Boiler Upgrade Scheme (England and Wales) Regulations 2022

Lord Callanan Excerpts

Monday 4th April 2022 Grand Committee

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[Lord Callanan]

That the Grand Committee do consider the Boiler Upgrade Scheme (England and Wales) Regulations 2022.

Relevant document: 32nd Report by the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, these draft regulations were laid before the House on 25 February 2022, and the SLSC considered the regulations in its 32nd report.

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. Between 1990 and 2019, our emissions decreased by 44%. We are continuing to advance sustainability through the Government’s Ten Point Plan for a Green Industrial Revolution, the Net Zero Strategy and, most relevant in this case, the Heat and Buildings Strategy.

Currently, the heating of our homes, 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, requiring virtually all heat and buildings to be decarbonised. 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 at least 600,000 heat pumps per year by 2028 can keep us on track to get to net zero and set us up for further growth if required. However, the current UK market for low-carbon heat is relatively small; due to this, these technologies are largely unable to compete on a capital-cost basis with conventional heating options. Although the new-build market for low-carbon heat is expected to grow as a result of regulatory signals, such as the future homes standard, existing buildings face a specific set of challenges. Subsidy is required to mobilise this section of the market, bridge the cost gap between a fossil fuel system and low-carbon alternatives, and build the appropriate supply chains.

The low-carbon heat market has previously been supported by the domestic renewable heat incentive, which closed to new applicants on 31 March this year. The boiler upgrade scheme will follow on from this support, providing capital grants to support the installation of heat pumps and, in limited circumstances, 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 towards the installation and capital costs of air source heat pumps and biomass boilers, with grants of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties not connected to the gas grid to minimise any impacts on air quality, in line with the Government’s clean air strategy. The grant model will provide an upfront discount to costs paid by the consumer, closing the gap between the cost of low-carbon heating and conventional boilers. In setting the grant levels, we have considered evidence on consumer willingness to pay, the current upfront capital cost of each technology and social research on domestic renewable heat incentive applications.

The application process will be led by the installer and comprise of two stages: applying for, and then redeeming, a voucher. This will allow for a simple consumer journey while maintaining certainty for installers as to availability of budget. This model is suited to ensuring market growth and enabling industry to deliver through the grant model at scale. To ensure consumer protection through the scheme, consent will be sought from the consumer ahead of any application being made on their behalf. All installers participating in the scheme must be certified by the microgeneration certification scheme or an equivalent, and must confirm membership of a consumer code. This ensures that consumers are covered by protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer.

The scheme will provide financial support for 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 year 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 in regions with higher demand outside London. 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 grant levels and maintain the right to adjust them in response to any appropriate market changes. Eligible low-carbon heating systems that are commissioned on or after 1 April this year will be entitled to support under the scheme. From 11 April, installers will be able to open an account for the scheme with Ofgem. We expect these regulations to come into force and grant applications to open by 23 May.

In conclusion, the scheme established by this statutory instrument will increase the deployment of low-carbon heating technologies, making crucial progress towards our climate targets. We already have a strong homegrown renewable energy sector, but investing further in heat pumps will reduce our exposure to volatile prices and help to protect British consumers. In supporting this investment, we expect to grow the market for retrofit installations, put downward pressure on costs and continue to build the supply chain in preparation for the introduction of regulations and market-based approaches later in the decade. I commend these regulations to the Committee.

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I sincerely hope that the scheme will be successful, as part of a wider toolkit, but the issue of flexibility, which was stressed by the noble Lord, Lord Carrington, is something that we need to focus on. I am certainly interested in being involved in the attempt to explore the possibility of hydrogen in future. I hope that, given the systems that people have in their properties, an alternative source of fuel could present a significant step in how we move this incredibly challenging agenda forward in a relatively short period of time.

[Lord Callanan (Con)]

I thank everybody who contributed to this short but excellent debate. There were some great contributions; I hope that I will be able to answer all the questions that were asked.

I start by re-emphasising what I said in my introduction: the decarbonisation of heat is a crucial challenge in meeting our climate targets, as heating our homes, businesses and industry is responsible for about a third of the UK’s greenhouse gas emissions. Although we have made progress—emissions from buildings fell by 20% between 1990 and 2017—we must go much further and faster to meet the net-zero target. Ultimately, net zero will mean gradually but completely moving away from burning fossil fuels for heating.

To address the point made by the noble Lord, Lord Carrington, we are clear that achieving net zero will require a range of technologies and solutions for buildings. There is no silver bullet, I am sorry to say. It is not a case of choosing whether electrification, hydrogen or heat networks are the answer. It will be a little bit of everything, possibly including some technologies that we are not even aware of yet. We should be flexible and adapt our approach depending on what our scientists deliver for us.

