Low-carbon Off-gas Grid Heating

Greg Hands Excerpts

Thursday 16th June 2022 Westminster Hall

[The Minister for Energy, Clean Growth and Climate Change (Greg Hands)]

I congratulate my right hon. Friend the Member for Clwyd West (Mr Jones) on securing this important debate. I reassure him that decarbonising heat remains a key priority. We recognise that this is a deeply worrying time for most of our constituents, for whom the impact of rising energy bills is perhaps the biggest concern. That applies as much to rural communities as to any other.

I commend my right hon. Friend for his long-standing work as one of the key voices for north Wales ever since we were both first elected in 2005. At the time, he was the first Conservative Member to be elected in north Wales in about eight years, and he has consistently stuck up for his constituents ever since.

We are taking action on bills. The Chancellor recently announced a £15 billion package—as part of an overall £37 billion this year—to help families who are struggling with their bills. However, as we set out in our recent British energy security strategy, which was launched by the Prime Minister and the Secretary of State in April, if we are to keep prices down for ordinary households and businesses for the long term, we need to rely on affordable, clean and, above all, secure sources of energy.

Off-gas-grid households and businesses already understand those challenges as well as anyone. Many of them rely on traditional forms of energy such as oil for their heating needs, so they have been particularly exposed to the impact of rising global energy costs. Of course, compared with other buildings, properties off the gas grid are some of the biggest emitters, so transitioning those properties to low-carbon heat is a key Government priority. That will not only put us on track for our different obligations, but it will help to move us off imported oil, build our energy independence and help to protect consumers from high and volatile energy prices.

As Members from all four nations of the United Kingdom have recognised during the debate—showing that we are better together when it comes to approaching these matters—the problem is not necessarily confined to the remoter parts of England, Scotland, Wales and Northern Ireland. We heard from my hon. Friend the Member for Buckingham (Greg Smith), and I know that parts of Kent and other counties that might be regarded more traditionally as the home counties also have large numbers of off-gas-grid properties.

As my right hon. Friend very ably said, most off-grid properties will ultimately transition to heat pumps, which are a proven and highly efficient technology. In electricity, they benefit from a secure energy source that is not subject to the same price spikes as oil, and critically, they are consistent with net zero as the electricity grid decarbonises. Heat pumps have been successfully deployed in high numbers across the world, including in countries that are colder than the United Kingdom, such as Sweden and Norway.

The up-front cost of installing low-carbon heating may be prohibitive for some, however, and I think that is the core of the question before us. That is why we are investing £450 million through the boiler upgrade scheme to provide £5,000 grants towards the cost of installing a heat pump, and £1.1 billion through the home upgrade grant to help lower-income households off the gas grid to upgrade their energy efficiency, save on bills and transition to low-carbon heating. That funding will help to kick off our wider plans to grow the heat-pump market to 600,000 installations by 2028 and to deliver on our ambition to reduce the cost of a heat pump by between 25% and 50% by the middle of the decade.

Alongside our action to remove distortions in energy prices—starting with the launch of our proposals to rebalance energy costs later in 2022—we anticipate that heat pumps will be no more expensive to install and run overall than gas boilers by the second half of the decade. That is why we consulted last year on regulations that would end the installation of high-carbon fossil fuel heating systems off the gas grid later this decade. I reassure my right hon. Friend that we will take every step to ensure that the transition to clean heat will be fair and affordable for off-gas grid households and businesses.

I also reiterate that our continued support for decarbonisation policies relying on heat pumps is contingent on the industry taking action to drive down the costs. By signalling now our intention to take the action later, once the cost of heat pumps is much lower than today, we aim to give industry the long-term confidence to invest and drive the costs down. We will also keep the cost of heat pumps under constant review. Making sure they become more affordable is a key part of Government policy and, well ahead of implementing any regulation, we will set out what additional actions may be needed to support the phasing out of high-carbon heating systems.

