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Taking the heat out of the energy transition

Domestic heating is one of the toughest decarbonisation nuts to crack. With hydrogen heating firmly on the back burner, can heat pumps rise to the challenge? And will the UK finally embrace district heat networks that capture waste heat and pipe it into people’s homes?

The UK government has kicked hydrogen town heating trials into the long grass, effectively killing any hopes that hydrogen will play a role heating British homes. So, how exactly will the UK dislodge natural gas from home heating?

Heat pump installations are ramping up, but not quickly enough to meet targets. Has the time finally come for Britain to embrace district heat networks – and overcome cultural and planning barriers to communal heating systems?

Minister for energy efficiency Martin Callanan announced on May 9 that work on a hydrogen town pilot won’t progress until 2026, after “strategic decisions” are made on the role of hydrogen in decarbonising heat. The government’s focus, he said, will be on heat pumps and heat networks.

The announcement was incongruous because the delay is, in itself, a strategic decision. In the intervening years, alternative technologies will only expand their market share thanks to a parallel decision to make heat pumps cheaper and easier to install.

You wouldn’t put champagne down the toilet, and it’s similar for hydrogen.

Eoghan Maguire, director of heat networks Scotland at Vattenfall Heat UK

Using hydrogen for heating was always a contentious topic. The poor round-trip efficiency of green hydrogen produced via renewable-powered electrolysis makes it unsuitable for blending into the gas network when much better use cases exist. More efficient heating solutions are coming to the fore.

It is widely acknowledged that heat pumps will play a critical role in decarbonising heat. Well-installed systems can achieve a coefficient of performance (CoP) of >3, meaning that for every unit of electricity consumed, three (or more) units of heat are pumped into the home – even during sub-zero temperatures.

Misaligned incentives

Heat pump uptake in the UK lags comparable markets. Out of 17 European countries examined in 2021, the UK had the slowest rate of heat pump installation. The current rate of deployment is around one-ninth of the official target of 600,000 units per year by 2028, according to the Climate Change Committee. Energy efficiency measures are also off-target and installations actually fell in 2022.

Dirty man of Europe: the UK has one of the most CO2-intensive residential heating segments. Source: Aira UK

There are numerous obstacles to reversing these trends, the largest of which is skewed energy prices. “Although heat pumps are three times as efficient as gas boilers, electricity unit prices are around three times higher, effectively eliminating the efficiency benefits from a running cost perspective,” says think-tank E3G.

Heat pumps generate less noise than a fridge, yet due to planning red tape, they are more difficult to install than a jacuzzi

Aira UK CEO Daniel Särefjord

The retail price of natural gas is almost 30% cheaper than the European average, and the fuel is exempt from the UK’s carbon tax. By contrast, electricity retail prices are higher than the European average thanks mostly to the fact that levy costs are almost eight times more expensive for electricity than gas per unit of energy consumed.

Taken together, the broad differential between UK gas and electricity prices “effectively subsidises natural gas versus low-carbon energy vectors, and gives further competitive advantage to gas boilers versus heat pumps”. That’s according to DNV, the certification, verification and risk management consultancy.

Bogged down by system inertia

DNV is notably bearish on the UK heat pump market due to “system inertia”. That is the enduring presence of gas boilers in properties and the slow rate of replacement.

“Gas boilers typically last around 15 years, and today we are still adding around 1.7 million gas boilers every year, which will remain in the system for another 15 years unless targeted and costly government intervention programmes are introduced,” DNV said in its UK Energy Transition Outlook Report 2024.

“This introduces new inertia in the system, which will inevitably slow the energy transition in the medium term.”

DNV forecasted only about 12 million households – 38% of total housing stock – will have heat pumps by 2050. Due to inertia and misaligned price incentives, installation rates will reach only 300,000 by 2028 – half of the target, which will be reached a decade late, in 2038. This would leave a big hole in the UK heat decarbonisation market.

DNV expects natural gas will still dominate the UK heat sector in 2050. Source: DNV UK Energy Transition Outlook 2024

Planning constraints and skills shortages are also holding heat pump growth in check. Daniel Särefjord, CEO of heat pump specialist Aira UK, said families who want to invest in a climate friendly and affordable heat pump face an “unnecessary bureaucratic burden”. This pushes them back towards new gas boilers when the old one fails.

“Technological advances mean that heat pumps generate less noise than a fridge, yet due to planning red tape, they are more difficult to install than a jacuzzi or home office extension – both of which take up more space and are more intrusive,” he told E-FWD.

