I thank everybody who contributed to this short but excellent debate. There were some great contributions; I hope that I will be able to answer all the questions that were asked.
I start by re-emphasising what I said in my introduction: the decarbonisation of heat is a crucial challenge in meeting our climate targets, as heating our homes, businesses and industry is responsible for about a third of the UK’s greenhouse gas emissions. Although we have made progress—emissions from buildings fell by 20% between 1990 and 2017—we must go much further and faster to meet the net-zero target. Ultimately, net zero will mean gradually but completely moving away from burning fossil fuels for heating.
To address the point made by the noble Lord, Lord Carrington, we are clear that achieving net zero will require a range of technologies and solutions for buildings. There is no silver bullet, I am sorry to say. It is not a case of choosing whether electrification, hydrogen or heat networks are the answer. It will be a little bit of everything, possibly including some technologies that we are not even aware of yet. We should be flexible and adapt our approach depending on what our scientists deliver for us.
However, there is no question but that, whatever range of solutions is offered, heat pumps will play a substantial role in any net-zero scenario. It is therefore important that we build the market for them in the UK now. They are used quite substantially in other countries in Europe and across the world. Given the large quantities of gas that we have traditionally had, we have not concentrated as much on this technology in the UK, but it is important that we get the market moving.
This scheme is all about targeted support to grow the low-carbon heat supply chain to enable the introduction in the mid-2020s of regulatory and market-based measures that will further drive the transition to low-carbon heat in our homes and businesses. We have set an ambition to work with industry to reduce the cost of heat pumps, we hope by at least 25% to 50%, by 2025. This is ambitious but we have certainly seen some good signs from businesses in this area that we will be able to achieve it. Ideally, we want parity with current gas boilers by 2030; realistically, if we are to get mass market take-up, we must ensure that that is the case. This scheme is an important step in supporting those consumers who choose to make the switch earlier, as the noble Lord, Lord Vaux, has done. Investment in this element of the net-zero campaign will not only contribute to our carbon reduction targets but help to create high-quality jobs of the kind that the noble Baroness, Lady Blake, talked about. It will also boost our economic recovery in levelling up across the country and ensuring that we build back better.
I will take some of the points that noble Lords made. The noble Lords, Lord Jones and Lord Oates, rightly raised concerns about consumer protection and quality assurance under the scheme. This is something that we have carefully considered. To ensure that installations under the scheme are of a high quality, as I mentioned, all installers have to be certified by the MCS and members of a consumer code that ensures customers are protected by a Trading Standards Institute-approved code of practice. This ensures that property owners are covered by consumer protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer. There is a proper insurance-backed warranty on top of that if any faults are identified or in the rare cases where installers go out of business.
The noble Lords, Lord Jones and Lord Oates, and the noble Baroness, Lady Blake, made some good points about the ability of the supply chain to deliver the scale of change required. There are currently more than 1,200 MCS-certified air source heat pump installation businesses, covering every region in the UK. Record numbers have been installed over the past year. We have had extensive discussions with businesses and industry, which have informed us that they are confident they have the capacity to comfortably meet demand for heat pump upskilling over the course of the scheme and in line with our targets.
The noble Lord, Lord Oates, prompted me on this issue. In September 2020, we launched the £6 million skills competition under the green homes grant scheme to provide training opportunities for energy efficiency and low-carbon heating supply chains. I am pleased to say that a number of the heat pump manufacturers offer their own training schemes; I have visited a couple of their training workshops. MCS itself has a conversion course and some of the big installers, whose names I do not need to mention for further advertising, are rapidly upskilling their workforces. They are often boiler engineers anyway; they just need conversion courses to be able to install heat pumps. There is a lot of work going on in skills and training, and we are working closely with the DfE to make sure that we take this forward.
The noble Lord, Lord Jones, asked what the Government are doing to support vulnerable and fuel-poor households. That is not part of this SI, obviously, but we are giving a lot of financial support through a range of schemes: £950 million in additional funding for the home upgrade grant in England; £394 million invested through the Welsh Government’s warm homes programme; £800 million to the social housing decarbonisation fund; and a £6.7 billion extension until 2026 for the energy company obligation and warm home discount schemes. All of them are helping to insulate, upgrade and retrofit the homes of those on low incomes throughout the United Kingdom.
The noble Lords, Lord Carrington and Lord Oates, and the noble Baroness, Lady Blake, rightly raised the scheme’s role in meeting the 600,000 heat pump installation target. Obviously, a bit of simple mathematics will demonstrate that this scheme will not meet the 600,000 installation target on its own. It is part of a wider package of policies that we are introducing to scale up
heat pump deployment and support industry. I mentioned some of the other upgrade schemes that we have; of course, many of them are already supporting heat pump installations as well. Indeed, I visited Leeds to see some of the excellent work going on up there.
As costs come down, we expect other policies to kick in as well. The noble Lord, Lord Oates, mentioned this point: by 2026, we expect around 200,000 heat pumps a year to be going into new-build buildings following the introduction of the future homes standard. In that standard, we are specifying not that the installation has to be a heat pump—we are technology neutral—just that the overall design of the new property has to be low carbon. It could use alternative sources of low-carbon heating. That will come with the future homes standard.
Along with our consultation on wider heating policies, which will also contribute to the target, new regulations are proposed on buildings off the gas grid. We have also consulted on a market mechanism for gas boiler manufacturers; we are just about to respond to that consultation. Taking all these measures together—this scheme, the social housing decarbonisation fund, the home upgrade grant, the new future homes standard, et cetera—we are confident that we can get up to our 600,000 installations a year. However, I emphasise once again that I do not expect this scheme alone to deliver 600,000 installations a year. That would be mathematically impossible with the amount of money we have available.
