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3 key changes the heating industry needs from the next government

With a new Parliament, Jeff House, Director of External Affairs and Policy at Baxi, discusses the drive to decarbonise homes and businesses, the role of heat pumps, and what needs to change from a policy and legislation perspective to accelerate the energy transition:

At the time of writing the election campaign is in full swing and polling day is rapidly approaching. Whatever the outcome, the new Parliament will have to address emissions reductions to set the groundwork for meeting Carbon Budget five (2028-32). With a national target for net-zero emissions enshrined in law, the direction for travel for heating and hot water in buildings is clear. And heat pumps, along with heat networks and hybrid or multivalent heating systems, are seen as the favoured technologies to support the shift from fossil fuels to cleaner, low-carbon heat.

New Legislation

Earlier this year we responded to a multitude of consultation documents detailing proposals for new legislation. Government responses detailing final decisions and confirmed implementation roadmaps will be crucial to give industry lead time.

The first is the Future Homes and Buildings Standards which will require new residential and non-domestic buildings to meet stringent emissions standards, designed from the outset for low carbon heat. It is expected that this will mean an end to fossil fuel specification, with heat pumps in particular playing a large role. The standard is expected to be enacted from 2025 but with a lead-in period and transitional arrangements, which could mean wholesale change is effectively later in 2026 and beyond.

Heat network zoning was also recently consulted upon. Intended to start from 2025, heat network zoning will fundamentally transform the development of networks across England. The policy will designate geographic zones where heat networks are expected to be the lowest cost solution for decarbonising heat across domestic and non-domestic buildings. Under proposals put forward, certain consumers (such as new buildings, buildings which are already communally heated or businesses over a certain size threshold) will be required to connect to a heat network within a prescribed time frame.

Retrofit

Of course, new build and heat networks are vitally important. However, retrofitting the UK’s existing building stock is perhaps the biggest challenge we need to address. There are endless papers and recommendations from industry bodies and think tanks on how policy needs to adapt to better incentivise the adoption of low carbon heat. At Baxi we believe the key issues which require immediate focus are:

1 – Spark Gap: The relative cost of natural gas in comparison to electricity is known as the spark gap or spark spread, which at present stands at around 4:1. Redistribution of policy costs from electricity bills and better representation of the generation mix in the unit cost build up are some of the activities underway which need to be progressed. To make heat pumps and electrically driven systems a truly mass-market proposition, the running costs, compared to a gas boiler counterfactual, need to be attractive and lower carbon options should become the affordable, default choice over time.

2 – Energy Performance Certificate reform and progressive regulation: With EPCs largely calculated based on running costs rather than emissions, and ongoing debate as to their fitness for purpose in supporting the energy transition, reform is needed. Once the EPC framework is robust and more reflective of sector needs, there is the potential to look at progressive policy which uses the EPC as the basis for enforcement in the future. There are already proposals on this in the form of Private Rented Sector regulation and previously discussed targets for other tenures of property.

3 – Incentive and Funding – with the stated policy ambition to reach an annual market of some 600,000 heat pump installations by 2028 it is abundantly clear that consumer demand needs to ramp up significantly. The Future Homes Standard will deliver a part but retrofit will make up most installations. In the private homeowner segment, the Boiler Upgrade Scheme (BUS) is the main incentive and currently has the budget to support a fraction of the necessary installations to meet ambitions. We would advocate that a more expansive and considered approach is required to deliver mass market volume and that low carbon heat needs to be a truly affordable option for all households before taking alternatives off the table through regulation. We would also recommend that eligibility for BUS is widened to include hybrid heat pumps, amongst other options, to help solutions providers offer a suite of options to address all consumer needs and building types.

Looking forward from election day, the State Opening of Parliament is scheduled to take place on July 17 with the King’s Speech following later in the day. This will set out the legislative agenda for the next Parliamentary period and we look forward to scrutinising the detail.

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