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With £15bn allocated to support homes and buildings to lower bills, reduce emissions and electrify, the long-anticipated Warm Homes Plan is a major step towards decarbonising our buildings and growing the supply chain. With much of the detail yet to be published, Peter Griffin summarises the main themes and our initial thoughts.
In broad terms the Warm Homes Plan shows a shift away from a 'fabric first' approach:
"Alternative technologies – such as rooftop solar and home batteries – are likely to offer significantly more cost-effective routes to reducing energy bills and maintaining thermal comfort."
In the wake of the ECO scandal and the falling prices of PV and batteries, this view is understandable, but there is legitimate concern that many homes will be unable to achieve thermal comfort without fabric improvements. In reality, fabric measures will still be a major part of all relevant policy – the details on standards and funding targets will matter and could lead to perverse outcomes for some households.
We support the emphasis on electrification, as this is the route to lowering emissions. The major risk to this approach is that not enough is being done to lower the cost of electricity. There were hopes that, following the reduction in energy levies announced in the Budget, the plan would use the space to shift some levies from electricity to gas. This is a major opportunity missed, as we discussed prior to the Budget.
In terms of funding, this is a serious investment in buildings, with the total £15bn budget retained in full, as well as mechanisms to encourage private investment from landlords and heat network developers in particular.
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The current schemes for low-income retrofit of the Warm Homes Local Grant and the Warm Homes Social Housing Fund will continue as planned, with an additional £754m allocated for social housing. These will then be replaced by a consolidated scheme for low-income delivery, with details to be announced this spring.
The Warm Homes Fund will be offering low-interest loans, as well as innovative finance, aiming to support growth of demand and support the supply chain. The details for these schemes are yet to be announced.
The Climate Change Committee's balanced pathway sets out a target of 450,000 heat pumps installed per year into existing homes by 2030. The Warm Homes Plan cites this figure, but includes around 200,000 new-build homes, making this a significant cut to the target.
It does not give specific numbers installed under other schemes to make up the other 250,000, but these will principally need to come from the Boiler Upgrade Scheme and low-income funding.
Incorporating air-to-air heat pumps will enable a greater level of heat pump delivery through these schemes, as they are cheaper to install. This will rely on bringing the skills from the existing HVAC industry into MCS accreditation.
The Future Homes Standard (FHS) for new-builds and Minimum Energy Efficiency Standards (MEES) for rented homes have been in the works for many years. The plan states that the FHS will be legislated for in Q1 this year. It will require new homes to have "low-carbon heating, high levels of energy efficiency and solar panels by default". Details of when it will come into force have not yet been published.
Currently around a quarter of new homes are built with heat pumps, meaning that, until the standard comes into force, we are still growing the number of buildings that will need fossil fuel heating systems replaced. A simiilar standard was due to come into force in 2016, but was cancelled. Since then we have built almost 2 million homes, most with fossil fuel heating.
MEES has been announced both for private and socially rented homes by 2030. The new target will be much higher than current standards and will encourage low-carbon heating and 'smart readiness'. Until decisions on EPC reform and the new Home Energy Model are finalised it is unclear exactly what the requirement will mean. There are also significant exemptions and a cost cap of £10,000, against the £15,000 proposal that was consulted on. Nevertheless, this is a clear message to the sector to invest.
Targeting and delivering retrofit are very different things. Previous schemes have often been plagued by under-delivery or poor standards. A welcome addition is the Warm Homes Agency to "co-ordinate and oversee the delivery of the major effort that delivering millions of home upgrades will entail". Joined-up coordination and leadership has certainly been lacking historically.
There are also the indications that local and mayoral authorities will be empowered to deliver more, as well as a greater role for Distribution Network Operators, as planned for in the ED3 price control. Coordination between these bodies is essential to growing delivery. We also welcome the indications that street-by-street focused delivery is desirable, but this is currently little more than an ambition. We await the detail.
There is much to support in the plan in terms of supporting the industry, but skills will be a bottleneck. The cancellation of ECO is likely to lead to job losses and without replacement schemes these staff are likely to leave the sector. Upskilling the existing workforce is required, as well as developing the pipeline of new starters. The plan is rightly framed as offering significant job growth across the country, but this relies on attracting and training the right people.
There is also an ambitious target to grow the domestic manufacture of heat pumps to 70% of those installed. Taken alongside the increased installation target, this equates to a growth in domestic production of 8.3 times.
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The long-awaited response to the heat network zoning consultation also came with the plan. This will give new powers to local authorities to support the delivery of heat networks, primarily impacting non-domestic buildings and new-builds. It comes alongside funding of £200m a year and is set to unlock a significant amount of private investment from heat network developers, principally by providing demand certainty through requirements to connect.
Hydrogen is clearly left out in the cold. This is not yet the announcement that hydrogen will not be a fuel for heating buildings, but it goes about as far as it could without doing that: "As hydrogen is not yet a proven technology for home heating, a role would come later and likely be limited."
A consultation is promised, which would surely be the death knell for hydrogen. This can't come soon enough. This doubt, along with a lack of a phase-out date for gas boilers, is a serious weakness to the plan, in terms of giving policy certainty on the direction of travel. The government clearly does not want to inflame a 'boiler tax'-type rebuke from the press.
Though lots has been announced, this is in many ways the beginning, with much detail yet to come. If you'd like to discuss any elements of the plan then please do get in touch. We will be producing analysis and guidance as it develops.
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