2050 Pathways for Domestic Heat - ENA Final... · 2050 Pathways for Domestic Heat Final Report 25...

Delta Energy & Environment Ltd

Registered in Scotland: No SC259964Registered Office: 15 Great Stuart Street, Edinburgh, EH3 7TS

2050 Pathways for Domestic HeatFinal Report

25th September 2012

Contacts:

[email protected], Analyst, +44 131 625 1009

[email protected], Director, +44 131 625 1004

Expertise in Decentralised EnergyExpertise in Decentralised Energy. Delta Energy & Environment Ltd I 15 Great Stuart Street, Edinburgh EH3 7TS UK I T: +44 (0) 131 625 1011 I www.delta-ee.com 2

Report aim, scope and methodology (1)

Delta-ee has been commissioned by the Gas Futures Group of the Energy Networks Association to:

“provide a desk top study on the optimal appliance technology pathways, by property type, based on known and emerging heating technology, required to meet carbon and renewables targets, highlighting the impact on consumers (cost to change and behavioural) and the potential load changes on the gas and electricity distribution networks out to 2050.”

Delta-ee has been commissioned by the Gas Futures Group of the Energy Networks Association to:

“provide a desk top study on the optimal appliance technology pathways, by property type, based on known and emerging heating technology, required to meet carbon and renewables targets, highlighting the impact on consumers (cost to change and behavioural) and the potential load changes on the gas and electricity distribution networks out to 2050.”

MethodologyDelta-ee has developed a residential heat model that explores the above aims through:

A housing stock model, segmenting the UK housing stock into 35 segments according to fuel availability and use, age, and building type. For each segment the thermal demand, and how this changes decade by decade to 2050 is defined.A technology performance model, forecasting future cost and performance has been built – covering: gas boiler; gas heat pump; low electrical efficiency micro-CHP; high electrical efficiency micro-CHP; gas boiler + solar thermal; air source heat pump; ground source heat pump; hybrid gas boiler + air source heat pump; biomass boiler; district heating; direct electric (storage) heating.A customer choice model, that incorporates physical fit of different technologies with different parts of the housing stock; customer uptake based on payback and upfront cost; and customer attitudes to different technologies.

This residential heat model has been used to determine the future appliance mix under three scenarios

1. Customer Choice – allowing the customer to chose based on physical fit, customer economics and attitudes 2. Electrification and Heat Networks – Delta-ee defining a pathway where these solutions dominate in 20503. Balanced Transition – Delta-ee developing a pathway where electric heating, heat networks and gas all play a role in 2050.

AssumptionsWherever possible, Delta-ee has relied on public / ‘official’ sources as inputs to its residential heat model. These include DECC energy price forecasts; National Grid forecasts; English Housing Condition Survey (and other equivalents); Zero Carbon Hub; Poyry / AECOM’s 2009 district heat report; and various projections for future thermal demand of buildings (including by GL Noble Denton for National Grid).

The technology performance model has the fewest available sources (for future cost and performance). Delta-ee has consulted widely, with more than 30 organisations, to develop these assumptions (and for the wider overall report). These are listed on the following slide.


Report aim, scope and methodology (2)

Organisations Delta-ee has consulted with (in the UK and internationally) include the followingWe are grateful for the time spent by these organisations – by naming the organisation below we do not necessarily imply they endorse our assumptions & approach:

AECOMBritish Gas

Bosch Thermotechnology (Germany)CHPA

DaikinDaikin (Belgium)Danfoss (UK)Danfoss (Denmark)District Energy AssociationE.ONEnergy Networks Association (Gas & Electricity Futures)Fraunhofer Institute (Germany)Geothermal InternationalGlen DimplexGround Source Heat Pump AssociationHeat Pump AssociationHHICImperial College, LondonKensa Heat PumpsMike KingMitsubishiNational GridOftecRenewable Energy AssociationRobur (Italy)Solar Trade AssociationSolar TwinSorption EnergySP Institute (Sweden)VaillantVital EnergiWindhagerWorcester Bosch

Expertise from within Delta-ee

The project has also pulled upon existing Delta-ee international expertise, including that from Delta-ee’s on-going research services:• Micro-CHP Service• Air Source Heat Pump Innovation Monitor• GB Microgeneration Research Service

We have also utilised our knowledge base from previous research on topics such as gas heat pumps, district heating and the wider residential heating market.

Expertise from within Delta-ee

The project has also pulled upon existing Delta-ee international expertise, including that from Delta-ee’s on-going research services:• Micro-CHP Service• Air Source Heat Pump Innovation Monitor• GB Microgeneration Research Service

We have also utilised our knowledge base from previous research on topics such as gas heat pumps, district heating and the wider residential heating market.

About Delta-ee

Delta-ee is an energy consultancy specialising in the technologies, markets and policies on the ‘customer side of the meter’.

We provide consultancy, research services and Summits for energy companies; manufacturers; the finance sector; and policy makers and influencers.

For more information, please visit www.delta-ee.com. For more information on this report please contact:• Jon Slowe, [email protected] 0131 625 1004• Jennifer Arran, [email protected], 0131 625 1009

About Delta-ee

Delta-ee is an energy consultancy specialising in the technologies, markets and policies on the ‘customer side of the meter’.

We provide consultancy, research services and Summits for energy companies; manufacturers; the finance sector; and policy makers and influencers.

For more information, please visit www.delta-ee.com. For more information on this report please contact:• Jon Slowe, [email protected] 0131 625 1004• Jennifer Arran, [email protected], 0131 625 1009


Glossary of terms

Abbreviation Full term

ASHP Air source heat pump

BT Balanced Transition Scenario

CC Customer Choice Scenario

Combi Gas Combination Boiler

COP

Coefficient of Performance (in this report used equivalently to SPF – Seasonal

Performance Factor

CHP Combined heat and power

DH District heat

E&HN Electrification and Heat Networks Scenario

GSHP Ground source heat pump

HHV Higher Heating Value

HWT Hot water tank

mCHP Micro-combined heat and power

PB Pay-back period

SOFC Solid Oxide Fuel Cell


1. Executive Summary 5

2. Decarbonising Heat – how this report examines the challenge 21

3. Heating technology options and assumptions 24

4. Fuel price & carbon assumptions 48

5. Housing stock segmentation 53

6. Modelling methodology and scenario development 58

7. Results 72

Customer perspective 73

Customer choice

Electrification and heat networks

Balanced transition

Carbon and system impacts 105

Comparison 113

Sensitivities 116

Conclusions 124

8. Policy implications 127

Contents


The three scenarios are compared by their impact on customers (customer economics & ease of retrofit) and their impact on policy

(carbon & energy system impact)

Electrification & Heat Networks – A two horse race

Customer Choice – gas dominates

Balanced Transition– multiple solutions

Key: further from the centre = desirable

1. Customer Choice scenario – allows customers to choose, based on upfront cost, running cost and fit with the housing stock: Carbon reduction targets for the residential sector will not be met by a combination of

reducing thermal demand allowing customers to chose their heating appliance (without government intervention). Even when strong progress is made on low carbon heating appliance cost and performance, and with 75 TWh of biomethane, carbon reductions (2040-50 compared to 2010-20) of 46% are achieved. Gas boilers continue to be used in 19 million homes, based on their low capital & running costs & excellent fit with UK homes.

2. Unsurprisingly, the Customer Choice scenario fails to meet the 2050 carbon reduction targets - two alternative scenarios are constructed:

Electrification and Heat Networks (E&HN) – assumes virtually all homes use either electric heating (heat pumps & direct electric) or heat networks, fed-by zero carbon heat. There is no role for gas. 96% reduction in carbon emissions (from 2010-20 levels).Balanced Transition (BT) – has an approximately even split across three heating types: (1) heat networks (dense urban areas & new build), (2) low carbon gas appliances (suburbia), (3) electric heating (some suburbia, rural and new build). This includes 75TWh of biomethane. 90% reduction in carbon emissions

3. Sensitivity analysis on levels of biomethane, electricity grid decarbonisation & carbon intensity of heat supply

for district heat shows noticeable but small falls in carbon reductions for all scenarios.

Key messages

New research by Delta-ee, commissioned by the Energy Networks Association (Gas Futures Group)

analyses how the residential heating sector can be decarbonised (Government target is for total

decarbonisation by 2050). The analysis focuses on the customer, breaking down the 2050 housing

stock into 35 segments, and modelling the performance of different heating appliances in each

segment. Eleven heating appliances are analysed (by cost, performance & fit with housing stock) – many

of these are immature (globally and / or in the UK) and future development is uncertain.

Key findings:

Balanced Transition can be achieved with less government intervention (and at less cost) than Electrification & Heat Networks, while achieving 90% (rather than 96%) carbon reduction from today to 2050:

High efficiency gas appliances, have lower running costs (and in some cases upfront costs) for certain parts of the housing stock than electric alternatives, in addition to easier retrofit into existing homes with gas boilers. This gives them stronger customer appeal, and potential for a lower level incentive. A greater mix of technologies, has lower impact on the energy system – the addition of hybrid heat pumps and gas appliances to the mix, results in a additional peak electricity generation demand 50% lower than under E&HN, and district heat is focused solely on high density housing (rather than stretching into suburbia) limiting costs.

Implications:


Keep a variety of options open

The scale of the challengeThis report suggests that keeping a variety of options open

to decarbonise heat gives lower risks, and potentially a

lower cost path that pursuing a narrower end point.

Although BT achieves a 90% (rather than 96%) carbon reduction from today to 2050 it has two key benefits:

It avoids moving an additional 12 million homes completely away from gas – where the highest customer costs are imposed.

Lower impacts on the energy system -, additional peak

generation demand grows to 24GW, rather than 48GW, as under E&HN. Costs (discounted, opex and capex) to re-enforce the

electricity distribution network are €8bn lower. Part of the €4bn cost to shut down all of the gas network is avoided.

The scale of the policy challenge becomes clear when we look at the existing

housing mix – gas dominates, and is the biggest contributor to residential carbon

emissions.

Moving gas customers from boilers to low carbon technologies will be essential to

get close to 2050 carbon reduction targets

However success in both scenarios requires

1) Reduce thermal demand – Delta-ee has assumed 21% reduction in thermal demand from current buildings – interventions such as the ‘Green Deal’ will be required.

2) Development and wide-spread expansion of district heat–growth of district heat will require major intervention under both scenarios (more so under E&HN). It will require a new regulatory framework (potentially mandating that customers connect).

3) Need for technology, product & supply chain development -to ensure efficient appliances are brought to market & can be successfully retrofitted to homes (including efficient gas appliances under BT).

4) Decarbonisation of electricity grid, decarbonised heat supply for district heating and biomethane growth (for BT) are all required.

5) Major energy system upgrades & additional peak electrical generating capacity– These impacts are lower in BT but upgrades to the electricity distribution system will be required, and decisions will need to be made about decommissioning parts of the residential gas grid.

Under BT 12million less homes – mostly in suburbia - need to undergo transition from gas to electric heat pumps or district heat

0 2,500 5,000 7,500 10,000 12,500 15,000

Detached - Other (Pre 1944)

Detached - Other (1945 -2011)

Terraced - Other (Pre1944-1980)

Terraced-Other (1980-2011)

Semi - Other (Pre 1944)

Semi - Other (1945-2011)

Flat - Other (Pre 1944 - 2011)

Detached - Electric (Pre 1944)

Detached - Electric (1945 -2011)

Terraced - Electric (Pre1944-1980)

Terraced-Electric (1980-2011)

Semi - Electric (Pre 1944)

Semi - Electric (1945-2011)

Flat - Electric (Pre 1944)

Flat - Electric (1945-2011)

Detached - Gas (Pre 1944)

Detached - Gas (1945 -2011)

Terraced - Gas (Pre1944-1980)

Terraced-Gas (1980-2011)

Semi - Gas (Pre 1944)

Semi - Gas (1945-2011)

Flat - Gas (Pre 1944)

Flat - Gas (1945-2011)

Incentives for DH:

Low carbon if stay electric

Want to switch:

Low level incentives needed

Hard to switch:

Significant incentives needed

New build:

Driven by regulationU

rba

n /

S

ub

urb

an

Ma

inly

ru

ral

Ma

inly

ru

ral/

so

me

u

rba

n

22M homes

2.6M homes

1.3M homes

9M homes

(by 2050)

Mix

ed

h

ou

sin

g 2% of carbon

emissions in 2050

2015 emissions from residential heat (Thousands of tonnes C02/yr.)


Major changes in the UK heating appliance mix have historically required government intervention or customer pull

1950

2012

Where gas is available, gas boilers are an excellent fit with customer ‘wants’

Low capital cost

Reliable, low maintenance

High efficiency & low-cost fuel (DECC

forecasts relatively stable future gas

costs)

Compact

Excellent fit with UK heat distribution

systems (high temperature radiators)

Easy to use – instantaneous hot water

Large-scale switching away from gas boilers will be challenging and require

(strong) interventions

The scale of the challenge to reduce carbon emissions

~80% of carbon emissions from residential heating in the UK are from on-gas properties, the vast majority of these are in suburbia. The slow turnover of housing stock means these properties remain ‘the challenge’ in 2050

There are no examples, globally, of large-scale switches away from gas boilers for existing

buildings – although some smaller-scale switches are emerging in a few markets.

Volumes of low carbon heating appliances are, in nearly all cases, very low (and therefore

costs are high)

There are massive opportunities for learning and innovation in retrofitting low carbon

heating technologies to existing UK homes

There are many potential low-carbon heating appliance options – but technologies & markets are, in most cases, very immature today

DECC’s target is full decarbonisation of residential heat by 2050. Growth in biomethane and

reducing thermal demand alone will not meet this target (or get close to it). A major change

in the heating appliance mix is therefore required.

Clean Air Acts

Town gas to

natural gas

Condensing boilers

Intervention Customer pull

Central heating


How this research explores the challenge to decarbonise residential heat

Detailed housing stock segmentation – segmenting the housing

stock according to age, house type, and fuel type – 35 segments in

total. We used this as a basis to analyse the fit of different heating

appliances to each segment of the housing stock

1

Technology development – assumptions for cost, performance and

retrofit challenges of 11 different heating appliance technologies

through to 2050

Energy and carbon assumptions – using DECC / National Grid

and other assumptions as necessary*

Running cost, capital cost of each heating appliance technology

in each housing stock segment – as well as the practical retrofit

issues for homeowners

Customer choice scenario – modelling what heating appliances will

customer in each housing stock segment chose, decade by decade

to 2050, based on Delta-ee market research (separate to this study)

Stakeholder consultation: This research drew upon Delta-ee’s market research with customers, international expertise in low

carbon heating systems and the UK microgeneration market. In addition, we consulted with over 30 companies from the UK & continental Europe including the heating industry; energy suppliers; district heating companies; researchers such as universities and R&D institutes.

Creation of two alternative scenarios – based on detailed insight

of the ‘fit’ of different technologies in each part of the housing

segment.

This research was designed and carried out from the customer point of view – focusing on the challenges of retrofitting different technologies to different parts of the housing stock

We also examine the impact of different heating appliance mixes on policy makers and the wider energy system

The star diagram below is applied to three scenarios for

the future heating appliance mix .

2

3

4

5

6The scenarios that are developed and modelled are

customer-led (focusing on the customer impact,

shown above), with the consequential policy impacts

then examined.*Base case assumes 75 TWh

of biomethane available in

residential sector by 2050 –

less than one fifth of current

residential gas supply for

heating

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics


Technology options to decarbonise heat

*Different variants are possible producing more heat from the ASHP

Many technology options exist, but there is uncertainty about their scope for cost reduction, performance improvement and their widespread ‘retrofitability’ to the UK housing stock

Our assumptions for each technology were based on global and UK volumes increasing and continuous learning & innovation.

On-going industry investment and engagement is necessary to increase volumes and maximise the ‘learning’ opportunities.

This will require positive signals from government – without this industry investment may not be forthcoming

Electric Heat

Pumps

1. Will – under our base case - result in higher upfront costs and running costs than gas technologies

2. Requires an outdoor unit, hot water tank and typically some modifications to

the heat distribution system (radiators + possibly pipework).

3. Will be more challenging in homes with very high heat demands (as a 3 phase connection will be required)

Electric storage heaters may be an effective solution for homes with very small thermal demands (e.g. new flats)

MicroCHP

1. Carbon emissions critically depend upon assumptions for marginal electricity that is displaced

2. Have large (but uncertain) potential for cost reduction and performance improvement

3. Are a relatively straightforward retrofit (generally larger / heavier than a boiler & requiring hot water storage tank) – produce high flow temperatures.

Gas heat pumps

1. Are only emerging today, with high (but uncertain) potential for cost and performance improvements

2. Will bring similar (but slightly lower) retrofit challenges to electric heat pumps –potentially without requiring a hot water storage tank

1. Requires a district heating connection into a house – and a hydraulic interface unit (like a boiler), without hot water storage tank.

2. Flexible heat source from energy centre (can be local or remote from residential customers)

3. No experience in UK in connecting existing owner-occupier homes to district heat networks (commercial risk in building new schemes).

Biomass1. Some retrofit challenges - requires fuel

storage (manually or automatically fed to boiler) and a larger heating appliance

2. Good fit with high flow temperatures in existing heat distribution systems.

1. 50-60%* of heat demand from ASHP, rest form boiler

2. Flexibility in operation helps to avoid electricity system impact

3. Simpler retrofit than pure heat pumps

Hybrid heat pumps

District Heat

Solar Thermal 1. Relatively

straightforward retrofit, providing south facing roof and hot water storage tank


What happens if customers are allowed to choose?

Customer Choice – Gas dominates

Gas

Electric

Heat networks

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics

Without any intervention, customers chose gas appliances – less than 1% of gas customer switch to an alternative fuel

Carbon targets missed – but low impacts on customers and the wider energy system

Existing homes

Gas heating appliances offer low to moderate

upfront cost, and low running costs

Micro-CHP grows on the back of product

maturing and electricity prices rising

substantially faster than gas prices.

Gas heat pumps mature but gain minimal

market share

Some switching away from oil

New build is dominated by heat networks and

electric heating (driven by regulations).

By definition of this scenario, customers chose low capital cost, low

running cost appliances that are relatively straightforward to retrofit.

Carbon reductions arise from growth in biomethane (75 TWh out of 327 TWh

or 23% of total gas consumption for residential heat), reduction in thermal

demand and some growth in lower carbon appliances

However, carbon emissions only fall by 46% in 2040-50 compared to

2010-20 levels.

There is some growth in peak demand on the electricity system from growth

of heat pumps (in new build and off-gas grid properties), but this only

amounts to 8 GW.

Heat networks grow but nearly all in new build.

Key – “desirable”

impacts are furthest from the middle

* All assumed to be oil in

this report

*


Exploring customer decision making – focusing in on post-war on-gas semi-detached homes

Key customer challenges, in an example segment

1. Awareness is low, and low carbon heat is an emerging market in the UK: Customers are largely ignorant of low carbon heating

technologies and our market research shows most are very cautious of ‘new’ heating technologies. This is important today, but we assume

attitudes can shift completely in a couple of decades.

2. The retrofit challenges for many low carbon heating technologies are substantial: for many homes this challenge can be overcome, but

for others it will always remain a significant barrier. Overcoming the challenge requires both homeowner acceptance of these challenges, and

major development of the UK installer network and heating supply chain.

3. Gas appliances have, under our base-case assumptions, substantially stronger customer economics than alternative technologies:

Gas boilers have, by some way, the lowest upfront cost – even factoring in large increases in global volumes for other technologies. DECC

projects electricity prices rising more than gas – this results in lower running costs for gas technologies (factoring in performance improvements

for gas, micro-CHP and electric heat pumps).

On-gas, semi-detached, built in 1945-2011

This shows the customer perspective (based on our model outputs), decade by decade, for different heating appliances in one

of the largest and most challenging housing segments to decarbonise. The vast majority of these homes are in suburbia

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Co

st

(£)

Annual Running Costs

0

2

4

6

8

10

12

14

16

18

£ (

Th

ou

sa

nd

s)

Upfront Cost (£)

Boiler cost

1. Uncertainty exists in these assumptions – they represent our best view based on stakeholder consultation

2. Our district heat model analyses costs on a per-dwelling basis for a scheme of 1,000s of homes (mixed loads are incorporated, as is a ‘perfect’ day one connection rate). The network costs are amortised over a 30 year

period at 10% discount rate. The capital costs are then split across an upfront cost for the homeowner (set just above a gas boiler) with the annual bill comprising the heat cost and the rest of the capital cost

Boiler running cost

Notes


What happens under an electrification and district heat only scenario?

Significant interventions will be required to shift customers away from gas appliances and onto either electric heating or heat networks.

Delivers carbon targets but at high cost to customers

Similar to the DECC heat strategy, which sees

not future role for gas, and almost completely

decarbonises heat:

61% homes on electric heating / heat pumps

34% of homes adopt district heat (and heat

networks have to reach into suburbia).

All homes switch away from oil and gas

5% adopt ‘other solutions’ – biomass as the only

solution for some hard to heat homes.

By definition of this scenario, all customers are moved to electric heating

and heat networks.

Although this delivers on carbon targets (96% reduction*) it imposes high

cost on customers, involves challenging retrofit issues, a major roll out of

heat networks, and results in major impacts on peak electricity demand.

