Seventh report - Decarbonising heat in homes

Ineffective historic heating policy and the absence of a clear, strategic policy direction for low carbon heating has created confusion and uncertainty in the transition to low carbon heating and has affected investor confidence. We welcome the long overdue publication of the Heat and Buildings Strategy. However, a greater amount of clarity is required to give the sector certainty and a clear direction of travel.

Evidence was clear that for low carbon heating installations to work effectively and to heat homes adequately, properties need to be upgraded to the correct levels of energy efficiency. It is critical then that Government policies and strategies are interlinked. If people are encouraged to switch to low carbon heating sources without the knowledge or incentive for energy efficiency upgrades, then there are risks of scheme failure and loss of public trust if the new low carbon heating sources are not heating homes to the desired temperature and insulation.

To successfully decarbonise domestic heating in time to deliver net zero by 2050, the Government must provide clear, strategic direction and guidance. The Government must now focus on providing a coherent policy environment that encourages policy consistency and certainty in the transition to low carbon domestic heat.

We call on Ministers to publish a heat technology road map, produced in partnership with chief technologists from industry partners, to clearly set out the development, scale up and integration milestones of different low carbon heating technologies, and the associated interventions, such as energy efficiency upgrades, and initiatives required to hit our heating targets in the UK. This should be published by September

We congratulate the Department on its work on heat networks, including the consultation on heat network zoning. We support the rollout of heat networks across the country, the retrofitting of high-density housing, and the installation of heat networks in new build developments. However, we recognise the real concerns of consumers who are often given no choice but to receive their energy supply from one designated supplier. Whilst the introduction of the Heat Network (Metering and Billing) Regulations has helped, we call on Ministers to urgently give Ofgem the mandate and resources to expand and enforce consumer protections in the heat network market, recognising the often monopoly status of some providers in certain areas of the country.

We recommend that the Government consider the Scottish Government’s approach of legislation for heat networks. If Ministers disagree with the approach taken in Scotland, an explanation in response to this report is required.

Furthermore, the Government must rapidly develop its data collection and records on the location of heat networks, and statistics about their use. Without a detailed understanding of how many heat networks are operational in the UK and where they 54 Decarbonising Heat in Homes are located, the Government cannot effectively regulate the use of heat networks. We recommend that the Government publish annual statistics about their use on its website.

We note that the then Ministry for Housing, Communities and Local Government felt it only played a “limited role” in the decarbonisation of heating in housing and demand that Ministers prioritise this crucial work more clearly in the future.

The Future Homes Standard is another key policy in the Energy White Paper. It aims for new build homes to be fitted with low carbon heating, and high levels of energy efficiency to ensure that homes built to the Future Homes Standard will be zero carbon ready and have 75% to 80% lower carbon emissions than those built to current standards. Considering the Government aims to build one million homes in this Parliament alone, which will be heated by fossil fuel heating systems, it is naïve to assume that these homes will not need to be retrofitted at significant cost. This will be particularly detrimental to families on low incomes and to developments by housing associations.

We acknowledge that the Government wants to give industry the time to develop its supply chains; however, this appears to be to the detriment of new build homeowners, who will have to pay to retrofit their homes. It is unnecessary to wait until 2025 to implement the Future Homes Standard. To minimise expensive retrofit costs, the Government should bring forward the implementation of the Future Homes Standard to 2023 instead of 2025.

We also call on Ministers to set out, in response to this report, what measures are being considered to assist tenants who rent their homes in managing the transition to low carbon heating with their landlords; and what support might be put in place for housing associations and equivalent social housing providers with the costs of retrofitting newly built houses heated by gas boilers.

Delivering net zero by 2050 will require a ban on the installation of fossil fuel heating systems by the mid-2030s at the latest. We note that the Government signalling, instead of setting, an end-date for the phase out of gas boilers fails to give industry and consumers a clear date to work towards in decarbonising home heating. We urge the sector to come forward with more ambitious plans for pricing and innovation to encourage a robust regulatory framework.

We recommend that in the context of the phasing out of gas boilers, the Government adopts a clear and specific end-date by regulating through legislation the phase out of gas boilers. We also recommend that the Government sets out its plan on how it expects the industry and consumers to phase out the installation and use of gas boilers by 2035. (Paragraph 61) Supply chains and skills

It is vital that the Government should meet its target to deliver a minimum of 600,000 heat pumps a year by 2028 or it will fall off course in delivering net zero by

We ask the Government to set out in response to this report the intended milestones and targets it has in place to ensure that the UK meets its 2028 target and what funding it will put in place to ensure that each of these milestones is met. The Government must outline what contingencies it has in place to make sure that the heat pump target is fulfilled. The Government must have integrated and coherent policies, such as an effective energy efficiency programme that complements and aligns with the target of 600,000 heat pump installations per year by 2028.

