UK energy price cap fears spur calls to accelerate low carbon heat incentives

Heat and energy specialists have urged the government to ramp up its support for lower carbon heating infrastructure and insulation to offset significant increases in energy prices this year.

A host of trade bodies representing the HVAC sector have argued that UK authorities should urgently prioritise strategies that can support ending the country’s reliance on directly using fossil fuels for heat in order to alleviate surging energy costs.  These calls include arguments for fresh support for hydrogen, heat networks, the electrification of heat, as well backing a national focus on funding insulation in homes.

These funding arguments follow an announcement from the Treasury on 3 February that it will temporarily provide an energy discount of around £200 for 28 million homes. This will be used to partially cover a significant rise in energy and gas bills from April this year.

The government funding, which will be automatically paid back from energy bills over five years, is seen as a necessary intervention following the announcement this week that market regulator Ofgem would be increasing the UK’s energy price cap threshold by 54 per cent.

On average, an estimated 22 million customers in the UK are expected to have to pay an additional £693 per year for gas to fuel and heat homes as a result of the price cap changes.

Heat network potential

The Association for Decentralised Energy (ADE), which represents heat network specialists, said the government’s plan to help offset energy costs later this year was a welcome first step to counter rising prices for heat.

However, the association said that the government’s planned action would have a limited impact without additional measures to cut demand on fossil fuels in longer-term.

A failure to introduce longer-term strategies and support, such as expanding lower carbon and energy efficient heat networks, would otherwise mean the £200 rebate on energy bills was at best a “sticking plaster” to solve issues around high-cost energy, according to the ADE.  It added that households were already struggling with costs even before the energy cap is increased later this year.

The ADE said heat networks were now an established technology for harnessing waste or ambient heat from different sources, while also reducing energy demand for heating. A concerted national strategy to introduce heat network infrastructure should be considered as a positive long-term approach to protect against higher fossil fuel costs, it added.

ADE chief executive Lily Frencham said, “The way to protect households from energy price rises in the long-term is to remove our exposure to volatile gas markets through heat decarbonisation and energy efficiency.

“The government has stepped in with sticking plasters for the next few months. However, it is not enough – either for the immediate crisis that could well continue into next year or for the long-term. Now, it needs to learn from this crisis to go harder and faster towards making people’s homes affordable, comfortable and net zero.

The association also backed any support to improve the energy efficiency of UK homes, such as through the use of insulation, in order to limit the impacts of volatile energy costs in the longer term.

It said that Chancellor Rishi Sunak accepted the role insulation can play in the current energy crisis, with the government providing funding for improvements.

However, the ADE warned that there was already a shortfall in honouring a pledge made in the government’s 2019 election manifesto to provide £9.2bn of funding for energy efficiency improvements.

It stated, “It needs to put words into actions and significantly scale up support for energy efficiency.”

The hydrogen factor

Mike Foster, a former MP chief executive of the Energy and Utilities Alliance (EUA) said the surge in energy prices due from April would throw millions of additional households into fuel poverty. This in turn would see increasing numbers of people having to choose between covering heating costs or ensuring they have other essentials such as food.

Mr Foster – a strident advocate for some form of gas to continue to play a role in UK heat – said, “It would be churlish to ignore the government’s response, any help is better than none.

But using council tax to rebate bill increases seems a very blunt instrument, which fails to take into account actual household incomes but does reflect 1991 house values. I fear the distribution of this rebate will not be fair and many winners will not be the low paid.”

“The proposed loan to energy companies to keep bills £200 lower now, but to be paid back later, is a stunt designed to appear to help. It is a heat now, pay later scheme that simply delays the pain, not reduce it.”

Mr Foster argued that the initial actions taken by the government to counter the impact of the price cap increase has failed to fundamentally address the cost instability attached to importing fossil fuels.

He said, “We now need a firm commitment from the government to wean us off natural gas and onto hydrogen, which we can produce ourselves, and convert our world-class gas network to run on hydrogen.”

The release of the UK’s Heat and Buildings strategy last year saw the government pledge to expand adoption of heat pumps and lower carbon heat networks across the UK as a direct replacement for natural gas boilers that currently provide a majority of UK homes with their heat.

Corresponding plans, such as the government’s Hydrogen Strategy, have laid out a programme of testing across the country that will inform a decision by 2026 on whether hydrogen can play a viable and cost effective role as a lower carbon alternative to natural gas heating in homes.

Heat pump support

Kensa Group, a UK-based supplier of ground source heat pumps, has meanwhile urged the government to urgently honour commitments to address a difference in levies currently put on gas and electric.

The company argued that electricity was presently four times as expensive as gas in the UK due to charges added to energy bills to subsidise the development of renewable energy.

Kensa argued that the price cap rise in April was expected to further exacerbate this cost discrepancy. The government has previously said it would look to end the cost bias towards using natural gas over electricity at some point over the next decade. This commitment it intended to improve the attractiveness of heat pumps and electrified heat from renewable sources.

Research from the company has claimed that its ground source heat pump systems can deliver between 3kW to 4kW of renewable energy from every 1kW of electrical power consumed when correctly specified.

Kensa technical director Guy Cashmore said that the government’s continued use of levies for electricity was at odds with national aims to decarbonise homes and buildings through a widescale focus on the electrification of heat.

He said, “It also causes people to lose out on a percentage of the running cost savings that could be gained from installing ground source heat pumps – the most carbon-efficient heating technology available.

“Policymakers have recognised this is wrong but, as yet, nothing has been done to correct this distortion. Now is the time to act to protect those who have already made environmentally friendly electric heating choices, and encourage more people to make the switch from fossil fuels. Surely it’s time for UK energy policy to follow the science.”