As the records for low-carbon power generation have continued to fall – meeting over 50% of GB demand in 2017 according to the latest government figures – the successful decarbonisation of other sectors of the economy, driven by binding climate goals, has increasingly become a priority.
In recent weeks a diverse range of energy industry stakeholders have considered the current framework of heat policy and the implications of the different future options that might be pursued.
RHI under the microscope
The decarbonisation of heat has since 2011 principally been driven by the government’s Renewable Heat Incentive (RHI) scheme. The RHI is split between non-domestic and domestic elements. The non-domestic scheme is designed to increase the uptake of renewable heat by businesses, the public sector and non-profit organisations. Eligible installations – including biomass boilers, solar thermal panels and biomethane injection – receive quarterly payments over 20 years based on the amount of heat generated.
Between November 2011 and August 2017, total payments under the RHI amounted to £1.4bn. The scheme currently has a budget for new applicants until March 2021. Final payments to these applicants will run to at least 2040-41, by which time these payments are expected to have cost £23bn. As at February 2018 there had been 18,193 full accreditations under the non-domestic RHI with 21,065GWh of heat generated and paid for.
However, the scheme has been criticised by official spending watchdog the National Audit Office (NAO). The findings of its February report found the government has not achieved value for money. It does not have a “reliable estimate of the amount it has overpaid to participants that have not complied with the regulations, nor the impact of participants gaming them, which could accumulate to reduce the scheme’s value significantly.”
Moreover, take-up of the scheme has been much lower than originally anticipated. As at December 2017, the RHI had delivered just 78,048 total new installations in Great Britain. At current rates of take-up, the NAO estimates the RHI will achieve around 111,000 new installations by March 2021 – just 22% of its original expectations. Installation rates continue to be below the highs seen in 2015.
Given the challenges the RHI has faced, policy makers and the industry are now already looking beyond this to future options for decarbonising the emissions from heat – 20% of which come from the commercial sector and 30% from the industrial sector.
Future of gas
Despite efforts to increase renewable heat, gas still meets over 80% of heat demand. The future of this energy source has been considered in detail by system operator National Grid in its Future of Gas workstream, the final report of which was issued on 9 March.
Many industrial consumers told National Grid that their business is effectively non-interruptible, and they need gas to be delivered reliably, where and when they want it, at an affordable price. Given the uncertainty about exactly how industry will decarbonise, stakeholders agreed that keeping options open to support a range of future energy outcomes for the National Transmission System (NTS) was preferable and significantly more efficient than decommissioning and potentially later needing to rebuild parts of the existing NTS.
Policy recommendations included that decarbonising gas has implications across the energy sector, so a whole energy system approach is needed to address the energy trilemma of energy security of supply, affordability and sustainability.
It was particularly recommended that the government provides clarity on its preferred pathway as soon as possible, in order to give industry the confidence to invest. Decisions are needed in the early 2020s to meet the 2050 targets.
National Grid now plans to work more closely with industrial consumers to understand how decarbonising the gas sector can meet their needs. This will include how to accommodate their needs as flows change, or as solutions like hydrogen and carbon capture develop, and to understand the implications on their businesses of any changes to gas quality and other parts of the current market regime.
Missing piece of the puzzle
While the issues above may attract much attention, the less celebrated solution to much of the decarbonisation issue continues to be acted upon by business decision makers – energy efficiency.
Research by the Aldersgate Group has indicated that energy efficiency mechanisms could generate potential savings of 23.6MtCO2 per year by 2030, which is roughly equivalent to cutting the CO2 emissions of the UK transport fleet by one third. However, there is a general lack of progress in reducing emissions across the UK’s building stock, insufficient uptake of low-carbon heat and insulation and a failure to make any meaningful reduction in non-residential building emissions.
In a briefing issued on 12 March the green business group recommended that the government set a target for the UK’s building stock to be nearly zero carbon by 2050 including by extending the EPC C by 2035 target to commercial buildings. The government should also establish a new zero carbon buildings target to be enforced by 2020, aligned with the UK’s mandatory carbon budgets and giving developers a “clear trajectory and plenty of warning of any policy changes.”
The wealth of research on heat decarbonisation all illustrates that there is no easy solution to the challenge, with technical limitations and cost concerns preeminent. In the end it seems likely that a diverse range of solutions will emerge, each successful in their own unique circumstances. This issue will only become more prevalent for businesses.