The cost of heating leaves many European households feeling burnt. Three-quarters of our heat is still supplied by expensive fossil fuels, and heating homes is Europe’s biggest gas user, which creates a twin dilemma: How do we clean up heat, while lowering costs for those who can least afford it?
There is good reason for the growing attention paid to heat decarbonisation. Heating and cooling buildings accounts for one-quarter of energy use in Europe. Meeting the European Union’s climate target by 2030 means that an equivalent of 1 in every 4 homes will need to replace their heating systems with a clean alternative between 2026 and 2030. Some countries are already taking the bull by the horns, with at least nine EU member states announcing policies to phase out fossil heating.
What will they replace it with? The lower-cost direction of travel is now clearer than ever: efficient heat pumps, district heating and home energy efficiency. These technologies are widely expected to be the most affordable clean heat solutions over the coming decades. Burning coal, oil and hydrogen for heating are predicted to be the most expensive.
The affordability of heating for low-income households
These clean heat options, however, have not been the most affordable prior to the energy crisis, largely due to both higher upfront investment costs and the big gap between cheaper fossil fuel and more expensive electricity prices. Not even the high efficiency of a heat pump was able to overcome this difference in running costs.
For low-income households, the promise of affordable, clean heat has been still further away. Even before the current price crisis, to save on energy costs, low-income households were using less energy for heating than they needed to keep them warm. An additional lift is required, therefore, to both switch to clean heat and ensure that their heating is affordable enough to overcome the need for rationing.
Even if the economics of clean heat have improved, the affordability has worsened.
The cost impact of switching from underheating to full heating is significant. In the countries we looked at in our recent study, Taking the burn out of heating for low-income households, a heat pump providing full heating over the course of its 18-year lifespan could be up to twice as expensive as the prevailing fossil fuel system, which provides 20% less heat.
When fossil fuels get frightfully expensive
The shocks of the energy price crisis of 2022 have closed the cost gap between standalone heating technologies. Suddenly, heating with a heat pump has become more affordable than heating with fossil fuels in many EU countries, both in terms of running cost and the total cost of ownership. Based on these improving economics, many households who could switch to a heat pump now would. Not only would it be a cleaner heating solution, but it would also lower their energy bills.
There is one major caveat, however. Even if the economics of clean heat have improved, the affordability has worsened. From a total cost of ownership perspective, a heat pump may have been cheaper than a gas boiler in 2022, but it was still much more expensive than a heat pump or a fossil boiler in 2021.
Total cost of ownership comparison, based on energy prices in the first half of 2022
Strategies for affordable clean heat
Making clean heat systems not only economically competitive but affordable over the long term requires a wide array of solutions. First, we can start by reducing the upfront cost. In the EU, 25 of 27 countries subsidise clean heating systems. (Whether these schemes are sufficient in budget terms, or are ‘fig leaf’ schemes, is another story). Only nine of these schemes, however, offer higher funding levels for households on lower incomes or funding generous enough for people without significant savings to invest. Even amongst these schemes, design flaws limit access to most of them. Only one framework, the French system, has a dedicated, long-term budget for clean heat for low-income households.
Making clean heat systems not only economically competitive but affordable over the long term requires a wide array of solutions.
But providing the heating system at low cost is only part of the story. It’s vital to reduce the running costs to make heat more affordable for the lowest-income households. This means investing heavily in energy efficiency measures to reduce the overall need for heating and a range of measures to make electricity cheaper. Providing heating services to which customers can subscribe, like heat-as-a-service, could also help to: combine upfront and running costs, offset these costs with grants and bill subsidies, and offer predictable, stable heating bills to improve affordability and security for low-income customers.
Solutions also depend on the heating context. In contrast to installing a heat pump, households connecting to a district heating system tend to face lower upfront connection costs that may even be bundled with the ongoing cost of the heat supply. Yet, they face other challenges, and the focus on affordability for district heating is less on upfront expenses and fuel costs and more on subscription pricing, service charges and consumer protection.
The risk of remaining reliant on fossil fuels for low-income households is clearer now than ever. Those whose budgets are already stretched to and beyond the breaking point are least able to absorb unpredictable price swings, yet they are those most drastically exposed to them. To guarantee affordability for low-income households during a clean heat transition, it is critical that they come first, not last. That means designing support policies with their needs in mind and ‘going big’ on energy efficiency as these homes switch to clean heat. Energy efficiency also opens the door to cheaper electricity when we use it at different times of the day.
Let’s decarbonise European homes without setting household budgets on fire.
Improving affordability also means shifting energy costs away from electricity, so that policy costs, such as taxes and levies, do not slow down the transition. Lastly, it means “innovating inclusively,” so that the snazzy new energy stuff focuses on the needs of low-income households. Designing gadgets and policies for those with the least time and the greatest barriers to engage has the added benefit of extra convenience for others.
Let’s decarbonise European homes without setting household budgets on fire. Only by prioritising the needs and wallets of the most vulnerable can we affordably and equitably clean up how we heat our homes.
The original version of this article first appeared in Energy Monitor.
Featured image by Mihály Köles via Unsplash.