Accelerating heat decarbonisation in 2024
There was significant progress on energy and heat policy during 2023. We saw the reemergence of a dedicated energy department in the form of the Department for Energy Security and Net Zero. The Energy Act 2023 passed through Parliament, establishing the Future Systems Operator and enabling a framework for Energy Smart Appliances. The UK government provided additional funding to 2027/28 for low carbon heating through the extended and expanded Boiler Upgrade Scheme. The Future Homes Standard consultation escaped pre-election and should mean all new builds have low energy bills and electric heating by at least 2027. And we saw the Home Energy Model, which includes heat batteries for the first time.
Beyond the world of policy, there was rapid solar deployment at domestic level and beyond, with UK solar capacity increasing from 14.3 GW to 15.1 GW. The costs of solar panels have come down markedly and, with elevated energy prices, people can see a speedy return. Banks and building societies are offering incentives to improve homes such as zero interest loans or free Energy Performance Certificates.
What might 2024 have in store for heat decarbonisation?
Valuing and automating flexibility.
The emerging energy system is going to rely on demand side flexibility much more than people have grown accustomed to. We are seeing this emerge through the Demand Flexibility Service (DFS) from National Grid ESO. Even in just its second year of operation, the DFS has developed quickly, moving beyond people manually turning off appliances to providers making automated changes to people’s heating and electric vehicle charging schedules.
There is a risk that the regulatory framework fails to keep pace with technology in the world of flexibility. Energy suppliers are increasingly encouraging people to consume electricity at night through time-of-use tariffs but the DFS events normally occur during peak periods. Should time-of-use energy tariffs or direct payments from the system operator drive people’s decision-making? Electric batteries are considered a generation technology by the regulatory framework. Does this mean regulating companies that operate batteries through aggregation as energy suppliers or generators or something else?
To help answer these kinds of questions and promote a coordinated approach to flexibility, the energy sector would benefit from a flexibility champion. There are various strands of policy work looking at flexibility, including the Review of Electricity Market Arrangements (REMA), market-wide half-hourly settlement, the Home Energy Model and reform of Energy Performance Certificates. Who will take on the role that Nick Winser CBE accomplished so well for unblocking electricity network queues?
Decarbonising buildings through low carbon electric heating.
Decarbonising existing buildings is much more complex than ensuring new homes are low carbon. Every home connected to the gas grid today is a future home to retrofit. The Future Homes Standard should mean new builds are retrofit-proof and “low carbon-ready” for when the power system is fully decarbonised in the 2030s. Based on the initial proposals, it is likely that new homes will continue to be built to 2022 standards through to 2027. We can expect an argument in 2024 as to whether this is a sufficiently ambitious transition or whether house builders can move more quickly.
Trials show that heat pumps can work in every type of UK home, including those of traditional solid wall construction. This is not the same as saying that heat pumps will be the best option in every home. There are a limited number of low carbon alternatives to heat pumps and heat networks. Highly flexible heat batteries for space heating are one option that make the most of low carbon electricity and have the advantage of not requiring outdoor space. Heat batteries for hot water require roughly half the internal space of the equivalent capacity hot water tank. The UK government will need to work out which heating systems reduce carbon emissions and include them in schemes such as the Boiler Upgrade Scheme. Heat batteries are a prime candidate for an expanded Boiler Upgrade Scheme.
Another big area of focus for 2024 is on engineers. Installing heat pumps in new builds and existing homes at the same time as upgrading the electricity grid will mean training up or bringing in thousands of engineers. For heating, these engineers will need to understand heating systems, energy efficiency and flexibility. Energy companies are currently poaching engineers from each other to meet demand, bidding up wages and making the heating sector a very attractive career prospect for those leaving school and looking for a career change. This should mean heat pump installations start to increase and the Boiler Upgrade Scheme breaks the 1,000 applications per week barrier during 2024.
The evolving role of the state.
Coordinating the scale of change is a formidable challenge for utilities. This could mean an expanding role for central government, regulators and local authorities to support the private sector. The UK government has since committed to developing a spatial plan for electricity and set out deep reforms to the planning regime for electricity infrastructure. This reflects a growing realisation that achieving net zero requires a redefined role for the state. In recent decades, energy policy has involved civil servants and politicians devising frameworks such as competition policy, price controls and regulation to incentivise or constrain the private sector. The aim has been to drive down costs and increase innovation. While this may have worked when the focus was on doing the same thing more efficiently, it is unlikely to work for the net zero transition.
To deliver the speed and scale of change required for net zero means the state setting long-term goals and developing an industrial policy that makes more active choices. This includes choices about competing technologies and infrastructure. This more active and long-term role for the state is needed across energy infrastructure. Prime examples are upgrading distribution and transmission infrastructure and supporting 25 million homes to change their heating systems. As well as building a new, smart electricity system, the state will have a major role to play in decommissioning and repurposing parts of the gas network. This process started with the uncertainty mechanisms in the RIIO-ED2 price control for Distribution Network Operators and will continue with the RIIO-3 price controls for the gas networks. Expect to hear more about depreciation rates for regulated asset values and uncertainty mechanisms during 2024.
Learn more about heat flexibility
Thermal Storage UK will actively promote the role of heat flexibility and heat batteries throughout 2024. We will respond to consultation. You can keep up-to-date on our Publications page. And we are already scheduled to speak at a number of events, including:
Tuesday 5 March 2024 at Futurebuild on “Decarbonising Heat in Buildings – How do we Adopt a Technology Agnostic Approach?”
Thursday 7 March 2024 at Futurebuild on “Helping the electricity system to secure flexibility from electric heating systems”
Tuesday 21 May 2024 at Utility Week Live in Birmingham on “Unlocking the flex potential of domestic customers and decarbonised heat”
We’ll also be at Solar and Storage Live in September 2024.
Come join us and learn more.
A version of this blog was originally published by Utility Week - see here for the original article