From short term subsidy to mass market transformation the future of domestic heating in the UK

Size: px
Start display at page:

Download "From short term subsidy to mass market transformation the future of domestic heating in the UK"

Transcription

1 From short term subsidy to mass market transformation the future of domestic heating in the UK Lesley Rudd, Director of Policy Sustainable Energy Association 5 May 2016

2 Presentation Outline Political context Progress towards UK commitments RHI Reform Moving from Subsidy to Regulation

3 Political Context

4

5 SNP Policy Update 2016 Manifesto A new target to reduce emissions by more than 50 per cent by A New Energy strategy which will take a whole system view and encompass demand reduction, energy efficiency, a balanced energy generation mix, a role for storage, and the requirement for a low carbon transition in transport and heat use. Explore the creation of a Scottish Renewable Energy Bond in order to allow savers to invest in and support Scotland s renewable energy sector Ensure that by 2020, at least half of newly consented renewable energy projects will have an element of shared ownership. And we will argue for Scottish control of our share of feed-in tariffs to help promote community ownership schemes. Take forward the actions set out in Cleaner Air for Scotland Scotland s first distinct air quality strategy to further reduce air pollution, with the first low emission zone put in place by the end of 2018.

6 Political discourse the Conservatives Low inflation The small state Constraints on the labour movement Free markets through tight control of the money supply Privatisation A reduction of the public deficit A reduction in the size of the state and public spending Light-touch regulatory intervention Driving business growth & free trade Increasing levels of home ownership

7 UK Commitments

8 UK Commitments Under European Union targets, the UK must produce 15% of its energy from renewable sources by 2020; The UK, under the Climate Change Act, has a legal commitment to reduce emissions by at least 80% from 1990 levels by Committee on Climate Change s role is to advise Parliament on the best path to the 80% reduction target and whether measures to adapt to ongoing changes are appropriate. The emission reduction path is then legislated as UK carbon budgets, stepping stones in the form of declining 5-year caps on emissions. In its report to Parliament in June 2015 the Committee on Climate Change reported, Significant action is required in the new Parliament in order to meet the fourth carbon budget and to stay on track to the 2050 target. The key risk to future progress is the current uncertainty over the long-term policy framework..

9 UK Commitments low carbon heating To stay on track to the 2050 target, markets for low-carbon heating systems and ultra-low emission vehicles must develop significantly in the 2020s. In the CCC central scenario to reach the 2015 target in Buildings deployment of low-carbon heat incre ases so that heat pumps and heat networks from low-carbon sources provide heat for around 13% of homes. There are around 1.5 million boilers fitted in domestic premises each year. Contrast this with the 14,000 renewable heating systems installed under the domestic RHI in the last year (13,932 applications Feb 15 to Jan 16) The market for low carbon heating needs to grow from less than 1% to 13% - from around 14,000 per year to around 200,000 Unless we include the installation of boilers in the policy debate we lose the opportunity to influence the vast majority (99%) of heating installations.

10 Need more carbon reductions from heat CCC highlighted that low-carbon heat made up 1.6% of all heat used in buildings in 2014, (or 2.1% if agricultural buildings are included) and therefore the Government ambition of 12% of heat from low-carbon sources by 2020 no longer looks achievable. The committee stressed that low-carbon space and water heating is critical to cost-effective decarbonisation, but has not received the policy attention that its importance merits. Amber Rudd, Secretary of State for Energy and Climate Change confirmed on 21 July 2015, we need to do more on the fourth carbon budget, particularly heat

11 The path to 2020 The precise breakdown of the 2020 renewable energy target between technologies will depend on how investors respond to incentives; The UK Renewable Energy Strategy Electricity in 2020 (TWh) [VALUE], [PERCENTA GE] The UK Renewable Energy Strategy Transport in 2020 (TWh) [VALUE], [PERCENT AGE] Govt analysis indicates that the target could be best achieved with the following proportion of energy consumption in each sector coming from renewables: 30% (117 TWh) from electricity 12% (72 TWh) from heat 8% (49 TWh) from transport Electricity demand 269 Renewable electricity The UK Renewable Energy Strategy Heat in 2020 (TWh) [VALUE], [PERCENTAGE] Transport demand 556 Renewable transport 527 Heat demand Renewable Heat

