Written evidence submitted by Calor (DHH0098)
- Calor welcomes this opportunity to provide evidence to the Business, Energy and Industrial Strategy Committee’s inquiry into decarbonising heat from homes. We highly recommend that the committee’s inquiry considers rural heat decarbonisation as the government will seek to progress decarbonisation policies in the rural, off-gas grid sector first during the 2020s, well in advance of urban dwellings.
- Calor is the UK’s largest supplier of Liquid Petroleum Gas (a low-carbon heating fuel used by many off-gas grid, rural properties) and BioLPG (our lower carbon renewable, direct alternative to LPG). We want to ensure that the two million, off-grid rural energy users are not forgotten about or left behind as we decarbonise heat in rural homes and businesses.
- We welcome the Prime Minister’s recently published 10-Point Plan for a Green Industrial Revolution and National Infrastructure Strategy. The 10-Point Plan outlines a 15 year transition away from fossil fuel boilers, starting in new build homes first. We believe rural, off-gas grid households will need to same time with enhanced support to decarbonise given their unique circumstances.
- From our knowledge of supplying heating fuels to thousands of rural homeowners and businesses for over 80 years, analysis shows the most cost-effective future off-gas grid heat strategy is a ‘mixed technology approach’, including green gas as well as other low-heat demand, renewable technologies.
- Our low carbon BioLPG is already available in the UK and we are devoting significant research and development to bring more BioLPG into the UK – as a drop-in solution, homeowners currently using LPG do not need to change or alter their heating systems in order to use BioLPG.
- However, existing barriers need to be addressed for low carbon fuels such as BioLPG to maximise their impact. For example, BioLPG is not currently recognised in the Standard Assessment Methodology (SAP), the government’s National Calculation Methodology for assessing the energy performance of dwellings and determining Energy Performance Certificates (EPCs). We are urgently pressing the government to rectify this anomaly so BioLPG can play a meaningful role in rural heat decarbonisation.
- Many hard-to-treat, rural homes using heating oil, will not suitable for low-heat demand technologies such as heat pumps as they cannot be installed to work effectively unless the thermal energy efficiency of the house is significantly improved. In many cases this challenge will not be technically feasible, nor cost effective. For these homes, other, more affordable routes to decarbonisation need to be considered, such as BioLPG boilers.
- The government therefore needs to urgently develop a policy framework which supports the switch to low carbon heating whilst allowing for consumer choice. The policy framework should widen the number of supported technologies from electric heat pumps and biomass boilers, to include other heating systems such as BioLPG boilers, hybrid heat pumps and hydrogen heating systems.
Answers to questions
Q. 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?
- The relatively slow progress to date in the uptake of renewable heat and deployment of low carbon heating systems is due to various factors; the principle reasons being that low carbon heating systems remain relatively expensive even after subsidies, consumers are unaware or have a low level of understanding of the technologies or are simply not motivated to drastically change how they heat their homes.
- Past policies in the UK, particularly the domestic Renewable Heat Incentive (dRHI) - have not significantly kick-started the market for the technologies that it supports, and many argue that the dRHI’s impact has been relatively regressive. With public subsidies collected by households that are able to pay for high-upfront renewable heat systems.
- In terms of lessons learnt, a major barrier to the deployment of renewable heat, particularly in rural areas, has been the relative under-delivery of energy efficiency improvements. Many low-carbon, low-heat demand technologies require a high level of building thermal efficiency for them to work effectively. Scotland has had more success in levering schemes such as ECO through its locally delivered Home Energy Efficiency Programmes (HEEPs) than other parts of the UK, which the UK Government learn from.
- The state of energy efficiency in the countryside therefore remains a significant barrier to rural off-gas grid households. As of 2014, only 37,000 households are estimated to have an energy efficiency rating of A-C, while 373,0000 are at Band D, 448,000 are at Band E and 317,000 are at Band F or lower. Only 3% of all off-grid homes are at the required minimum EPC level (EPC C) identified by the Clean Growth Strategy.
