The Heat Pump Association has welcomed the Chancellor’s Budget, announced on 11th March 2020, which sets out solid plans to fund the replacement of fossil fuel heating and invest in low carbon heating, but warns there is still much work to do in order to meet the net zero carbon emissions target.

Budget 2020 committed to low carbon heat

The Chancellor’s Budget statement confirmed the following funding commitments for low carbon heat:

• To introduce a levy on gas suppliers to support green gas injection to the grid. This will accelerate the decarbonisation of the UK’s gas supply, by increasing the proportion of biomethane in the grid. This is expected to be implemented in autumn 2021. The government expects these costs to be passed onto gas bill payers. The expected impact is relatively small; around £1 a year on the average household energy bill, rising to around £5 by 2020. That’s around 0.5% of an average household’s dual fuel bill. The government will implement a robust cost control framework, which includes an annual budget cap to ensure impacts on bills do not rise unexpectedly;
• £100 million of exchequer funding in total for 2022/23 and 2023/24 for grant-funding for households and small non-domestic buildings, to install heat pumps, or biomass in limited circumstances, to replace fossil fuel heating. This will form part of government action to help build supply chains ahead of future measures to phase out high carbon heating; and
• £270m for a Green Heat Network Fund to run from 2022 to 2025, to follow on from the Heat Network Investment Project. This new targeted fund will ensure that heat networks adopt the most cost-effective low carbon heat sources and will avoid locking in gas generation in the sector.

Ahead of these schemes being established, the Budget announcement has confirmed that the Government will:

• Extend the Domestic Renewable Heat Incentive (DRHI) for a year in 2021/22, maintaining support for heat pumps, biomass and solar thermal; and
• Introduce a third allocation of Tariff Guarantees under the non-domestic RHI (NDRHI). These will be available for all technologies that have been eligible for the previous two allocations.

Graham Wright, Chairman of the HPA, said: “This is exactly the type of proactive investment we need to see from government if we are serious about meeting the aim for net zero carbon emissions by 2050. We have frequently stated that the low carbon heating technology is there and available, but only with the right policies, investment and awareness will we see the major uptake required. However, this is just the beginning. Industry must also fulfil its commitment to producing sufficient heat pumps, in both quality AND quantity, and working with government to ensure the installer base has the necessary skills to install them correctly.”

Encouraging uptake of low carbon heating

NIBE also supports the Governments ambitions to phase out fossil fuel heating and encourage the further uptake of low carbon heating in UK homes and buildings.

Phil Hurley, Managing Director of NIBE commented: “The budget today is a significant step in the right direction and will open up low carbon heating solutions to homes and businesses in the UK. Heat is one of the more challenging areas of the economy to decarbonise and the UK will not be zero carbon by 2050 unless we phase out high carbon heating. Heat pumps have already received rightful recognition for their carbon saving potential and efficiency, and the announcement of the extension to the RHI and this new grant scheme builds on this further. Addressing the upfront investment required to support low carbon heat uptake is key if we are to see mass deployment. We now look forward to the implementation of this promise.

“Improving the energy efficiency of our buildings is key to reducing emissions however, property performance was not referenced within the budget and no additional support for efficiency improvements has been provided. This is disappointing, however I look forward to the government’s buildings roadmap expected in the summer which should take a holistic approach to improving our buildings and transitioning to low carbon heat.”

Urgent national infrastructure priority

OFTEC Chief Executive Paul Rose also remarked on the energy efficiency of buildings: “Whilst yesterday’s Budget contained a package of measures relating to low carbon heat, the lack of support for home energy efficiency improvements such as insulation and double glazing is concerning. This is an urgent national infrastructure priority which should be placed ahead of further funding commitments for roads and rail.

“If government is to meet its carbon reduction and fuel poverty targets, improving the fabric of homes must be a vital first step before the deployment of all low carbon heating solutions.

“Without any support for energy efficiency improvement measures, the £100m which could be made available to help homeowners install heat pumps and biomass technologies, along with the extension of the domestic RHI to 2021/22, will only really benefit those already living in well-insulated homes or those able to fund the necessary fabric improvements themselves.

“The government has already announced its intention to phase out the installation of high carbon fossil fuels from off-grid homes. Yet, this Budget has missed a key opportunity to first improve the fabric of buildings to lower heat demand and achieve crucial emissions reduction wins, ahead of a final decision on low carbon heat deployment.”

Natural gas continues to have important role

Ian McCluskey, IGEM’s Head of Technical Services & Policy, said: “IGEM welcomes the announcement in today’s government budget of a doubling of investment in energy innovation, to support the UK’s journey towards net zero carbon emissions.

“We also welcome the government’s acknowledgement that the UK needs reliable low carbon power from technologies such as gas, with CCS and hydrogen.

“Natural gas continues to have an important role in providing power and heat across the UK and, as we transition to a decarbonised energy sector, the scaling up of biomethane, hydrogen and CCS will underpin a successful transition.

“As such, it is promising to see £800 million being committed to establishing two carbon capture clusters, one by the mid-2020s and one by 2030. We would urge that immediate action is taken to get these projects off the ground.

“We note that the Green Gas Levy is a proposal that will go through consultation. We eagerly await its publication and details of how it will be funded, in order to formulate a response on behalf of our members.”

A Scrappage scheme?

Mark Wilkins, Head of Training and External affairs, Vaillant Group UK said:

“As we move towards a greener and more sustainable future, the proposals set out in the Government’s Budget to extend the Renewable Heat Incentive until March 2022 offers much needed clarity and is to be welcomed. This further demonstrates the Government’s support for the industry and continues to position low carbon heating as a credible alternative to carbon intense fuels.

“In addition, the grant of £100 million for households and small non-domestic buildings to install heat pumps or biomass to replace fossil fuel heating should be applauded. However, while these measures offer a credible step in the right direction towards a greener future, the key to the success of both will be in the detail.

“The commitment of funds to support the decarbonisation of heat for domestic and light commercial applications is essential to keep the UK on track to phase out high-carbon heating. Yet, with an estimated four million non-condensing boilers still in use across the UK, further incentives are needed to encourage the widespread adoption of renewable heating technologies e.g through a scrappage scheme. However, it’s important this incentivisation carefully balances capital and operational incentives to ensure that homeowners are both able to afford the upfront cost of renewable heating solutions and run them efficiently once installed.”

Are hybrids the answer?

Commenting on the Budget, Martyn Bridges, Director of Technical Communication and Product Management at Worcester Bosch said:

“There are encouraging signs for the decarbonisation of the heating industry within this year’s Budget, in particular the £100m grant for homes to adopt low-carbon heating.

“However, if the £100m fund is to be an outright “donation” to persuade someone to change their heating system to a heat pump for example, then what would that entail? If we take an oil boiler installation and compare with a heat pump installation then the difference in cost is probably around £3k to £4k depending of course on site conditions. If the radiators and pipework need replacing as well, which is likely then this goes up even more.

“So £100m divided by the cost difference between the two technologies of say £4k then we could treat 25,000 homes. There are around 1.6m homes in the UK on oil so it won’t make a great difference to the carbon emissions of the UK. It would however “prime” the market, start to get installers and suppliers into the habit of installing heat pumps.

“I would have thought the money would be wiser spent on Hybrid installations rather than the outright substitution of an oil boiler. There does need to be a lot of scrutiny on whether the house and system is suitable for a heat pump and whether there is sufficient electricity supply to the house  to power one.

“So there are promising signs but the devil is in the detail and more guidance from industry will be necessary.”