Decarbonising home heating: Unconvincing progress on Govt targets, PAC report finds

The Public Accounts Committee (PAC) has published its report on the decarbonisation of home heating, which represents one of the biggest challenges to the Government in achieving net zero. It will require almost all 28 million UK households to engage in the transition. Households using fossil fuel heating, such as gas boilers, will need to switch to a low-carbon alternative, such as heat pumps.

The PAC is not convinced that progress to date on Government's aims to reach 600,000 heat pump installations per year by 2028 matches its ambitions. Its report finds that consumers still face too much complexity and confusion to make informed decisions about installing a heat pump, with Government facing a substantial challenge to increase the number of trained heat pump installers to support an elevenfold increase in heat pump installations.

You can also read the attached report here.

You can find out more about the inquiry, including oral and written evidence, here.

Conclusions and recommendations

1. The cost of buying and running heat pumps is a substantial barrier to take-up for most households, at a time when incomes are already stretched.Fewer households than expected have installed a heat pump to date. Nearly 18,900 heat pumps have been funded in England and Wales through the Boiler Upgrade Scheme between May 2022 and December 2023, less than 40% of the 50,000 expected installations, causing DESNZ to underspend by £100 million in the first year of the Scheme. DESNZ recognises that the installation and running costs of heat pumps are the main reason for low uptake. At around £11,600, an average heat pump is currently four times more expensive than a gas boiler. While installation costs have fallen by up to 6% since 2021, costs need to come down much quicker if the government is to achieve its target of a 25% reduction in installation costs by 2025. Heat pumps are also more expensive to run than boilers because of the cost of electricity being higher than gas. DESNZ has delayed plans to rebalance the cost of electricity and gas by nearly two years, stating that doing so is difficult. We are concerned that most households receiving the government's £7,500 Boiler Upgrade Scheme grant might be from more affluent groups, as they are more likely to be able to afford the additional costs and may have installed a heat pump even without the grant. DESNZ is evaluating uptake of the Boiler Upgrade Scheme grant among different socio-economic groups, for which interim results are due in the second half of 2024.

Recommendation 1a: DESNZ should, by end-January 2025, write to the Committee setting out the findings of its evaluation of heat pump take-up among different socio-economic groups, based on the most recent data.

Recommendation 1b: DESNZ should, as part of its Treasury Minute response, set out what actions (and accompanying timetable) it will take to address the high running costs of heat pumps.

2. We are concerned that there is too much complexity and potential confusion for households to enable them to make informed decisions about installing a heat pump.Households can face complex decisions when looking to install a heat pump. For example, DESNZ is removing a requirement to have minimum standards for properties to have loft and cavity wall insulation in order to be eligible to apply for a grant through the Boiler Upgrade Scheme. It is instead leaving this as a choice for householders, but has not made available any additional evidence about how this choice will impact on energy bills. DESNZ accepts that it needs to undertake a fair bit of myth busting about the quality of the consumer experience when living with a heat pump. Households also need to identify a skilled installer and to do this they need proper information to decide where to spend their money. But many are unsure where to get impartial advice on making improvements to reduce their homes' emissions.

Recommendation 2: DESNZ should, as part of its Treasury Minute response, set out how it will make the heat pump landscape easier for consumers to navigate, for example being clear on the impact of insulation on energy bills, by directly comparing heat pump running costs in homes with and without insulation, with this information provided through an easy-to-use website.  

3. DESNZ has made good progress in increasing the number of trained heat pump installers, but it faces a huge challenge to make sure there are enough installers to achieve its target to install 600,000 heat pumps per year by 2028.DESNZ reports that it is on track towards meeting its target to have 12,000 trained heat pump installers by 2025, with 7,000 installers trained so far. The Heat Pump Association estimates, however, that there will need to be 33,700 trained heat pump installers by 2028 in order to meet DESNZ's overall installations target. DESNZ recognises that there is more to be done to achieve this and that it needs to keep investing in training heat pump installers after 2025, but decisions for future training grants will be for the next spending review. A key challenge will be to retrain around 110,000 existing gas heating engineers to be able to install heat pumps. Although DESNZ considers this could be done quickly, this is nonetheless a large number of people who will need to be retrained given the number of installers it has trained so far. 

Recommendation 3: DESNZ should, as part of its Treasury Minute response, set out what actions it will take to increase the number of heat pump installers after 2025.

