Net Zero Strategy: Build Back Greener – The Government's heat and buildings strategy
The Government's long-awaited Net Zero Strategy (published on 19 October 2021) sets out that reaching net zero means tackling all sources of emissions – and heating for homes and workplaces makes up almost a third of all UK carbon emissions.
Alongside the Net Zero Strategy, the Government published its Heat and Buildings Strategy which sets out in more detail the proposals for the transition to high-efficiency low-carbon buildings. Overarching aims are to reduce bills, improve comfort through energy efficiency, and build markets required to transition to low-carbon heat, while testing the viability of hydrogen for heating.
The Heat and Building Strategy runs to 200 pages detailing how this will be achieved but the top take-away points are as follows:
- No new gas boilers from 2035: No-one will be required to remove existing gas boilers, but the aim is to phase out the installation of new natural gas boilers beyond 2035, once costs of low carbon alternatives have come down. As part of that, the Government is setting a clear ambition for industry to reduce costs of installing heat pumps by 25-50% by 2025 such that heat pumps are no more expensive to buy and run than gas boilers by 2030. This announcement sends a clear message to industry and reflects the central role of electrification of heat in decarbonisation.
- Grants for Heat Pumps: A £450 million Boiler Upgrade Scheme will provide up to £5,000 per household to switch to air source heat pumps and £6,000 to switch to ground source heat pumps from April 2022. That equates to 30,000 heat pumps a year over the 3-year scheme (about 90,000 in total). While the funding is an important boost to the heat pump market, it reflects less than half the current rate of installation (the Heat Pump Association estimates 67,000 heat pumps will be delivered in 2021) and is a significant shortfall from the 600,000 per year required by 2028 to be on track to deliver Net Zero. So significant further work is required to scale-up. The Government is separately consulting on establishing a market-based mechanism to establish incentives for industry and has also announced a £60 million 'Heat Pump Ready' Programme to support the development of innovative solutions across the heat pump sector.
- Heat Network Zoning: The Government has announced £338 million for the Green Heat Network Fund and Heat Networks Investment Project to support current market growth and enable local areas to deploy heat network zoning. This is part of a broader Heat Network Transformation Programme which aims to drive decarbonisation and deliver better consumer protections as part of a comprehensive transformation programme for heat networks. The Government is currently consulting on proposals to provide local authorities in England with powers to put in place heat network zones and require that buildings connect. For developers of urban developments, connections to district heating systems are not new, but we can expect a greater drive towards larger town or local authority-wide low-carbon heat networks with requirements on surrounding developments to connect. We are also expecting implementation of the Market Framework to regulate heat networks – but no timeline has been indicated.
- Retrofit support for social housing and low-income households: The Government recognises that the capital cost of retrofitting energy efficiency measures and low carbon heating is a barrier to many. It has pledged a further £800 million for the Social Housing Decarbonisation Fund and £950 million for the Home Upgrade Grant which aim to improve the energy performance of low-income households, support for low-carbon heat installations and help to reduce fuel poverty. There is also a further £1.425 billion for the Public Sector Decarbonisation Fund which provides whole-building funding with the aim of reducing emissions from public sector buildings by 75% by 2037. Many social landlords and public sector bodies have already taken advantage of existing funding to carry out upgrades – but with these further waves there is great incentive to review housing/building stock and to put more ambitious retrofit programmes in place. It is likely that for existing buildings thermal efficiency will need to be improved before installing heat pumps in order to provide sufficient heating – so order and priority of planned measures in the context of available funding needs careful consideration.
- Rebalancing of energy prices: The recent spikes in gas prices have demonstrated the impact of over reliance on gas. The Government is clear that it needs to expand our domestic renewables, but that current electricity and gas pricing does not incentivise consumers to make green choices and switch from gas boilers to electric heat pumps. The Government will look in 2022 to rebalance energy levies (such as the Renewables Obligation and Feed in Tariffs) and obligations (such as the Energy Company Obligation) away from electricity to gas over this decade. In our experience, running costs remain a key concern for landlords and developers in installing an electricity-led heating system, together with grid capacity and potential upgrade costs. The Government has acknowledged concerns around how the grid can accommodate such increased electricity demand, but it remains to be seen how costs of grid upgrades will be approached and the role of storage/hybrid technologies in balancing capacity and demand.
- Role of Hydrogen: The Government is planning to undertake a series of hydrogen trials alongside technical assessments of blending hydrogen into the existing gas network and consulting on hydrogen-ready boilers. Following that work, the Government intend to take a strategic decision on the role of hydrogen in heating buildings in 2026.
Further detail on the Government's announcements is set out in the full document – available here. Annex 2 sets out a useful summary of planned activities by type of heat source and measures to improve building energy performance.