrofit costs – which government continue to underestimate.

The current direction of favouring air source heat pumps instead of giving consumers choice based on the property, its age, and location, is destined for failure and will be costly to a nation that is already struggling financially. How much more progress would have been made if renewable liquid fuels had been accepted some time ago – particularly in terms of carbon savings, but also in the confidence it would have given to invest further and progress the sector?

Westminster could learn from Northern Ireland and their New Heat Strategy Group. Over 60% of homes use oil for heating in Northern Ireland and the government recognises that due to the relatively low thermal efficiency of the housing stock in Northern Ireland and the rural nature of off grid dwellings suggest heat pumps are not the magic bullet solution to the carbon reduction quandary. Their view is that a ‘range’ of fuels will make up the new strategy and promotion of a technology-neutral approach is starting to develop with different ‘options’ for on-grid (heat pump and bio gas) and off-grid (biofuels and heat pumps where feasible). UKIFDA believe this should also be looked at for the whole of the UK.

Trials are underway in the UK on the use of liquid biofuels and the UK can learn from trials in Europe run by the European Heating Industry (ehi) and European Oil Heating Association (Eurofuel). Data from their ongoing European project testing various renewable liquid fuel options across 100 sites, shows that Hydrotreated Vegetable Oil (HVO) – a sustainable, fossil free fuel derived from waste – can provide a drop-in replacement for kerosene for oil heated homes.

2. 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)?

Government should immediately include boiler replacement in the new Green Homes Grant as an upgrade to a condensing boiler can save between 20 to 25% emissions dependant on the size of the boiler/home.

Government should quickly set new liquid fuel specifications with low emissions for use in off grid home heating systems. The timeline can be aggressive but realistic - beginning the transition in the mid-2020s. Low carbon liquid biofuels are available and government can accelerate production investment and innovation just by including them in the future technology mix and by including low carbon liquid biofuels used for home heating in the RTFC scheme for suppliers.

Building regulations and carbon intensity may be a good way of transitioning homes and UKIFDA would support the high-level ideas purported by the Sustainable Energy Association who have suggested using a defined, declining line of carbon emissions over the years that dictates the changes that will need to be made at the end of the life of current technology in each home.  

Allied to fuel specification changes, tax should be used to incentivise people to move to the new fuel (reduced tax on renewables) as opposed to increasing tax on fossil fuels to force people to switch to ineffective solutions to avoid cost. This increase costs on those who cannot afford to transition to ‘preferred’ solutions potentially increasing fuel poverty.

Government should encourage local authorities, universities and businesses to work together to pilot innovative technologies like liquid biofuels that could provide the answer for hard to heat markets like the off-grid homes across the UK. This could then ensure a skilled workforce and post Covid-19 job opportunities in new technology - and should receive financial support from the government to do so.

3. 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?

Government should maintain technology neutrality and commit to supporting the right solution for the right home. As is so often the case, there is no ‘one size fits all’ approach to decarbonising heat. Alongside heat pumps and heat networks, hydrogen and liquid biofuels should have an important role to play in decarbonising heat.

In 2019, a study by In Perpetuum (commissioned by OFTEC) clearly showed that the most cost-effective solution for reducing carbon emissions in off grid homes was liquid biofuel.  A B100 fuel (containing zero fossil fuel) would result in a cost of £122 per tonne of carbon saved which compared very favourably with other possible solutions including those seemingly favoured by the Government. These solutions would cost considerably more and that cost will be borne by the homeowner. These types of fuel could be e-fuels (synthesised fuels already available in Europe), pyrolysis oils (made from plastics or tyres with new producers coming to the UK market) or refined product developed without fossil fuels. One such product is HVO.

Hydrotreated Vegetable Oil (HVO) offers a rapid, convenient and cost-effective solution to decarbonise the existing off gas grid housing stock.

