Energy Bill [HL]

Written evidence submitted by OFTEC and UKIFDA (EB01)

 

Energy Bill: Public Bill Committee

Heating homes: A fair deal for rural off gas grid ho useholds

Our Net Zero ambitions will not be achieved without the recognition that a multi technology approach is needed which recognises that different homes require different solutions, and that people must be given a choice about how they decarbonise their homes.

It is vital that people are given the right choices and incentives to help make the Net Zero transition a reality. The key is to make it as easy as possible for them to make the necessary changes.

The Energy Bill should be amended to allow this multi technology approach allowing schemes that already exist for the decarbonisation of transport and aviation to be extended to rural heating at no additional cost to government.

The Issue

· There are 1.7 million homes (and over four million people) in the UK that remain unconnected to the National Gas Grid. These homes rely on heating oil such as kerosene.

· 44% of these homes were built pre-1919 [1] ,c50% are detached and 65% in England are in the least efficient EPC Bands E-G2; research has shown that heat pumps are not always the most optimal solutions in reducing emissions in these homes. [2]

· From 2026, in line with the Government’s Heat and Buildings Strategy [3] , off grid homes will no longer be able to replace existing oil boilers and will instead, as part of a "natural replacement cycle", start to transition to lower carbon technologies with a heat pump first approach.

· They will have to install either an air source heat pump or ground source heat pump, which may not be suitable or economic for rural homes given the need for additional insulation which isn’t appropriate in many older properties.

· Research shows that installing a heat pump, including retrofitting, will cost off grid homes an average of £24,000 [4] . Even if, as the Government predicts, heat pump prices do fall, they will remain at many times the cost of an oil boiler.

· Rural off grid households will be obligated to shoulder higher costs than gas-using homes, which can continue to use and replace gas boilers until 2035, nine years after off grid users.

· By the Government’s own estimate, at least 20% of off grid homes will not be suitable for heat pumps. [5] But given the nature of the off grid housing stock, we believe that this figure will be much higher in reality.

· It is already recognised that many homes will technically not be able to take a heat pump; some will not be able to switch due to limitations on local electricity supply and infrastructure.

· A new survey by the Future Ready Fuel Campaign [6] has shown that 90% of people living off the gas grid are concerned the Government’s current heating proposals are treating them unfairly, with over 95% wanting a greater choice of low carbon heating solutions.

The solution

Renewable liquid fuels offer a sustainable alternative for off grid homes to decarbonise more quickly and at a more affordable cost:

· Our industry has been trialling a renewable liquid fuel called Hydrotreated Vegetable Oil (HVO) in 150 homes across the UK for the last 18 months, confirming the upfront cost of conversion is c£500.

· HVO is a renewable liquid fuel which must be derived from sustainable sources and is independently assessed in terms of sustainability and also passes the strict UK Government benchmarks as a sustainable fuel. 

· Renewable liquid fuel provides the same boiler operation and control that customers are used to and expect.

· The process can be completed at an annual service, and requires minimal changes to the boiler, no changes to the fabric of the house, no planning permission or disruptive building work but still reduces emissions by up to 88% compared to traditional kerosene heating oil.

· HVO used for domestic heating purposes must comply with British Standard EN 15940 and PAS 5420. [7] This allows the Government to insist that only British Standard certified HVO would be allowed for the purpose of home heating.

· In Cornwall, a local fuel distributor has successfully created [8] the country’s first ‘renewable liquid fuel village,’ converting 17 sites in Kehelland to HVO, from domestic homes to businesses as well as the local church and school [9] . A full analysis of the options available to the village were explored and the findings concluded HVO conversion with the benefit of a change in government policy (see below) is the cheapest decarbonisation option over 15 years.

· Industry already has equipment, support and a workforce capable of applying HVO conversions at scale and maintaining distribution of the fuel through existing channels.

How the Energy Bill can be amended to give rural off grid homes a real choice on how to decarbonise their heating

The current cost of HVO and other renewable liquid fuels is significantly higher than heating oil, which is an obstacle to consumer uptake. The Energy Bill could easily be amended to overcome this:

· The Department for Transport already recognise this issue and support the use of renewable liquid fuels such as HVO in the transport and aviation sectors through the Renewable Transport Fuel Obligation 2007 (RTFO) [10] which reduces the cost significantly to the consumer.

· We need an equivalent scheme for heating off grid homes and buildings - a Renewable Liquid Heating Fuel Obligation (RLHFO) - which would offer the choice to off gas grid properties to switch to renewable liquid fuels.

· It is logical to incorporate heating oil volume into a connected scheme. Not only is kerosene made, supplied and sold by the same companies that also supply diesel and petrol, but its combustion also gives off similar emissions, and the same UK consumers largely use it via an identical supply chain.

· Bringing the fuel duty rate of HVO for heating (currently c10p per litre) in line with that of kerosene heating oil (zero duty) is crucial. Removing this anomaly would reduce the cost to rural customers and be at no cost to the government as HVO is currently not used commercially for heating purposes and generates no tax revenue.

· A further advantage of removing this disincentive would be the speeding up of the transition to Net Zero, as there would rapid uptake of HVO within Carbon Budget 4, which runs from 2023-

2027, with the associated 88% reduction in emissions. Rather than have to wait to Carbon Budget 6, which runs from 2033-2037, on the Government’s current plans.