12 TWh Progress on renewable heat DECC latest statistics indicate that 5% of heat generation came from renewable sources in 2014; In addition, 4.3 TWh were generated through the RHI in 2015; 800 Heat Progress on renewable heat targets to 2014 This suggests that approx. 36 TWh of renewable heat must be installed between now and 2020 in order to meet the 72 TWh goal; The UK Renewable Energy Strategy Heat in 2020 (TWh) update [VALUE], [PERCENTAGE] [VALUE], [PERCENTAGE] 200 [CELLRANGE] [CELLRANGE] 2011 Renewable heat [CELLRANGE] 2012 Total heat demand [CELLRANGE] 2013 [CELLRANGE] 2014 [VALUE], [PERCENTAGE] Domestic Commercial/Public Industrial

13 Renewable Heat Incentive

14 The RHI is an important policy instrument The Renewable Heat Incentive (RHI) is the main policy instrument to incentivise deployment of renewable heat. A budget has now been allocated for 5 years. Value for money is central to government policy decisions and the RHI is to undergo radical reform to ensure it delivers value for money

15 RHI multiple objectives Decarbonise Renewable heat Develop supply chain Lower bills and address fuel poverty

16 RHI reform timeline RHI Reform Q Dialogue with industry representatives took place prior to formal consultation to inform the radical reform being introduced in April consultation imminent Package 1: April 2016 Package 2: April 2017 No formal consultation, mainly updating regression triggers as they expire Removal of requirement for green deal assessment for RHI Remove anomaly that requires self- build to wait 6 months (occupancy rule) Regulator clarification revision of some Ofgem powers Tidy up regulations to ensure correct framework in place going forward Update degression mechanism to add 4 quarters for each technology for Introduce Budget Cap Mechanism Index to CPI. Likely to require state aid clearance. Introduction of heat demand caps across the drhi Formal assignment of rights Make it more straightforward for micro heat networks to apply to the scheme Options for a single band for biomass The introduction of tiering is being considered to reduce perverse incentives. Likely to introduce tariff guarantees for some technologies and extend to GSHP above a certain capacity Proposed improvements to heat pump tariffs Considering ending support for solar.

17 RHI finance models DECC preference Third party ownership vs Assignment of rights Maintenance arrangements Third party Homeowner Homeowner Contract Maintenance arrangements Third party Third party funds all or part of and owns all or a proportion of the heating technology. Third party can apply for RHI and receive all or a proportion of payments directly. RHI obligations share by both homeowner and third party. Third party and homeowner to agree arrangements for service, maintenance, how obligations are met and what happens at end of seven years. Third party funds all or part of heating technology. Ownership remains with the homeowner. Homeowner contracts third party to assign rights for all or part of the RHI payments to be paid directly to that organisation. Third party and homeowner to agree service and maintenance arrangements and how RHI obligations are met.

18 From subsidy to regulation

19 Regulation Heating System Plus RHI Subsidy Things do not happen. Things are made to happen. John F. Kennedy

20 Regulation needs to catch up with innovation The action to set higher standards for boiler performance efficiency under factory test conditions was very successful in drove mass roll out of condensing boilers. More than ten years later technology has progressed but standards remain the same. There is no legal requirement for heating systems to be modified and balanced as appropriate to ensure boilers perform in situ to the target efficiencies they achieve under factory test. DECC is considering what should be done and what technologies will deliver the required carbon savings and Heating System Plus is an option under consideration.

21 Heating system plus Boiler plus refers to the provision of solutions which can be added on to a heating system to improve its efficiency. Stage 1 Require all boiler installations to include a modulating heating control in line with relevant ErP provisions, All heating systems to be hydraulically balanced Stage 2 Require return temperatures to be less than 55oC rather than preferable Mandate the assessment of radiators/heat emitters to ensure optimum sizing and water temperature and replace if necessary to comply with the need for the return temperature to be less than 55 o C. Stage 3 Apply requirements of stage 2 to retrofit, where cost effective. Stage 4 Where radiators have to be changed to allow a properly balanced system to operate to a return temperature of under 55o C recommend radiators be fitted that operate at 45 o C. Implemented as soon as legislation and consultation timescales permit - April 2018 For new build - in time with the next scheduled update to the Building Regulations affecting Part L for New Build Following consultation and evidence gathering on cost-effectiveness Once Stage 3 has been implemented and proper time has allowed for evaluation and further evidence gathering

22 Heating System Plus: latest Call for evidence now Formal consultation July 2016

23 Can Scotland lead the way? "Scotland is leading the UK in its ambitious approach to tackling climate change and is to be commended for doing so. There is a lot of positive action already under way in Scotland, driven by both its vibrant renewable sector and its bold policy approaches. This must now be accelerated. New policies will be required to meet these ambitious but achievable carbon objectives. With these actions Scotland can continue as an example to the rest of the UK in its approach to address climate change." Lord Deben, chairman of the Committee on Climate Change

24 THANK YOU