My Lords, these draft regulations were laid before the House on 25 February 2022, and the SLSC considered the regulations in its 32nd report.
The UK is the first major economy in the world to set a legally binding target to achieve net-zero greenhouse gas emissions by 2050. Between 1990 and 2019, our emissions decreased by 44%. We are continuing to advance sustainability through the Government’s Ten Point Plan for a Green Industrial Revolution, the Net Zero Strategy and, most relevant in this case, the Heat and Buildings Strategy.
Currently, the heating of our homes, buildings and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets, requiring virtually all heat and buildings to be decarbonised. The Government’s ambition is to phase out the installation of new natural gas boilers beyond 2035. Heat pumps are a proven, scalable option for decarbonising heat and will play a substantial role in any net-zero scenario.
A UK market with the capacity and capability to deploy at least 600,000 heat pumps per year by 2028 can keep us on track to get to net zero and set us up for further growth if required. However, the current UK market for low-carbon heat is relatively small; due to this, these technologies are largely unable to compete on a capital-cost basis with conventional heating options. Although the new-build market for low-carbon heat is expected to grow as a result of regulatory signals, such as the future homes standard, existing buildings face a specific set of challenges. Subsidy is required to mobilise this section of the market, bridge the cost gap between a fossil fuel system and low-carbon alternatives, and build the appropriate supply chains.
The low-carbon heat market has previously been supported by the domestic renewable heat incentive, which closed to new applicants on 31 March this year. The boiler upgrade scheme will follow on from this support, providing capital grants to support the installation of heat pumps and, in limited circumstances, biomass boilers in homes and small non-domestic buildings in England and Wales. The scheme has a budget of £450 million over three years, as confirmed at the 2021 spending review. Grants of £5,000 will be provided towards the installation and capital costs of air source heat pumps and biomass boilers, with grants of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties not connected to the gas grid to minimise any impacts on air quality, in line with the Government’s clean air strategy. The grant model will provide an upfront discount to costs paid by the consumer, closing the gap between the cost of low-carbon heating and conventional boilers. In setting the grant levels, we have considered evidence on consumer willingness to pay, the current upfront capital cost of each technology and social research on domestic renewable heat incentive applications.
The application process will be led by the installer and comprise of two stages: applying for, and then redeeming, a voucher. This will allow for a simple consumer journey while maintaining certainty for installers as to availability of budget. This model is suited to ensuring market growth and enabling industry to deliver through the grant model at scale. To ensure consumer protection through the scheme, consent will be sought from the consumer ahead of any application being
made on their behalf. All installers participating in the scheme must be certified by the microgeneration certification scheme or an equivalent, and must confirm membership of a consumer code. This ensures that consumers are covered by protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer.
The scheme will provide financial support for up to 30,000 installations in year 1, contributing 2.6 megatonnes of CO2 equivalent of carbon savings and supporting 2,100 direct full-time equivalent and 1,800 indirect full-time equivalent jobs per year over its lifetime. This supports the Government’s ambitions for levelling up, as we expect supply chains to be built and jobs to be supported in regions with higher demand outside London. With the growth in demand encouraged under the scheme and wider market developments, we expect to see cost reductions in the technologies over the three years. This instrument therefore sets out a provision to allow the Secretary of State to review grant levels and maintain the right to adjust them in response to any appropriate market changes. Eligible low-carbon heating systems that are commissioned on or after 1 April this year will be entitled to support under the scheme. From 11 April, installers will be able to open an account for the scheme with Ofgem. We expect these regulations to come into force and grant applications to open by 23 May.
In conclusion, the scheme established by this statutory instrument will increase the deployment of low-carbon heating technologies, making crucial progress towards our climate targets. We already have a strong homegrown renewable energy sector, but investing further in heat pumps will reduce our exposure to volatile prices and help to protect British consumers. In supporting this investment, we expect to grow the market for retrofit installations, put downward pressure on costs and continue to build the supply chain in preparation for the introduction of regulations and market-based approaches later in the decade. I commend these regulations to the Committee.
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