James Heath: Getting the evidence in place for key decisions on low carbon heat

James Heath, Chief Executive of the National Infrastructure Commission, addressed Utility Week’s ‘Build Back Better’ Forum today (21 October 2020). His speech explored the policy decisions and investment needed to harness the full potential of low carbon heat, setting out the range of evidence that will be required to ensure effective decisions to address the challenges of decarbonisation.

James’ speech can be found below.

Thank for the invitation to speak today.

The National Infrastructure Commission was set up to advise government on major, long-term infrastructure challenges.

We do this by:

Taking a long term, 20 to 30-year view of the country’s infrastructure needs and how investment should be prioritised to meet them
By taking a cross-sectoral approach to infrastructure planning,
And by basing our policy advice on in-depth, expert and impartial analysis.

From our perspective, there are a number of big strategic questions that infrastructure strategy and planning must answer:

How can infrastructure contribute to a sustainable economic recovery – both in the short and the longer-term?
How can infrastructure investment increase UK productivity and narrow regional disparities in economic outcomes?
And how can infrastructure contribute to achieving the target of net zero greenhouse gas emissions by 2050?

These are the questions that we hope the government’s National Infrastructure Strategy will start to address. And they are also the questions that guide the NIC’s thinking and our approach to the next National Infrastructure Assessment.

I’ll talk today about the third of these questions – infrastructure’s role in decarbonising the UK economy. And specifically address the session’s subject of what needs to happen if the UK is going to harness the potential of low carbon heat.

Back in summer 2018, our first National Infrastructure Assessment was clear that the successful delivery of a low cost, low carbon energy system would require three key things:

A flexible electricity system and new generation, primarily through renewables. We are now confident that 65 per cent of Britain’s electricity could come from renewable sources by 2030 if we put in place the right conditions, including a clear pipeline of Contract for Difference auctions to secure additional capacity across not just offshore wind, but onshore wind and solar too.

The second requirement is buildings which need less energy to heat. Again, we are seeing progress in this area but the current level of energy efficiency improvements will need to be significantly increased over a sustained period to match the size of the challenge.

And the third requirement is to move away from our national reliance on fossil fuels for heating.

Heat has traditionally been a Cinderella problem. Yet, more than a fifth of UK carbon emissions are created by heat production. And reducing emissions from heating in an affordable way is one of the biggest net zero challenges we face.

Why?

Around 85% of UK households use natural gas boilers – and natural gas is currently relatively cheap.

The uncertainties around cost, technology and consumer behaviour.

And transforming the UK’s buildings will require a complex set of issues to be simultaneously solved – issues concerning infrastructure, installation and supply chains, regulation and standards, and consumer confidence in low carbon technologies.

So, the challenge to deliver low carbon heat is clearly significant. And in the not too distant future, we’ll need to make decisions about how best to do it:

Decisions about the future role to be played by heat pumps and hydrogen boilers in the mix of sources for heating. Accepting, of course, that households will ultimately decide how much energy efficiency to install and which heat solutions to go for, within the range that will be available.
Decisions about how to scale up the markets and supply chains to deliver solutions at scale.
And decisions about system architecture and infrastructure, including the future of the gas grid.

To be able to make good decisions about the future of our heating system, the government will need to have the best available data. At the NIC, we can play a critical role in developing this evidence base and informing policy making.

We’ve advised that government should establish a large-scale trial to supply hydrogen to at least 10,000 homes. The trial should be part of a much wider strategy for low carbon hydrogen production and use to really test whether this technology can work at scale across heating, transport, industrial processes and electricity generation.

It’s also important that we establish an up to date evidence base on the performance of heat pumps within the UK building stock and the scope for future reductions in the cost of installation.

Progress is being made. We welcome the proposed move to grant funding for low carbon heat installations and the ban on gas boilers in new build homes by 2025.

There is a real opportunity with the publication of the National Infrastructure Strategy and the Buildings and Heat Strategy for government to outline a strategic approach to decarbonising the UK’s buildings and heat, including a clear pathway for getting to, and then taking future decisions, as the evidence base builds.

We’ll need to work out what the conditions are to attract the investment and innovation required to turn low carbon heating from a niche activity into a mass market activity.

We’ll need the evidence to be in place in a series of areas, including:

How will solutions be driven by interactions between the various players – suppliers, networks and consumers?

Should we take a regional approach recognising that different approaches may be needed in different places?

How to establish a viable set of milestones for reviewing the future installation of new gas boilers in homes.

Alongside a new policy framework, there will also need to be a regulatory environment that supports investment in the necessary infrastructure and builds consumer confidence.

Finally, it will be important to align future decisions on heating policy with decisions on energy efficiency. Ensuring that buildings require less energy to heat will keep future costs down – but the optimum level of energy efficiency will partly be linked to the choice of heat technology.

History may provide some helpful lessons – as a country, we’ve made some similar, fundamental changes before with effective policymaking.

We managed the transition from what used to be called town gas to natural gas. This ‘rush for gas’ in the sixties built a brand-new national gas network and converted domestic appliances to exploit the discovery of North Sea Gas in a period of about ten years. Although it is worth remembering that the structure of the industry back then was vastly different to today.

Perhaps more surprisingly, the world of television may also offer some lessons. One of my previous employers led the successful switch of UK households from analogue to digital TV. This involved major infrastructure changes, the universal adoption of new TV kit by households, and major consumer engagement – in a switchover programme that took 10 years from the initial decision to its completion.

The challenge we face – to switchover the UK’s buildings to low carbon heat – looks bigger and more complex than both of these previous national programmes.

In conclusion, the government’s net zero target means that the UK’s buildings will need to move entirely over to low carbon heating by 2050. Working backwards, there are a lot of complex things that need to happen to achieve this outcome. There needs to be a gear shift in policy. And there needs to be significant work undertaken to ensure the evidence is in place to inform major future decisions. The NIC will continue to contribute to this process, advising the government and undertaking further work in our next National Infrastructure Assessment.