Thirty-Seventh Report - Decarbonising home heating

We are concerned that there is too much complexity and potential confusion for households to enable them to make informed decisions about installing a heat pump. Households can face complex decisions when looking to install a heat pump. For example, DESNZ is removing a requirement to have minimum standards for properties to have loft and cavity wall insulation in order to be eligible to apply for a grant through the Boiler Upgrade Scheme. It is instead leaving this as a choice for householders, but has not made available any additional evidence about how this choice will impact on energy bills. DESNZ accepts that it needs to undertake a fair bit of myth busting about the quality of the consumer experience when living with a heat pump. Households also need to identify a skilled installer and to do this they need proper information to decide where to spend their money. But many are unsure where to get impartial advice on making improvements to reduce their homes’ emissions. Recommendation 2: DESNZ should, as part of its Treasury Minute response, set out how it will make the heat pump landscape easier for consumers to navigate, for example being clear on the impact of insulation on energy bills, by directly comparing heat pump running costs in homes with and without insulation, with this information provided through an easy-to-use website. 6 Decarbonising home heating

DESNZ has made good progress in increasing the number of trained heat pump installers, but it faces a huge challenge to make sure there are enough installers to achieve its target to install 600,000 heat pumps per year by 2028. DESNZ reports that it is on track towards meeting its target to have 12,000 trained heat pump installers by 2025, with 7,000 installers trained so far. The Heat Pump Association estimates, however, that there will need to be 33,700 trained heat pump installers by 2028 in order to meet DESNZ’s overall installations target. DESNZ recognises that there is more to be done to achieve this and that it needs to keep investing in training heat pump installers after 2025, but decisions for future training grants will be for the next spending review. A key challenge will be to retrain around 110,000 existing gas heating engineers to be able to install heat pumps. Although DESNZ considers this could be done quickly, this is nonetheless a large number of people who will need to be retrained given the number of installers it has trained so far. Recommendation 3: DESNZ should, as part of its Treasury Minute response, set out what actions it will take to increase the number of heat pump installers after

DESNZ has not yet worked out how it will support households to decarbonise their homes where heat pumps are not a practical solution. An estimated 20 per cent of homes might be exempt from the government’s plans to phase out new fossil fuel boilers in 2035. This includes those requiring energy efficiency upgrades or that lack space to install a heat pump, such as densely populated urban areas and blocks of flats. DESNZ intends to consult this year on how it can help people decarbonise their homes for those where a heat pump might not be the most appropriate solution. It considers heat networks to be the next major alternative technology for people living in these areas and intends to invest some £868 million in heat networks up to

DESNZ’s work to test hydrogen for heating has been beset with problems, with key trials cancelled. DESNZ has committed to deciding on the role of hydrogen for heating in 2026. Major trials intended to support its decision have been cancelled or delayed due to local opposition and insufficient supply of hydrogen. It has not tested the role of hydrogen in non-domestic properties. At the time of our evidence session in April 2024, an announcement on a successful bidder for a hydrogen town, planned for the end of this decade, had been delayed by 13 months. Since then, DESNZ has announced that it will not progress work on a hydrogen town pilot until after 2026, thereby meaning information on the pilot will not feed into its decision on hydrogen’s role due in 2026. Overall, this absence of the evidence needed to support any decision is also creating uncertainty for industry to plan and invest on a wider scale and could hamper overall progress. Early planning for any decommissioning of the gas networks, if it is decided that hydrogen has a limited role and electricity becomes the main energy source, is vital to manage costs that we have seen passed to the taxpayer with decommissioning in other sectors, such as nuclear, and oil and gas. Recommendation 6a: DESNZ should, as part of its Treasury Minute response, set out how it will test hydrogen for different types of properties, including domestic and non-domestic properties, so it can make an informed decision on the role of hydrogen for heating. Recommendation 6b: DESNZ should, by end-June 2025, set out how it will undertake any required decommissioning of the gas networks, including how it will be funded.

