Report calls for government to rethink domestic heat strategy

Published:  15 September, 2016

Think tank Policy Exchange has published a new report – Too hot to handle? – looking at how to decarbonise domestic heating.

Richard Howard, head of environment and energy at Policy Exchange and author of the report, outlined that despite being a critical and substantial part of our energy system, heat has been largely overlooked in energy policy debates for years.

The report provides a critique of the previous government’s heat strategy, which was developed by the then Department of Energy & Climate Change in 2012 and 2013.

Policy Exchange argues that the strategy, which largely focuses on shifting homes to electric heat pumps, looks extremely expensive and difficult to achieve in practice, costing around £300 billion.

This takes into account the installation cost of more than £8,500 per heat pump, the cost of upgrading the grid, and the additional 100 Gigawatts of power generation capacity that would be required to meet the demand for electricity. All in all it would cost as much as £12,000 per household to deliver the previous government’s plans to reduce carbon emissions from domestic heating. 

The report suggests that the newly created Department for Business, Energy & Industrial Strategy (BEIS) needs to take a fresh look at its approach to decarbonising heat.

Policy Exchange also looked at the validity of hydrogen conversion and found that, while on face value it may be appealing, it too carries significant cost and challenges.

As a result, Policy Exchange worked with Delta Energy and Environment to develop and model some alternative approaches to decarbonise heating. The analysis shows that an 80% reduction in carbon emissions could be achieved through a combination of:

• Improving energy efficiency – for example by tightening standards for new build homes and for existing private rented properties, and by linking the stamp duty system to energy performance to encourage households to improve their properties.

• Making better use of gas – by tightening boiler standards and encouraging people to replace old boilers with new highly efficient boilers.

• Expanding the use of “greener gases” – for example injecting biomethane into the gas grid, and supporting the development of new technologies, which convert “black bag” residual waste into synthetic biogas.

• Rolling out heat networks to millions of homes, which in the future will need to use low carbon sources of heat.

• A more limited rollout of electric heat pumps

Policy Exchange proposes that government develops a new heat strategy (most likely as part of the forthcoming Carbon Plan) based on the following broad principles: 

• A long-term commitment to decarbonising heat – this is a multi-decadal infrastructure challenge, and will require significant political vision and commitment. 

• Put consumers back at the heart of the heat strategy – the new heat strategy needs to be more consumer-friendly – working with the grain of consumer preferences, and minimising the costs and burdens placed on consumers. 

• Avoid “picking winners”: Government should avoid setting technology specific targets and “picking winners” and instead create a set of market conditions, which encourage the most cost effective routes to decarbonise heating. To that end, we recommend that the (technology-specific) 2020 Renewable Energy and Renewable Heat targets should be scrapped. 

• Use carbon pricing to encourage lower carbon solutions: the taxes and levies placed on heating fuels should be adjusted to better reflect their carbon content. 

• Integrate heat, energy efficiency and fuel poverty: Improving energy efficiency is among the most cost-effective routes to decarbonise heat, and offers co-benefits such as reducing fuel poverty. These agendas need to be far more integrated. 

• A national strategy with a localised approach: The decarbonisation of heat will require a mix of technologies, rather than “one size fits all” solutions, and the best course of action will vary by location and over time. This raises questions about governance and decision-making.

• Technology and system challenges: The decarbonisation of heat presents significant challenges for the operation of gas and electricity systems. The availability of storage will be key to the deployment of alternative heat technologies. The government needs to focus more research funding on developing and piloting heat and energy efficiency technologies.