Podcast transcript: How buildings of the future will become low-carbon heat ready

Ed Reed

Hello and welcome to the 10 Point Pod, a special podcast boxset from Energy Voice Out Loud in which we assess point by point the UK government’s plan for a green industrial revolution. We’re drawing this together with expertise from our sponsors for this series, EY and leaders from across the energy industry.

My name is Ed Reed. I’m an editor at Energy Voice where we are leading the global energy conversation and I’m delighted to be joined by my co-host, Frances Warburton, Associate Partner at EY, and Guy Newey, Director of Strategy and Performance at Energy Systems Catapult.

Today, we’re going to be looking at point seven of the government’s 10-point plan, which is on greener buildings. I think this is one of the areas that is particularly contentious when looking at the government’s proposed green shift. Householders all have strong feelings about staying warm in winter and keeping the lights on.

I think one of the more striking points when energy talk broke through into the mainstream, there was a story in The Sun, in May, talking about how gas boilers should be banned from 2025, citing the IEA’s net zero report, which raised a few interesting feathers.

I think numbers differ, but there are around 25-odd million houses in the UK. So, it’s a substantial effort ahead. And even more when considering places of work and relaxation.

I suppose reducing energy consumption is the obvious, if unglamorous, way of reducing the country’s greenhouse gasses. But there are also other choices ahead of us. Much of the talk has been focused around how we will get heat and light in the future. Do we shift from gas to hydrogen, to decarbonised electricity, to heat pumps? It’s all yet to be entirely decided.

The Government has set out some pointers in its 10-point plan. It set the target of installing 600,000 heat pumps per year by 2028, for instance, which will be a fairly substantial increase from current levels. I think the other side of it is also this economic boost. They’ve said that the shifts to greener buildings should support around 50,000 jobs by 2030.

So, in common with other parts of the plan, the government has said it hopes it can kickstart private investment by providing some of its own cash and using that to prime the pump. I think the 10-point plan set out an additional £1 billion to help, but with the aim of unlocking around £11 billion of private investment this decade. I think maybe starting with you, Frances. I suppose in what ways will buildings of the future be different to buildings of the present?

Frances Warburton

It’s a really, really big question, and it’s an area I’ve been engaging with both in my recent role at Ofgem, and now that I’m back at EY. So, I think, as you said, buildings of the future are going to have to be substantially different to today. Buildings produce about a third of the UK’s carbon emissions and need to be almost entirely decarbonised by 2050. They’re not one of the sectors where we can have some residual emissions counterbalanced through negative emissions.

So, it’s a big task. And I think, as you say, first and foremost, it’s about improving the energy efficiency of the existing building stock. So, of those 25 or so million homes, only about ten of them are currently at the target of an EPC of C. So, homes like refrigerators and appliances have an efficiency rating all the way from A down to G. And we’ve now got a significant number, about 17 that are below that standard C.

So, the first target is to try and get all existing homes up to EPC standard C by 2035, and that is a huge task. And that’s required to get our building stock to be low carbon heat ready, which is the term used by BEIS and others. And then the next step is, alongside that trajectory, we’ve got competing technologies. And as you mentioned, we’ve got hydrogen. Potentially hydrogen pipe directly into homes.

We’ve got air source heat pumps. A lot of people don’t recognise that term, but it’s effectively a low carbon boiler. And also low carbon heat networks. So, in areas of high heat density, you can install dedicated low carbon heat networks. You’ve got currently three competing technologies. But almost certainly, by the time we get to 2040, there will be others competing alongside those.

So, one of the key questions is, which technologies and solutions are appropriate? Where? Will we end up with a zonal approach? That somebody will decide that some parts of the country will use hydrogen. Other parts will electrify through heat pumps. And maybe in cities, we’ll have predominance of heat networks.

So, will it be some magical solution like that, and all consumers will just accept whatever the solution is in their area? I think that’s quite unlikely. I think Guy in particular has got some really good insight into the consumer side of this. And I think the role of consumer choice will be really important.

Perhaps consumers in areas will want to be able to choose between some of these competing technologies. And if someone has gone ahead and got themselves a heat pump in the 2020s and hydrogen comes along in the 2030s, are they really going to want to switch over to hydrogen having invested in their heat pump?

So, I think, yes, you cannot understate the importance of bringing consumers on this journey, but also that consumer choice will probably remain quite central to all of this. But Guy, his work at the Catapult has been really formative. Something I’ve drawn upon in both of my recent roles. And he’s got a huge amount of insight on this that I’m interested to hear more about today.