Low-carbon heating will increase demand for electricity, but the government’s plans to decarbonise power have been delayed substantially. Heat pumps may change existing patterns around the demand for electricity, and DESNZ recognises that it needs to make sure the power system can manage peaks and troughs throughout the day. Low-carbon flexible sources of generation will be important to help manage a grid that is reliant on renewable energy, particularly offshore wind and solar electricity generation that is determined by the weather. The main technologies for this will be carbon capture, hydrogen power and long-duration energy storage, particularly needed during the winter months. DESNZ has, however delayed its delivery target to pull together the different plans for decarbonising power from December 2023 to mid-2024. We previously warned that the lack of an overarching delivery plan makes it difficult for DESNZ to understand the decisions and timings it must take to achieve its ambition to decarbonise the power sector by

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Energy Security and Net Zero (DESNZ) about decarbonising home heating.1

In October 2021, the government published its Heat and Buildings Strategy. The Strategy stated the government’s ambition to end the installation of new fossil fuel boilers by 2035. It also committed to growing the supply chain for heat pumps to a minimum market capacity of 600,000 heat pump installations per year by 2028; and developing the evidence base to inform strategic decisions in 2026 on the future role of hydrogen in home heating.4 Costs to households

Grants under the Boiler Upgrade Scheme are available to all households irrespective of income. While other schemes are available for low income households, such as the Social Housing Decarbonisation Fund, Home Upgrade Grant and the Energy Company Obligation, DESNZ explained that the Boiler Upgrade Scheme is designed for the able- to-pay market. The £7,500 grant covers nearly 60% of the average cost of installing a heat pump, based on the average cost in 2023.11 An energy industry representative, the Energy & Utilities Alliance, told us in its written evidence to us that by definition, only those households who can afford to pay the remaining amount to top up the grant can afford to participate in the Scheme.12 According to the Energy Saving Trust, this creates a gap in support for those who are ineligible for fuel poverty schemes but are unable to afford the total upfront cost of switching to a low carbon heating system.13 Similarly, the MCS 5 Qq 3, 49; C&AG’s Report, paras 15–16. Installation cost figures represent real-term reduction compared to the cost in 2021 6 Qq 3, 30, 119; C&AG’s Report para 16 7 DHH0015, Written evidence submitted by The Building Societies Association, 29 April 2024; DHH0043, Written evidence submitted by Calor Gas, 29 April 2024; DHH0046, Written evidence submitted by Good Energy, 29 April 2024; DHH0053, Written evidence submitted by Centrica, 29 April 2024 8 Qq 3, 10, 30; C&AG’s Report, para 15 9 Qq 11, 43 10 Qq 11, 43; C&AG’s Report, para 3.19 11 Qq 30, 54–55; C&AG’s Report, para 15 12 DHH0040, Written evidence submitted by Energy & Utilities Alliance, 29 April 2024 13 DHH0026, Written evidence submitted by Energy Saving Trust, 29 April 2024 Decarbonising home heating 11 Foundation told us that upfront costs were too high for many households even with the help of a grant, making it “impossible for households without savings to benefit from the scheme”.14 Energy UK, a representative body for the energy industry, called for the costs to be

We asked DESNZ whether heat pumps were being installed by people who may have switched to a heat pump anyway, particularly more affluent households. DESNZ accepted that the universal nature of the Boiler Upgrade Scheme raised a prospect of “deadweight”, with some recipients able to afford to install a heat pump even without the grant, but explained that it decided to have a flat-rate scheme for “simplicity” rather than linking grants to income. It told us that it believed that its approach was supported by the increase in applications since the grant uplift. DESNZ is evaluating uptake of the Boiler Upgrade Scheme grant among different socio-economic groups, for which interim results are due in the second half of 2024.16

DESNZ recognised that the cost of running heat pumps was also a key barrier to heat pump adoption. It explained that, as they are based on electricity, heat pumps are more expensive to run than fossil fuel boilers because of the cost of electricity is higher than gas.17 This view was supported by written evidence to our inquiry from some energy suppliers including Good Energy and Octopus Energy; a consumer campaign group, Fuel Poverty Action; and Energy UK.18 In their written evidence, the Heat Pump Association and the MCS Foundation told us that the UK’s price ratio between electricity and gas prices of 4:1 was one of the highest in Europe.19 Both EDF Energy and the MCS Foundation explained that this disparity was partly due to the government levying a large proportion of its environmental policy costs on electricity bills, such as schemes to support renewable energy development and energy efficiency. The MCS Foundation added that, for a standard direct debit customer, 16% of their electricity bill will be made up of these levies, compared to only 5% of their gas bill.20 DESNZ explained that although electricity was about four times per unit more expensive than gas, this was offset by the fact that heat pumps were three times as efficient as gas boilers, which “helps a lot”.21