I also take the chance to reassure my right hon. Friend the Member for Clwyd West that no one will be required to install an unsuitable technology in their home or business. We know well that heat pumps will not work everywhere, at least not with the current technology. Some off-grid properties are simply too poorly insulated or have certain characteristics that would make installing the technology impossible. We will take care to ensure that that group of hard-to-treat properties will have access to suitable alternatives, such as high-temperature heat pumps, solid biomass and so on, which I will explain in a little more detail.

My right hon. Friend the Member for Clwyd West raised various points. I believe his central question was: why off grid first? Off the gas grid, there is currently no strategic option to decarbonise heat with hydrogen or other technologies. That is why we are taking a range of actions to bring forward the decarbonisation of this critical group of buildings. If we can make heat pumps affordable, there are considerable advantages in moving forward, including for off-grid households and businesses, even if that means that they will be required to switch from fossil fuel heat earlier than their on-grid counterparts. My right hon. Friend asked me to reconsider the 2026 deadline. Equally, the pace at which we can make heat pumps become affordable will guide our decisions on the right time to introduce regulation and the other actions needed to make a fair transition.

My right hon. Friend asked how many off-grid homes are hard to treat. Our analysis shows that 80% of off-grid homes already have sufficient insulation for a heat pump to work effectively. They have already been deployed successfully in high numbers across the world; I mentioned Sweden, Norway and other countries. On his questions about hybrids and biofuels, along with those from my hon. Friend the Member for Buckingham, we would like to see those fuels become another solution, particularly for off-grid properties that cannot use a heat pump. We are working closely with industry to build the evidence that will inform the biomass strategy mentioned by my hon. Friend, due to launch later in 2022. The strategy will review the amount of sustainable biomass likely to be available to the UK and set out how this can be best used across the economy to achieve our net zero targets.

My hon. Friend the Member for Buckingham asked for some good news. I think I have been bringing quite a lot of good news so far. However, we are also investigating whether hybrid systems could give hard-to-treat properties additional choices and that is an area of active investigation, as we also ask whether they have potential to help us stretch limited bioresources further. I urge my hon. Friend to wait for the biomass strategy later this year. There are key considerations there in biomass production, alternative uses and trying to get a sense of where that overall market will be heading. In time, renewable liquid fuels such as HVO and bioLPG may also play a role, although they are currently in short supply and more expensive for households to use. We need to better understand the scope to expand production of those fuels for use in heat, consistent with very low emissions while remaining affordable for consumers.

The hon. Member for Ceredigion (Ben Lake) mentioned those not subject to the energy price cap. It is worth remembering that the energy price cap, which predates me in this job, was not introduced to provide a blanket level of protection for all consumers, but was instead a specific protection brought in to remove the penalty for people who did not switch between their grid gas or electricity provider. That was the purpose of the price cap. I do not think it would be fair to say that the heating oil market or the market for off-grid properties is any less competitive. There is a highly competitive market in heating oil companies, and there is the ability for the Competition and Markets Authority to look at the issue. If the hon. Member for Ceredigion has evidence of anti-competitive practices, I urge him to bring it forward, send it on to me or speak to the CMA. That is exactly what the CMA is there for.

[Drew Hendry]

The Minister is saying that if there is an issue with off-gas grid households, it should be brought to the CMA. Does he support the basic ask to get Ofgem involved in regulating off-gas grid areas? A very simple solution would be for Ofgem to take action directly.

[Greg Hands]

We have to think about the nature of that market, which I am satisfied the CMA has the ability to regulate. Although it involves an energy product, that does not mean that Ofgem, rather than the CMA, is best positioned to provide the oversight to prevent anti-competitive practices. There is a lot of Government support for off-grid properties, as there is for on-grid ones, including the £400 payment and the £150 council tax discount in England, with Barnett consequentials for Wales, Scotland and Northern Ireland.

