The Road to Decarbonisation of Heat in the UK

The Road to Decarbonisation of Heat in the UK

In the UK, around a quarter of annual carbon emissions are generated by heating buildings. If we are to stand any chance of meeting our 2050 net zero target, a great deal of work is needed to decarbonise the way we heat the 30 million buildings in the UK.

In a report published in March 2023 the National Infrastructure Commission stated that in 2022 there were “negligible advances” and the government is “not on track” to deliver its commitments on improving energy efficiency and installation of low carbon heating solutions. The NIC reported that “key policies remain missing, and government funding is insufficient to deliver the required change” and “these challenges must be urgently resolved”.¹

The Energy Act 2023, which received Royal Assent on 26 October 2023, is intended to be the driving force in implementing the government’s strategy for the decarbonisation of heating. The government claims the Energy Act will drive GBP100 billion of private sector investment by 2030 into new British industries, supporting around 480,000 clean jobs by the end of the decade.

In this article we examine the UK government’s strategy for decarbonising heating, the progress made so far and the challenges faced to deliver the step change required to drastically reduce carbon emissions from heating our businesses, public buildings and homes.

Why is decarbonisation of heat an issue?

In recent decades the UK has made great strides in the reduction of carbon emissions from electricity. We have successfully harnessed the benefits of this windy little island we call home, with wind turbines providing a safe, cost effective and low-carbon means of generating electricity. In 1991, renewables accounted for just 2% of all electrical generation in the UK. By 2022, this had increased to 38.2%, with 26.8% of the UK’s electricity being generated by wind alone.²

Meanwhile in transport, Elon Musk has finally succeeded in making the electric car a sexy and desirable prospect. Friends and colleagues talk excitedly about the arrival of their new Tesla. Electric vehicle sales have reached record levels, accounting for 17% of sales in 2022 and surpassing new diesel cars for the first time.³ Meanwhile EV charging points are popping up across our cities and plans are well underway to electrify public transport, such as railways and buses.

But when it comes to decarbonising heat, progress has been moving at a near glacial pace. Chances are – your home is currently heated by a gas boiler, so is your office, and so are the homes and businesses of almost everyone you know. In fact, the UK Climate Change Commission estimates that 85% of households in the UK are heated by natural gas. These buildings are probably also leaking out vast amounts of heat due to poor insulation. Meanwhile, property developers are still clamouring to install cheap gas boilers in new build properties before a potential ban on new build installations from 2035.

The war in Ukraine has led to unprecedented volatility in energy markets, sending gas prices soaring to historic levels. With the “cost of living crisis” putting pressure on millions of households and businesses, the way we heat our homes and workplaces has been brought to the forefront of public consciousness like never before. Protests in my own house to crank up the thermostat by just one more degree are frequently met with gasps of alarm and cries to “just put another jumper on”. We are now more mindful than ever about our use of gas, whether that’s to take an indulgent long hot shower, cook our tea, or heat our businesses and homes.

Whilst the government’s approach to capping energy prices was welcomed by many struggling households, it does nothing to address the underlying issue of over-reliance on fossil fuel as the primary source of heat generation in the UK. When taken alongside the looming 2050 net zero deadline, it feels like the time is ripe to act.

So, what’s the plan?

The government’s strategy for the decarbonisation of heat ⁴ centres around a “Triple H” strategy. To disappoint those WWE fans who grew up in the 1990s, this sadly has nothing to do with “The Game”. Rather those “Hs” are heat networks, heat pumps and hydrogen. It is recognised that there is no “one size fits all” solution when it comes to the decarbonisation of heat. The optimal solution may depend on the type, age and use of the relevant building, as well as geographical location and wider energy system considerations.

Heat networks

A heat network is a facility which supplies thermal energy from a central source to offtakers through a network of pipes in order to provide heating, cooling, and/or domestic hot water. By supplying multiple buildings from one central source, a heat network avoids the need for individual boilers or electric heaters in every building. One of the great advantages of heat networks is their ability to store heat which allows for system flexibility.

The government’s strategy acknowledges that heat networks will be a key technology in areas of high-density heat demand (for example, densely populated areas such as towns and cities), and where there are large low-carbon heat sources (this could include surplus heat from data centres, geothermal, energy from waste plants, heat pumps or hydrogen).

