The UK will meet its next carbon budget, but don’t even think about stoking the fire or turning up the heating in celebration, because the subsequent target – to reduce 1990 carbon emission levels by 37 per cent by 2020 – is anything but a dead cert; in fact, it’s looking all but unattainable.
To hit that 2020 target – and all further emissions targets – something big has to change, and sooner rather than later. In short, the heat is on.
Meeting future carbon budgets and the UK’s Climate Change Act 2050 target (to reduce emissions by at least 80 per cent of 1990 levels by 2050) will mean cutting domestic emissions by at least 3 per cent a year. This will require significantly more stringent measures – namely, the elimination of all domestic heating emissions, which currently account for 20 per cent of the nation’s overall carbon emissions.
New heat alternatives
Analysis of ways in which the energy system might be adapted to meet carbon targets shows the elimination of emissions from buildings to be more cost-effective than deeper cuts in other energy sectors (such as transport). New heat alternatives and business models accordingly need to be found for domestic natural gas heating systems as a matter of urgency. A Utility Week, Network and Energy Systems Catapult roundtable recently discussed what form these new business models might take, and what they could mean for the industry going forward.
Delegates agreed that enhanced construction standards make for increasingly energy-efficient new buildings, but that the legacy building stock (around 26 million homes, over 90 per cent of which are expected still to be in use in 2050) has relatively poor thermal performance. Even if building replacement was desirable, the cost would be prohibitive, and the carbon emissions associated with the construction process considerable.
At a structural level, a building’s fabric, its condition, available space and, vitally, consumer preferences are all critical factors, said the Catapult’s John Batterbee. At the network level, the existing systems in place, the preferences of communities, available energy resources and number of buildings in question all play a part too.
No “one-size-fits-all”
To further complicate matters, as Kelly Butler of BEAMA pointed out, there is no central authority; a complex web of product and service companies, infrastructure developers and home owners must all be involved in each case. In short, it’s not a one-size-fits-all scenario by a long stretch.
As a result, delegates agreed there is a vacancy which needs filling for a lead contractor in the heat network space to make energy services work effectively and efficiently. The failure for one to emerge to date was attributed to neither energy suppliers nor technology providers currently seeing it as an opportunity.
In response to the immediate need for carbon efficiency, the Catapult is developing alternative business models, selling the services enabled by energy rather than the energy itself. One concept it tested was the idea of buying a warm home – consumers could keep their whole home warm for one price, and just part of it warm for another.
Ian Rose, professional services director at PassivSystems, was enthused by the idea, but warned of the obstacles: “The challenge is this isn’t a normal commercial market. We need a mechanism to reduce market distortion and a new long-term framework – we need long-term confidence in place.”
Widely unpopular
Previous emissions reductions have been relatively simple and cheap, and delivered clear benefits to households. But this, and other such options, would mean more initial disruption for households for less obvious long-term benefits. John Farrington, senior manager at EDF, warned that policymakers are likely to be reluctant to enforce changes considered widely unpopular.
He said: “I think we have to work in a way that we never have before. We need an integrator, and they don’t necessarily already have to be in the supply chain. They must be responsible for bringing the right assets and components, and finding which combination gives the best effect at the lowest cost. We need to move to an aspirational space, because there’s no willingness to pay at present.”
It was agreed that we need ways to reduce emissions from domestic heating that are more appealing to consumers, thereby making the transition to low-carbon heating much easier to deliver in practice – and the time to develop these is now.
Chicken and egg
Any low-carbon solution would also need to be underpinned by sound engineering, high-quality design, appropriate regulation (technical, consumer and economic), and financially viable business models.
But the problem is something of a chicken and egg situation. Retailers could take a more customer-centric approach to decarbonisation in their business models, and low-carbon heating product companies could develop more customer-centric mainstream products – but neither is likely to invest without some confidence that a suitable policy regime is on the horizon.
The remaining discussion was rooted in how policy would have to be in place for the industry to be best positioned to react. When it comes to heat, the roundtable noted that the major challenge for government is to guarantee the performance of new services so as to build the customer’s trust that expectations can and will be met, allowing retailers to play a high-value role in enabling decarbonisation and, in the right policy environment, to do so profitably, in the same way that low-carbon car manufacturers are already doing.
Key takeaways
- The right carbon-friendly system depends hugely on existing network and building factors. There is no one-size-fits-all solution.
- It’s not just about new-builds – 90 per cent of 26 million homes with poor thermal performance are expected still to be in use in 2050.
- With no point of integration for heat, retailers have an opportunity to be that link between the customer and the supply chain.
- There is a need for a lead contractor in the heat network space to make energy services happen effectively. But energy suppliers and tech providers don’t see this as an opportunity.
- We need to address this as a matter of urgency to have any hope of meeting future carbon budgets.
Views from the table
Kelly Butler, marketing director/deputy chief executive, BEAMA
“You have to build a system around the passive consumer, because the majority of people just don’t care. A targeted, regional approach is the key. If we don’t react now, we’ll still be sitting here discussing this same thing in five years’ time.”
Will Humphreys, heat strategy policy lead, BEIS
“It would be interesting to see new players in the energy service market, but however we proceed, we do need to think about equalising services.”
Ian Rose, professional services director, PassivSystems
“How will energy market regulation support new energy services? How do you split out the heat? Do we need to split out the whole energy supply? That would change the whole market.”
Matt Lipson, head of consumer insight, the Energy Systems Catapult
“People care a lot more about their service than how it’s delivered. We need to change the conversation to talk about the experience, not the heat itself.”
Pamela Taylor, partner, Ofgem
“There are lots of companies trying to figure out how to deploy new technologies and business models, but what we’re not seeing a lot of yet is the next stage – actually looking at regulatory frameworks and how it would all work in practical terms. There are plenty of new models that don’t have the supplier at the centre, which is interesting.”