UK heat policy: getting from Germany to Sweden

Ecuity, heat, heating
Optimistic about heat decarbonisation — Ilias Vazaios.

Ilias Vazaios of Ecuity examines the UK approach to heat as part of UK energy and climate policy, and draws on the experience of other countries to suggest a way forward.

Heat is no longer the ‘Cinderella’ of UK energy and climate policy. Heat accounts for around 45% of UK energy consumption and a third of all carbon emissions. The UK political class has come to realise that concerted intervention is necessary to reduce heat demand and render heat generation less carbon intensive, but solutions will not be straightforward.

In November 2015, the then Secretary for Energy & Climate Change Amber Rudd noted that ‘nowhere in the energy system is the need for innovation more acute than in how we use heat to keep warm in our homes’ and that ‘progress to date has been slower here (in the heating sector) than in other parts of our economy’. Only this September saw the publication of two weighty reports on heat policy by Policy Exchange and the, now defunct, Parliamentary Committee of Energy & Climate Change.

The new Department for Business, Energy & Industrial Strategy (DBEIS) now has to develop proposals and offer solutions. It will not be easy. The UK has an old and inefficient building stock. Also policy interventions as they evolved during the 2010-15 policy cycle were not seen as a resounding success. ECO (Energy Company Obligation) had a stop-start effect on the thermal insulation market. The RHI (Renewable Heat Incentive) has not yet proven instrumental in creating a lasting installer and consumer drive towards low-carbon technologies.

Getting the basics right will be key — especially encouraging best practice and optimal available solutions. In March 2016, the Department of Energy & Climate Change (DECC, and now part of BEIS) published its policy direction for building heat which considers tightening current requirements for boilers and other parts of the central-heating system under the Building Regulations. If the UK Government sees this policy through it would have significant impact across retrofit applications at no cost for the Exchequer. Also by encouraging condensing boilers to operate at their true potential in lower operating temperatures, low-carbon technologies such as heat pumps could become more competitive in the right applications.

Germany, often seen as the foremost energy policy innovator, introduced legislation in August 2016 for a 5-year funding budget to optimise heating-system operation. The German scheme includes support for efficient pump replacement, hydraulic balancing and measures to improve heating-distribution efficiency such as thermostatic radiator valves, individual room thermostats and automatic balancing valves. Germany expects this programme to contribute at least 1.8 Mt of CO2 towards the 2020 carbon-reduction target; the UK looks set to follow by example.

But what happens in the longer term? The UK is still expected to reduce heating emissions by almost 40% by 2030 to meet its 4th Carbon Budget. To do this significant deployment of a mix of low-carbon solutions such as electric heat pumps, efficient gas technologies (small-scale CHP, gas heat pumps, hybrid heat pumps), heat networks and green-gas applications is necessary. In that area the UK is lagging behind. For instance, heat-pump deployment per capita in the UK is one of the lowest in Europe.

Countries like Sweden and Finland have managed to reduce significantly their carbon emissions from heating through widespread penetration of low-carbon heating solutions, including heat pumps. Although the UK has differences with these markets (older building stock and an extensive gas grid infrastructure being just two of these differences), it should take note that forward-looking policy innovation was instrumental for both of these countries to achieve this feat.

Along with time-limited subsidy instruments, such as the RHI, the UK has to seek ways to encourage the deployment of low-carbon heating systems early on where these make the most sense. For instance, both Sweden and Finland used the Building Regulations to ensure new buildings meet very high energy-efficiency standards. The regulations also account for renewable heat solutions such as heat pumps that perform optimally in these settings and can reduce heating bills significantly. In the UK retrofit sector, the Government should consider how thermal-insulation deployment supported under ECO could integrate better with heat- pump applications as it resumes its on-going review of the ECO scheme for the period 2018-22.

As heat policy gains more central stage in the policy process within a new department, the Government will have to examine carefully what has worked effectively in other markets and adjust it to the UK market needs and characteristics. A focus on best practice, as in the case of Germany, can allow the UK to lay the foundations for a lower-carbon energy mix that resembles that of Sweden.

Policy makers are now more experienced on heat decarbonisation policy and can build on the learnings of the 2010-15 period; this and the increased focus on heat policy makes me optimistic that the new Government can succeed.

Ilias Vazaios is a partner with Ecuity Consulting LLP, a specialist sustainable energy policy and strategy firm.

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