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Pump up the volume: Heat pumps for a decarbonised future

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The most powerful tool for rapidly decarbonising heating in buildings and homes is the humble heat pump. How powerful? The International Energy Agency’s recently released analysis estimates that potential global carbon dioxide emissions reductions from heat pumps can reach at least 500 million tonnes in 2030. This would be akin to eliminating the annual CO2 emissions from all of the cars in Europe today.

Evidence from the IEA underscores the ‘why’ of switching to heat pumps while the Regulatory Assistance Project (RAP), CLASP and the Global Buildings Performance Network offer further insights on the ‘how.’ The three organisations collaborated to create a toolkit to help policymakers develop packages to drive the heat pump market and deployment of the technology at scale.

On 15 December 2022, the Electrification Academy welcomed the lead author of the IEA report, Yannick Monschauer, and two of the heat pump toolkit authors, Richard Lowes of RAP and Matt Malinowski from CLASP. They shared:

We were delighted to have Caroline Haglund Stignor from RISE moderate the session.

Taking the burn out of heating for low-income households

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The future of heat in buildings is not fossil fuelled. The urgency of the climate crisis, Europe’s 2030 climate targets, the current war in Ukraine and the resulting skyrocketing energy prices all mean we need to massively accelerate efforts to move away from burning fossil fuels in our homes. This is no small task as fossil fuels currently account for over 75% of heat supply, and the residential sector is Europe’s single biggest fossil gas user, responsible for 40% of gas consumption.

The recent energy price volatility and the cripplingly high gas prices make the economics of switching from fossil fuel heating to heating with a heat pump better in 2022 than before the crisis. Those households that can afford it may well be considering the switch.

For lower-income households, however, the high prices make all forms of heating – and most other household expenses – less affordable. For these people, the switch to clean heating is further away than ever. But the risks of remaining locked into expensive fossil fuel use are more acute due to high and volatile prices, rising costs of redundant infrastructure and, potentially, exorbitant costs for hydrogen.

RAP analysis establishes the upfront investment and running costs to switch to heating with a heat pump, before and after the price crisis. Based on this assessment, Louise Sunderland and Duncan Gibb set out strategies to make the switch to clean heating affordable and safe for lower-income households. Targeted subsidies for upfront investment in clean heating technologies are essential, alongside reforms to electricity pricing to help ensure bills are affordable. The study also explores a range of other strategies to secure affordable clean heat such as bringing together combinations of building-level technologies, services and the benefits of cheap renewable electricity generation. We present five recommendations for:

  • Prioritising lower-income households in heat decarbonisation strategies.
  • Ensuring an ‘energy efficiency first’ approach to reduce heating needs.
  • Providing targeted subsidies for clean technologies.
  • Rebalancing burdens away from electricity bills and directing social support to electricity bills.
  • Focussing Europe’s innovation attention on the needs of lower-income households.

A policy toolkit for global mass heat pump deployment

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Heat pumps, a critical technology for clean energy systems, are poised to become the most important technology for heating decarbonisation. Currently, the vast majority of heat is provided by fossil fuels. In order to promote and encourage heat pump installations across the globe, the Regulatory Assistance Project, CLASP and the Global Buildings Performance Network have developed this heat pump policy toolkit, which provides a suite of tools, and advice on how to use them, for policymakers interested in promoting this critical technology.

The structure of the toolkit is loosely based on that of a Greek temple, with foundations and pillars, supporting a rapidly growing heat pump market. The interactive toolkit (which includes clickable links throughout) also features short videos that give an overview of each relevant element of the toolkit. These videos make up a short series which complements this document.

This toolkit works as a synthesis of policy approaches to heat pump deployment and a guide to designing the best packages of policies. As you’ll see in the toolkit (and in the graphic below), a complete policy package needs to consider foundational elements and must also take account of each pillar. We provide details, examples and potential issues, and solutions within the various policy elements discussed.

Heat Pump Toolkit temple

Foundational elements of this toolkit recognise the need for coordination and communication around heat pump policy efforts and strategies.

Pillar 1 considers economic and market-based instruments. These instruments are fundamentally associated with balancing the economics of heat use towards clean options, such as heat pumps, so that their lifetime costs are cheaper than fossil-based alternatives.

Pillar 2 considers financial support. Within this pillar, we identify three key elements of financial support for heat pumps — grants and tax rebates, loans and heat-as-a-service packages.

Pillar 3 considers regulations and standards. We look at buildings codes and standards, appliance standards and heat planning and zoning.

To build an effective heat pump policy package, policymakers must consider foundational elements as well as each of the pillars. And even within each pillar, combinations of elements may be appropriate.

