Written evidence submitted by the Ground Source Heat Pump Association (DHH0074)

Technological Innovations and Climate Change: Heat Pumps

Summary

The Ground Source Heat Pump Association (GSHPA) is one of the largest trade associations in the heating industry and consists of over 140 companies including manufacturers, drillers, installers, and consultants. The GSHPA is submitting evidence to the Treasury Select Committee to support the deployment of Ground Source Heat Pumps (GSHPs).

Questions

  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?

Past policies have mostly been an unmitigated disaster for ground source heat pumps.

The RHI was intended to supply 12.9TWh of heat via ground source heat pumps but the delivered figure is less than 0.5TWh.  There has been a wholesale policy failure to deliver the expected GSHP volumes under the RHI.

Had Treasury insisted on the £22bn (March 2011 estimate) costs of the RHI be spent on “best value to UK PLC” then biomass would not have been funded. Instead, as with NERA’s 2009 “Design of the RHI”,  GSHPs would have taken around 48% of the RHI’s funding, rather than around 1%. The original NERA projections and Impact Assessments showed BEIS was expecting the RHI to grow the market to around 30,000 annual GSHP installations by now, not the 3,000 we currently have. The sum total of every single initiative by Government to increase the uptake of GSHPs has been a dismal failure. It is, perhaps, one of the few examples found anywhere in the world where Government intervention in a market – with almost unlimited funding of £22bn – ended up depressing the market, not increasing it. Surely the RHI, when considered in its original intent, is an example of the UK’s worst market intervention in history for GSHPs.

The lack of market expertise amongst officials is a key reason for poor policy design. Another key reason is that BEIS now has so few engineers – and that situation is lamentable. Many engineers have left Government because there is no career progression for them, and they are often seen as far less valuable than, say, Economists. Officials deserve access to their own internal engineering resource, as perhaps was more the case in the past, rather than relying on external consultants. Often the most valuable technical input into policy should come from a quick meeting or phone call between “engineers on tap” and policy officials. Engineers within Government usually have excellent links with industry and are able to provide sound advice on any topic. Although often well intentioned, when it comes to the details, the enacted policies have been proven to be useless to the deployment of GSHPs once applied to the “real world” of the markets.

To date not a single Treasury official has ever visited any site in the UK where the running costs and GHG emissions have been reduced to their lowest possible levels by the installation of a GSHP. This inward-looking nature of Treasury is a travesty, as the officials involved – including those in the Net Zero Review team – are, on an individual basis, unfailingly remarkably interested in the world-class achievements of many GSHP members. A good example of lions led by donkeys.

In another example, GSHPs are effectively totally ineligible for the Government’s £2bn flagship Green Heat Grant because rule 21 requires just one contractor to undertake all the work on site. This rule is clearly virtually impossible to meet when installing a GSHP, as there is no one company that does everything, including drilling, heat pump installation, commissioning, and handover. Whilst this rule is reportedly being changed by officials, it is a perfect example of how poorly designed policy impacts strategically important low carbon technologies like GSHPs. In contrast, those selling double glazing based on the Green Heat Grant have no such restrictions.

In future officials may then then tell everyone that GSHPs are unpopular because consumers did not buy any GSHPs using the Green Heat Grant. We have seen this many times before.

Another example is that when the RHI first launched in November 2011, the GSHP tariff was set at around 1/3 of the level that it was supposed to be. This is because economists within DECC had assumed that the load factor for a GSHP was a whopping 35%, whereas in practice it is around 15%. It was obvious that the 35% figure could not be correct because boilers have a load factor that is nothing like 35%. But at the time the tariff was changed – which took until April 2014 – the market had left GSHPs behind. Once again, we were told, in 2015, by officials in DECC who did not understand the true context of the market statistics that they were considering, that GSHPs weren’t very popular, even though the reason for there being almost no deployment was because the subsidy for all other technologies was much higher, biomass in particular. There are many examples of Government officials simply not understanding the term “suitable evidence”. It does not matter whether they have “all” the evidence – this may still not be suitable. Many officials do not understand market statistics for heat.

