One of the greatest challenges in achieving net zero in terms of both cost and technical difficulty will be to decarbonise the more than 28 million homes in the UK that rely on fossil fuels for heating (typically gas central heating) and are, for the most part, poorly insulated. In this box we examined the similarities and differences between the future transition of domestic heating and one of the past, that of the switch to natural gas over the decade to 1977.
For the UK, achieving net zero by 2050 in domestic heating is perhaps the greatest challenge of all the sector transitions. It will require the installation of new equipment and better insulation in most existing homes, with often high upfront costs and much uncertainty over which technologies are most appropriate for which homes. This will not, however, be the first time the UK’s housing stock has been switched from one form of fuel use to another – the decade to 1977 saw 13 million homes converted to use natural gas in a centrally coordinated process.a This box considers the similarities and differences between that episode and the net zero transition.
In the early 1960s, the predominant fuel source for heat slowly shifted from coal and oil to ‘town gas’ (which was produced from either coal or oil) and electric boilers, so that by 1966 gas and electric boilers combined outnumbered all other domestic heat sources.a This shift was made possible by the introduction of narrow bore pipes in central heating, which were developed by the coal industry in the 1950s but were compatible with a range of fuels. Following the discovery of North Sea gas in 1965, the Government sought to exploit this indigenous fuel supply that was cleaner and more efficient than either coal or ‘reformed’ town gas (which was produced from imported liquid natural gas) and invested rapidly to convert houses to using natural gas.b
A huge number of buildings had to be converted. A contemporary study noted that, “the process [of conversion] was particularly arduous […] since it involved converting 13.5 million domestic and 650 thousand commercial and industrial consumers.”c The process took almost precisely 10 years to complete, with Sir Dennis Rooke, Chairman of the British Gas Corporation, claiming it as “perhaps the greatest peacetime operation in this nation’s history” at a ceremony to mark its completion.b Today, the Climate Change Committee (CCC) estimates that around 28 to 29 million houses will need converting to be net zero compatible, over twice the number.d
Not only was the scale smaller, but the average cost of conversions to natural gas was a fraction of the cost of switching to zero-carbon domestic heating, even adjusting for inflation and GDP growth in the intervening decades. The average cost of converting one house in 1966 was estimated at £30 (around £1,700 in 2019 terms), with the conversion of all 13 million properties costing just under £400 million (1.0 per cent of GDP in 1966, equivalent to £23 billion in terms of nominal GDP in 2019).b,e In contrast, the CCC estimates the additional investment in energy efficiency and heat decarbonisation required to reach net zero in the balanced pathway (in which heat pumps are the dominant technology deployed) to be approximately £12,000 per house (around 7 times greater than the natural gas conversions). Combined with more houses to convert, that gives a total investment of £362 billion in 2019 prices (16 times more than the natural gas conversion, and equivalent to 17 per cent of 2019 GDP).f,g
While significantly less expensive per houseshold, the conversion to gas heating was still a major logistical undertaking. Moving 13 million properties to natural gas involved the 12 regional gas boards, parts of industry (to make new appliances or the parts necessary to convert existing ones), contractors (to enter people’s homes and carry out the conversions), public relations (to sell the idea) and the public (to embrace it).b The Government took a central coordinating role, with a nationalised Gas Council giving the state direct control of the required investment.h
The transition to natural gas and to net zero are superficially similar, in that they both involve millions of private homes converting to a new technology. But in almost every respect, the transition to net zero is more challenging. It presents an even greater coordination challenge, covering investment in both heat efficiency and low-carbon technologies, across a larger number of properties, and over a longer period. This is evident in each aspect of the transitions:
- Low-carbon technologies. The switch to natural gas involved a proven technology (natural
gas central heating) with a clear long-term cost advantage over existing heat sources (coal and oil). By contrast, there is considerable uncertainty around the appropriate technology for achieving net zero for domestic heating, and thus the option value in waiting to see how that uncertainty is resolved is high. With net zero there are (at least) two alternative approaches to decarbonising domestic heating: hydrogen and heat pumps (both domestic and district). Switching to hydrogen would involve less upfront investment (attractive for consumers) and would be delivered through the existing gas network (attractive for existing producersi) – and the heating would operate similarly to existing gas central heating. But there are significant technological and cost uncertainties around the production and use of hydrogen, and its deployment for use in heating would require large-scale coordination.j Heat pumps are rare in the UK but are being increasingly used in several countries across Europe.k But they are more expensive to purchase and require more heat-efficient buildings to work effectively since they cannot heat a cold space as quickly as gas central heating. There is also currently a running cost disincentive to switching to heat pumps because the electricity that they use is more expensive than gas used by conventional boilers because the cost of environmental levies is added to electricity bills but not to gas bills.l
- Heat efficiency. While there was no heat efficiency element to the natural gas transition, this is instrumental to decarbonising domestic heating. Of the UK’s current house stock, around 70 per cent have an efficiency rating of EPC D or worse.m,n The Government has set a target to upgrade existing houses to EPC bands B and C by 2035,n and for all new builds from 2025 to meet higher efficiency standards according to a new Standard Assessment Procedure.o To an even greater extent than with the transition to natural gas, retrofitting and upgrades to existing homes will be invasive and costly to achieve (for example, requiring the installation of cavity-wall insulation, double/triple glazing, and/or draught proofing), with estimates for the average cost to upgrade a single home ranging from approximately £10,000 to £19,000.g The process is likely to be most challenging for homes with uninsulated solid walls, which make up 28 per cent of homes in the UK.p Recent experience with Government schemes to promote heat efficiency has not been
encouraging: the 2012 Green Deal was scrapped in 2015 with just 15,000 loans having been taken out (versus the 14 million by 2020 originally targeted); while last year’s Green Homes Grant was scrapped early with less than 2 per cent of the £1.5 billion earmarked for the scheme having been allocated in 2020-21, with the Treasury anticipating a further £295 million (20 per cent) will be allocated during 2021-22.
- Workforce and skills. 80 per cent of houses will also need to replace their heating systems, installing either hydrogen-compatible equipment and/or an electric heat pump. The Government has a target for residential heat pump installations to reach 600,000 a year by 2028,q up from just 27,000 achieved in 2018. If that target were reached through steady annual rises, converting the remaining 25 million dwellings by 2050 would require around 1 million installations a year from 2029 onwards. The scale of this investment programme could support a sizeable skilled industry over several decades. For example, the Construction Industry Training Board estimates that by 2028 an additional 86,000 plumbers will be required, with an extra 350,000 full-time equivalent construction sector jobs needed overall in the next decade, dropping back to around 200,000 between 2030 and 2050.r This echoes experience in the move to natural gas, where outside contractors were relied upon, and extensive training was required before they entered the field – 13 dedicated training schools were set up for this purpose.b
The Government is due to publish a new Heat and buildings strategy on the transition soon.
This box was originally published in Fiscal risks report – July 2021