Decarbonisation of heat ‘will cost more than £65bn’

The government has “significantly” underestimated how much decarbonising the nation’s homes will cost, the House of Commons environmental audit committee (EAC) has warned.

The caution is contained in the committee’s new report on energy efficiency, published today (22 March) which says efforts to hit net zero carbon by 2050 will hit a roadblock unless urgent action is taken to improve energy efficiency of homes this decade.

The report estimates that the average cost of retrofitting a home could be £18,000, before the addition of a heat pump.

“Given that there are around 19 million properties in the UK in need of some energy efficiency upgrade, we consider that the overall cost to meet net zero from domestic buildings could be far more costly than the government’s estimate of between £35 billion and £65 billion.”

The committee recommends that the Department for Business, Energy & Industrial Strategy (BEIS) reviews its cost projections on energy efficiency, factoring in the cost of replacing existing heating systems with low-carbon alternatives.

As part of this exercise, the department should consult the building and retrofit sector to ensure that its “top-down modelling reflects real-world costs”.

In addition, the department should set out the proportion of efficiency improvements it expects to be paid for from the public purse.

The EAC recommends that the government reviews the feasibility of its aspiration that all homes should achieve a minimum of Energy Performance Certificate Band C rating by 2035.

More broadly, the report says that while the government has some promising new energy efficiency policies such as the Home Upgrade Grant promised in 2019 election manifesto, overall policy is “piecemeal and not delivering at the scale or pace required”.

And existing policy is “not coherent”, the committee says, with costs like the Energy Company Obligation (ECO) “disproportionately” hitting electricity bills.

The report calls for a review of whether ECO is still delivering value for money and whether the energy bill is the “most appropriate, fair and effective means” of funding the scheme because the poorest households pay disproportionately towards its costs through their energy bills.

“Disproportionate use of this regressive funding mechanism is hampering the adoption of low carbon heating options such as heat pumps,” it says.

The EAC recommends that the government should consult on the balance of levies between electricity and fossil fuel heating sources, like gas, in order to encourage the uptake of electric heat pumps.

To help rectify existing policy gaps, the committee calls for the urgent publication of the delayed Heat and Buildings Strategy, which a BEIS official admitted last week is likely not to be published until after the Scottish Parliament elections in May.

This strategy, when published, must set out an “enduring” plan for at least the next decade to give industry and tradespeople time to upskill and give people the right signals to invest in energy efficiency, says the committee.

Green Homes Grant

The report also slams what it describes as the “botched implementation” of the Green Homes Grant.

It concludes that while welcome, the troubled energy efficiency voucher scheme has “been poorly implemented, beset by administrative problems and delays which fundamentally jeopardise delivery of the scheme’s ambition”.

“It is too short term and is now causing damage to the sector. The impact of its botched implementation has had devastating consequences on many of the builders and installers that can do the work, who have been left in limbo as a result of the orders cancelled and time taken to approve applications.”

The committee says the scheme must be “urgently overhauled” and extended to several years.

This needs to be included in the Heat and Buildings Strategy as an urgent priority.

And it says the money earmarked for additional years of the Warm Home Discount scheme could be better applied to support energy efficiency objectives more directly, through Home Upgrade Grants or the ECO.

Reaction

Michael Lewis, Eon UK chief executive, backed the committee’s call for a long term strategy that will provide the installation and manufacturing supply chain with the right level of confidence to invest.

He said: “We’ve had lots of short term schemes which have discouraged investment just as quickly as they’ve encouraged it. What we really need is for government to drive the supply chain for the long term. We must not forget this is a marathon, it is a 30-year ambition. We don’t have to do it all in two years but we have to get moving in the first two years and we have to identify where the gaps are and quickly train people up to deliver that.”

Emma Pinchbeck, Energy UK chief executive, said: “As this report underlines, the UK’s legal net zero target is not deliverable if we fail to make our buildings energy efficient. As we outlined in our own report, energy efficiency will not only reduce emissions but save consumers hundreds of pounds and create healthier, more comfortable homes.

“Retrofitting millions of properties is a massive challenge, but the benefits are enormous too. We hope the government will accept the committee’s recommendations and give energy efficiency the effort and investment it deserves in an ambitious heat and buildings strategy.”

Jess Ralston, analyst at the Energy and Climate Intelligence Unit, said: “Despite government talking a good game on net zero, it is clear this is failing to manifest into action to cut carbon from our homes. Rushed policies that are chopped and changed seemingly at random risk undermining public enthusiasm for fixing up our leaky homes, damage that could harm future schemes for years to come.

“The benefits of getting this right are crystal clear; hundreds of thousands of skilled jobs, lower bills, less carbon and more comfortable homes. The only barrier to climate-proofing our homes is government inaction, with every year of delay only making the problem worse.

“There is no way of getting to net zero without tackling emissions from homes. With a recent litany of policy decisions undermining the UK’s credibility on climate ahead of this year’s crucial COP26 summit, it would be a mistake to add another to the list.”