Ministers are over-reliant on officials that have little or no market experience. Almost without exception there is not a single official employed by BEIS who has ever sold any low carbon technology – or, in most cases, has never sold any technology to anyone. That this most basic expertise is still missing in policy design needs urgent correction. The danger is that lip service will be paid, so that whilst industry experience may one day be brought inside Government, the universal outcome is that they are routinely ignored, and side-lined. Officials simply do not like to hear that their advice to Ministers is flawed. Ministers should set up their own Industry Advisory Boards – and then attend those meetings, so that they can hear first-hand from people in industry of the problems with policies and the best solutions to avoid problems in the first place. This is a zero-cost solution that any Minister could enact today – but, so far, none have been brave enough to do so.

In the few instances where there have been Industry Advisory Boards, it appears that officials in charge of the Ministers diaries may have ensured that no Minister will ever attend any meetings. The Renewable Heat Advisory Group (IAG) was set up in 2013 and ran until late 2018, and was a very successful engagement between officials and industry – but has since been closed by BEIS, with the promise of a replacement IAG, but this has not materialised yet. The Minister attended the first meeting, but, after that, no Minister was ever seen again. This is one aspect of making better policy that is completely in the hands of Ministers, and not officials – and we hope that, one day, perhaps, a Minister will act.

  1. 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)?

There are plenty of potential policies which can help technologies like GSHPs, but the future policy landscape is very difficult to understand. It is vital that policies are joined up so that it is clear which sectors of markets are covered by which incentives. For example, there are many future policies that are proposed to support heat networks, such as:

There are many sectors of the heat network market, such as:

It is very unclear which policies will apply to which market sector – and even officials admit to being confused. Ministers should explain their policy landscape without any further delay so that the markets can engage and deliver on reducing greenhouse gas emissions.

Part L of the building regulations should be revised so that the price of reducing greenhouse gas emissions is too high for any heating solution except heat pumps. It is a scandal that the UK is still, in 2020, building houses to the standards of Part L which were introduced in 2013. For the last five years the Building Research Establishment (BRE) has been trying to update SAP, but it is a national embarrassment that MHCLG have still not decided on whether to implement the changes to Part L that MHCLG themselves have proposed in a number of consultations in recent years. It seems that MHCLG cares more about appeasing the house building lobby than protecting consumers in new build housing from high energy bills. That the UK is now legally required, by Parliament, to achieve net zero greenhouse gas emissions by 2050 certainly does not appear to be of any interest whatsoever to MHCLG, who are blocking progress at every turn, and have done for years.

MHCLG cancelled the zero-carbon-homes requirement in 2015, under pressure from housing developers who, at that time, claimed that they could not afford to buy next generation heating systems, such as GSHPs. House builders successfully lobbied the then MHCLG Secretary of State Rt Hon Eric Pickles MP, to scrap zero-carbon homes. There remains every suspicion that the Treasury was 100% behind that decision even if they were not solely responsible for it.

This has created knock-on impacts not just on investment confidence, but also on the work of BEIS, which had put a considerable amount of time and effort into developing those zero-carbon policies, in co-ordination with stakeholders, including GSHP installers, manufacturers and energy companies.

It is becoming clear that COP26, in a years time in Glasgow, will put the spotlight on Government’s lamentable failure to update building regulations since 2013. It is just such a pity that the potential of embarrassment in front of the entire world is the only motivation that Ministers will take into account. It is almost as if Ministers have missed their obligations under Paris, let alone trying to achieve net-zero greenhouse gas emissions by 2050.

The Non-Domestic Renewable Heat Incentive (NDRHI) should be extended for a full year from 1st April 2021. This will mirror the treatment of the Domestic Renewable Heat Incentive (DRHI).

Remove all levies from electricity when it is used for heating buildings using heat pumps.

Substantially increase the proposed £6 annual levy on natural gas bills to a more meaningful level which will increase the value of green gas. Use any underspend to fund heat pumps.

Ensure that Government economists take a different approach which, for the first time, is capable of capturing the true long-term value of ground arrays, which have a lifetime significantly in excess of 100 years. The past approach, such as in the economic modelling for the RHI, has been to assume a longevity of only 20 years. It is simply impossible for an asset that lasts 100 years to be expected to pay for itself in only 20 years. When taxpayers funded the UK water and gas mains, some decades ago, they were not expected to pay for themselves in only 20 years – so there is now every reason why ground arrays should be fully funded by Government.

