Written evidence submitted by ICAX Ltd
to the BEIS Select Committee on Heat Decarbonisation in Homes

ICAX specialises in designing and installing Fifth Generation District Heat Networks which provide the most elegant route towards Net Zero carbon emissions by sharing heat between buildings. Each building employs a Water Source Heat Pump to transfer heat from the network (when they need heating) or to transfer heat to the ambient temperature network (when they need cooling).

ICAX is currently engaged in decarbonising three community district heat networks in Southwark which provide heat to 2,150 dwellings.

The terms of reference for the inquiry are as follows:

1. 1. What has been the impact of past and current policies for low carbon heat, and what lessons can be learnt, including examples from devolved administrations and international comparators?

The principal mechanism to encourage low carbon heat has been the Renewable Heat Incentive introduced in 2011. It was originally envisaged that ground source heat pumps (GSHPs) would take up to 48% of the RHI funding. In practice only 1% of the RHI went toward funding GSHPs, and almost all of the RHI was spend on technologies based on combustion of biomass and biogas. Combustion releases CO₂ which is the chief contributor toward climate change. Combustion also releases NO₂ which is detrimental to the health of those suffering from respiratory diseases.

Key lessons to be learnt from the RHI are that it supressed the sales of GSHPs by diverting funding to CO₂ releasing technologies and that the much of the cost of the RHI went towards the cost of administering it.

2. 2. What key policies, priorities and timelines should be included in the Government’s forthcoming ‘Buildings and Heat Strategy’ to ensure that the UK is on track to deliver Net Zero? What are the most urgent decisions and actions that need to be taken over the course of this Parliament (by 2024)?

The key to decarbonising heating in buildings is to employ technologies which do not involve combustion. The alternative is to employ heat transfer which means using heat pumps. Solar thermal collectors also have a place for heating water in summer, and can also be used effectively in conjunction with ground source heat pumps to store heat in the ground in the summer for recycling in winter to heat building: Interseasonal Heat Transfer.

The policy to prohibit the use of combustion boilers in new homes from 2025 is a key policy which will be effective in relation to new homes. The ‘Buildings and Heat Strategy’ needs to address existing homes. The most urgent policy is to reduce taxes on electricity which is preventing the move toward Electrification of Heating. This should be the highest priority for 2021.

3. 3. Which technologies are the most viable to deliver the decarbonisation of heating, and what would be the most appropriate mix of technologies across the UK?

The only practical and effective technology available now that can deliver decarbonisation of heating is to use heat pumps. Heat pumps can be used to transfer and concentrate existing heat from one place to another: from the environment into buildings. No technology can be more than 100% efficient in converting one form of energy (eg electricity or gas) into heating. However, a heat pump can be used to transfer a large amount of heat from the environment into a building so that, for example, 1kW of electricity can be used to transfer 4kW of heat into a building.

This potentially exciting opportunity of obtaining 4kW of heat for the cost of 1kW of electricity is the reason that heat pumps have been enthusiastically adopted in countries like Sweden, Norway and Canada. However, this key advantage is neutered in the UK because of the Fiscal Background to UK energy prices which dictates that electricity is 4 times the price of gas. For this reason there is currently little incentive for an individual (or a private company) to invest in a heat pump in the UK.

Solar thermal collectors also have a place for heating water in summer, and can also be used effectively in conjunction with ground source heat pumps to store heat in the ground in the summer for recycling in winter to heat building: Interseasonal Heat Transfer.

Photovoltaic panels generate electricity which can be used by heat pumps to transfer heat into buildings in winter, and out of buildings in summer.

Demand Side Response Management is an important technology for balancing the national demand for electricity within each 24 hour period, and thereby reducing the demand for electricity during peak periods by day.

It is important to note that the use of hydrogen for combustion to heat houses is not currently a viable option. It is very unlikely that it ever will be an economic solution for heating houses or a healthy option. However, the use of hydrogen in fuel cells in heavy vehicle transportation (which does not involve combustion) is a promising approach for reducing CO₂ emissions from goods transportation.

