Funding earmarked for the Government’s Warm Homes Plan could help middle-income households with the upfront costs of switching to clean heating alternatives – as well as support the expansion of heat networks – according to a new report from Energy UK.
In the second report in its series looking at how best to accelerate the move to clean heat, Financing the Transition finds that £1.5 billion from the Warm Homes Plan funding could unlock up to £9 billion of additional private sector investment and help up to 950,000 households make the switch by subsidising cheaper loans.
While slower than hoped progress with customers switching to alternatives like heat pumps owes much to artificially high running costs (see more below), another barrier to adoption is the upfront capital costs of switching to new technologies. While there is direct financial support available for low-income households, and higher-income households can top-up grants from the Boiler Upgrade Scheme, other customers are left stuck in the middle. As the estimated investment required to convert the country to clean heat cannot be met by public spending alone, leveraging other sources of funding is vital.
While green mortgages can support such upfront costs, they currently have low take-up and also exclude a huge number of households. Investing £1.5 billion from the Warm Homes Plan budget could kickstart a much wider range of cheap loans to support the purchase of home improvement measures like insulation, rooftop solar, heat pumps and battery storage. The report features four case studies, modelled by Cotality, showing how common British properties that are typical of middle-income households could benefit from affordable finance to install clean heat technology.
Funding from the Warm Homes Plan should also continue and extend the support available for the expansion of heat networks through the Green Heat Networks Fund (GHNF). Alongside loan guarantees from the National Wealth Fund, this could help reduce development costs when current uncertainties such as planning and zoning are adding risk to the challenges already associated with a heat network’s long-term investment prospects.
The Energy Act 2023 aims to increase heat networks from their current 3% share to 20% eventually seeing them match the prominent role they have in some other European countries. Heat networks have ambitions to invest tens of billions in the UK by 2050, leading to the creation of hundreds of thousands of direct and indirect jobs across the UK, primarily in construction and heat network operation. Energy UK recently welcomed six new heat network companies to its membership and you can read more about the potential of heat networks here.
These measures must be accompanied by action to reduce the running costs of new clean technology as well. The first report in the series – Clean Heat: Balancing the Bill – published last month, stressed the importance of reducing the policy costs that currently make electricity artificially expensive and so act as a major barrier to the take-up of clean heating alternatives. It also showed how this could also be done within the funding already earmarked for the Warm Homes Plan. Heat from buildings is the UK’s second highest source of emissions, accounting for around one fifth of the total, so converting to alternative, cleaner forms of heating is crucial to meeting the UK’s climate change targets.
Louise Shooter, Head of Heat Decarbonisation at Energy UK:
“Helping households and other energy customers to switch from fossil fuel to clean heating systems, like heat pumps, heat batteries or a low-carbon heat network, will avoid a repeat of the gas price crisis and bring a myriad of other benefits for economic growth and public health. The Government should reduce the price of electricity and subsidise green finance for households, to help more people make the switch and reap the benefits.”
Jim Driver, Managing Director at Cotality UK, said:
“Cost is not the only barrier to retrofit, but it is the most common. Cotality’s analysis for Energy UK delivers data-driven insights into retrofit policy options and demonstrates how government could make clean heat affordable to households who cannot currently access funding.”
Notes to editors
- Energy UK is the trade association for the energy industry, representing companies investing billions of pounds to secure our country’s current and future energy needs. From growing start-ups to major electricity generators, grid and infrastructure developers and energy suppliers, our members are driving change across power, heat, transport and flexibility. We provide a collective voice for the sector working with governments, regulators, charities and other organisations to provide crucial insight that shapes policy, offers solutions and promotes best practice. Our broad view across the whole system supports evidence-based positions which are not tied to particular technologies, and are focused on delivering strategic benefits for people, businesses and the economy. We champion initiatives such as our Vulnerability Commitment, which pushes suppliers to go beyond regulation to support customers with additional needs, and TIDE, the industry’s drive for greater inclusion and diversity. Through our Young Energy Professionals Forum, we support the development of future leaders. We are equally committed to our team and are proud to be recognised as a ‘Gold’ Investors in People employer.
- Cotality provides data, insights, and workflows across the property ecosystem, supporting property marketing, insurance, lending and retrofit. With billions of data signals across the life cycle of a property, Cotality identifies risks and opportunities for agents, lenders, insurers, governments, homeowners and innovators. In the energy sector Cotality provides quality assurance and obligation-handling services for the delivery of ECO, and stock modelling for landlords, local authorities and lenders to identify the need and opportunity for retrofit at scale. To reduce barriers to homeowners, Cotality’s One Stop Shop services – including detailed online advice, and independent retrofit assessment and coordination – are available nationally delivering direct to homeowners or via partners. Find out more at cotality.com/uk.