Decarbonising heating and the challenge of off-grid homes

As our article on the energy transition detailed, substantial changes are required to our energy systems in order to meet carbon targets and reduce the impact of global warming.

A significant proportion of global energy demand is currently used for heating buildings. Globally, the IEA estimate that heating buildings is responsible for 4 gigatonnes (Gt) of CO2 emissions annually, the equivalent of 10% of all global emissions. In the UK, a third of all UK energy consumption is used for heating, most of that within the domestic sector. And three quarters of energy used for heating in the UK is generated by burning fossil fuels, primarily natural gas, but also heating oil. Change is needed, and we need to find lower-carbon ways of heating our homes and buildings in the coming years.

Heat pumps are regarded a key global technology that will drive the ‘decarbonisation of heat’, defined as the process of reducing or eliminating carbon emissions associated with the generation and use of heat. Heat pumps are highly efficient systems that extract heat from the air, ground, or water sources for indoor heating and hot water, offering significantly improved energy efficiency compared to traditional oil or gas boilers.

The UK government’s current Heating and Buildings strategy advocates a heat pump-first approach to reducing the UK’s carbon emissions associated with heating. However, there are some barriers that will prevent the wider and faster rollout of heat pumps, including perceptions around costs of installation, the need for suitable infrastructure and retrofitting,  consumer awareness and acceptance, and the availability of skilled technicians for installation and maintenance.

Off-grid homes in the UK – residential properties that are not connected to the mains gas grid – also present specific additional challenges that may affect their readiness for heat pump deployment.

Lower-carbon liquid fuel solutions, such as hydrotreated vegetable oil or HVO, have the potential to offer a solution, and will almost certainly be needed to help decarbonise off grid homes quickly and affordably in line with net zero targets.

Heat pumps are considered a key technology to help make heating more sustainable

A heat pump operates using technology similar to that found in refrigerators or air conditioners. It takes heat from a source - like the surrounding air, geothermal energy from the ground, or water sources, as well as waste heat from industrial processes - and then amplifies and transports that heat to the desired location. While heat pumps use electricity for this process, the amount of heat energy they provide is greater than the amount electricity they use.

Since heat pumps mostly transfer heat rather than create it, they are considerably more efficient than traditional heating methods such as boilers or electric heaters, making them a cost-effective choice.

Heat pump technology is not new. Heat pumps are already widely used across some European countries, such as Norway and Sweden, where 60% and 40% of homes respectively are heated by heat pumps.

In addition to their increased efficiency, heat pumps can offer additional benefits when compared to fossil fuel-based heating systems. Many heat pumps also provide cooling, eliminating the need for a separate air conditioner. This could be an increasingly important feature, with a growing proportion of the world’s population expected to live in regions requiring both heating and cooling by 2050. And, since heat pumps don't directly depend on burning fossil fuels for heat production, they can help lessen households' vulnerability to sudden increases in fossil fuel prices and help contribute to enhancing Energy Security, which is the second aspect of the Energy Trilemma.

The UK government has been promoting a heat pump-first approach to decarbonising heat

The UK Government’s Heat and Buildings Strategy details how it plans to cut carbon emissions from the UK's buildings. A central part of the strategy is the replacement of traditional oil and gas boilers with heat pumps, and the government has set a target of 600,000 heat pump installations per year by 2028 – which is equal to 2.5% of all UK homes per year. Further, the Climate Change Committee – an independent advisory body in the UK, responsible for providing guidance and recommendations on policies and actions to address climate change and achieve carbon reduction targets – has projected that, to reach net zero, domestic heat pumps will be needed in between 50% and 80% of homes by 2050.

Accelerating the deployment of heat pumps, though, will require overcoming a number of barriers. Firstly, installing an increasing number of heat pumps is dependent upon increasing the network of qualified engineers able to complete the installs. Currently, the UK has approximately 4,000-5,000 heat pump installers certified under the Microgeneration Certification Scheme (MCS). The UK Government aims to increase this number to 50,200 by 2030 – ten times the current level, and surveys indicate that over half of existing gas boiler installers are willing to learn how to install heat pump if there are sufficient incentives, although the demand for heat pump installations is currently much lower compared to gas boiler installations.

Heat pumps also come with a higher upfront cost to buy and install the device relative to other heating options. Typical upfront costs for an ASHP are around £14,000, according to the Energy Savings Trust. The government’s Boiler Upgrade Scheme (BUS) was recently increased to provide grants of £7,500 towards the cost of heat pumps for homeowners in England and Wales. And although switching to a heat pump may save a homeowner hundreds of pounds in annual fuel bill costs, installing a heat pump will still require an upfront investment of at least £6,500 for homeowners, compared with £1,500 - £4,500 for a typical new gas or oil boiler installation.

As demand for heat pumps increases, the government expects overall costs to reduce by up to 50% by 2025, and to achieve parity with gas boilers by 2030.

