British policy on heat decarbonisation needs a reset. The keys to this are simplicity, place and – in the short to medium term - funding. We believe that by streamlining the national arrangements and, crucially, by defining and funding the role of local authorities, the government could galvanise action on heat decarbonisation. The way to get things moving is through several – at least three - large-scale pathfinder projects.
Local Govenment
The government accepts that local and regional authorities will be central to decarbonising heat and especially in local area energy planning (LAEP). Most councils lack the necessary capacity-some even to bid for competitive funding. Amid tight budgets, climate spending is squeezed out by statutory duties such as social care. The government should therefore:
- Set up a clear framework defining the role and responsibilities in heat decarbonisation of local and regional authorities. This should cover all potential technologies and include standard-setting, planning methodologies, provision of independent technical advice and local decision making.
- Give councils a statutory duty to reach net zero and make it a factor in council executives’ performance pay
- Give councils a statutory duty to undertake LAEP and make it a factor in council executives’ performance pay
- Define the role of councils, combined authorities, and Regional Energy Hubs in LAEP and fund them to build the capacity to carry it out. Funding should be allocated non-competitively, as recently demonstrated by Midlands Energy Hub on LAD2.
- Widen the focus of zoning. The government’s current pilot covers only heat networks. To save time the different types of zones (heat pump, urgent retrofit, possibly hydrogen) should be defined simultaneously as part of LAEP.
- In the short term, ensure all councils have the necessary staff and capacity to access current funding schemes to eliminate postcode inequality
Pathfinders and Coordination
The government should urgently set up at least three large-scale pathfinder projects to start the decarbonisation of building heat.
As well as the pathfinder projects, government needs to create some new permanent bodies and/or give new responsibilities to existing ones.
- A new National Centre for the Decarbonisation of Heat (NCDH).
- Independent consumer advice centre. The government should fund a respected independent body such as the Energy Savings Trust to provide simple and authoritative advice about heat decarbonisation to residents, householders and small landlords. This would build on the Simple Energy Advice website but go much further, providing expert home visits and properly tailored advice. The body will need the capacity to deal with millions of enquiries.
- The government should also launch a national conversation to raise awareness of low carbon heat, with messaging tailored not only to the population at large but also to communities that may be isolated by language and perhaps mistrust of authority. Local authorities should be responsible for local awareness-raising and consultation.
National Targets and Legislation
The government must:
- set targets for clean heat as strong and clear as those it has set for EVs. We suggest: ‘The sale of natural gas boilers will be banned in the UK by 2035’
The government already has statutory target ensure all fuel-poor homes should have a minimum energy efficiency rating of EPC band C by 2030 where “reasonably practicable”-but is off-course. Independent analysis suggests that under current policies 80% of the 3.2 million households that were fuel poor in 2019 will still be fuel poor in 2030. And now the gas crisis has plunged millions more households into fuel poverty.
- Reaffirm its fuel poverty target and explain how it will achieve it. Doing so will probably cost tens of billions of pounds rather than the low-single digit billions currently being spent–but this would be a major down-payment on heat decarbonisation
- Legislate for the proposed minimum energy efficiency standards (MEES) for private landlords and fund local authorities to enforce them
- Honour the Conservative Party’s 2019 election manifesto pledge to spend £2.5 billion on HUG; the Heat and Building Strategy commits only £950 million
- Make its fuel poverty target more effective by reforming the EPC
Costs and Reform
- Lift at least the legacy environmental costs (ROCs and FiTs) off the electricity bill and take them into general taxation. This would reduce the average electricity bill by almost £100 and bring heat pump running costs closer to boiler-parity. Heat from a heat pump already emits far less carbon than that from a boiler. It is perverse to keep loading these costs onto the cleaner fuel.
- Reform the power markets to reflect increasing share of renewables and eliminate marginal pricing driven by gas, as suggested by Dieter Helm’s Cost of Energy Review, or similar. Suppliers such as EON agree that current market arrangements prevent the full benefits of low-cost renewables being passed on to customers and must be reformed.
- Government should investigate ways to clear any barriers in the wholesale market arrangements that may deter electricity suppliers from offering their customers half-hourly tariffs. These tariffs would allow households that install a heat pump to avoid peak prices, so reducing their running costs.
Funding
- Introduce a single simple open-ended KfW-style scheme to cover insulation and clean heat for all sectors and tenures. We recognise that this is a fundamental ‘year zero’ reform, and should therefore be demonstrated in large-scale pathfinder projects
- Amalgamate all existing energy efficiency and heat decarbonisation funding pots into the scheme, double it and improve targeting on the fuel poor
- Recapitalise the UK Infrastructure Bank to provide the necessary low-cost lending or set up a state-backed guarantee scheme to allow retail banks to fill this role
- Increase heat network funding tenfold to £3 billion. Based on work by the Climate Change Committee and the IPPR think tank, this could stimulate private investment of up to £22 billion to provide 10% of Britain’s heat through cost effective heat networks by 2030
Performance
BEIS and the Ministry of Housing accepted in 2020 that “EPCs will need to move from a reflection of the features of a building (fabric, services and installed improvement measures) to a true measure of ‘in use’ building performance.” This reform is fundamental and now urgent. The government should:
- Reform the EPC to measure and rank properties by thermal efficiency–as measured, not modelled
- Over time, incorporate the key elements of the proposed Building Retrofit Plans(‘building passports’) into the EPC
Making a thermal efficiency rating mandatory for all property sales would be a powerful lever. We need to insulate around 13,000 homes per week, comfortably below the number of homes sold each week pre-covid. If buyers used the document to haggle the price of energy-inefficient homes down (and vice versa), it would send a strong signal and might reduce the amount of subsidy required to incentivise retrofits.