Ed Reed

Guy. The house of the future. What do you reckon?

Guy Newey

It’s going to be very different to the one we have now, from the technology going into it, but the things that people want from their home are going to be very similar. They want reliable electricity supply, at a reasonable price. They probably want to charge up their electric vehicle, which they probably don’t at the moment. But particularly around how they heat their home. They want to be able to get warm. They want to be able to stay warm. And they want to be able to get reasonably cool in the summer.

And it’s really important that we remember those basics, because actually most of the policy arm-wrestling that goes on at the moment, it’s all to do with technology choices like hydrogen versus heat networks versus heat pumps. Now, these are of course important questions, but we don’t spend anywhere near enough time thinking about, how are we going to give consumers an even better heating experience than they have at the moment?

We at Catapult work with lots of smart companies who are trying to come up with things that really work for consumers. If you can find a company that can do the low carbon conversion of your house in a nice, simple way for your experience as a consumer and deliver a great heating outcome that you really enjoy, that’s a potential gold mine, if you can unlock it. And we really should be thinking about, how does that work for the consumer? As much as anything else. How is it easy and better?

Ed Reed

Sure. Frances, we were talking before. You mentioned your personal choice about heat pumps. Obviously, I think this seems to be at the heart of this discussion as a consumer, even if an informed consumer. How did you come to that heat pump decision?

Frances Warburton

Yes. So, it really ties back to some points that Guy was just making there. So, we bought our current house we’re living in about ten years ago, and I think it was EPC E. It was really, really draughty, and really low energy efficiency. Over a number of years, as we’ve gone to replace things, we have replaced them with more energy efficient alternatives.

So, we’ve slowly worked our way up now to the point that we can get an air source heat pump. And given we’ve still got the Domestic RHI in place, it’s a very good programme, we’ve decided to take the plunge and get one. So, we’re having it installed in the next couple of months.

But the interesting experience that I found is the house we’re living in now, ten years after we bought it, is a much more comfortable house. The floors used to be cold. We had a lot of damp inside the single glazed windows. You have very high gas bill in the winter.

The steps we’ve taken to get low carbon heat ready have actually made the house more enjoyable. We can now control the heat by zone in the house. So, our bedrooms that we used to heat all day in the winter, they’re now cool in the day when we’re not using them. So, I think consumers can appreciate that journey. I recognise I was able to do that over ten years. I didn’t have to do it all in one go and I did it bit by bit as I fixed and replaced things in the home.

So, I think one of the ideas of all homes having a passport, and you get stamps as you go along, and the passport passes on to the next owner, and the next owner can do a bit more. So, we don’t have to do this all at once. But I do think you can end up with a much more enjoyable home environment when you’ve taken a lot of these steps. And right now, I don’t think a lot of consumers appreciate that.

Guy Newey

I think that’s such an important point. And what Frances has been through highlights loads of the challenges we’ve got on the pace that we need to go. Just to give you some indication of the pace. We do about 30,000 homes switched to low carbon heating a year at the moment. I think we’re going to have a better year this year, partly because of some of the policy choices. It’s going to be more like 60,000. We need to get to 30,000 a week by 2030, 2035. So, it’s an enormous challenge.

If you want to go at that pace, it has to be better. And things like room-by-room control, it’s funny, it’s the kind of thing we test with consumers the whole time at the Catapult, trying to understand what they want.

And you explain room-by-room control, and they go, well, I can do that already. I’ve got those thermostatic radiator valves. TRVs. You can change those all already. And you go, yes, when was the last time you changed that in the spare room? And they’re like, last time my mother-in-law came to visit or whatever it was.

But once you got it, you can control it on your app, set your schedule, do it that way, it is totally different experience of your heating, and a really exciting one for energy geeks like me. But actually, for normal people like my wife, she was pretty sceptical when we got it. She’s like, this is absolutely fantastic. We are never going back to single rubbish thermostat in the hallway that you’re basically both fighting over the whole time, etc.

So, you got this potential of certainly new technology really helping improve the consumer outcomes. And then if it just happens to be low carbon at the other end, then people will be more relaxed about it. But that should be the absolute focus, is how do we make people’s heating experience better? And so that they’ve got the demand for something low carbon and they’re not being forced to do it or being told that so and so technology is going to be banned in a number of years.