There is significant growth in peak demand on the electricity system from

growth of heat pumps – an additional 48GW of capacity will be required,

along with major upgrading of the distribution network (£16 – 28bn to 2050,

including that for electric vehicles and PV) and shut-down of all gas networks.

Significant growth in heat networks – even into areas with less dense

housing (All urban, and some suburban homes). Key – “desirable”


Under CC, carbon targets are not met, so Delta-ee has developed two alternative scenarios by fixing the 2045 end point (through segment by segment analysis of opportunities for different technologies in each part of the housing stock) and developing realistic pathways.

Gas

Electric

Heat networks

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)

Electrification & Heat Networks – no future role for gas

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics

* Reduction in 2040-50 compared to 2010-20


What happens under a more balanced scenario?

Very strong growth in heat networks and electrification of heating – but with gas still playing a significant role in suburban homes.

Ambitious decarbonisation and fuel switching

needs to occur – but the hardest to switch homes

are able to stay on gas (or gas / electric hybrids)

67% homes on electric heating / electric heat

pumps

27% of homes adopt district heat (dense urban roll-

out only).

Fuel switching completely away from oil

A range of low carbon gas appliances (including

electric heat pump –gas boiler hybrids) are adopted

– 30% of customers stay on gas (16% hybrid)

BT imposes higher costs on customers than CC, but for certain customer groups

(primarily suburban customers currently on the gas network) lower than E&HN. It

offers a wider range of technologies to make retrofit less challenging.

Delivers significant carbon savings (90% reduction*), but this is dependent on

75TWh of biomethane being available.

There is growth in peak demand on the electricity system – an additional 24GW of

capacity will be required, along with upgrading parts of the distribution network (£8

– 14bn to 2050, including that for electric vehicles and PV) and shut-down of parts of

the gas networks.

Significant growth in heat networks – but only into dense urban housings,

suburban on-gas homes can opt for gas or hybrid technologies.




Under E&HN scenario, there are some extreme impacts, on both the customer and on the system. Delta-ee has developed the Balanced Transition scenario, as a more compromised position, which can achieve significant carbon results at lower cost to customer and the energy system.

Balanced Transition – multiple solutions

Gas

Electric

Heat networks

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics

Achieves significant carbon reductions while minimising impacts on the customer and the energy system.


Sensitivities – balanced transition is relatively robust to sensitivities examined

We tested the scenarios against four sensitivities – overall Balanced Transition is less sensitive than Electrification and HeatNetworks to risks in decarbonising electricity and in zero carbon supply of heat to district heat networks, although it shows some sensitivity to lower amounts of biomethane.

If only a fraction of the assumed level of biomethane is available, BT delivers 79% (rather than 90% savings in 2045 compared to 2015) carbon saving.

If the electricity grid is mostly (150g/kWh) but not fully decarbonised by 2050, then under E&HN carbon reductions become 85% (rather than 96%). BT savings are less sensitive, falling from 90% to 85%.

If there is some residual carbon in heat supply for district heating (50g/kWh rather than 16g/kWh), carbon reductions for E&HN become 93% (rather than 96%) for E&HN. BT savings falling from 90% to 88%.

We assume technical advances with air source heat pumps mean that even on the coldest evening the average COP is 2.2 – if we assume a COP of 1.7, then additional peak demand from heat pumps rises by 11 GW for E&HN (5 GW for BT).

Slower electricity grid decarbonisation 0.15g/kWh, rather than 0.02g/kWh

Less / more biomethane in res. gas network20 TWh / 100 TWh, rather than 75 TWh

District heat is not fully decarbonised50g / kWh rather than 16g/kWh

Lower electric heat pump COP on coldest dayCOP of 1.7 rather than 2.2 (in 2050)

MetricCarbon reduction in 2050 Carbon reduction in 2050 Carbon reduction in 2050 Peak additional demand

from electric heat pumps

Electrification and

heat networks

85%

(from base of 96%)

No gas in this scenario 93%

(from base of 96%)

Rises from 48 to 59 GW

Balanced transition

85%

(from base of 90%)

Less biomethane = 79%

More biomethane = 95%

(from base of 90%)

88%

(from base of 90%)


For the Customer Choice scenario, we tested the impact of lower electricity prices (18 rather than 21.5p/kWh) and higher gas prices (8p rather than 5.7p/,kWh. There were no major impacts other than a substantial switch from micro-CHP to gas boilers, and a very small increase in gas heat pumps (0.5 – 1.6 million installed base) and air source heat pumps (0.3 to 0.5 million). No major changes in carbon emissions result from this sensitivity.


Comparing the scenarios by appliance mix and ‘retrofitability’ in selected housing segments

Gas, Detached,pre 19442.2M homes

Flat, Electric,1944 – 20111.1M homes

Oil, Detached Pre 19440.4M homes

Gas, Semi, 1944 – 20113.7M homes

Gas, Terrace, Pre 1944 – 19804.9M homes

Space constraints are key – both in terms of the

heating appliance and a hot water tank (many of

these homes have combis)

• CC –90% boilers, 10% high-ee micro-CHP• E&HN – 60% district heat (high density

housing), 40% electric (nearly all heat pumps)• BT – 45% district heat, 10% gas HP, 5% gas

boiler, 15% heat pump, 25% hybrid boiler - HP

No gas supply – electric resistance heaters in each

room, no hydronic / communal systems.

• CC – all remain electric• E&HN – 75 % district heat , rest are electric

(20% storage heaters, 5% heat pumps)• BT – same as E&HN

Space constraints are key – for the heating

appliance, an outdoor unit (if req.), and (for some)

space for a hot water storage tank

• CC – 90% boilers, 10% high-ee micro-CHP• E&HN – 75% elec. heat pumps, 20% district

heat, 5% biomass in hardest to treat homes• BT – mix of technologies, primarily: one third

boiler – elec. heat pump hybrids; 25% elec. heat pumps; 20% gas heat pumps; 10% micro-CHP.

Space less of a constraint – but low thermal density

means no heat networks. Electric HPs may struggle

in very large houses

• CC – 53& boilers, 43% micro-CHP, 4% gas heat pumps

• E&HN – 75% elec. heat pumps, 25% biomass in hard to treat homes

• BT – mix of technologies: 30% boiler – elec. heat pump hybrids; 25% elec. heat pumps; 25% gas heat pumps; 10% micro-CHP, some boilers & biomass

Less constraints – some homes with large

thermal demands may need 3 phase electricity

supply

• CC – 65% remain on oil, 22% switch to biomass, 13% to elec. heat pups,

• E&HN – all switch, mostly to HPs (75%), some biomass (20%) and 5% to district heat

• BT – 85% switch to HPs, 15% to biomass

Different housing segments have very different challenges (and opportunities) in decarbonising heat

This slide shows some of the challenges for

selected example housing segments, and the

different solutions adopted in the different

scenarios.

A broader range of technologies opens up a

wider set of options to decarbonise heat.

The gas and oil segments all have high

temperature heat distribution systems today

- this will present some challenges for gas &

electric heat pumps (but not for hybrid boiler –

heat pumps).

Number of homes based on number in 2040-50


Gas is the dominant heating fuel today, and is the biggest contributor to residential carbon emissions. Moving gas customers to low carbon technologies will be essential to get close to 2050 carbon reduction targets, and likely require stronger policy interventions than other segments. Oil and electric segments are easier to resolve, with smaller incentives and the process of electricity grid decarbonisation, and new build can be driven effectively with strong regulation.

0 2,500 5,000 7,500 10,000 12,500 15,000






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Urban / suburban gas heating systems present the biggest policy challenge

Switching customers away from gas boilers presents the biggest challenge – to 2050, gas technologies generally have stronger customer appeal (easier to retrofit with attractive economics). Under BT there is a lower impact on customers, as not all are required to shift completely away from gas, with the hardest to switch segments able to stay on gas.

Switching to district heat - Under both scenarios, switching to district heat is desirable to help manage the impacts on the network – particularly in dense urban areas. However if the grid-decarbonises as projected, no switching is technically required to meet the carbon targets in this segment.

Switching customers away from oil - Customer research shows customers in these segments are interested in switching away from oil. As oil prices continue to rise, only a small push from incentives will be required to encourage uptake of alternative technologies – oil segments are the ‘easier to win’ segments under both scenarios.

Regulating new build: The challenge in new build is to encourage developers to adopt low carbon solutions. This can be done effectively with strong regulation which continue to build on existing policy and mandate zero carbon solutions.

Incentives for DH: Low carbon if stay electric

Want to switch: Low level incentives needed

Hard to switch: Significant incentives needed

New build: Driven by regulation

Urb

an

/

Su

bu

rban

Main

ly r

ura

lM

ain

ly r

ura

l/ s

om

e

urb

an

22M homes

2.6M homes

1.3M homes

E&HN BT

9M homes (by 2050)

Mix

ed

ho

usin

g

Common to both

2% of carbon emissions in

2050

The key challenge under any scenario is how to shift customers away from their current system, to a low carbon heating technology.

1) The ‘challenge’ 2) The nature of the challenge (emissions from residential heat) 3) The solution


Different solutions will be suitable for different segments – BT enables less switching in difficult gas segments



Balance Transition could result in lower customer policy costs to 2050

Scenario Challenge Timeline2012 2030 2050

Electrification and

heat networks

96% reduction in

carbon emissions

All customers in all segments

switch to electric heating or district

heat.

Balanced transition

90% reduction on

carbon emissions

Significant numbers of customers

switch to electric heating and

district heat – however, biomethane

and a small amount of natural gas

enables the most challenging

segments (suburban, on gas, high

thermal demand) to stay on high

efficiency gas or hybrid appliances.

Under a more balanced scenario – the policy costs of generating the required level of ‘switching’ could be lower. The additional cost of the

extra 6% of carbon savings under electrification and heat networks scenario, above and beyond the balanced transition scenario, requires a step

change in the level of incentive. An additional 12m homes need to be moved completely away from gas. This would require on-going intervention

for the next 30-40years and pushing district heat into the more costly suburban areas (less dense housing)

Under Balanced Transition, smaller incentives could be used to push some customers to higher efficiency gas technologies or hybrids while still

achieving significant carbon savings. However this scenario does require significant biomethane growth (75TWh).

RHI / Tariff incentive required for on-gas homes for at least 30 yrs. Electric & DH never competitive without this

RHI / Tariff incentive for on-gas / oil homes, but this can come later and at lower value –hardest to heat homes adopt high efficiency gas appliances

Up-front grants – could be effective to encourage switching from oil

Up-front grants – could be effective to encourage switching from oil to 2030’s

Regulatory drivers + investments required under both scenariosReduce thermal demand – insulate where economic and use government schemes such as the ‘green deal’ where appropriate

Grow the district heat network – growth of district heat will require major intervention. It will require a new regulatory framework (potentially mandating customer to connect) manage connection risks. Starting with social housing roll out in urban areas. The cost grows as district heat is pushed into suburban areas (as required in our electrification and heat networks scenario)

Invest in R&D and awareness raising – to facilitate uptake investment needs to be made to ensure both that emerging technologies mature and that the supply chain has the right skills. There is also a role in raising awareness among end users for both government and the industry.

Up-front grants – could be effective to encourage switching to high efficiency gas and hybrids

Smaller homes will need an RHI – upfront cost prohibitive

Ex

am

ple

s o

f in

ce

nti

ve

s / r

eg

ula

tio

n

Regulation / minimum performance standard for retrofit appliances (mandating shift from gas)



Implications for the Energy System

Here, we analyse the network requirements for the two alternative pathways to 2050

The Electrification & Heat Networks scenario requires (1)

large-scale roll out of heat networks, (2) upgrading of

electricity distribution networks outside of these areas, and

(3) a managed exit from the gas network.

The Balanced Transition requires similar, but lower

challenges as (1) and (2) above, plus large growth of

biomethane injection into the gas network.

A market-based approach may result in duplication of

networks – for example one area having a reinforced

electricity network, district heat network and gas network

A planned approach can avoid network duplication - for

example on area being designated a “district heating” zone

(similar to Denmark), another being a “gas” zone, another

being a “reinforced electric” zone.

Electricity supply &

demand – tens of GW of

additional peak demand

Peak demand from

electric heat pumps will

add 48 GW to the winter

peak under E&HN, and 24

GW under BT – unless

novel forms of thermal

storage can significantly

decouple heat pump

operation from the timing of

thermal demand.

Impact on electricity distribution networks

Using the same model as the Smart Grid

Forum WS3 report, heat pump growth in BT

and EH&N has been taken with DECC mid-

range estimates for electric vehicles and

photovoltaics uptake. Additional investment in

electricity distribution networks (capex &

opex, discounted, over 2012-50) is calculated.

BT can deliver significant investment

savings compared to E&HN – reducing

investment by £8bn or more if smart solutions

are not adopted to tackle the challenges for

the distribution network,

Heat networks

Both BT and E&HN require

large-scale roll-out of heat

networks.

In BT, heat networks reach 9.8

million homes – mainly new

build and higher density city

centre homes.

In E&HN, heat networks reach

an additional 12.4 million

homes in less-dense areas.

*

* Other solutions such as biomass or local heat networks may be suitable

for some rural areas

Gas networks

E&HN sees no role for

gas in homes in 2050

Under BT 12.5 million

homes still use gas for

all or part of their

thermal needs.

Both scenarios

require a managed

exit from some or all

of the gas network –

a complete exist will

cost €4 billion.



The scale of the challengeThis report suggests that keeping a variety of options

open to decarbonise heat gives lower risks, and

potentially a lower cost path that pursuing a narrower

end point.



By allowing more choice, and via high uptake of hybrid heat pumps, additional peak generation demand grows to 24GW, rather than 48GW, as under E&HN



emissions.



However success in both scenarios depends on achieving the following challenges:

1) Reduce thermal demand – Delta-ee has assumed 21% reduction in thermal demand from current buildings –interventions such as the ‘Green Deal’ will be required.




5) Major energy system upgrades & additional peak electrical generating capacity– on both the electricity side, and on decommissioning the gas grid, will be required – although the scale of the challenge is lower for BT.


0 2,500 5,000 7,500 10,000 12,500 15,000






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Incentives for DH:


Want to switch:


Hard to switch:


New build:


rba

n /

S

ub

urb

an

Ma

inly

ru

ral

Ma

inly

ru

ral/

so

me

u

rba

n

22M homes

2.6M homes

1.3M homes

9M homes

(by 2050)

Mix

ed

h

ou

sin

g 2% of carbon

emissions in 2050



1. Executive Summary

2. Decarbonising Heat – how this report examines the challenge

3. Heating technology options and assumptions

4. Fuel price & carbon assumptions

5. Housing stock segmentation

6. Modelling methodology and scenario development

7. Results

Customer perspective

Customer choice


Balanced transition

Carbon and system impacts

Comparison

Sensitivities

Conclusions

8. Policy implications

Contents


Major changes in the UK heating appliance mix have historically required government intervention

Historically, major changes in heating UK

homes have not been left to the market –

government intervention has been required:

1950

2012

Where gas is available, gas boilers are an excellent fit with customer ‘wants’

Low capital cost

Reliable, low maintenance

High efficiency & low-cost fuel (DECC

forecasts relatively stable future gas

costs)

Compact

Excellent fit with UK heat distribution

systems (high temperature radiators)

Easy to use – instantaneous hot water

Large-scale switching away from gas boilers will be extremely challenging

The scale of the challenge to reduce carbon emissions

~80% of carbon emissions from residential heating in the UK are from on-gas properties, - the vast majority of these are in suburbia. The slow turnover of housing stock means these properties remain ‘the challenge’ n 2050

There are no examples, globally, of large-scale switches away from gas boilers for existing

buildings – although some smaller-scale switches are emerging in a few markets.

Volumes of low carbon heating appliances are, in nearly all cases, very low (and therefore

costs are high)

There are massive opportunities for learning and innovation in retrofitting low carbon

heating technologies to existing UK home

There are many potential low-carbon heating appliance options – but technologies & markets are, in most cases, very immature today

DECC’s target is full decarbonisation of residential heat by 2050. Growth in biomethane and

reducing thermal demand alone will not meet this target (or get close to it). A major change

in the heating appliance mix is therefore required.

Clean Air Acts

Town gas to natural gas

Condensing boilers


How this research explores the challenge to decarbonise residential heat

Detailed housing stock segmentation – segmenting the housing

stock according to age, house type, and fuel type – 35 segments in

total. We used this as a basis to analyse the fit of different heating

appliances to each segment of the housing stock

1

Technology development – assumptions for cost, performance and

retrofit challenges of 11 different heating appliance technologies

through to 2050

Energy and carbon assumptions – using DECC / National Grid

and other assumptions as necessary*

Running cost, capital cost of each heating appliance technology

in each housing stock segment – as well as the practical retrofit

issues for homeowners

Customer choice scenario – modelling what heating appliances will

customer in each housing stock segment chose, decade by decade

to 2050, based on Delta-ee market research (separate to this study)

Stakeholder consultation: This research drew upon Delta-ee’s market research with customers, international expertise in low

carbon heating systems and the UK microgeneration market. In addition, we consulted with over 30 companies from the UK & continental Europe including the heating industry; energy suppliers; district heating companies; researchers such as universities and R&D institutes.

Creation of two alternative scenarios – based on detailed insight

of the ‘fit’ of different technologies in each part of the housing

segment.

This research was designed and carried out from the customer point of view – focusing on the challenges of retrofitting different technologies to different parts of the housing stock

We also examine the impact of different heating appliance mixes on policy makers and the wider energy system

The star diagram below is applied to three scenarios for

the future heating appliance mix .

2

3

4

5

6The scenarios that are developed and modelled are

customer-led (focusing on the customer impact,

shown above), with the consequential policy impacts

then examined.*Base case assumes 75

TWh of biomethane

available in residential

sector – less than one fifth

of current residential gas

supply for heating

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Technology assumptions – Summary

= Strong =Weak

A majority of the future technologies are only just emerging in the UK, almost all have some issues with retrofitability

Although a number of technologies could be considered ‘mature’ globally, leaving minimal room for technology development, the UK microgeneration

market is only just beginning to emerge due to the dominance (and easily available supply) of natural gas. A key barrier to overcome, will be challenging

customer perceptions to these technologies so they become more familiar to UK customers – but also overcoming the ‘retrofit’ challenge will be key –

finding ways to address the difficulty of installing these technologies in UK homes, in an affordable way.

NA

Global market

maturityUK market maturity

Potential for cost

reductions in UK

Potential for

performance

improvement

Retrofitability

Air source heat pump (ASHP)

Ground source heat pump (GSHP)

Hybrid heat pump

Gas heat pump (GHP)

Biomass

Micro-CHP (mCHP)

Solar Thermal

District heat (infrastructure)


Technology Assumptions – risks and uncertainties

Risks and Uncertainties

The future prospects of the key domestic heating technologies are highly dependent on a number of key sensitivities including:

The pace of technology development –efficiency improvements being realisedEuropean / global production volumesStraight-forward retrofit to existing UK homesInstaller and supply chain engagement

Heat

PumpsDistrict

Heat

Solar

Thermal

Micro

CHPBiomass

ASHP and GSHP are both relatively mature technologies. For ASHP a number of components are shared with the globally giant air-conditioner market, and the European experience with both technologies are also strong and spans decades.

However for emerging products, hybrid heat pumps and gas heat pumps – technology costs are much more uncertain, as future cost breakthroughs depend on them reaching the mass market – which cannot be guaranteed.

For all heat pumps products future uptake is also highly dependent on:

Straightforward retrofit to existing buildingsThe rate of grid decarbonisation and electricity price

District Heat is an emerging technology in the UK - retrofitting the aging UK housing stock will present a significant challenge to 2050 if heat networks are to fulfil their key role in a low carbon future. There are a number of key risks and uncertainties around district heat – future uptake will be highly dependent on:

The development of an appropriate regulatory frameworkInvestment and construction risk – a key challenge will be getting developers to invest, lead times are long, connection rates difficult to guarantee and the cost of capital high.

Success in uptake in the owner-occupier sector – hardly any examples exist in the UK

Micro-CHP is an emerging technology globally, which gives it huge future potential, as it has significant scope for cost reductions and technology development. It is also a technology that has potential for

large hard to heat homes, on the gas

network. However it’s future will depend on:

Solar Thermal is a developed market globally – and today is a commodity based product. The key uncertainty in the future is:

The price of raw components (these could go up)

Competition with PV (limited roof

space)

Biomass pellet boilers are a mature technology, although product, and supply chains in the UK are only just emerging.

• Strong growth in volumes could lead to some cost reductions

• The most significant challenge for future biomass uptake will be customer perceptions –biomass performs poorly in customer research today.

Future uptake will be dependent on:Security of fuel supply – competition for resources with transport and large generation

Commodity pricesDevelopment of UK supply chain

Continued investment in R&DExplosion in production volumes internationally

Development of different capacities & electrical efficiencies (heat to power ratios)Synergies with other industries (e.g. automotive)


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

kg

/ k

Wh

2010-2020

2020-2030

2030-2040

2040-2050

Carbon Performance of different heating appliances (1)

The ‘year’ could be replaced with rate of grid decarbonisation (both electricity grid and gas grid). We use DECC electricity grid decarbonisation projections which show the electricity system being largely decarbonised by 2030.