- The Conservative manifesto committed to introducing a Homes Upgrade Grant which could offer a route to bridging the gap of under-deployment in rural areas. Costings of £260m in 2021/22, £270m in 2022/23 and £590m in 2023/24 will prove necessary in order to prepare some existing homes for low heat demand renewable heating systems; however, assuming a conservative estimate of £20,000 per house for necessary interventions, this funding would only cover approximately 10-20,000 home upgrades per year.
- There has been greater success at reducing building emissions by mandating improved heating system efficiency standards. This suggests that policymakers should consider supporting low-hassle pathways and solutions – such as hydrogen or biofuel/bioLPG systems - for consumer segments that are resistant to technology change or those that face significant affordability or technical barriers.
Q. 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)?
- The government needs to urgently develop a policy framework which supports the switch to low carbon heating whilst allowing for consumer choice. The policy framework should widen the number of supported technologies from electric heat pumps and biomass boilers, to include other heating systems such as bioLPG boilers, hybrid heat pumps and hydrogen heating systems. As a first step for instance, bioLPG is not currently recognised at all in heat policy, and consumers could not benefit from emission reductions in improved EPC scores or building regulation authorisations. The government needs to develop a mechanism to support bioLPG heating systems and hybrid heat pumps in particular.
- The government therefore needs a comprehensive strategy that fully supports the decarbonisation of all building types and consumer demographics. This should include a support mechanism for consumers off the gas grid that captures a range of financial positions. For some off-grid consumers, particularly those with savings and a well-insulated building, electric heat pumps are a solution. For others living in properties that are less energy efficient, and if the household has less capital to spend, a biofuel – such as BioLPG – boiler can provide a better, affordable solution.
- This strategy should provide industry with the certainty to invest in production of low-carbon fuels, and delivery of innovative technologies. As well as providing installers with the certainty to invest in upskilling and certification.
- The UK Government currently proposes the decarbonising heat from off-gas grid, rural homes first. A key decision for the Heat and Buildings Strategy will be whether the UK government decides to ban the installation of heating oil boilers (the highest carbon intensive form of heating off-gas grid homes) at some point during the 2020s. The majority of off-gas grid rural homes are heated by oil which means these homes will need an affordable low-carbon alternative. Even with funding available from the newly announced Green Home Grant, many off-gas grid households will not be able to afford some of the low-carbon heating systems the government envisages them using – principally heat pumps and biomass boilers.
- Establishing a firm end date is, however, an important step and creates a clear signal to industry and consumers that the intention to transition away from high-carbon fossil fuels is credible and should be incorporated into investment strategies. Indeed, Calor is a supporter of providing a long-term commitment for industry to work towards, and with parent company SHV Energy, has committed to an ambition for 100% of the fuels it supplies to be from renewable sources by 2040.
- However, it would be more straightforward to provide an-end date to the sales of new oil and coal boilers, rather than to the use of the fuels – an approach already taken in other European countries such as Belgium, where the Energy Pact proposes an end-date for new boiler installations.
- This means that there will be a tail of oil/coal consumption by installed boilers which will continue for many years after the initial end date. Therefore, the end date needs to be sufficiently early – before 2050 – to allow time for the gradual transition to lower carbon heating as boilers naturally breakdown and need replacing – typically every 10 to 15 years.
- Conversely, an end-date set too early will not allow the market to adequately prepare, invest in technology, and re-skill the supply chain in a fashion which minimises transition costs. Calor thinks that an end-date between 2025 and 2030 would likely satisfy both of these conditions.
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?
- There is a danger in picking winners and only supporting certain technologies such as heat pumps is that they often exclude more cost-effective options. Therefore, policies and regulations should not be on a restricted suite of technologies, but on delivering outcomes (i.e. carbon savings at least cost for consumers) and providing the greatest choice to meet the varied needs of different property types.
- For off-gas grid homes in rural areas the typical route to decarbonisation is different. These properties are typically larger, older, less energy efficient and situated in remote areas which may have limited electricity grid capacity. This makes electrification more difficult and expensive, and heat networks are typically unfeasible. The consumption of high carbon fossil fuels is far more common in these areas, and higher temperature heating systems have a role to play both as a transitional technology, and with the development of biofuels as a near-zero carbon alternative to heating oil and coal.