Ultimately, from a policy point of view, you need to get to a stage where you’ve got that kind of hard-edged regulation to do it. But that’s much, much easier when you’ve got things which are desirable, that people actually want.

Double glazing is a good example, right? Double glazing, from an energy saving point of view, is a terrible investment. It’s like the payback is 15, 20 years, and that wouldn’t get through a government cost-benefit analysis at all. But we don’t have to subsidise double glazing. People buy it for themselves. They choose to do it. They’ve worked out the financing themselves. Because it gets rid of draughts. It’s more secure. It’s quieter on the noise, etc. And by the way, it makes your bed a bit warmer. You don’t save a massive amount on your bill, but you save a bit.

And that’s the kind of thinking we’re going to need in low carbon technology solutions, from the consumer experience end. And then the input, whether it’s hydrogen, heat pump or a heat network, we can be a bit more relaxed about.

Ed Reed

On that question, you mentioned that carrot or stick, I suppose, of how to drive consumer choice. But is it a question of carrot or stick? Or is it also just a question of awareness? You mentioned that your wife was possibly not that drawn in initially, and I think my wife will be very similar. So, is it a question of how do you transfer that information to people thinking about how to make their houses slightly more comfortable?

Guy Newey

I think that’s the huge commercial challenge, ultimately, companies to think through ways that they can convince people. There’s a kind of myth that if government puts out another information campaign or another neutral website, etc., people will navigate towards it. But actually, if you think about other markets and how they develop it, it’s word of mouth. It’s advertising, marketing. It’s convincing people to do that.

The interesting thing on the carrot and stick point of view is if all government was worried about was making the switch as quickly as possible, it’ll be very straightforward. They just ban installation of new boilers as soon as possible, in the next two or three years, and the market would work its way out.   

Now, we’re speaking on the day where it looks like the heat and building strategy has been delayed because the politics is so tough of it, and they’re going to have a summer to think about it. They couldn’t just ban that. The country is not ready for it. People don’t realise it. What we’ve said, almost half of people don’t realise their boiler is contributing to climate change. So, they’ve got a long journey to go on.

So, what the challenge for government with any policy development is how do you give enough of a signal to the market, whether that’s through subsidies or some kind of long-dated changes, that means that companies will go, actually, this is worth investing? There’s a decent sized market here. It’s not going to be 30,000 a year. It’s going to be 250,000 a year to start off with. And actually, that’s a chunky market and a market that will keep growing, etc.

So, they need to give enough of a signal without scaring the politics too much. Then you start seeing better solutions in the market, making it easy for people to make the shift. You don’t have to go on, as Frances has to a certain extent, be going on a kind of grand design-esque epic voyage.

Frances Warburton

It certainly feels like that.

Guy Newey

It needs to be as easy as converting your loft is. You just speak to one bloke or one woman, and they come around, and they will sort out the electrician, and the plaster, and the windows, etc., and they’ll do it for you, and you’ll pay a price for that. But we’re not quite there in the market at this stage, and that will only come when there are market signals. And then once there’s good stuff in the market, then government can have more confidence and be more aggressive on regulation in other areas, where then you’re just trying to get to the last bit.

Frances Warburton

Yes. So, I completely agree. I think it’s all of the above. And again, I think this is probably where the delay into the autumn on the heat and building strategy is likely caught up, is the balance of those things. So, undoubtedly, there will have to be carrots. It’s the Domestic RHI. It’s going to be replaced next April with an alternative grant for low carbon heating solutions.

There will be some regulation. I think there will be some phasing out of boilers. I think over what timescale and whether it’s for new existing buildings is undoubtedly causing difficulties.

But then there’s also innovation. So, if you look at Octopus Energy, they’ve now announced they’re going to be rolling out their own heat pump business and actually branding it as super green boilers. So, they’re moving away from that terminology, and they’re going to be training up their own installers.

And their projection is useful to bring down the cost for heat pump from 10,000 to 5.5. So their big view is innovation, linking it in with time of use tariffs, linking it in with new technologies like heat storage and heat flexibility, and just create a big demand base. And from that, that would get us a long way there.

So, I think that’s probably a very welcome message to government, to hear that such a well-known brand… And I’m sure others will be following, are now moving into this space. From an EY perspective, we’ve talked to a lot of investors. These new heat storage technologies, heat flexibility technologies, they will come and sit alongside heat pumps. There’s a huge amount of interest.

