The Budget got rid of ECO (the principal subsidy programme for improving the properties of fuel-poor, low-income or vulnerable people), but the Boiler Upgrade and Great British Insulation Schemes survived. There is still no clarity on what the Warm Homes Plan will include, but there are things we can infer from what we do know.
PRIVATE INVESTMENT IS KEY
The Budget reiterated a commitment of £13.2bn originally promised in the Warm Homes Plan and added a £1.5bn capital investment ‘to tackle fuel poverty’. We’d be amazed if the taxpayer is asked to fund this in genuinely new money as it doesn’t make economic sense and is likely to be spent badly. We expect money that has already been allocated to be double-counted, plus some potential row-back on original commitments, but the only way we can see to square the circle is to bring in non-public money.
The recent consultation on the Boiler Upgrade Scheme didn’t conclude on whether consumer finance can be brought into heat pumps, for instance, but we believe this will be allowed, even though we think it’s a terrible idea for most consumers. A better idea is more of a role for mortgage finance in home retrofit. We would also expect this to finally happen, freeing up many more owner-occupiers to upgrade. We would like to see much more pressure here.
TECHNOLOGY SHOULD BE BIGGER THAN STRUCTURAL INSULATION
As we go into the next Carbon Budget Delivery Plan, and with residential heating representing 19% of all UK emissions associated with domestically produced and consumed goods and services, we expect more focus on carbon reduction through retrofit than before.
The Government has, in common with much of the retrofit sector, historically been obsessed with insulation – both good payback strategies like loft and cavity insulation, and slow payback approaches like external wall and solid floor insulation. The cancellation of ECO (which did a lot of poor-payback services) may indicate that this is the case.
Since these approaches are expensive and pay back slowly, the financial pressures are likely to reduce the focus here. But also, technology can look better in this context; for most properties, nothing reduces emissions as much as a heat pump, and the financial payback (and EPC benefit) associated with solar is strong.
LOCAL AUTHORITIES AS COMMISSIONERS ‘SHOULD BE AVOIDED’
The Historic Warm Homes Plan suggests a primary role for local authorities as commissioners and financial gatekeepers, using approaches like PAS2035 as enforced routes to delivery. All historic evidence suggests this is a flawed approach, but if we need to do more with less, it is even less likely to work if funds are to come from third-party sources (eg, mortgages, private and public landlords) and if that funding is constrained, such wasteful approaches should be deprioritised. We’d rather see purchasing decisions made by consumers than the state – homeowners are better at deciding what works for them than the government is.
HEAT PUMP VOLUME UPLIFT REMAINS CRITICAL
As mentioned above, heat pumps will be key to delivering on carbon benefit, but Boiler Upgrade subsidies are unlikely to go up, and the pre-budget leaks suggest they may ultimately go down. That creates the twin challenges of stimulating demand (for most people with modern boilers, a cheap heat pump isn’t going to reliably and sustainably reduce bills) and how to successfully deliver.
While there are various models being proposed, we don’t see a silver bullet for demand, but companies such as Genous have a role to play in articulating the benefits and then stimulating demand for those for whom a heat pump works. On the delivery side there are clear challenges to attracting resources in the sector, red tape and compliance (which goes up rather than down). It would be helpful if there were more commitments across the political spectrum towards renewable technology and better public awareness of the financial and environmental benefits of a good home retrofit.
But with the recent widening of the price cap between a unit of electricity and a unit of gas, leaks suggesting BUS isn’t valued and the likely mass redundancies as a result of the end of ECO, there is much to do to give the industry the confidence to staff up and address what remains a massive untapped opportunity. genous.earth