Turning off the gas: Stronger and coherent EU policy to accelerate the fossil gas phaseout

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Rapidly phasing out fossil gas demand has become a top priority in Europe. Existing European legislation is expected to achieve only moderate reductions by 2030. The ongoing energy crisis has provided an opportunity to aim for even more extensive decreases in fossil gas demand. Legislation under negotiation, informed by the European Commission’s REPowerEU plan, is expected to go further, yet more ambitious targets and a unified policy approach could achieve potential reductions currently left on the table.  

RAP’s analysis finds that even with full implementation of the REPowerEU plan, by 2030 natural gas demand in Europe will remain roughly equivalent to Russian gas imports in 2021. A stronger energy efficiency target in the Energy Efficiency Directive (EED) and a higher renewable energy target in the Renewable Energy Directive (RED) could reduce gas demand and eliminate Russian gas imports. 

Furthermore, the Hydrogen and Decarbonised Gas Market package should emphasize integrated planning and targeted applications of alternative gases to ensure its consistent with a fossil gas phaseout. 

A joint, coherent policy approach — addressing more ambitious targets for the EED and the RED and complementary metrics applied to the Hydrogen and Decarbonised Gas Market package — would guarantee that fossil gas use is rapidly reduced and the infrastructure is in place to meet the remaining demand equitably and efficiently.

How the European Union incentivises inefficient renewable heating

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The EU’s renewables directives count what fuel is burned for heating, as opposed to the amount of heat produced.

Never has the spotlight shone so brightly on Europe’s heating and cooling sector. And for a good reason. Fossil gas makes up around 39% of the energy used to heat buildings and much of Europe wants to rapidly phase it out.

To help do so, the European Parliament recently voted in favour of a key amendment to the Renewable Energy Directive (RED): raising the annual target for the share of renewable energy in heating and cooling.

The new goal—a 2.3 percentage-point increase each year until 2030—is roughly double the one proposed in the Fit-for-55 package unveiled in 2021.

The clear signal has been set, yet there is something off with the way the metric is measured. By counting fuel burned instead of heat produced and not including electricity used for heating or cooling, the RED favours inefficient technologies.

Ignoring the mushy peas on the floor

Imagine a toddler having lunch. Her father has prepared a bowl of 300 grams of mushy peas and figures that this meal should meet half of the two-year-old’s nutrient needs for the day. She is a messy eater though and jettisons around half of her food on the ground. Once her dad sees the empty plate, he pats himself on the back, thinking that he filled her belly. He should look at the floor.

Measuring the renewable share of heating and cooling in the RED is simple. It tallies all the energy used to heat and cool from renewable sources, then divides it by the total. The key question is: which energy counts as renewable?

Unfortunately, the RED’s answer to this is flawed. It only counts final energy use or, in other words, the fuel that is delivered to the customer to use in their heating appliance. That means if someone burns a log in a fireplace at 50% efficiency and it produces 100 kilowatt-hours (kWh) of heat, how much “renewable heat” does that account for?

If you were thinking “100 kWh” you would be wrong. The RED counts that as 200 kWh, since that is the energy content of the biomass that was combusted at 50% efficiency.

That is a big problem because heating systems have different efficiencies. An electric heat pump typically produces 100 kWh of heat with 33 kWh of input electricity. The remaining 67 kWh is drawn from the ambient air for free. An 85% efficient pellet boiler needs 117 kWh.

The point: Less efficient technologies need more input energy for the same useful heat outcome. The RED discourages switching to more efficient heating appliances and electrification. It counts the full weight of the mushy peas, not just those that were eaten.

Anti-electrification policy

The other problem with the RED methodology is its scope. It does not consider the renewable electricity used for heating and cooling at all. Whether it is used to drive a heat pump or just an electrical resistance heater, it does not count toward the renewable heating and cooling target. Even for cooling, which is virtually only based on electricity.

This is an effort to avoid double-counting. The data wranglers do not want to count renewable electricity in both the power sector and the heating and cooling sector. As a data wrangler myself, I appreciate their commitment to neat allocation. But in this case, neatness has its downside.

Electricity providing a heating or cooling service should be considered towards the renewable heating and cooling target. Otherwise, heat pumps could be undervalued in terms of their contributions. If the methodology does not even consider where the electricity comes from, the heat output of the heat pump can never be fully renewable.

If the renewable share of electricity would be considered in the RED’s methodology as a heating and cooling service, the incentive to promote heat pumps would even be stronger. Member States will thus be encouraged to implement policies that aim to achieve the heating and cooling target, with the ancillary benefit of growing the deployment of efficient heat pumps to do so.

As it stands, the least efficient and least electric technologies are those that have the most potential to meet the goals under the RED. More efficient and electricity-based heating appliances risk falling behind.

The way forward

Getting metrics right is crucial to ensuring a rapid and balanced transition to clean heating and cooling. The Renewable Energy Directive’s goal should be to promote efficient heating and cooling technologies that maximise useful energy while minimising input energy.

