Comments Off on Decompression: Policy and regulatory options to manage the gas grid in a decarbonising UK
For countries with significant proportions of gas in their heating mixes that are looking to decarbonise and reduce exposure to gas imports, there is a major question around how to deal with existing gas distribution infrastructure in an equitable way which supports consumers. Yet this question has received only limited policy focus.
This briefing considers this problem for the United Kingdom, a country which has a well-developed gas distribution network with high coverage (85% of homes) which is both privatized, fully unbundled and split into regions — and which is looking to remove direct fossil fuel use in heating by 2050 at the latest.
The UK energy regulator, Ofgem, is imminently due to embark on a price control process to regulate the gas networks from 2026 onwards and the UK government is also expected to make a decision on the potential of a role for hydrogen in heating in 2026. We hope this briefing can support policy makers and regulators working on these processes.
If decarbonisation of heating by 2050 is successful, there is a high likelihood of stranded UK gas network assets. There will also be some costs associated with the physical disconnection of buildings and decommissioning of the gas grid. Ultimately, consumers bear the responsibility for and risks of these issues. The briefing proposes three options for the British government to manage better these issues on behalf of consumers:
Business-as-usual wind-down with accelerated depreciation and the potential for a decommissioning fund.
Evolutionary regulation to encourage gas networks into clean heating.
Nationalisation with planned wind-down.
In addition to the above, we would encourage greater consideration of the issues of decommissioning, continued capital investment and the role for local area energy planning in gas network decision making. While regulation, governance and ownership vary between countries, many of the technical and regulatory challenges in countries with major gas distribution infrastructure will be similar to the UK.
Comments Off on How to reap the benefits of district heating? Make it local
The city of Groningen in the Netherlands has long been home to Europe’s largest fossil gas field. As fossil fuel production winds down, city authorities are looking for alternative residential and commercial heat sources. One of the solutions they found is a district heating system using locally available waste and renewable heat.
Clean, efficient and smart district heating, like the system being built in Groningen, can play an important role in decarbonising our buildings, using the huge potential of excess, ambient and renewable heat and providing crucial energy storage and flexibility.
In countries with extensive fossil gas use, there is the added challenge of simultaneously phasing out gas grids. Moreover, end users will need to have confidence that district heating will be a good choice financially, environmentally, and in regard to service provision.
This is not easy. But, if lawmakers, regulators and industry can get three things right—heat planning, societal trust and regulatory frameworks—we stand a good chance.
Local heat planning
Heat, especially the low-temperature heat that most clean sources provide, needs to be used close to where it is produced to be energy-efficient and prevent high infrastructure costs. Similar to the electricity sector, heat production will be increasingly decentralised, as we switch to clean heat.
Local heat planning is a crucial instrument in matching local demand and supply of heat. This involves mapping locally available clean heat sources and heat demand, assessing area building stock and identifying solutions with the lowest societal cost for each region.
Municipal authorities are well placed to lead this process and bring together the key actors involved such as district heating and building owners, operators and users and potential suppliers of heat. Yet very few European countries require their local governments to engage in strategic heat planning.
The Nordic countries have a long history of heat planning. More recently Germany, the Netherlands and Scotland have introduced obligations for municipalities to do so.
The revised European Union (EU) Energy Efficiency Directive, however, will make heat planning mandatory across the EU for all municipalities with over 45,000 inhabitants. Although this obligation is a great start, it should be expanded to include smaller municipalities and will require careful implementation and monitoring.
Municipalities cannot do this alone. They will need a supportive regulatory framework.
Firstly, national governments could empower local jurisdictions with the authority to decide which heating solution should be deployed for each area (known as zoning) and set standardised methodologies for decision-making, for instance on how to weigh societal costs and benefits of different solutions, and how to prioritise when each area is switched to clean heat.
Secondly, regulation should find a balance between enabling economically viable business models for district heating while protecting end users. District heating systems are often vertically integrated, with one entity operating both the distribution network and delivering heat to end users.
Moreover, networks are natural monopolies. Once consumers are connected, it is costly for them to switch, and it is not attractive for competitors to set up a rival network. This means relying on competition between providers to drive down prices does not work well in the heat sector.
There are different ways to address this issue, with some countries limiting district heating profits, and others regulating heat and connection prices or ownership models. The challenge is finding a model that ensures district heating can provide affordable heat while ensuring public and/or private investment in the construction of new infrastructure.
