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Heat and Buildings Strategy – 3 key areas to look out for next week

15th Oct, 2021

It’s impossible to mention the Heat and Buildings Strategy without commenting on timing.

With the last heat strategy developed by the UK government dating all the way back to 2013, its publication has long been overdue. But it’s release has been “imminent” for over 12 months now and its delay has undoubtedly been frustrating for industry.

World Leadership

The wait is expected to be over at long last with rumours circulating that it could be published as soon as Monday – lining up with the Government’s promise to unveil the Strategy before COP26 kicks off on 31st October. With the world’s eyes set to turn to the UK as the host nation, the opportunity to demonstrate world leadership on climate change is not to be missed.

Significant concerns regarding energy poverty this winter have created challenges for the Government in communicating a strategy which will promote higher capital cost heating systems. But the case for action has not changed.

The UK cannot reach its net zero target by 2030 and end its contribution to climate change without decarbonising heat.

The Price of Decarbonisation

Whilst there is no doubt that the transition will come at a price, it is important to reflect that these costs – estimated at 1-2% of GDP – are likely small in comparison to the benefits of avoiding dangerous and costly climate change. This Strategy will be the UK’s first pathway to net zero emission heating and with uncertainty still floating around the industry, there are some key questions to be answered.
Here are three to look out for in the Strategy next week:

1.  How can the UK shape fuel price incentives to drive decarbonisation?

To drive the right behaviours, economics tells us that prices should reflect the societal cost of harmful emissions. In other words, polluters should pay.

Here, where the heat policy debate has been focused on the merits of shifting environmental levies from increasingly lower carbon electricity to gas bills, a sensitive balance will need to be struck between incentivising decarbonisation and protecting families from immediate energy poverty. Further investment in energy efficiency can – and should – help in the longer term.

The fuel duty trajectory in the transport sector provides a useful comparison by illustrating the political challenges with increasing the price of fossil fuels; the appeal of keeping the cost of clean alternatives such as electricity (heat pump tariff?) and biofuels low; and the need to make these changes gradually over time, with Treasury keen to maintain its tax base as consumers switch from one technology/fuel to another (see fuel/road duty implication of EVs).

2. Who will pay for low-carbon technology, and can we drive costs down?

The forthcoming Home Upgrade Grant and local authority/social housing funding streams have been announced, but what support can the able to pay sector expect?

We understand that BEIS is considering an obligation on manufacturers which would require them to meet a minimum threshold of renewable heating system sales as a proportion of their total. This proposal has parallels to obligations placed on car OEMs over recent years, and has the potential to drive down costs – but do incentives have a role to play in driving demand in the near-term?

3. Finally, what about backstops and phase-out dates – when should households move away from fossil fuel heating?

Long-term technology phase-out dates have been successful in focusing minds, spurring innovation, and giving forewarning to industry and consumers (see condensing gas boiler regs, or ICE vehicle target of 2040).

The Government has some challenges setting these phase-out dates as a result of an emerging discomfort within the Party regarding the costs and implications of the transition, uncertainty regarding the technologies promoted (hydrogen availability and heat pump cost/performance), and judgments regarding the appropriate use of biofuels expected in the Biomass Strategy next year.

Just days away from the highly anticipated release of the Strategy, these are some of the key areas to look out for. As the industry braces itself for the publication next week, the Gemserv team – like many others – will be looking out for the answers to these questions upon the Strategy’s release.

For more information about this topic contact Robert Honeyman: Robert.Honeyman@gemserv.com

Authors

Robert Honeyman

Head of Analysis

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