DESNZ plans to work on rebalancing the costs of electricity and gas, but it said that doing so is difficult because of large structural issues in the sector. It had aimed to rebalance costs to some extent by moving levies from electricity to gas bills, but its plans to do so have been delayed by nearly two years. It explained that it was looking at options that are fair and affordable for consumers and taxpayers, and will set out its approach during 2024.22 In the meantime, one energy company, Centrica, noted that it had created tariffs 14 DHH0014, Written evidence submitted by The MCS Foundation, 29 April 2024 15 DHH0033, Written evidence submitted by Energy UK, 29 April 2024 16 Qq 9, 43; C&AG’s Report, para 17 17 Qq 3, 30 18 DHH0033; DHH0045, Written evidence submitted by Fuel Poverty Action, 29 April 2024; DHH0046; DHH0050, Written evidence submitted by Octopus Energy, 29 April 2024 19 DHH0008, Written evidence submitted by The Heat Pump Association and The Heat Pump Federation, 29 April 2024; DHH0014, Written evidence submitted by The MCS Foundation, 29 April 2024 20 DHH0011, Written evidence submitted by EDF Energy, 29 April 2024; DHH0014, Written evidence submitted by The MCS Foundation, 29 April 2024 21 Q 30 22 Qq 30; C&AG’s Report, paras 16, 3.10 12 Decarbonising home heating that encourage households to move their electricity use away from peak times. Centrica added that the wider issue, however, must be tackled without penalising those households with gas boilers who are unable to move to low-carbon heating.23 Complexity and confusion

Households can face a range of decisions when looking to install a heat pump. One such decision is whether to improve insulation to reduce energy usage and emissions. At the time of our evidence session, households were required to meet recommendations relating to cavity wall and loft insultation, identified in the Energy Performance Certificate (EPC), in order to qualify for a grant as part of the Boiler Upgrade Scheme. DESNZ told us that it would be removing this requirement in May 2024, which duly happened on 8 May. It told us that this was to address the issue of people being put off from applying to the Scheme by having to make improvements to their insulation and having to sequence the work, and to make the customer journey as simple as possible.24 We received written evidence from Octopus Energy, which explained that it welcomed the removal of the requirement for outstanding cavity wall and loft insulations in the EPC. It urged DESNZ to simplify the process further and remove the requirement for an EPC, which it told us were not required before installing gas boilers and added extra costs and delays to customers looking to replace their boiler with a heat pump.25

We asked DESNZ why it had decided to change the minimum insulation standards required for heat pumps, and what impact it expected this decision to have. DESNZ told us that government had decided to leave insulation improvements as a choice for householders. It explained that it was still recommending that they make such upgrades in response to their EPC, but that it was leaving it to householders to choose when, or if, to undertake this work. We therefore asked DESNZ about the evidence it had used to reach this decision. DESNZ told us that it made its decision based on evidence that showed that 80% to 90% of UK homes do not need additional insulation for a heat pump to work effectively. DESNZ accepted, however, that it still needed to do some myth-busting about the quality of the consumer experience when living with a heat pump.26

While some organisations advocated a ‘fabric first’ approach, which involves improving the thermal performance of materials in a building prior to installing a heat pump, others suggested that it is not necessary, making it difficult for households to determine cost- effective measures. In their written evidence to us, the Energy & Utilities Alliance and National Energy Action both suggested, for example, that a fabric first approach would reduce bills and cut energy consumption, while the Kensa Group highlighted that loft and cavity wall insulation reduced heat-related energy consumption by only around 10%.27 DESNZ told us that it planned to assess the effect of changes it has made to insulation requirements on people’s experience through its planned evaluation of the Boiler Upgrade Scheme.28 23 DHH0053, Written evidence submitted by Centrica, 29 April 2024 24 Qq 3–4, 6–7 25 DHH0050 26 Qq 4–7, 13 27 DHH0040, Written evidence submitted by Energy & Utilities Alliance, 29 April 2024; DHH0020, Written evidence submitted by National Energy Action, 29 April 2024; DHH0016, Written evidence submitted by The Kensa Group, 29 April 2024 28 Qq 39–42 Decarbonising home heating 13

