Decisions, decisions, decisions
It is now 4 months since the new UK government was elected. In that short time, there has been a flurry of activity from the Department for Energy Security and Net Zero (DESNZ) on generation and governance, including
making onshore wind and solar easier to build
committing to a cap and floor regime for Long Duration Electricity Storage
setting up GB Energy and the Clean Power Mission
bringing the National Energy System Operator (NESO) into the public sector
progressing with connections reform - at least for generation assets
The new government has reaffirmed its manifesto commitment to achieving clean power by 2030, which NESO has said is possible if the government and industry both speeds up delivery and gets everything right over the next 5 years. And DESNZ has received a significant uplift in capital and day-to-day spending from the recent Budget to allow it to crack on with the mission.
However, there has been less progress on the demand side of the equation. The new government has made progress on heat networks and funding for social housing decarbonisation, notably adding heat batteries as an eligible technology. But many big policy questions remain unanswered. By Spring 2025, we will know more about how the UK government intends to progress in the following key areas. There are plenty of decisions to make.
Future Homes Standard
Setting aside important debates over the ambition of the Future Homes Standard on insulation, solar and flexibility, the most important question is around implementation. How long will England and Wales continue to connect new homes to the gas grid for space heating and undersize the electricity connection to new estates? If the government passes the FHS legislation in 2025, they are likely to give housing developers at least 18 months to get up to speed with the new building regulations. That means continuing to add new builds to the list of properties that require upgrading from gas until 2027.
EPC reform
Energy Performance Certificates (EPCs) are out-of-date. EPCs often penalise electric heating and fail to reflect the lower carbon and potentially lower bills from switching to heat pumps or heat batteries. EPCs do not reflect the value of flexibility from assets such as thermal storage, batteries or EVs - or from smart time-of-use tariffs. And EPCs unnecessarily rely more on modelling than measurement of the property. Getting EPC reform right is crucial to helping people understand their home, to supporting banks and mortgage lenders to finance home improvements and to ensuring that landlords know what to do with their properties.
Boiler Upgrade Scheme
The Boiler Upgrade Scheme (BUS) is the signature support package for homeowners to switch away from fossil fuels, supporting hydronic heat pump installations with up to £7,500 per home. Two decisions now loom. The first decision is how much money to allocate to the BUS during 2025 - 2027. If the number of heat pump installations increases, there might need to be a reduction in the value of the grant per installation. The second decision is whether to expand the BUS to other technologies such as heat batteries and air-to-air heat pumps to allow more homes to electrify their heating. This would require changes to the BUS legislation.
Fairer electricity pricing
Electricity prices in the UK are artificially higher than gas prices, in part because electricity bills shoulder the weight of the energy system transformation and in part because there is no carbon tax on gas. This leads to the perverse outcome of making it less attractive for people to switch away from imported gas to British electricity. Will the new government consult on making electricity prices fairer to encourage the uptake of electric heating and electric vehicles?
Alongside this, the Review of Electricity Market Arrangements (REMA) is still progressing through DESNZ. A proposal to switch to some form of locational pricing would not be surprising, as that better reflects where electricity is generated and could see lower prices for the communities that host most of the new renewable infrastructure. Such a change would need to reassure renewable developers to avoid a costly pause in investment.
Warm Homes Plan
The government’s manifesto committed to decarbonise 5 million homes by 2030 through the Warm Homes Plan. This is expected to involve both energy efficiency upgrades and a switch to low carbon heating. To achieve 1 million home upgrades per year is likely to mean more coordinated switching, with a greater role for local authorities. This will need additional resources for local authorities, many of which are struggling financially and are cutting back on basic service provision.
Unfortunately there are no signs that the new government is willing to make the big decision on whether there is any role for hydrogen in home heating before 2026.
Decisions, decisions, decisions!