How the government can deliver a rural warm homes plan
Duncan Carter, Corporate Affairs Manager
| Calor Gas
The new government is due to deliver a warm homes plan in 2025. Current government supported energy efficiency and low-carbon heating incentives don’t offer the taxpayer value for money, particularly for rural homes. Calor outlines what measures government can take at the Budget and Spending Review to rectify this.
The government has promised to deliver a warm homes plan early next year. Despite the Winter Fuels Payment polemic, it has an opportunity to review past (and underachieving) government energy efficiency programmes and lower-carbon incentive schemes and deliver a warm homes plan that’s right for every household; including those in rural communities. At the moment how much it costs to save a tonne of carbon from our homes is too high and we must take steps to improve value for money to the taxpayer.
Heating accounts for a significant proportion of the UK’s carbon emissions – at 20 per cent of the country's footprint. The UK is on target for meeting Carbon Budgets 3, 4 and 5, but there is a significant shortfall projected for Carbon Budget 6 (2033-37) of nearly 1 Gigatonne CO2e – for comparison, this is the same as eliminating all global aviation emissions for a year. As the expected progress in greening electricity generation is realised, more will need to be done to decarbonise our homes. This progress will need to be in the 2030s if the UK is to meet the Carbon Budget 6, and transition heating systems as they reach end of life to low carbon alternatives. A recent study from the University of Ghent has found that the total environmental impact of a heat pump is not dissimilar to a condensing gas boiler (given greater use of scarce critical materials) and any benefits will not be realised without significant greening of the electricity grid. Ripping out efficient gas boilers early might not have the environmental benefit many perceive1.
We support Ed Miliband’s recognition that no household will be forced to rip out their gas boiler and people need an affordable and straightforward transition pathway to lower carbon heating. Miliband has recognised the transition should be led by consumer choice, not government mandate. However, the government’s current approach to encouraging heat decarbonisation is not always cost-effective. Measures should be taken in the Autumn Budget and Spring Spending Review to improve the value for money from current policies aimed at incentivising lower carbon heating.
The current Boiler Upgrade Scheme (BUS) provides private homeowners and landlords with a grant to install a low carbon heating system, nearly all heat pumps. As of June 2024, there have been a total of 28,596 installs based on the number of redemption vouchers paid. Of this 28,339 are air or ground source heat pumps.
The scheme is underperforming, even with a generous grant of £7,500 toward heat pump installation, as only £175.5m of the £450m allocated to BUS up until 2025 has been spent. Of this approximately £174m has been spent on heat pump installs.
The BUS scheme has resulted in a lifetime carbon savings of 680,000 tonnes of CO2 equivalent. This equates to an 86.5 per cent reduction in emissions compared to a scenario where these households remained on their previous fuel type. On average a single install under BUS has resulted in a lifetime carbon savings of 24 tCO2e.
In sum, for the £174m spent on the BUS scheme, we estimate that emissions will be reduced by 680,000 tonnes of CO2 equivalent over the lifetime of the heat pumps installed – this gives an astonishingly high marginal abatement cost of £256/tCO2e saved.
Renewable liquid gases for some homes and businesses can lower carbon abatement costs
Calor is actively developing its portfolio of Renewable Liquid Gases (RLGs) including biopropane (bioLPG) and renewable dimethyl ether (rDME) as part of our strategy to move away from fossil LPG. We believe these fuels are often better suited to decarbonising many of our customers’ properties, which are typically older rural properties, located off the gas grid, and are often less energy efficient and well-suited to heat pumps than urban alternatives.
To date, there has been zero direct government support for the development of renewable liquid fuels used in off-gas grid applications. We estimate that if the government supported RLG deployment by subsidising a portion of the renewable fuel price premium over conventional fuels, it could decarbonise off-grid heating at a lower marginal abatement cost – of £96-190/tCO2e - than the current BUS performance which is £256/tCO2e.
RLGs are particularly useful for ‘hard to treat homes’; the larger, older, less energy efficient homes more common in rural areas, including heritage homes, and many non-domestic buildings. Retrofitting the energy efficiency improvements necessary for electric heat pumps is often expensive, disruptive for householders, and technically challenging in these buildings.
BioLPG also partners perfectly with a heat pump in a hybrid system, offering a long term, low carbon solution suitable for a wider range of off grid homes than heat pumps alone. A recent report from the Energy Systems Catapult indicated that hybrid heat pumps could save over £7bn in ‘systems costs’ by reducing peak energy demand, including a role post 2050 for bottled gas. If this bottled gas was a RLG this would be entirely compatible with net zero.
Simple measures could be taken by HM Treasury at the Autumn Budget that could include extending the current 0 per cent VAT rate enjoyed by air and ground source heat pumps to include hybrid heat pumps. Hybrid heat pumps could also be supported by the BUS, Home Upgrade Scheme and included in the forthcoming Clean Heat Market Mechanism which will incentivise boiler manufacturers to place more heat pumps on the market.
Lastly, government could also think outside the box – our parent group is actively exploring how RLGs can be co-produced with Sustainable Aviation Fuel and government could help develop an incentive for RLG co-production through the Revenue Certainty Mechanism that will feature in the forthcoming SAF Bill. Not only would this reduce risk for SAF investors, it would do the same for those, like us, seeking to transition away from fossil fuels by developing RLGs.
Rural homes will need a choice of low-carbon heating technologies to help them decarbonise – a simple and affordable choice for many will be the option of a drop-in RLG that they can use in their existing systems. Industry is investing in the transition towards our fossil free future, but government and regulatory support will enable and accelerate the transition.
- Heat pumps no greener than gas boilers, study shows. Belga News Agency
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