But it’s not all electricity. There’s also, on the hydrogen side, just a vast amount of work underway. Hydrogen homes. Hydrogen villages, cities, towns, etc. And I think that’s all proceeding at pace in parallel. And there is a bit of a healthy competition.

I think, to some degree, the competition we’re seeing between those who think hydrogen is the right solution and those think it must surely be electricity is healthy. And I think having that debate and that competition and all the innovation going into both spaces will surely lead us to the most efficient outcome, and it will likely be somewhat of a patchwork. I think there’s undoubtedly going to be some important uses for hydrogen.

Big question about homes. The government is still probably not going to make up its mind on that until the middle of this decade. So, in the meantime, hydrogen is kind of fighting this battle with one arm tied behind its back. Because unlike heat pumps that can be rolled out now from the likes of Octopus Energy, nobody can actually go and offer a consumer hydrogen in their homes, unless it’s on a trial basis.

So, I think the next few years, and watching how these competing solutions play out against each other, is going to be fascinating, and I’m really looking forward to it.

Guy Newey

Frances, you talked about the investors there. Because I think that’s really interesting here because you can kind of see it in a world of networks, and hydrogen being the main answer, and networks, etc., is relatively similar to what we’ve got now.

Of course, on the heat pump side, it’s actually quite a kind of fragmented industry. You don’t have big companies producing… You do at the manufacturing end. But in terms of installers, it tends to be typically a one-man band. And it is mainly men. Although, there are some really interesting all-female or mainly female companies. Your Energy Your Way is a particular example.

So, I think, from an investor point of view, that’s quite a difficult thing to invest in, as it were. How do I get confident that this one-man band, he’s installed something, I’m going to do the financing, say, for the heat pump and recover it over time? What needs to happen to give them confidence, so we have bigger companies, bigger brands, etc., which are all going to be part of driving it forward? I’m interested in how you might see that.

Frances Warburton

Yes, I think that is one of the big challenges. Because currently, for the sole trader who wants to repurpose herself or himself from a gas boiler installer to a heat pump, they need to go off the road. They need to go off and retrain themselves, and then reinvent themselves with new technology. And that’s really difficult in that sort of a model.

And that’s one of the interesting points that the Octopus move has pulled out, is that they’re going to commit to training up large numbers of installers all in one go. And rather than effectively having to use consumers as guinea pigs for sole traders to go and learn how to do it on the job, they have identified that. And I think it is a real issue that the structure of the market is going to make this more difficult.

So, we are seeing more investment in manufacturing heat pumps coming into the UK, which I’m sure is very welcome news for government and others. But you’re right, it’s about how that is linked into it. Should obligations sit on manufacturers? Or should you also put some of those obligations on installers as well? And if so, can you really do that to a sole trader?

So, it could drive some consolidation in the market. I think it’s the reason underpinning why some of the larger companies might be tempted to go in, because they can manage this transition better. So, I think it will probably change the dynamics of the installer market. So, interesting space to watch.

Guy Newey

Yes. And I think one of the things we work a lot at the Catapult is also thinking about the services side as well, and the potential role of heat as a service. Just to try and explain that. It’s a slightly difficult concept to get across. So, Ed, if I get this completely wrong, you can ask me about it.

At the moment, depending on how often you have your boiler on, you pay for your kilowatt hours or units of gas. But one of the arguments that you could do is instead of just paying for the commodity, as it were, you pay for the outcome.

So, you’ve got room-by-room control or whatever it is, and you set your schedule, and you basically buy your schedule. So, your living room at 21 degrees for three hours a day, etc. Your bedroom a bit warmer for a couple of hours, but off during the rest of the day, etc. And the energy company works out how much roughly that’ll cost, and you buy the outcome. You’d be able to top up, etc., as we would mobile phones, but you buy it like a mobile phone contract. You’d buy however many free minutes or the equivalent of heating.

And the argument being that, first of all, that would mean that the companies are much more focused on the consumer experience. So, they would be worried about making sure that you can get your room warm enough. But they’d be encouraged to try and find out a way that they can give you the same experience but cheaper. So, they’ll actually go, actually, we could install some insulation. Or you know what? This room that you’ve got is really, really difficult to heat up. Can we come and have a look around it? And it turns out you smashed a window or whatever it is. We could repair that.

