The problem
Heat pumps, which are of two kinds – ground-source and air-pump – are now paraded as a technology which will hugely reduce our dependence on CO2-producing fossil fuels. But the rollout of these devices in homes across the UK has been much slower than the government hoped. While 37,000 heat pumps were installed across the UK in 2020 and 54,000 in 2021, these are tiny amounts compared to the 1.7 million new gas boilers installed annually. Fewer than 6,000 people have taken up the government’s offer of a £5,000 grant towards the cost of installing a heat pump. The target is to install 600,000 new heat pumps each year by 2028 – but that now looks unrealistic.
Home heating and hot water account for just over one quarter of the UK’s total greenhouse-gas emissions. That is why the UK plans to outlaw the installation of new gas boilers in British homes from 2035, which is just 12 years from now. And gas boilers will not be fitted in new-build homes from 2025 – just two years away.
Thus, top housebuilders like Redrow have had to start thinking hard about how they configure new-build homes. Hayfield Homes, a private company which had a turnover of £150m and which built just over 300 homes last year, is building a 55-acre new development just outside Worcester, where the homes will be entirely heated with air-source heat pumps. All of Hayfield’s new builds have electric-vehicle (EV) charge points, air source heat pumps, underfloor heating and, subject to planning permission, solar PV panels. Long before 2035, new building regulations will discourage the repair of traditional gas boilers.
Heat pumps suck heat out of the ground or the air and then use it to warm radiators or underfloor heating pipes and to heat water. The technology is often described as a kind of reverse refrigeration. Refrigerators extract heat from a small space; heat pumps absorb heat from the air or ground and compress it to warm radiators and water tanks. Heat-pump enthusiasts such as Greg Jackson, founder and chief executive of Octopus Energy, claim that heat pumps are four times as energy efficient as gas boilers and six times more efficient than hydrogen boilers.
Air-source heat pumps do not work well when external temperatures fall below about five degrees Celsius. Ground-source heat pumps are considered to be more reliable and efficient than air-source heat pumps because temperatures below ground do not vary as much as air temperatures. But few householders have the space to install more expensive ground-source devices – essentially you need a good-sized courtyard or garden to accommodate one.
But the major objection to heat pumps is that they are expensive to install. When retrofitted to older homes they normally require new radiators, water tanks, piping and insulation. This can cost up to £40,000 all in. Even for modern, well-insulated homes, the cost is often around £15,000 to install a heat pump. In contrast, a new gas boiler will cost around £3,000. Further, with rising electricity costs, heat pumps can be expensive to run. The fear is that landlords who are required to install heat pumps will have to raise rents in order to recoup the cost.
Just as with the electrification of transport, if most people were to rip out their gas boilers and install heat pumps tomorrow, we would have to increase the power capacity of the grid substantially. Another issue is that there is an insufficient number of trained plumbers who understand how to install heat pumps.
Octopus Energy has established a £10m R&D centre in Slough which is working on how to make heat pumps cheaper and easier to install. Octopus bought one of the few British companies which manufactures heat pumps – Renewable Energy Devices, based in Craigavon, Northern Ireland. It is training up about 1,000 plumbers a year in heat-pump technology.
Tesla Sniffs An Opportunity
Last week, Elon Musk suggested that Tesla might get in on the act: “At some point we might make a heat pump for the home,” he said. The company already manufactures battery-storage systems and solar panels for households, so getting into heat pumps would underline its status as not just a manufacturer of EVs but a champion of renewable energy and low CO2 technology.
Musk talks about the transition to the “electric economy”, which embraces any activity which currently relies on the burning of fossil fuels. There is certainly the potential for crossover here because the batteries of electric cars could be used to power heat pumps for any home that is off-grid or when electricity prices spike.
Musk reckons that by switching from gas boilers to heat pumps, some countries, such as the US could cut consumption of fossil fuels by 22 percent. That is even more than the impact of the total electrification of vehicular transport which would reduce consumption of fossil fuels by an estimated 21 percent. Of course, this assumes that the grid were powered by renewables and other zero-carbon technologies such as nuclear and hydrogen. Currently, only about 40 percent of total power production in the US comes from zero-carbon generation.
Tesla is expected to unveil plans for an entry-level EV which would be significantly cheaper than the Model 3 which retails at £42,990 in the UK. Musk has said that he wants to make a vehicle available that would sell for just US$25,000 (about £21,000). Other automotive manufacturers such as Stellantis have also indicated they want to launch more affordable EVs. This might persuade more resistant drivers to consider moving from petrol-powered cars to EVs. Significantly, the growth in market share of EVs seems to have slowed during the cost-of-living crisis – a trend I shall examine soon.
An Ecological Alternative: Hydrogen-Powered Boilers
In the late 1960s and early 1970s much of the UK converted from the use of town gas (also known as coal gas, which used to be stored in huge gasometers which were a standard feature of British towns), to North Sea or natural gas. Natural gas was cleaner, relatively inexpensive and at that time abundant. The conversion to natural gas, however, required the construction of an extensive pipe network or grid. It should be noted that while about 85 percent of UK homes are connected to the gas grid, most rural areas were never connected and, to this day, rely on oil-powered boilers for home heating and hot water.
