Reimagining our Energy – Renewable Heat

Did you know that heating of building accounts for over a third of the UK’s greenhouse gas emissions?

That might come as a surprise to you, or maybe not, given that it is a bit chilly here.

Heating is central to our lives. By the time you sit down to work in the morning you’ve probably already used the central heating to warm your home (most months of the year) and to have a hot shower. Business premises too need heating whether to warm or cool the workplaces or to serve in various industrial and manufacturing processes.

The heat sector is a key target for emission reductions as we strive to meet our Net Zero targets. The UK has set targets to reduce greenhouse gas emissions by 68% by 2030 and by 78% by 2035 (in each case compared to 1990 levels of emissions).

The decarbonisation of heat is a huge challenge. Currently, the majority of our heat is supplied by gas (with around 85% of homes connected directly to the gas grid and 60% of non-domestic heat supplied by gas) and there is no single, silver bullet, low carbon solution to switch to. Instead, we will rely on a multitude of innovative new technologies and fuels.

As we transition to low carbon heat we will also need to balance affordability, energy security and energy efficiency. Net zero targets add a necessary urgency to the transition. It took around 35 years for central heating to be installed across the UK between 1970 and 2005. To meet our net zero targets we have just 15 years.

Let’s reimagine how we heat our living and working spaces in a net zero world.

Routes to Renewable Heating

There are many routes to renewable heat and the UK’s transition strategy is to take a number of these simultaneously. We will use electricity, hydrogen and bioenergy to generate heat and we will either deliver it to users through existing networks, new networks or we will generate it onsite. Some of these new routes will require significant change in consumer behaviour (such as the electrification of heat through installation of heat pumps and energy efficiency improvements to individual buildings) and some will require significant system change at a UK level (such as the use of hydrogen and biogas to “green” the gas grid). This system transformation will rely heavily on hydrogen production at scale (such as reformation of natural gas coupled with carbon capture and storage and production of hydrogen through electrolysis of water e.g. using excess wind and solar energy production). Similarly, certain renewable heating solutions will be more appropriate in some parts of the country than others – for example hydrogen boilers may well be a more appropriate solution in areas of high housing density.

New fuels

Very little of our heat (less than 15%) is currently supplied by electricity. This will change in a net zero world. As our low carbon electricity supply increases, so too will the share of heat which is generated by electricity.

There are many technologies which convert electricity to heat. The most commonly used, particularly for domestic buildings, is likely to be heat pumps, which can transfer heat from a low temperature source (air, water, the ground or waste heat) and raise it to a higher temperature. The installation of heat pumps across the UK is likely to increase substantially from 2025, when the ban on installing gas boilers in new build homes will lead to the introduction of low carbon alternatives.

Increasing attention is also being given to the role which hydrogen will play as a source of decarbonised heat. Hydrogen is also a lower emission alternative to current fuel supplies. However, as with electricity, hydrogen’s carbon reduction credentials are dependent on the method of generation (“grey” hydrogen being produced from fossil fuels, “blue” hydrogen from fossil fuels but with carbon capture and storage and “green” hydrogen from renewable energy).

In the future, you might find that your home runs on a hydrogen boiler. Work is also being undertaken to establish the feasibility of converting the gas grid either partially or fully to hydrogen. This would have the benefits of utilising the existing gas network infrastructure and delivering heat to consumers in a way that is familiar.

New infrastructure

Decarbonising our heat supply will not only require new fuel sources but also new infrastructure. A key feature of our future heat supply will be the operation of district heating networks across the country.

Heat networks offer a means to distribute heat from a central source to a network of connected buildings (transporting the heat itself rather than the gas fuel). They could cover communities, targeted city or industrial areas or even expand to cover much of the country. To contribute to our Net Zero targets, such networks will need to be fuelled by renewable or other low carbon heat sources. BEIS has recently announced that the Green Heat Network Fund, the successor to the Heat Networks Investment Project, will support only low-carbon technologies.

New business models

The challenge of decarbonising heat combined with the innovations of smart home technology allows us to consider our heat supply in different ways. Heat as a service is one new business model which has been suggested. What if, instead of buying fuel (and paying based on the energy consumed) you buy heat as a service? You pay a fixed price to a service provider for hours of warmth in your home, called ‘Warm Hours’. You can schedule your Warm House for certain rooms, at certain times and at certain temperatures, all for a fixed monthly price. It is hoped that the certainty provided by a new service business model will help to encourage those utilising it to switch to low carbon heating systems.

A word on energy efficiency

Energy efficiency measures deserve a mention in our low carbon heat future. A key feature of decarbonising our heat supply is improving energy efficiency and consequently reducing heat loss and heat demand. Currently, many of our buildings are inefficient at storing heat, which leads to increased heat use (and increased cost). This problem must be tackled hand-in-hand with decarbonising our heat supply and will be addressed by a range of voluntary and compulsory measures, such as new energy efficiency standards for buildings and funding for the installation of efficiency measures and renewable technologies.