- In particular, it is important that policy recognises the range of consumer technologies in this space, including LPG boilers, biomass boilers, and hybrid heat pumps. The graph below illustrates the annual GHG emissions of a rural off-gas grid house, with a typical annual heat demand. The analysis considers the relative emissions of a range of heating technologies suitable for rural off-gas grid properties. As a starting point, the incumbent, old oil boiler produces just over 3.6 tonnes CO2e – given an assumed 76% efficiency rating (equivalent to SEDBUK band E).
- A range of gas technologies can reduce emissions significantly in the near term. Switching to a new LPG boiler reduces emissions by close to 30%, whilst operating an LPG hybrid heat pump brings 43% annual savings.
- For deep decarbonisation, a switch to a biogas supply would be needed. For existing LPG customers, BioLPG can provide a drop-in fuel alternative with no additional action required from the consumer. This renewable fuel can deliver over 80% reduction in emissions against conventional LPG, and 85% against heating oil – though carbon factors are dependent on feedstock and production processes.
- Hybrid heat pumps (HHP) typically combine a gas boiler with an electrically driven heat pump – either integrated into one unit or as separate products operating in combination. These systems can be operated using natural gas or LPG – with the boiler providing hot water heating and some ancillary space heating when demand is highest (winter peaks). As the boiler covers some of the space heating during the peak periods, a smaller heat pump can be specified which lowers the total system capex substantially. This is a significant advantage of HHPs and is one of the reasons why these technologies can help the UK decarbonise heat in buildings which may not be suitable for a full electric heat pump. The BEIS Committee should question, as part of this inquiry, why HHPs will not be supported by the Clean Heat Grant (successor to RHI after 2022).
- HHP solutions using BioLPG have also been identified by the Committee on Climate Change (CCC) as a key technology for decarbonising heat in off-gas grid buildings8:
“HHPs can be installed alongside existing heating systems, with these secondary fuels later transitioning to low carbon sources. For HHPs on the gas grid, peaking gas use can be transitioned to hydrogen, whilst off the gas grid, biofuels can be used (assumed to be bio LPG for the purposes of our modelling).”
- Furthermore, a study completed for the UK Government by Element Energy found that:
“Overall, the analysis suggests that for typical existing buildings, HHPs [HHPs] offer substantially more cost-effective heat decarbonisation option than standard HPs [Heat Pumps].”
- Beside these reports, further details on the operation of HHPs were released in the final report of the Freedom Project (see case study below). The study found that HHPs using LPG switched approximately 80% of their heating load on the air source heat pump, providing significant cost and carbon savings. There are significant opportunities to save sustainable amounts of carbon from oil heated properties, by encouraging them to switch onto LPG HHPs, with the further decarbonisation provided by a greener electricity grid and the continued growth of BioLPG.
- Lord Deben - sharing recent evidence to the BEIS select committee inquiry on Net Zero - said:
“There is an area where I am concerned. I do not think it has gone backwards. Indeed, in general terms, BEIS has set very good examples. I am very concerned about the question of how we move from largely fossil-driven heating in people's homes. There are those who are purists and say you have to move from where you are to a totally non- fossil fuel answer. I am very much an incrementalist on this. I do not believe you can do that.
“I am very concerned that the changes we are to have now in the RHI, the renewable heat incentive, should encourage the installation of hybrid boilers, so that you reduce the amount of energy you use from fossil fuels very considerably, but you do not ask the impossible of people who are in houses where you cannot have underfloor heating and all the rest of the changes you need to have a purely ground-source or air-source heat pump system. I really want that to happen very quickly and I am a bit concerned that there are those in BEIS who are not as happy about the incremental system. If we do not do it incrementally, we will not do it at all, and that is an important lesson.”