We noted that the installation of heat pumps could be a very complicated picture for consumers, and asked how an individual was expected to understand the running costs of a heat pump and the potential impact of installing insulation before or after a heat pump, or for their type of property. Written evidence from The Building Societies Association, for example, outlined that 36% of respondents to its research about the barriers to making home heating upgrades were “unsure of the cost savings on energy bills”. DESNZ recognised that calculating the running costs and working through the process were “issues of complication and complexity for consumers at the moment”.29

In response to our question about how DESNZ ensured customers had access to proper information to make decisions about investment and running costs, the Department explained that it provided information through its online tools on heat pump suitability and retrofit options to make homes cheaper to heat, and a phone line service providing households in England with advice about how to improve the energy performance of their homes. Research published by Energy Saving Trust in December 2023, and the written evidence it submitted to us, however, highlighted a lack of impartial, personalised support as a major barrier to decarbonising homes, with almost half (48%) of homeowners in England unsure where to get independent, impartial advice on making improvements to reduce their homes’ emissions. It told us that the current process for households looking to decarbonise their homes was “complex and confusing”, which left people unsure where to find trusted information about what measures are suitable for their property. It also cautioned that financial support alone will be insufficient to increase uptake of low-carbon heating if not accompanied by impartial, tailored advice services that guide consumers through the process.30

DESNZ clarified that it was “working on making the Government digital offering in this space much better”. It added that it signposted to digital companies that helped households to calculate running costs and lifetime costs via gov.uk. It recognised, however, that there was a role for it to do more. It also explained that it mitigated the risk of poor installations by requiring Microgeneration Certification Scheme-certification for all heat pump installations funded through the Boiler Upgrade Scheme.31 29 Q 31; DHH0015 30 Q 33; DHH0026; C&AG’s Report, para 2.16 31 Qq 31–32, 34, 37, C&AG’s Report, para 3.14 14 Decarbonising home heating 2 Increasing heat pump installations Training installers

We received written evidence from the Retrofit Academy, Schneider Electric, Energy UK and MCS Service Company which highlighted that meeting the target to install 600,000 heat pumps per year by 2028 will require a large increase in the number of trained installers. The Heat Pump Association and the Heat Pump Federation estimated that there will need to be at least 33,700 trained installers by 2028 to meet the overall installations target, and a minimum of 50,200 installers by 2030.32

DESNZ said that training new installers was a “growing industry”. It stated that it was investing £29 million from 2021–22 to 2024–25 to train installers in the heat sector. Part of this spend includes a £5 million Heat Training Grant to support up to 10,000 heat pump and heat network training opportunities from 2023–24 to 2024–25. DESNZ reported that it was on track towards meeting its target to reach 12,000 trained heat pump installers by 2025, and that it had trained 7,000 installers so far, including 3,000 as part of the Heat Training Grant. DESNZ recognised that it will need to continue to invest in heat pump training and expand training opportunities to reach the number of installers needed in later years. It told us that decisions for future training grants would form part of the next spending review.33 The MCS Foundation, which supports education in the heat sector, told us that it was key that the government continue to support the development of the heat pump supply chain, which included training installers by providing long-term clarity and certainty.34

We heard from DESNZ that a key challenge will be to retrain around 110,000 existing gas heating engineers to install heat pumps. Centrica, an energy company and low carbon heating installer, agreed that it was “vital” to focus on retraining as many engineers as possible to ensure that there are enough engineers to support homes to install low carbon technologies. DESNZ considered that this could be done quickly through an existing skilled workforce.35 The Heat Pump Association and Heat Pump Federation, which represent manufacturers of heat pumps, however, called for more to be done to incentivise the upskilling of the existing heating engineer workforce.36 In its written evidence to us, Schneider Electric said that there were “inadequate” incentives for upskilling and training. It explained that the complexity of heat pump installations compared to traditional boilers and the current insufficient £500 training grant to cover lost income from four days of training discouraged installers from upskilling.37 Monitoring and evaluating progress

