Energy

Alan Whitehead Excerpts

Wednesday 23rd March 2022 Commons Chamber

[Dr Alan Whitehead (Southampton, Test) (Lab)]

There is a great deal of agreement between us this afternoon on a number of the issues that the Minister raised about the role that heat pumps will play in the future low-carbon energy economy, including how many heat pumps we will need over the period. We need to ensure that as we transition away from heating systems predominantly run by gas—and in the domestic environment, by boilers—we can look forward to substantial replacement of those high-carbon heating measures by the low-carbon heating arrangements offered by heat pumps.

I hope hon. Members will bear in mind a very important figure that the Minister mentioned: 600,000 heat pumps to be installed a year by 2028. That figure derives from the Prime Minister’s “Ten Point Plan” and is an ambition for the number of installations that we should reach, which will continue after that point at 600,000 or so a year. That, among other things, will get us more or less in line with what the Climate Change Committee has suggested on the roll-out of heat pumps to ensure that our heat decarbonisation targets are realised. That is therefore a key figure, and it should be the yardstick against which this measure is judged.

We heard from the Minister that this is a £450 million scheme—£150 million per annum over three years. That is, by the way, a slight uprating from the initial consultation on what was the clean heat grant and now is the boiler upgrade scheme. However, that is what we have in the pot over the next three years for the installation of heat pumps. By fairly simple arithmetic, that translates—if we assume that the amount of grant per heat pump installation is £5,000—to about 30,000 heat pumps per year for those three years. That is 90,000 heat pumps installed under the scheme by the year 2025 so. So we then have three years to get another 500,000 or so heat pumps installed by 2028-29. On the basis of the report I mentioned, that is just not going to happen. Even if we assume that a number of heat pumps will be otherwise installed in new build properties—this scheme is predominantly about existing properties that can be retrofitted with heat pumps—we can see just how far from the stated ambition this scheme leaves us over this period.

I am not kicking against the scheme as it stands, because it is good that we have some underwriting for heat pumps, but it is woefully inadequate for the task that we have ahead of us. It will get us nowhere near the target figure that I mentioned, and I think we should at least quadruple the scheme to get us on a trajectory that will actually get us to the 600,000 heat pump installations we have been talking about.

However, I am afraid that it gets worse for the scheme as it stands. As the Minister mentioned, the scheme is not just for heat pumps; it is also for biomass boilers—all of that is to be included in that £450 million cash limit. Unless no boilers are installed under the scheme, there will be quite a lot fewer than 30,000 heat pumps installed per year under the scheme.

Of course, the cost of Ofgem administration of the scheme—£10 million a year—is also included in the cash limit. By the way, I am glad that the Government have decided to curtail their interest in Canadian consultancies for energy efficiency schemes and to go with Ofgem as the administrator and manager of this scheme. However, I do wonder who will be responsible for regulating and reporting on the progress of the scheme. I think it may well be Ofgem, so I will be interested to see how that potential circularity plays out in how the scheme proceeds.

Furthermore, the money for the scheme is not new. The scheme replaces the domestic renewable heat incentive scheme. The Government have trumpeted how the scheme is going to turbocharge the installation of heat pumps, sort out supply chains and various other things, but it is essentially trying to do that with no new money at all. The RHI was based not on a levy but on taxpayer funding, and there was a line in the Red Book that allocated RHI funding historically. What was that line? Well, the cost of domestic RHI last year was £150 million—exactly what is available each year for this new scheme. In other words, the same amount of money is being turned over to carry out the same sort of activity that the RHI did. It is only that, as a result of £5,000 grants, we will apparently get far more heat pumps. It was not that the RHI did not support heat pumps—it did, and it also supported biomass boilers and solar thermal, which is not included in this scheme. The scheme also does not include hybrid heat pumps, which could make a real difference in terms of heating off-grid properties.

The interesting figures for installations in 2019-20 under the RHI were 10,400 air source heat pumps, 1,175 ground source heat pumps, and small numbers of biomass boilers and solar thermal systems—in other words, 11,500 heat pumps from a similar level of funding. I wonder whether the Government are as confident as they make out that we can do so much better than those numbers, even assuming that we get near to 30,000 heat pumps in the scheme, from the same amount of money as the renewable heat incentive.

I also question whether it is a good idea to pursue heat pumps in the way that this scheme is doing without having a concomitant drive to uprate the energy efficiency of properties that are likely to be concerned with the installation of heat pumps. That is not an issue with new house building, because new houses are likely to have good enough energy efficiency to take a heat pump, but I am sure that the Minister will be aware that heat pumps simply do not work very well in poorly insulated homes, as they struggle to get the house up to its required background temperature if their long-term slow input is continually leaking out due to the energy efficiency of the property.

The predominant Government scheme for energy efficiency at the moment is the energy company obligation. ECO is moving very shortly from ECO3 to ECO4 at a similar sized budget to when it started—ECO3 at £750 million and ECO4 at £1.2 billion. That was the amount of money that was in ECO when it was first started, so the money in the ECO fund is also standing still. That fund also needs quadrupling in size in order to run alongside the proposal we are discussing, so that whole-house treatments can work for heat pumps. ECO4 also needs putting into general taxation—or at least the difference between the original budget and its new budget, so that the two schemes can work well alongside each other.

Finally, I have a small point concerning the run-on from the renewable heat incentive into the boiler upgrade scheme. The Minister mentioned the timetable by which the new scheme will come into place. At present, it looks as though there will be quite a hiatus, as no new orders under the RHI will be taken and they will effectively stop until the boiler upgrade process—the vouchers, the certification and various other things—comes in. We could lose up to six months of heat pump installation and face various other problems due to that dislocation, with the two schemes not running together seamlessly. It is also pretty bad for installers’ order books to have that hiatus in their order books between their activities under RHI and what they think they may be doing under the new boiler upgrade scheme.

The scheme should come in seamlessly alongside the phasing out of the RHI. I do not know whether the Minister considers it too late to look at running on the RHI a little bit until the new scheme is in place, so that it can have the maximum impact from the word go as it comes in and takes over.

However, as I have said, we will not be opposing this measure this afternoon because of the high degree of agreement that we have on the purpose of the scheme. What we do not particularly agree with the Government on is their low-key response to the imperative of getting those 600,000 heat pumps in by the end of decade. It apparently remains low-key in this scheme. I would be happy to hear from the Minister if he has other plans to get us further up to date with heat pumps in the future, but at the moment that seems not to be the case.