- Calor has been urging BEIS to support HHPs under the Clean Heat Grant, similar to the way they are supported under the current RHI scheme and via the Green Home Grant. The characteristic and operation of an HHP are favourable in supporting the decarbonisation of ‘hard-to-decarbonise’ homes. Compared to standalone heat pumps and biomass boilers, hybrid systems have a lower installed cost. Hybrids also operate at a much higher thermal efficiency compared to biomass boilers which in turn lowers energy demand and CO2 emissions. Biomass boilers cannot compete with hybrids on air quality as the heat pump emits virtually no particulates, and BioLPG is a clean-burning fuel with a NOx, SOx and PM intensity (g/GJ) much lower than biomass.
- Internal modelling by Calor shows that a HHP (heat pump + bioLPG boiler) can deliver the large carbon savings (off-grid) necessary to meet the UK’s climate targets and interim carbon budgets. The modelling also showed that HHPs would keep household energy bills down and they were a relatively more cost-effective solution compared to biomass boilers when included in the Clean Heat Grant.
- Hybrids are consistent with net zero: Against an oil baseline, hybrids could reduce household emissions by at least 94% by 2050 (see chart below). If even lower-carbon feedstocks can be sourced (i.e. 100% waste feedstocks), the lower upstream savings could enable HHPs to deliver up to 98% CO2 emission saving against an oil boiler by 2050. This is in line with the government’s net zero ambition and shows that HHPs can deliver the large carbon savings required to decarbonise rural heat and meet net zero. The emission reduction trajectory of hybrids is also in line with carbon budgets.
- Hybrids can be installed today with a BioLPG boiler, a technology combination that is consistent with net zero. It is not the case that the installation of hybrids locks households into a technology that would be inconsistent with net zero.
- Hybrids can lower energy bills: Hybrids can respond flexibly and smartly to changing price signals. A household could use increasingly popular time-of-use tariffs (such as Agile) and smart energy platforms to optimise their HHP in order to keep bills down. The smart energy platform allows switching between the heat pump and boiler depending on the cheapest price of energy. When the prevailing electricity tariff is above the BioLPG price, the smart platform switches to boiler mode as it is cheaper to do so. We show that the boiler is only called to provide heating in peak times when electricity is very expensive. Optimising the hybrid in this way ensures that it is financially attractive for the household to use the heat pump to meet around ~90% of the annual heat demand, while the boiler is able to provide heating when it is cheapest to do (i.e. peak times). See chart below.
- Case study: PassivSystems is a provider of advanced home energy management solutions and services. In 2017-18 they developed and demonstrated Predictive Demand Control (PDC) technology for hybrid heating systems in both on- and off-gas grid homes through the Network Innovation Allowance (NIA) funded Freedom Project. Based in Bridgend, South Wales, the project investigated the consumer, network and energy system implications of hybrid heating system deployments, where domestic heating systems have the option of operating using a gas boiler, an air source heat pump (ASHP), or both. The Project installed 75 hybrid heating systems with PassivSystems PDC technology in a range of private and social homes.
- The technology proved especially cost effective in homes off the gas grid. Mrs Dalton and her family had a hybrid installed in their former miner’s cottage in Pontycymer, a rural location in the Welsh Valleys. Her home achieved a heating bill saving of £736 without any requirement to improve the thermal efficiency of the building or replace any radiators.
- The hybrid system delivered (between October 2017 to April 2018)19,887kWh heat from the heat pump and 5,587kWh from the LPG boiler. This cost the homeowner £657 in electricity and £391 in LPG, total £1,047. Producing the same amount of heat with LPG would have cost £1,783.
- As well as delivering an excellent cost outcome, the home significantly reduced its carbon footprint. A typical LPG boiler generates 235 gCO2/kWh of heat, whereas a typical bioLPG boiler generates 60.3 gCO2/kWh of heat The heat pump delivered an average coefficient of performance of 3.9, resulting in 72 gCO2/kWh of heat for the average grid carbon intensity over the project. This delivered a 69% carbon saving compared to the LPG boiler alone.
- Lasltly, a recent economic analysis by Liquid Gas UK has examined the costs of five different potential pathways to decarbonising off-grid heating, concluding that a mixed technology approach – including both BioLPG and heat pumps, amongst others – would save £7bn compared to 100% electrification of heat, or £4,700 per household.
What are the barriers to scaling up low carbon heating technologies? What is needed to overcome these barriers?
