Written evidence submitted by Energy UK (DHH0095)

Energy UK is the trade association for the energy industry with over 100 members spanning every aspect of the energy sector – from established FTSE 100 companies right through to new, growing suppliers and generators, which now make up over half of our membership.

We represent the diverse nature of the UK’s energy industry with our members delivering over 80% of both the UK’s power generation and energy supply for the 28 million UK homes as well as businesses.

The energy industry invests £13bn annually, delivers £31bn in gross value added on top of the £95bn in economic activity through its supply chain and interaction with other sectors, and supports 738,000 jobs in every corner of the country.

Energy UK welcomes the committee’s inquiry into decarbonising heat in homes and is grateful for the opportunity to respond. Our overarching vision is to see growth in the market for low carbon heating to realise economies of scale. This includes: delivering a new homes standard that prevents installations of fossil fuel heating; the promotion of existing low carbon technologies across the UK, and; the development of long-term targets and ambition for decarbonisation in the UK.

Energy UK has been engaging with a wide range of stakeholders over the past two years to understand where gaps exist in heat policy, and what ambition is achievable for the UK in the coming ten years. There is much work to be done and we hope that the government’s Heat and Buildings Strategy will act as a catalyst for the kind of ambition and growth required to deliver net zero.

If the Committee or wider stakeholders would like to discuss this response or any wider issues in more detail, please do get in touch with Energy UK using the following details:


December 2020

  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?

To date, there has not been a significant amount of progress made regarding the decarbonisation of heat; we have only observed modestly declining emissions from buildings. Whilst some progress has been made on energy efficiency, very little has been seen regarding switching to lower carbon heat. We would note a lack of sustained market growth for low carbon heat installations since the introduction of the RHI as a key indication of this.


Policy longevity is key to signalling well in advance the direction of travel, allowing investments to be made in confidence and the market to react accordingly. Any approach to subsidy needs to be coordinated with long term policy and regulatory frameworks that show a degree of long-term viability in the market.


It appears as though the approach to subsidy is moving towards grant-based mechanisms and away from tariffs. Energy UK welcomes this on the proviso that there is consistency across the various grant frameworks as they continue to emerge as a policy alternative. Following the welcomed extension of the Green Homes Grant out to March 2022, the government could, for example, look to introduce an improved Low-Carbon Heating Scheme with a grant system to support a wide range of low-carbon heat solutions.


Energy UK would highlight that the Government’s proposal for a Clean Heat Grant (CHG) scheme will only provide sufficient funding for 12,500 installations per year, less than current annual installations and marginal when compared to the c.1.6 million gas boilers installed each year. Separately, demand for hybrid heat systems currently funded under the Domestic Renewable Heat Incentive (dRHI) will see a dramatic drop once the CHG is introduced, given the requirements currently assigned to install that technology.


The proposed CHG[1] aligns broadly with the right approach, but the timeframe and funding mean that the scheme is not expected to result in significant impacts. It is, therefore, imperative that the scale and ambition of the scheme and wider policy in this area be expanded to put the UK on a credible path towards Net Zero.


Energy UK is confident that low carbon gasses and electrification will both be critical to the decarbonisation of heat in the UK. We cannot continue to wait until a single solution emerges, and must forge ahead with existing technologies while supporting the research and development still required for others. Rolling out existing technologies in the 2020s is critical to achieving net zero at the most efficient cost for consumers. It is clear that many other countries have succeeded in electrifying their heating to a much greater degree with appropriate legislation and incentives in place.


  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)?

It is important to note that heat solutions will not be a one size fits all and the approach needs to be split between a local, regional and national lens. Population density, existing regional infrastructure, mix of new and old housing stock and consumer preferences, will all influence what needs to be deployed. At present, regional planning is either limited or non-existent and presents a fundamental barrier to delivering solutions.


