Briefing on the Heat & Buildings Strategy

The Government has this week published its long-awaited Heat and Buildings Strategy. In this article, we summarise the main contents of the strategy and set out our thoughts on the implications for energy efficiency policy and fuel poverty. Anyone wanting to engage further on this topic should feel free to contact our Policy & Partnerships Team.

The Government has this week published its long-awaited Heat and Buildings Strategy. In this article, we summarise the main contents of the strategy and set out our thoughts on the implications for energy efficiency policy and fuel poverty. Anyone wanting to engage further on this topic should feel free to contact our Policy & Partnerships Team.

The Strategy comes in at 186 pages and is accompanied by the Net Zero Strategy (even longer!) and a whole host of supporting documents. But, in headline terms it feels a little underwhelming after such a long wait. Yes, it contains quite a detailed plan, there is some new money and there are statements about the importance of a ‘fabric first’ approach and tackling fuel poverty. But the funds for decarbonisation of heat seem like they may have been reduced to offset spend on the unsuccessful Green Homes Grant and generally it feels very much like a first step with little in terms of firm decisions or the specifics of implementation.

To some extent that is understandable and we would not want to see important decisions rushed. But anyone expecting to see a crystal-clear path to net zero in 2050 will be disappointed. Three scenarios are envisaged: high electricity (no significant hydrogen); high hydrogen (4m homes using hydrogen by 2035); and, dual energy (a mix, as the name implies). So, some quite different outcomes are still possible.

There are the expected messages of support for heat pumps although the funding to be provided by the Government (£450m) is less than many will have wanted (sufficient to fund only 90,000 heat pump grants of £5,000 – which leaves a mountain to climb to reach the stated ambition of 600,000 per annum by 2028). The Government has a “confirmed ambition” for all new heating systems in UK homes to be low carbon by 2035 but the communication around the phasing out of gas boilers is fairly cautious – it will be “in line with the natural replacement cycle” and “only once costs of low carbon alternatives have come down”. The Prime Minister’s more colourful message is that the ‘boiler police’ will not be calling round to start removing the nation’s gas boilers any time soon!

This caution is appropriate in our view given the significant additional installation and running costs still associated with heat pumps and the many households already struggling with their energy bills; it will be particularly important not to force heat pumps on low-income households reliant on subsidised schemes all the time those who can afford to pay for new gas boilers themselves are able to do so. It remains to be seen, however, whether the investment in heat pumps will be sufficient to bring their costs down by the quarter to a half by 2025 that is anticipated in the Strategy or to lead to heat pumps replacing boilers in 1.7m homes a year by the mid-2030s.

There is an announcement of a package of £3.9bn funding for decarbonisation of heat and buildings which will be focused on those in greatest need. But much of this is simply confirmation of investment that was pledged in the 2019 election manifesto. Investment in energy efficiency does not seem to be sufficient to improve the thermal efficiency of homes to the level that big ambitions for heat pump installation would require – it remains the case that heat pumps need very high levels of thermal efficiency in order to operate effectively. As Caroline Lucas has said, putting a heat pump in an energy inefficient home is like buying a new teapot with cracks in.

The tricky issue of whether policy costs funded through energy bills come from electricity or gas is deferred until next year while a Call for Evidence on Fairness and Affordability is held. We think this makes sense as it is far from a straightforward decision and needs to be looked at very carefully, albeit the Government are signalling their desire to shift more costs onto gas bills. We very much hope that this Call for Evidence will also cover an even bigger issue – a strategic look at how the massive costs of the net zero transition will be spread fairly across society. The Strategy estimates that an additional £200bn of public and private investment will be needed to deliver the pathway to net zero as far as 2037.

As indicated above, another decision that is not going to be taken any time soon is the role of hydrogen in the energy mix. The Government’s position is broadly that it expects there to be a role but how big that will be is dependent on more research and trials with a decision another 5 years off.

Our biggest concern is what all this means for the Government’s ability to tackle fuel poverty.

In our report with Gemserv published on 13 October ("Are we on track?"), we set out that on current trajectories the Government will fall massively short of its statutory target of as many fuel poor homes in England as is reasonably practicable achieving at least a Band C energy efficiency rating by 2030. The report calculated that without extra funding some 2.6m fuel poor homes will still be below Band C in 2030 and that an additional £18bn needs to be spent across the 2020s if we are to get anywhere close to the target. The Strategy refers to fuel poverty numerous times without offering any new ideas and while much of the money announced will be aimed at low income and vulnerable households, it’s not really new.

One specific proposal that is being consulted on in one of the separate documents issued on the same day (it has a deadline of 12 January), is “ending the installation of high-carbon fossil fuels to heat homes that are not connected to the gas grid in England from 2026”. This could potentially give a bigger impetus to heat pumps than the grants on offer. While it does not refer directly to stopping the extension of the grid to further homes, we would be surprised if that were allowed to happen. More clarity on this point is important – as it stands the gas networks are still obligated to deliver new gas connections to fuel poor homes to 2026 under the Fuel Poor Network Extension Scheme.

In a little more detail, here are the key elements of the strategy:

Households will be able to receive £5,000 grants for heat pumps under the Boiler Upgrade Scheme (BUS). Funding for the BUS will be £450m over three years (starting in April) so it will support 90,000 heat pumps.
BUS is billed as part of £3.9bn for decarbonising heat and buildings. The other elements are:

• £1.425bn – Public Sector Decarbonisation Scheme
• £338m – Heat Network Transformation Programme
• £800m – Social Housing Decarbonisation Fund
• £950m – Home Upgrade Grant

These last two elements are of greatest interest to AgilityEco and our partners. With the Social Housing Decarbonisation Fund (SHDF), the election manifesto promised spending of £3.8bn and thus far only a few hundred million has been released. Even though the full funding is expected to be provided over a decade, this commitment to what is now around £1bn is a disappointing follow up to the manifesto given it appears to be the total available for a full 4 years. That is equally so with the Home Upgrade Grant (HUG) where this latest commitment takes the full funding to just £1bn, less than half the sum in the manifesto. It seems likely that the promises in the manifesto have been reduced to take account of spending on Green Homes Grant which was a post-election development.

• A £60m innovation fund is available with the intention of helping to make heating systems smaller, easier to install and cheaper to run.
• There is to be a consultation on applying new efficiency requirements to social housing.
• A decision will be taken by 2023 on whether to blend up to 20% hydrogen in the gas grid, which is expected to reduce emissions by 7%.
• A consultation is to come on whether it should be a requirement for boilers to be hydrogen-ready from 2026.

If you would like further detail, information or advice, please contact us.