DESNZ does not have a single measure of the number of heat pump installations. Instead, it relies on data from a range of sources, including the number of heat pump 32 Q 21; DHH0008; DHH0010, Written evidence submitted by The Retrofit Academy, 29 April 2024; DHH0027, Written evidence submitted by Schneider Electric, 29 April 2024; DHH0033; DHH0037, Written evidence submitted by MCS Service Company, 29 April 2024 33 Qq 21, 25–28; C&AG’s Report, para 3.15 34 DHH0014, Written evidence submitted by The MCS Foundation, 29 April 2024 35 Qq 24–25; DHH0053 36 DHH0008 37 DHH0027 Decarbonising home heating 15 grants provided through government schemes, Microgeneration Certification Scheme (MCS) installations data and heat pump sales data. Data from the Heat Pump Association indicates that some 55,000 heat pumps were sold in 2022.38 We asked DESNZ why it did not have a mechanism to measure how many heat pumps had been installed. It explained that there were “challenges”, as no one was required to tell DESNZ whether they had installed a heat pump. It considered that requiring this information would be “overly regulatory”. It also told us that not everyone who installed a heat pump was certified by the MCS, so not all installations were captured in the MCS installations data. In addition, DESNZ explained that there were significant numbers of installations taking place in the devolved administrations, which were not included in its data, and that the number of heat pumps that are installed in new build homes would not always be captured either.39

DESNZ told us that it was looking to produce a more regular data series that it could publish by combining some of its data sources. It was also developing a dashboard that will show the number of heat pumps installed through each government scheme. The NAO found that regular monitoring of progress would help DESNZ better understand whether it was on track to deliver an elevenfold increase in heat pump installations to reach its target of 600,000 installations by 2028. It found that it would also help to determine where further intervention may be required from government or industry.40

We asked DESNZ how it was learning lessons from the roll out of heat pumps. It explained that it had already learned some lessons, such as about the level of grant driving demand, and that it would continue to evaluate the roll out of the Boiler Upgrade Scheme “very carefully” to see if there were further refinements to increase uptake further. It added that a first interim evaluation report for the Boiler Upgrade Scheme was due later in 2024, but it did not outline what the evaluation would cover.41 38 Qq 48, 49, 60; C&AG’s Report, para 3.3. The Microgeneration Certification Scheme (MCS) is a quality assurance scheme. The Boiler Upgrade Scheme requires heat pumps to be installed by MCS-certified installers. 39 Qq 48, 60 40 Q 48; C&AG’s Report, paras 17, 19, 3.3 41 Qq 10, 39 16 Decarbonising home heating 3 The pathway to decarbonising home heating Supporting all households

In September 2023, the government announced that some homes may be exempt from the planned phase-out of new fossil fuel boilers in 2035. The government estimated that around a fifth of households might be exempt. Examples of such homes could cover those requiring energy efficiency or electrical connection upgrades, those not connected to the gas grid, or those that lack space for a heat pump. We asked DESNZ which were the types of properties or regions where installing a heat pump might be harder. DESNZ explained that it would be most challenging to install heat pumps in densely populated urban areas and those without outside space, such as blocks of flats.42 We received written evidence from Fuel Poverty Action, which suggested that there were 2 million households with electric storage heating, often flats, that are unsuitable for heat pumps but suffer from high energy prices and therefore require more flexibility.43 Calor Gas, which supplies Liquid Petroleum Gas (LPG) to off-gas grid properties, said in its written evidence that many of its customers live in harder to treat, remote properties—some of which have period features, planning restrictions, or constrained local electricity grid constraints— all of which prevent retrofit works from being carried out.44

In response to our question about how it would identify which homes are unsuitable for a heat pump and therefore exempt from the 2035 phase out, DESNZ said that it was some way from determining this, given the deadline was not until 2035. It outlined that it intended to consult in 2024 on alternative, predominantly electric, low-carbon technologies for people to decarbonise their homes where a heat pump might not be an appropriate solution. DESNZ recognised that it had “more work to do” including “additional trials” of alternative technologies.45 We received written submissions from some manufacturing companies which said they were developing alternative technologies that might be placed anywhere in the home. Both Tepeo and Thermal Storage UK, for example, explained that they were developing heat batteries that can operate in homes where there is lack of outdoor space.46 NexGen Heating described that it was developing an infrared heating technology, which would be agnostic to housing type and require minimal disruption.47