However, there is no question but that, whatever range of solutions is offered, heat pumps will play a substantial role in any net-zero scenario. It is therefore important that we build the market for them in the UK now. They are used quite substantially in other countries in Europe and across the world. Given the large quantities of gas that we have traditionally had, we have not concentrated as much on this technology in the UK, but it is important that we get the market moving.

This scheme is all about targeted support to grow the low-carbon heat supply chain to enable the introduction in the mid-2020s of regulatory and market-based measures that will further drive the transition to low-carbon heat in our homes and businesses. We have set an ambition to work with industry to reduce the cost of heat pumps, we hope by at least 25% to 50%, by 2025. This is ambitious but we have certainly seen some good signs from businesses in this area that we will be able to achieve it. Ideally, we want parity with current gas boilers by 2030; realistically, if we are to get mass market take-up, we must ensure that that is the case. This scheme is an important step in supporting those consumers who choose to make the switch earlier, as the noble Lord, Lord Vaux, has done. Investment in this element of the net-zero campaign will not only contribute to our carbon reduction targets but help to create high-quality jobs of the kind that the noble Baroness, Lady Blake, talked about. It will also boost our economic recovery in levelling up across the country and ensuring that we build back better.

I will take some of the points that noble Lords made. The noble Lords, Lord Jones and Lord Oates, rightly raised concerns about consumer protection and quality assurance under the scheme. This is something that we have carefully considered. To ensure that installations under the scheme are of a high quality, as I mentioned, all installers have to be certified by the MCS and members of a consumer code that ensures customers are protected by a Trading Standards Institute-approved code of practice. This ensures that property owners are covered by consumer protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer. There is a proper insurance-backed warranty on top of that if any faults are identified or in the rare cases where installers go out of business.

The noble Lords, Lord Jones and Lord Oates, and the noble Baroness, Lady Blake, made some good points about the ability of the supply chain to deliver the scale of change required. There are currently more than 1,200 MCS-certified air source heat pump installation businesses, covering every region in the UK. Record numbers have been installed over the past year. We have had extensive discussions with businesses and industry, which have informed us that they are confident they have the capacity to comfortably meet demand for heat pump upskilling over the course of the scheme and in line with our targets.

The noble Lord, Lord Oates, prompted me on this issue. In September 2020, we launched the £6 million skills competition under the green homes grant scheme to provide training opportunities for energy efficiency and low-carbon heating supply chains. I am pleased to say that a number of the heat pump manufacturers offer their own training schemes; I have visited a couple of their training workshops. MCS itself has a conversion course and some of the big installers, whose names I do not need to mention for further advertising, are rapidly upskilling their workforces. They are often boiler engineers anyway; they just need conversion courses to be able to install heat pumps. There is a lot of work going on in skills and training, and we are working closely with the DfE to make sure that we take this forward.

The noble Lord, Lord Jones, asked what the Government are doing to support vulnerable and fuel-poor households. That is not part of this SI, obviously, but we are giving a lot of financial support through a range of schemes: £950 million in additional funding for the home upgrade grant in England; £394 million invested through the Welsh Government’s warm homes programme; £800 million to the social housing decarbonisation fund; and a £6.7 billion extension until 2026 for the energy company obligation and warm home discount schemes. All of them are helping to insulate, upgrade and retrofit the homes of those on low incomes throughout the United Kingdom.

The noble Lords, Lord Carrington and Lord Oates, and the noble Baroness, Lady Blake, rightly raised the scheme’s role in meeting the 600,000 heat pump installation target. Obviously, a bit of simple mathematics will demonstrate that this scheme will not meet the 600,000 installation target on its own. It is part of a wider package of policies that we are introducing to scale up heat pump deployment and support industry. I mentioned some of the other upgrade schemes that we have; of course, many of them are already supporting heat pump installations as well. Indeed, I visited Leeds to see some of the excellent work going on up there.

As costs come down, we expect other policies to kick in as well. The noble Lord, Lord Oates, mentioned this point: by 2026, we expect around 200,000 heat pumps a year to be going into new-build buildings following the introduction of the future homes standard. In that standard, we are specifying not that the installation has to be a heat pump—we are technology neutral—just that the overall design of the new property has to be low carbon. It could use alternative sources of low-carbon heating. That will come with the future homes standard.

Along with our consultation on wider heating policies, which will also contribute to the target, new regulations are proposed on buildings off the gas grid. We have also consulted on a market mechanism for gas boiler manufacturers; we are just about to respond to that consultation. Taking all these measures together—this scheme, the social housing decarbonisation fund, the home upgrade grant, the new future homes standard, et cetera—we are confident that we can get up to our 600,000 installations a year. However, I emphasise once again that I do not expect this scheme alone to deliver 600,000 installations a year. That would be mathematically impossible with the amount of money we have available.