Whilst many heat networks may initially be constructed utilising fossil fuel heat sources, heat networks can be designed with futureproofing in mind, allowing them to be decarbonised by switching their heat source to an alternative low-carbon source. So, for example, a heat network currently powered by a gas-fired combined heat and power plant, could in the future switch to being powered by renewable electricity or hydrogen. Heat networks may therefore prove to be an important transitional technology in the journey towards zero carbon heat.

Heat pumps

Heat pumps gather small amounts of heat energy from the air or ground and concentrate it to warm up a building. Heat pumps are powered by electricity, so their ability to deliver low-carbon heat will depend on whether the electricity used to power the heat pump has been generated from low-carbon sources.

Hydrogen

Hydrogen is currently being touted as a low-carbon alternative to natural gas. A question mark remains, however, on whether hydrogen production is truly low-carbon. Now for the science bit…

Hydrogen can be produced by using renewable electricity to power an electrolysis plant, breaking water into hydrogen and oxygen (so called green hydrogen).

Alternatively, hydrogen can be produced by mixing fossil gas with steam. Whilst this process releases large amounts of CO₂, it may be possible to capture those emissions and safely store the CO₂ underground (so-called blue hydrogen). There is ongoing debate about the extent to which CO₂ can be captured and therefore whether blue hydrogen can really be viewed as truly low-carbon.

Either way, hydrogen technology remains largely untested. Whilst trial schemes are underway and prototype hydrogen boilers have been developed, a lot more work is needed to establish if hydrogen is a safe, low-carbon and economically viable option on a large scale.

Energy Efficiency

In order to maximise the benefit of these technologies, the “Triple Hs” need to be combined with energy efficiency measures to reduce heat demand and prevent our buildings from “leaking” heat. Improving energy efficiency of our buildings is also one of the best ways of driving down energy bills for businesses and households. Energy efficiency measures in buildings can include insulation, heating controls and heat distribution systems.

What has the government done so far?

Some success has already been achieved through the Public Sector Decarbonisation Scheme, through which the Department for Energy Security and Net Zero (DESNZ) made over GBP1 billion in grants available to public sector organisations like Hospitals and Universities to help them reduce their carbon emissions. A further GBP1.4 billion of funding will be made available before 2025. At DLA Piper, we have successfully delivered a number of projects where our clients install heat pumps, solar panels, batteries and other innovative new technologies at NHS Hospitals throughout the UK, along with energy efficiency measures, which help both reduce carbon emissions and save the public sector millions of pounds on energy bills.

On the other hand, the government’s GBP450 million boiler upgrade scheme, which encourages households to upgrade their gas boilers to heat pumps, has received an underwhelming response. Only 55,000 heat pumps were installed in 2021, compared to a staggering GBP1.5 million gas boilers.⁵ The scheme provides households with a grant of GBP7,500 (recently increased from GBP5,000) to allow people to install heat pumps and other low-carbon boiler replacements. But with the actual cost of a heat pump typically exceeding GBP12,000, and high electricity prices increasing running costs, there is little-to-no real financial incentive for households, and take-up of the scheme has been poor.

Cities like Manchester, Leeds and Bristol are already well underway with ambitious projects to deliver district heating to both civic and commercial buildings at the heart of these city centres. Whilst many of these projects are not currently zero carbon, using gas or biomass to produce heat, systems often have built-in flexibility to allow for new low-carbon technologies to generate heat in the future, and to allow for future expansion. However, only 2% of heat in the UK is currently delivered via heat networks.

When it comes to hydrogen, the government acknowledges that further research is needed and plans to explore the potential of using hydrogen for heating buildings in the next few years, through neighbourhood and village trials. More recently, the government has deferred making a strategic decision on the role of hydrogen in decarbonising heat until 2026.

In the 2022 Autumn statement the government announced GBP6 billion of additional funding for energy efficiency between 2025 and 2028 and a new “Energy Efficiency Taskforce” to deliver energy efficiency measures.⁶ The taskforce will advise on delivery of the government’s ambition to reduce total UK energy demand by 15% from 2021 levels by 2030, across domestic and commercial buildings and industrial processes.⁷ Detail is currently lacking, however, as to how the taskforce will go about achieving this ambition or how the funding will be spent.

How will the Energy Act 2023 help deliver the “Triple H” strategy?

