Draft Clean Heat Market Mechanism Regulations 2024

Miatta Fahnbulleh Excerpts

Monday 13th January 2025 General Committees

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Miatta Fahnbulleh)]

I beg to move,

That the Committee has considered the draft Clean Heat Market Mechanism Regulations 2024.

The regulations were laid before the House on 21 November 2024. It is this Government’s mission to deliver warmer homes that are cheaper to run. Low-carbon heating is key to our efforts to lower emissions. It is also central to how we alleviate fuel poverty. Our goal is to make energy fair and affordable for all by strengthening the nation’s energy security and by reducing our reliance on fossil fuels and international markets that we cannot control. That is at the heart of everything that we are trying to do as a Department.

We have experienced a particularly cold start to 2025 and we can no longer afford to leave consumers facing high energy bills and cold, draughty homes. That is why we are charting a way forward through our warm home plan: a new approach that will result in millions of homes being upgraded and lower energy bills for families across the country. At the same time, it will back British businesses and create new opportunities for jobs and skills in every part of the country.

We are running at this. We have already set in motion the development of new standards for minimum energy efficiency in the private and social rented sectors that will lift 1 million people out of fuel poverty. We have announced changes to planning restrictions—including the removal of the outdated 1 metre rule—that will make it easier for people to install heat pumps. We are expanding our boiler upgrade scheme, almost doubling the budget to £295 million for next year, so that more people can have access to support for installing heat pumps, and we are working with the Ministry of Housing, Communities and Local Government to make sure that we are building future-proof new homes.

Making the transition to cleaner, cheaper heating is one of the most important challenges that we face as a country. We are absolutely determined to make that transition in a way that is ambitious, achievable and, critically, absolutely affordable for consumers. Every household deserves the security of a home that they can afford to heat and we believe heat pumps have a key role to play in that. Heat pumps are, on average, three times more efficient than gas boilers and are powered by electricity that becomes cleaner every year as the share of renewables on the grid grows. Heat pumps can therefore slash the level of energy we use for heating and reduce our reliance on gas. That reliance cannot be overstated: nearly half of the UK’s total natural gas consumption every year is currently used for heating buildings, producing roughly a quarter of total greenhouse gas emissions.

The proposed changes to our energy system will not happen overnight but it is important that we communicate that this is part of a long-term plan, and that we will keep this as a key priority. Nowhere is that more important than the critical work we must do with business as we make this transition. It is essential that the businesses that we work with, throughout the supply chain, know that they can put in the steps they need to build skills, and that they will have incentives and support to deliver this transition, and to do the critical job of helping households benefit from the switch to the cleaner, more efficient heating that we believe heat pumps can provide.

That is why, in addition to direct support for heat pump installations through schemes like the boiler upgrade scheme, the warm homes social fund and the warm homes local grant, we are providing investment in home-grown heat pump production through the heat pump investment accelerator competition. It is also why we are supporting installers through the heat training grant and why we are stimulating further investment in the supply chain by introducing the clean heat market mechanism with this instrument.

Since taking office, we have taken steps to engage with and listen to all parts of industry about the overall approach that we need to take on this policy. We are committed to continuing those conversations in the months and years ahead, including in relation to the clean heat market mechanism. We are proposing a reformed scheme that will provide the UK’s heating industry with the stability, clarity and policy direction to build a strong and resilient heat pump market that will benefit from the transition as we sprint towards low-carbon heating. The changes that we have made to the previous Government’s proposal for the mechanism will ensure that manufacturers have the time they need to scale up the supply chain and expand sales without penalising consumers. We will also need manufacturers to have the incentives and clarity to drive the innovation we need in the market, so that we can ensure we are delivering heat pumps that are cheaper and that respond to changes in the market.

The scheme will require boiler manufacturers to achieve the sale and installation of a proportion of heat pumps relative to their gas and oil boiler sales or the equivalent credits from other heat pump manufacturers. For the first year of the scheme, starting on 1 April this year, this is set at 6% of relevant boiler sales. As set out in the consultation response published in November, we have also decided to reduce the payment in lieu for any missing heat pump credits to £500 for the first year from the £3,000 previously proposed. We have also aligned the periods over which boiler sales and heat pump installations will generate obligations and credits, respectively, providing manufacturers with more time to prepare.