The GSHPA’s over-arching ask on incentive funding is simple – for Government to fund the cost of ground arrays; the private sector will pay for the ground source heat pumps, and everything else.

Ensure all policies meet a simple heating running cost test. No policy should proceed if its impact on consumers or businesses results in any increase in their heating costs. This is a very simple step – but it is often a step that is not taken. For example, many air source heat pumps (ASHPs) have a higher running cost than a mains gas boiler, whether today or on projections of future energy costs between gas and electricity.

Cease the remaining enthusiasm for hybrid heat pumps. There are relatively few hybrid systems sold elsewhere in Europe, including where markets for heat pumps are mature. There is no evidence that consumers want to purchase and maintain two heating appliances. Worse, no consumer will ever switch on an ASHP when they also have a mains gas boiler – if they realise that it will cost them more to heat their home with an ASHP under current fuel tariff costs.

A properly structured strategy should have already been published that gives a clear roadmap of the rollout of heat pumps in the UK. For example, does Government value heat pumps into new buildings – as that future-proofs them – or is solving fuel poverty more important? No decisions have yet been taken.

Pay for the full costs of consultancy for all heat recovery and industrial heat projects using heat pumps.

Design new incentive schemes that support process heating and cooling systems using GSHPs.

Remove the current subsidy for buildings with CHP to be exempt from paying business rates and replace it with the same policy for heat pumps. All buildings with heat pumps that meet the minimum efficiency standards in the RHI should not pay business rates.

Taxpayers should pay for ground arrays so that every new home in the UK can be heated with a GSHP. There is no need for Treasury to pay for any GSHPs – just the ground arrays. The private sector will pay for the GSHPs and their installation – because the GSHPs themselves are relatively affordable and not that much different to the costs of installing, for example, a new oil boiler and oil tank, or extending a gas main.

The GSHPA has thoroughly endorsed the Governments Clean Growth Strategy, which can certainly deliver net-zero, but there is not yet enough detail on how any policies will achieve the ambition. The UK is currently not on track for net zero, so there is a lot of work still to do.

Stop all burning of anything inside buildings for heat. That is what our caveman ancestors did. It should not be happening in the 21st century.

  1. 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?

All buildings should be heated with Ground or Water Source Heat Pumps.

Heat networks using either 4th generation, or 5th generation ambient heat networks, in particular shared ground loops, should be applied to significant numbers of new buildings, especially multiple occupancy buildings such as apartment blocks, and village and town wide district heating schemes.

Many buildings should also use thermal storage such as phase change salts to take advantage of lower carbon emissions and tariffs especially at night. This will also assist with the important aspect of balancing a national grid where the increased penetration of renewable electricity sources causes fluctuations in electricity generation and supply. GSHPs provide an excellent way of ‘soaking up’ surplus power when connected to thermal storage.

Where practical, solar thermal hot water heating should also be installed. Any excess solar thermal generation can be stored in the ground for harvesting at a future time using the ground source heat pump

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

Successive UK Governments have been, by far, the largest barrier to scaling up low carbon heating technologies.

The lack of effective policies goes back over ten years. The better news is that officials and Ministers are slowly beginning to learn just how complex heat is. In the words of former Secretary of State for BEIS, Amber Rudd, before the Energy and Climate Change Select Committee in July 2015,Heat is hard”. That is an understatement. Heat is very hard for Ministers and officials to grasp. They need to embrace the help of industry leaders such as the Ground Source Heat Pump Association and its members.

Cease all suggestions that heat pumps are not suited to poorly insulated buildings. GSHPs can heat any type of building, and the heat losses are not a technical impediment to achieving target temperatures given suitably designed heat emitters such as underfloor heating, radiators, etc.

Recognise that from a Building Regulations compliance perspective, it is the lowest possible annual greenhouse gas emissions that is the target. It does not matter whether meeting that target then also requires cooling of buildings, including dwellings, provided that the overall emissions are the lowest. GSHPs can provide cooling at significantly higher efficiency than ASHPs and can store heat removed from buildings in the ground, where it can be removed again later when needed, either as inter-seasonal heat transfer or more quickly.

GSHPs featuring Shared Ground Loops (SGLs) can also be used very effectively to recover waste heat.