The Energy Act 2023, which received Royal Assent on 26 October 2023, sets out ambitious plans to deliver a cleaner, more affordable, and more secure energy system. The Energy Act is intended to be the driving force in implementing the Government’s “Triple H” strategy for the decarbonisation of heating.

Heat networks - The Energy Act sets out plans for the regulation of heat networks which, if implemented, will radically transform the way that heat networks in the UK are deployed. In our next article in this series, we consider the Energy Act in more detail and whether it will be the silver bullet needed for the expansion of heat networks in the UK.

Heat Pumps - The Energy Act also paves the way for a new Low-Carbon Heat Scheme, which will place an obligation on manufacturers of fossil fuel heating appliances to meet a rising standard for low-carbon heat pump sales as a proportion of their total appliance sales. Manufacturers will be able to meet the new standard either through sales of their own heat pumps, or by purchasing credits from other heat pump manufacturers, or a mix of both. The scheme is intended to help build the heat pump supply chain, encourage market competition and drive down the cost of installing heat pumps.

Hydrogen - Finally, the Energy Act will introduce legislative changes to facilitate a hydrogen village trial. The village trial will convert a large village of around 1,000-2,000 properties to hydrogen for heating instead of natural gas. This will involve replacing gas boilers with hydrogen-compatible equivalents, making any other adjustments required to properties, and piping hydrogen to premises for the trial period through the existing gas network, which will be appropriately modified to ensure it can safely transport hydrogen.

Conclusion

The Energy Act 2023 is certainly a positive step in the right direction on the UK’s journey towards zero carbon heating. But will it deliver the step-change needed to ramp up the roll out of the “Triple H” strategy on the massive scale needed?

There is currently no clear date when the sale of new gas boilers will be banned. The Future Home Standard says the government intends to set performance standards at a level which means that new homes will not be built with fossil fuel heating, such as natural gas boilers. These standards were originally intended to come into effect from 2025.⁸ Prime Minister Rishi Sunak, however, announced in September 2023 he will delay banning oil and LPG boiler installations in off-grid homes until 2035. It is not currently clear when the sale of gas boilers will be phased out for all types of buildings. There have been calls in the heat pump industry for a firm commitment from government on the phasing out of fossil fuel boilers, to give investors and supply chains greater visibility on when the demand for heat pumps will start to properly ramp up.⁹

There are also major concerns about the capacity of the grid to accommodate the huge increase in demand when we all start plugging our shiny new Teslas and heat pumps into the network. A great deal of investment will be required to ensure the electricity system can accommodate increased electricity demand to enable heat pumps to connect to the network.

The government has also deferred its decision on the role of hydrogen until 2026. Meanwhile, plans for the village of Whitby in Cheshire to be used to trial the UK's first hydrogen-powered community have been scrapped after residents objected. Hydrogen sceptics continue to raise concerns around cost, safety, and continued reliance on fossil fuels. This lack of certainty around the future role of hydrogen makes it difficult for stakeholders to make long term strategic plans about where best to deploy resources and investment.

When it comes to heat networks, we will explore in our next article the challenges faced in scaling up heat networks and whether the Energy Act goes far enough to overcome those challenges.

If we are to meet our 2050 net zero target, the current pace of change needs to rapidly accelerate. If supply chains are to advance business plans and invest resources into developing the skills needed to deliver these new technologies, they need certainty as to when the government’s policies will be implemented, when new projects will come to market, and how they will be funded.

Meanwhile businesses and consumers need to be properly incentivised to invest in energy efficiency measures and upgrading their heating systems to lower carbon technologies, whether that’s through grant funding, tax incentives, revenue certainty or the resultant savings on energy bills.

There is no doubt that whilst the road to the decarbonisation of heat may create many challenges ahead, it also creates enormous opportunity.

At DLA Piper, we are proud of being at the forefront of this new market and over the last decade have been working with businesses to deliver decentralised energy networks and energy efficiency projects, helping to reduce energy bills and carbon emissions. We are excited about the prospect of new projects and new innovative technologies coming to the market and working with clients to create sustainable, affordable and secure energy systems of the future.

¹ The National Infrastructure Commission is an Executive Agency of HM Treasury and provides impartial expert advice to the UK Government on long term infrastructure challenges. See page here
² Source: National Grid Electricity System Operator
³ Source: Society of Motor Manufacturers and Traders
⁴ Source: HM Government, Heat and Buildings Strategy October 2021
⁵ See page here
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