Consumer attitudes and preferences will also be important factors in driving demand for heat pumps. Recent statistics from The Department for Energy Security & Net Zero indicate that less than 1 in 5 people in the UK have a good level of understanding of heat pumps, while research from Watson Fuels and YouGov revealed that less than 5% of customers are expecting to switch to a heat pump in the next 12 months*.

Source: DESNZ Public Attitudes Tracker (Spring 2023)

Installation cost, followed by technology suitability and disruptive installation, are typically cited as the most common public concerns with heat pumps. The additional time required to retrofit a heat pump, compared to replacing a boiler, is also seen as a barrier particularly because half of all new boilers installed are ‘distress purchases’, replacing an existing boiler near or at the end of its life.

These barriers will all need to be overcome to help increase the take-up of heat pumps in the UK. But perhaps the most challenging hurdle to leap is the readiness and suitability of the UK’s ‘housing stock’ – that is the number, and type, of residential homes in the UK.

General guidance is that heat pumps are best deployed in houses with an Energy Performance Certificate (EPC) rating of C or above (although there are ongoing critiques regarding the value of the EPC system). Even so, switching a home from using a heating system reliant on a boiler to one that uses a heat pump will rely on a property having good levels on insultation. It may also require potential changes to radiators and pipework, in order to provide an adequate level of heating.

However, according to the Climate Change Committee the UK has the oldest housing stock in Europe. Over 52% of homes in England were built before 1965, and nearly 20% were built before 1919. These older homes are typically less energy efficient than newer builds, which means they would require investment in additional energy efficiency measures such as insulation, double-glazed windows, and improved sealing in order for a heat pump to operate effectively. Smaller properties, such as flats and terraced houses, can also pose practical problems related to where to site a heat pump. A standard heat pump also doesn’t provide hot water on-demand like a combi boiler does, meaning properties will need to have a tank for hot water storage, which not all properties currently have.

Despite the Government’s 600k target, just 72,000 heat pumps were installed nationally in 2022.

Off-grid homes in the UK face specific additional challenges in moving to lower carbon forms of heating

Around four million households across UK are not connected to the mains gas grid, and are therefore reliant on alternative forms of heat. These homes are predominantly located in rural areas. Approximately 1.5m of these off-grid homes in the UK are heated using heating oil.

There is often a misconception that off-grid property owners are affluent. However, comparing a map of UK properties in off the gas grid areas with a map of the UK’s median gross earnings shows a clear correlation: those parts of the South West, East of England, Wales, the North East and Scotland which are not connected to the gas grid also have below average median incomes. Further, recent data from the Office for National Statistics (ONS) reveals that 19.4% of off-grid households struggle with Fuel Poverty, vs 12.3% of those households on the gas grid.

Concerns about the UK’s housing stock and its readiness to implement heat pumps are typically further magnified when examining off-grid homes. Off-gas grid homes are more likely to be detached, older properties with uninsulated solid walls. They are typically less energy efficient and thus more expensive to heat than those on the gas grid. Retrofit requirements to get a property heat pump ready are likely to be higher in off-grid homes, which could require extensive renovations, such as added insultation, new radiators and a hot water tank. For some properties total costs could reach £25,000.

More recent government announcements seem to point towards a greater understanding of these points. The government had previously announced its intention to ban new oil boiler installations in off-grid homes from 2026, but has since relaxed those plans to 2035, while later announcements confirming the increase of heat pump grants acknowledge that some “homes may not be suitable for a heat pump if they need expensive energy efficiency upgrades.” The government committed to explore alternative approaches to decarbonising off-the-gas-grid homes via a consultation in 2024.

Hydrotreated Vegetable Oil (HVO) could offer a lower-carbon liquid fuel option for off-grid homes.

Certainly one of the approaches the government will be examining is the role of lower carbon liquid biofuels, such is Hydrotreated Vegetable Oil (HVO). HVO is a renewable liquid fuel, derived from vegetable oils or animal fats through a specialist production process. The result is a very pure hydrocarbon fuel, made from renewable sources, that results in up to 90% lower GHG emissions compared to traditional fossil fuels**.

Commonly known throughout the US and Europe as Renewable Diesel, HVO is already growing in prominence as a replacement for road diesel for transport applications. However, one of the significant advantages of HVO as a replacement for fossil fuels is its compatibility with existing systems. The same is true for heating. Homeowners can use HVO in place of kerosene for heating oil boilers, without the need for extensive modifications or expensive retrofits. Modifications to the oil-fired boiler are minor, and typically cost less than £500. This could make it a very attractive option for decarbonising properties which may be unsuitable for a heat pump. It might also be a useful bridging option, to help homeowners make meaning progress in decarbonising quickly, while waiting to move to a heat pump for the longer term.

In 2021, 150 heating-oil properties in the UK switched to HVO, as part of the Future Ready Fuel project. Organised by our trade bodies OFTEC and UKIFDA, and supported by Watson Fuels, the project involved various types of properties – including homes, schools, village halls, and pubs – and ran successfully for two years.