This means counting the useful heat that is produced by a heating system, not the input energy needed. It also means including the electricity used for renewable heating and cooling.

Since electricity realistically contributes to both the headline renewable energy target (32% in the RED II and voted to increase to 45% by the European Parliament), as well as the renewable heating and cooling target. Both calculations should factor it in so that the statistics are accurate.

Double-counting can be avoided by ignoring the electricity used in the heating and cooling sector when calculating the headline target.

Metrics matter. Only by counting the useful heat produced can the Renewable Energy Directive provide the right incentives for phasing out fossil gas and spurring the clean electrification of heat.

 

A version of this article originally appeared on Foresight Climate & Energy.

Photo: Holger Schué from Pexels.

Levelling the playing field: Aligning heating energy taxes and levies in Europe with climate goals

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Taxing energy in line with its environmental harm aligns the prices facing consumers with policy objectives. Energy taxes and levies encourage energy efficiency and raise revenues for governments, which can then dedicate them to energy transition projects. Not all energy sources are equal, however, when it comes to their environmental-damage costs. Adding taxes and levies disproportionately to electricity encourages the continuation of an emissions-intensive status quo and discourages investments in key decarbonisation technologies, such as heat pumps. This paper shines a light on the imbalance in energy taxation across almost all European markets and makes the case for reform.

The authors explain the current structure of energy taxes and levies in five key European countries where reform would be beneficial: Italy, Spain, the United Kingdom, Belgium and Germany. All five countries overtax electricity — in three cases by more than 200% — and undertax oil and fossil gas while not taxing wood use at all. Only in Italy is the tax rate on heating oil close to the value of the environmental costs caused by its use.

The European Commission’s proposals in the Fit for 55 Package would go a long way towards addressing the taxation issue. But these proposals would need to be implemented and there’s no guarantee they’ll survive the upcoming negotiation process. Member States wishing to align their tax and levy policies with their climate targets can act now to begin the process of rebalancing.

The authors detail four approaches to rebalance energy taxes and levies, drawing on examples from around the continent.

  • Option 1: Lower tax on electricity for heating
  • Option 2: Environmental taxation
  • Options 3 and 4: Shift levies to public budget or fossil fuels

House power: the hidden powerhouse of the new energy landscape

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Raoul Dufy’s 1937 fresco La Fée Électricité — an arresting 600 square metre tribute to “the great adventure of electricity” — depicts science and technology leaps such as Faraday’s discovery of electromagnetic induction, Gramme’s direct current dynamo, Baudot’s telegraph, and Edison’s incandescent light bulb. These developments changed the world in ways that were previously unfathomable.

Tackling the climate crisis while mitigating the impacts of the war in Ukraine and skyrocketing energy prices will require Europe’s policymakers to champion a new class of energy pioneers in the months and years ahead: households.

A spectrum of challenges

Europe faces a step-change within a step-change. Securing a clean, affordable and reliable energy system is no longer a case of moving fast without breaking things. We must now accelerate while fixing things.

This means ramping up green generation at an unprecedented scale and pace, shunning imported gas without over-relying on expensive alternatives — such as hydrogen in its rainbow of varieties — or relapsing on brown fuels. We also need to secure energy supply, ensure grid reliability and help families and businesses stay out of the red.

No matter how many supply-side resources we pour into the mix, the perfect blend will elude us until we stop treating demand-side flexibility as a final flourish of glitter.

In fact, it is more like the primer — often unseen but foundational to reliability, managing price volatility, enhancing grid performance, efficiently integrating renewables, facilitating newly electrified technologies and reducing cost. Flexibility adds adhesion and endurance to the core principles of energy policy.

Demand-side flexibility binds energy, climate and social objectives together.

graphic depicting how demand-side flexibility addresses reliability equity and sustainability of energy supply

Putting households in the frame

Demand-side flexibility means energy users changing how and when they use electricity in return for financial reward. They offer flexibility by drawing power from the grid at different times and by utilising energy efficiency, onsite generation and onsite storage, including electric vehicle batteries.

We need lots of flexibility and we need it now. The IEA estimates that, to reach net-zero emissions by 2050, a ten-fold increase of demand-side resources is required worldwide by 2030, compared with 2020 levels.

Industrial response receives most of the policy attention on the demand side, which is still only a fraction of that dedicated to supply-side resources. However, European Commission analysis concluded that the greatest potential for additional customer flexibility in 2030 actually lies within homes.

This is due to the, as yet untapped nature of this sector, plus projected electrification and digitalisation of buildings and vehicles. The proportions in the graph below are striking—even though the capacity levels themselves are likely to be a significant underestimate, given the fast-paced technology and market evolution since the 2016 study.

graphic depicting the theoretical potential in megawatts of demand-response capacity in selected European countries by 2030

Policy proposals

To take advantage of these untapped resources, there are three policy actions that should be enacted.