These figures are based on large amounts of gas still in the system in 2050 – in the next slide we show our ‘Balanced transition’ scenario, which has less gas in the system, but with the same biomethane content –and hence lower gas carbon intensity.

This graph shows the carbon intensity of heat supplied for the different appliances – based on our technology assumptions and carbon assumptions under a baseline scenario.


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

kg

/kW

h

2010-2020

2020-2030

2030-2040

2040-2050

Carbon Performance of different heating appliances (2)

Here, the carbon emission of different technologies are shown under the ‘Balanced Transition’ scenario, where gas use for residential consumption falls substantially, and biomethane makes up a two thirds of total gas supplied to the residential sector

Emissions from gas technologies fall substantially in later decades as biomethane increases its proportion of total gas supplied


Running cost of different heating appliances (1)

This graph shows the cost of heating a three-bed semi-detached house using different heating appliances. It assumes a 21% reduction in thermal demand from today’s levels.

0

500

1000

1500

2000

Heati

ng

co

st

per

year

(£)

2010-2020

2020-2030

2030-2040

2040-2050

Strong price increases for electricity put pressure on running costs for electric storage heaters, and for a lesser degree electric heat pumps (COP improvements have a stronger effect than rising prices).

Modest increases in gas prices are offset by falling thermal demand.

Micro-CHP – particularly high efficiency micro-CHP –fares well due to the widening spark-spread.

Our modelling approach sets the ‘upfront cost’ for district heat at a price only just above a condensing gas boiler –all other costs (opex and capex for heat supply, district heat infrastructure & in-house costs) are then loaded onto the heat supply price. An alternative approach could be to set the upfront cost higher, and have a lower annual running cost.

*

*


Technology assumptions – Base case technologies

Market view: ~1.5-1.6 million gas boilers sold each year in the UK

Electric Storage heaters

£2,400 - £4,000 per property (price range of £250-750 per heater depending on brand and style –with 5% reduction in price per decade)As controls improve, so will the proposition as less ‘top-up’ heat will be required (decreasing from 10% today, to 5% by 2050)

Oil boilers

85% efficiency (HHV) £4,900 - £6,125 installed cost (remaining flat)Requires space - internally for a hot water tank (HWT), externally for an oil tank – the oil tank is replaced every 10-15years.

Gas boilers

85% efficiency (HHV), increasing to 88% by 2050£2,250 - £2,750 installed cost (remaining flat)

Risks and uncertainties

There is an additional cost associated with switching from electric heating to a hydronic heating system – this requires additional upgrading which we have assumed the following costs (Poyry/AECOM)

Flat: £2,500Terrace: £3,500Semi-detached / detached: £4,500

Electricity cost will also significantly affect the customer proposition for storage heaters. For this study the assumption is based on current prices for an ‘Economy 7’ tariff, and the price difference being maintained as electricity prices rise – however in the future the value to the network of storage heaters will increase, we could see more innovative tariff offerings for both storage heaters and heat pumps, improving the proposition.

• Oil, LPG and gas boilers mature technology, very little opportunity for reduced costs / increased performance

• Electric storage heaters – some improvements in controls, customer appeal could improve as these occur

~85% gas boilers

~5% Other central heating* (oil, solid fuel, LPG and microgeneration)

~10% electric heating (storage heaters / resistance heating)

UK Housing stock

*For simplicity, we only consider oil, not LPG, in this research


Technology assumptions – Air source heat pump

Market view: Globally, air-water heat pumps sell in their 100,000’s - UK is a medium sized European Market (~12,000/yr.)

• European markets became established in the late 1990’s, • Largest markets for air-water products in Europe sell mid 10s of thousands per year (Germany

and France)• Product is mature – closely linked to air-conditioner market, many components are the same• European volumes in the range of 100s of thousands by 2050

Customer perception / behaviour

Very little understanding today of ASHP technology. Negative reaction to outdoor unit, and concerns over performance in very cold temperaturesOnce installed – customers will need to adjust to lower flow temperatures and to running their heating system more continuously.

Physical fit with housing stock

Technically suitable for all properties – but more challenging in homes with high heat loss. Requires internal space for thermal store – this could be challenging in smaller propertiesRequires space for an external unit – potential visual and noise impact.

Cost (for medium sized 8.5kW system)

Today: £8,5002025: £7,5452045: £6,624

Potential for cost reduction from economies of scale as European market volumes continue to grow, and competition between manufacturers strengthens. The market in Europe has potential for three ‘doublings’ in market size

Efficiency (COP)

2015: 2.5 Retrofit / 2.6 New build2025: 2.8 Retrofit / 3.0 New build2045: 3.0 Retrofit / 3.3 New build

The biggest gains in performance to be made in installation quality and improved controls. A mature technology - no single technology breakthrough expected. Heat exchanger design, compressor efficiency, new refrigerants etc. are all possible improvements.

Expanded upon in next slide


Heat pumps – how suitable are they for existing homes? (1)

Heat pumps are only suitable for very well insulated homes with low thermal demands

Heat pumps can be installed in almost any home–so long as they are sized correctly

or

Why there are differing views?

1. Heat pumps operate most efficiently at low flow temperatures

2. If operating at low flow temperatures, the heat emitters (radiators) have to be correctly sized to get enough heat into the home

3. If operating a low flow temperatures, a higher flow rate of water around the heating circuit is needed compared to conventional boilers

4. Heat pumps require space for an outdoor unit – and the outdoor unit brings potential noise implications

5. Heat pumps require space for a hot water tank

6. For higher capacity heat pumps, the cost rises more quickly with capacity than it does for boilers

7. Above ~18 kWth output, a three phase electricity connection is required for the heat pump

8. For air source heat pumps, heat pump output decreases as the outdoor temperature falls.

We hear very different views about the suitability of heat pumps to existing UK homes – in many cases different heating industry players have very polarised views, represented by the statements below.

The Delta-ee view – heat pumps can be installed in most but not all UK homes, but are not a straight forward retrofit in many homes.

Key challenges:

1. High capacity heat pumps command a much higher premium above boilers than low capacity heat pumps.

2. Heat distribution system – in most cases requiring some radiator replacements, in other cases more significant work.

3. Space for hot water storage tank.

4. Space, and in some cases planning permission / noise challenges for outdoor unit.

Where practicable, best to reduce heat demand first – but not at all costs (i.e. trade-off between cost of reducing heat demand and cost of installing heat pump able to heat home without first reducing heat demand).

The Delta-ee view – heat pumps can be installed in most but not all UK homes, but are not a straight forward retrofit in many homes.

Key challenges:

1. High capacity heat pumps command a much higher premium above boilers than low capacity heat pumps.

2. Heat distribution system – in most cases requiring some radiator replacements, in other cases more significant work.

3. Space for hot water storage tank.

4. Space, and in some cases planning permission / noise challenges for outdoor unit.

Where practicable, best to reduce heat demand first – but not at all costs (i.e. trade-off between cost of reducing heat demand and cost of installing heat pump able to heat home without first reducing heat demand).


Heat pumps – how suitable are they for existing homes? (2)

Sizing heat pumps and peak demand

Heating systems are typically designed to provide a home with sufficient heat on the coldest winter daysIf heat pumps are designed in this way, they would operate at part-capacity for most of the year (heat pump costs rise quite steeply with capacity, unlike gas boilers)Another option is to rely on an additional heat source –either an electric immersion heater, or a backup (or

existing) fossil heating system for the coldest days.

End user operation

Heat pumps operate best in ‘trickle heating’ mode, providing low constant levels of heat input - the same is true for boilers, but these usually operate on a more cyclical basis.End users need to use heat pumps in the above way rather than expect heat pumps to rapidly warm up rooms or a whole building, as they are typically used to with a

boiler.

Outdoor unit

Heat pumps require an outdoor unit (evaporator), containing a fan and heat exchanger.Often the whole heat pump system is incorporated into this outdoor unit (a ‘monobloc’ heat pump), in which case the system also contains a compressor.There is some noise from the fan and compressor –although heat pump manufacturers are now working hard to reduce noise levels as far as possible.

Hot water tank

Heat pumps ‘trickle heat’ hot water, which is then stored in a hot water tank.Some homes, which currently have combi boilers, may be reluctant to lose space to accommodate a hot water tank. Approximately 9 million homes have combi boilers with no hot water tanks (this number is growing…).

Low flow temperature operation

Heat pumps operate most efficiently at a low temperature difference between the heat source (the ground, or outside air) and the water temperature for space heating & hot waterThe ‘best’ application for heat pumps is under floor heating, with heat distribution (flow) temperatures of 35oC.However the vast majority of UK heating systems are designed for 70-80oC – although the radiators are often ‘oversized’ and

larger than they need to be to heat rooms when using this flow temperature.Options to address the low temperature operation challenge:

o Run at moderate flow temperatures and upgrade (some) radiators to higher output radiators

o Use a refrigerant that performs better at high flow temperatures (e.g. CO2)

o Run the heat pump at high flow temperatures and accept lower heat pump efficiency


Heat pump sensitivities – grid decarbonisation

CO2 emissions in typical gas segment (on-gas detached 1944-Present)

0

500

1000

1500

2000

2500

3000

3500

4000

Today 2015 2025 2035 2045

To

ns C

O2/y

r. (

tho

usan

ds)

Gas BoilerASHP (Average grid carbon intensity)ASHP (Slow decarbonisation)

The carbon performance of heat pumps can be a contentious issue and depends on 2 key sensitivities:

1) The rate in which the grid decarbonises2) What electricity heat pumps use – compared to the ‘average’ or the ‘marginal’ plant.

0

1000

2000

3000

4000

5000

6000

7000

Today 2015 2025 2035 2045

To

ns C

O2/y

r. (

Th

ou

san

ds)

Gas BoilerASHP (Average grid carbon intensity)ASHP (Marginal grid carbon intensity)

1 2

A 10 year delay in the projected grid-decarbonisation would have serious carbon implications for a high heat-pump pathway – gas would be ‘greener’ until the 2030’s

Assuming the grid does decarbonise within the projected timescales – for heat pumps to achieve zero carbon it has to be compared to the ‘average’ grid intensity, rather than the ‘marginal’ plant .

Heat pumps generate significantly more emissions than a gas boiler in the short term

In the longer term, the carbon savings based on marginal grid carbon intensity offered by ASHP over a boiler are small until the mid 2030’s


Heat pump sensitivities

The annual running cost of heat pumps is influenced by the COP. In our baseline scenario we assume performance will improve from a COP of 2.5 today to 3.0 by 2050 for retrofit installations. If efficiency does not rise as expected, or installations continue to be poor, heat pumps will struggle to compete on running costs with a gas boiler –customers are unlikely to adopt. The proposition is stronger in new build,where a COP of 3 can be achieved by 2025, 3.3 by 2050

The economic proposition for heat pumps is also highly dependent on electricity price – Projections indicate without intervention gas will continue to be significantly cheaper than electricity.Even at relatively high COP of 3, low gas prices make it hard for heat pumps to compete in on-gas homes.

.

Impact of efficiency on annual ASHP running costs

Impact of electricity price on ASHP running costs

0

200

400

600

800

1000

1200

1400

2 2.2 2.4 2.6 2.8 3 3.2 3.4 3.6

An

nu

al

he

ati

ng

co

st

(£)

COP

Gas boiler

(2025), gas

price of

0.052p/kWh

Electricity

price of

£0.20/kWh

(2025)

0

200

400

600

800

1,000

1,200

1,400

0.15 0.17 0.19 0.21 0.23 0.25

An

nu

al

he

ati

ng

co

st

(£)

Electricity price (£/kWh)

Gas boiler

(2025), gas

price of

0.052p/kWh

COP 3.0


Technology assumptions – Ground source heat pump

Market view: European market ~ 100,000 install p/yr. and dominated by Scandinavian markets. GSHP are a niche product in the UK (~4,000 installs p/yr.)

• Product volumes low / costs high• Largest markets in Europe 20,000 – 30,000 installs per year• Even by 2050 in the UK, GSHP will be fairly niche (~10,000-20,000 sales per annum)


Conceptually – customer appeal, no visual impact after installation and high efficiency but cost is high – very few customers are willing to invest so much in heating. Significant upheaval in installation process is a key barrierOnce installed – customers will need to adjust to lower flow temperatures and to running their heating system more continuously.


Technically suitable for all propertiesRequires internal space for thermal store – this could be challenging in smaller propertiesGround-works require space – boreholes are technically possible in smaller properties but are more costly and the plant equipment requires access.

Cost (8kW Borehole system)

Today: £16,300 2025: £15,2002045: £13,100

There is limited scope for cost reduction – the technology is mature, and installer margin is already relatively low as it is a complex install.

The price of drilling may present an opportunity to reduce costs, as more companies enter the space – however this cost is unlikely to drop significantly as already it is competitive with Swedish prices.

Efficiency

Today: Retrofit 2.5 / New build 3.0

2025: Retrofit 3.03/ New build 4.3

2045 Retrofit 3.8 / New build 4.8

The biggest gains in performance can be made from improved installation quality and improved controls. Some incremental improvements to the product are expected but the technology is already mature - no single technology breakthrough is expected.


Technology assumptions – ASHP/Gas Hybrid

Market view: 100s /yr. sold in Europe – an emerging product

• Brings together two mature, existing products – gas boiler and an ASHP.• Different product configurations possible – larger the size of ASHP, higher proportion of

thermal needs met by heat pump, but higher the cost.• Many large heating manufacturers either have a product on the market or are

developing one – but products are only just reaching the market.


Very little change in customer behaviour is required –interface and ‘feel’ of technology is like a boiler.The bolt on of the gas boiler reassures customers.Customers appeal could also be stronger because if flexible electricity tariffs become the norm, customers will be able to choose when to use electricity and when to use gas to optimise cost.


The only physical constraint is the outdoor unit – the unit can function as a combi, without a hot water tank (some current products use small buffer tank).The indoor unit is only slightly bigger than a typical wall hung boiler.

Cost (3.5kW HP / 10kW boiler)

Today: £7,0002025: £4,7252045: £4,276

Cost is driven by boiler and ASHP price – boiler is a mass market product and if the product users a small ASHP, it can tap into the ‘room air conditioner’ market (millions of units / year in Europe) therefore accessing much lower costs than a conventional ‘pure’ ASHP.

Efficiency

Today: 2.5

2025: 3.02045: 3.3

Main areas for performance improvement include: the development of more intelligent controls, correct specification, design and use (learning rates), innovations in refrigerants and other known areas for general heat pump improvements.

The proportion of thermal demand met by the heat pump depends very much on sizing of the heat pump and the control system. We assume 50%, rising gradually to 58%.


Technology assumptions – Gas Heat Pump

Market view: An emerging product (at the residential scale, but more mature for larger buildings) – not currently available for households in the UK

• Early / first generation of products available for residential customers in Germany• A number of products under development from large heating manufacturers and small

innovators – with a range of technologies and approaches• Challenge is system engineering & reaching scale, rather than technology

breakthroughs.


Customers feel reassured by technology which uses gas but some will be put off by an outdoor unit.Works most efficiently with longer operating hours, and lower flow temperatures – customers will need to adapt.Some product designs use ammonia as the refrigerant - may put off some customers.


Current product in UK is too big for domestic properties –we expect a domestic product in the market by 2015Requires space for outdoor unit, like an ASHP (slightly smaller & quieter), and hot water tank (combi product without hot water tank possible in the future).Will likely be larger than gas boiler, although one company targeting product same size as gas boiler.

Cost (8.5kW Gas heat pump)

2015: £13,0002025: £8,7252045: £6,290

There are no inherently expensive components / materials – but supply chains are poorly developed, and volumes are currently very low. Installer experience in the UK is non-existent, although nothing more complicated than an electric heat pump is required.

Compared to electric heat pumps, GHP has different refrigerant, burner rather than electrical compressor, slightly smaller outdoor unit (and other system differences).

Efficiencies (for retrofit)

Today: 1.3 (COP)

2025: 1.5 (COP)2045: 1.8 (COP)

Scope for improvement in performance from improved system design and operation, improved refrigerants, improved heat transfer and ‘cascading’ process.

Current R&D into gas heat pumps is orders of magnitude less than electrical heat pumps – many opportunities for learning, incremental and step change improvements if the gas heat pump industry becomes much larger.

Achieving these costs relies on gas

heat pumps growing in a number of

markets and reaching high volumes.

Some are targeting much lower costs.


0 0.05 0.1 0.15 0.2 0.25

Boiler carbon intensity of heat

Boiler carbon intensity of heat with 20% biomethane

GHP (low eff) carbon intensity of heat

GHP (high eff) carbon intensity of heat

GHP (low eff) carbon intensity of heat with 20%biomethane

GHP (high eff) carbon intensity of heat with 20%biomethane

Carbon intensity of heat (kg / kWh)

32%

51%

Carbon performance and retrofitability of GHPs

Base case

today

For this illustration, high efficiency = SPF

of 1.8, low efficiency = SPF of 1.3

Reduction

compared to

gas boiler

RetrofitabilityGas heat pumps face similar ‘retrofit’ challenges as electric heat pumps, as shown on slides 30-31, including:• Outdoor unit (although a slightly smaller outdoor unit is

required)• Low flow temperatures (although they are slightly

better than electric heat pumps with regard to this issue, and products could be developed with an additional gas burner boosting flow temperatures when necessary –similar to electric – gas boiler hybrids)

• End user operation (similar challenge)• Hot water tank – similar challenge, although ‘hybrid’

products providing instantaneous hot water (via a gas boiler) could be developed, although for these carbon savings would be lower

• Sizing and peak demand – again, a ‘boost’ gas burner could be used to increase output on the coldest days.


Technology assumptions – Biomass


Minimal awareness and understanding of productSome end-users view a return to solid fuel, and management of the system a ‘step backwards’Concern over security and cost of fuel supply.Requires customers to change their behaviour – and be more involved in their heating system (depending on level of automation)


Suitable for all thermal demands – and can be easily installed in ‘leaky’ homes.Homes need space internally for water tank and a slightly larger-than normal boiler unit. Space for fuel storage is required.

Cost (15kW semi-automatic pellet boiler)

Today: £11,0002025: £9,5252045: £7,715

Little scope for step-change cost reductions, but if volumes (in Europe / globally as well as the UK) multiply, then moderate cost reductions will occur. The final price will remain highly variable from installation to installation.

Efficiency

Today: 75% -70% HHV2045: 80-85% HHV

Product is mature, leaving little scope for improvements in efficiency. Step changes could come from a shift to condensing operation, or pellet fuelled stirling engine mCHP (one major pellet boiler manufacturer is currently trialling such a system).

Market view: A mature product, with an immature market in the UK

• Globally in the region of 50,000 units sold a yr – UK is less than 2% of this – Germany and Austria are biggest European markets

• Scope for European volumes to double or treble by 2050


Technology assumptions – Solar Thermal

Market view: A mature product with sales of thousands / yr. in the UK

• UK market has shown steady growth in the last 10 years – recent decline with focus shifting to PV

• Market volumes remain much higher in continental Europe• The technology is particularly popular with social housing providers


Positive perception – solar technologies are viewed as mature and well understoodNo change required in customer behaviour – integrates with existing system‘Add on’ technology, viewed as less risky and appeals to customers who want to appear ‘green’.


Requires roof space, with near southerly direction – but size is not an issue (average 4m2 will fit most)Best suited to homes with high / medium hot water demandRequires space internally for hot water tank

Cost

Today: £4,2002025: £3,8802045: £3,275

Cost reduction will be small to 2050 – the technology is mature and high commoditised – linked to steel and copper prices. Integration of cylinders offers some scope to lower system prices.

Potential for lower margins along the value chain in the UK will also bring down cost somewhat if volumes increase.

Efficiency (Thermal output kWh/yr.)

Today: 1,8002050: 1,800

Limited scope to improve thermal output of the panels themselves – but some scope for system improvements through better controls and integration with the boiler.


Technology assumptions – micro-CHP

Market view: Globally, micro-CHP markets are in their infancy (~10,000/yr., mainly in Japan) – and the UK is only accounts for a tiny proportion of installs to date

• Mostly brand new technology & manufacturing lines (some exceptions)• European markets for individual households are embryonic (v low 1,000s), biggest market is

in Japan (over 10,000 / yr.). Opportunity for 100x increase in European market volumes by 2020, and more than 10x increase in global volumes

• Significant difference between low electrical eff. and high electrical efficiency products• Interest from all major European boiler brands + large Asian corporates

Range of micro-CHP technologies Cost and performance improvement

The product today is proven (it works) but at early stages of development – first generation product.

• Significant scope for innovation, improvement and learning to improve product performance, reduce size & weight etc. and bring down cost.

• Significant scope to increase production volumes to bring down cost (possible synergies with automotive industry for fuel cells)

Uncertainty about level and timing of these improvements –high dependency upon growth in international markets.

Currently natural gas & LPG models available: biomass-driven systems under development / trial.