The NAO reported that DESNZ was yet to determine its approach for homes that are complex to decarbonise. DESNZ told us that it considered that heat networks would be the next major alternative low-carbon technology for people living in properties that are unsuitable for a heat pump. DESNZ outlined that it was identifying areas suitable for heat networks through heat network zoning in partnership with local authorities. It explained that it had a strong pipeline of projects for heat networks and was investing some £868 million in heat networks up to 2028. This included £338 million to 2025 and £530 million between 2025 and 2028. It explained that the main source of funding was 42 Q 66; C&AG’s Report, para 2.21 43 DHH0045 44 DHH0043 45 Qq 114–116; C&AG’s Report, para 2.22 46 DHH0024, Written evidence submitted by Mr Tom Lowe, 29 April 2024; DHH0044, Written evidence submitted by Tepeo, 29 April 2024 47 DHH0041, Written evidence submitted by NexGen Heating, 29 April 2024 Decarbonising home heating 17 its Green Heat Network Fund, which it said had so far provided grants of £268 million to support 20 projects. DESNZ stated that most applications to this fund were for large heat pumps, some of which use energy from waste, mine water or geothermal sources. DESNZ estimated that around 3% of total heat demand is supplied to buildings through heat networks, but it believed that there was potential for that to expand to around 20% by 2050.48

In a written submission to our inquiry, the Chartered Institute of Housing expressed concern that the social housing sector, which it said accounted for over half of all heat networks, would need clear guidance and support to prepare and respond to the new regulatory regime for heat networks, and that this represented a “considerable shift” for the sector. It added that almost all heat networks in the social housing sector were operated on a cost recovery basis, and “significant” costs of regulation and zoning would therefore be passed through to residents for them to remain viable. Its overall concern was that connecting customers to heat networks through the zoning process could increase running costs for residents relative to the gas systems they replace, with social housing residents having a much lower household income than other tenures.49 DESNZ explained that it was developing a regulatory framework to oversee heat networks through the Energy Act. It said the aim for this framework was to ensure fair pricing and quality of service that is already in place for gas and electricity customers. The NAO called for DESNZ to further consider how to ensure that people living in harder-to-decarbonise homes are not left behind or penalised unfairly.50 The role of hydrogen and gas networks

In the 2021 Heat and Buildings strategy, DESNZ committed to developing the evidence base necessary to take strategic decisions on the role of hydrogen for heating buildings in 2026. It also committed to establishing large-scale trials of hydrogen for heating, including: a neighbourhood trial by 2023, a village scale trial by 2025; and developing plans by 2025 for a possible hydrogen town that can be converted by the end of the decade.51 Major trials intended to support decisions on hydrogen for heating have, however, been cancelled or delayed. We noted that two hydrogen village trials had been abandoned. DESNZ announced in July 2023 that it was no longer proceeding with supporting a village trial in Whitby, originally planned for 2025, owing to residents’ reluctance to change their heating systems. In December 2023, DESNZ announced that it would also not proceed with the other proposed village trial site in Redcar, because the necessary local hydrogen supply would not be available. A gas distribution company plans to start a neighbourhood trial, originally planned for 2023, in 2024 with around 300 interested participants in domestic properties in Fife.52

We observed that, at the time of our evidence session, an announcement on a successful bidder for a hydrogen town, planned for the end of this decade, was delayed by 13 months. We asked DESNZ when an announcement could now be expected. DESNZ told us that it was considering its next steps on the hydrogen town trial and would set 48 Qq 67–68, 70, 80–82; C&AG’s Report, para 2.22; Department for Energy Security & Net Zero, UK heat networks: market overview, September 2023 49 DHH0003, Written evidence submitted by The Chartered Institute of Housing, 29 April 2024 50 Qq 67, 71–72, 80; C&AG’s Report, para 2.22 51 HM Government, Heat and buildings strategy, October 2021, white paper, CP 388, pages 23–24. 52 Qq 85, 86, 88; C&AG’s Report, para 2.3 18 Decarbonising home heating out its plans shortly, but could not give a more precise date than before the summer.53 Following our evidence session, on 9 May 2024 DESNZ announced that it had decided not to progress work on a hydrogen town pilot until after the 2026 strategic decisions on the role of hydrogen in decarbonising heat.54

In response to a question about how DESNZ had got so far with the trial at Redcar before realising that the supply of hydrogen needed was not available, DESNZ said that it was not solely reliant on the outcomes from the cancelled village trials, although the trials were “important”. It considered that “there were other sources and ways of getting the evidence that we needed in order to make decisions around the role of hydrogen”.55 We asked DESNZ what evidence it would use to make a decision and whether it still expected to be in a position to make a decision by 2026 given the delays and cancellations of hydrogen trials. DESNZ told us that it was still working towards being able to make a strategic decision in 2026. It explained that it was drawing on other sources of evidence, such as a trial to use hydrogen for home heating across a neighbourhood in Fife, alongside trials in other countries, such as the Netherlands and Germany. In addition, it explained that it was working with the Health and Safety Executive to develop an evidence base around the safety and appropriateness of hydrogen to inform its 2026 decision.56 Written evidence from Hydrogen UK, however, highlighted that the cancellation of the village trials had “adversely” affected the collection of data needed to evaluate hydrogen for heating.57 We noted that the neighbourhood trial was exclusively testing supply to the domestic market, but by 2026 there would not have been a live trial of hydrogen supply to non-domestic properties.58

