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Sat, 15 June 2024

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Consumers will end up paying the price for net zero U-turn

Image by: Associated Press / Alamy Stock Photo

4 min read

Last month Rishi Sunak announced he was scrapping several net zero policies (including some which never existed, like forcing people to rip out perfectly functioning gas boilers), under the guise of saving people money in the cost of living crisis.

The reality, however, is just the opposite: delays will be more expensive and households will foot the bill.

The Prime Minister is right that heat pumps can be expensive to install, and often much more so than a fossil fuel boiler. But the need for heat pumps won’t go away. Home heating accounts for 14 per cent of the United Kingdom’s annual greenhouse gas emissions, making it imperative to move off fossil fuel-powered boilers if the government is to meet its legally binding target of attaining net zero by 2050. Sticking with the status quo is a false economy: the current home heat energy mix is leaving households at the mercy of volatile energy markets.

Industry now has exactly what it does not need: uncertainty

Delaying the move to low carbon heating won’t help. The fossil fuel boiler phase out now starts in 12 years (instead of three for oil boilers). Arguably, that’s a lot of time to give households to save up for a heat pump. That time needs to be spent developing the heat pump supply chain and making heat pumps cheaper, so that when most households get to installing them, it does not cost as much as it does today. Across the supply chain there are savings to be made, which added up could help to bring heat pumps on par with a gas boiler.

For example, making more heat pumps in the UK could reduce some of the logistical costs: importing parts en masse tends to be cheaper than importing heavier assembled heat pumps. There is also scope for refining the design of heat pumps specifically to meet the needs of British homes. Heat pumps which are smaller, capable of higher flow temperatures and that can work with existing pipework in a home, reduce the need to retrofit, bringing down ancillary costs such as new radiators.

The biggest opportunity for consumer savings, though, is further down the supply chain. Labour is a substantial portion of the cost of installing a heat pump. Manufacturers have some role to play here in designing heat pumps that can be installed faster. Much of the labour cost comes not from physically fitting a heat pump, but determining which one to get in the first place. The time it takes to survey a home and conduct heat loss calculations all needs to be accounted for when an installer is providing  a quote. Innovation in surveying technology to speed up this process would reduce the time cost for the installer, and ultimately, the installation cost for the consumer.

Additionally, a new consumer offer, with a different outlook on how we think about paying for heating, could effectively eliminate upfront costs for consumers. Asset leasing would mean that consumers could  have a long-term rental agreement with a manufacturer or an energy supplier for their heat pump, paying a fee every month that gradually covers the cost of the heat pump and any servicing that is needed. Alternatively, a new model for consumer heating, such as Heat as a Service, which focuses on ensuring a level of comfort, rather than on charging consumers for each unit of energy used could be the way forward. Full end-to-end models could also involve asset leasing, as well as guaranteeing consumers a fixed level of heat in their homes, year-round for a flat monthly fee.

Innovation in some of these spaces is already happening. The government’s heat pump accelerator competition funded innovative projects across these areas, and the week before Sunak announced his green retreat, energy company Octopus unveiled their smaller, sleeker heat pump designed for the average British three-bed home. But to truly foster competition in this space and to get private investment involved, the UK needs to be seen clearly to be going in the right direction. Heat pump sales need to be ticking up. Businesses need to be confident that investing in the UK’s heat pump market is worth their while, they need certainty that heat pumps are indeed the way forward for the UK.

In delaying the phase out of oil boilers by nine years and aiming only for 80 per cent total fossil fuel boiler phase out, industry now has exactly what it does not need: uncertainty. There is now no guarantee that the current dates and the goalposts will stay as they are.

With the decision to row back on decarbonising home heat, far from saving consumers money, it is costing them.

 

Niamh O Regan, researcher at the Social Market Foundation 

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