The Green Transition: Not-so-green levies?
Weekly analysis of the shift towards a new economy.
Dear Readers,
Happy Monday from the Spotlight on Policy team.
We’ve got a great Megan Kenyon special this week, with a piece that shares some exclusive new research from the Centre for Net Zero, looking at heat pump take-up, and why green levies could be disincentivizing cleaner domestic heating systems.
Let’s get right into it.
The Green Transition: “Green levies” are making heat pumps more expensive
Last week, the UK turned off its final remaining coal-fired power station, Ratcliffe on Soar, making it the first G7 nation to end its reliance on this antiquated, polluting fuel. This phase-out of what once was a ubiquitous source of power is an extraordinary feat of government action. In 2012, the UK was still generating around 40 per cent of its electricity from coal. But this has been dramatically reduced to 0 in just 12 years. But though the clean energy revolution is clearly in full swing, we are not there yet. Vast swathes of the UK economy still need to be decarbonised, not least the way in which we heat our homes.
The new Labour government, with Ed Miliband leading the charge as energy secretary, is looking to change this through a new £6.6bn warm homes plan. This plan – which remains, as of yet, pretty light on detail – will provide consumers with grants and low interest loans to switch away from fossil fuel heating sources towards cleaner alternatives. One such alternative is a heat pump, which sits on the outside of a property and draws heat from the air or the ground to heat the home. It is electrically powered and requires no direct power from fossil fuels. Leading by example, Miliband himself is currently getting one installed at his north London home.
But while they are an auspicious alternative to a gas or oil-powered boiler, heat pumps have yet to become all the rage for the UK’s 29.9m homes. Britain lags behind our Scandinavian neighbours in Norway and Sweden, where temperatures are much lower on average and heat pumps have seen 60 per cent and 43 per cent take up respectively. Just 1 per cent of UK homes have a heat pump installed.
There remain several barriers to a more ubiquitous uptake in the British context. The upfront cost of installing a heat pump and the cost of its upkeep remain higher than many British households can afford. The £7,500 grant made available to households through the Boiler Upgrade Scheme (BUS) has seen installations increase. However, with electricity currently more expensive than gas, sticking with the gas boiler remains a cheaper option for many households.
What can be done to change this? And what benefits could an increased uptake of heat pumps actually bring to the UK’s race for clean power 2030? The Centre for Net Zero has done some digging and have shared their findings exclusively with Spotlight. Their new paper, Decarbonizing Heat: The Impact of Heat Pumps and a Time-of-Use Heat Pump Tariff on Energy Demand reveals that heat pumps can reduce households’ total energy use by 40 per cent compared to gas boilers. This is due to the increased energy efficiency of heat pumps in comparison to gas boilers. The report highlights that heat pumps are 300 per cent more energy efficient than gas alternatives. This efficiency has a knock-on effect of a 36 per cent reduction in CO2 emissions, which amounts to 1.2 tonnes fewer yearly carbon emissions per household. That’s a lot of carbon.
Speaking to Spotlight, Lucy Yu, the chief executive of the Centre for Net Zero explained more needs to be done by government to make heat pumps a more attractive option for UK consumers. Their research found that schemes like the BUS are great at incentivising consumers to make the switch and should continue. “I think if we leave that option in place for a while longer, we will be able to get more adoption and also see some of those costs come down for everyone else,” Yu explained.
Still, while the BUS may help reduce the cost of installation, running costs remain high. This is at least partly due to levies charged on the cost of electricity in the UK, pushing up the cost of electric heating systems higher than that of those powered by gas, which enjoys lower levies. Counter-intuitively, these so-called “green levies” are charged at around 16 per cent of your electricity bill, but only 6 per cent for gas.
“Looking at the unit cost of electricity, particularly in relation to gas, the rebalancing of levies that exists on those costs at the moment would make it cheaper to run a heat pump,” Yu said. “For consumers thinking about adopting a new technology, they’re going to think about the upfront cost. But they’re also going to think about what’s the downstream outlay as well.”
There is still some way to go before the UK weans itself off its dependence on natural gas to keep our homes warm in the winter. But the closing of our final coal-fired power station proves that when the government puts its mind to targeted policies, grand schemes can actually be achieved. As the experts at the Centre for Net Zero have revealed, there are several policy levers on offer for Ed Miliband and his team if they want to speed up the decarbonisation of home heating. It’s remains up to them to pull them.
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The Green Transition is produced by Spotlight, the New Statesman's online policy section and print supplement. Spotlight reports on policy for the people who shape it and the business leaders it affects. Explore our in-depth reporting and analysis here.
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