Several written submissions to our inquiry highlighted that uncertainty over the role of hydrogen is delaying key decarbonisation investment decisions until government makes a decision on hydrogen. Hydrogen UK, for example, told us that the decisions about trials and recent announcements had “created ambiguity in the role of hydrogen in domestic heating”. It explained that clarity around the role of hydrogen was needed to “enable industry stakeholders to make informed decisions, commit to necessary investments, and drive forward the innovation and infrastructure development required”.59 Similarly, a climate change think tank, E3G, suggested that industry was “suffering” from a lack of clarity regarding government’s “indecisiveness” on the future role of hydrogen for domestic heating.60 The MCS Foundation also told us that businesses, installers and manufacturers will be reluctant to invest in skills and technologies if there is a risk than in later years the government will focus on hydrogen rather than electrified solutions.61 Good Energy further indicated that manufacturers of heat pumps and heat network developers require “affirmative signals” over the future of hydrogen for heating.62

Alongside industry, some written submissions highlighted that households were unclear over the role of hydrogen. Octopus Energy told us that there was “widespread 53 Qq 92, 93 54 Department for Energy Security and Net Zero, Correspondence – Hydrogen Heating Town pilot: letter to Gas Distribution Networks – update, 9 May 2024. 55 Qq 86–88 56 Qq 85, 94; C&AG’s Report, para 2.5 57 DHH0036, Written evidence submitted by Hydrogen UK, 29 April 2024 58 Qq 92, 94 59 DHH0036 60 DHH0012, Written evidence submitted by E3G, 29 April 2024 61 DHH0014 62 DHH0046 Decarbonising home heating 19 customer confusion and investments in electrification are being held back”.63 Centrica also reported that customers were “unwilling” to make their own decisions on whether to install particular low-carbon heating measures while there is uncertainty over which options they could take in the future.64 The Chartered Institute for Housing added that some social housing providers are employing a “wait and see” approach, awaiting the government’s decision on hydrogen, to decarbonise at least some of their homes.65 In October 2023, DESNZ set out that heat pumps and heat networks will be the main low- carbon heating technologies over the next decade, with “the potential for hydrogen to play a role in slower time in some locations”. DESNZ told us that it was thinking about the locations and buildings where hydrogen might be used, but that anyone looking to install a heat pump should do so, irrespective of where they live.66

We asked DESNZ if it was aware of the level of uncertainty for industry given that an increasing number of businesses do not know what the government’s position is on heat decarbonisation. DESNZ told us that it needed to “take decisions in the right order at the right time” and, in its view, it remained the case that a decision on hydrogen should be taken in 2026. It told us that there was a risk that taking decisions earlier could result in it becoming locked into a “suboptimal path”.67 In contrast, the NAO and written submissions to our inquiry from Hydrogen UK, Good Energy and Octopus Energy have called for the government to consider bringing forward some aspects of its decision on hydrogen.68

Hydrogen UK and the National Audit Office reported that there was also uncertainty over the future role of the gas networks, if it is decided that hydrogen has a limited role and electricity becomes the main energy source.69 This included questions over who will pay for the networks to either continue in service if there is a decreasing customer base, or to be decommissioned. We asked DESNZ about potential funding options, including whether decommissioning would be funded by the taxpayer, the gas networks or a levy on customers or other energy users. DESNZ recognised that “there are all sorts of things you could look at” and that it would need to strike a balance between “current and future, and timing decisions”. In October 2023, the National Infrastructure Commission estimated that the cost of decommissioning the gas networks would be £25 billion. DESNZ said that it will be examining the costs as part of its strategic decisions on hydrogen.70