- A significant barrier to the deployment of BioLPG is the fact that it isn’t recognised in SAP. SAP is problematic for rural dwellers because it contains both notional emissions and costs associated with particular technologies and building materials, which form the inputs to the SAP calculation. SAP does not currently recognise BioLPG, despite it being available to purchase, meaning when consumers do purchase BioLPG, they receive no benefit aside from the knowledge they are reducing their carbon emissions. This is anomalous given that bio-heating oil, which isn’t available to purchase by consumers, is included in SAP. Furthermore, if policy relating to off-gas grid heating moves to regulate for carbon emission factors for heating, without recognition within SAP, consumers won’t be able to choose BioLPG to lower their heating emissions.
- While there are practical challenges to overcome before BioLPG can be included in SAP (for example providing confidence consumers won’t switch back to conventional LPG), these are not insurmountable. Indeed regulations in France and Germany already includes BioLPG showing what can be achieved where there is a will. As part of this work industry has also been successful in demonstrating that once a customer switches to bioLPG they are not able to revert back to using conventional LPG. This eliminates any opportunity to game the regulations and ensures that the household is locked onto a decarbonisation pathway.
- Calor’s view is that the consumers’ interests are best served by the addition of separate line items for BioLPG and BioLPG blends, as this is the best way to stimulate both supply and demand for BioLPG.
- Another unintended consequence of the current SAP methodology (by using a cost metric, which penalises all consumers who don’t use natural gas for heating) is that it incentivises the move from conventional LPG to heating oil, despite heating oil emitting 24% more CO2 than conventional LPG. This is because heating oil is cheaper than LPG (in SAP kerosene and LPG price per unit of 5.44 p/kWh vs 7.60 p/kWh respectively). This is counter intuitive to the government’s plan to decarbonise off-gas grid heat and needs to be rectified by the Heat and Buildings Strategy.
Q. 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?
- This is a critical question and one which is under-estimated by government. The Committee on Fuel Poverty has stated that there is currently a lack of research and understanding on the cost estimates for achieving the government’s fuel poverty strategy, given the commitments contained in the Clean Growth Strategy. In its 2017 Annual report, the CFP identified a £14.4 billion funding shortfall to deliver the fuel poverty strategy for England. This funding shortfall excludes the costs of moving away from heating oil use. Understanding this is critical and it needs to be addressed in the Heat and Building Strategy, particularly for rural off-gas grid homes that haven’t proportionally benefited from government backed energy efficiency schemes.
- Many hard-to-treat-homes are unlikely to be suitable for electrification as it will be too costly, and sometimes technically infeasible, to make them suitable for low-heat demand technologies such as heat pumps. Local electricity grid constraints may also be a barrier. Around 645,000 rural homes currently using heating using oil in England would need costly and disruptive energy efficiency improvements to reach high energy efficiency standards required for heat pumps to work effectively. A study commissioned by Calor has found that up to 44% of off-gas grid homes are hard-to-treat and will require affordable decarbonisation options, such as BioLPG boilers, or hybrids.
- A deep retrofit of all rural, off grid homes to facilitate full electrification would entail high upfront costs and considerable time commitments from consumers, meaning many consumers would be unwilling or unable to commit to such improvements. A typical oil heated period-home would cost £31,000 to carry out a deep retrofit for electrification and heat pump installation, with over 15 days for the works to be carried out.
- Future policies are likely to includes plans to regulate the energy efficiency of owner-occupier homes – the Scottish Government is currently consulting on such plans. As such, EPCs are being used to underpin such proposals as the primary metric to measure a property’s energy efficiency rating – the current methodology, which is also based on running costs, means that EPCs are an unreliable measure of energy efficiency especially for rural off-gas households.
- Likewise, BEIS has recently issued a consultation aimed at mortgage lenders to improve the energy efficiency of their mortgage books. The consultation will design policies that will require lenders to publish the average EPC score of their mortgage book. By 2030, the government intends to ensure that lenders have an average EPC score of Band C across their portfolio. There is a danger that by incentivising lenders with a stick (through the publication of a league table and potential penalties) that they will in turn be disincentivised to offer mortgages for rural properties, which may never be able to improve their EPC score to Band C; this could distort the rural housing market and reduce the availability of competitive mortgages for rural homes.
