One of the key challenges of decarbonisation is moving away from using a country’s natural resources to heat homes . The UK has the highest penetration of on-gas-grid heating in the 38 countries of the OECD (Organisation for Economic Cooperation and Development), thanks to the availability of North Sea gas . The cost of gas heating is low, and introducing alternatives could mean a rise in energy bills as well as a big change in infrastructure. The UK also has some of the least energy efficient housing in Europe. This is a barrier to the uptake of low carbon electric technologies like heat pumps.
The European Heat Pump Association (EHPA) reported that by the end of 2020, there were a total of 14.84 million heat pump units installed in 21 countries .
Source: Market Data - EHPA
France and Germany are in the top 3, but what are their policies?
France has made significant changes to taxes on energy services and products. The government has reduced tax on less carbon intensive fuels and removed tax exemptions for high carbon products.
The CITE (Tax Credit for Energy Transition) covers up to 30% of capital costs of energy efficient and renewable energy equipment, with a limit of €16,000. The Fonds Chaleur supports commercial installations.
Loans of up to €30,000 are available at a 0% interest rate for “renovation packages” (insulation and renewable energy equipment).
France is pursuing its ambition to double the share of renewables in energy consumption for heating to 38% by 2030.
- Germany has been successful in transitioning away from oil towards heat pumps, particularly in new builds, and district heating. Germany’s share of oil heating has declined from 40% to 26% between 1995 and 2019.
- This move away from oil has been the result of new building regulations and financial incentives.
- Under the 2019 Climate Policy Package, the installation of oil heating systems will be banned in new and existing buildings from 2026.
- The KfW development bank offers grants and low interest loans (of up to € 30,000) for low-carbon heat investments.
- The National Energy and Climate Plan sets a target of 27% share of renewables in energy consumption for heating and cooling by 2030.
Heat pump markets can be encouraged with a long-term policy framework including carbon taxes, regulation and upfront financial incentives .
Gas grids can be particularly challenging to decarbonise, and important decisions like banning gas connections for new homes have already been made in the UK and Germany.
Upfront costs for heat pumps are often high. The UK has, until now, had a less common approach with the Renewable Heat Incentive (RHI) (subsidising the running cost, rather than the upfront cost) compared to the low-interest loans offered in Germany and France.
As can be seen in France, running costs can also be addressed by carbon taxes. The UK’s low tax rate on gas has been used to address fuel poverty concerns, but if the electrification of heat is going to be successful, the disparities between gas and electricity taxes do need to change.
Do you think it’s more important to provide financial incentives to cover the initial upfront cost or to focus on lowering the running costs through changes to taxes and incentives like the RHI?