Centrica : Kickstarting heat decarbonisation

The UK is bound by a legislative commitment to reduce carbon emissions (from 1990 levels) by 80% by 2050. This is a big challenge especially for difficult sectors like heat and transport. For heat this means a near complete decarbonisation by 2050.

Earlier this week, Energy UK, a trade body representing suppliers and generators of electricity and gas for domestic and business consumers, launched its 'Kickstarting Heat Decarbonisation ' report and I was on the panel for the launch. The report marks an important step by industry to identify cost effective policies that can be pursued by Government now, beginning the process of meeting tough decarbonisation targets.

So, firstly, why are we spending time thinking through the thorny subject of heat decarbonisation? Because, put simply, we cannot afford not to.

Making significant progress in the decarbonisation of heat is critical to delivering the country's binding carbon budgets, and features heavily in the Government's 2017 Clean Growth Strategy. These are some of the key facts:

• The Committee on Climate Change (CCC) projects there must be a 'a near complete decarbonisation by 2050.'
• This, the CCC, assume will require low carbon heating to be fitted to around 1-in-7 homes by 2030.
• That means transitioning away from gas boilers to technologies which in today's prices cost two, three or even four times more.
• And it also means thinking about getting customers familiar with technologies that look and perform differently to what they know and understand.

How do we do it?
The majority of thinking to date is based around top-down national approaches reliant on one particular technology - electrification, or increasingly hydrogen. Energy UK's report hastaken a different approach - based on the need to understand the practicalities and impact on consumers.

We know, for instance, that affordability is an important part of this debate, and we know more work needs to be done to better understand the technologies which may form an important part of our housing fabric.

And lastly, we know that the UK has some of the oldest most poorly insulated and most heterogenous housing in Europe, making 'one size fits all' approaches particularly challenging.

So, as an industry, when we think about heat decarbonisation, we think about two or three stages out to 2050 - which can loosely be viewed as two or three boiler replacement cycles. EUK's report is focused on the first stage - looking out to 2030, and what customer-focused solutions can be achieved over that time period, while retaining optionality for the future, and avoiding locking in potentially costly approaches.

What can we do now?
The conclusions are practically focused, identifying least cost, least regret options that can be pursued right now. They include:

• Bringing forward zero carbon homes policy. The policy would avoid costly retrofits and integrates the cost of low carbon heat technologies in the cost of a new home. Conservative estimates suggest there will be 7 million new homes by 2050 and over 3 million new homes by 2030. We need to lock in those carbon savings now.
• Reforming the Renewable Heat Incentive (RHI). As customer facing businesses we know the overwhelming majority of customers are completely turned off by finance arrangements with long payback periods. The seven year RHI payback is not fit for purpose, and is also only eligible for a narrow range of technologies. We propose a new, Low Carbon Heat Incentive, or - LCHI for short- to tackle this.
• Tackling off grid homes. Like new build homes, today's nearly 4 million off gas grid homes represent some of the most cost effective buildings to target - given the high costs associated with oil fired heating. We need to prioritise a way to reach these households now.
• And finally, maintaining optionality. We cannot take decisions which foreclose the future. Most of the companies in Energy UK are involved in trials testing new technologies, including hydrogen, efficient gas technologies, heat pumps and hybrid technologies - we need to make sure we have all of the evidence.

What is Centrica doing?
British Gas remains the largest domestic supplier of heat in Great Britain. We are also the single largest installer of domestic boilers, installing c.100,000 boilers each year and servicing around 4 million. Our business strategy is focused on leveraging the disruptive power of technology. For some of our existing boiler customers, that means being able to access Boiler IQ technology which can anticipate boiler breakdowns and remotely notify our service team in advance, keeping boilers running smoothly and efficiently. For our Hive customers, it means being able to access our 'Ready by' smart learning thermostat technology, which can optimise and automate home heating, helping improve efficiency and reduce carbon emissions.

Looking ahead, we cannot rule out the potential of these digital technologies; rather we should harness it. New digital platforms, working in conjunction with new technologies, stand to continue to deliver further steps changes in performance and savings in CO2 emissions. Home heating could, for instance, play an important role in delivering flexibility, through the use of gas hybrid and electric heat pumps combined with home battery storage.

This is something we are already seeing today with business customers through the rise of distributed energy technology, and it needs to form a part of our thinking for the future.