With regards to key policy priorities, these can be surmised in the following five key segments; increased ambition and scale of energy efficiency measures and improvements to the existing housing stock; pursuing and supporting a significant expansion of the existing low carbon heat market, the continuation of exploring hydrogen capabilities, coordinating local and regional planning into a national approach, and finally, placing emphasis on the need for a robust consumer engagement strategy to ensure the general public stays on a well-informed path as part of the journey to net zero.


Regarding energy efficiency, Energy UK recognises the need for a larger scale of activity, covering a wide variety of different homes, supporting/incentivising the able-to-pay as well as the low income and vulnerable members of the public. For example, action to reform EPC ratings to recognise carbon reductions delivered by low carbon heating and update the underlying SAP scoring methodology to reflect declining carbon intensity could help to provide non-financial incentives for change.


Another pressing policy priority for buildings should be the delivery of overdue updates on the Future Homes Standard as well as the Building Regulations update; which are imperative to setting the direction of travel. There is broad industry support for a Future Homes Standard to be implemented on an accelerated timeline, as government has committed to in its Ten Point Plan for a Green Industrial Revolution[2]. The delay of both of the aforementioned policies are at the root of the current uncertainty regarding new build properties.


Regarding the development of a market for low carbon heat, industry needs to see decisions made on how the mass market of gas boilers will evolve and how a strategic balance between electrification and the use of low carbon gasses will be achieved. For example, at present the policy cost differential between electricity and gas bills has a detrimental effect on the customer proposition for heat pumps. Ultimately this means that the efficiency advantage of many low carbon electric technologies can be completely offset, driving out cost savings for customers relative to gas boiler use, in some instances increasing bills.


Energy UK is supportive of the idea of reconsidering the existing costs on bills, alongside consideration of the role of carbon intensity standards. Using carbon intensity standards to gradually phase out fossil fuel heating systems in off-gas grid areas would set the right policy signals for investment low carbon heat technologies, but should be supported by appropriate price signals.


Energy UK supports the existing work of government and many Energy UK members in developing the evidence base for hydrogen and CCUS. It is vital that work in this area continue throughout the 2020s to enable the UK to be a global leader in these technologies. We cannot; however, delay any progress until such a stage as those technologies are viable at scale.


Ultimately, Government should be aiming to have the vast majority of the fundamental work to confidently progress towards Net Zero underway within the next 10 to 15 years. Early interception of the boiler replacement cycle is key to reducing the impact of costs on consumers, spreading the cost over a longer timeframe.


Whilst we welcome the Government’s new target of 600,000 heat pump installations per year by 2028, Energy UK would like to see a more ambitious commitment, both in terms of overall ambition, and in identifying a more specific target for retrofit. This would be further strengthened by establishing an additional target of delivering 1 million low carbon heat installations between now and 2025 to stimulate the market as part of a green economic recovery.


It should also be noted that whilst there is a near-term delivery target for heat pumps and trials on hydrogen for heating, the Government’s aspirations for Heat Networks up to 2030 is unclear. The CCC has made clear that heat networks could play a significant role in delivering decarbonisation at the most efficient cost to consumers, so it is important that government set out how it will leverage this technology to aid decarbonisation efforts.


The fourth carbon budget is fast approaching (2023) and marks a significant step change relative to where carbon budgets have been to date. This means progress and decisions on heat need to start taking place now, with an immediate focus on using all of those low carbon heat technologies we know to work now.


Surrounding these priorities, there are wider considerations that must be addressed relating to supply chain development and a national approach to skills and retraining. We need reliable low carbon supply chains to meet the intended ambition, and we also need trained salespeople and engineers in order to get these devices in place across UK homes and buildings.


Energy UK is exploring options for a low carbon heat sector deal that would directly address this final gap, but there is a significant amount of work required in a very short period of time if we are to achieve the government’s ambitions.



  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?

Energy UK holds a technology neutral position. We fully expect that low carbon gas will play some role in the future, however in the next few years we need to see a rapid expansion of the electrification of heat and the uptake of heat networks, as per the CCC’s recommendations[3]. Note that simply replacing heating systems is insufficient; the fabric of the home needs to be considered as well.