[Ben Lake]

The Minister has jogged my memory. Some farmers have told me they have commercial electricity contracts to service their homes, and are therefore worried that they may not receive the £400 payment. I know the Government are looking at the technical details, so perhaps he could take that point back and ensure that it is addressed.

[Greg Hands]

Of course, energy prices for businesses attract a lot of very keen Government attention. The hon. Gentleman is right to suggest that there was a consultation on the workings of the scheme, which has closed; the Government will respond shortly. Energy costs for businesses is an area of active Government interest. We provide a lot of support for energy-intensive industries, and want to ensure that overall we have a sustainable position, whereby businesses are able to afford energy bills in order to continue the vital work that they do for us across the rest of the economy.

Many of the additional Government support measures, including the warm home discount, the winter fuel payment and the cold weather payment, are also available for those off the gas grid. Energy efficiency measures are a major area of Government investment, with £6.6 billion to be provided over the course of this Parliament. I have already mentioned the boiler upgrade scheme, which costs £450 million, and the home upgrade grant, which amounts to £1.1 billion.

As somebody who used to work in a swimming pool, I was intrigued by what the hon. Member for Ceredigion described as the difficulties facing the swimming pool in his constituency. The great news is that one of the Chancellor’s key announcements this year was the reduction of VAT on solar panels. I am sure Plaid Cymru was very supportive of the Chancellor’s overall package of measures, which will bring particular benefit to the swimming pool in the hon. Member’s constituency.

The use of hydrogen is an interesting question. Decisions will be made in the coming years on where we think hydrogen can be used as a source of heat. We will have to think about our hydrogen production capacity, and the alternative pressing needs for hydrogen, such as decarbonising industry and major forms of transportation, including maritime, heavy goods vehicles and aviation. There are a lot of potential uses of hydrogen, we will need to look at the option of using it to heat buildings before taking a decision, particularly given the other alternative uses of hydrogen.

The hon. Member for Ceredigion mentioned the rules around heating oil providers not providing less than 500 litres. I urge him to speak to the UK and Ireland Fuel Distributors Association, which is a helpful trade body. I think the basic problem is that providing small volumes of heating oil is likely to raise fixed costs, and therefore to make an inefficient market with ultimately more expensive provision. His motive is a good one—to try to make heating more affordable, in smaller pieces, for constituents who are facing trouble with their bills—but the perverse impact might be to raise the fixed costs of such deliveries, but I urge him to speak to UKIFDA, which is the real expert.

I congratulate the hon. Member for Strangford (Jim Shannon) on being the chair of the healthy homes and buildings all-party parliamentary group. We are of course keen to see Northern Ireland, like all parts of the United Kingdom—I stress that it is fantastic to have all four nations represented here today—play its full role in decarbonisation, and to ensure that it is supported during times of high prices. He said that he had learned that I speak to Gordon Lyons, the Northern Ireland Minister for the Economy, frequently and perhaps even weekly. In fact, I spoke to him only yesterday about ensuring that Northern Ireland’s renewable energy opportunities are boosted. The hon. Gentleman will also know that one of the key reasons that we are taking the approach that we are on the Northern Ireland protocol is to ensure that things such as the VAT cut on solar panels can be enjoyed as much by the people of Northern Ireland as by the people of England, Wales or Scotland. Watch this space; we are always keen to help in Northern Ireland.

The SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), called UK Government support inadequate. Well, almost regardless of what we had announced as the level of support, I could have predicted that he would say that it was inadequate. I remind him—

[Drew Hendry]

Will the Minister give way?

[Greg Hands]

Just let me explain what the support is: £37 billion for consumers so far this year and a £450 million boiler upgrade scheme. The hon. Gentleman might talk about fuel poverty, which is a very serious issue, but I remind him that it is of course a devolved issue in Scotland. I have reason to believe that he may know one or two people in the Scottish Government, so I urge him to direct his inquiries on fuel poverty to his party colleagues in the Scottish Government. Of course I am happy to take his intervention, if he will tell us whether he has raised the issue of fuel poverty with the Scottish Government.