Aira UK CEO Daniel Särefjord

Clean heat jobs

Recently Parliamentary research found the UK had just 3,000 qualified heat pump engineers in 2022. The government estimates that by 2028, the country will need to increase this workforce to meet demand by nearly ten-fold to 27,000 installers. This implies re-training 400 gas-safe heating engineers per month.

“While this is ambitious, it can be done by increasing training and development opportunities for existing heating engineers and opening more training facilities, like the Aira Academies,” Särefjord said. Aira UK – the British subsidiary of Sweden-based Aira – recently launched its first UK Aira Academy in Sheffield. It aims to create 8,000 clean heat jobs across the UK over the next decade.

‘My home is my castle’

While heat pumps will do the heavy lifting on heat decarbonisation, critics say they can’t get the entire UK housing stock onto a net zero-compliant pathway. A range of solutions are required, and the (perhaps overdue) realisation from government that hydrogen won’t play a meaningful role places renewed emphasis on the need to scale up alternatives, such as district heat networks.

One of the biggest structural barriers to heat network uptake is cultural. There is a general distaste among British policymakers and ministers for European-style centralised planning. There is an almost philosophical preference for consumer choices rooted in liberal British values of individual rights and freedoms.

To work around this, the UK policy approach is to tip the scales of consumer preference in favour of lower-carbon options via subsidies and other incentives. These include grants for heat pumps.

UK heat pump installation. Source: Aira UK

But this “consumer-led transition” is “unlikely to achieve the speed of conversion necessary to decarbonise domestic heating and will cause significant transition planning problems for both the electricity and gas network operators,” DNV warned.

It doesn’t have to be this way. The UK has a “proud history” of nationally co-ordinated heating system transitions, says E3G.

“The decade to 1977 saw 13 million homes converted from using town gas to natural gas, and another shift happened in 2005, when it became required for all fossil boilers to be installed as efficient, condensing models,” the think-tank said in a paper last week. With the right leadership, these transformations offer a template for a 21st century home heating transition.

The case for ‘energy Communism’

Policy interventions that do not challenge the mantra of consumer choice will tend to favour retrofits on large households in rural or suburban areas. But the approach is problematic in high-density urban areas, where apartment blocks, multi-occupancy tenements or tightly-packed terraced homes would be better served by a communal system.

A gas boiler in every home? Terraced houses in the city of Leeds in winter. Source: Shutterstock

Incentivising individualised low-carbon heating systems in city dwellings implies a substantial buildout of heat pumps or electrified boiler systems within a confined area. This raises concerns around materials efficiency and heightened electrical load on the local distribution network. Moreover, it squanders an opportunity to capture waste heat – existing sources of ‘free’ therms – that could otherwise be piped into buildings that currently burn gas or oil.

The standard method for doing this is via district heat networks – a set of underground pipelines that gather waste heat from one or more large industrial sources and distribute this to a much larger number of homes and businesses connected to the network via heat exchangers.

The benefits are legion. Heat exchangers occupy less space in the home, networks are technology-agnostic (so can absorb heat from multiple sources), and are generally more energy-efficient than individual heating systems. The biggest selling point is arguably the avoidance of placing additional strain on power grids that are already contending with rising peak demand, due to the broad electrification push.

Playing catch-up with Europe

Heat networks are an established technology in Nordic countries and other parts of Europe, but this is another area where the UK lags its neighbours. There are just over 1,000 known heat networks across the UK meeting less than 3% of nationwide demand. The government is aiming for 20% by 2050 and is expanding a suite of policy instruments to achieve this.

Behind the curve: heat networks in the UK. Source: UK government

Sweden is light-years ahead. District heating met 58% of total building energy consumption in 2020, followed by 22% from heat pumps. Domestic heating accounts for just 1% of the country’s CO2 emissions “and it’s still falling”, says Aira UK’s Särefjord.

In Germany, every town with a population of more than 80,000 residents has at least one heat network, according to the Energy Technologies Institute. Heat networks cover an estimated 10-14% of German heat demand.

The most relevant comparison for the UK is perhaps the Netherlands. This is a country with abundant domestic supplies of natural gas that has nevertheless transitioned towards communal heat solutions.

The Dutch realised they couldn’t depend on gas forever, compounded by increasing intensity of earthquakes that damaged thousands of properties in the vicinity of Groningen – one of Europe’s largest onshore natural gas fields. Production at Groningen was progressively wound down, propelling the Netherlands towards alternatives.

The capital Amsterdam has pledged to be a gas-free city by 2040. It is already home to several large heat networks that deliver energy to around 200,000 homes. The heat is sourced from combined heat and power (CHP) plants, and a heat buffer (store) allows additional sources – such as power-hungry data centres – to dump waste heat into the system.

