Decarbonising UK home energy is essential for achieving net zero emissions targets and presents a £250bn market opportunity for housebuilders, investors, lenders, and trades. Unlocking this value and meeting net zero objectives requires a joined-up approach from all stakeholders to support and educate customers through the energy transition journey and ensure the supply chain has the capacity and skills to roll out green energy technologies.
The 29 million residential homes in the UK account for around a fifth of the country’s greenhouse gas emissions, and improving the energy efficiency of the country’s housing stock will be crucial for delivering net zero carbon emissions by 2050.
According to the Climate Change Committee transitioning UK homes to net zero will cost around £250bn, opening up exciting commercial opportunities for the private sector as consumers replace fossil-fuelled vehicles and boilers and upgrade properties with double glazing, insulation, solar panels, and heat pumps.
In a recent webinar hosted by Baringa as part of its Low Carbon Futures series, a panel of home energy experts discussed what is required to educate and support customers on the benefits of retrofitting their homes, and how to ensure that financing and delivering energy transition is attractive commercially for businesses and investors.
Rebecca Teasdale, Retail and Networks, Heat Lead, Baringa
Daniel Bolton, Manager, Baringa
Kate Harris, Director of Partnerships, CheckaTrade
Andrew Rendel, Senior Investment Manager, Clean Energy, Legal & General Capital
Chair: Ryan Thomson, Partner, Energy, Baringa
Five key trends emerged from the discussion
1. Residential energy transition will accelerate over the next 10 years
Greening homes is forecast to gather momentum over the next decade, with three distinct time horizons emerging as the market develops.
Uptake at present is driven by publicly funded energy efficiency projects for social rental sector and low-income households, which is also helping to address fuel poverty. The main focus at this stage is on fabric upgrades to improve Energy Performance Certificate (EPC) standards. Exploring the market, testing partnerships, and supporting the development of the supply chain are also on the agenda.
The second time horizon, in the mid to late 2020s, will see a series of trigger points that will move decarbonisation into a ramping up phase, as new-build housing projectors (200,000 new-builds homes will not be able to install gas boilers from 2025), early adopters in the homeowner space and off-gas grid properties come to the fore. The prohibition of legacy heating systems, such as oil boilers, and the introduction of mandatory half-hourly settlement billing, which will give customers more flexible tariffs, will drive building-fabric upgrades and improvements in the heat pump supply chain.
In the third time horizon, greening homes will be a mass market from the 2030s onwards as energy efficiency regulations, increasing public awareness and the falling cost of new technology drive transition. A gas boiler ban will be in place or imminent at this stage and mortgage lenders will focus on green finance support to de-risk mortgage books.
2. Education for customers is key
Analysis from CheckaTrade shows that consumer interest in low-carbon heating is soaring, with searches on its platform quadrupling in recent months.
Many consumers, however, still do not understand the scale of a home’s greenhouse gas emissions and their property’s EPC ranking. In a 2021 CheckaTrade survey of 2,000 consumers, 45% of respondents said they weren't interested in undertaking green home improvements, and 60% believed costs are too high or do not deliver enough of a return on investment.
Educating customers about the benefits of home greening and the material cost savings on offer will incentivise transition. Analysis from Baringa, for example, shows that a household with an electric vehicle charger at home could reduce annual electricity costs by up to 50% a year through smart-charging and vehicle-to-grid optimisation. If grid balancing services and a capacity market contract are also taken up, these savings could climb to 68%. Adding in rooftop solar panels, meanwhile, achieves a 30% reduction to baseline total costs. Green home status also factors into mortgage costs, as homeowners with green homes have more disposable income and are less likely to default.
Unpacking energy cost-savings like these for customers will help to stimulate the rise in demand that is essential for expanding the supply chain and nudging trades to develop expertise in areas like heat pump installation.
3. Beware the skills crunch
Upskilling and replenishing the workforce with quality training in tandem with rising demand for green home installation and retrofitting is a potential bottleneck that should be addressed well in advance.
The construction workforce is ageing, with over a third of workers over the age of 50. According to CheckaTrade just over one million plumbers, electricians and builders will have to be recruited by 2030 to replace those leaving the workforce.
In addition, trade professionals will require extra training to develop green technology skills, extending the runway for bringing more skills into supply chains. New entrants into the workplace first have to qualify as a plumber or gas engineer before they can attend a heat pump training course. Training costs can easily run into five figures before an engineer can take on work.
Qualification standardisation is also required to ensure quality installation and protection for customers. At present, for example, heat pump qualifications can vary and there is not a legal obligation to be registered in the same way as gas engineers on the Gas Safe register.
4. Investors are focused on new-build deals… for now
Investor appetite for opportunities in clean home energy is strong, but up to now has focused on the new-build space. With housebuilders stepping up ambitions to increase the stock of net-zero ready and net-zero compatible homes, there has been natural alignment with investors.
Interest in the large-scale retrofit market is also robust, but investment is this fragmented, more complex market has been slower. Investors are tracking pilot and “test-and-learn” projects in this area with interest, but a large-scale rollout of institutional capital into retrofit deals has yet to materialise.
A key criterion for investors is finding opportunities for synergy between different providers across the supply chain.
For instance, Legal & General’s clean energy investment team has invested in Sero, a Cardiff-based platform that helps consumers, housing associations and local authorities to guide their housing stock through the journey towards net zero. Sero has formed a strong working relationship with Legal & General portfolio company Kensa, a developer of ground source heat pumps, which is also supplying Legal & General’s investment in net-zero retirement community developer Millfield Green. Another company backed by Legal & General, electric vehicle charging business Pod Point, will also have a presence onsite with Millfield Green.
5. Customers need a one-stop-shop green home energy platform
Realising the significant benefits for customers and businesses of the green home transition requires all actors in the value chain to be joined up to drive the transformation.
Customers don't always see the value of green home installation, which in turn makes it difficult for investors and business to make the required investment in skills and infrastructure.
Establishing a one-stop-shop platform for the customer that reflects customer requirements and simplifies the process, will simultaneously educate customers and plug them into the supply chain. A platform will cover everything from asset provision, financing and accessing government grants through to support on maintenance and maximising the benefits of flexible tariffs.
Industry players who can offer customers easy decisions with straightforward propositions will create long-term customer relationships and benefit from significant growth in green home revenues.
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