- In many cases where off-gas grid homes have energy efficiency measures installed, which improve the energy efficiency rating of the building, improvements in the EPC do not materialise since the fuel price is higher. Therefore, off-gas grid homes will need to spend more on their properties to improve their EPC compared to on-grid properties. In these cases, future assessors should take into account the emission rating of the building as being compliant with the policy objective. This is already the case for non-domestic buildings.
- Calor’s recent Rural Attitudes Tracker (YouGov, 2020) finds that over 50% of rural homes owners are unlikely or very unlikely to make use of the government’s recently announced Green Home Grant. While the government has now moved to tackle the barriers presented by high capex costs for low-carbon heating systems, such as heat pumps, consumers do not expect to pay more replacing a heating system than they do at present. Our Attitudes Tracker finds that only 4% of rural off-gas grid consumers would consider paying more than £5000 on a renewable heating system.
- Furthermore, we have conducted an affordability analysis of low carbon heating options for rural householders, which finds that 59% of oil heated households are unlikely to be able to afford a heat pump for their property. The study finds that these homes will require more affordable options such as BioLPG boilers to allow for the deep decarbonisation of their heating.
Q. 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?
- Currently heat decarbonisation policy is relatively regressive, with public running-cost subsidies (domestic RHI) offered for electric heat pumps (~£9,000 capex) and biomass boilers (~£18,000 capex) that cannot be afforded by poorer households. The costs are currently not evenly distributed. Government needs to support solutions for consumers that don’t have the upfront capital to invest in an electric heat pump or biomass boiler and should focus on levelised cost of low carbon heating options including both capital and operational the lowest overall cost solutions are supported.
- As the government prepares to consult on its future heat strategy, we are concerned that future regulations could require homeowners to reach certain energy efficiency or carbon emission targets before selling their homes. There is a risk that if these policies are not implemented fairly, many rural homeowners could be trapped in their existing homes, unable to afford to move.
Q. 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?
- This is a critical question. Households and consumers will need significant support and advice to ensure they pick the right energy efficiency and low-carbon heating systems as they decarbonise their homes. Various recent surveys, including our own Rural Attitudes Tracker find that consumer awareness is low; for example, a recent report from the Social Market Foundation found that only 30% of the public can correctly identify the meaning of ‘net zero’ and more that 30% of the public are unfamiliar with alternatives to gas heating.
- As referenced above, providing consumers with choice, particularly for rural off-gas grid households is going to be incredibly important. The Climate Assembly has shone a spotlight on fairness, affordability, freedom and choice. But debate on technology options in questions posed to participants in the Assembly remained limited to picking winners. Decarbonisation options presented included heat networks (which won’t reach remote rural properties), hydrogen (which isn’t feasible for off-gas grid properties) and heat pumps (which might not be suitable for every property given cost and technical feasibility). While these might be suitable for 60-80 per cent of all properties, there remains a lack of specified support for those properties that will need tailored solutions and significant financial assistance.
- On the issue of disruption, installation times pose a significant concern for off-gas grid customers. Our Rural Attitudes Tracker shows that disruption lasting any longer than three days becomes a serious consideration for homeowners. As outlined above, a typical off-gas grid household could face up to 15 days for the necessary energy efficiency measures and new heating system to be installed.
Q. 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?
- Setting a clear policy framework that provides energy markets with certainty, plus an attractive package for industry and consumers alike is vital. The Clean Growth Strategy has provided a good framework for a cross-departmental approach to decarbonisation, including energy efficiency. However, while departments such as BEIS and MHCLG develop policies to achieve its carbon budgets and net zero targets, it’s vital that a greater consideration to cost effectiveness (both to the taxpayer and the consumer) is considered.
- To this end, we welcomed the establishment of HM Treasury’s Net Zero review and look forward to its report next year. We have also previously recommended that the UK government explores the benefit of establishing a Just Transition Commission as the Scottish Government has done to ensure fairness.