We are confident that between 2025 and 2026, the market can achieve the volume of heat pump deployment that the scheme is targeting, building on the substantial growth in sales seen in 2024. We are committed to working with industry to do the vital work of boosting demand for heat pumps and ensuring that it is as easy and painless as possible for consumers to go on this journey with us.

We are committed to ensuring that the transition to clean, affordable heating works for homes and businesses. That means having consumers firmly in our mind’s eye as we develop policy in this area and ensuring that we are working in lockstep with industry. That will be at the heart of our approach in the warm home plan. The statutory instrument is just one part of our overall strategy for delivering homes that are warm and cheaper to run, but it is an important part of how we deliver warmer homes with lower energy bills. It signals our ambition to tackle fuel poverty, which is still experienced by far too many people in this country, as we make that vital sprint, as we must, to clean power by 2030.

--- Later in debate ---

[Miatta Fahnbulleh]

When the Conservative party was in government, it was willing to see sky-high energy bills. The reality in this country today is that, quite frankly, many people cannot afford the cost of energy. That is the reality that the Conservatives were happy to deal with, but it is not a reality that we believe is either tenable or acceptable, and it is one that we are determined to change. That is why we are making the sprint to clean power and are determined to deliver a warm home plan that can deliver cheaper and warmer homes for consumers across the country.

I will address some points that are quite frankly wrong. First, there will be no compulsion to impose heat pumps. Our job as a Government is to work with industry to make them as attractive a proposition for consumers as we can. We will not force people to adopt them, but we believe that heat pumps are three times more efficient than gas boilers and will be an attractive proposition for consumers. We saw demand for our boiler upgrade scheme reach record levels in 2024, because consumers are starting to realise what we know from the evidence base: that this proposition absolutely works for their pocket and for their homes. Our job is to ensure that not just wealthy households but every single household across the country can benefit from it.

To debunk the second point made by the hon. Member for West Aberdeenshire and Kincardine, this is absolutely not a tax. There is no requirement for industry to impose costs on consumers. We have worked very hard with industry to reform the proposal put forward by the Conservative party, which industry absolutely hated, to get to a proposition that we believe will do the job of incentivising the market for heat pumps, as everyone recognises we need to do, while protecting consumers.

Finally, we have to get to the right solution for every household in the end. We are not ideological about this. We care about getting consumers warmer homes and lower energy bills, and we will find a range of solutions that mean that where heat pumps work—we think that they will work in the majority of households, including in rural households—we will make it as easy as possible for consumers to adopt them. Where there is a need for alternative technologies, we are keeping those technologies under review so we can ensure the right solution for every single household.

The status quo is not tenable, nor should the Conservative party be proud of it. Quite frankly, it is a status quo that we are absolutely disgusted to have inherited. Our job is to take the country on the journey that we need, which is why we will not resile from driving forward with our clean power mission. In the end, we have to take ourselves off the rollercoaster of international fossil fuel markets over which we have no control. That is why we will drive forward our warm home plan. Heat pumps and the clean heat market mechanism will be a key part of that. I commend the draft regulations to the Committee.

--- Later in debate ---

[Miatta Fahnbulleh]

I thank my hon. Friend the Member for Worcester. We absolutely will approach it in that way. We know that we cannot do this on our own, and that we must work in collaboration with industry—that is what has got us to this point.

My hon. Friend is completely right to point out the flip-flopping from the Conservatives. Let me quote what the hon. Member for West Aberdeenshire and Kincardine said about the clean heat market mechanism when he was in government:

“The Government back the dynamism of industry to meet the needs of British consumers, which is why we are taking a market-based approach that puts industry at the heart of leading a transformation of the UK heating market, while keeping consumers in the driving seat with choice. Through the planned low-carbon heat scheme—the clean heat market mechanism—we will provide the UK’s world-leading heating appliance industry with a policy framework that provides the confidence and incentive to invest in low-carbon appliances. That will make heat pumps a more attractive and simpler choice for growing numbers of British households.”––[Official Report, Energy Public Bill Committee, 6 June 2023; c. 145.]

That was when the hon. Member was enlightened.

[Andrew Bowie]

Very well delivered.

[Anna Turley (Redcar) (Lab/Co-op)]

What happened to that guy?

[Miatta Fahnbulleh]

What happened to that guy, indeed. It is a shame to see the Conservative party flip-flopping rather than doing what it knows is right for the country and right for consumers.

Question put.