To ensure that the UK does not fall off course in achieving its targets for carbon emissions reductions, we recommend that the Government works with industry to consider how the Climate Change Committee’s advice to deliver 900,000 heat pumps a year by 2028 can be achieved.

We further recommend that the Government should convene the retail banking sector to encourage and facilitate low-cost and innovative lending products for consumers, and that public funds are used most widely in supporting lower income families with appropriate grants.

The Secretary of State’s assertion that the target to deploy 600,000 heat pumps will “have to be delivered” highlights the Government’s determination but there is still a lack of specific, strategic action on its part to ensure that low carbon heat targets are delivered. The Government must set out a clear, long term plan as to how the current rate of installations will be increased in order to scale up the market.

We acknowledge the introduction of the market-based mechanism outlined in the Heat and Buildings Strategy; however, it will not deliver the scaled-up heat pump market needed to achieve the Government’s heat pump target. The Government must expand the market-based mechanism as well as explore other options to catalyse the development and scaling up of the heat pump market.

To meet the Government’s targets for decarbonising heat, significant action needs to be taken to innovate and develop low carbon heating markets and in bringing these markets to scale. Scaling up the markets for low carbon heating technologies also offers opportunities for cost reductions. A heat decarbonisation sector deal would create intentional and consistent collaboration between the Government and industry to effectively nurture the low carbon heat markets and reduce costs.

We recommend that the Government introduce a heat decarbonisation sector deal by 2023 so that there may be a heightened focus on scaling up low carbon heating markets and reducing costs.

It is vital that the heating and energy efficiency workforce has the capacity and skills required for the job at hand. This will require training new workers as well as supporting existing workers in the home heating sector. It is imperative that the 56 Decarbonising Heat in Homes Government actively supports and encourages the upskilling of workers, with a commitment to prioritising the existing home heating workforce, through local, work-based training schemes. We expected the Heat and Buildings Strategy to provide a strategic direction on how the heating workforce would be upskilled and we waited a long time for this to be published. However, the strategy failed to adequately deal with this issue.

The Government must urgently develop a low carbon heating training programme, in partnership with industry and trade unions. The training programme should align with the Government’s own target to deploy 600,000 heat pumps by 2028 and the plans it has to deliver on this goal. The Government must support and collaborate with industry and trade unions early in development of this training. It should also work with industry and trade unions to develop a low carbon heating technician apprenticeship to encourage young people to enter the sector.

At present there is no company that operates as a “one stop shop” where customers can procure all the services required for a successful retrofit installation and change to a low carbon heating system. Consideration should be given to project management upskilling with regards to whole system and energy efficiency installations to make it easier for people to be able to convert to low carbon heating systems.

In addition to working with industry and trade unions, we recommend that the Government works closely with local and regional authorities in England allowing local leaders to deliver coherent services to their populations, for example through the regional delivery of the adult skills budget and promote the connection between net zero policies and ‘green job’ creation. (Paragraph 93) Costs

The Green Homes Grant was an important and welcomed initiative. However, the way in which the Government designed the Green Homes Grant, both as a short- term stimulus instead of a long-term national infrastructure project and as a hastily developed, outsourced scheme, was misguided. It is vital that the lessons are learned from the failure of the Green Homes Grant and that these lessons are implemented in the design and delivery of future financial support schemes.

We call on the Government to prioritise the development and launch of a replacement for the Green Homes Grant, delivered locally through regional and local government in England instead of centrally by the Department. Ministers should provide an update on this work in response to this report.

We welcome the new Boiler Upgrade Scheme announced in the Heat and Buildings Strategy. To ensure the success of the scheme, we recommend that in the delivery of the scheme, the Government must: 1) explain what lessons have been learnt from various failed past schemes and how this scheme will therefore be delivered differently, 2) focus public funds on lower income households and homes which will require the most expensive and/or complicated installations to decarbonise. This will require Decarbonising Heat in Homes 57 a fundamental rethink on the support packages currently available. The boiler replacement grants of £5,000 or £6,000 will mean lower income households cannot switch to low carbon heating, when the overall cost may be as high as £15–20,000. 3) incentivise banks to create low-cost loan products for consumers, 4) partner with industry and trade unions to create jobs and training pathways, and 5) ensure the scheme lasts for at least a decade instead of merely a few years.