The initiative’s success has led to the government to commit to a study on the use of renewable liquid fuels as a viable option for decarbonising off-grid heating, and specifically to explore mechanisms that may enable the fuel to be offered at a more affordable cost. Currently, the cost of HVO two to three times higher than regular heating oil (as at time of publication).

Hybrid heating systems could also offer a pragmatic approach to lower carbon home heating

Hybrid heating systems, which combine heat pumps alongside a liquid fuel or gas-fired appliance, could also offer a way forward and perhaps a pragmatic way of decarbonising those hard-to-fully-electrify properties.

A hybrid system has practical benefits in that the heat pump can be used in milder weather, while the boiler can support in the colder weather, running in parallel to the heat pump when the building’s heating requirement is at its highest. Typically, such systems can be programmed to automatically use the most appropriate technology, depending on parameters such as temperatures, unit cost of energy and equipment performance, to ensure the systems are always working as efficiently and economically as possible. Hybrid heating systems might be the most suitable technology for those homes which have a high heat demand to provide heating and hot water, particularly larger homes where insulating is either impractical or too expensive. It can also be possible to utilise an existing boiler as part of a hybrid system, reducing the capital outlay required.

Multiple solutions will be needed to decarbonise home heating

We need to change the way we heat our homes in order to meeting global decarbonisation goals, and heat pumps will be an important technology in helping us reach that goal. However, various barriers must be overcome to increase the rollout of heat pumps in the UK. For off-grid homes, some of these challenges can be even more pronounced. Recent government announcements seem to acknowledge this, demonstrating a growing awareness of the issue at hand.

HVO could offer a rapid route to reducing carbon emissions by up to 90%** for relatively little upfront cost. The success of the Future Ready Fuel trials has proven its effectiveness, although a framework is needed to make it more cost-effective for widespread adoption. Hybrid heating systems are also likely to play a pivotal role, providing a ‘best of both worlds’ scenario for properties unable to fully transition to heat pumps.

But there is no one-size-fits-all solution. A combination of strategies is likely to be necessary to address the diverse challenges surrounding decarbonisation – and there is a clear need for businesses throughout the supply chain to innovate, and to support consumers in their transition to low-carbon heat.

Key Definitions:

Housing stock: The total number and type of residential properties, including houses and apartments, available within a particular geographic area or market.

EPC (Energy Performance Certificate). Energy performance certificates (EPCs) are a rating scheme to summarise the energy efficiency of buildings. A building is given a rating between A (Very efficient) to G (Inefficient), and the EPC will also include some information regarding cost-effective ways to improve the energy rating of a building. Energy Performance Certificates are used in England, Scotland, Wales and Northern Ireland. 

Fuel Poverty: In general, fuel poverty relates to households that must spend a high proportion of their household income (typically 10%+) to keep their home at a reasonable temperature. Fuel poverty is a devolved policy area in the UK, and there are variations in how fuel poverty is measured across England, Wales, Scotland and Northern Ireland.

Future Ready Fuel: An industry-wide campaign to champion and promote the use of renewable liquid fuels such as HVO, which can offer a pathway to a more sustainable future by contributing to the reduction of carbon emissions.

HVO (Hydrotreated Vegetable Oil): HVO, or Hydrotreated Vegetable Oil, is a renewable and sustainable liquid fuel made from used cooking oil or other vegetable oils. It is considered a low-carbon alternative to traditional fossil fuels and is used primarily for heating and transportation, offering a substantial reduction in carbon emissions.

Decarbonising Heat: Decarbonising heat refers to the process of reducing or eliminating carbon emissions associated with heating systems and technologies. This is typically achieved by transitioning from fossil fuels to cleaner and more sustainable sources of heat, such as renewable energy, heat pumps, or energy-efficient practices.

ASHP (Air Source Heat Pump): An ASHP, or Air Source Heat Pump, is a heating and cooling system that extracts heat from the ambient air and transfers it indoors for heating or releases it outdoors for cooling. ASHPs are energy-efficient and environmentally friendly alternatives to traditional heating and cooling systems.

Hybrid Heating Systems: Hybrid heating systems combine multiple heating technologies to optimise energy efficiency. These systems often incorporate a heat pump, which can switch between electric and fossil fuel heating sources to maintain comfort and reduce energy consumption based on weather conditions and energy costs.

MCS (Microgeneration Certification Scheme): MCS is a certification scheme in the UK that ensures the quality and standards of microgeneration technologies, including solar panels, wind turbines, and heat pumps. It provides assurance that these technologies meet specified criteria for efficiency and environmental performance.

Off-grid Homes: Off-grid homes are residential properties in the UK that are not connected to the mains gas grid, and rely on alternative forms of heating, including heating oil.

_{*Watson Fuels commissioned YouGov to conduct a survey of heating oil consumers to understand their views on kerosene heating oil and carbon neutrality. This study was conducted among 2,009 consumers who reported to use heating oil to fuel their homes, between 30th March – 12th April 2023.}

_{**Source: Based on UK Government GHG scope 1 conversion factors per litre fuel.}

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