From energy bills to policy ‘sticking plasters’: Could housing derail the UK’s just net-zero ambition?

Failure to tackle the cost of energy could well lead to further issues in regards to decarbonisation

Buildings are the second-largest source of emissions in the UK, accounting for around 20% of the overall.

The sector and those working within it have laid out some ambitious targets to transition the UK’s housing stock to low-carbon solutions in order to be viable with the wider net-zero transition. The sector has clear definitions of what constitutes a net-zero building, but the ongoing energy cost crisis driven by an alarming increase (and reliance) on imported gas has raised questions as to whether housing is compatible with the UK’s climate goals.

The Climate Change Committee notes that there has been “no sustained” reduction in emissions from buildings in the last decade and that plans to change this are “not yet fully comprehensive or complete and significant delivery risks remain for many policy areas” that are listed in the Heat and Buildings Strategy.

One of the flagship targets facing the sector is an aim to ensure that as many buildings as possible reach the Energy Performance Certificate band C bracket by 2035. However, the CCC notes that “current policy is insufficient to achieve this goal”, with around two-thirds of relevant buildings currently meeting this goal.

The speed at which energy bills are projected to increase and leave many households choosing between “fuel or food” has only heightened the need for greater policy intervention, which in turn should offer more clarity and confidence for UK housebuilders and households.

The ECIU has found that homes rated band F on the Energy Performance Certificate (EPC) system will likely have to pay gas bills that are £968 higher than those rated band C.

Currently, the average UK home is rated in band D and these homes will have to pay around £420 more for gas this winter compared to those in a higher band. The ECIU notes that wholesale gas costs have added £2,500 to energy bills during the current cost of living crisis, when electricity is also accounted for, the worst performing homes will need to pay almost £2,000 extra compared to band C homes.

The main increase in these costs (contrary to plenty of claims from certain parts of the media) is the increase in the price of gas. Natural gas accounted for around two-thirds (318.4 TWh) of household energy consumption in the UK in 2021, with Russian imported accounting for more than 10%.

Reducing reliance on gas requires a complete rethink of how a building operates and taps into grid infrastructure and networks.

Perplexing policy

An immediate response to the energy cost situation, which is expected to see average household energy bills reach £4,200 early next year, is required, but one that appears unlikely to emerge given the current focus on the Conservative leadership contest.

The CCC has previously noted two pivotal areas of action in enabling the sector to reach net-zero emissions.

Firstly, is the need to deliver a massive uptake in low-carbon heating solutions (the primary use for gas in housing) so that at least 600,000 heat pumps are installed annually by 2028 and up to 1.9 million a year by 2035. Despite a 47% increase recorded in annual installations in 2021, just 55,000 low-carbon heat pumps were installed.

The second “pivotal” area for action as noted by the CCC is to ensure that as many buildings as possible reach the Energy Performance Certificate band C bracket by 2035.

Housing has been subjected to numerous flagship policy frameworks over the years, none of which have inspired the confidence of policymakers, despite being broadly welcomed by green groups and the sector. Since the Zero Carbon Homes standard was scrapped in 2016, the Government has introduced an array of ambitious targets for new build energy efficiency and a retrofit revolution, the latter of these has been chopped and changed too much.

Within the past 12 months, the £1bn Green Homes Grant closed with the majority of its budget unspent. Initiatives have remained in place for social housing and public sector buildings, but the Government has faced continued calls for a new national retrofit programme for homes. Such a programme has not been announced, despite chances for this to have happened – most recently, through the Energy Security Strategy and Energy Security Bill.

An ECO extension has been advocated by groups including the Sustainable Energy Association, Construction Leadership Council, National Insulation Association and EDF. However, to date, the Government has kicked the metaphorical can down the road on extending ECO. The current scheme ran out at the end of March 2022 and its next phase, due to run through to 2026, is yet to be finalised. The ECIU found that energy efficiency schemes such as ECO have contributed to savings of £1.2bn annually under the current cost of energy.

This fragmented and modified body of housing policies has done little to inspire confidence in the sector.

The Energy Institute (EI) – a membership body for chartered professionals in the UK’s energy industry, representing more than 200 organisations and 20,000 individuals  – recently published the findings of a survey it conducted with 360 of those individuals, tracking their opinions on green policy and revealing their professional priorities in the face of the energy price crisis and climate crisis.

On energy efficiency, 70% of the survey respondents do not believe energy efficiency policy has had any positive impact over the past year. Energy efficiency in domestic buildings was flagged as a particular cause for concern. 90% of respondents did not see any positive policy impact on reducing fuel poverty this past year.