Firstly, make flexibility effortless and stress-free. Policymakers need to stop putting the onus on individuals to solve structural problems. People are busy; they have kids to get to school, shifts to work and boilers and cars that fail at the worst times. It is not their job to become energy market experts, it is the job of energy market experts to ensure that people make decisions — even unconscious ones — that boost flexibility and reduce energy bills.

There should be an EU-wide “mandate for smartness,” requiring products and buildings to be electrified and “flex-ready,” with clear labelling and high-quality customer support. Deployment schemes are urgently required, including subsidies to fast-track uptake and drive down future costs, replicating the success of renewables.

The regulators’ role is to ensure digital inclusivity of marginalised and vulnerable groups and to adapt customer protection rules so they keep up with new retail offers, without picking winners or stifling innovation.

Secondly, allow wholesale pricing to reflect the true value of flexibility. To uncover the value of flexibility and reveal its full potential, wholesale electricity prices should reflect real-time conditions on the power system.

Interventions such as price caps mask the increased costs caused by inflexibility, reducing incentives for efficient actions. Households should be rewarded to increase demand when there is a surplus of renewable generation, for example, but measures like minimum price guarantees prevent payment via the wholesale market.

Safeguards such as supplier hedging, price relief mechanisms for extreme events and targeted support for low-income customers become increasingly important. The baseline, however, should be wholesale pricing and smart network tariffs that reward flexibility in a fair and non-discriminatory way. This creates a positive feedback loop of households embracing flexible assets and seeing tangible benefits, which further incentivises flexibility.

Finally, develop robust metrics for flexibility. Europe lacks a common methodology for assessing and quantifying the multi-faceted benefits of customer flexibility.

Unless we make this value visible and measure it consistently and fairly, we cannot reliably assess flexibility potential or design mechanisms to unlock it. Developing robust metrics supports policies that can accelerate flexibility deployment such as targets, trading platforms and obligations on suppliers to procure demand-side capacity. Standardisation also enables progress to be tracked across Member States.

To create a masterpiece, start with a masterplan

“Art is not what you see, but what you make others see.” – Edgar Degas

Flexibility is a system resource, activating it requires systems thinking. That does not mean treating households like mindless cogs in the machine — a new social contract must be crafted for the age of automation, upheld by equity, agency and opportunity.

Europe’s policymakers should take in the whole picture, rooting out market distortions, barriers to access and bad practices, while proactively showcasing and replicating positive examples of household flexibility, beyond pilot schemes.

If the artwork La Fée Électricité were recreated in the year 2035, what would we see? The fresco could show millions of homes, interacting seamlessly with the power system, for the benefit of people and planet alike.

One thing is certain, we are going to need a bigger wall.

 

A version of this article originally appeared on Foresight Climate & Energy.

Photo: Guillaume Baviere via Flickr Creative Commons

Owning the future: A framework of regulations for decarbonising owner-occupied homes in Scotland

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Scotland’s recent Heat in Buildings Strategy sets out a plan to achieve the ambitious target for all Scottish buildings to be decarbonised by 2045. In practice this means replacing the heating systems of nearly 90% of Scotland’s 2.5 million homes that are currently heated with fossil fuels. As part of its regulatory framework, the Strategy states that all homes should achieve a minimum energy performance, defined as Energy Performance Certificate (EPC) C, by 2033. And all fossil fuel boilers will be phased out beginning in 2025. In short, there’s a lot to do over the next 20 years.

In Owning the future: A framework of regulations for decarbonising owner-occupied homes in Scotland, authors Dr. Catrin Maby and Louise Sunderland take a deep dive into the Strategy, focusing specifically on the owner-occupied building stock. The proposals in this report aim to identify and fill gaps in the framework of regulations, as well as ensure that implementation is well timed and staged so that fabric improvements are completed before heating systems are changed. The proposals also take into account different building types and the need to decarbonise higher carbon fuels first. Regulations alone, however, do not guarantee successful renovations, so the report outlines essential funding, finance, practical support and safeguards for affordability that must come alongside.

The authors put forth a number of recommendations on how to best strengthen the Strategy. Although specifically designed for Scotland, these recommendations may be applicable to any government designing an efficient, effective and fair regulatory framework:

  • Remove uncertainty on the decarbonisation options for buildings to ensure all actions are no regrets
  • Enable effective standards through changes to EPCs and the Standard Assessment Procedure (SAP)
  • Introduce a fabric energy efficiency standard to enable efficient, flexible heating
  • Phase out fossil fuels for heating through early incentives, and regulatory triggers and backstops
  • Enable alternative compliance routes for more complex, multi-occupancy buildings
  • Utilise existing compliance structures and resource local authorities to enable and enforce

You can find the report’s executive summary here.