Continue to revise the MCS scheme, including in particular that manufacturers of heat pumps take a significantly greater responsibility for their installer networks. It is insufficient for heat pumps to be sold as boxes via trade resellers to the extent that the manufacturers lose all track of how their products are being applied.

Value the ability of GSHPs to “load shift”, at any time, day, or night, as their performance is not directly affected by the weather. This is vastly different to ASHPs, which run significantly less efficiently at night, when air temperatures are likely to be lower and humidity higher.

Value the part that thermal storage can play in load-shifting, such as new technologies based on phase change salts.

Recognise that the rollout of GSHPs in the 21st century is the equivalent of the rollout of mains gas in the 20th century. The UK has one of the most intensive natural gas pipeline systems in the world. Without taxpayers’ cash, the mains gas network would never have been installed to reach so many buildings, and heat pumps would be far more common in the UK. Ground arrays are directly analogous to gas mains – both are buried plastic pipes connected to boxes in buildings which turn the contents of those pipes into heat.

  1. 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?

Ground source heat pumps are infrastructure – with the ground arrays lasting well over 100 years – and, just like the cost of installing the UK’s gas main just one generation ago, the cost of their installation should be socialised across all taxpayers.

All levies on electricity bills should be removed if the building is heated with a heat pump that complies with minimum efficiency requirements, such as those of the RHI.

The Government’s policies to encourage the deployment of GSHPs have largely failed. More GSHPs were sold in 2010 than will be sold in 2020. This is a terrible result due entirely to poor policy design, which have persistently failed to accurately reflect the asset value and longevity of ground arrays. No market for any product, anywhere, can deliver any reductions in costs when that market is either static, or getting smaller. Until Government policies actually start working to deliver significantly higher GSHP installation volumes – and the extremely aggressive growth originally forecast in NERA’s 2009 “Design of the RHI” – Government should not expect deployment costs to reduce.

New, faster, and more efficient drilling techniques for boreholes have been developed in recent years which now allows ground source infrastructure to be installed at pace, and at relatively decreasing costs with scale.

The NPV cost of installing GSHPs is likely to be positive.

Shared Ground Arrays can significantly reduce the costs of street-by-street retrofit of GSHPs and offer potentially the best value reduction of greenhouse gas emissions when amortised over the life of a building.

Policies to support the uptake of GSHPs should be focused on areas with the lowest cost – which are areas with the best geology, and the most suitable buildings, together with the building owners taking a long-term interest in the running costs.

Incentivise the use of waste heat and cooling applications using GSHPs in heat networks.

Develop long term policies which can be relied upon by purchasers, investors, and the supply chain.

  1. 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?

See answers to questions above.

  1. 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?

Substantially revised the present Heat Pump Demonstrator Project and replace it with a scheme where the priority is the outcome that is wanted by consumers, which is not currently the case.

If the Government provides the correct mix of incentives and regulations, then the markets will deliver the lowest carbon and lowest cost heat from ground source heat pumps to consumers with the minimum of disruption.

Government’s own buildings should be converted to being heated using GSHPs and used as case studies.

As the UK Government’s flagship example of how it is putting its COP26 into practice, the Government should ensure that, when our Parliament building is refurbished, it is heated using heat pumps with the river Thames as the heat source. Frankly, it is such an obvious – and economic solution – that any other outcome, such as continuing to use mains gas, would be absurd. One of the GSHPA’s members, Star Refrigeration, has installed the world’s largest water sourced heat pump system, which serves the entire town of Drammen in Norway. Heating and cooling the UK’s Parliament building would be much simpler for Star Refrigeration than the Drammen project, and it goes without saying that the choice of such a first-class world-leading company would be a perfect way to showcase the large British lead in GSHP technology to the rest of the world through COP26.

We are still waiting for the Government to provide the correct mix of incentives and regulations so that the markets can deliver net zero greenhouse gas emissions by 2050.

  1. 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?

The Government needs to provide the correct mix of incentives and regulations that will enable the markets to deliver low carbon heating.

Members of the Ground Source Heat Pump Association stand ready to coordinate and deliver low carbon heating, once the Government has provided the correct mix of incentives and regulations that will enable the markets to flourish.

 

November 2020