It is vital to get moving now on the technologies that are currently available and proven to work, whilst ‘keeping the door open’ on hydrogen and any other innovative technologies as and when these become available. The 2020’s should pursue no/low regrets solutions such as widespread energy efficiency retrofit, decarbonising off gas areas, deployment of heat pumps at scale and increased delivery of low carbon heat networks (including introducing appropriate regulation and licensing) in densely populated areas.


It is important that the mix of technologies used reflects local attributes and requirements, so there is no single answer to the question of ‘what technologies are most viable’. All technologies will be needed and should be applied in order to achieve cost-efficient decarbonisation across the UK. Energy UK has views on how to implement such an approach to local heat decarbonisation, but will not detail those here.


There is already a developing market for low carbon heat; in particular there has been progress in new builds, as well as in association with local authorities. Across those installations, positive customer experiences are being delivered and carbon savings are being made. However, the policy barriers identified above are preventing the market from scaling up to be sufficiently impactful.


Blending hydrogen into the gas networks could be a useful step in decarbonising heating that could help to gain customer acceptance, provide a sink for demand as hydrogen production scales and support UK electrolyser development. As outlined in the Ten Point Plan, there is potential for 100% hydrogen switchovers in some areas of gas distribution networks supplying industrial clusters and some specific residential areas, if that were the pathway chosen by local authorities and businesses. There are many projects working to demonstrate this is a safe from a consumer and network perspective. More work is needed to fully understand the applications and limitations of hydrogen within industrial processes and power generation, as these will be focus areas for the UK’s use of hydrogen.



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

Ultimately, low carbon heating technology needs to be a viable economic proposition for customers if we can expect any level of uptake at scale. This economics barrier trumps that of other barriers such as the need to improve skills or scale-up the supply chain. Industry needs an economic proposition to develop, with policies that lift the current economic barriers to low carbon heating. The market will grow if there is demand for these technologies, and in turn a competitive market will support solutions to the secondary, but also critically important, issues of skills gaps and shortages, training and supply chains.


There is also a planning barrier at present that needs to be addressed, wherein industry is held at building houses for the next 10 years at 2013 standards, pursuant to Part L of the Building Regulations. Industry has long awaited an update on this approach, and that must be coordinated with heat decarbonisation policy.


The absence of clear, long-term policy trajectories poses another key barrier. Industry will only respond and upskill if it is given a sufficiently forward-looking target, as seen with the success story of Electric Vehicles. This, coupled with a carbon intensity standard to phase out unabated gas, would stimulate significant investment.


In order to facilitate the scaling up of low carbon technologies, there essentially needs to be an overhaul of national infrastructure. In particular, the established manufacturing and installation base for fossil fuel boilers needs to be rapidly transitioned to deliver low carbon technologies such as heat pumps and hydrogen-ready boilers. For example, to scale from the current c.30K heat pumps a year to ultimately millions of units per year.


Finally, EPCs should factor in carbon emissions rather than simply fuel costs, so as to align with the objectives of Net Zero and avoid unintended consequences, such as encouraging switching to or between fossil fuels. EPCs need to be reformed if we are to recognise the substantially lower carbon emissions associated with using electricity for heating or from using green gases such as BioLPG.


  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?

The main point to communicate regarding the distribution of costs, would be in addressing the imbalances in cost between gas and electricity, as discussed above. These imbalances pose a significant barrier to the economics of lower carbon heating, given the fact that fossil gas remains cheap and, unlike electricity, holds virtually no policy costs or carbon intensity recognition.


At present, a household switching to a much lower carbon electricity option will see the policy costs on their overall energy bill substantially increase, which does not appear equitable or in alignment with the Government’s fuel poverty ambitions and pledges.


A broader point regarding decarbonisation of heat concerns the need to ensure a fair and just transition in terms of ensuring that decarbonisation of heat costs fall fairly on energy consumers or on the general taxpayer.