Something similar is underway today as Centrica and other players start to roll out a hydrogen grid. The adoption of hydrogen boilers would entail that we are less susceptible to disruption in power supplies when, for example, high-pressure weather systems result in calm airs and therefore the wind turbines fall idle. That is exactly what happened across much of the country during a cold spell in early December last year.
In a recent consultation the government is exploring whether all newly installed gas boilers could be made “hydrogen-ready”. That means that they will burn natural gas for now but once connected to the hydrogen grid will be able to run on hydrogen. But hydrogen-ready boilers will not become widely available for some years yet.
A campaign group called Hello Hydrogen is trying to accelerate the availability of hydrogen-ready boilers. Hello Hydrogen comprises a consortium of Britain’s gas networks, boiler and heat-pump manufacturers and energy companies. However, a recent report by the House of Commons Science and Technology Committee was more cautious, concluding that the use of hydrogen in homes would most likely be “limited rather than widespread”.
Homes which use hydrogen-powered boilers are likely to be located in clusters. These will be near to industrial sites which use hydrogen. Hydrogen generated by Vertex Hydrogen will be supplied to the UK’s first hydrogen-only pipeline network, currently being developed by Cadent Gas, to distribute low-carbon hydrogen to factories across the north west of England.
Residents of the village of Whitby, population 2,000, on the outskirts of the industrial town of Ellesmere Port, Cheshire, have protested about proposals for their natural-gas grid to be switched over to hydrogen in 2025. Whitby was to be designated “the UK’s first zero-carbon village”, but local activists have raised concerns about safety and the costs to users. Ofgem, the energy regulator, is due to make a final decision about the trial later this year which would prospectively be conducted by two local gas networks, Cadent in Cheshire and Northern Gas Networks in Teesside. The trial, expected to cost £9m, will be funded by levies on existing gas customers.
It is proposed that residents would have the option of either a hydrogen boiler or a heat pump – but they would not be able to retain their gas boilers. However, last month the government announced that “it would not go ahead with a trial in an area where there is not strong local support”. The problem is that similar local opposition is likely to be encountered elsewhere.
Heat pumps and hydrogen boilers will only become winners when the majority of people decide that they are effective, affordable and economical to run. That prospect is still far off. In a recent poll conducted by Electoral Calculus and Find Out Now, 54 percent of the British sample said that net-zero carbon by 2050 was “unachievable” against 14 percent who thought it will be achieved. Even though 53 percent believe that climate change is “catastrophic for mankind” against 17 percent who dissent, according to The Property Chronicle.
Burning hydrogen generates zero carbon emissions. The issue is how to generate hydrogen without emitting CO2. Hydrogen is created by electrolysing water, thus separating oxygen and hydrogen. If the electric current is generated from renewables, then the product is said to be green hydrogen. Ultimately, it might be most efficient to generate hydrogen using nuclear power – so-called pink hydrogen.
What About Wood Burners?
Those people who think that traditional country ways are the kindest to the environment swear that wood burners (aka wood stoves) are the way forward – and economical too, especially if you can forage for the wood. And don’t get them started on the psychological well-being engendered by gazing into those flickering flames. The smell of woodsmoke has wafted to my home regularly, this last winter.
But Whitehall does not agree. It was a Tory government (the same one that “got Brexit done”) that began to fine people for creating too much smoke by burning unseasoned wood. Wood that consists of more than 20 percent moisture gives off toxic black smoke − that is why the trend (and the law) is towards the use of kiln-dried logs. But how much CO2 is generated by the kilns that dry the wood and how are they powered? I’ll let those questions linger.
Even if you harvest wood yourself and dry it out naturally (in an indoor woodpile), burning wood emits CO2, plus some potentially nasty particulates. This is why every wood burner should have an adequate flue – though the flue can cost more than the wood burner to install. Professor Sir Chris Whitty, the Chief Medical Officer (remember him?) doesn’t favour a ban on wood stoves quite yet but is increasingly concerned about “indoor air pollution”. No doubt he will fashion an initiative soon to discourage us from burning the toast.
Three popular wood-burner manufacturers include Danish company, Heta, Charnwood and Chesneys (all private companies).
Afterword: Gary Lineker – When The Commentator Became The story
The Daily Telegraph is reporting this morning that Gary Lineker earns more money from his podcast business than the £1.35m or so he gets from the BBC for his football commentaries (financed, of course, by licence-fee payers). He used to get £1.75m but the poor man had a pay cut.
Goalhanger, the company he set up in 2014, now produces some of the nation’s most popular podcasts such as The Rest is Politics in which Alastair Campbell ruminates with Rory Stewart. The Telegraph therefore opines that the BBC needs Lineker more than he needs the BBC.
It follows that Lineker now thinks he can say or tweet exactly what he likes, leveraging his celebrity as a BBC commentator. As Lenin used to ask: who, exactly, is exploiting whom?
Listed companies cited in this article which merit analysis:
- Redrow (LON:RDW)
- Tesla (NASDAQ:TSLA)
- Stellantis (BIT:STLAM)
- Centrica PLC (LON:CAN)
- Octopus Renewables Infrastructure Trust PLC (LON:ORIT)
Victor will be appearing the Master Investor Show on the 15th of April. Get your free tickets here.