4. 4. What are the barriers to scaling up low carbon heating technologies?

The largest single biggest barrier to the adoption of heat pumps in the UK is the Fiscal Background. The price of domestic gas in the UK is lower than any other country of the “EU 15”, except Luxembourg. The price of domestic electricity in the UK is increased by 48% to cover taxes and (ironically) environmental levies.

What is needed to overcome these barriers?

The Chancellor needs to reduce the taxes and levies on electricity. He should consider raising the taxes on gas and impose the environmental levies on gas. Every household in the UK uses electricity and so would benefit from a lower price of electricity. If the Chancellor is concerned about “heat poverty” he can ensure that the increased cost of taxes on gas is no larger than the decrease in the taxes on electricity.

The Chancellor needs to engage the “hidden hand of the market” to encourage the switch from combustion for heating (which always releases CO₂ and NO₂) to heat transfer (which releases no gases of any sort on site, and none at all elsewhere if green electricity is uses to power the heat pumps).

The Chancellor should also reduce the cost for individuals to install heat pumps (and also solar thermal collectors) by reducing the VAT on installation costs from the Standard rate of VAT (20%) to the Reduced rate (5%). This would not have been possible under EU Law, but the Chancellor now has freedom to act. This would not only reduce the cost of heat pump installations, but also signal that the Chancellor is serious about addressing the route to Net Zero.

The government should consider a grant towards the costs of installing the ground arrays used for heat exchange by heat pumps (which have a life of well over 100 years), and the costs of installing water source heat exchangers. There are long term advantages to the nation of seeing more ground source and water source heat pumps installed: a ground source heat pump is more efficient than an air source heat pump, especially in the colder days of winter when heat is most needed; a ground source heat pump can also operate efficiently at night in winter to heat hot water and maintain the base temperature in buildings when the price of electricity is much lower than by day. This technique can be used to balance electricity demand over day and night and thus reduce the national peak loads of electricity needed by day. Further, ground arrays can be used to store heat (extracted from buildings as a by-product of cooling in summer) in the ground in summer which enables ground source heating in winter with a lower use of electricity. See Interseasonal Heat Transfer.

5. 5. How can the costs of decarbonising heat be distributed fairly across consumers, taxpayers, business and government, taking account of the fuel poor and communities affected by the transition?

It is important to understand that an investment in low carbon heating is essentially a private cost (by an individual or a private company) for a public benefit (lower carbon emission benefits the community, rather than for the individual. Lower NO₂ emission benefits the health of a local community – especially in cities). Therefore society, through the action of government, must provide financial incentives to individuals to recognise and encourage their investment in low carbon heating for public benefit.

What is the impact of the existing distribution of environmental levies across electricity, gas and fuel bills on drivers for switching to low carbon heating, and should this distribution be reviewed?

This is the critical question. The solution is given in answer to 4 (above).

What incentives and regulatory measures should be employed to encourage and ensure households take up low carbon heat, and how will these need to vary for different household types?

This is the critical question. The solution is given in answer to 4 (above). There would be a strong argument for zero taxation of electricity on households which use a heat pump to provide their heating (and do not have a combustion system installed).

6. 6. What action is required to ensure that households are engaged, informed, supported and protected during the transition to low carbon heat, including measures to minimise disruption in homes and to maintain consumer choice?

Experience from countries like Sweden and Finland shows that once fossil-fuel heating is no longer the cheapest option, the market changes rapidly. Therefore the key action required is for the Chancellor to rebalance the Fiscal Background. Households will then become engaged, informed and motivated to transition to low carbon heating. They will also have freedom of choice and accept the disruption if they have chosen to move toward low carbon heating.

7. 7. Where should responsibility lie for the governance, coordination and delivery of low carbon heating?