Although DESNZ clarified that gas networks will be needed for some considerable time, it accepted that it needed to increase its work to look at future decommissioning. The NAO found that DESNZ’s work on the costs and feasibility of gas network decommissioning was in the initial stages, and its understanding was therefore limited. DESNZ indicated that it had a consultation underway with Ofgem to identify the early issues around decommissioning the gas network.71 Our previous reports have demonstrated that a limited upfront understanding of the costs of decommissioning in other sectors such 63 DHH0050 64 DHH0053 65 DHH0003 66 Q 94; C&AG’s Report, para 2.10 67 Qq 94, 98 68 DHH0036, DHH0046, DHH0050; C&AG’s Report, para 24c 69 DHH0036; C&AG’s Report, paras 12, 2.20 70 Qq 104–105; National Infrastructure Commission, Arup - Future of Great Britain’s gas network, October 2023, p.11 71 Qq 103–103; C&AG’s Report, para 2.20 20 Decarbonising home heating as nuclear and oil and gas have required more taxpayers’ money to meet significant additional costs. In the nuclear sector, for example, taxpayers had to top up the cost of decommissioning seven nuclear stations with £10.7 billion, as existing funds did not keep up with the increased costs.72 Decarbonising power generation

Decarbonising electricity generation is crucial to the government’s net zero strategy, including decarbonising home heating. If, as the government expects, most homes switch their heating systems to heat pumps or heat networks, it is important that these are powered by clean sources of electricity to achieve decarbonisation. In 2021, the government set an ambition that by 2035 all electricity should be generated using clean sources, subject to security of supply, while meeting an expected increase in electricity demand of up to 60%. This means phasing out polluting types of electricity generation, such as gas-fired power stations and replacing them with a new mix of zero and low-carbon generation, including wind, solar and nuclear power.73

We noted that renewable energy sources such as solar and wind are determined by the weather, making them intermittent; a view supported by Hydrogen UK. DESNZ recognised that electricity-based heating may change existing patterns in demand for electricity. It said that it therefore needed to make sure the power system can reliably manage peaks and troughs in both supply and demand for electricity throughout the day. DESNZ explained that this was likely to require new low-carbon technologies that provide flexible sources of energy, especially in the winter months, such as gas-fired power stations with carbon capture, hydrogen power or long-duration storage.74

We examined, in a separate inquiry, DESNZ’s ambitions for decarbonising the power sector and concluded that it lacked an overarching delivery plan that would provide confidence to the private sector to invest in new and upgraded infrastructure. We also warned that this made it difficult for DESNZ to understand the decisions and timings it must take to achieve its ambition to decarbonise the power sector by 2035.75 Yet we observed at the time of our evidence session that DESNZ still did not have a delivery plan, despite us calling for it to produce one by autumn 2023 at the latest. DESNZ told us that it now expected it to be available in “the next couple of months”. Originally, DESNZ had planned to prepare a first draft of its delivery plan by October 2022.76

DESNZ told us that, since our inquiry into decarbonising the power sector, it had shifted its emphasis towards the importance of spatial planning. It explained that this involved considering both overall energy demand at a local level, such as for electric vehicles as well as heating; and how to connect low-carbon generation to individual homes. 72 Committee of Public Accounts, Public cost of decommissioning oil and gas infrastructure, Eighty-Ninth Report of Session 2017–19, HC 1742, 27 March 2019; Committee of Public Accounts, The Nuclear Decommissioning Authority’s management of the Magnox contract, Twenty-Eighth Report of Session 2019–21, HC 653, 27 November 2020; Committee of Public Accounts, Future of the Advanced Gas-cooled Reactors, Third Report of Session 2022–23, HC 118, 20 May 2022 73 C&AG’s Report, Decarbonising the power sector, Session 2022–23, HC 1131, 1 March 2023, para 1 74 Qq 73–74, 79, 97, 109; DHH0036 75 Committee of Public Accounts, Decarbonising the power sector, Fifty-Ninth Report of Session 2022–23, HC 1003, June 2023 76 Qq 1, 2, 107–108; Committee of Public Accounts, Decarbonising the power sector, Fifty-Ninth Report of Session 2022–23, HC 1003, June 2023; C&AG’s Report, Decarbonising the power sector, Session 2022–23, HC 1131, 1 March 2023, para 9 Decarbonising home heating 21 DESNZ said that work was underway with the National Infrastructure Commission to look at how to build capacity in the distribution network operators to manage the increase in demand for energy, both nationally and at the street level. It added that Ofgem had also started work to identify areas where there will be particularly high levels of demand for energy.77 77 Qq 73–74, 76, 107–108 22 Decarbonising home heating