And so, that would make the cost to serve reduced, but consumer experience much better. And so, you get into better margin as well, etc. And then that would mean that if you then wanted to switch to low carbon heating, it’s like, you as the consumer, don’t worry about it. We’ll do everything. We’ll work out what improvements we may need to make to the house.

You’ll still have the same brilliant, controlled consumer experience that you’re having at the moment, and that you really enjoy, and by the way you’re probably willing to pay a bit more for. Which is another thing that is slightly mad in the energy business, that we seem very nervous about the idea that people should be willing to pay for better stuff.

But don’t worry about all of that. We’ll take care of the switching of your home over to low-carbon heating. If your consumer experience drops or you lose quality, then there will be compensation for that, but we will do everything we can to do it. Suddenly, then your incentives are in a better way. You’re focused on the outcome that people actually care about. Back to the thing said at the start is, I want a warm home, and I want it to be warm for a reasonable price. I often want predictability about what that price will be.

So, again, those kinds of new services models, which will become really common in other parts of the economy, whether it’s TV or mobile phones, etc., hasn’t quite tripped over to energy. But I think your question at the start, what the home of the future is going to be like, it could be that we buy our energy in a totally different way.

Ed Reed

Fantastic. And I think we will maybe take a short break there, and we’ll pick up when we come back.

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Ed Reed

Great. Welcome back. Obviously, we’ve raised a number of interesting points. Just to come back to one of those points raised earlier. Frances, looking at the idea of a local solution. So, obviously, like a heat network or whatever. Maybe you could just set out some of the thinking around how that might work.

Frances Warburton

The two other solutions, which is electrification through heat pumps of some type or hydrogen-based heating systems, tend to get the lion’s share of the attention. That’s what people tend to be focused on. But actually heat networks are actually really important as well, and they’ve got a significant role to play. Currently, only 2% of the UK’s heat supply comes through a heat network. But the CCC estimates that could go up to 18%, and we need about £18 billion investment in heat networks by 2030. So, there’s a huge amount going on in that space as well.

The government is about to launch a new clean heat network programme. Because up until now, they’ve been encouraging the development of heat networks, which is great, but they now need to move on to ensuring that new heat networks are actually low carbon.

So, a heat network effectively has three parts to it. One is the heat source. Generates the heat. Secondly, the network, the pipes that take that hot water out to premises. And then thirdly, the kit in the home that takes that hot water from the network and converts it in another loop to hot water in the home. The kit in the home effectively looks and feels like a boiler, but it’s doing something different.

Now, the network and the kit in the home can be low-carbon or high-carbon. So, you could have a CHP, a gas CHP in the boiler of a building. That could produce the hot water. Or you could replace that with a low carbon heat source, and that’s what the government is now focused on, is the next phase.

And generally, this is useful. We’ve got really high density of homes, and particularly we’ve got waste heat. So, rather than spending lots of money generating new heat, if you’ve got the London Underground or buildings in urban centres that are generating lots of waste heat that’s just being dissipated into the environment, if you can capture that, pipe that to people’s homes, you don’t get something more sustainable than that.

So, it’s a really exciting area. It is very local. In some countries, Amsterdam, you’re starting to see sprawling, big citywide networks, where people are injecting heat into different networks across larger urban areas. But I think, right now, we’re starting quite small. And that’s a really good example of a local application of heat.

But there are other things going on in the local space, which I think Guy is probably better placed to talk about, and that’s the area of the local area energy planning. And that’s basically a growing trend towards local authorities and communities wanting to take some of this into their own hands, develop their own strategies for how to decarbonise whether it’s heat or transport, and try and take those plans forward. But I’ll let Guy… I think he’s probably better placed to discuss some of those developments.

Guy Newey

That’s one of the other characteristics of heat decarbonisation. We’ve talked about the fact that it’s got to be consumer focused. We spent a lot of time on that in the first part of the podcast. But the second really important part is heat is local. You need to understand the state of the building stock. How efficient they are. What sources of heat could work.

You need to understand what might be the sources of heat. If you’ve got a very, very hot underground system, that could be a really great source of heat for your wider city. You need to understand how dense the housing is. What the solutions are. So, the pattern of decarbonising the heating system of Cornwall is very different from Glasgow.

But right now, we don’t really have, from a policy point of view, any way of all these local authorities, 300 of them that have declared climate emergencies, we don’t really have a way of them actually being able to deliver much in a consistent and sophisticated way.