A welcome barrage of legislation

While continental towns and cities ploughed ahead, heat networks remained a niche phenomenon in the UK for decades. This has been due to a lack of capital, regulation and oversight. Where heat networks were installed in Britain, they tended to focus on large institutional estates such as hospitals and universities where these barriers do not apply, the ETI said. But a barrage of legislation is changing the outlook.

Ramping up heat networks implies the creation of new monopolies that must be regulated. The UK and Scottish governments have passed legislation in recent years to ensure heat network customers receive the same protections as gas and electricity customers. Heat supply is now a regulated activity in Scotland and suppliers must hold a licence, ensuring they adhere to regulations on pricing, service and technical standards.

The Heat Networks (Scotland) Act 2021 also placed a duty on local authorities to identify and designate strategic ‘Heat Network Zones’. The introduction of National Planning Framework 4, a long-term plan to 2045 that will influence planning decision across Scotland, takes this a step further. NPF4 Policy 19 obliges new developments in the vicinity of a heat network zone to connect, unless the developer can find a cheaper way to deliver low carbon heat.

Distribution of potential heat network zones identified across Scotland. Source: Scottish Government

This obligation is crucial because it tackles the number one commercial constraint to developing heat networks: security of demand.

Confident connections

In a recent survey, 50% of investors polled by Burges Salmon said demand uncertainty is the top risk they face when contemplating heat networks – which are long-term investments with multi-decadal lifespans. Until now, they faced a dilemma. If they build the infrastructure, will it be used? Where is the demand certainty 40 or even 50 years from now?

NPF4 “gives us confidence that if you build a new network, you can invest strategically, knowing that people will connect,” said Eoghan Maguire, director of heat networks Scotland at Vattenfall Heat UK. This opens up the opportunity to aggregate demand from large numbers of smaller homes and commercial buildings, and move beyond the limited staple of government buildings such as schools, hospitals and prisons.

Monetising waste to secure supply

NPF4 also encourages network operators to link up with other sources to capture as much waste heat as possible. “It’s not about whether [enough waste heat] exists, it’s about trying to capture it and move it to homes to offset gas,” Maguire told E-FWD.

London’s heat demand is about 60 TWh. Meanwhile, secondary sources of heat are venting into the atmosphere about 71 TWh. At the national level, the UK’s space and hot water heating demand is 463 TWh, and there’s an estimated 310 TWh of waste heat being generated by various installations around the country. Marrying the two would go a long way towards cracking the heat decarbonisation nut.

“There’s a lot of heat sources already in the city which are literally going up the chimney. District heating is not technically all that hard, it’s just oversized plumbing. The challenge is hearts and minds,” Maguire said.

Eoghan Maguire, Vattenfall Heat UK

Winning people over is key to security of both demand and supply. While the new regulations help to address the demand side of the equation, there is no similar obligation to channel waste heat into the network. Buying waste heat incentivises participation, but a flat price only goes so far because there is no penalty for venting. A sewage plant or coffee roasting facility might vent large amounts of heat sporadically, but there is no guarantee that their therms will be available at the exact time it is needed.

Attracting heat

Dynamic pricing can shift the supply profile to match heat demand on the network, Maguire explained. In Sweden, Vattenfall’s SamiEnergi (TogetherEnergy) business purchases excess heat from companies such as data centres. The price is based on Vattenfall’s marginal production cost and can be either a variable tariff only, or a combination of fixed and variable tariffs.

In Uppsala, Vattenfall trialled the use of heat price forecasts to give producers visibility of upcoming periods of higher remuneration a day or two in advance. Once heat networks are up and running and the demand profile is clearly defined, price forecasts can be rolled out to attract new suppliers.

Flushing out the gaps

Where there is likely to be a shortfall, Vattenfall installs backup low-carbon heat generation from large-scale air source heat pumps or e-boilers. But the focus is always on “trying to encourage waste heat [capture] wherever possible,” Maguire said.

Installation of heating pipes in Shawfair near Edinburgh. Vattenfall and Midlothian Council are co-investing in a heat network that will harness energy from a waste facility at Millerhill. Source: Vattenfall

Inevitably, there will be instances where a property is not suitable for a heat pump and can’t be connected to a heat network. Where this occurs, the best option will be direct electrification of space and water heating, via a conventional immersion heater and electric radiators. In practically all cases, this will be a more efficient use of grid electricity than using it to produce hydrogen for combustion in the home.

Asked whether the decision to postpone hydrogen heating trials was a setback for UK heat decarbonisation, Maguire was unequivocal. Green hydrogen is a premium fuel, while heating is a “low-grade commodity”, he said. “You wouldn’t put champagne down the toilet and it’s similar for hydrogen. There are many more beneficial uses.”

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