The coronavirus pandemic has hit the UK economy hard. Spending cuts and tax hikes to cover the £300 billion coronavirus bill are predicted, alongside further rises in unemployment. The result is an increasingly bleak outlook for household incomes and Treasury finances.
In response OFTEC warns that unless measures to cut carbon emissions from home heating are made affordable for many more households, climate change targets will not be met.
For the past six years, the domestic Renewable Heat Incentive (RHI) has offered financial support to encourage homeowners, particularly those off-the gas grid, to install green heating technologies.
However, the scheme’s success has been limited. This is largely because the majority of consumers can’t afford the average initial investment of over £10,000¹ for systems such as heat pumps, even though this is partially recouped through the incentive payments paid over seven years after installation.
Government is currently consulting on the details of a replacement for the domestic RHI, which ends in 2022, that will provide ‘Clean Heat Grants’ of £4,000 to part cover the installation costs of heat pumps, and in limited cases biomass solutions.
While OFTEC recognises that grants could help overcome current cost barriers for some, the trade association says progress on decarbonising homes is likely to continue to falter unless government takes more decisive steps to encourage a competitive market for low carbon heating technologies. Driving down end costs for consumers is critical to achieving high take up and ensuring the transition to low carbon heating is fair and available to all.
OFTEC CEO Paul Rose explains: Even before the coronavirus hit, many rural, off-gas grid households fell into the low to middle income bracket and suffered deeper levels of fuel poverty.
UK figures show almost 70% of these households have less than £1,500 in savings, while over 55% have no savings at all². Many more are in debt so even with a £4,000 grant, most would have major difficulty finding over £6,000 to part fund an average air source heat pump installation.
The pandemic is also draining Treasury reserves, so funding needs to be focused on maximising take up. Rather than continuing to subsidise expensive technologies, it makes more sense for government to set legally binding carbon intensity targets that all new and replacement heating installations must achieve. These would get stricter over time, in line with the Government’s net zero target.
This approach would promote innovation and competition, opening the door to other, potentially more affordable low carbon heating solutions which are already in development.
Renewable liquid fuels are just one of the low-cost options which so far have been excluded from government support. Extensive independent research shows these fuels offer the most cost-effective way to decarbonise heat from oil using homes. A 30% blend of biofuel and kerosene could be in use by 2027 and a 100% fossil-free fuel by 2035 – 15 years ahead of the UK’s net zero ambition. It is even possible that these timescales could be accelerated significantly with the right regulatory approach.
Paul Rose concludes: With key decisions on heat policy looming, it’s vital that government balances the need to take action with a pragmatic assessment of the new post-COVID 19 reality.
Now, more than ever, consumers need affordable, simple to implement solutions. Poor choices at this stage could lead to further stalling of the decarbonisation process and the unfair discrimination of many rural households who are already struggling to affordably heat their homes.
¹ BEIS Domestic Renewable Heat Incentive monthly deployment data January 2020
²Savings and investments (nominal) of adults in low to middle income households (UK). Resolution Foundation 2020.