Written evidence submitted by Cenergist (DHH0140)

About

Cenergist is a leading partner to government in driving water and energy efficiency, helping households across the UK to save money and become more sustainable. We work closely with major energy and water utility providers to deliver their regulated energy efficiency and water saving programmes.

On average we upgrade 9,000 homes each year through the installation and renewal of District Heating Systems (DHS), ground source heat pumps (GSHP) and water system upgrades.  In total our work to date will deliver savings of nearly one million tonnes of CO2 over their lifetime and reduce the average utility bill by over £200 per household. 

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?

RHI has been the main policy driving low carbon heat and has been successful in this regard. However, the main technology it has promoted has been biomass, a technology government is looking to move away from in favour of other technologies such as heat pumps.

It is unfortunate – and poorly timed – that non-domestic RHI is set to end just as government is looking to ramp up heat pump deployment, particularly in the shared ground loop sector. Its likely replacement, the Clean Heat Grant, would provide a comparatively reduced level of support over only a two-year term. A long-term commitment which provides certainty, clarity and adequate financial incentive for businesses, will be critical to successfully driving the adoption of low carbon technology.

HNIP is an example of a current policy which has had some success in the promotion of low carbon district heat. However, clients with first-hand experience of this agree that it is far too onerous and costly to procure. Incentives should be made more accessible, more quickly, if low carbon technology deployment is to be achieved at pace and scale.

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)?

• A clear and strategic plan, clearly setting out when decisions will be made, to ensure certainty throughout the sector.
• Ensuring that the Buildings and Heat Strategy is developed in conjunction with other key policy documents, such as the Fuel Poverty Strategy.
• Examine the strategic interaction and overlapping of polices to ensure unintended consequences are avoided (as is the case, for example, with the Green Homes Grant (LAD) having essentially the same eligibility criteria as ECO – detracting from the success of both).
• Government should be open minded on the blending of grant funding such as ECO, RHI and (for example) the Green Homes Grant, particularly in RSL-led schemes and for technologies with higher capital expenditure, such as shared ground loop heat pumps.

As it stands, compared to a gas district system, a net zero technology does not stack up without some level of blended funding. The table below demonstrates the effect of blending GHG with ECO once RHI has ended:

Table 1: The financial case for shared ground loop DHS

• Provide clarity on the priorities of ECO from 2022-2028. ECO can be leveraged as an additional vehicle to drive net zero technologies in fuel poor households. It is critical that the scope of eligibility in ECO is widened and rules around district systems are simplified to encourage deployment and help create green jobs. Similarly, Local Authorities and RSLs should be retained within the scope to ensure the most in need are assisted and some of the UK’s poorest performing households receive improvements via an established supply chain driven by legal obligation on suppliers.
• Government should set ambitious, long-term retrofit targets that are in line with its aim of reaching net zero. Currently, there are no measure-specific deployment targets that can be then used to inform grant funding policies. Bodies such as the CCC are calling for c.600,000 heat pump installations per year until 2050, whereas the future flagship Clean Heat Grant looks to partially support around 22,000 installations over two years. Incentives and net zero relevant targets must be aligned.
• Government needs to assess and promote decarbonisation of existing district heating systems, particularly operated by RSLs (an aspect of policy which fell out of favour in 2018). A large quantity of fossil fuelled legacy systems are operating on system efficiencies as low as 50%, leading to excessive fuel usage and higher running costs. RSL’s internal budgets often do not allow for replacement and as such are forced down the route of maintenance. A replacement system to a net zero measure including infrastructure upgrade is a comparatively low-cost measure which can cut fuel demand by up to 70% and reduce end user bills by 50%.

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 and industry should be technology-agnostic in their approach. Each project will have a solution depending on its specific requirements. In general, however, net zero technologies such as heat pumps (including district ground source shared ground loops) have exciting applications for social housing blocks if capital expenditure can be balanced with grant funding.

CHP also has a significant role to play and government should consider adequately promoting this within both residential and industrial sectors.

Government is quite rightly moving away from natural gas for heat production. However, there is a risk that putting a blanket ban on gas, particularly district heating, will cause outliers to be left in a vulnerable position.

Through our work we see a substantial number of blocks, particularly in urban settings, that cannot support a net zero measure either due to lack of space, or the characteristics of the block. Those on existing legacy poor performing DHS are subject to high bills and low comfort levels, and RSLs have no budget to remedy this. It is worth considering targeted financial support via policy new/replacement gas DHS for blocks where a net zero measure cannot be made feasible. This way other intertwined issues such as fuel poverty will not be exacerbated.

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

Many low carbon heat technologies require commoditisation, which will only occur with mass deployment.

Government successfully achieved a near grid parity position with solar PV via the Feed in Tariff mechanism. With the ending of non-domestic RHI, technologies such as large scale and shared ground loop heat pumps currently have no level of dedicated support and therefore no policy driver. Overall, the current financial and policy-based support framework lacks strategic direction and is too time-limited in its scope. This makes it difficult for industry and investors to plan and develop projects.

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?

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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?

Households, local authorities and industry alike are driven by four factors: cost, complexity, service/consumer protection, and whether or not the works are needed.

• Cost – This can easily be incentivised by adequate, long term policy commitments with grant funding helping to drive down installation costs as deployment ramps up. Further developments in the sector result in innovations that further reduce cost and complexity.

• Complexity – Often cannot be avoided for more invasive measures but again, the availability of innovative technology often reduces complexity over time. On large scale projects complexity and cost are intrinsically linked, therefore on public tenders a scoring weighting towards net zero and quality – rather than cost – is critical. Government could consider tying funding to tenders where such an approach is used, and low carbon measures promoted.

• Service/consumer protection – Government has made great strides in this area, with bodies such as MCS and Trustmark instilling confidence. Protection must continue to evolve alongside the rollout of new technologies.

• Are the works needed? – This is the fundamental driver of all such works, as the vast majority of low carbon projects are a result of pre-existing equipment failure, particularly in private housing. Measures such as heat pumps require substantially greater pre-installation planning compared to a replacement gas boiler and potential customers typically are not in a position where this time can be spent. Consumers will need to move from a reactive mindset on their heating solution, to where the next heat source is planned for in advance. Government can assist via holistic energy assessments of properties and providing funding for retrofit packages that pave the way for future low carbon measures.

For larger scale RSL-led projects, financial incentives need to be introduced to the decarbonisation of homes, particularly on existing legacy district systems as the works do need doing but RSLs typically do not have the budget to replace. Cost is therefore the key barrier.

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?

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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?

Government is ultimately responsible for governance and should provide policy clarity on the route to net zero, and the funding behind that. Delivery should be undertaken at the local level as each area will have different economic and built environment characteristics that will dictate how and what low carbon measures should be deployed.

It could be argued that local authorities are best placed to coordinate and deliver on the future of low carbon heating. In the vast majorities of cases, however, local authorities simply do not have the budget, capacity, skills or institutional knowledge to drive delivery.

The outcome of this is allocated funds not being spent, as seen by the recent low uptake of the local authority element of the Green Homes Grant, with just £76m of an available £200m accessed to date. As such RSL should be allowed to rely on specialist private sector companies to be formally appointed to drive such delivery, following a suitable procurement process.

February 2021