Heat and Buildings Strategy – The key takeaways

On 19 October the government released the long-awaited Heat and Buildings Strategy which contains details of how it intends to cut emissions from the UKs buildings, as part of setting a path to net zero by 2050. Annex 2 sets out the current and planned activities for the 2020s.

Being two years in the pipeline and one of the last strategies to be released this year indicates how sensitive this topic is. The housing sector wishes to understand what technologies it should be installing and what financial support will be given to landlords, what incremental targets will be set on the journey to net zero.

The strategy contains about £3.9bn worth of funds to support a transition up to 2025 which not only covers the widely reported £450m boiler upgrade scheme but will also go towards funding the next three years of the social housing decarbonisation fund (£800m) and home upgrade grant "HUG" scheme (£950m), the heat networks transformation programme (£338m), and the public sector decarbonisation scheme (£1.425bn). While the sector will no doubt be pleased the government has provided funding certainty over the next three years. Many consider that it does not deliver in terms of ambition or urgency but in our view it's an important step to help enable the market.

Key points

• £950 million pounds over three years for the home upgrade scheme may not drive the scale of energy efficiency needed in both private and rented sectors to help kickstart the home heating revolution. There is still going to be a massive gap between the UK’s current capacity and the sheer volume of work needed to retrofit homes, install heat pumps and achieve zero carbon by 2050;
• To achieve net zero, its crucial to improve energy efficiency through actions like better home insulation. And while the strategy does give energy efficiency plenty of coverage the targets seem low. The government’s target is for all houses to achieve EPC band C by 2035 (currently only 40% do). But for net zero, EPC C falls a long way short and we should be aiming significantly higher;
• It doesn't address energy performance standards that rely on actual energy use;
• Heat networks or “district heating” where hot water is pumped around multiple buildings from a central source gets lots of mentions but not much detail – the UK’s advisory Climate Change Committee anticipates they will supply almost 20% of homes by 2037;
• Voluntary targets for mortgage lenders to reach average energy performance certificate rating of band C across their portfolio by 2030. Though those targets could become mandatory “if insufficient progress” were made. The government considers that this would encourage product innovation and drive the development of a green home finance market. Costs could therefore be passed on to new homeowners under the terms of their mortgage with the money spent repaid through cheaper bills. The problem is that while some properties can be improved at relatively little cost, other homeowners could find it prohibitively expensive. Commentators consider it could even affect the value of inefficient properties and leave some stranded;
• New build homes - there are no plans to bring forward the Future Homes Standard (from 2025) which will “ensure that new build homes are future-proofed with low-carbon heating and high levels of energy efficiency” although the government plans to introduce an interim uplift in standards for England, effective from June 2022, that would result in a 31% reduction in carbon emissions from new homes compared to current standards.
• Rebalancing energy prices – noting the recent impact of overreliance on gas the strategy notes that the current pricing of electricity and gas does not incentivise consumers to make green choices, such as switching from gas boilers to electric heat pumps. When the current gas spike subsides the government has said that it will look at options to shift or rebalance energy levies (such as the Renewables Obligation and Feed-in-Tariffs) and obligations (such as the Energy Company Obligation) away from electricity to gas over this decade.
• One of the biggest omissions is the lack of any mention of “embodied carbon" which is the carbon emitted during the construction or retrofit and whole life of a building. It may take years for that embodied carbon to be “repaid” by the reduced operational emissions depending on the technology installed.

The full text of the Heat and Buildings Strategy is available here. If you have any questions on how this affects your business and what steps you may want to be looking at taking, get in touch with our team of property development lawyers.