Today: Low ee £8,250 High-ee £14,5002025: Low-ee £4,200 High- ee £7,5002045: Low-ee £3,402 High-ee £5,700

Therm

al e

ffic

iency

Electrical efficiency

SOFCPEM FC

ICE

ORCStirling

• ORC = organic Rankine cycle, under development in UK• Stirling = Stirling engine, early market introduction in UK

+ rest of Europe, two Stirling engine manufacturers• ICE = internal combustion engine, on market in

Germany (recent intro.), Japan (>100,000 since 2003)• PEM FC = proton exchange membrane fuel cell, on the

market in Japan (~10,000/yr.), trial in Germany• SOFC = solid oxide fuel cell, market intro in Japan

(100s/yr.), trial in Germany, CFCL Bluegen available in UK

SOFC up to 55% electric efficiency, so very low heat output: e.g. 1 kW electricity, 0.2 kW thermal, so suitable for homes with low thermal demand

Low elec. eff

High elec. eff


Technology assumptions – mCHP

Carbon emissions

Burn more gas than a condensing boiler – but displace electricity (and associated carbon emissions) from the grid.Carbon performance critically dependent upon assumptions for what central generation plant is displaced:

• What is actually displaced – often low capital cost / low efficiency generation such as OCGT (today). Fuel cells will operate closer to base-load (running 5,000+ hrs. / yr.) displacing cleaner plant than low electrical efficiency products, which will run for 2-3,000 hours per year (particularly during winter peaks), displacing dirtier plant.

• ‘Reference power plant’ – EU Cogen Directive compares micro-CHP to CCGT

• Average grid carbon intensityWe use marginal carbon intensity in this report – using National Grid assumptions.

Physical fit with housing stockHeavy and most (but not all) need hot water storage tank. Suitable for high flow temperatures. Range of sizes (v. similar to wall-hung boiler, to fridge-freezer size).

Low elec. efficiency needs moderate – high thermal demands, high elec. efficiency suitable for nearly all homes.Current systems need hot water storage tank – potential (for low ee products) for combi systems

Carbon emissions are highly sensitive to:

1. Assumptions on the carbon intensity of electricity displaced by micro-CHP

2. Carbon intensity of the gas grid (i.e. biomethane)

We assume low elec. eff. micro-CHP displaces ‘dirtier’ power generation than high elec. eff micro-CHP as it operates in a ‘peakier’ manner. Marginal grid emissions are taken from National Grid projections.

0

0.05

0.1

0.15

0.2

0.25

2010-2020 2020-2030 2030-2040 2040-2050Carb

on

in

ten

sit

y p

er

un

it o

f

heat

(kg

/kW

h)

Base case - low elec ee Base case - high ee

Balanced Transition - low ee Balanced Transition - high ee

BT and slower elec grid decarb - low ee BT and slower elec grid decarb - high ee

efficiency elec. efficiency

*These figures are for a pre-war, detached house


Technology Assumptions - District heat

A mature & widespread concept in several EU markets– but minimal GB penetration

• District heat development on-going since 1950 – but only 1-2% of UK heat demand is met by the technology. Much of this installed in 1960s (variable quality).

• A range of UK residential schemes: e.g. individual tower blocks or apartment buildings; linking public buildings and several blocks of flats; city-wide schemes Recently a number of new-build district heating schemes (to meet Building Regulations and for planning compliance)


Minimal understanding and awareness of DH today – no strong public opinion Possible concerns over being tied into a long-term contract and a perceived loss of freedom of their heating.Minimal change required to behaviour – interface and controls like a boiler, and connects to existing system.Evidence of high customer satisfaction once connected.


Technically no restrictions on the housing type / thermal demand but connecting the HIU inside the house to the heat main is challenging in retrofit (in theory HIU could be outside).Retrofit requires 2 x 5cm pipes (outer diameter – this includes insulation) running to HIUNo hot water storage tank required.

Cost and economics

• Highly sensitive to discount rate & amortisation period. • Costs in GB higher than continental Europe - .potential for UK

costs to fall if large growth in DH

Further costs & economics details on following slides

Key risks + uncertainties• Connection rates – uncertainty around uptake• Lead time / construction risks• Absence of any regulatory framework

District heat is a heat delivery infrastructure, not a form of heat supply

A DH scheme comprises:

• Heat generation plant – could be a mix of heat pumps, gas boilers, gas CHP, solar thermal, biomass boilers etc.. and could change over time

• District heating infrastructure – heat mains, typically underground, running e.g. up streets / close to buildings

• Branches connecting buildings to heat mains• Interface inside the house connecting space heating

system and hot water to the branch (HIU, or heat interface unit).


Cost overview for district heat – complex economics driven by four main cost elements

Heat generation costCapex of heat plantOpex of heat plant

• Operation & maintenance• Fuel cost

Capex of energy centre (highly variable from scheme to scheme)

Infrastructure cost

Depends on heat density and network design

Branch cost – dependent on house type and density

Distance from heat main to dwellingPossible for e.g. semi to share connection to heat main

In-house cost: £2,300 for all properties

Heat interface unitHeat meterInstallation

Additional costs for hydronic distribution system if displacing elec. heating

• Installation cost dependent on HIU being

near Branch entry point to house & need to

change radiators

• HIU – replaced every 12-20 years, in

region of ~£50 / yr. maintenance cost

Lower cost / kW than individual systems, and in some cases higher performance

Lower capacity (kW) per dwelling than individual systems due to load diversity &

easier thermal storage

Cost of heat plant / dwelling depends upon overall DH scheme size (size depends on

no. of households and no. of non-residential heat customers)

For CHP, variation in types of customers results in longer running hours -> better

economics

Some additional heat losses compared to individual systems

Necessary to build in some redundancy for maintenance

Space for low carbon heat plant may be a challenge in very dense urban areas – e.g.

for large-scale biomass boilers or heat pumps. Alternative is to pipe heat from less

dense areas

Assumes flats already

have communal heating

system, otherwise

additional costs

1

2

3

4


Carbon performance of district heat

Flexibility in heat supply

Low carbon heat options for DH heat supply include:

• Waste heat from industry / power plants – variable

availability across urban areas

• Heat pumps – air source, ground source (may be limitations in

capacity depending on space / heat source)

• Gas CHP – low carbon depending on the power plant being

displaced – very low carbon heat in 2010s, but unlikely to

be low carbon heat in 2050

• Biomass – either heat-only or CHP

• Waste-to-energy

Assumption for heat supply to district heat over time – various different permutations are possible

Carbon intensity of heat from district heat – much lower than gas boilers if a low-carbon mix of heat supply is assumed

Emissions from a gas boiler (with

increasing biomethane – under our base

case)

District heat blended carbon emissions

0%

20%

40%

60%

80%

100%

Perc

en

tag

e o

f h

eat

su

pp

lied

to

heat

netw

ork Biomass boiler

Waste heatrecovery

Electric heat pump

Gas boiler

Gas CHP

0

0.05

0.1

0.15

0.2

0.25

2010-20 2020-30 2030-40 2040-50

Carb

on

in

ten

sit

y o

f h

eat

(kg

/kW

h)


District heat economics and potential

Calculating DH economics on a ‘per dwelling’ basis

To help understand sensitivities to DH costs on a ‘per household’ basis, we have constructed a simple economic model. However we lean

heavily on the detailed DH study carried out by Poyry and AECOM for DECC (2009). This model focussed on the relatively dense areas of heat

demand (which take in 90% of all flats and 20% of terraced households). It compared DH (fed by various different heat sources) to existing

heating systems (gas boilers and electric heating). Key headlines of this study:

Carbon pricing

Discount rate

CAPEX reduction

Customerstargeted

Households(millions)

No 10% 0 All 0

No 10% 0 Electrically heated only

0.07

No 6% 0 All 0

No 6% 20% All 1.6

Yes 6% 0 All 0.3

Yes 3.5%. 0 Social

housing

1.1 – 1.4

Yes 3.5% 0 All 3.3 = 7.9

• Very low discount rates (substantially lower than regulated

network businesses) are required to drive scheme take-up

• Potential is primarily limited to dense housing – flats and some

terraces

Limitations of this Poyry / AECOM study• It compared DH to low cost heating systems. If compared to low carbon

heating, the potential may be larger

• The government’s shadow carbon pricing is unlikely to sufficiently to shift customers completely away from natural gas to any other forms of low carbon heat, so higher carbon prices may be necessary than assumed in the Poyry / AECOM study.

Delta-ee modelling of DH

We have constructed a relatively simple DH model which includes

some optimistic assumptions around connectivity and use for a

scheme of ~1,000 homes, assuming some mixed use. Key

assumptions / methodology:

• Costs largely taken from Poyry / AECOM study.

• Upfront cost to customer assumed to be only very slightly higher

than a boiler – all remaining costs (remaining in-house and heat

plant, energy centre, infrastructure) built into heat price

An alternative approach could be to price the upfront cost to

recover the capital, and price the heat more competitively

• Base case of 10% discount rate and 30 year amortisation period

(flexed in the scenarios)

• Assumes a changing blend of heat supply – initially gas CHP and

gas boiler, through to heat pump and biomass boiler by 2050.

• Assumes 100% connection from day one.

• Assumes 3 – 5 kWth per household

District heating potential under different scenarios from the Poyry / AECOM study.








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Fuel-Price Assumptions

0.0

5.0

10.0

15.0

20.0

25.0

2012 2015 2020 2025 2030 2035 2040 2045 2050

p/k

Wh

Electricity (retail price) Electricity (Economy 7)

Gas (retail price) Heating oil (retail price)

There is uncertainty over retail and wholesale prices, for gas, electricity and oil post-2030. For the purposes of this report it has been assumed that prices remain stable after this date.

DECC Central Scenario to 2030 (early

investment in electrification

Heating oil price assumed to rise by

3% per annum (based on conversations

with industry)

DECC central scenario to 2030, with

slight rise in 2030-2035 based on

‘Redpoint’ report assumptions to reflect a

‘worst-case’ scenario for gas to 2050

90% of electricity overnight at lower rate / 10% ‘boost’ during the day. The difference between a standard tariff and ‘Economy 7’ is 7.7p/kWh – this is maintained.

Biomass Pellet price is not shown above

– however we assume price rises steadily

from 5p/kWh today to 6.5p/kWh by 2050. In

line with DECC 2030 forecast. Price will

depend on competition for wood, and the

balance between supply of pellets and

demand for pellets. *Electricity price projections are taken from the latest DECC forecasts, this may not include all upgrade costs – so our scenarios consider a ‘best-case’ scenario for electricity to 2050


Carbon Intensity

Committee on Climate Change – Fourth BudgetNational Grid - Average

Year gCO2/kWh

2012 514

2015 441

2020 241

2025 88

2030 52

2035 32

2040 27

2045 20

2050 18

National Grid: Marginal for MCHP

Micro-CHP will use marginal grid electricity

– to reflect the power station mix as it changes

over time

High and low elec. efficiency micro-CHP

will use different marginal numbers – as

e.g. Stirling engines operate more at the

peaks, and e.g. fuel cells are more baseline

Baseline numbers taken from National Grid

(see following slide)

Other fuels:

gCO2/kWh 2015 2025 2035 2045

Gas 185 179 166 143

Oil 265 265 265 265

Biomass – domestic 37 37 37 37

Biomass - community 19 19 19 19

The ‘National grid’

assumptions for

Average Carbon

content of

electricity follow the

DECC / CCC

trajectory.

Carbon content

of gas is based

on assumed

biomethane

available under

‘Customer

Choice’

scenario.

Under

Balanced

Transition, falls

to 62 g/kWh in

2045


Marginal electricity grid carbon intensity assumptions

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2010-2020 2020-2030 2030-2040 2040-2050

g / k

Wh

Marginal - for low elec. eff micro-CHP

Marginal - for high elec. eff micro-CHP and CHP for district heating

Average grid carbon intensity

These numbers are taken from National Grid forecasts, the grid average carbon intensity projections align with the central DECC scenario.


Biomethane Assumptions

0

20

40

60

80

100

120

140

160

180

2010 2015 2020 2025 2030 2035 2040 2045 2050

TW

hConservative assumption for base-case:The Redpoint ‘Green-Gas’ Scenario is conservative compared

some DECC scenarios

Assume 60% available for domestic use

2015: 5TWh

2025: 15TWh

2035 36TWh

2045: 75TWh

By 2050 – this equates to ~25% of gas demand being met by

biomethane in the base case scenario (66% in Balanced

Transition)

Biomethane availability will be a key sensitivity

The future availability of biomass is uncertain, for the base-case assumptions Delta-ee have chosen a medium range estimate for biomethane availability.It is likely that by 2050 there could be more or less biomethane available for domestic use – Delta-ee will explore the impact of these scenarios in the sensitivity analysis for this report.








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Housing Stock Segments & Rationale

Category Segments considered Rationale for Inclusion of segments

Property type Detached houseTerraced houseSemi-detached houseFlat

Denotes space availabilityDenotes roof size / availabilityUsed to interpret thermal demand, which – denotes output of system required & feeds into running costs.

Construction date Pre 19451945 – 1980Post 1980

Used to interpret thermal demand, which – denotes capacity of system required & feeds into running costs.Where thermal demand in each segment is within 5% the segment is merged (as customer behaviour, economics and physical fit will be the same)

Heating system Gas central heating systemElectric heating systemOther central heating system (including coal or solid fuel, oil, LPG)

Denotes gas availability/unavailabilityDenotes hydronic / non-hydronic heating systemFeeds into 'fuel cost'Feeds into 'fuel efficiency'Feeds into 'installation cost‘

Segmenting the GB housing stockIn order to map the suitability of microgeneration technologies onto the GB housing stock, and to model technology performance within different types of properties, Delta-ee has broken the GB housing stock into 35 segments.


Housing segmentation - overview

UK Housing stock segmentation today

Detached

Semi-Detached

Terrace

Flat

Gas Electric Other

5.7m Properties31% CO2 emissions

6m Properties23% CO2 emissions



UrbanSuburban

UrbanSuburban

UrbanSuburban

UrbanSuburban

UrbanSuburban

Rural

800,000 Properties5% CO2 emissions


155,000 Properties>1% CO2 emissions






Rural

Rural

Rural

Rural

UrbanSuburban

Rural

Rural

Rural

Existing stock: 26 million properties

Demolitions: DECC assumption used 0.1% per year (~25,000 properties) spread evenly across the stock


Housing Segmentation – Thermal demand

Base Case Technology:

Retrofit ‘gas central heating system’: Gas Boiler

Retrofit ‘electric central heating system’: Electric storage

heaters

Retrofit ‘other central heating system’: Oil boiler

New build ‘gas central heating system’: Gas boiler + PV (to

2025) ASHP or district heat (from 2025)

New build ‘electric or other central heating system’: ASHP/ DH

Thermal demand for space and water heating – reduces decade by decade:

Delta-ee assumptions based on previous research carried out by

GL Noble Denton for National Grid.

Assumes all realistic improvements to thermal demand have

been taken up by 2050 – no incentives so evenly spread over

each decade

Checked against sources including- Low Carbon Hub (new build).

In technology model – thermal demand determines the size of

technology ,influencing cost

Total Thermal Demand:

2012: 385TWh

2050: 316TWh

This is between the Level 2 and

Level 3 DECC trajectories for

domestic heat demand.

Assuming:

30-80% loft insulation

50-75% cavity wall

25 – 70% Solid wall

Internal temp 18C


New Build – Changing base case

Number of new builds per year

2012-2020 2020-2030 2030-2040 2040-2050

125,000 200,000 300,000 400,000

80% on Gas20% Off Gas

56% Terrace / Flat30% Semi

14% Detached

New build volumes: ~9million new builds completed by 2050

Delta-ee assumption on new build based on conversations with relevant

stakeholders.

Base case for 2012 of 100,000 – 120,000 new build properties per year

No expectations that new build volumes will increase dramatically to 2020,

current economic climate will limit growth.

DECC assumption of 1.1% growth per annum on total housing stock

would result in 40.2m households by 2050, however industry

expectations are for property demand to ramp up, rather than remain at a

flat rate - Delta-ee scenario results in ~35m households by 2050.

A majority of properties will be built in locations with access to gas grid

(this does not imply gas will be the chosen heating fuel)

There will be greater demand for smaller family homes to reflect

demographic change.

The changing base case for new build:Delta-ee customer research with housing developers found microgeneration is only installed in

new build where regulations require it, and that developers opt for the least cost option.

From 2016 new regulations will come into force that will set carbon compliance levels for new

builds based on the kgCO2/m²/year properties are permitted to emit – this will force

microgeneration into the sector. Assuming that the lowest cost technology is installed, the base

case will change by decade, and by segment:

On Gas: Zero carbon regulations can be met in new build using a gas-boiler, and some

PV to off-set the carbon – this is the lowest cost, easiest to install option.

Off Gas: ASHP or biomass are the lowest cost option, however developers do not like

installing biomass as there is a perception this can affect ‘sell-ability’ - we have assumed ASHP

will therefore be the most selected technology.

As the grid decarbonises, the volume of PV required to off-set the carbon emissions from a

gas boiler will be rise, resulting in higher cost than an ASHP, and not possible at all in larger

properties. We have assumed that post 2020, the base case on-gas will also shift to an ASHP

as the least cost option.








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Techno-Economic Model

Define thermal demand

1

Pick up technology assumptions for chosen decade

2

Compare to base case for that segment

3

Upfront cost, payback and carbon outputs

4

Example – pre-war semi-detached home with access to natural

gas in decade 2020-30

Base case1. Define thermal demand (decreases over time)2. Select appropriate size boiler for base case3. Pick up capital cost of boiler 4. Pick up efficiency of boiler 5. Pick up fuel cost6. Pick up carbon factor of natural gas 7. Calculate annual fuel consumption (1 divided by 4)8. Calculate annual cost (7 x 5)9. Pick up maintenance cost10. Total running cost = 7 + 811. Carbon emissions = 7 x 6

Repeat for all other technologies to give12. Alternate capital cost13. Alternate running cost14. Alternate carbon emissions

Comparing base case to alternate technology when existing heating system needs to be replaced15. Calculate marginal cost of alternate technology (12 – 3)16. Calculate marginal running cost of alternate technology (10 – 13)17. Payback (15 divided by 16) – applicable is lower running cost18. Carbon savings (11 – 14)

• Repeat above for each of 23 segments representing existing homes• Repeat for all alternate technologies relevant for that housing

segment• Repeat decade by decade to 2050

Example – pre-war semi-detached home with access to natural

gas in decade 2020-30

Base case1. Define thermal demand (decreases over time)2. Select appropriate size boiler for base case3. Pick up capital cost of boiler 4. Pick up efficiency of boiler 5. Pick up fuel cost6. Pick up carbon factor of natural gas 7. Calculate annual fuel consumption (1 divided by 4)8. Calculate annual cost (7 x 5)9. Pick up maintenance cost10. Total running cost = 7 + 811. Carbon emissions = 7 x 6

Repeat for all other technologies to give12. Alternate capital cost13. Alternate running cost14. Alternate carbon emissions

Comparing base case to alternate technology when existing heating system needs to be replaced15. Calculate marginal cost of alternate technology (12 – 3)16. Calculate marginal running cost of alternate technology (10 – 13)17. Payback (15 divided by 16) – applicable is lower running cost18. Carbon savings (11 – 14)

• Repeat above for each of 23 segments representing existing homes• Repeat for all alternate technologies relevant for that housing

segment• Repeat decade by decade to 2050


Soft-Factors

% o

f h

om

es in

ho

usin

g s

eg

men

t th

at

will ad

op

t 100%

Physical Fit Economics Customer Preference

1

3

2

Physical fit is used as the initial filter as some technologies will be automatically ‘ruled’ out or have lesser uptake if it is difficult to install

1

3

2Economics is used as the second filter – as the primary decision factor for a majority customers is the cost of the technology. If the economics are very poor, only innovators will take up a technology

Customer preference is used as a final filter – as after cost, customers have to choose which technology to adopt, important factors here can be aesthetics', and the impact on their behaviour.

Delta-ee customer research has shown that there are a series of filters which customers go through before deciding to install a new heating system. Whether or not the technology fits into the property is the initial barrier to overcome. Secondly we know customers are concerned about upfront cost, and payback – these are the primary barriers to uptake. A final filter is ‘customer preference’ as we know customers are not economically rational – in some cases a technology will be rejection because a customersimply does not like it. The soft-factor modelling captures these three filters in turn.