The Future is Now

To meet Net Zero targets, deployment of renewable heat projects needs to scale up fast. To reimagine what our low carbon heat future will be like, it is useful to consider the pioneers of renewable heat in Scotland and the wider UK.

Scotland

As with all things renewable, Scotland punches above its weight in renewable heat and there are many examples of innovative, and in many cases distinctly Scottish, heat projects.

Amongst other initiatives, the Scottish Government has stated that it plans to invest £400 million on large-scale heat decarbonisation infrastructure over the next 5 years. The Scottish Government is also blazing the trail in delivering policy and regulation designed to help the sector develop.

Glasgow, soon-to-be home of COP26, has been an early implementor of heat networks. There’s a district heating network serving over 50 buildings at Glasgow University and, not to be outdone, the Strathclyde and Caledonian universities in the city also each have their own heat networks.

Further afield, St Andrews University has installed a biomass district heating network serving several campus buildings, and, in the historic town of Stirling, a heat network has been developed which will deliver heat to, among other buildings, a school, a leisure centre and a conference centre by harnessing heat from waste water. In the capital, the recently opened Edinburgh St James Quarter is served by a new district heating scheme. And on the islands, the Iona Heat Network aims to see the community on Iona transition from a fossil fuel heat supply to a heat network fuelled by a ground source heat pump.

These early projects show the value in implementing heat networks in community settings, from universities to island communities, and also to distinct areas within urban populations, such as a business park or for council facilities. They also demonstrate how heat networks lend themselves well to supplying certain sectors – for example education campuses, retail parks or new build estates. In future, we expect heat networks to become common – expect your local gym to be connected to a council heat network, your office to be connected to a city network or even your home to be connected to a network serving your housing estate.

New heat networks will be supported by the enactment of the Heat Networks (Scotland) Act 2021 earlier this year, which aims to encourage development by raising standards, generating consumer confidence and creating rights for developers, operators and consumers alike. The Act will enable the identification by Local Authorities of Heat Network Zones (areas which are particularly suitable for the construction of heat networks) and will also be supported by the Scotland Heat Map, which identifies areas of heat demand and supply opportunities across the country. The Act (s92) sets targets for the Scottish Ministers of 2.6TWh (3% of current heat supply) by 2027 and 6TWh (8% of current heat supply) by 2030 of thermal energy through heat networks in Scotland. The Act (s93) also requires the Scottish Ministers to prepare a Heat Networks Delivery Plan. Much of the Act has yet to come into force, but the Scottish Government aims to put in place a functioning regulatory system by 2024. The Scottish Government has stated that a phased approach to regulation may be required to enable the heat networks industry to adjust.

The Scottish Government has introduced a 90% relief from non-domestic rates until 2024 for new heat networks using renewable sources. Furthermore, after the new heat networks regulatory system is implemented, the Scottish Government has said that it will only consent heat networks with low and zero carbon emission heat sources.

Scotland is also leading the way in developing new hydrogen heat projects. Heat has been identified as a key target sector for hydrogen deployment in the Scottish Government’s Hydrogen Policy Statement (being an area which is both difficult to decarbonise and a priority to decarbonise) - which may indicate that the Scottish Government is favouring a gas-based strategy for heat decarbonisation rather than an electricity-based strategy.

The Scottish Government has undertaken to identify areas of high potential for hydrogen demand and which buildings would be most suitable for hydrogen (perhaps similar to the Scotland Heat Map). Hydrogen-fuelled heat will closely touch on the lives of the general public – you may be replacing your gas boiler with a hydrogen one in the future - so the Scottish Government has also committed to engaging with the public to raise awareness and understanding of the use of hydrogen.

On the east cost of Scotland, the H100 Fife project is laying the foundations for the switch to hydrogen fuelled heat, by developing a world-first hydrogen network which will supply 300 homes with green hydrogen (produced through electrolysis powered by a nearby offshore wind turbine) for heating and cooking. The project should be operational in 2022 and will demonstrate how we might heat our homes by hydrogen in the future.

The use of hydrogen for heat is not confined to domestic use. An example of commercial use can be found in one of Scotland’s most iconic industries – whisky. Earlier this year it was announced that 11 distilleries across Scotland will receive government funding to go green, through a variety of heat projects including hydrogen, biofuel boilers and geothermal energy. This is part of a UK-wide Green Distilleries Fund, covering 17 projects in total, of which 10 will take part in hydrogen feasibility studies.

The Scottish Government is also very active in using its devolved powers and government funds to improve energy efficiency. In 2015 it made energy efficiency a national infrastructure priority. It has recently announced the 20 year Energy Efficiency Scotland programme which is aimed at making Scotland’s buildings near zero carbon by 2050. The programme envisages a 15% reduction in domestic heat demand and a 20% reduction in non-domestic heat demand by 2032. The Scottish Government’s Heat in Buildings Strategy, released last week, also proposes the introduction of new legislation to provide a formal regulatory framework for zero emissions heating and energy efficiency. The Scottish Government is also piloting delivering Local Heat and Energy Efficiency Strategies (LHEES), which aim to establish area-based plans for improving energy efficiency and decarbonising heat. Again, Glasgow provides a good example – it has a LHEES pilot for the whole of the city to align with its aim to achieve carbon neutrality by 2030 – its low carbon credentials perhaps one of the reasons it was chosen to host COP26.