• It has been independently confirmed that HVO has one of the lowest carbon intensities of all domestic heating fuels listed in SAP Table 12 – 0.036kgCO2e/kWh (for comparison Biomass is listed at 0.053 and electricity 0.233 kgCO2e/kWh).
   
• Global and European production of the fuel is increasing. In 2017 the global capacity of HVO was 4.75 million tonnes. The expected capacity in 2020 is 6.8 million tonnes of which 3.87 million tonnes of installed capacity is in Europe.
   
• The capital cost of conversion from kerosene to HVO is around £500 (according to OFTEC figures) and requires no fabric improvement to the property. For comparison, figures using other technologies please see our response to question 4).
   
• This means little or no modification of existing oil heating systems and tanks is required for use with HVO which is already available across the UK. Recent trials also show that HVO can be blended with heating oil in varying degrees without issue so could be seamlessly introduced to the domestic heating market.
   
• Running costs have been independently modelled and suggest that the annual heating and hot water running cost of a three-bedroom house would be £1,859 for an ASHP serving radiators and £1,628 if using wood pellets. A condensing boiler using rebated 100% HVO would cost £35 less per annum than an ASHP, but £196 more than using biomass. However, a fully controlled and interlocked condensing boiler would cost £24 per annum less than biomass (data source OFTEC)

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

Government need to include liquid biofuels in their list of decarbonisation solutions for home heating. This action allied to setting legislation and timelines for the introduction of low carbon fuels will create a demand that existing and new producers can work towards supplying. Government can generate the innovation, investment and supply capability with a simple inclusive message for the financial benefit of homeowners (as the In Perpetuum graphs show).

UKIFDA agree that government support on energy efficiency measures is required – both on and off-gas grid - that encourage consumers to upgrade existing equipment, improve insulation and install smart controls to better monitor energy usage although care needs to be taken that the disadvantaged, such as the fuel poor, are not excluded.

In 2018, BEIS reported that only 3% of oil heated homes in GB were in EPC bands A to C. The Committee on Climate Change (CCC) indicated that a good incentive should “…help households to overcome financial barriers and the range of nonfinancial barriers (e.g. information, perceived risk, hassle, and social norms) and have effective delivery and communication”. The current lack of policy to address energy efficiency in buildings is holding back the reduction of emissions, ultimately delaying Net Zero carbon output.

Other barriers to utilising some decarbonisation solutions like air source heat pumps include:

• 46% of oil heated homes in England were built pre-1919 and have solid walls
• The average installation costs of converting these homes to low carbon heating is set out below (Average installation costs of RHI-funded installations reported to MCS - 2019).

Reproduced by kind permission of OFTEC

A further potential barrier to heat pump deployment in rural areas is that it is not always cost effective to upgrade the local electricity network, an issue highlighted recently by the National Grid (Future Energy Scenarios 2020). In the three successful net zero scenarios National Grid modelled, between 619,200 and 1,008,215 off-gas grid homes, currently heated by oil or LPG, would require an alternative non-electric heat solution, with biofuels being recommended.

Recently, UKIFDA are aware that BEIS have questioned the capability of HVO supplies in the UK being able to meet the needs of the off-grid heating market and have suggested this as a barrier to scale up liquid biofuels. There are two points to counter this argument.

If government encourage energy efficiency measures (that do not exclude oil heated homes) then the demand for liquid fuels is likely to fall. Two views of future demand are show in the UKIFDA tables below and overleaf (we have discussed our view of the data split with DUKES). Please note that this relies on energy efficiency measures being effectively encourage and deployed.

The second point is that if the transition to a new low carbon fuel began with new and replacement installations (perhaps via carbon intensity measures through building regulations as suggested by SEA) then the supply requirements would be entirely reasonable. The graph below uses the UKIFDA split of projected demand and an implementation date of 2025 just for illustrative purposes.

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 most vulnerable consumers cannot be adversely impacted. As delivered in a speech by the Ofgem Chairman, Martin Cave; ‘the costs of decarbonisation cannot be added on to energy bills today to protect consumers of tomorrow.’