The current apportioning of environmental levies disincentivises the switch to electrified low carbon heating solutions, such as heat pumps, because the running costs are greater than a gas boiler. As we have seen with the ongoing gas market crisis, increases in gas prices have increased energy bills, which has, in turn, disproportionately affected the fuel poor. The reapportioning of environmental levies should not further burden the fuel poor with an even greater increase in energy bills. We welcome the Government’s commitment in the Net Zero Strategy to shift or rebalance energy levies.

We recommend that the Government reapportions environmental levies to improve the financial attractiveness of electrified heat and to encourage the uptake of electrified low carbon heating systems incrementally over several years. The levies should reflect the relative carbon emissions of gas and electricity. We further recommend that this reapportioning must be accompanied by mitigating negative impacts on the fuel poor and vulnerable consumers, for example through targeted financial support programmes focusing on fuel poor households.

We call on Ministers to mandate the Committee on Fuel Poverty to monitor and report annually on the transition costs on fuel poor households. (Paragraph 125) Consumer engagement and protection

Consumer engagement and awareness when it comes to the decarbonisation of domestic heat is low. One of the greatest shortfalls of the Heat and Buildings Strategy is that it misses the opportunity to outline the Government’s plan to drive up consumers’ understanding of the importance of the transition to low carbon heating in homes. The Government’s commitment to “review and improve [its] communications” does not go far enough. We note that the Scottish Government has an independent advice body, Home Energy Scotland. If people are not aware that a change needs to be made in their home and for what purpose the change needs to be made, then the Government will fail to deliver low carbon domestic heat by 2050 through slower uptake and loss of public support.

It is clear that current technologies to decarbonise home heating lack widespread consumer awareness and are at price points that make transition costly for most households. The sector needs to demonstrate more commitment to improving their product capabilities and greater potential for price reductions as production 58 Decarbonising Heat in Homes volumes increase. The costs of innovations in decarbonising home heating currently lie too heavily on households for us to be confident that consumers will not baulk at the impact on their family budgets.

The Government should establish a national consumer awareness campaign that, as a minimum, informs the public on why the decarbonisation of heat is needed, what low carbon heating solutions are available and the changes that consumers may have to make in their homes to install low carbon heating. The Government should require energy suppliers to send this information to households alongside their energy bills.

Currently, there are no sufficiently robust consumer protections in place for the heating sector, especially for poor quality installations. The Heat and Buildings Strategy failed to set out a robust consumer protections framework that will build consumer confidence and trust in energy companies and the heating sector as a whole. To protect consumers, a robust framework of protections must be brought in for the heating sector to ensure that standards are maintained and that, where failures take place, consumers have options for recourse. We also recommend that the Government should give Ofgem the responsibility to regulate companies and providers in the heating sector, as well as the powers and resources it will need to introduce and enforce robust consumer protections. The Government should also establish an ombudsman process to manage individual complaints. (Paragraph 149) Governance and co-ordination

We were pleased to see in the Heat and Buildings Strategy the Government’s recognition of the role that local authorities play in the decarbonisation of domestic heat and the net zero agenda as a whole. The Government must avoid setting unfunded mandates for local and regional governments to deliver its national targets. We recommend that in the Spending Review, the Government considers what additional resources may be needed by local and regional governments in England to deliver this crucial part of the Government’s overall strategy to deliver net zero by

Throughout our inquiry we have heard about the co-ordination gap between central policies and the delivery of these policies at the local level. It is an oversight of the Heat and Buildings Strategy that it did not explore how the delivery of low carbon heat can be improved. Further to our recommendation to establish a heat decarbonisation sector deal, we recommend that Ministers engage local and regional government representatives in this sector deal.

The Department for Levelling Up, Housing and Communities should give higher priority to the decarbonisation of homes and the support it offers to local and regional government in England, and should, in partnership with the Department for Business, Energy and Industrial Strategy, publish joint milestones and metrics setting out which department is accountable for which aspects of the decarbonisation of heating in homes.

We call on the COP26 President, the Rt Hon Alok Sharma MP, in his capacity as chair of the Cabinet Office Climate Adaptation and Implementation Committee, Decarbonising Heat in Homes 59 to take ministerial responsibility for improved coordination between Departments and to present an annual report to Parliament on progress in the delivery of cross departmental net zero policies. (Paragraph 170) 60 Decarbonising Heat in Homes