Finally, it is key to provide long-term certainty and the assurance that enough end users will connect to the networks. As upfront investments are high and payback times long, a critical mass of heat demand is necessary for networks to become economically viable.
It is important that lawmakers and industry also work on building trust among potential end users. This will be key in areas where district heating is currently underutilised, such as northwestern and southern Europe, because people are usually wary of “new” solutions, even more so when it comes to a significant investment decision such as changing their heating system.
Although, according to a recent EU-wide survey, public perception of district heating varies between countries, people saw a risk of becoming dependent on a single energy supplier when joining a district heating system. Moreover, in several countries, there was an overall negative perception of district heating.
In Denmark and Sweden, countries with the most positive public view of district heating, transparency and provision of information to consumers have shown to be key elements in bolstering end-user trust. It facilitates monitoring of the sector, leading to increased accountability on pricing and performance—a safeguard that regulatory frameworks can foster.
Clean, efficient and smart district heating has huge potential, but governments need to act quickly. Consumers rightfully expect clear direction and clarity on how to heat their homes in the future.
If action is not taken soon, municipalities and consumers will not be in a position to make informed decisions about their clean heat solutions. Heat pump markets are booming, with prices of installation dropping and newer, smaller and more efficient models further increasing their attractiveness. Yet in many, especially urban, areas, district heating will be the most economical choice.
Heating with existing fossil boilers will become increasingly expensive as the expanded EU Emissions Trading System goes into effect in 2027. This date might seem far away but is just around the corner considering the long planning timelines for energy infrastructure.
As the date nears, people will vote with their wallets and switch to individual solutions such as heat pumps in areas that could potentially be served by a district heating network, at lower overall societal cost.
To make the most out of the benefits district heating has to offer, we need to accelerate the development policy and regulations for the deployment of clean district heating.
The original version of this article was published here in Foresight. This is the third part in a district heating series written by Sem Oxenaar. The first and second parts are also available in Foresight.
Comments Off on Lowering flow temperatures is key in the switch to efficient clean heat
Two important factors are advancing the shift to clean heating in Europe: First, the fossil gas crisis underscored the value of saving energy and the urgent need for affordable heat for all. Second, the race to meet climate goals has inspired many European countries to introduce policies that prioritise clean and renewable heat over fossil-fuel-based heating sources.
The European Union (EU) is still heavily reliant on fossil fuels when it comes to space heating, with three-quarters of the energy used coming from fossil sources. Reducing the flow temperatures of water in heating systems is a key method for saving energy from heating and for integrating a more diverse range of clean resources into the heating mix. As such, this relatively novel approach is a no-regrets option for building owners and occupiers. Lowering the flow temperature can improve the efficiency of heat pumps, solar thermal collectors, condensing boilers and district heating systems.
A critical consideration when lowering flow temperatures is ensuring that buildings can still be heated to the desired temperatures. Changes to two key variables can be considered to decrease flow temperatures: reducing the heat load of the building through building fabric improvements and increasing the heating capacity of the heat distribution system. Understanding this interaction is important for decisions on best-placed investments.
A new report by ifeu and the Regulatory Assistance Project explores approaches and policy measures to ensure buildings are ‘low flow temperature ready.’
Comments Off on How clean is Europe’s district heating?
District heating needs to speed up decarbonisation to reach climate goals
Over the past year, how we heat our buildings has become a top priority for most citizens, businesses and governments. And rightfully so, as a third of all energy in the European Union (EU) is used for heating and hot water in buildings, 72% of which comes from burning gas and oil.
As people seek to replace coal heating and oil and gas boilers due to the energy price spikes, demand for highly efficient and easily deployable heat pumps has boomed.
Millions of households in the EU, however, rely on district heating systems for their heating and hot water. In 2017 (latest data available), 12% of heat for space heating and hot water in the EU was supplied through such systems — and only one-third is generated from clean sources. Current district heating users cannot make the switch to clean heat by themselves.
To reach Europe’s 2030 climate target, the heating sector needs to rapidly speed up the rate at which it is decarbonising. Many buildings now using fossil fuel boilers will have to be connected to newly developed clean district heating systems while existing district heating systems will need to be modernised and switched to clean heat sources.
Overall, district heat in Europe is largely dependent on burning fossil fuels, waste and biomass. Gas dominates, making up 32% of the heat mix (see chart, below). With a high share of coal and lignite (26%), the sector is relatively greenhouse gas intensive.
