‘Inertia’ on heat is driving up costs for consumers

Inertia resulting from uncertainty over the government’s plans for the decarbonisation of heating is driving up costs for consumers, Energy UK has warned.

The trade body said delaying the rollout of heat pumps by just two years would see 2.9 million fewer heat pumps in operation by 2030, meaning the UK would have to import £3 billion of additional gas between 2026 and 2030.

The government has vowed to make a strategic decision on the future of heating in 2026, in particular over the role that hydrogen boilers will play in the decarbonisation of domestic heating.

This date was intended to allow time to begin trials of the conversion of gas networks to hydrogen, including the creation of the UK’s first ‘hydrogen village’. Speaking to Utility Week this week, energy minister Lord Callanan confirmed that a decision on the village trial will be taken before Christmas.

The only remaining candidate for this title is Northern Gas Networks’ project to convert 2,000 homes and business to hydrogen in parts of Redcar in North Yorkshire from 2025. A competing proposal by Cadent for Whitby in Cheshire was cancelled earlier this year because of local opposition.

Energy UK is concerned that the wait for a decision has left the market for low-carbon heating, and in particular heat pumps, “constrained by uncertainty.”

The organisation quoted the Climate Change Committee’s (CCC) latest annual progress report, which stated that “ongoing uncertainty about heat is stalling progress”. The committee said there are “low- and no-regrets actions which the government should pursue now regardless of any future decision on hydrogen”.

“This high degree of uncertainty is increasing the cost of the energy transition by hampering future system modelling and planning, innovation in flexibility markets and demand side response, and delaying the opportunity for customers to access the benefits of low-carbon heating systems in the near-term,” said Energy UK.

“With manufacturers, installers and households unable to take informed decisions about their investment and business plans, the market is suffering from inertia.”

Energy UK said if this “sluggish growth” delays the rollout of heat pumps “even by just two years,” there will be 2.9 million fewer heat pumps in operation by the end of the current decade. As a result, UK would have to import £3 billion worth of additional gas between 2026 and 2030.

The trade association said uncertainty over the future of heating is also causing challenges for system planning. It noted that the “heat pump led” Consumer Transformation scenario from the Electricity System Operator’s Future Energy Scenarios would see an additional 3.6 million heat pumps installed by 2030 when compared to its “hydrogen heavy” System Transformation scenario.

Energy UK said uncertainty could delay investments in the power grid, increasing already rising constraint costs for the ESO at the transmission level. Whilst the RIIO framework includes uncertainty mechanisms to allow networks to secure additional funding for grid upgrades during the course of price controls, the association said these mechanisms typically operate slowly and are not well placed to enable timely responses to new developments.

It urged the government to “take action to address this uncertainty and work alongside industry to get the market moving at pace.”

In its latest national infrastructure assessment, the National Infrastructure Commission said there is “no public policy case” for using hydrogen for domestic heating and urged the government to rule this out as an option.

CCC director James Richardson recently predicted that hydrogen will only play a “niche role” in domestic heating. Responding to the CCC’s annual progress report, the government itself said that “no one should hold back” on installing a heat pump “on the basis that hydrogen may become an option later”.