The responsibility for coordinating low carbon heating should lie with the Treasury.

What will these organisations need in order to deliver such responsibilities?

The Treasury will only need to use the “hidden hand of the market” to encourage the use of heat pumps for low carbon heating by reducing taxes and levies on electricity and increasing the taxes and levies on burning gas, oil, coal and biomass (which issues 66% more CO₂ than burning natural gas).

 

Edward Thompson

Director

ICAX Ltd

www.icax.co.uk

ICAX specialises in designing and installing Fifth Generation District Heat Networks which provide the most elegant route towards Net Zero carbon emissions by sharing heat between buildings. Each building employs a Water Source Heat Pump to transfer heat from the network (when they need heating) or to transfer heat to the ambient temperature network (when they need cooling).

ICAX is currently engaged in decarbonising three community district heat networks in Southwark which provide heat to 2,150 dwellings.

The BEIS Select Committee report on Decarbonising Heat in Homes

To read the full BEIS Select Committee report of 3 February 2022, see: Decarbonising heat in homes.

ICAX particularly welcomes the Committee's views that:

• the main focus of heat decarbonisation should be to accelerate the installation of heat pumps
• the ban on selling new homes with gas boilers should be brought forward to 2023
• the Treasury urgently needs to shift the "environmental levies" away from electricity to encourage the uptake of low carbon heating.

For those who do not have time to read the full 66 page report, these are some of the key conclusions:

• To successfully decarbonise domestic heating in time to deliver net zero by 2050, the Government must provide clear, strategic direction and guidance. The Government must now focus on providing a coherent policy environment that encourages policy consistency and certainty in the transition to low carbon domestic heat. (Paragraph 32)
• We acknowledge that the Government wants to give industry the time to develop its supply chains; however, this appears to be to the detriment of new build homeowners, who will have to pay to retrofit their new homes. It is unnecessary to wait until 2025 to implement the Future Homes Standard. To minimise expensive retrofit costs, the Government should bring forward the implementation of the Future Homes Standard to 2023 instead of 2025. (Paragraph 54)
• We recommend that in the context of the phasing out of gas boilers, the Government adopts a clear and specific end-date by regulating through legislation the phase out of gas boilers. We also recommend that the Government sets out its plan on how it expects the industry and consumers to phase out the installation and use of gas boilers by 2035. (Paragraph 61)
• It is vital that the Government should meet its target to deliver a minimum of 600,000 heat pumps a year by 2028, or it will fall off course in delivering net zero by 2050. The Government has not outlined in the Heat and Buildings Strategy its plans for how it will meet the heat pump target. (Paragraph 68)
• We ask the Government to set out the intended milestones and targets it has in place to ensure that the UK meets its 2028 target and what funding it will put in place to ensure that each of these milestones is met. The Government must have integrated and coherent policies, such as an effective energy efficiency programme that complements and aligns with the target of 600,000 heat pump installations per year by 2028. (Paragraph 69)
• To ensure that the UK does not fall off course in achieving its targets for carbon emissions reductions, we recommend that the Government works with industry to consider how the Climate Change Committee's advice to deliver 900,000 heat pumps a year by 2028 can be achieved. (Paragraph 72)
• The Secretary of State's assertion that the target to deploy 600,000 heat pumps will "have to be delivered" highlights the Government's determination, but there is still a lack of specific, strategic action on its part to ensure that low carbon heat targets will be delivered. The Government must set out a clear, long term plan as to how the current rate of installations will be increased in order to scale up the market. (Paragraph 76)
• We recommend that the Government reapportions environmental levies to improve the financial attractiveness of electrified heat and to encourage the uptake of electrified low carbon heating systems. The levies should reflect the relative carbon emissions of gas and electricity. (Paragraph 124)

The report also includes links to the 131 written evidence submissions to the Committee (and shows that those with an interest in the sale of gas are still fighting a rearguard action to hope to allow them to continue to emit CO₂ for as long as possible).