The CCC have addressed the decarbonisation of heat as being one of the biggest and most expensive challenges in the entire net zero agenda. It is important that government review the approach to cost recovery in decarbonisation, to ensure that price signals align with the intended goals of government. Unintended consequences of any changes to the approach will need to be explored fully, and customer willingness and ability to pay will need to be reviewed. We await HMT’s Net Zero Review on costs, which will hopefully consider the electricity and gas price differential.


It is vital to ensure that those in fuel poverty and customers in vulnerable circumstances are protected throughout the transition. Here it is important to note that those customers may well be the customers that benefit most from a switch to energy efficiency homes heated by low carbon technology. Public housing improvements, for example, can reduce the energy bills and improve the quality of life for those customers.


  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?

The importance of long-term policy signals cannot be overstated, as this will be fundamental precursor to reaching mass market within the next decade. Government needs to sustain clear direction of travel with consistent approaches to incentives in the transitional period. This can prevent the ‘stop start’/’boom and bust’ policies and funding that are more disruptive and impact on the ability to sustain market growth. This can be achieved via a combination of measures including: incentives; energy efficiency retrofit schemes; regulation of new build home standards; improving product standards, and; regulations regarding allowable emissions.


With regards to current regulations, an update to the Building Regulations is urgently needed. For example, the carbon savings from BioLPG are still not currently recognised in the SAP Building Regulations. This kind of omission needs to be addressed if we are to move to a more performance-based emission standard. SAP needs to be updated to keep pace with innovation and the continuing declines in the carbon intensity of electricity generation.


Policy aimed towards the phasing out of natural gas boilers is also essential, but it is important to manage messaging on this. Referring to a ‘gas boiler ban’ is potentially confusing and alarming for customers, as hydrogen and other low carbon gasses could still be used beyond the removal of high carbon gas.


  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?

The points made above in Q.6 regarding the importance of sustaining market growth are as appropriate here. The energy industry is readily capable of promoting low carbon heating technologies, but the core missing element is a viable economic proposition to take to customers. Positive customer propositions will enable suppliers to actively market low carbon heat. Public awareness will, in turn, increase substantially.


The general public appears more willing than ever to countenance this shift to transitioning towards low carbon heating. For example, 90% of respondents of a recent BEIS report believe in ‘greening’ heating[4]. The key to delivery of the wide range of solutions required on top of creating a viable economic proposition, is local messaging to engage people in low carbon heat, based on the most efficient solution for that given area. Businesses, central government, and local authorities need to work together to deliver this, remaining mindful to the vulnerable and fuel poor at the heart of all decisions made.


Due to the intervention required and the disruption that will be caused in reforming homes to become net zero compliant, a national awareness campaign will be critical in preparing the public for the changes that will occur in the next decade.


The establishment or selection of a delivery body to be responsible for consumer communication, advice and delivery of the heat transformation could be beneficial to the approach. This would help coordinate efforts to tackle the stark knowledge gap and the public awareness needed to drive uptake of the low carbon options.


  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 decarbonisation of heat will need some central coordination in government to ensure the planning policy in MHCLG, the tax policy regarding fuels in HMT/HMRC and the BEIS policy approach can be coordinated, somewhat akin to the Office for Low Emission Vehicles and the previous Office for Renewable Energy Deployment. This being said, local areas, regions, and countries within the UK will be better suited to selecting and supporting a specific mix of technologies based on the specific attributes, ambitions, and capabilities of the area.


A national framework for local delivery seems appropriate and has broad support from industry. This is often referred to as Local Area Energy Planning, and goes beyond heat to incorporate energy, transport, and industry.


It is important to ensure that the economics are viable and attractive to customers in the near term, giving consumers the ability to choose how and, to a degree, when they want to decarbonise from a range of low carbon solutions.





[1] https://www.gov.uk/government/consultations/future-support-for-low-carbon-heat

[2] https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution

[3] https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming/

[4] Transforming Heat, Public Attitudes Research, BEIS September 2020