The share of renewable heat has been increasing slowly but surely over the past decade — from around 7% in 2000 to 21.5% in 2017 — but it predominantly comes from burning biomass and biofuels (22%) and renewable waste (7%).
These have limited potential to expand and can have sustainability issues. Although their contribution is currently marginal (<3%), the clean sources with the most growth potential are industrial waste heat, geothermal, large heat pumps and solar thermal.
Looking at the regional level gives a more differentiated picture. Many European cities constructed district heating systems as part of their post-World War II redevelopment. In the central and eastern parts of Europe, the sector expanded rapidly early on.
Consequently, many of these systems are now outdated and inefficient compared to current standards. Production plants are old, with more than 70% of coal and oil-based plants still operating beyond their technical lifetime.
Heat losses from distribution are excessive due to high flow temperatures, lack of pipeline insulation and leaks. Combined with a large share of older and less efficient buildings, limited controls and metering for end users, and a high prevalence of energy poverty, these systems face significant modernisation and decarbonisation challenges, while needing to keep heat affordable.
In the Nordic countries, mass deployment of district heating came later, following the 1973 oil crisis. As a result, and through ongoing modernisation, those systems have been built according to higher efficiency standards, often with insulated pipelines and combined heat and power production.
Significant steps towards phasing out fossil fuels have been made, using biomass and renewable waste. In Sweden, fossil fuels only make up around 10% of the district heating mix.
The Baltic states have also achieved high shares of renewable heat, making use of the large biomass waste streams from forestry. They do face efficiency challenges in district heating and buildings, however.
The higher investments in both district heat deployment and decarbonisation in the Nordics and Baltics have some relation to the climate, as countries with high heating needs are over-represented among the top-performing countries in these categories.
Finally, there are several EU member states with significant heating needs — such as France, Germany, the Netherlands, Belgium and Hungary — that have invested too little in district heat, far below their cost-effective potential, and face the challenge of quickly expanding district heating.
Europe’s district heating systems need to accelerate the switch to low-carbon sources if we are to reach climate goals and give all households access to clean heat. The biggest challenge lies with the older and fossil fuel-intensive systems.
Luckily, there is enormous potential for clean district heating based on renewable heat, ambient heat with large-scale heat pumps and excess heat.
District heating needs to be able to compete economically with a booming and innovative heat pump market, however. In addition, especially in countries where district heating is currently less developed, trust must be built among end-users often weary of novel solutions.
Moreover, regulations have to be updated to support viable business models and protect end-users, and buildings will have to be made ready to be heated comfortably and efficiently with lower temperature clean heat sources.
This is no easy feat, but with the right policy and regulatory support, clean, efficient and smart district heating can play an important role in decarbonising our buildings.
Comments Off on Integrate to zero: Policies for on-site, on-road, on-grid distributed energy resource integration
To meet decarbonisation goals, global renewable power capacity will need to more than triple by 2030, according to leading energy agencies. Centralised renewable generation will not deliver this level of change on its own, nor should it. Distributed energy resources (DERs) such as heat pumps, electric vehicles, small-scale solar generation and battery storage are essential to ensuring that clean power is the most affordable and reliable option for all countries.
Distributed energy resources must be effectively integrated with the grid if they are to fulfil their potential. Integration allows them to be used flexibly to draw power from or feed power into the grid according to the value their flexibility provides to the electricity system. This reduces carbon emissions from fossil generation used to meet peaks in electricity demand, increases system resilience, and benefits all consumers through the lower prices resulting from avoided generation and network capacity costs.
RAP sets out four key policy approaches that will help promote the effective integration of behind-the-meter distributed energy resources:
A strong set of enabling policies can remove barriers to DER integration. Together, they augment the flexibility potential of DERs and enable their participation in power system optimisation.
Price signals should reflect power system optimisation needs. Payments for energy services should vary in proportion to how much, when and where they are used or delivered.
Cost-reflective price signals should be combined with fair market access for distributed energy resources. With nondiscriminatory access to energy service markets and with pricing that reflects the full value of DERs, third-party service providers can shield consumers from price volatility in return for flexible management of DERs within agreed boundaries.
International collaboration among policymakers and regulators can spread best practice. Cross-border knowledge transfer among regulators is a growing phenomenon and can help each place to find its own way, guided by local circumstances, politics and experience.