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The noble Lords, Lord Carrington and Lord Oates, mentioned the timescale for the launch. We have taken a staggered approach to launch but the scheme is valid now and has been from 1 April. Any installations happening under the domestic renewable heat incentive that do not manage to get commissioned in time can switch to support from this scheme as well, so all installations from 1 April will be eligible. We have taken a staggered approach precisely to ensure that we do not experience the same problems as the much-maligned green homes grant. We want to ensure that all the back-office systems and processes in Ofgem are in place to ensure that payments to installers are made on time and that all those systems are robust and reliable.
As I mentioned, the scheme has been valid from 1 April. Installers will be able to register their details on the Ofgem website from 11 April, and it will start processing grant payments from 23 May. I and the chief executive of Ofgem have met with all the associations and many of the companies responsible. We briefed them on the timescales that we propose for this launch. The whole idea is to make the scheme much simpler and easier. Effectively, only three technologies are supported, so we think it should be simpler and more straightforward than the green homes grant. It is being targeted through installers rather than consumers directly, although consumers do have to give their consent to the installation. Ofgem is in regular contact with the federations representing many of the installers and we are already testing the approach with installers. I am pleased to say that the feedback has been very positive so far.
The noble Lord, Lord Carrington, asked whether the scheme should adopt a technology-agnostic approach. It does not because it is a heat pump approach, but generally we are technology agnostic. Yes, we support heat pumps, but we also support the development of low-carbon hydrogen through a scheme that is similar to the contracts for difference; we will announce the details of that shortly. Some hydrogen trials are already going on. In particular, in my area of the north-east, there are two hydrogen houses, which I have visited.
Realistically, as a technology, hydrogen is still in its early infancy in terms of our ability to produce large quantities of it at a realistic cost. However, science and technology might be our friends here. As the industry gets used to producing it and new techniques come on board, it could very well play a role in domestic heating, although the evidence at the moment suggests that it is more likely to play a role in industrial processes, heavy goods vehicles, et cetera. However, it is possible to blend up to 20% hydrogen, even into the current gas main. It will operate perfectly satisfactorily with existing boilers, fires, et cetera—indeed, trials are going on to do that at the moment.
Current evidence suggests that heat pumps are technically suitable for most buildings. Between 80% and 90% have sufficient energy efficiency and internal electrical connection capacity to accommodate a heat pump system. I think it was the noble Lord, Lord Carrington, who made the point about biofuels, such as bioLPG and hydrotreated vegetable oil. Biodiesel may also play a role in future off gas grid decarbonisation, although it is important to add that these fuels are not completely carbon free. They are potentially suitable for properties that are not suitable for a heat pump.
I have been receiving lots of correspondence on this subject, but we think further evidence is needed to consider what role, if any, biofuels could play and whether it would be more appropriate to use available biofuel stocks for transport road fuels, et cetera. There is a debate to be had about what we do with the relatively limited quantities of biofuel feedstock that would be available, so it is important to consider that in terms of the wider policy framework. We will, of course, always keep the list of eligible technologies under review.
The noble Lord, Lord Vaux, also made some excellent points. I agree with much of what he had to say about the efficiency of heat pumps and how important it is to be up front and honest with consumers about the running costs of these systems. He is absolutely correct that the impact on a household’s bill of installing a heat pump will depend on a lot of household-specific factors: the efficiency of the heat pump and how much insulation they have installed, et cetera. It is very important that we provide appropriate information. Of course, I am not responsible for what installers themselves will say or for what much of the media will say, but government publications will certainly be up front and straightforward with people about what the costs are.
Currently, installers are required to provide customers with an estimate of the annual energy performance of the system before the point at which the contract is awarded, so that they make a properly informed decision about the installation. I hope the noble Lord’s installer provided him with an appropriate estimate.
The noble Lord, Lord Oates, raised an important point, which I think was also mentioned by the noble Lord, Lord Vaux, about the role of energy efficiency and EPCs under the scheme. There is of course a trade-off: the original purpose of an EPC was to provide information about the running costs of a system, rather than necessarily the carbon efficiency. Clearly, given the imbalance of costs between electricity and gas at the moment, there is the potential—not in every case—that installing a heat pump would give you a worse EPC. Ultimately, we will need to address that in rebalancing the costs of electricity and gas, but the noble Lord is quite right. Again, I get lots of letters about this, but the purpose of EPCs is to provide a consumer who is buying or renting a property with information about the running costs and how much they will spend. The carbon impact is important but we have to balance it against the information provided on running costs, which is where the corollary comes in. Ultimately, the solution is to rebalance electricity and gas prices.
The noble Baroness, Lady Blake, asked when and how grant values will be reviewed. As I mentioned in my introduction, we have a power to keep them under review. The Secretary of State can change the grant amount and, clearly, we will monitor the take-up of the grants and the market closely. We will keep them under constant review throughout the duration of the scheme; we have the flexibility to amend them if we need to. A lot of external factors are influencing the market at the moment: a shortage of components, with difficulties in the importation of such parts; scheme demand; and a number of wider market changes. Vouchers will operate on a first-come, first-served basis and it is important that we are able to keep the budget under constant review. We have an amount of money available for this spending review period. I cannot predict what might happen in future spending reviews but we have £450 million available for the first three years of its operation, which I hope will be sufficient funding to satisfy demand. Obviously, I cannot give any promises about what future spending reviews will do or what funding will be available.
I think I have answered all the points. I am sure that somebody will remind me if I have not. Let me underline once more that these regulations are a vital part of reaching our legally binding greenhouse gas emissions target. I thank all those who have contributed to the debate and commend these draft regulations to the Committee.