[Drew Hendry]

I am delighted that the Minister has allowed me to intervene. Can I just clear up a couple of things? I raise the issue of fuel poverty in every way I possibly can with every Government, but I think he has forgotten that energy is reserved to the UK Government; he should have a wee look at his brief just to check. My question is this: does he think that £8 per head spent on insulation in England is good compared with the £27 per head spent on insulation in Scotland?

[Greg Hands]

Insulation is only one part of the picture when it comes to energy efficiency. I am delighted that the hon. Gentleman has recognised, and reminded us all, that energy is reserved to the UK Government. That is always refreshing to hear. I keep telling people in Scotland, “Thank God it is reserved, so that we don’t have to embark on the anti-nuclear policies of the SNP, or the anti-oil and gas sector policies,” even though the main emphasis of the oil and gas sector is indeed in Scotland.

On the regulator of the gas grid, as I have said, the CMA can intervene. Gas and electricity markets are considered natural monopolies when it comes to the grid. They are characterised by high fixed costs and start-up costs. For those reasons, these markets fall under the remit of Ofgem regulation. The heating oil market—

[Dr Whitehead]

On the subject of support for these measures, the Minister does not appear to have spent any time talking about what support there might be for heat pumps. I am sure that the right hon. Member for Clwyd West (Mr Jones) would be interested to know how the support that has been put forward so far— 90,000 heat pumps installed up to 2025 under the boiler upgrade scheme—relates to the turnover of boilers in off-grid properties. Replacing all of those with heat pumps would take up the entire support scheme for heat pumps in one go, when that support is supposed to be for the whole United Kingdom. By the way, the target of installing 600,000 heat pumps by 2028 will clearly fail miserably.

[Greg Hands]

The hon. Gentleman raises a good question. It is born out of a common misconception, particularly in the Labour party, of what the boiler upgrade scheme is all about. He is expecting—maybe because that is ingrained in the Labour party—that it is the role of the Government to come by and install a new heat pump for everybody across the country. That is not the role of the Government. The role of the Government here is to help stimulate the market and ensure that the private sector makes the adjustment and provides the heat pumps. That is what it is about—not dividing up a £450 million boiler upgrade scheme by the number of people in Britain and working out that it is not enough money for every person to get a new heat pump.

The idea is to provide enough stimulus to the market so that it responds, and also to go with the grain of human nature; the phase-out date is 2035, because people’s gas boilers will naturally come up for renewal in the course of the next 12 years, and during those 12 years, they will be incentivised to purchase a heat pump, rather than a replacement gas boiler. The idea is to stimulate the market. I remember the response of the market when we announced the heat and buildings strategy. I clearly remember Octopus Energy saying that the grant should quite soon enable the cost of a heat pump to be comparable to that of a gas boiler, and to become competitive over the lifetime of that installation.

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I need to leave a few minutes for my right hon. Friend the Member for Clwyd West to respond, so I will not take a further intervention.

The basis behind the boiler upgrade scheme is not to provide everybody with a new heat pump. The idea is for the Government to prime the private sector to be able to do exactly that. The hon. Member for Southampton, Test says that heat pumps do not always work, but they frequently do. They are the only proven, scalable technology to decarbonise heating, although there might be hydrogen and other technology developments in the future. As I have said, Sweden and Norway have done this at scale. We will ensure that heat pumps can only be installed on suitable properties, and that there is a greater degree of choice for less suitable properties.

The hon. Member for Southampton, Test said that off-grid properties are suffering more from the current price rises. If he is saying that off-grid properties are facing a bigger increase in their energy costs than on-grid properties, I invite him to send me some firm evidence of that.

To conclude, I reiterate that decarbonising buildings off the gas grid will be key to delivering on Government priorities. It will protect rural consumers and businesses from high and volatile energy costs, and further strengthen our energy independence. We are taking action, and will continue to act to ensure the transition is smooth, fair and affordable for off-grid households, and rural customers and businesses.