EI members are particularly concerned about missed opportunities to use improvements to home energy efficiency as a cost-effective means to respond to the energy price crisis. 44% of the survey respondents class energy efficiency as their preferred response to the energy trilemma (cost, security and sustainability). There is, therefore, widespread disappointment that Ministers are “neglecting” demand-side interventions, favouring instead new commitments for generation.

So, what exactly has the Government achieved on green housing to date? And what solutions offer the biggest chance for homeowners to reduce energy bills that are spiralling wildly out of control.

The Government was able to catalyse energy efficiency upgrades in more than 150,000 homes in 2021, a 12% increase from 2020. However, the CCC states that this number needs to increase to 500,000 homes annually by 2025 and then one million per year by 2030.

The CCC recommends that 50% of heat demand from buildings should be met by low-carbon sources in 2035, with gas boilers phased out in the same year. Additionally, the built environment’s energy demand needs to fall by 27% in the same period compared to 2019 levels.

The CCC has also reflected on the ongoing energy crisis, warning that the existing funding to assist fuel-poor homes (totalling more than £8bn collectively) is “unlikely to be sufficient” as it was based on fuel poverty estimates which predate price rises.

Innovation pipeline

As referenced in the EI survey, many energy professionals believe that energy efficiency measures are crucial to responding to the energy crisis and catalysing progress towards net-zero.

New research published on Monday (15 August) by UK-based research firm the Active Building Centre (ABC) has claimed that improving the energy demand of the UK’s housing stock could offset the reliance on Russian gas imports more than twice over – reducing average bills by more than £2,600 in the process.

The ABC research team compared the energy footprint, running costs and operational emissions of an average-sized UK standard-build home against the performance of the ‘active’ homes being built at two developments on which the ABC is advising. These housing projects consist of a wide variety of technology solutions including solar power, battery storage, electric vehicle chargers and heat pumps, as well as improved fabric and optimised design. ABC notes that these will help the houses reach net-zero operational carbon.

According to ABC, these “active homes”, located in Marleigh and Connah’s Quay will deliver average annual energy savings ranging from 1258 kWh to 2664 kWh per home. If this was replicated across the UK’s 28.6 million homes, the technologies would deliver a total reduction in domestic energy demand between 36.0 TWh and 76.2 TWh – offsetting Russian gas imports in there entirety and potentially twice over. It would also cover up to 15% of the UK’s 485 TWh of net natural gas imports.

ABC also believes this can improve the energy efficiency focus given to new builds. England’s completion rates for new builds sits at around 160,000 annually. If the technologies used by the active trials were issued for these new builds, up to 221,000 tonnes of carbon emissions could be avoided.

Retrofitting, however, suffers from its own unique problems. Research published by Bankers for Net Zero and the Green Finance Institute, claims that an estimated 28 million homes need to be retrofitted with low-carbon solutions if the UK is to meet net-zero emissions by 2050.

The retrofit industry consists mainly of SMEs and this sector will need to grow by at least a factor of 10 to deliver the required levels of retrofits. The paper calls for a “clear plan” for the industry to be introduced by Government. There is also the small detail of overcoming a £360bn investment gap and ensuring that households aren’t locked out from low-carbon solutions due to a cost premium.

Bankers for Net-Zero has previously told MPs that retrofitting the UK’s building stock with low-carbon solutions could reduce national energy costs by £7.5bn a year, creating more than 150,000 jobs over a 10-year period and cut carbon emissions by 20%.

Whereas the current Government has focused on “sticking plaster” policies, including rebate schemes that shave a small percentage off the overall costs of energy bills, it is clear that a much more coherent and wide-ranging response is needed.

Firstly, Government’s inability to introduce an efficient windfall tax on energy firms has sparked fierce backlash, but it is clear that policymakers need to work with the energy sector to fast-track approaches to flexible, low-carbon generation that reduces a reliance on gas imports.

Trade association Liquid Gas UK has this week announced that homes and businesses off the mains gas grid are set to benefit from a £260m investment in the UK production of renewable liquid gases, which can be used a drop-in fuel that reduces emissions. While gas from waste is in itself contentious, it does offer a short-term and actionable alternative and can act as a bridge to more traditional low-carbon solutions. Indeed, Liquid Gas UK claims that consumer savings of £7bn could be made in the run-up to 2050 if the UK adopts a mixed technology approach to decarbonising rural heating, which includes renewable liquid gases.

It is clear that the housing sector is willing to grasp low-carbon solutions as they emerge, but that efforts to deliver a coherent rollout across the UK remain stifled by a haphazard approach to policy to date.

The REA last week warned that “precious time” to act on the energy crisis had been lost due to a lack of political intervention. As households grapple with the cost of energy there is a danger that this lack of political leadership unravels further across the housing sector and could jeopardise the UK’s efforts to reach net-zero by 2050.