Soft-Factors – Physical Fit

Physical fit

Assumes perfect economics to capture buildings where different technologies can be easily installed

1 Zero 0%

Ex diff 10%

Diff 25%

Moderate 50%

Good 75%

Per 100%

2015 GHP M-CHP SE M-CHP FC ASHP GSHP ASHP-Boiler Solar Thermal Biomass DH ElectricFlat Ex diff Zero Ex diff Ex diff Zero Ex diff Zero Zero Per Per

Terraced Diff Diff Diff Diff Ex diff Diff Diff Ex diff Per Per

Semi-detached Mod Good Good Good Mod Good Mod Diff Per Per

Detached Per Good Good Good Good Per Good Good Per Per

2025 GHP M-CHP SE M-CHP FC ASHP GSHP ASHP-Boiler Solar Thermal Biomass DH ElectricFlat Diff Zero Diff Diff Zero Diff Zero Ex diff Per Per

Terraced Diff Zero Zero Diff Ex diff Mod Mod Ex diff Per Per

Semi-detached Good Good Good Good Good Good Mod Mod Per Per

Detached Per Per Per Good Per Per Good Good Per Per

2035 GHP M-CHP SE M-CHP FC ASHP GSHP ASHP-Boiler Solar Thermal Biomass DH ElectricFlat Mod Zero Mod Mod Zero Mod Zero Ex diff Per Per

Terraced Mod Zero Zero Mod Ex diff Good Mod Diff Per Per

Semi-detached Per Per Per Per Good Per Mod Mod Per Per


2045 GHP M-CHP SE M-CHP FC ASHP GSHP ASHP-Boiler Solar Thermal Biomass DH ElectricFlat Good Zero Mod Good Zero Good Zero Ex diff Per Per

Terraced Good Zero Zero Good Ex diff Good Mod Diff Per Per

Semi-detached Per Per Per Per Good Per Mod Mod Per Per



Rationale for physical fit (1)

ASHP

GSHP

Gas HP

Space required for outdoor unit – opportunity for innovation in design, placement of outdoor unit to make this easier in the future. Most challenging in flats, then terracesNoise from outdoor units – potential for noise to be reduced (but not eliminated) Space required for indoor hot water tank – challenging in flats and terraces where combis popularFor homes with high heat losses (some detached and semis), 3 phase electricity connection may be required.For some (minority of) homes, changes to hydronic heating system may be prohibitive

Ground loop requires either borehole (getting drilling equipment onsite, plus space for borehole) or trench (requires major disruption to garden) – novel approaches to drilling boreholes in pavements for social housing being developed.Space required for indoor hot water tank – challenging in flats and terraces where combis popularFor some (minority of) homes, changes to hydronic heating system may be prohibitive

Space required for outdoor unit – opportunity for innovation in design, placement of outdoor unit to make this easier in the future. Most challenging in flats, then terraces. Slightly smaller & quieter outdoor unit than electric heat pumps.Noise from outdoor units – potential for noise to be reduced (but not eliminated) Space required for indoor hot water tank – challenging in flats and terraces where combis popular, although combi gas heat pumps possible in the future

Hybrid boiler -ASHP

Space required for outdoor unit – opportunity for innovation in design, placement of outdoor unit to make this easier in the future. Most challenging in flats, then terraces. Smaller outdoor unit that pure electric ASHPNoise from outdoor units – potential for noise to be reduced (but not eliminated) No hot water tank requiredNo change to hydronic heating circuit required


Rationale for physical fit (2)

MicroCHP

Solar Thermal

Biomass

District Heat

Larger than a boilerHeavier (in some cases much heavier) than a boiler, although improvements in engine (and possibly fuel cell) design mean weight may come down significantly in the futureSpace required for indoor hot water tank – challenging in flats and terraces where combis popular, although combi micro-CHP systems are on the market in continental Europe (only for low electrical efficiency micro-CHP)

Require hot water storage tank – challenging in many terraces and some semis.Require south facing roof

Larger than a boiler.Requires hot water storage tankRequires space for fuel storage (either for manual feeding into the boiler, or a dedicate store room with automated feed).

Heat interface unit approximately size of boilerNo hot water storage tank required


Soft-Factors - Economics

2 Economics

Not considering any physical constraints or attitudes

Upfront cost

Very poor Poor Moderate Good

Payb

ack

Very poor 0.0% 0.0% 0.0% 0.0%

Poor 0.0% 2.5% 5.0% 7.5%

Moderate 0.0% 6.3% 12.5% 18.8%

Good 0.0% 12.5% 25.0% 37.5%

Excellent 0.0% 18.8% 37.5% 56.3%

Years Payback % uptake

1 Excellent 75%

2 Excellent 75%

3 Good 75%

4 Good 50%

5 Moderate 50%

6 Moderate 25%

7 Poor 25%

8 Poor 10%

9 Poor 10%

10 Poor 10%

11 Very poor 0%

12 Very poor 0%

13 Very poor 0%

Marginal upfront cost (£k) % uptake

1 Good 75%

2 Good 75%

3 Moderate 50%

4 Moderate 50%

5 Poor 25%

6 Poor 25%

7 Poor 25%

8 Poor 25%

9 Very poor 10%

10 Very poor 10%

11+ Very poor 0%

Delta-ee customer research, including focus groups and a 1000 respondent survey revealed the primary barrier to microgeneration uptake are:

• Payback period• Upfront cost

Indications are that customers, particularly those interested in adopting technologies in the next 5 years, are beginning to consider the decision to install a new technology as an investment decision. Paybacks, that are within 7 years (the typical home ownership period) are acceptable to some customer groups – longer paybacks only to very small numbers.

Focus group research indicates that somecustomer will pay up to £5k more than a gas boiler. This is used as a basis for determining the technology fit into the upfront cost category.

Payback and up-front cost are multiplied together to give an overall

uptake rate – both are important to customers


Soft-Factors – Customer Preference

3 Customer preference

Customer preferences and attitudes only – ignore economics and physical constraints

Technology 2015 2025 2035 2045

Gas Boiler Good Good Good Good

GHP Poor Moderate Good Good

Micro-CHP low ee Moderate Good Good Good

Micro-CHP high ee Moderate Good Good Good

ASHP Poor Moderate Good Good

GSHP Poor Moderate Good Good

ASHP-Boiler Moderate Good Good Good

Gas Boiler - ST Moderate Good Good Good

Biomass Poor Moderate Good Good

District heat Moderate Good Good Good

Oil / LPG Moderate Good Good Good

Electric Storage Heaters Poor Good Good Good

Index Uptake

Good 100%

Moderate 66%

Poor 33%

Post 2025 customer attitudes are difficult to predict – for baseline we assume all technologies have a positive perception – to reflect learning rates and

attitudinal shift.

Delta-ee research shows that awareness of renewable heating technologies is low – in a 1000 respondent survey less than 50% of people

had an understanding of the key technologies today (ASHP, GSHP, mCHP, Biomass), with ASHP and mCHP scoring low (below 25% awareness).

In general customers today still prefer technologies that look, feel and act like a boiler – this is reflected in the perception of hybrids and

mCHP above by 2015. Where customers have to change there behaviour, where there is a lengthy, costly and difficult installation and where

customers may have to upgrade there heat distribution system acceptance is lower.

Barriers for key technologies today:

ASHP: Perception that they cannot work at low temperatures, some customers do not like the outdoor unit and issues around noise

GSHP: Longer install and disruptive groundwork's

Biomass: Unless already on solid fuel customers do not like that once installed they have to manage and maintain the system.

Storage heaters: Customers do not like that they have poor control of the system

District heat: perception in some that they will have minimal control of the system – but internally, looks and feels like a boiler so fairly

positive.


Soft Factors – Choosing the technology

Example housing segment(100,000 homes)

Technology option Uptake %

mCHP 50%

ASHP 30%

GHP 10%

Hybrid HP 10%

District heat 10%

50,000 customers in this segment will adopt a

new technology

mCHP = 50/110 of 50,000

ASHP = 30/110 of 50,000

GHP = 10/110 of 50,000

Hybrid HP = 10/110 of 50,000

District heat = 10/110 of 50,000

Different low carbon heating technologies will often be ‘competing’ for the same customer.

The “Uptake” in the table below looks at each technology in isolationThis will overestimate the actual take up – in the example case below the total adds up to 110%

In our model, we “fix” the maximum take-up in the sector to the maximum take up for the most popular technology –in the above case micro-CHP

The choice of technologies is then distributed, in proportion of the uptake forecast, within this amount.

Total = 110%


Scenario development

Our approach to developing the alternative scenarios

For each of the 35 housing segments in our model, we have analysed the suitability of different technologies, in terms of:EconomicsPhysical fit with the housing segmentRetrofit-ability

Electrification and Heat Networks Scenario

An approach which delivers on carbon by broadly following DECC Heat Strategy, but poses challenges to customers, and the energy system.

Growth in district heat, starting with denser housing and spreading over time to less dense housingElectrification of heat, initially in off-gas grid areas, and then spreading to gas-grid homes

Balanced Transition Scenario

An alternative approach that delivers significant carbon savings (but less than E&HN), but includes attempt to ensure both the customer and system impacts are minimised.

Growth in district heat but less penetration outside flats and some terracesElectrification of heat, but less pronounced in gas-grid homes, particularly those with relatively high heat demandsGrowth in lower-carbon gas technologies, with gradual growth in biomethane injection into the gas grid.

Base case scenario – customer choice

Our ‘baseline’ scenario allows the customer to chose their heating technology, based primarily on economics, with filters to take into account fit of the technology to the housing stock and attitudes of customers. We do not include any incentives / new regulations(for existing housing) in this approach.

We then develop two alternative scenarios with end-points that meet or get close to the DECC 2050 target to fully decarbonise residential heating.

These scenarios are developed by fixing the end point – rather than modelling interventions (regulations or incentives) and how these will affect customer uptake of different technologies.


Carbon

Energy systemimpact

Ease of retrofit

Customereconomics

Assessing our scenarios

We analyse our scenarios according to four key factors: carbon, customer economics, ease of retrofit, and electricity system impact.

• Impact on peak electricity demand

• Impact on electricity distribution networks

• Impact on gas network• Expansion of district

heat networks• Biomethane growth

• Impact on peak electricity demand

• Impact on electricity distribution networks

• Impact on gas network• Expansion of district

heat networks• Biomethane growth

• Customer upfront cost• Customer running costs• Customer payback

• Customer upfront cost• Customer running costs• Customer payback

• Carbon emissions(Goal = zero carbon by 2050)

• Carbon emissions(Goal = zero carbon by 2050)

• Challenge to install in existing homes

• Challenge to install in existing homes


Housing stock segmentation – key challenges

The biggest challenge facing the UK today is how to decarbonise the housing stock by encouraging some gas customers to switch to more expensive alternative technologies – these are the ‘problem sectors’ and contribute to 80% of emissions from residential heating and hot water

When considering the impacts on customers under our scenarios, and quantifying the level of support and interventions required analysis will look at both national level, and by segment – focusing on key ‘problem sectors’. As illustrated below the challenge will be to decarbonise customers on the gas network, the Delta-ee analysis will focus on these segments. Customers already on electric, and on oil will be more open to new technologies – the lower hanging fruit initially (to 2020-2030) will be largely rural off-gas segments.

UK Housing stock segmentation today

Detached

Semi-Detached

Terrace

Flat

Gas Electric Other


6m Properties23% CO2 emissions



UrbanSuburban

UrbanSuburban

UrbanSuburban

UrbanSuburban

UrbanSuburban

Rural









Rural

Rural

Rural

Rural

UrbanSuburban

Rural

Rural

Rural


Problem sector by carbon

This figure shows carbon emissions, today, in terms of different housing segments.Houses using natural gas are by far the biggest parts of the problem today.

Oil (and some LPG) – all modelled as oil in this study• Will be prime targets for electric heat pumps, biomass

heating • Mainly rural, so limited district heating• Similar approach in both scenarios

Electric homes – all modelled as storage heaters in this study• Will decarbonise as the electricity grid decarbonises• Flats = good DH potential, many others are rural so less

DH potential• Some may switch to heat pumps / biomass, but will

need to install wet central heating system• Similar approach in both scenarios

The challenging – and most CO2 intensive sector Our two scenarios consider different approaches to these segments.

0.00 2,000.00 4,000.00 6,000.00 8,000.00 10,000.00 12,000.00 14,000.00 16,000.00






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)


Summary - scenarios

1

3

2

Customer (baseline)

High electrification& DH

Balanced Transition

DescriptionScenario Risks / challenges

End-point – customer choice, high carbon

How far we get with customer switching, with no

incentives, based on our base-line electricity and gas

prices, and technology costs

Pathway

Customers prefer gas

End point – is almost zero carbon:

• district heat

• Electric heat pumps

Pathway:

• Pro-DH/electrification from the outset (discourage gas

technologies from 2030-40)

End point, will include some gas:

• district heat

• heat pumps

• hybrids + greater mix of low carbon gas technologies

Pathway:

• Mix of technologies, optimising hybrids and gas before

the grid decarbonises, less aggressive heat pump

adoption initially

• Impact of heat pumps on the electricity

system

• HP retrofit – how easy will it be?

• DH retrofit – economics / regulations

• DH, heat source – space available

• Electricity grid-decarbonisation

• Thermal demand reduction

• Electricity grid-decarbonisation

• Biomethane availability / natural gas

available for residential heat

• New technology development – gas

heat pumps, mCHP, hybrids.

• Thermal demand reduction

• Not applicable








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Overall results – Customer Choice, Total Appliance Mix

Decade by decade appliance mix – All homes

The number of gas heated homes remains broadly stable

64% of customers still choose gas as their primary heating fuel (55% opt to stick with a gas boiler)

The ‘alternative’ heating technology of choice for gas customers is m-CHP, with 9% of the market in 2045

Heat pumps only gain a 10% market share, almost all of this is from new build installs as switching is unattractive

District heat will account for ~9% of homes heating – nearly all of this comes from new build schemes as the economics are largely unattractive for retrofit

0

5

10

15

20

25

30

35

40

2012 2015 2025 2035 2045

Ins

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(M

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Biomass

Oil / LPG

District heat

Electric Storage heater

ASHP

GSHP

Hybrid ASHP

Gas Heat Pump

mCHP- high ee

mCHP - low ee

Gas Boiler

Without incentives or interventions by policy makers, under conditions where there is no support, customers will select the technologies that are the easiest and cheapest to install – and guarantee there heating requirements can be met. Technology development alone will not be sufficient to encourage switching.

Oil


Overall results – customer choice, retrofit and new build pathways

Decade by decade appliance mix – retrofit homesIt is most difficult to move away from gas in retrofit – gas is still a customer choice fuel by 2040-2050

85% homes use gas as the primary fuel

(excluding hybrid heat pumps)

~70% opt for a conventional gas boiler for

their whole house heating

The alternative heating technology of choice

is mCHP (11%)

Heat pumps can only grow their share to 1%

of the total heating market, district heat is less

that 1%

In retrofit, the biggest driver of gas is it’s low cost

compared to electricity. Technology

developments and cost reductions in non-gas

technologies are not enough alone to create a

strong enough economic case for switching.

Regulation will drive adoption in new build – Gas will be squeezed out.

Only 5% of new build homes will have a

conventional gas boiler installed by 2050 –

these are installed between 2012 and 2025.

Some of these customer switch to other gas

technologies.

Heat pumps, district heat and electric

storage heaters will dominate.

In new build the biggest driver is regulation –

as these strengthen gas will be eliminated as

customers choice is not relevant. End-users will

decide on a property purchase, not heating

system purchase.

Decade by decade appliance mix – new build homesThis is an illustrative mix, rather than result of detailed modelling

0

5

10

15

20

25

30

2012 2015 2025 2035 2045

Insta

lled

sto

ck (

Millio

ns)

Biomass

Oil / LPG

District heat


ASHP

GSHP

Hybrid ASHP

Gas Heat Pump

mCHP- high ee

mCHP - low ee

Gas Boiler

0

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2

3

4

5

6

7

8

9

10

2015 2025 2035 2045

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District heat


ASHP

Gas Heat Pump

mCHP- high ee

mCHP - low ee

Gas Boiler

Oil


0.00 2,000.00 4,000.00 6,000.00 8,000.00 10,000.00 12,000.00 14,000.00 16,000.00






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Customer Choice – Carbon impacts and problem segments

Tonnes C02/ yr. (Thousands)

2012 - 2020

2020 - 2030

2030 - 2040

2040 - 2050

Under Customer Choice the key problem segments are those

customer who are on the gas-grid. The following analysis will focus

on the barriers to switching to lower carbon appliances and the levels

of intervention required.

In the electric segments, even where customers opt to stay with the

status quo technology of storage heaters – electricity grid-

decarbonisation dramatically reduces carbon emissions in the 2020’s

– a key sensitivity around this will be any delay in this process.

Customers that use oil continue to present a problem – however this

segment is so small it is only a small contributor to overall carbon

emissions by 2050 (~8%)

*New build are excluded from this graph – technology choice is driven

primarily by regulations – the 9 million new build properties only

contribute ~1.5% of total CO2 emissions by 2050


0

5

10

15

20

25

£ (

Th

ou

san

ds)

Up-front Cost

Value for the customer – Gas, Detached, pre 1944

0

500

1000

1500

2000

2500

3000

Co

st

(£)

Annual Running cost

+ £4,500

Annual Boiler cost

Boiler cost

Impact on Payback Periods: gas is compelling

The technologies that showed potential for switching offered

paybacks between 3 and 7 years from 2020. Electric heat

pumps including hybrids and biomass, alternate solutions for large

difficult to heat properties never achieve paybacks below 50 years

between 2012-2050. To encourage switching to these

technologies significant regulatory or economic interventions will

be required.

Switching to these only

(Post 2020)

There are 2 key challenges for this sector

1) Upfront technology costs: Compared to a boiler, none of

the ‘low carbon’ heating solutions are competitive with a

gas boiler by 2050 – the customer is always asked to pay

more. From 2020 Stirling engine mCHP gains traction,

with fuel cells and gas heat pumps becoming interesting to

some customers by 2030. 40% of all mCHP adopted in

customer choice is from this segment

2) Running Cost Savings: Fuel bill savings are a priority

to encourage switching – even though hybrid heat

pumps (ASHP-Boiler) had an upfront cost lower than Fuel

Cell mCHP and Gas heat pumps there was no uptake of

this technology as it failed to deliver running cost savings

of the same scale.

Additional cost compared to a gas boiler where ‘switching’ to a non-gas boiler technology occurred in this segment


0

200

400

600

800

1000

1200

1400

1600

1800

2000

Co

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(£)


0

2

4

6

8

10

12

14

16

18

£ (

Th

ou

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nd

s)

Upfront Cost (£)

Value for the customer – Gas, Semi, 1944 - 2011

+ £3,500

Annual Boiler cost

Boiler cost

Under customer choice, gas semi-detached customers

behave in a similar to the detached segment. The key

barriers to uptake are:

1) Upfront technology costs: Again, mCHP was the

technology that gained reasonable market interest, with

40% of all mCHP installed by 2050 under customer

choice in this segment. Gas heat pumps took a very

small market share post 2030.

2) Running Cost Savings: Critical factor for uptake is

running cost, hybrid heat pumps, and ASHP (post 2030)

appear have similar or lower running costs than the gas

technologies customers chose – however due to the high

cost of electricity, running cost savings were not sufficient

to encourage switching.

Impact on Payback Periods: Only Gas technologies pay-back

Paybacks of 6-12 years were tolerated by some end-users in

this segment. None of the electric technologies would pay back in

less than 50 years without significant incentive.


(Post 2020)


0

200

400

600

800

1000

1200

1400

Co

st

(£)

Annual Running Cost

0

5

10

15

20

25

£ (

Th

ou

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Upfront Cost

Value for the customer – Gas, Terrace, Pre 1944 - 1980

+ £2,500

Annual Boiler cost

Boiler cost

Impact on Payback Periods : The technologies that showed

potential for switching offered paybacks between 6 and 12

years, but only 30% of customer chose to switch away from a gas

boiler.


(From 2025)

Under customer choice there is only a small amount of

switching to alternative technologies, and all customers

choose to stay on gas.

1) Upfront technology costs: Post 2020 mCHP begins to

gain traction.

2) Running Cost Savings: Running costs remain the

primary barrier for heat pumps but also for district

heat – Urban / suburban terraces present a big opportunity

for district heat, but without subsidy schemes have

significantly higher running costs than a gas boiler, and,

with the added hassle of the install - customers lean

towards selecting a boiler, or mCHP (which feels and looks

like a boiler).


0

500

1000

1500

2000

2500

3000

3500

GSHP Boiler & ST Biomass ASHP Oil / LPG

Co

st

(£)

Annual Running Cost

0

5

10

15

20

25

30

GSHP Boiler & ST Biomass ASHP Oil / LPG

£ (

Th

ou

sa

nd

s)

Upfront Cost

Value for the customer – Oil, Detached, Pre 1944

+ 2,000

Annual Boiler cost

Boiler cost

Impact on Payback Periods: Switching occurs when payback

is between 3-5 years

Without incentives the ASHP and Biomass propositions do

begin to look attractive over time. This indicates that a smaller

intervention could be enough to stimulate uptake in this sector.

Switching limited to these only

(From 2030)

Customers on oil do not have the choice of the gas

technologies – but uptake of alternative heating

technologies remains low under customer choice.

1) Upfront technology costs: Although only small volumes

of switching occurs the ASHP and Biomass propositions

are stronger when compared to oil, and post 2030

ASHP and Biomass begin to gain traction in this segment.

2) Running Cost Savings: A key driver of the switching

that did occur was a peak in heating oil costs in this

segment in 2030, annual savings are strong.

Oil

Oil


0

100

200

300

400

500

600

700

800

900

1000

ASHP GSHP Electricheating &

ST

Biomass Districtheat

Oil / LPG ElectricStorageHeaters

Co

st

(£)

Annual Running cost

0

2

4

6

8

10

12

14

16

ASHP GSHP Electricheating &

ST

Biomass Districtheat

Oil / LPG ElectricStorageHeaters

£ (

tho

us

an

ds

)

Upfront Cost

Value for the customer – Flat, Electric,1944 - 2011

Annual storage heater cost

Boiler cost

No Alternative technologies installed

In Electric segments there was no switching – the

additional costs of installing a wet system makes upfront

cost of alternative technologies unacceptable to

customers. Physical fit is also difficult for many (see next

slide). This is the same across all electric segments.

District Heat should be an attractive option – but there are

no running cost savings to tempt end-users. For the other

technologies the running cost savings they generate are not

significant enough to compensate for the high upfront cost.