4. DESNZ is not collecting all the information it needs to monitor progress with installing heat pumps.DESNZ does not have a single measure of the number of heat pumps that have been installed. Instead, it relies on data on the number of grants provided through government schemes and heat pump sales data. Some 55,000 heat pumps were sold in 2022. But DESNZ does not hold, or collect, information on whether the heat pumps that have been sold have been installed. It accepts that requiring people to inform DESNZ when they have installed a heat pump would be too burdensome. It also does not have complete information on the number of heat pumps that are installed in new build homes. DESNZ is looking to produce a more regular data series that it could publish. Regular monitoring of progress would help DESNZ better understand whether it is on track to deliver the anticipated increase in heat pump installations and evaluate where further intervention may be required from government or industry.

Recommendation 4: DESNZ should, by end-December 2024 at the latest, develop a mechanism for collecting and monitoring data on heat pump installations across all households in England and publish this data each quarter. 

5. DESNZ has not yet worked out how it will support households to decarbonise their homes where heat pumps are not a practical solution.An estimated 20 per cent of homes might be exempt from the government's plans to phase out new fossil fuel boilers in 2035. This includes those requiring energy efficiency upgrades or that lack space to install a heat pump, such as densely populated urban areas and blocks of flats. DESNZ intends to consult this year on how it can help people decarbonise their homes for those where a heat pump might not be the most appropriate solution. It considers heat networks to be the next major alternative technology for people living in these areas and intends to invest some £868 million in heat networks up to 2028. DESNZ is developing a regulatory framework to oversee heat networks and ensure there is fair pricing and quality of service that is already in place for gas and electricity consumers. Connecting customers to heat networks through DESNZ's heat network zoning - which is identifying areas suitable for heat networks - could, however, increase running costs for residents relative to the gas systems they replace.

Recommendation 5: DESNZ should, by end-December 2024, outline which types of properties and regions it does not expect to be suitable for a heat pump and what alternative low-carbon technologies are available to them, to make sure that no one is left behind or unfairly penalised in the transition to low-carbon heating.

6. DESNZ's work to test hydrogen for heating has been beset with problems, with key trials cancelled.DESNZ has committed to deciding on the role of hydrogen for heating in 2026. Major trials intended to support its decision have been cancelled or delayed due to local opposition and insufficient supply of hydrogen. It has not tested the role of hydrogen in non-domestic properties. At the time of our evidence session in April 2024, an announcement on a successful bidder for a hydrogen town, planned for the end of this decade, had been delayed by 13 months. Since then, DESNZ has announced that it will not progress work on a hydrogen town pilot until after 2026, thereby meaning information on the pilot will not feed into its decision on hydrogen's role due in 2026. Overall, this absence of the evidence needed to support any decision is also creating uncertainty for industry to plan and invest on a wider scale and could hamper overall progress. Early planning for any decommissioning of the gas networks, if it is decided that hydrogen has a limited role and electricity becomes the main energy source, is vital to manage costs that we have seen passed to the taxpayer with decommissioning in other sectors, such as nuclear, and oil and gas.

Recommendation 6a: DESNZ should, as part of its Treasury Minute response, set out how it will test hydrogen for different types of properties, including domestic and non-domestic properties, so it can make an informed decision on the role of hydrogen for heating.

Recommendation 6b: DESNZ should, by end-June 2025, set out how it will undertake any required decommissioning of the gas networks, including how it will be funded.

7. Low-carbon heating will increase demand for electricity, but the government's plans to decarbonise power have been delayed substantially.Heat pumps may change existing patterns around the demand for electricity, and DESNZ recognises that it needs to make sure the power system can manage peaks and troughs throughout the day. Low-carbon flexible sources of generation will be important to help manage a grid that is reliant on renewable energy, particularly offshore wind and solar electricity generation that is determined by the weather. The main technologies for this will be carbon capture, hydrogen power and long-duration energy storage, particularly needed during the winter months. DESNZ has, however delayed its delivery target to pull together the different plans for decarbonising power from December 2023 to mid-2024. We previously warned that the lack of an overarching delivery plan makes it difficult for DESNZ to understand the decisions and timings it must take to achieve its ambition to decarbonise the power sector by 2035. It also limits confidence in the private sector to invest in new and upgraded infrastructure.

Recommendation 7: DESNZ should urgently publish its power decarbonisation plan so that people and businesses can be confident that their investment in low-carbon heating will be supported by reliable and green sources of energy. The plan must be published by DESNZ's delivery target of mid-2024 i.e. end-June 2024.