So, one of the things we’ve been working on at the Catapult over the last few years with a few pilot areas, and it’s now getting much more momentum, we did with Newcastle, with Bury in Greater Manchester, and with Bridgend in South Wales, was about developing real plans for how you decarbonise an area, including the heating system.

Just to explain what that means. First of all, you got to get decent data on what’s happening at the energy system. Because if an area is going to transition to electrified heating, then you got to make sure the electricity system is geared up, ready for that. It’s quite a lot of extra pressure on the system, especially if you’re pilling on EVs as well.

So, you need to understand the whole system. You need data about the whole system. Then you need to plan out various different scenarios. And crucially, you then need to test these scenarios and the options with people in the local area. You need to consult properly, whether that’s important stakeholders like networks, or whether that is real people trying to understand what they want.

Because of course, that’s one of the other big challenges for net zero, more broadly than heating, is actually you got to get people’s buy-in to what they want. And again, the planning process, as it works with new roads, new developments, new etc., that is the process by which you mediate those decisions.

But that’s a missing part. That planning bit is a missing part of our infrastructure. And that allows you to identify priority projects, whether it’s an energy efficiency improvement, or a social housing decarbonisation process, or a new heat network in a particular area, which because it has to be everyone in that area on the network largely, it tends to be a monopoly piece of infrastructure that needs to be planned. You need that process to go through, and we kind of don’t have that. It’s a missing bit.

Now, that doesn’t replace your market driven competition, etc. But there are a few things which are, particularly heat networks and some other infrastructure investments, which are monopoly characteristics, i.e. you’re making a choice for a particular area. So, they need some kind of planning process to go through to complement your wider efforts in the market.

Ed Reed

And I suppose that ties back into the comments earlier, doesn’t it? About how you make individual choices but also as a community.

Guy Newey

Yes. That’s really true. It’s why it makes it such a fascinating intellectual problem, heat decarbonisation, but what a nightmare real-world policy problem and political problem, because there is actually this mixed… Everyone wants electricity, right? It’s very straightforward. And so, everyone has an electricity supply largely, in the UK, on the grid. Everyone wants heat, and they don’t really care largely where it comes from, as long as it’s a reasonable experience and a reasonable price, as we said before.

But actually, there are some areas where you can’t just leave it to pure market forces to do it. Decisions about whether you’re going to repurpose the gas network to move to hydrogen, or you’re going to install a heat pump network in a particular city or area, those really are… They have to be authority-led, centralised decision-making just because of the nature of the infrastructure.

So, it’s just recognising where that dividing line is between consumer choice and consumer outcomes and the fact that you’re going to have to make some decisions around these things, which makes it a really tricky challenge, especially when you’re like the UK, and you’ve got this really strongly performing, mature gas grid, which is giving pretty good consumer outcomes as it were. There are still little things. I talked about draughts, and damp, and mould, etc. There are still lots of problems in people’s houses like that.

And we tend to oversize boilers, so they don’t work as efficiently as they can in people’s homes. But generally, the system works really well. It’s just the problem is it’s also emitting a huge amount of carbon at the same time.

So, how do we make that transition is at the heart of it.

Ed Reed

Absolutely. And coming back to you, Frances. You mentioned that question of efficiency, and things like heat pumps, and the challenges around energy storage. How do you see that sort of energy storage issue being addressed?

Frances Warburton

So, I think what we’re seeing is a similar story that we had with EVs a few years ago. So, when the EV rollout started picking up, people thought, okay, we’re going to have to have an extra 10, 20 gigawatts of system capacity because everyone is going to come home and charge their EV, 5 PMT time, during the week. That happens to be already the system peak when everybody comes home and turns on their lights and runs their appliances. The system is going to have to expand significantly. We better get on with planning that.

And now, only a few years later, we’ve realised through smart charging, and the government has published its approach on smart charging of EVs, actually you can go the opposite direction. You can actually have EVs absorb surplus electricity at times when it might not otherwise be used and actually help smooth demand.

So, as opposed to EVs increasing the size of the system we need and pushing cost up, you’re going to actually have this nice win-win where consumers are paying less to drive vehicles because electricity is cheaper than petrol, and they’re bringing down the cost of the electricity bill for everybody else at the same time because you’ve now got more usage of the system we’ve already got.

So, we’ve gone through that journey on EVs, and I see a similar discussion now emerging on heat pumps. Well, if we get heat pumps and everybody comes home and turns them on in the winter, we’re going to need a system that’s going to go from 60 gigawatts peak today to 100 gigawatts in the future. And naturally enough, now we’re seeing the market innovation responding and heat batteries are coming forward.