Ultimately – the switching potential in electric homes is not a

major concern. As the grid decarbonises, electric

properties will transition naturally to meet carbon targets,

without a change in technology. Although we expect, DH will

need to be encouraged to help with the network impacts from

heat pumps in other properties.

Impact on Payback Periods: Paybacks never reach below 20

years

Oil

Oil


Retrofitability – a barrier to uptake

Gas, Detached,pre 1944

Flat, Electric,1944 - 2011

Oil, Detached Pre 1944

Gas, Semi, 1944 - 2011

Gas, Terrace, Pre 1944 - 1980

Under customer choice, with zero incentives, the ‘retrofitability’ of technologies is an important element of customer choice. Customer research shows that in addition to cost, installations which involve a lot of ‘hassle’, such as a lengthy disruptive installation, extensive internal alterations, that take up additional space, or generate excessive noise are unpopular with end-users

• Most / many of these homes have combi boilers - no obvious space for hot water storage tank

• Wall-hung boilers often in kitchen / living space

• Harder (but not impossible) to find space for outdoor unit

• Replacing electric storage heaters with a ‘wet’ (or even central air) system brings major disruption / cost

• Outdoor unit (for heat pump) possible but challenging

• Mixture of system and combi boilers, so mixed implications for hot water storage tank

• Many boilers in living space• Reasonable space for outdoor unit

for heat pump

• System boilers (not combi) are most common

• Outside space (for heat pump, or even biomass) less of an issue

• Some boilers in living space, others in utility room / garage.

• Have oil tank, so space for biomass or heat pump not an issue

• Typically have space indoors for large boiler


What happens if customers are allowed to choose?

Customer Choice – Gas dominates

Gas

Electric

Heat networks

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

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of

ap

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s (

%)

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics

Without any intervention, customers chose gas appliances – less than 1% of gas customer switch to an alternative fuel

Carbon targets missed – but low impacts on customers and the wider energy system

Existing homes

Gas heating appliances offer low to moderate

upfront cost, and low running costs

Micro-CHP grows on the back of product

maturing and electricity prices rising

substantially faster than gas prices.

Gas heat pumps mature but gain minimal

market share

Some switching away from oil

New build is dominated by heat networks and

electric heating (driven by regulations).

By definition of this scenario, customers chose low capital cost, low

running cost appliances that are relatively straightforward to retrofit.

Carbon reductions arise from growth in biomethane (75 TWh out of 327 TWh

or 23% of total gas consumption for residential heat), reduction in thermal

demand and some growth in lower carbon appliances

However, carbon emissions only fall by 46% in 2040-50 compared to

2010-20 levels.

There is some growth in peak demand on the electricity system from growth

of heat pumps (in new build and off-gas grid properties), but this only

amounts to 8 GW.

Heat networks grow but nearly all in new build.










7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


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Gas Boiler mCHP - low ee mCHP- high ee

Gas Heat Pump Hybrid ASHP GSHP

ASHP Electric Storage heater District heat

Biomass Oil

Overall results –Electrification & Heat Networks, Total Appliance Mix

Decade by decade appliance mix – Gas is driven out of the domestic sector

District Heat

35% of total

Electric heat

pumps 46% of

total

A key challenge under the

electrification scenario is the

uptake of heat pumps and

district heat required in retrofit,

to meet the zero carbon target:

80% of all heat pumps

installs need to be in retrofit

75% of district heat networks

will need to be in retrofit.

This will be challenging,

particularly in on-gas segments

because without incentives or

levers customers are asked to

pay higher up-front costs

compared to a gas boiler in

addition to higher on-going

running costs.


0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Electrification and heat networks– Carbon impacts and problem segments


2012 - 2020

2020 - 2030

2030 - 2040

2040 - 2050

Gas segments will be the biggest challenge under an

electrification and heat network scenario – a huge shift

towards electric heating is required which is challenging if

the spark spread remains wide & in homes with limited

space. However the end result looks good for carbon.

The following slides will focus on the interventions required

to facilitate this shift.


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Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Problem Segments – The challenge

Detached – On Gas (pre 1944)

Today: 98% gas boilers2025: 75% gas boiler / 20% HP / 5% Biomass 2035: 35% gas boiler / 45% HP / 15% Biomass2040: 75% HP / 25% biomass

Semi - Detached – On Gas (1944-2011)

Today: 98% gas boilers2025: 82% gas boiler / 15% HP / 2.5% DH 2035: 47% gas boiler / 45% HP / 5% DH2045: 75% HP / 20% DH / 5% biomass

Terrace – On Gas (Pre 1944-1980)

Today: 99% gas boilers2025: 76% gas boiler / 9% HP / 15% DH 2035: 44% gas boiler / 23% HP / 30% DH2045: 35% HP / 60% DH / 5% Storage heaters


2012 - 2020

2020 - 2030

2030 - 2040

2040 - 2050

New Build

New build is not considered a problem segment, under customer choice and balanced transition as small amount of gas remains in new build

(boilers installed to 2025), however it is assumed that the levers required to encourage the above retrofit switching will be sufficient to move

these customers away from gas. Post 2025, regulation should ensure no further gas is taken up in new build.


Rationale for heating appliance mix in 2050

District heat

• Reaches many terraces (high density, and on-gas so not

rural)

• Reaches into some semi-detached houses, but as many of

these are suburban, the high cost of pushing the heat

infrastructure into less dense areas limits the opportunity,

however uptake will need to be pushed from 2015.

• Doesn’t reach any detached homes, due to low heat

densities -> high costs to customers

Electric heat pumps

• Reaches into some terraced houses, space will be a

challenge but to reach the targets terraces will need to find

space for HPs – uptake will be mainly in more rural terraces as

urban homes opt for DH.

• Reaches into semi-detached houses in rural and suburban

areas: space will be a factor in some installs, particularly in

more modern homes (Post 1980)

• Reaches many detached homes, because space is not an

issue ASHP and GSHP are a viable option, with appropriate

incentives to overcome cost barriers.

Biomass boilers

• Reaches some hard to heat semi-detached and detached

homes. Some homes with very high thermal demand will opt

for biomass options. A few customers will reject an outdoor

unit, and the hassle involved in an ASHP or GSHP install.

Homes adopting biomass will be mainly rural homes, with a

few suburban homeowners with high heat demand selecting

this option.

The scenario allows 0% gas in domestic buildings by 2050.

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‘Andy and Caroline’ live in a detached house in a suburb of a large city. He has 3 children aged between 8 and 13 years old. He and his wife both work full time, with flexible working hours.

Their current heating system is a gas boiler, they have no double glazing and minimal insulation

Economic costs – 75% HP by 2050Without any economic incentives or levers under the electrification scenario

the end-user will need to pay additional upfront costs with only

marginal savings. Heat pumps are a priority in this sector, particularly ASHP

as they have a lower upfront cost. To get near 75% uptake (50% ASHP)

significant economic levers will be required.

Upfront cost Marginal annualrunning costs

Payback

2015 £2,952 (gas boiler) NA N/A

2025 £ 8,900 (ASHP)£21,000 (GSHP)£10,000 (biomass)

+ £348+ £208- £137

Heat pumps will never pay back the investment, biomass take 30yrs

2045 £7,620 (ASHP)£18,000 (GSHP)£8,000 (biomass)

+ £127- £222+£260

Heat pumps will never pay back the investment, biomass take 30yrs

Incentive: Long term support requiredLooking at ASHP (the lowest cost technology) there are a number

of economic levers that could be utilised.

Upfront grant: minimal impact, as spark spread and high cost

of electricity will result in long paybacks

Preferential HP Tariff: Already being explored in other

European markets, preferential tariffs for heat pumps can help

reduce spark spread and can be led by industry. PB of 12 years

can be achieved if ASHP uses ‘Economy 7’ tariff but this

would not guarantee sufficient ‘switching’.

On-going subsidy: The strongest and most costly lever,

10p/kWh over 7 years (potential RHI) gives attractive

paybacks of 4 years – but this tariff would need to be in place

until 2050 to achieve the targets so has a high long-term cost.

Physical FitThese homes have to find space for an outdoor unit – not too

much of a challenge.

If they require a heat pump >18 kW, a very expensive 3-phase

connection will be required.

Space for a hot water tank unlikely to be a challenge

Some changes to radiators / heating distribution system

required.


Physical Fit• Space for an outdoor unit – challenging in some cases, but

generally there will be a way.

• Space for a hot water tank will be challenging in semis that

already have combis.

• Some changes to radiators / heating distribution system

required.

Value for the customer – Gas, Semi, 1945-2011

Economic costs – 75% HP and 20% DH by 2050Without any economic incentives or levers under the electrification scenario

the end-user will need to pay additional upfront costs with only marginal

savings. A sizeable incentive would be required to encourage people to

invest in new technologies, for such small returns.


Payback


2025 £ 7,540 (ASHP)£15,290 (GSHP)£9,500 (biomass)£3000 (DH)

+ £143+ £80- £48+ £724

Heat pumps & DH will never pay back the investment, biomass take 30yrs

2045 £5,980 (ASHP)£9,830 (GSHP)£7,330 (biomass)£ 3000 (DH)

+ £36- £117+£260+ 564

Heat pumps & DH will never pay back the investment, biomass take 30yrs

Incentive: Long term support required DH and heat pumps will need to be ‘forced’ in this segment.

Upfront grants / one off payments will not be sufficient so longer

term support will be required in each decade.

Long term ‘heat’ contract: For DH to pay, scheme operators

will have to subsidise the heat /capital cost, to ensure it is lower

cost than gas.

Preferential HP Utility Tariff: PB of 13-14 years can be

achieved if ASHP uses ‘Economy 7’ tariff but this would not

guarantee sufficient ‘switching’



paybacks of 4 -5 years from 2030

‘John and Janette’ live in a semi-detached house in the suburbs of a big city, and have 2 young children.

Their current heating system is a gas condensing boiler, they have a small back-garden with limited space outside. The property has double glazing, and loft insulation.


Physical Fit• District heat connection will require either re-siting of boiler

(with new hydraulic interface unit) or running DH connection

through home to current location of the boiler

• For heat pumps, will require space for hot water tank – very

challenging as most will have combis.

• Also space for outdoor unit will be tough.

Value for the customer – Gas, Terrace, pre 1944-1980

Economic costs – 60% DH by 2050 / 35% HPWithout any economic incentives or levers under the electrification scenario

the end-user will need to pay significant additional upfront cost for with no

running cost savings. Although DH has an attractive cost, the heat / capital

cost is so high that this technology is ruled out. Strong economic levers will

be required to push out gas completely by 2050.


Payback


2025 £ 7,540 (ASHP)£15,290 (GSHP)£2,850 (DH)

+ £134+ £75+£582

Heat pumps & DH will never pay back the investment

2045 £5,980 (ASHP)£9,830 (GSHP)£2,850 (DH)

+ £32- £110+£441

Heat pumps & DH will never pay back the investment

‘Victoria & Alastair’ live in a terraced house, in a village, just outside a large city – they both work full-time

Their current heating system is a gas combi-boiler and they have converted the old hot water tank cupboard into a small en-suite shower-room. Externally there is limited space, a small front garden and a walled and paved back yard.

Incentive: District heat will have to heavily subsidised DH and heat pumps will need to be ‘forced’ in this segment. Upfront grants / one off payments will not be sufficient so longer term support will be required in each decade.

Long term ‘heat’ contract: For DH to pay, scheme operators

will have to subsidise the heat / capital cost, to ensure it is lower

cost than gas.

Preferential HP Utility Tariff: The impact of tariffs will be

lower in this segment, as fuel use is less – an ‘Economy 7’

equivalent would result in PB of 15 years but only post 2030.



paybacks of 5 – 6 years post 2025.


Physical Fit• Many (~three quarters), will require some modification to heat

distribution system and either outdoor unit or borehole /

ground-loop.

• For one quarter of homes, ‘fit’ with heat pumps may be too

tough (thermal demand too high, or upgrade to heat

distribution too tough) – these will switch to biomass.

Value for the customer – Oil, Detached, pre 1944

‘David & Jane’ live in a detached house, in a small rural village – they have grown up children that have left home, are semi-retired so at home during the day and have a dog called Mac.

Their current heating system is a combination of solid fuel and an oil boiler. They have original sash windows, and loft insulation only.

Economic costs: 75% Heat Pumps (50% ASHP) by 2050Without any economic incentives or levers under the electrification scenario

the end-user will need to pay additional upfront costs, but the running cost

savings are substantial with technologies beginning to payback at a

reasonable rate as early as 2025.


Payback

2015 £6,125 (oil boiler) NA N/A

2025 £ 8,900 (ASHP)£22,530 (GSHP)£10,000 (biomass)

- £420- £573- £955

9.6 yrs.28 yrs.4.1 yrs.

2045 £7,980 (ASHP)£19,490 (GSHP)£8,000 (biomass)

- £802- £1,192- £659

3.9 yrs. 11.2yrs3 yrs.

Incentive: No incentives required post-2030The proposition on oil is strong, cost reductions start to give

reasonable PB by 2025, with generous payback by 2045. Shifting

these customers early should be a core target, and a low cost

option.

Preferential HP Utility Tariff: Economy 7 or equivalent tariff

level, delivers paybacks of 3 years by 2025

On-going subsidy: a 10p/kWh RHI payment would deliver

paybacks as strong as 2 years by 2015 – a lower tariff or

upfront grant alternative would be an option in this segment,

making delivery of the targets less costly.


Incentive: District heat will need to be subsidisedAlthough switching is not a priority for carbon targets in this sector (if they stay electric grid will decarbonise) it presents an easy win for DH – dense housing.

Long term ‘heat’ contract: For DH to pay, scheme

operators will have to subsidise the heat / capital cost, to

ensure it is lower cost than competing electricity. Incentives to

encourage adoption and potential free-installs would generate

early uptake but a majority will come post 2025.

Physical Fit• Will require conversion to ‘wet’ systems and district heating

pipes running to each flat.

Value for the customer – Electric, flat, 1945-2011

‘Sarah’ lives in a small modern flat near a city centre. She works full time and is away a lot for business.

Her current heating system is a combination of storage heaters in the hallway, living room and bedroom – and panel heaters in the remaining rooms. There is no outside space or balcony and limited internal storage.

Economic costs – 75% DHWithout incentives the economic proposition for the customer is weak. While

ASHP do generate fuel bill savings, the up-front cost margin is prohibitively

high as a new wet-system will need to be installed. District heat uptake will be

important to ease pressure on the grid to allow less dense homes to have a

greater uptake of HPs – but without strong economic levers customers wont

shift.


Payback

2015 £2,475 (storageheaters)

NA N/A

2025 £ 9,700 (ASHP)£5,250 (DH)

- £211+ £124

ASHP ~35 yrs.DH never pays back

2045 £8,480 (ASHP)£5,250(DH)

- £232+ £42

ASHP ~30 yrs.DH never pays back


What happens under an electrification and district heat only scenario?

Significant interventions will be required to shift customers away from gas appliances and onto either electric heating or heat networks.

Delivers carbon targets but at high cost to customers

Similar to the DECC heat strategy, which sees

not future role for gas, and almost completely

decarbonises heat:

61% homes on electric heating / heat pumps

34% of homes adopt district heat (and heat

networks have to reach into suburbia).

All homes switch away from oil and gas

5% adopt ‘other solutions’ – biomass as the only

solution for some hard to heat homes.

By definition of this scenario, all customers are moved to electric

heating and heat networks. .

Although this delivers on carbon targets (96% reduction*) it imposes

high cost on customers, involves challenging retrofit issues, a major roll

out of heat networks, and results in major impacts on peak electricity

demand.

There is significant growth in peak demand on the electricity system from

growth of heat pumps – an additional 48GW of capacity will be required,

along with major upgrading of the distribution network and shut-down of all

gas networks.

Significant growth in heat networks – even into areas with less dense

housing (All urban, and some suburban homes).



Under CC, carbon targets are not met, so Delta-ee has developed two alternative scenarios by fixing the 2045 end point (through segment by segment analysis of opportunities for different technologies in each part of the housing stock) and developing realistic pathways.

Gas

Electric

Heat networks

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Electrification & Heat Networks – no future role for gas

Carbon

Energy systemimpact

Ease of retrofit

Customereconomics









7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


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Overall results –Balanced Transition, Total Appliance Mix

Decade by decade appliance mix – Hybrids will play a key role and some gas is permitted.

District Heat

28% of total

Gas 19% of

total

Electric heat

pumps 24% of

total

There will still be challenges

under this scenario, with high

uptake of electric heat pumps

and district heat.

64% of all heat pumps

installs need to be in retrofit

70% of district heat networks

will need to be in retrofit.

This will be challenging, however

less uptake will be required in

gas segments than under the

previous scenario, with

customers given greater choice

to opt for alternative (and more

affordable) gas technologies.

The high proportion of hybrid

heat pumps is key, for meeting

carbon targets, for customer

proposition (cheaper and easier

to retrofit) and for managing the

impacts on the electricity networks

and play a role as a key transition

technology.

Hybrids (elec.

and gas) 16%

of total


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Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Balanced Transition – Carbon impacts and problem segments


2012 - 2020

2020 - 2030

2030 - 2040

2040 - 2050

Under a ‘balanced transition’ scenario more gas is

permitted in the difficult to treat problem segments.

This means the carbon outcomes are not quite as

strong (but still 90% reduction), but the interventions

that will be required to encourage switching from gas

will be lower cost – this is because customers are given

more freedom of choice.

Gas is permitted in the hardest to treat sectors – Suburban

semi-detached, detached and terraced properties


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Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Problem Segments – The challenge


2012 - 2020

2020 - 2030

2030 - 2040

2040 - 2050

Detached – On Gas (pre 1944)(Today: 98% gas boilers)

2025: 60% gas boiler / 10% GHP / 6%mCHP 12% HP / 10% Hybrid/ 2% Biomass

2035: 25% gas boiler / 20% GHP / 13%mCHP 19% HP / 20% Hybrid/ 3% biomass

2045: 7.5% gas boiler / 25% GHP / 10%mCHP 25% HP / 30% Hybrid / 5% biomass

Semi - Detached – On Gas,1944-2011(Today: 98% gas boilers)

2025: 70% gas boiler / 5% GHP / 8%mCHP 7% HP / 10% Hybrid

2035: 30% gas boiler / 15% GHP / 13%mCHP 14% HP / 25% Hybrid/ 2.5% DH

2045: 7.5% gas boiler / 20% GHP / 10%mCHP 25% HP / 33% Hybrid/ 5% DH

Terrace – On Gas (Pre 1944-1980)(Today: 99% gas boilers)

2025: 63% gas boiler / 5% GHP / 8%mCHP 4% HP / 10% Hybrid / 10% DH

2035: 35% gas boiler / 10% GHP / 8%mCHP 12% HP / 15% Hybrid / 22% DH

2045: 5% gas boiler / 10% GHP / 15% HP / 25% Hybrid / 45% DH


Rationale for heating appliance mix in 2050

District heat

• Reaches many terraces (high density, and on-gas so not rural)

• Little reach into semi-detached houses, due to the high cost

of pushing the heat infrastructure into less dense areas

• Doesn’t reach any detached homes, due to low heat densities

-> high costs to customers

Hybrid heat pumps & Electric heat pumps

• Hybrids dominate in terraced houses, space will be a

challenge, so hybrids are an attractive option

• Hybrids and ASHP reach into many semi-detached houses,

where space is a factor (post 1980) hybrids are more likely to be

adopted, more rural customers opt for pure heat pumps.

• Hybrids and ASHP reach many detached homes, because

space is not an issue ASHP and GSHP are a viable option, but

on-gas hybrids are an attractive alternative which require lower

incentives.

Biomass boilers

• Reaches very few hard to heat semi-detached and detached

homes, some homes with very poor thermal demand will opt for

biomass over a heat pump – these will be rural homes but overall

uptake is lower than electrification as suburban homes with high

thermal demand are able to stay on gas.

Gas heat pumps and mCHP

• Reach some terraced homes, but space will be an issue and

limit uptake – this is dependent on the technology developing to

accommodate lower heat demands.

• Reach many semi-detached and detached homes, the

technology fits and feels like a boiler, and on-gas has a strong

economic case from 2020.

The scenario allows ~30% gas in domestic buildings by 2050.

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‘Andy and Caroline’ live in a detached house in a suburb of a large city. He has 3 children aged between 8 and 13 years old. He and his wife both work full time, with flexible working hours.

Their current heating system is a gas boiler, they have no double glazing and minimal insulation

Incentive: 7.5% of customer can stay with a gas boiler,

with no additional policy costs. Some economic levers will be required to prevent ‘ too much’

uptake of gas technologies, customers are most inclined to select

mCHP with attractive paybacks from 2025.

Gas heat pump – an option post 2025: Post 2025 GHP

begin to payback without any interventions (PB 6-7 years) –

modest up-front incentives would attract some wavering

customers with minimal policy cost.