The Scottish Government has recently announced that it will establish a National Public Energy Agency whose remit will be to coordinate the delivery of investment and heat decarbonsiation and the rollout of energy efficiency initiatives.

The decarbonisation of heat through electrification of heat in buildings and greater use of hydrogen will require significant change to the current electricity and gas grids. This will require the Scottish and UK governments to work together to effect the necessary change as it cannot be achieved using devolved powers alone. The Scottish Government intends to publish an Energy Strategy and Just Transition Plan for consultation in Spring 2022 which will cover the wider infrastructure changes needed to meet their climate targets.

Wider UK

The UK Government issued a consultation on Future Support for Low Carbon Heat last July and the publication of its Heat and Buildings Strategy is expected prior to COP26. The content of the strategy will be a key indicator of what the future will look like for low carbon heating and energy efficiency in the UK.

A key feature of the strategy will be how to fund new low carbon heat projects. The Renewable Heat Incentive, previously the key Government subsidy for funding low carbon heat projects is to be replaced with a new scheme, known as the Green Gas Support Scheme, which is designed to support the greening of the gas grid.

The aim is to increase the injection of biomethane, produced from anaerobic digestion (AD) of biomass, into the gas grid, which will offer carbon savings compared to natural gas. Last year it was reported that an AD Plant in Cambridgeshire, which produced renewable gas from cattle manure and straw, was the first in the UK to supply biomethane into the national gas transmission system, paving the way for other AD Plants in the UK to contribute to such supply.

Greening the gas network is a huge technical challenge which will require significant investment, but re-purposing the network to a low carbon system is also a great opportunity. It provides a way to utilise existing infrastructure (over 280,000 km of gas distribution network pipelines!) to deliver low carbon fuel across the country.

There are many pilot projects currently being undertaken to demonstrate the viability of either blending hydrogen and methane on to the gas network or switching to hydrogen completely. For example, the HyDeploy project led by Cadent, in partnership with Northern Gas Networks and others, is testing an injection of up to 20% hydrogen into the natural gas network feeding 100 homes and 30 faculty buildings. Another such initiative is Project Cavendish, which is exploring ways we could produce, store or import hydrogen at the Isle of Grain in Kent, to get hydrogen to the South of London. These projects will help to form the roadmap to decarbonising the gas network and help us to imagine a future where our boilers, hobs and fires run off hydrogen instead of gas.

In Oxford, a pilot project of a different kind is aiming to demonstrate how decarbonisation of heating can interact with other technologies to create a smart cities model. Sixty homes at Blackbird Leys in Oxford will be fitted with both ground source heat pumps and smart heating controls which will sense, learn and respond to residents behaviour. Heat optimisation software will automatically shift operating times to best suit residents needs and electricity costs. The flexibility introduced by such a system will not only be more energy efficient, but will save residents money and help to balance the electricity system. It is estimated that around 12 million homes in England need to be fitted with heat pumps and/or new energy efficiency measures, and this pilot helps to demonstrate how switching to cleaner, greener technology can bring both technological advances and lower costs for users.

One final innovative example of how we might generate and distribute our heat in the future comes from the Vattenfall/Viridor collaboration to develop new local energy systems anchored to Viridor’s fleet of energy recovery facilities (or ERFs). ERFs are small power stations which use post-recycling waste as a fuel. Vattenfall and Viridor plan to capture heat generated in the ERFs and deliver it through pipes to homes and businesses in local areas, creating a clean and affordable local heat source – and a great example of energy efficiency.

Reimagining our Energy

Decarbonising our heat supply must be treated as a priority if we are to meet Net Zero targets. Challenges abound, but there is no shortage of innovative solutions, as proven by low carbon heat pioneers in many sectors and communities. Such projects show that if we reimagine our heat supply we can find solutions which are greener, more efficient and more modern.

Our Road to COP26 Reimagined series looks ahead and anticipates the issues and opportunities that climate change presents across a number of sectors and areas that impact our clients.

At CMS, we put our clients’ world at the heart of what we do. For this reason, we have a team of lawyers from across the firm from a range of different expertise areas who are actively engaging with the issues and opportunities that climate change presents. Our aim is to help our clients to navigate this rapidly evolving legal and commercial landscape whilst also providing the interested with more information about this growing area via this Insight section.

Our world reimagined, to put sustainability at the heart of everything we do.

This Law-Now is part of our Road to COP26 series. We will be analysing and reporting on the implications of these events for the agenda at COP – look out for further updates on our legal insight on our climate change and sustainability pages.