The authors explore each of these insights in greater detail. They also highlight best practices from around the world, with contributions from RAP colleagues Raj Addepalli, Max Dupuy and Jessica Shipley.
Comments Off on Building Modernization Legislative Toolkit
New technologies are rapidly changing the way we use energy in our homes and businesses. But in many U.S. states, the legal and regulatory status quo includes barriers to adopting these technologies. This toolkit, the work of RAP and various expert partners, is a free resource for legislators and policymakers who want to address these barriers in their states. It covers seven topic areas where reforms will be key to clearing the way for building modernization:
Access to decision-making
Weatherization and home retrofit
Funding and finance
Codes and performance standards
For each of these topics, the toolkit includes policy background, resources and, most importantly, detailed exploration of legislative options states can pursue, drawing on examples from across the country. Proactive policy action can ensure that buildings are modernized in a way that produces health, environmental and economic benefits for everyone.
Comments Off on How to solve the UK’s heat pump problem
With fossil fuel prices skyrocketing, emissions from homes in the UK stubbornly high and the price of clean electricity from renewables tumbling, it’s clear that we are not taking the right approach to heating our buildings. Heating, which is dominated by gas, makes up a large share of energy consumption and contributes 23 per cent of the UK’s greenhouse gas emissions, so tackling it is vital for both energy security and clean energy goals.
Government and much independent analysis identifies heat pumps as the key technology to replace gas boilers. The British government has committed to installing 600,000 of them a year by 2028. Yet while the number of heat pump installations is growing, deployment in the UK remains at very low levels.
Preliminary estimates for 2022 show that the UK installed only 60,000 heat pumps – equivalent to two heat pumps per 1,000 households. This puts the UK at the bottom of the European heat pump league table. In Finland, which tops the rankings, nearly 70 heat pumps per 1,000 households have been installed.
How can the UK become a European leader in heat pumps? The House of Lords’ Environment and Climate Change Committee has carried out an inquiry into the UK’s main heat pump support scheme, called the Boiler Upgrade Scheme (BUS). It concluded that the scheme is “failing to deliver on its objectives with a disappointingly low take-up of grants”; at the present rate only half of the allocated budget would be spent. The design of BUS is not perfect, but it has stimulated the market, even without any government promotion. After failed programmes such as the Green Deal and the Green Homes Grant, the UK can ill-afford yet another scheme that does not meet its potential.
Grant policies such as BUS are typical in all markets with significant heat pump deployment, but it is only one of many ingredients for a successful programme. When we analysed successful heat pump policies around the world, we found that in addition to funding programmes such as the BUS, three other ingredients are needed.
Ingredient one: the running costs of heat pumps need to be significantly lower than those of fossil fuel heating to encourage consumers to make the switch. While heat pumps are currently cheaper to run than gas boilers, the cost savings are relatively modest. The reason for this is that in the UK electricity is taxed for carbon emissions and the majority of levies for environmental and social programmes are attached to electricity bills. Gas and heating oil are subject to no carbon tax and much more limited levies. Several countries have faced similar problems and have begun to reform how they tax and attribute levies to energy, making heat pumps a much more affordable proposition. The UK government is working on this through its electricity market review but this is being held up by delays.
Ingredient two: market certainty through clear regulation and phase-out dates for fossil fuel heating systems. The International Energy Agency says no more fossil fuel heating systems should get installed after 2025 to meet net-zero targets. Many countries have adopted and announced such bans and once put in place, investment in heat pumps has followed. As the Lords committee points out, mixed messages around hydrogen for heating and the lack of clarity about the future of the gas grid is not aiding the transition away from fossil heating. Chris Skidmore MP was right to call for a firm end date for the installation of gas boilers in his net-zero review. The government should also firm up its proposals to ban fossil fuels in new homes and homes off the gas grid.
Ingredient three: wider co-ordination around heat pumps, alongside effective communication to consumers. As the Lords committee points out, 80 per cent of people in the UK have little or no awareness of heat pumps and almost two-thirds are not aware of the need to change their heating system as part of the journey to net zero. A well-designed and executed engagement programme that boosts the role for local authorities and local heating solutions is crucial.
The decarbonisation of UK heating was previously primarily a legal requirement. It’s increasingly clear, however, that it’s an economic imperative, too. Significant political capital is needed to reform the UK’s policy around heating, but that investment will return dividends. The sooner the system can be reformed, the better the returns will be.
The original version of this article first appeared in the New Statesman.
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