The UK Fuel Poverty Monitor, produced by fuel poverty charities National Energy Action and Energy Action Scotland in Sept 2020, collected evidence from 73 organisations to understand the impact that Covid-19 has had on energy consumers, and look ahead to the challenges they will face this winter. The report highlighted that during the lockdown months, energy efficiency measure installs dropped by almost 90%, the equivalent to 30,000 fewer measures installed. This of course needs to be addressed as the situation will have only got worse due to the second lockdown.

Any policy should apply to all low-income households, rather than ‘fuel poor’ households alone. This is because many low-income households not defined as ‘fuel poor’ could benefit from cost effective improvements to their homes resulting in more affordable fuel bills.

By ‘fuel poverty-proofing’ low income homes by improving them to EPC C and EPC B, seeing who remains in fuel poverty (under either definition), it is possible to establish what other non-energy efficiency help might be required, e.g. through fuel price or income measures.

Many off-grid households simply can’t afford the high upfront installation costs of renewable heating technologies and, even if they could, switching to an Air Source Heat Pump would likely increase their heating costs (source: Sutherland Tables, October 2020). This would force many more into fuel poverty and to live in cold homes with the associated health risks.

The fuel poverty gap for rural households is also much higher than for urban homes (£571 vs £321 – DEFRA Statistical Digest of Rural England 2019), and the cost of making energy efficiency improvements is also usually high. The fuel poverty gap is the additional income which would be needed to bring a household to the point of not being fuel poor. Planning constraints due to heritage issues can also be a limiting factor on the type of measures that can be deployed.

Analysis from the Energy and Climate Intelligence Unit (ECIU) demonstrates that, over winter, families in cold, leaky homes would face heating bills elevated on average to £124 per month, compared with £76 per month for those in well-insulated homes.

6. 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?

If Government is serious about incentivising a transition towards low carbon fuels (transport or home), it should consider its tax treatment of lower carbon fuels.

There are two ways of creating change – carrot or stick.

The Government seems to prefer the stick. Add more tax to high emission fuels such that the cost differential between the currently high cost alternatives (e.g. heat pumps) and fossil fuel diminishes (and even tips the other way) and the low-cost option is also then the net zero option. The great advantage to Government is that tax income is retained as the transition is slow and it will be some time before the tax from fossil fuel sales completely disappears. In addition, the transition costs are all on the consumer or commercial organisation.

The carrot approach sets tax rates for low carbon fuels at lower rates thereby encouraging take up of new technology to accept these fuels, investment in supplying those fuels from UK and foreign companies and a speedier transition. Consumers and commercial organisation save money on fuel costs (allowing them to achieve payback on any upgrade equipment) and can transition towards net zero using drop in fuels that will not require significant upfront costs like other alternates.  Government have to face reduced tax revenue but there is a cost to decarbonisation and environmental leadership.

7. 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?

If consumers are not at the heart of decarbonisation plans, those plans will fail and regulation and consumer protection must be intrinsic to these plans. Therefore, government should set up round table discussions with consumers in off grid locations including those with the largest concentration of heating oil users.

New technology alone is not enough. If government are to convince consumers to switch to low carbon heating, they will require a combination of innovation, investment and incentives policies and provide consumers with the confidence that new technologies can be as efficient, cost-effective and reliable as the traditional systems. Lack of trust can be a significant barrier to the uptake of energy efficiency measures. As new energy technologies and services are introduced, protections can vary greatly and can be difficult for people to navigate who to go to for help and support when things go wrong.

8. 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?

Overall policy in this area needs to be set by Westminster and then implemented by local authorities under clear guidance. Legislation and associated timeframes need to be coordinated across devolved nations in order to simplify changes and minimise supply chain disruption for primary and secondary distribution.

Guy Pulham

CEO UKIFDA

November 2020