Heat strategy coming at ‘worst time’

After countless false dawns, it seems that the Heat & Buildings Strategy is finally set to see the light of day. But, industry experts tell Utility Week that government’s indecision has now led it to publish this crucial document at a very difficult time. David Blackman explores the likely key points and the level of detail expected.

In his rare spare moments for reflection currently, business secretary of state Kwasi Kwarteng no doubt wishes he had published the Heat & Buildings Strategy last summer

Those close to his Business, Energy & Industrial Strategy (BEIS) department say that the strategy, originally due to appear in mid-2020 before the pandemic upended everyone’s schedules, has essentially been written for months.

However, concerns expressed by a knot of Conservative backbench MPs, who have now coalesced around the recently launched Net Zero Watch campaign, reportedly prompted Boris Johnson to pause its publication for a fresh look during the summer.

The prime minister expressed his reservations when he told MPs in July that cutting domestic carbon emissions was “very difficult to pull off”.

The long-awaited heat strategy is widely expected to be published early next week. We have, of course, heard these predictions before but, with just two weeks to go until COP26, time is running out for BEIS.

Any headaches surrounding a major revamp of heating policy during the summer will be compounded now that the weather is turning colder and the wholesale price of gas has soared.

Mike Foster, who was a Labour minister prior to his current role as chief executive of the Energy and Utilities Alliance, says: “It’s the worst time to be putting out any policy on energy. In the last couple of weeks, they will have been reading and rereading the strategy to ensure there are no hostages to fortune.”

What to look out for

There will be two key questions for the industry. The first is what indications the strategy will provide about how the government sees the future balance of home heating between hydrogen, heat pumps and heat networks. The second is the signals it will give on shifting levy costs off electricity bills.

On the first issue, junior BEIS minister Lord Callanan offered an insight into the government’s thinking during a fringe session at the Conservative party conference last week.

Pronouncing himself a “bit of a sceptic” about hydrogen, he told the meeting that it was “pretty much impossible” to see it playing a major role in home heating.

Bean Beanland, president of the Ground Source Heat Pump Association, says the minister’s comments shed light on thinking within BEIS about the contribution that hydrogen will make to home heating.

They also reflect the state of play in terms of the relative maturity of hydrogen and heat pumps as technologies, he says: “It will to be very, very difficult, to get to the point where we have a robust supply of genuinely green hydrogen by 2030 so electricity will have built up a significant position by the time that decision is made.”

Josh Buckland, who advised Theresa May on energy policy before his current role as partner at public affairs company Flint Global, agrees.

“At the end of the day, heat pumps are deployed in homes now and it is much harder to start deploying hydrogen immediately.”

Beanland goes further, arguing that the picture won’t even be clear in 2026, which the government has set as its target date for its decision on the role of hydrogen in heating.

The potential importance of the need to reserve hydrogen for the toughest to electrify sectors, such as heavy industry, has been underlined by the ongoing gas pike crisis, he says: “Energy intensive industries will be crying out for hydrogen and the last priority will be heating peoples’ homes.

“We can concentrate that on areas where heat pumps can’t perform, such as heavy transport, which are a potentially better use of a very valuable fuel.”

However, given the challenges involved in ramping up the heat pump roll out to reach the government’s target of 600,000 per annum, BEIS’ former head of energy strategy Adam Bell, reckons it is prudent for the government to keep hydrogen as a home heat option.

Bell, who has recently joined consultancy Stonehaven as head of policy, says: “They need a fall-back option so can’t rule out hydrogen, which is why they don’t expect to make choice between heat pumps and hydrogen yet because they don’t need to and retaining the option is extremely valuable.”

It is hard too to see the government performing a volte-face on its position so soon on from the publication of the hydrogen strategy only two months ago, says Foster.

“I don’t think that much has changed in decarbonisation policy since the hydrogen strategy came out. I don’t believe it will be ditched.”

Green policy costs

On the question of levies, comments by Lord Callanan at the Conservative conference indicate that the government recognises the need to look at shifting costs from electricity to gas, says Buckland.

But he believes that the strategy is likely to outline the options to be considered rather than specifying a way forward.

Beanland agrees that the thorniest decisions on this issue will be put off in the heat strategy.

“We expect it to be picture of where we will be by 2035 and how we get there. They don’t want to significantly increase the cost of gas when we have record wholesale costs.”

However, while the industry wants to see such levies shifted to general taxation, there should be some movement to shift these costs onto gas bills, he says: “We have to start to persuade people that it will ultimately be more cost effective to use decarbonised fuels than fossil fuels.

“There don’t have to be very big immediate signals and we may end up with a split between fossil fuels and general taxation but we’ve got to get back to understanding the concept of ‘polluter pays’.”

And while the current fuel bills spike provides the worst imaginable backdrop for the heat strategy announcement, it reinforces the need to lay down a firm strategy, Beanland says: “The central thing is to separate out strategy and tactics. If the strategy to get to net zero is sound and fixed, the tactical response to things on the ground can be dealt with.

“Clearly tactically, it’s a nightmare but strategically we have to come up with medium and long term plans that enable us to make the most of this decade and adjust in 2030 when we know what the situation is with hydrogen.”

And it will be crucial that the government starts to properly engage the public in the debate about home heating, says Foster: “The bugbear with this debate is that the public haven’t yet really been told what the bills will be, how they are expected to pay and what they will be expected to pay. We don’t really know how it is going to be financed.”

Next week could prove the start of a necessary but very difficult conversation.