And I think what we’ll see is through… Whether it’s heat as a service, new technologies, tariffs… I think the Octopus plan is to bundle in their heat pumps with their time of use tariff offering and manage the system for you. So, I think what we’re going to actually see is huge opportunity to also use heat pumps as a way to make our existing system work more efficiently.

But that equally applies to hydrogen because we’re in the process of making the gas distribution system hydrogen-ready anyhow for safety purposes. So, at the same time as thinking about the big decisions on hydrogen, we’re doing important things, so that if we do decide hydrogen can be used for homes in parts of the country, the distribution system is getting ready for that as well, and it would make very good use of that existing infrastructure.

So, I think the whole system efficiency question is a big one. And I do think that, actually the overall cost to the economy of meeting net zero is about 1% of GDP. The latest Sixth Carbon Budget show that quite nicely, that actually if you smooth out over decades, yes, you got a big upfront capex cost in things like heat and decarbonising electricity, but then they’re counterbalanced with huge opex savings.

And so, the total cost envelope is about 1%. But the challenge facing government, and particularly treasury with its net zero review, is how do you smooth those costs out across decades, across different technologies, so that billpayers and taxpayers as a whole don’t find the transition to be really unaffordable.

Ed Reed

Sure. So, in terms of that energy storage, that heat storage at home. So, that’s essentially like a battery for heat. Is that the idea?

Frances Warburton

Yes, that’s right. And there are a couple of those technologies that are currently being developed and trialled.

Guy Newey

And it’s a really exciting area and absolutely essential for the system working together. Because if we get this wrong, we’re going to have to have an absolutely enormous, very expensive electricity system most of the time just sitting around doing nothing, being turned on a couple of weeks a year when it’s really cold and the wind is not blowing or what have you. So, making it smart, flexible, in the jargon, is really essentially.

But back to the point I’ve been endlessly going on about. That has got to be really easy for the consumer. You’re not going to have a world where people are part-time energy traders at home, where they’ve finished their dinner and it’s like, right, I’m going to arbitrage between 7 PM, and I’m going to wake up at three o’clock in the morning and get my EV charging because it’s going to be negative prices, etc.

I don’t think that is a likely significant outcome from what we’ve got, but they’re probably quite happy for all of that to be happening in the background as it were. So, they plug it in. They tell their charging company, Ohme or Zappi, whatever it is, one of these many great companies that’s working in this space, and they just say, I want it to be 90% charged by eight o’clock in the morning. You smart people work out what my best time to do it is.

And then that’s got to be integrated with the heat, potentially with the electrified heating, with your… You might have a battery on your system, which would be charging up from maybe your solar panels, etc.

So, that world could be a really exciting one for the energy system. But actually, the challenge is, one, how do you make sure these devices work together? But two is a consumer challenge. How do you make it super easy for people to provide these services to the system?

And of course, they might not want to. That’s a really interesting challenge. They might just say, no, you know what? I want to charge my car up at five o’clock, etc. And then you’ve got to get into making sure, fine, but you’re going to pay a premium for that, in the same way that you pay a premium for when you fill up your car on the motorway petrol station rather than your local petrol station.

There’s a reason it’s more expensive, is because people who fill up their car then need it. They’re looking for an alternative. And that will happen with electricity pricing.

Ed Reed

Absolutely. Well, listen, thank you so much to you both, Frances, and Guy. I think there have been some really interesting points raised here. And I for one am certainly going to go and talk to my wife about how best to heat our house in the future.

To our listeners, please let us know your thoughts on this topic through our social media channels or by emailing outloud@energyvoice.com. And if you want to be part of the conversation and share your story with the energy industry, you can email outloud@energyvoice.com, too.

You may already know that every week the Energy Voice team get together to highlight important stories from the world of energy in our regular podcast episodes. So, if you’re not already, please do subscribe free to Energy Voice Out Loud in Apple Podcasts, Spotify, or wherever you get your podcast to get this essential briefing every Friday.

We’ll be digging into the rest of the 10-point plan over this year, leading up to COP26. So, please do look out for those. Next month, we’re going to be looking at carbon capture and storage, as we continue to chase down the question of emissions. But for this, the seventh episode of the 10 Point Pod, I’ve been Ed Reed. Thank you for listening.

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