Ian Rippin, CEO of MCS, speculates on the government’s upcoming Heat and Buildings Strategy

The upcoming announcement of the government’s Heat and Buildings Strategy (expected end of May 2021) provides more than enough food for thought for an industry that requires robust policy to ensure the path to net zero is smooth.

We are facing a climate emergency, which requires direct action from the top down: to put in place greener infrastructures that will decarbonise the UK’s homes and make them more energy efficient.

Without meaningful, well-informed plans and long-term policies to decarbonise the nation’s homes, the government’s credibility on net zero – which took a Green Homes Grant battering – will continue to diminish.

MCS welcomes the forthcoming Heat and Buildings Strategy, but several of the expected measures raise immediate questions about the government’s ability to grasp the immense task at hand.

The great heat pump investment

The Heat and Buildings Strategy is almost guaranteed to include more measures to ramp up the number of heat pump installations, in line with the Prime Minister’s recent ‘green industrial revolution’ pledge to fit 600,000 per year by 2028.

No matter what measures are announced, we must not shy away from the fact that heat pumps are significantly more expensive than gas boilers as things stand. A typical Air Source Heat Pump costs anywhere between £7,000 – £14,000, placing them out of reach to the average homeowner, unless financial support is given.

MCS is calling for a reduction in VAT, new tax incentives and long-term grants to bring heat pump costs in line with typical boiler costs today. In fact, where retrofit is concerned, we continue to campaign for Zero Carbon = Zero VAT.

Heat pumps run on electricity, so we also need environmental levies to move away from electricity and applied to carbon intensive fuels instead. This will bring down the cost of electricity, making running a domestic heat pump more affordable for many people.

What’s more, public engagement leaves a lot to be desired around the benefits of heat pumps and their role in long-term decarbonisation of our homes. Where is the direct messaging from government?

Is the future hydrogen?

The Heat and Buildings Strategy is likely to set an end date for the sale of fossil fuel boilers as some time post-2030, signalling a shift to new technologies using hydrogen.

Kwasi Kwarteng MP, the Secretary of State at the Department of Business, Energy and Industrial Strategy (BEIS), has stated that in ‘seven to eight years [there] could be hydrogen distributed through the gas network’.

From our understanding, this would be a blend of up to 20% hydrogen, with 80% natural gas. New hydrogen boilers would burn natural gas until we have the infrastructure for a hydrogen grid.

Hydrogen does not generate as much energy when burnt, so a homeowner would effectively need to use more fuel to heat their properties. Also, hydrogen is far more costly than natural gas, meaning energy bills would rise – risking pushing more people into fuel poverty.

If we are serious about achieving net zero by 2050, burning natural gas in the 20 years it will take to create a hydrogen grid would be a disastrous misstep by the government.

Investing in hydrogen at this stage in its infancy, especially without the necessary infrastructure for it to make an impact on our net zero goals, represents a massive misfire.

The decision would seem purely designed to facilitate the need for new, hydrogen-ready boilers to be installed. They are gas boilers in everything but name – the trojan horse of the fossil fuel industry.

The government can’t be seen to be putting all its eggs into the hydrogen basket. Once the announcement is made, we intend to challenge these proposals head on, to ensure the renewables industry is being heard when it comes to broad energy policy.

Follow the money

By now, we know how ineffective and problematic the recent Green Homes Grant was, even though it did raise considerable consumer interest in heat pumps. The early close of the short-term scheme was avoidable if government had listened to industry from the outset.

In the Heat and Buildings Strategy, we may see BEIS set the scene for a replacement of the Green Homes Grant in the next Spending Review.

We worked closely with government to help bring to life the Green Homes Grant, in context of its promises of a ‘green industrial revolution’, especially after a difficult year post-coronavirus.

The Green Homes Grant was poorly designed, despite our recommendations; difficult to navigate for both installers and consumers, who had to wade through convoluted processes, unpick confusing information and face a huge administrative burden.

Any new consumer grant scheme must be rooted in long-term thinking, providing a stable, simple incentive for a minimum of 10 years. Without this commitment, uptake in renewables will suffer, industry trust will dissipate, and our net zero goals will fall further out of reach.

BEIS could introduce a beefed-up Clean Heat Grant scheme, which is currently only planned for a two-year period that is expected to start March 2022. Timings for it could be brought forward to address very real demand and a policy gap, with the aim to kickstart a domestic heat pump sector and bring about research and development that will see costs reduce.

Insulating millions of homes will also be top of the list. Stable decisions, clear deadlines and learning from the Green Homes Grant’s backwards application system is crucial for a successful replacement scheme aimed at encouraging more homeowners to invest in insulation.

We must not forget this current government’s levelling-up agenda, too. It would be wise to expect the Heat and Buildings Strategy to include some form of spotlight on the making homes in the North and Midlands more energy efficient, especially after the success in the recent local elections.

Finally, we hope to see the Heat and Buildings Strategy tackle the bizarre costs of environmental and social levies on energy bills. The UK still imposes significant taxes and environmental levies (23%) on domestic electricity, but almost none (less than 2%) on gas. This needs to be reversed. Surely a forward-thinking strategy will explain how these levies could be redistributed to encourage the move to clean heat.

Green finance

Grants are not the only way of incentivising vital home upgrades. Green mortgages, stamp duty rebates, zero interest loans for greening homes, reducing VAT on energy efficiency, optional salary sacrifices, council tax flexing – all have a place in solving the net zero puzzle.

Any strategy worth its salt will lean on as many green finance solutions as possible, and we look forward to looking at them in their wider context.

MCS will remain vocal on the need to reduce VAT on energy and renewables as an immediate measure that would have significant, positive impacts from day one.

Jobs

Installing 600,000 heat pumps a year will require significant investment in training and development for an entire sector.

Whatever announcement is made around this, the emphasis should always be on quality, not quantity. Upskilling people to be heat pump engineers requires time and expertise, which should be gained from installers themselves, not just manufacturers.

Poor training would jeopardise the standards that MCS works tirelessly to uphold. For the good of the industry and to protect homeowners from rogue installations, creating green jobs needs to be done in consultation with renewables leaders.