Sustainability and availability of HVO

· A report by Portland Analytics based on data from Imperial College London [11] and the US Department of Energy (DoE) comprehensively analysed the availability of feedstocks used to produce Renewable Liquid Fuels in Europe and North America up to 2030 and compared these to predicted biofuels demand for transport as set out by the International Energy Agency (IEA). [12]

· The report provides conclusive evidence that the UK domestic heating oil markets could easily be accommodated within the overall requirement for renewable liquid fuels and that the lifecycle greenhouse gas emissions reductions achieved would range between 82% and 87%.

· The latest production and supply data from North America and Europe highlights that the global production of HVO is increasing rapidly, with more than enough supply to cater for UK home heating demand.

· Production of HVO in the US is already at 10 billion litres and is expected to increase to 22 billion litres by 2025 [13] . Production of HVO in Europe is expected to double in the next 2 years from 5.5 billion litres to 11 billion litres. [14]

· In February 2023 the UK Government removed tariffs and duties on HVO from the USA and Canada. [15] This will significantly increase the availability of HVO in the UK, with the first US consignment delivered to the UK in March.

· This would complement the existing policies for sustainable aviation fuel. This was further confirmed by the Government’s own study undertaken by Philip New on behalf of the Department for Transport. [16]

· Significant investment is being made into sustainable aviation fuel, which has a countercyclical benefit with home heating oil, with jet fuel dominant in the summer and heating oil in the winter, both of which are kerosene.

· This means that there is already a good economic fit to suggest that the Department for Energy Security and Net Zero and Department of Transport should be working together on ensuring that renewable liquid fuels can be used in both sectors.

Conclusion

Customers should have a choice about how they heat their homes and reduce their emissions.

· The Government must adopt an approach that gives choice, reduces cost and treats rural communities in a fair way.

· Increasing consumer choice will benefit ALL users of low carbon heating, encouraging market participants to offer better customer value.

· Renewable liquid fuels, such as HVO, offer rural homeowners an easy, relatively cheap and nondisruptive alternative to heat pumps.

About OFTEC and UKIFDA

OFTEC (The Oil Firing Technical Association) and UKIFDA (The UK and Ireland Fuel Distributors Association) are the representative trade bodies for businesses that deliver vital heating services to households and businesses, primarily in rural areas. This includes liquid fuel distributors, appliance and tank manufacturers, and heating technicians. Together, we represent companies that employ over 20,000 employees, including many family businesses that have passed their ownership down through generations and live within the countryside communities they serve.

For further information please contact: oftec@luther.co.uk

May 2023


[1] OFTEC and UKIFDA, Rural Home Heating – Response to Government Proposals, 2022, p.8

[2] OFTEC and UKIFDA, Rural Home Heating – Response to Government Proposals, 2022, p.4

[3] Heat and buildings strategy - GOV.UK (www.gov.uk), 2021

[4] Kehelland Demonstrator Project – using UK Government Heat Pump costs online calculator

[5] Heat and buildings strategy - GOV.UK (www.gov.uk), 2021

[6] Future Ready Fuel Campaign: April 2023: 9 in 10 rural homes say government’s green heating plans are treating them unfairly

[6] https://futurereadyfuel.info/9-in-10-rural-homes-say-governments-green-heating-plans-are-treating-them-unfairly/

[7] British Standards Institute (BSI): PSA 5420: https://knowledge.bsigroup.com/products/liquid-fuels-sustainable-bioliquid-fuels-for-use-in-fixed-combustion-applications-for-heating-hot-water-and-cooking-specification/standard

[8] UKIFDA, https://ukifda.org/cornwall-based-fuel-distributor-has-converted-nearly-50-sites-to-hvo/, 2022

[9] ITV News: Cornish school thriving after 'successful' trial using vegetable oil to heat premises:

[9] https://www.itv.com/news/westcountry/2023-01-11/school-thriving-after-successful-trial-being-powered-by-vegetable-oil, 2023

[10] UK Government: https://www.gov.uk/guidance/renewable-transport-fuels-obligation, 2012

[11] https://www.concawe.eu/publication/sustainable-biomass-availability-in-the-eu-to-2050/

[12] IEA Bioenergy 2022, Global Database of Biomass Conversion Facilities, viewed 8th June 2022: https://www.ieabioenergy.com/installations

[13] US Energy Information Administration: https://www.eia.gov/todayinenergy/detail.php?id=55399#:~:text=The%20Inflation%20Reduction%20Act%20of,at%20the%20end%20of%202022

[14] US Department of Agriculture, Foreign Agricultural Service, European Union, Annual Biofuels Report, July 2022: https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Biofuels%20Annual_The%20Hague_European%20Union_E42022-0048

[15] UK Government: https://www.gov.uk/government/news/government-accepts-recommendations-on-import-measures-for-biodiesel-and-wire-rod

[16] Department for Transport: Independent report: Developing a UK sustainable aviation fuel industryhttps://www.gov.uk/government/publications/developing-a-uk-sustainable-aviation-fuel-industry

 

Prepared 23rd May 2023