Hybrid heat pumps & ASHP- both would require an on-going

tariff type incentive (such as the RHI), but for hybrids a lower

tariff of 5p/kWh would deliver acceptable PB by 2015 of 5

years – hybrids will also add value by easing electricity system

challenges

Physical Fit• Variety of solutions for different homes – 80% of homes will

require outdoor unit for heat pump

• Hybrids are a solution where no space for hot water storage

tank (gas heat pump may also not require storage tank)

• Hybrids are a solution where changes to heat distribution

system are prohibitiveEconomic costs – 25% GHP, 25% HP, 30% Hybrids by 2050Compared to the electrification scenario customers under the balance

scenario have more choice, a number of gas technologies offer reasonable

paybacks by 2025 – incentives will still be required to ensure that enough

customers move to electric technologies


Payback


2025 £9,000 (GHP)£4,700 (mCHP low-ee)£ 8,500 (ASHP)£6,000 (Hybrid HP)

- £709- £260+ £348+ £158

10.3 yrs.6.8 yrs.Does not pay backDoes not pay back

2045 £6,400 (GHP)£4,000 (mCHP low-ee)£ 6,500 (mCHP high-ee)£ 8,000 (ASHP)£5,344 (Hybrid HP)

- £797- £318- £670+ £127- £222

6 yrs.3.4 yrs.5.3 yrs.Does not pay backDoes not pay back


Physical Fit• Three quarters of homes will require an outdoor unit –

challenging but achievable

• As little as 22% of homes require hot water tank (if gas heat

pump is developed w/o water storage, and assuming micro-

CHP comes without storage).

• 42% of homes will require relatively low flow temperatures, or

electric / gas heat pumps capable of high flow temperatures

with reasonable performance

Value for the customer – Gas, Semi, 1945-2011

Economic costs: 20% GHP, 22% HP, 33% Hybrids by 2050Uptake of Heat pumps will be important in this sector – some switching to

electricity will be required and economic levers that impose policy costs

essential – however gas technologies start to look attractive without big

incentives, and could offer an opportunity to manage costs.


Payback


2025 £8,725 (GHP)£5,050 (mCHP low-ee)£ 7,540 (ASHP)£5,125 (Hybrid HP)£3,000 (DH)

- £305- £203+ £143+ £82+ £724

20 yrs.12 yrs.Does not pay backDoes not pay backDoes not pay back

2045 £6,140 (GHP)£4,320 (mCHP low-ee)£ 5,890 (mCHP high-ee)£ 5,980 (ASHP)£4,280 (Hybrid HP)£3,000 (DH)

- £359- £170- £540+ £36+ £6+ £564

10 yrs.10 yrs.6 yrs.Does not pay backDoes not pay backDoes not pay back

Incentive: 7.5% of customer can stay with a gas boiler,


uptake of gas technologies. GHP offer a good alternative to

mCHP in 2030-2050, generating lower carbon and could be

incentivised with relatively modest up-front incentives.

Hybrids and ASHP: 10p/KWh RHI incentive will deliver PB of

5Y for ASHP and 4 years for hybrids by 2050, with

technologies looking most attractive post 2030

GHP: Relatively modest grants of £2,000 in 2030-40 and

£1,000 in 2040-2050 would encourage uptake – bringing PB

to 7 years

‘John and Janette’ live in a semi-detached house in the suburbs of a big city, and have 2 young children.

Their current heating system is a gas condensing boiler, they have a small back-garden with limited space outside. The property has double glazing, and loft insulation.


Economic costs: DH 35%, Hybrids 25%, HP 15%, GHP 10%Terrace homes in on-gas areas are an opportunity for DH, but this will need to be heavily incentivised to ensure acceptable running / capital costs. Gas technologies can look attractive with small incentives.

Physical Fit• Range of solutions – hot water storage tank will be

challenging (15% definitely will need one with pure electric

heat pump)

• Outdoor unit tough but not impossible – 50% will need one

according to our assumed appliance mix.

• 25% of homes will require relatively low flow

temperatures, or electric / gas heat pumps capable of high

flow temperatures with reasonable performance

Value for the customer – Gas, Terrace, pre 1944-1980


Payback


2025 £8,725 (GHP)£5,050 (mCHP low-ee)£ 7,540 (ASHP)£5,125 (Hybrid HP)£2,850 (DH)

- £288- £203+ £134+ £79+ £582

22 yrs.12 yrs.Does not pay backDoes not pay backDoes not pay back

2045 £6,140 (GHP)£4,320 (mCHP low-ee)£ 5,890 (mCHP high-ee)£ 5,980 (ASHP)£4,280 (Hybrid HP)£2,850 (DH)

- £342- £170- £540+ £32+ £5+ £441

11 yrs.10 yrs.6 yrs.Does not pay backDoes not pay backDoes not pay back

Incentive: 5% of customer can stay with a gas boiler,


uptake of gas technologies, customers are most inclined to select

mCHP with attractive paybacks from 2025.

The district heat proposition will need support – Cost is

competitive but customers will not switch unless running /

capital costs can be subsidised

Hybrids and ASHP: 10p/KWh RHI incentive will deliver PB of

5Y for ASHP and 4 years for hybrids by 2050, with

technologies looking most attractive post 2030

GHP: Relatively modest grants of £2,000 in 2030-40 and

£1,500 in 2040-2050 would encourage uptake – bringing PB

to 7 years.

‘Victoria & Alastair’ live in a terraced house, in a village, just outside a large city – they both work full-time

Their current heating system is a gas combi-boiler and they have converted the old hot water tank cupboard into a small en-suite shower-room. Externally there is limited space, a small front garden and a walled and paved back yard.


Value for the customer – Electric and Other segments

These segments will be treated the same under the ‘balanced transition’ scenario as under the ‘Electrification and heat networks’ scenario.

Incentives will be required to push electric customers in flats and terraces onto district heat, but with the grid-decarbonising this is not critical for carbon.

Oil segments represent the ‘low hanging fruit’ and a small push with minimal incentives should encourage early switching under both scenarios.

Electric, flat, 1945-2011

Other, detached, Pre 1944


What happens under a more compromised position?

Very strong growth in heat networks and electrification of heating – but with gas still playing a significant role in suburban homes.

Ambitious decarbonisation and fuel switching

needs to occur – but the hardest to switch homes

are able to stay on gas (or gas / electric hybrids)

67% homes on electric heating / electric heat

pumps

27% of homes adopt district heat (dense urban roll-

out only).

Fuel switching completely away from oil

A range of low carbon gas appliances (including

electric heat pump –gas boiler hybrids) are adopted

– 30% of customers stay on gas (16% hybrid)

BT imposes higher costs on customers than CC, but for certain customer

groups (primarily suburban customers currently on the gas network) lower

than E&HN. It offers a wider range of technologies to make retrofit less

challenging. It has similar, but lower impacts on the energy system.

Delivers significant carbon savings (90% reduction*), but this is

dependent on 75TWh of biomethane being available.

There is growth in peak demand on the electricity system – an additional

24GW of capacity will be required, along with upgrading parts of the

distribution network and shut-down of parts of the gas networks.

Significant growth in heat networks – but only into dense urban

housings, suburban on-gas homes can opt for gas or hybrid technologies.




Under E&HN scenario, there are some extreme impacts, on both the customer and on the system. Delta-ee has developed the Balanced Transition scenario, as a more compromised position, which can achieve significant carbon results at lower cost to customer and the energy system.


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Energy systemimpact

Ease of retrofit

Customereconomics

Achieves significant carbon reductions while minimising impacts on the customer and the energy system.








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Carbon and electricity system impacts

Here we examine how carbon and electricity system impacts of each scenario. In summary:

Scenario Carbon reduction (in 2040-50, compared to 2010-20)

Electricity system impact

Customer choice 46% • None

Electrification and heat networks 96% • 52 GW of additional peak electricity demand

• Upgrading most of the UK’s electricity distribution network

Balanced transition 90% • 23 GW of additional peak electricity demand

• Upgrading part of the UK’s electricity distribution network (possibly at a later date than above)

Note that carbon reductions compared to 1990 have not been carried out as defining the residential heating baseline in 1990 is outwith of the scope of this study


Scenario outcomes – Impact on Carbon

Decade by decade domestic carbon emissions - all homes, by scenario

Carbon reductions (compared to 2011):

Customer Choice: 46% reduction Balanced Transition: 90% reductionElectrification and heat networks: 96% reduction

Sensitivities:

There are some key sensitivities that will

influence the carbon outlook under each

scenario.

The availability of biomethane will have an

impact on the carbon intensity of the gas

appliances, particularly under the ‘balanced

transition’ scenario.

Currently carbon reductions under this

scenario are significant despite 34% of

appliance (16% hybrids) using gas – overall

gas consumption of 116TWh is largely met by

the 75TWh of biomethane available.

Under all scenarios the rate of grid-

decarbonisation could also influence the

carbon outlook

These sensitivities are explored in detail on

page 111 - 116

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2012-20 2020-30 2030-40 2040-50

To

nn

es

CO

2/ yr.

(T

ho

us

an

ds

)

Customer Choice

Balanced Transition

Electrification & HeatNetworks

The level of biomethane that will be available for the domestic sector, is uncertain – but even when assuming an extremely low volume, the Balanced Transition scenario achieves 80% reductions on carbon emissions by 2050.


Electricity system impacts

Electrification of heat will bring a number of challenges for the electricity system, in particular:

1. Supply & demand balancing - growth in peak electricity demand on the coldest day, and challenges to generate enough electricity to meet this demand

2. Stress on electricity distribution networks as (peak) demand may exceed network capacity

Supply / demand

The peak demand depends upon four factors:

1. Using thermal storage to shift the peak

heating demand of the building – in

existing residential properties this is

practically limited to ~1-2 hours max for

heat pumps unless there are

breakthroughs with novel forms of thermal

storage

2. The peak thermal demand of housing

stock with electric heating. Insulation of

existing buildings can help to reduce this

but only to a certain extent (we assume a

21% reduction in thermal demand from the

existing housing stock).

3. The efficiency of electric heating –

unfortunately heat pump efficiency is at its’

lowest during times of peak demand.

4. The co-incidence of operation of

electric heating systems.

Electricity distribution networks

Electricity distribution network capacity is rated for the peak (not average) electricity

demand. Currently, there is some headroom across most networks to allow for demand

growth.

Electrification of heat will put pressure on this headroom – with the pressure

manifesting itself through:

1. Electrical loads reaching the capacity of some local distribution networks affecting

voltage cables and distribution transformers. In some areas higher voltage distribution

networks may also be affected.

2. Quality of customers’ supply is likely to deteriorate with general drops in voltage levels

& voltage fluctuations.

If any of the above factors become problematic, then the network will need to be

upgraded. Typically, this may require:

- Replacement / reinforcement of equipment at local distribution substations

- Replacement / reinforcement of low voltage over-head or underground cables

- Application of smart grid solutions to defer or avoid more expensive replacement /

reinforcement

While this report looks at the potential impact of residential heating on electricity distribution

networks, the impact of low carbon policies will likely bring other impacts on these

networks – from photovoltaics and electric vehicles. These challenges have been explored

by the ENA and other stakeholders in a separate report and model published under

Workstream 3 of the Smart Grids Forum (see slide 110 for full explanation).


Assumptions for calculating peak demand:

1. Thermal storage – we do not assume any potential to shift heat pump operation using thermal storage.

2. Heat pump capacity – our model selects a 5 kWth, 8.5 kWth or 12 kWth heat pump according to the thermal demand of the house. The thermal demand of existing homes is assumed to decrease by 21% from current levels by 2050.

3. At the time of peak heating demand, we assume a fall in COP (for air source heat pumps) of 0.8 from the average annual COP (or SPF). Little manufacturer data is available, and even less operational data is publicly available. We do not assume any direct electric heating – in some cases today we know that this is required on the coldest day. For an ASHP, this means a COP of 2.2 in 2040-50 for peak demand on the coldest day.

4. Coincidence of heat pump operation – we assume a coincidence of 90%, although there is little evidence on which to base this assumption.

5. Electric storage heaters – we assume 10% of these are operating during peak demand on the coldest day, falling to 5% in 2040-50.

-

10

20

30

40

50

60

2012-2020 2020-2030 2030-2040 2040-2050

Peak e

lectr

ic d

em

an

d f

rom

heat

pu

mp

s a

nd

sto

rag

e

heate

rs (

GW

)

Customer Choice


Balanced Transition

System – supply-demand impacts

Peak Electricity Capacity on the Coldest day for heating only

Excluding electric heat

pumps for district heating –

these are assumed to be

bivalent / have large thermal

stores.

Excludes other new demands – electrification of transport is expected

to add significant new demand, but may be more ‘shift-able’ than

electric heating due to flexibility of charging patterns.


Electricity distribution network impacts: Existing research

Impacts on the electricity distribution network: There

will be high costs to upgrade.

In a separate report under the Smart Grid Forum

Workstream 3 (WS3) and commissioned by ENA the

impact of low carbon technologies, including heat pumps,

on Great Britain’s electricity distribution networks has been

quantified.

This report finds that there are potentially high costs

associated with upgrading the electricity distribution

network – but that these costs can be limited if a mixture

of ‘smart’ and conventional solutions are deployed. This is

illustrated here using a base case scenario which includes

DECC scenarios for:

High penetration of heat pumps

Central (medium) penetration of electric

vehicles and solar PV

‘Gone Green’ National Grid scenario for

generation

These costs are expressed in ‘discounted Totex’ which is

the total expenditure, in terms of capital and operating

expenditure, across the period of investment, discounted

by an annual rate of 3.5%.

0

5

10

15

20

25

BAU Incremental Top Down

Dis

co

un

ted

To

tex i

n £

bn

DECC base case scenario will result in £12-£20bn of investment in the

distribution network between 2012 and 2020 to accommodate PV, heat

pumps and electric vehicles

Under the DECC scenario for high heat pump and central PV and electric vehicle uptake £12bn - £20bn will need to be invested in the distribution network (in terms of discounted Totex over 2012-50) to cope with these technologies

Top-Down: Deploying a mix of conventional and smart solutions with various smart technologies deployed ahead of need. E.g. Advance development of comms and control platforms

Incremental: Deploying conventional and smart solutions on an “as-needed” basis. E.g. demand side response, active network management and installing fault current limiters

BAU: Conventional solutions only . E.g. installing new transformers, minor and major cable upgrades etc.


Electricity distribution network impacts: Delta-ee Scenarios

To understand the impacts of the Delta-ee scenarios on the distribution network, these have been “run” on the EATL model utilised in the earlier

WS3 report. Using the Delta-ee heat pump uptake numbers, and using the same ‘base-case’ numbers (the central scenario) for electric vehicle and

solar PV uptake the potential costs under each of the investment strategies are shown below.

As in the WS3 report the findings indicate that progress to the 2050 targets will result in high investment costs for the electricity distribution network

under all of the investment strategies, and that the role out of ‘smart solutions’ have potential to mitigate a significant portion of these costs.

However, critically the results also indicate that, under ‘Balanced Transition’ significant cost savings (in terms of discounted Totex) can be

made by allowing hybrid heat pumps, and high efficiency gas appliances to be adopted in the harder to switch housing segments. These cost

savings could amount to between £8bn and £14bn of investment that could be avoided under BT.

‘Balanced transition’ results in lower distribution network upgrade costs to 2050

‘Balanced Transition’ could deliver lower distribution network upgrade costs to 2050 – delivering up to £14bn of savings

The Delta-ee Electrification & HN scenario is closely aligned to the DECC high heat pump scenario. The white line represents the indicative costs under the WS3 report – the investment costs appear higher in the Delta-ee scenario because:

Delta-ee ramps up heat pump uptake from 2011 – and this early investment costs more over the lifetime of the model. This early uptake has been exaggerated as the decade by decade HP capacities have been converted into annual uptake on a straight line basis

DECC scenario has slow uptake of HP initially, including zero uptake to 2017. This will underestimate HP costs as today there is already a sizeable installed base.

0

5

10

15

20

25

30

BAU Incremental Top Down

Dis

co

un

ted

To

tex

in

£b

n

Electrification & HN

Balanced Transition

Customer Choice

Deploying a mix of conventional and smart solutions with various smart technologies deployed ahead of need.

Deploying conventional and smart solutions on an “as-needed” basis.

Conventional solutions only

£14bn saving

£8bn saving

£9bn saving


Gas and heat network impact

A managed exit from gas is required in both Balanced Transition

and Electrification and Heat Networks. The main difference is that in

E&HN all homes exit from the gas network.

This managed exit will require a number of issues to be addressed,

including:

Depreciation periods of investments in the gas distribution

infrastructure

How parts of the gas network are ‘switched off’ - both in terms of

timing and geographic coverage

For BT, earmarking of which homes will keep access to gas, and

which will not

Under Balanced Transition, swathes of the gas distribution network could be shut down by 2050.

Under Electrification and Heat Networks, the whole gas network is shut down by 2050

This may require interventions such as the following:

Strong incentives or mandating customers to connect to heat

networks

New regulatory frameworks for heat networks

Both Balanced Transition and Electrification and Heat Networks require huge growth in heat networks

Attracting investment for such growth will require the private sector to have a certain level of comfort in the returns they can make on –and the risks associated with this investment.

For E&HN, the returns will need to be sufficient to invest in heat networks for less-dense suburban housing in addition to high-density city centres

Number of homes using gas under each scenario in 2050 Number of homes connected to heat networks under each

scenario in 2050

0

5

10

15

20

25

CustomerChoice

BalancedTransition

Electrification& HN

Nu

mb

er

of

ho

me

s

co

nn

ec

ted

to

ga

s

(Mil

lio

ns

)

0

2

4

6

8

10

12

14

CustomerChoice

BalancedTransition

Electrification &HN

Nu

mb

er

of

ho

me

s

co

nn

ec

ted

to

Dis

tric

t H

ea

t (M

illi

on

s)








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Comparing the three scenarios

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

Electrification & Heat Networks – a two horse raceCustomer Choice – gas dominates


• Carbon: 46% reduction• System Impact: low , 8

GW of additional peak elec. demand, nearly all in new build so low network impacts

• Retrofitability: strong,

difficult to treat homes stay with a gas boiler

• Customer economics: strong, expensive technologies are not forced, running costs are low.

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

• Carbon: 96% reduction • System Impact: high,

electricity: 48 GW of additional peak demand,

major upgrading of

distribution network; shut down all gas networks; heat networks in all dense urban areas

• Retrofitability: difficult , heat pumps in homes outside of dense urban

• Customer economics: challenging for homes that previously used gas..

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

• Carbon: 90% reduction.

• System Impact: moderate , electricity: 24 GW of additional peak demand, upgrading of part of distribution network, shut down parts of gas network, biomethane growth.

• Retrofitability: good, several options open to hard to treat homes.

• Customer economics: moderate, on-gas customers can use gas / hybrid technologies, moderate upfront cost & running costs

* *

*


Carbon

Energy systemimpact

Ease of retrofit

Customer economics

Customer choice

Electrification and heatnetworksBalanced transition


0%

25%

50%

75%

100%

Nu

mb

er

of

ap

plian

ces (

%)

Oil / LPG

Biomass

District heat


ASHP

GSHP

Hybrid ASHP

Gas Heat Pump

mCHP- high ee

mCHP - low ee

Gas Boiler

Pathway comparisons

Electrification & Heat Networks – A two horse raceCustomer Choice – Gas dominates


Gas

Electric

Heat networks

Gas

Electric

Heat networks

Gas

Electric

Heat networks

For hybrid heat pumps we have assumed that

the heat pump provides 50-60% of space

heating and hot water demand.

Appliance Mix

Customer Choice

Electrification& heat networks

Balanced Transition

Gas: 64%Electric: 26%DH: 7%Other: 3%

Gas: 0%Electric: 61%DH: 34%Other: 5%

Gas: ~30% (16% hybrid)Electric: 37%DH: 27%Other: 2%

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)

0%

25%

50%

75%

100%

2012 2015 2025 2035 2045

Nu

mb

er

of

ap

pli

an

ce

s (

%)








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents



We tested the scenarios against five sensitivities – overall Balanced Transition is less sensitive than Electrification and Heat Networks to risks in decarbonising electricity and in zero carbon supply of heat to district heat networks, although it shows some sensitivity to lower amounts of biomethane.








Lower electric heat pump COP on coldest dayCOP of 1.7 rather than2.2 (in 2050)

Higher gas, lower electricity pricesGas price 8p rather than 5.7p/kWh, electricity price 18p rather than 21.5p/kWh

Metric

Carbon reduction in

2050

Carbon reduction in

2050

Carbon reduction in

2050

Peak additional

demand from electric

heat pumps

Additional switching from gas to electric

Electrification and

heat networks

85%

(from base of 96%)

No gas in this

scenario

93%

(from base of 96%)

Rises from 48 to 59

GW

Relevant only for

Customer Choice (as

EH&N and BT are

‘fixed’)

Shift from micro-CHP –

mainly to gas boilers,

0.2M extra ASHPs

Balanced

transition

85%

(from base of 90%)

Less biomethane =

79%

More biomethane =

95%

(from base of 90%)

88%

(from base of 90%)

Rises from 24 to 29

GW

small increase in gas heat pumps (0.5 – 1.6 million installed base) and air sourcarbon emissions result from this sensitivity.

Impact of this and carbon

price on gas explored on slides 121 & 122)


Further details of sensitivity analysis for slower electricity grid decarbonisation

DECC has ambitious targets to substantially decarbonise the electricity grid by 2030. It is possible that slower progress will be made than DECC hopes –we explore slower grid decarbonisation impact on carbon emissions in each of our three scenarios and the assumptions we have used for average and marginal grid carbon intensities. .

