The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I beg to move,
That the draft Boiler Upgrade Scheme (England and Wales) Regulations 2022, which were laid before this House on 22 February, be approved.
The UK is the first major economy in the world to set a legally binding target to achieve net zero greenhouse gas emissions by 2050. We are continuing to advance sustainability through the Prime Minister’s “Ten Point Plan”, the net zero strategy, and the heat and buildings strategy. Currently, heating buildings and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets. The Government’s ambition is to phase out the installation of new natural gas boilers beyond 2035. Heat pumps are a proven scalable option for decarbonising heat and will play a substantial role in any net zero scenario. A UK market with the capacity and capability to deploy 600,000 heat pumps per year by 2028 can keep us on track to net zero. However, the current UK market for low-carbon heat is relatively small and, due to that, these technologies are largely unable to compete on a capital cost basis with conventional heating options. Subsidy is required to mobilise and grow the market, and to bridge the cost gap between fossil fuel and low-carbon systems. The low-carbon heat market has been supported by the domestic renewable heat incentive, which will close to new applications next week, on 31 March 2022.
The boiler upgrade scheme will succeed that scheme, providing capital grants to support the installation of heat pumps and biomass boilers in homes and small non-domestic buildings in England and Wales. The scheme has a budget of £450 million over three years, as confirmed at the 2021 spending review. Grants of £5,000 will be provided for air source heat pumps and biomass boilers, and of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties that are not connected to the gas grid, to minimise air quality impacts.
The application process will be installer-led and comprise two stages: applying for and redeeming a voucher. This will allow for a simple consumer journey, while maintaining certainty for installers about the availability of budget. To ensure consumer protection through the scheme, consumer consent will be sought as part of the application process. All participating installers must be certified by the microgeneration certification scheme or equivalent, and must confirm membership of a consumer code. That ensures that consumers are covered by schemes governing the products and their performance, as well as the quality of the installation and service they receive from the installer.
The scheme will support up to 30,000 installations in year 1, contributing 2.6 megatonnes of CO2 equivalent of carbon savings, and supporting 2,100 direct full-time equivalent and 1,800 indirect full-time equivalent jobs per annum over its lifetime. This supports the Government’s ambitions for levelling up, as we expect supply chains to be built and jobs to be supported across the regions. With the growth in demand encouraged under the scheme and wider market developments, we expect to see cost reductions in the technologies over the three years. This instrument therefore sets out a provision to allow the Secretary of State to review and adjust grant levels in response to market changes.
Eligible low-carbon heating systems commissioned on or after 1 May 2022 will be entitled to support under the scheme. From 11 April 2022, installers will be able to open an account for the scheme with Ofgem. We expect the draft regulations to come into force and for grant applications to open by 23 May 2022.
The scheme established by this statutory instrument will increase deployment of low-carbon heating technologies, making crucial progress towards our climate targets. Investing in this scheme will reduce our exposure to volatile prices and protect British consumers. It will also grow the retrofit market, put downward pressure on costs and expand the supply chain ahead of the introduction of regulations and market-based approaches later in the decade.
Greg Hands
I thank the hon. Member for Southampton, Test (Dr Whitehead) for his constructive approach and his overall support for the scheme, which is most welcome.
I will deal with some of the points the hon. Gentleman raised. He is right on his first point: the ambition is to have 600,000 installations per annum from 2028. He is also right that there is £450 million allocated to the scheme over three years. It is a £5,000 grant, so he is right that that is a projected 30,000 grants per annum. I think his question, if I may repeat it, is how we get from 30,000 to 600,000 in the intervening three years between the end of the scheme and the start of the target. I think he asserted that that would not happen, so let me try to reassure him. The idea of the 600,000 figure, as I think he knows, is not that the Government will come along in 2028 and provide 600,000 heat pumps per annum; the idea of the scheme for the next three years is to pump-prime the private sector to be able to provide the alternative that we need.
So far, the private sector has responded well. Some companies have said that they welcome the Government grant scheme that is coming in and believe it is enough to allow them to bring down the cost of heat pumps to greater equivalence with conventional heating systems over that time. We believe, therefore, that we are putting in the right amount of funding, while being prudent with public finances, to provide enough support to help us to get to that 600,000 per annum target in 2028.
The hon. Gentleman asked whether biomass boilers were also within the costings. They are, but we expect the number of biomass boilers to be relatively low. We expect the vast majority of the funding to go on heat pumps. He asked about the regulation of the scheme, and he is correct to assert that it will be up to Ofgem to oversee the scheme and the market. I would add that installers also need to be certified under the microgeneration certification scheme.
On the domestic renewable heat incentive, the hon. Gentleman is right that the scheme is closing to new applications next week, on 31 March, as I laid out earlier. It has been a successful scheme: up to January, 100,398 low-carbon installations had been successfully installed due to the DRHI.
The scheme has helped both to raise consumer awareness and understanding of low-carbon technologies, and to raise the quality of low-carbon heating installations, protecting consumers and improving their experiences. It has also supported the development of both product and installer supply chains. We believe that the boiler upgrade scheme will provide a simpler offer than the previous DRHI, and the grant model will directly address the up-front capital cost of low-carbon heat technologies, which is cited as a key barrier to deployment.
The hon. Gentleman asked whether heat pumps were effective in cases where properties are less well insulated. I can tell him that current evidence suggests that heat pumps are technically suitable for most buildings; around 90% have sufficient energy efficiency and internal electrical connection capacity to accommodate a heat pump system, which is encouraging.
I think the hon. Gentleman asked about the gap between the end of the previous scheme at the end of this month and this scheme coming into place in May. We consider that a staggered approach, with installer accounts created in April and applications starting in May, will offer the best overall level of service to installers and ensure that applications can be processed promptly. Installations commissioned from 1 April will be eligible for funding, subject to the other eligibility requirements being met. I hope I have answered all his questions; if there is anything I have missed, he can contact me afterwards and I am happy to write to him.
Heat pumps will play a substantial role in any net zero scenario, so we need to build the market for them now. This targeted support will help to grow the low-carbon heat supply chain to enable the proposed introduction of regulatory and market-based measures in the mid-2020s. Not only will investment in the scheme contribute to carbon reduction targets and increase consumer awareness of low-carbon heating solutions, but the creation of high-quality jobs will help with boosting the economic recovery, levelling up across the country and ensuring that we build back better. I urge the House to support this measure.
Question put and agreed to.