Average and marginalAverage grid carbon intensities are used for electric heating. For CHP carbon analysis, marginal carbon intensities are used – with different marginal carbon intensities for different types of CHP.

0

0.1

0.2

0.3

0.4

0.5

0.6

2010-2020 2020-2030 2030-2040 2040-2050

kg

CO

2 /

kW

h

Average

Marginal (fuel cell &DH)

Marginal (enginemicro-CHP)

Average - SLOWER

Marginal (fuel cell &DH) - SLOWER

Marginal (enginemicro-CHP) -SLOWER


Slower electricity grid decarbonisation (2)

DECC has ambitious targets to substantially decarbonise the electricity grid by 2030. It is possible that slower progress will be made than DECC hopes –we explore slower grid decarbonisation impact on carbon emissions in each of our three scenarios.

Slower electricity grid decarbonisation only has a relatively small impact on carbon emissions

The impact is most pronounced on the Electrification and District Heat scenario, with carbon emissions rising noticeably – but still very low overall. In Customer Choice, micro-CHP emissions fall, but this is slightly offset by rising emissions from heat pumps and electric storage heating in the new build sector.In the Balanced scenario, the impact is small – mainly due to rising emissions from heat pumps.

0

20,000

40,000

60,000

80,000

100,000

Millio

n t

on

nes C

O2 /

year

Customer choice

Customer choice

Customer choice - slower grid decarb

0

20,000

40,000

60,000

80,000

100,000

Millio

n t

on

nes C

O2 /

year

Electrification and DH

High electrification and DH

High electrification and DH - slowergrid decarb

0

20,000

40,000

60,000

80,000

100,000

Millio

n t

on

nes C

O2 /

year

Balanced

Balanced

Balanced - slower grid decarb


Less / more biomethane

Biomethane in residential gas network (TWh)

2010-20 2020-30 2030-40 2040-50

Base-case 5 15 36 75

Lower biomethane 2 5 10 20

Higher biomethane 5 20 45 100

In Balanced, less aggressive biomethane assumptions have little impact, but more aggressive almost eliminate carbon

As biomethane rises beyond our base-case, it makes up almost all the natural gas supplied to the residential sector (100/111)But higher levels of biomethane have little impact in Customer Choice.

0

20,000

40,000

60,000

80,000

100,000

Millio

n t

on

nes C

O2 /

year Customer choice

Customer Choice - base

Customer Choice - lower biomethane

Customer Choice - higher biomethane

0

20,000

40,000

60,000

80,000

100,000

Millio

n t

on

nes C

O2 /

year Balanced

Balanced - base

Balanced - lower biomethane

Balanced - higher biomethane


Lower electricity and higher gas prices (1)

Fuel price assumptions:

DECC assumptions through to 2030 predict relatively flat natural gas prices, with more rapidly rising electricity prices. Our assumptions keep these prices flat through to 2050. It is possible that natural gas prices will rise more steeply than DECC forecasts. This could be due to rises in global energy prices, or higher taxation on natural gas. Electricity prices could rise less steeply than DECC forecasts, perhaps due to slower decarbonisation of the electricity grid.

0

0.05

0.1

0.15

0.2

0.25

2010-20 2020-30 2030-40 2040-50

Re

sid

en

tia

l re

tail

pri

ce

(p

/kW

h)

Natural gas price - base

Natural gas price - higher

Electricity price - base

Electricity price - lower

Impact of lower electricity and higher gas prices on outcome of the Customer choice model

The main impact of higher gas and lower electricity prices is to

shift from micro-CHP to gas boilers and gas heat pumps.

• Air source heat pumps also see some modest growth.

• The changing ratio is not sufficient to see large-scale switching

from gas to electric heat pumps.

0

10,000,000

20,000,000

30,000,000

2045 - base 2045 - sensitivityElectric Storage HeatersOilDistrict heatBiomassGas boiler - solar thermalASHP-BoilerGSHPASHPMicro-CHP high eeMicro-CHP low eeGHPGas Boiler


Lower electricity and higher gas prices (2) and impact of carbon price

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Co

st

(£)


Boiler running cost base case

This slide explore the impact of higher gas prices and lower electricity prices – and the impact of a potential carbon price – on the running cost of different appliances in a 3-bed semi-detached house on the gas network. A gas price of 8p rather than 5.7p/kWh, electricity price 18p rather than 21.5p/kWh

Boiler running cost with higher gas price

*

ASHP -£712/yr

*

Hybrid -£861

*

M-CHP -

£763

*

GHP-£582

Running cost changes substantially with these

assumptions – ASHP is £375/yr lower than a

gas boiler. But premium upfront cost of ~£3.5k

still results in long payback.

Running cost changes substantially with these

assumptions – ASHP is £375/yr lower than a

gas boiler. But premium upfront cost of ~£3.5k

still results in long payback.

*

*

Carbon price impact

A gas boiler has emissions of 828 kg

CO2 / yr under Balanced Transition

(75 TWh biomethane, gas only in

~one third of homes).

Assuming a 2050 carbon price of

£250 / tonne would add an additional

£207 to the annual running cost of a

gas boiler (additional £80 for a gas

heat pump), pushing the annual

running cost for a gas boiler to just

over £1,000.

Using our base case energy price

assumptions would give an ASHP

lower running costs of ~£160

compared to a gas boiler (or ASHP

£300 more than a gas heat pump)

Carbon price impact

A gas boiler has emissions of 828 kg

CO2 / yr under Balanced Transition

(75 TWh biomethane, gas only in

~one third of homes).

Assuming a 2050 carbon price of

£250 / tonne would add an additional

£207 to the annual running cost of a

gas boiler (additional £80 for a gas

heat pump), pushing the annual

running cost for a gas boiler to just

over £1,000.

Using our base case energy price

assumptions would give an ASHP

lower running costs of ~£160

compared to a gas boiler (or ASHP

£300 more than a gas heat pump)


Changes in electric heat pump COPs

We assume improvements in electric heat pump COPs - both significantly above and beyond those found in the recent EST field trial and going forward to 2050 to account for technology improvements and innovations. This rationale is based on many good performing systems in the EST trial (properly sized & properly installed systems being used in the correct way) and discussionswith leading heat pump stakeholders. However, there is some uncertainty around these improvements – here we examine the impact of lower COPs.

ASHP COP at time of winter peak

2010-20 2020-30 2030-40 2040-50

Retrofit – base case 1.7 2.0 2.1 2.2

Retrofit – lower 1.4 1.5 1.6 1.7

New build – base case 1.9 2.2 2.3 2.5

New build - lower 1.6 1.7 1.8 1.9

Electrification of heat will bring ~50 GW additional heat demand under ‘Electrification + DH’, rising to 80 GW under this sensitivity analysis• More knowledge about ASHP performance

at very low temperatures is required• Heat storage, on an individual basis, may

help but only offers limited (0.5 – 1 hour) ability to shift operation in most retrofit cases.

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010-20 2020-30 2030-40 2040-50

l p

eak e

lectr

icit

y d

em

an

d f

rom

h

eat

pu

mp

s

Electrification + heat networks - LOWER

Balanced Transition - LOWER

Customer Choice - LOWER

Electrification + heat networks - BASE

Balanced Transition - BASE

Customer Choice - BASE

Excluding electric heat

pumps for district

heating – these are

assumed to be bivalent /

have large thermal

stores








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Comparing the three scenarios

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

Electrification & Heat Networks – a two horse raceCustomer Choice – gas dominates


• Carbon: 46% reduction• System Impact: low , 8

GW of additional peak elec. demand, nearly all in new build so low network impacts

• Retrofitability: strong,

difficult to treat homes stay with a gas boiler

• Customer economics: strong, expensive technologies are not forced, running costs are low.

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

• Carbon: 96% reduction • System Impact: high,

electricity: 48 GW of

additional peak demand,

re-wiring of distribution network; shut down all gas networks; heat networks in all dense urban areas

• Retrofitability: difficult , heat pumps in homes outside of dense urban

• Customer economics: challenging for homes that previously used gas..

Carbon

Energysystemimpact

Ease ofretrofit

Customereconomics

• Carbon: 90% reduction.

• System Impact: moderate , electricity: 24 GW of additional peak demand, re-wiring of part of distribution network, shut down parts of gas network, biomethane growth.

• Retrofitability: good, several options open to hard to treat homes.

• Customer economics: moderate, on-gas customers can use gas / hybrid technologies, moderate upfront cost & running costs

Customer choice (CC) – without any intervention in the market

carbon targets are completely missed.

Electrification and heat networks (E&HN) – delivers carbon

targets but with high costs to customers, challenging retrofit issues

and with major impacts on peak electricity demand, re-

enforcement of all electricity distribution networks and major roll-

out of heat networks.

Balanced transition (BT) – achieves 90% carbon reductions over

a 30 year time period over a thirty year period – assuming 75 TWh

of biomethane for the residential sector. It, imposes higher costs

on customers than CC, but for certain customer groups (primarily

suburban customers currently on the gas network) lower than

E&HN. It offers a wider range of technologies to make retrofit less

challenging. It has similar, but lower impacts on the energy system.

* *

*




We tested the scenarios against four sensitivities – overall Balanced Transition is less sensitive than Electrification and HeatNetworks to risks in decarbonising electricity and in zero carbon supply of heat to district heat networks, although it shows some sensitivity to lower amounts of biomethane.








Lower electric heat pump COP on coldest dayCOP of 1.7 rather than 2.2 (in 2050)

MetricCarbon reduction in 2050 Carbon reduction in 2050 Carbon reduction in 2050 Peak additional demand

from electric heat pumps

Electrification and

heat networks

85%

(from base of 96%)

No gas in this scenario 93%

(from base of 96%)


Balanced transition

85%

(from base of 90%)

Less biomethane = 79%

More biomethane = 95%

(from base of 90%)

88%

(from base of 90%)


For the Customer Choice scenario, we tested the impact of lower electricity prices (18 rather than 21.5p/kWh) and higher gas prices (8p rather than 5.7p/,kWh. There were no major impacts other than a substantial switch from micro-CHP to gas boilers, and a very small increase in gas heat pumps (0.5 – 1.6 million installed base) and air source heat pumps (0.3 to 0.5 million). No major changes in carbon emissions result from this sensitivity.








7. Results


Customer choice


Balanced transition


Comparison

Sensitivities

Conclusions


Contents


Gas is the dominant heating fuel today, and is the biggest contributor to residential carbon emissions. Moving gas customers to low carbon technologies will be essential to get close to 2050 carbon reduction targets, and likely require stronger policy interventions than other segments. Oil and electric segments are easier to resolve, with smaller incentives and the process of electricity grid decarbonisation, and new build can be driven effectively with strong regulation.

0 2,500 5,000 7,500 10,000 12,500 15,000






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Urban / suburban gas heating systems present the biggest policy challenge

Switching customers away from gas boilers presents the biggest challenge – to 2050, gas technologies generally have stronger customer appeal (easier to retrofit with attractive economics). Under BT there is a lower impact on customers, as not all are required to shift completely away from gas, with the hardest to switch segments able to stay on gas.

Switching to district heat - Under both scenarios, switching to district heat is desirable to help manage the impacts on the network – particularly in dense urban areas. However if the grid-decarbonises as projected, no switching is technically required to meet the carbon targets in this segment.

Switching customers away from oil - Customer research shows customers in these segments are interested in switching away from oil. As oil prices continue to rise, only a small push from incentives will be required to encourage uptake of alternative technologies – oil segments are the ‘easier to win’ segments under both scenarios.

Regulating new build: The challenge in new build is to encourage developers to adopt low carbon solutions. This can be done effectively with strong regulation which continue to build on existing policy and mandate zero carbon solutions.

Incentives for DH: Low carbon if stay electric

Want to switch: Low level incentives needed

Hard to switch: Significant incentives needed

New build: Driven by regulation

Urb

an

/

Su

bu

rban

Main

ly r

ura

lM

ain

ly r

ura

l/ s

om

e

urb

an

22M homes

2.6M homes

1.3M homes

E&HN BT

9M homes (by 2050)

Mix

ed

ho

usin

g

Common to both

2% of carbon emissions in

2050

The key challenge under any scenario is how to shift customers away from their current system, to a low carbon heating technology.

1) The ‘challenge’ 2) The nature of the challenge (emissions from residential heat) 3) The solution


Different solutions will be suitable for different segments – BT enables less switching in difficult gas segments



Balance Transition could result in lower customer policy costs to 2050

Scenario Challenge Timeline2012 2030 2050

Electrification and

heat networks

96% reduction in

carbon emissions

All customers in all segments

switch to electric heating or district

heat.

Balanced transition

90% reduction on

carbon emissions

Significant numbers of customers

switch to electric heating and

district heat – however, biomethane

and a small amount of natural gas

enables the most challenging

segments (suburban, on gas, high

thermal demand) to stay on high

efficiency gas or hybrid appliances.

Under a more balanced scenario – the policy costs of generating the required level of ‘switching’ could be lower. The additional cost of the

extra 6% of carbon savings under electrification and heat networks scenario, above and beyond the balanced transition scenario, requires a step

change in the level of incentive. An additional 12m homes need to be moved completely away from gas. This would require on-going intervention

for the next 30-40years and pushing district heat into the more costly suburban areas (less dense housing)

Under Balanced Transition, smaller incentives could be used to push some customers to higher efficiency gas technologies or hybrids while still

achieving significant carbon savings. However this scenario does require significant biomethane growth (75TWh).

RHI / Tariff incentive required for on-gas homes for at least 30 yrs. Electric & DH never competitive without this

RHI / Tariff incentive for on-gas / oil homes, but this can come later and at lower value –hardest to heat homes adopt high efficiency gas appliances

Up-front grants – could be effective to encourage switching from oil

Up-front grants – could be effective to encourage switching from oil to 2030’s

Regulatory drivers + investments required under both scenariosReduce thermal demand – insulate where economic and use government schemes such as the ‘green deal’ where appropriate

Grow the district heat network – growth of district heat will require major intervention. It will require a new regulatory framework (potentially mandating customer to connect) manage connection risks. Starting with social housing roll out in urban areas. The cost grows as district heat is pushed into suburban areas (as required in our electrification and heat networks scenario)

Invest in R&D and awareness raising – to facilitate uptake investment needs to be made to ensure both that emerging technologies mature and that the supply chain has the right skills. There is also a role in raising awareness among end users for both government and the industry.

Up-front grants – could be effective to encourage switching to high efficiency gas and hybrids

Smaller homes will need an RHI – upfront cost prohibitive

Ex

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Implications for the Energy System

Here, we analyse the network requirements for the two alternative pathways to 2050

The Electrification & Heat Networks scenario requires (1)

large-scale roll out of heat networks, (2) upgrading of

electricity distribution networks outside of these areas, and

(3) a managed exit from the gas network.

The Balanced Transition requires similar, but lower

challenges as (1) and (2) above, plus large growth of

biomethane injection into the gas network.

A market-based approach may result in duplication of

networks – for example one area having a reinforced

electricity network, district heat network and gas network

A planned approach can avoid network duplication - for

example on area being designated a “district heating” zone

(similar to Denmark), another being a “gas” zone, another

being a “reinforced electric” zone.

Electricity supply &

demand – tens of GW of

additional peak demand

Peak demand from

electric heat pumps will

add 48 GW to the winter

peak under E&HN, and 24

GW under BT – unless

novel forms of thermal

storage can significantly

decouple heat pump

operation from the timing of

thermal demand.

Impact on electricity distribution networks

Using the same model as the Smart Grid

Forum WS3 report, heat pump growth in BT

and EH&N has been taken with DECC mid-

range estimates for electric vehicles and

photovoltaics uptake. Additional investment in

electricity distribution networks (capex &

opex, discounted, over 2012-50) is calculated.

BT can deliver significant investment

savings compared to E&HN – reducing

investment by £8 – 14bn, depending on how

distribution network challenges are tackled.

Heat networks

Both BT and E&HN require

large-scale roll-out of heat

networks.

In BT, heat networks reach 9.8

million homes – mainly new

build and higher density city

centre homes.

In E&HN, heat networks reach

an additional 12.4 million

homes in less-dense areas.

*

* Other solutions such as biomass or local heat networks may be suitable

for some rural areas

Gas networks

E&HN sees no role for

gas in homes in 2050

Under BT 12.5 million

homes still use gas for

all or part of their

thermal needs.

Both scenarios

require a managed

exit from some or all

of the gas network.


The three scenarios are compared by their impact on customers (customer economics & ease of retrofit) and their impact on policy

(carbon & energy system impact)

Electrification & Heat Networks – A two horse race

Customer Choice – gas dominates


Key: further from the centre = desirable

1. Customer Choice scenario – allows customers to choose, based on upfront cost, running cost and fit with the housing stock: Carbon reduction targets for the residential sector will not be met by a combination of

reducing thermal demand allowing customers to chose their heating appliance (without government intervention). Even when strong progress is made on low carbon heating appliance cost and performance, and with 75 TWh of biomethane, carbon reductions (2040-50 compared to 2010-20) of 46% are achieved. Gas boilers continue to be used in 19 million homes, based on their low capital & running costs & excellent fit with UK homes.

2. Unsurprisingly, the Customer Choice scenario fails to meet the 2050 carbon reduction targets - two alternative scenarios are constructed:

Electrification and Heat Networks (E&HN) – assumes virtually all homes use either electric heating (heat pumps & direct electric) or heat networks, fed-by zero carbon heat. There is no role for gas. 96% reduction in carbon emissions (from 2010-20 levels).Balanced Transition (BT) – has an approximately even split across three heating types: (1) heat networks (dense urban areas & new build), (2) low carbon gas appliances (suburbia), (3) electric heating (some suburbia, rural and new build). This includes 75TWh of biomethane. 90% reduction in carbon emissions

3. Sensitivity analysis on levels of biomethane, electricity grid decarbonisation & carbon intensity of heat supply

for district heat shows noticeable but small falls in carbon reductions for all scenarios.

Key messages

New research by Delta-ee, commissioned by the Energy Networks Association (Gas Futures Group)

analyses how the residential heating sector can be decarbonised (Government target is for total

decarbonisation by 2050). The analysis focuses on the customer, breaking down the 2050 housing

stock into 35 segments, and modelling the performance of different heating appliances in each

segment. Eleven heating appliances are analysed (by cost, performance & fit with housing stock) – many

of these are immature (globally and / or in the UK) and future development is uncertain.

Key findings:

Balanced Transition can be achieved with less government intervention (and at less cost) than Electrification & Heat Networks, while achieving 90% (rather than 96%) carbon reduction from today to 2050:

High efficiency gas appliances, have lower running costs (and in some cases upfront costs) for certain parts of the housing stock than electric alternatives, in addition to easier retrofit into existing homes with gas boilers. This gives them stronger customer appeal, and potential for a lower level incentive. A greater mix of technologies, has lower impact on the energy system – the addition of hybrid heat pumps and gas appliances to the mix, results in a additional peak electricity generation demand 50% lower than under E&HN, and district heat is focused solely on high density housing (rather than stretching into suburbia) limiting costs.

Implications:



The scale of the challengeThis report suggests that keeping a variety of options

open to decarbonise heat gives lower risks, and

potentially a lower cost path that pursuing a narrower

end point.



By allowing more choice, and via high uptake of hybrid heat pumps, additional peak generation demand grows to 24GW, rather than 48GW, as under E&HN



emissions.



However success in both scenarios depends on achieving the following challenges:

1) Reduce thermal demand – Delta-ee has assumed 21% reduction in thermal demand from current buildings –interventions such as the ‘Green Deal’ will be required.




5) Major energy system upgrades & additional peak electrical generating capacity– on both the electricity side, and on decommissioning the gas grid, will be required – although the scale of the challenge is lower for BT.


0 2,500 5,000 7,500 10,000 12,500 15,000






Semi - Other (1945-2011)















Semi - Gas (1945-2011)


Flat - Gas (1945-2011)

Incentives for DH:


Want to switch:


Hard to switch:


New build:


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22M homes

2.6M homes

1.3M homes

9M homes

(by 2050)

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emissions in 2050



Disclaimer

Copyright © 2012 Delta Energy & Environment Ltd. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Delta Energy & Environment Ltd.

Unless otherwise credited all diagrams in this report belong to Delta Energy & Environment Ltd.

Important

This document contains confidential and commercially sensitive information. Should any requests for disclosure of information contained in this document be received, we request that we be notified in writing of the details of such request and that we be consulted and our comments taken into account before any action is taken.

Disclaimer

While Delta Energy & Environment Ltd (‘Delta’) considers that the information and opinions given in this work are sound, all parties must rely upon their own skill and judgement when making use of it. Delta does not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in tie report and assumes no responsibility for the accuracy or completeness of such information. Delta will not assume any liability to anyone for any loss or damage arising out of the provision of this report.

The report contains projections that are based on assumptions that are subject to uncertainties and contingencies. Because of the subjective judgements and inherent uncertainties of projections, and because events frequently do not occur as expected, there can be no assurance that the projections contained herein will be realised and actual events may be difference from projectedresults. Hence the projections supplied are not to be regarded as firm predictions of the future, but rather as illustrations of what might happen. Parties are advised to base their actions of an awareness of the range of such projections, and to note that the range necessarily broadens in the latter years of the projections.

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