Boiler Upgrade Scheme (England and Wales) Regulations 2022

Monday 4th April 2022 Grand Committee

Considered in Grand Committee

16:08

Moved by

[Lord Callanan]

That the Grand Committee do consider the Boiler Upgrade Scheme (England and Wales) Regulations 2022.

Relevant document: 32nd Report by the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, these draft regulations were laid before the House on 25 February 2022, and the SLSC considered the regulations in its 32nd report.

The UK is the first major economy in the world to set a legally binding target to achieve net-zero greenhouse gas emissions by 2050. Between 1990 and 2019, our emissions decreased by 44%. We are continuing to advance sustainability through the Government’s Ten Point Plan for a Green Industrial Revolution, the Net Zero Strategy and, most relevant in this case, the Heat and Buildings Strategy.

Currently, the heating of our homes, buildings and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets, requiring virtually all heat and buildings to be decarbonised. The Government’s ambition is to phase out the installation of new natural gas boilers beyond 2035. Heat pumps are a proven, scalable option for decarbonising heat and will play a substantial role in any net-zero scenario.

A UK market with the capacity and capability to deploy at least 600,000 heat pumps per year by 2028 can keep us on track to get to net zero and set us up for further growth if required. However, the current UK market for low-carbon heat is relatively small; due to this, these technologies are largely unable to compete on a capital-cost basis with conventional heating options. Although the new-build market for low-carbon heat is expected to grow as a result of regulatory signals, such as the future homes standard, existing buildings face a specific set of challenges. Subsidy is required to mobilise this section of the market, bridge the cost gap between a fossil fuel system and low-carbon alternatives, and build the appropriate supply chains.

The low-carbon heat market has previously been supported by the domestic renewable heat incentive, which closed to new applicants on 31 March this year. The boiler upgrade scheme will follow on from this support, providing capital grants to support the installation of heat pumps and, in limited circumstances, biomass boilers in homes and small non-domestic buildings in England and Wales. The scheme has a budget of £450 million over three years, as confirmed at the 2021 spending review. Grants of £5,000 will be provided towards the installation and capital costs of air source heat pumps and biomass boilers, with grants of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties not connected to the gas grid to minimise any impacts on air quality, in line with the Government’s clean air strategy. The grant model will provide an upfront discount to costs paid by the consumer, closing the gap between the cost of low-carbon heating and conventional boilers. In setting the grant levels, we have considered evidence on consumer willingness to pay, the current upfront capital cost of each technology and social research on domestic renewable heat incentive applications.

The application process will be led by the installer and comprise of two stages: applying for, and then redeeming, a voucher. This will allow for a simple consumer journey while maintaining certainty for installers as to availability of budget. This model is suited to ensuring market growth and enabling industry to deliver through the grant model at scale. To ensure consumer protection through the scheme, consent will be sought from the consumer ahead of any application being made on their behalf. All installers participating in the scheme must be certified by the microgeneration certification scheme or an equivalent, and must confirm membership of a consumer code. This ensures that consumers are covered by protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer.

The scheme will provide financial support for up to 30,000 installations in year 1, contributing 2.6 megatonnes of CO₂ equivalent of carbon savings and supporting 2,100 direct full-time equivalent and 1,800 indirect full-time equivalent jobs per year over its lifetime. This supports the Government’s ambitions for levelling up, as we expect supply chains to be built and jobs to be supported in regions with higher demand outside London. With the growth in demand encouraged under the scheme and wider market developments, we expect to see cost reductions in the technologies over the three years. This instrument therefore sets out a provision to allow the Secretary of State to review grant levels and maintain the right to adjust them in response to any appropriate market changes. Eligible low-carbon heating systems that are commissioned on or after 1 April this year will be entitled to support under the scheme. From 11 April, installers will be able to open an account for the scheme with Ofgem. We expect these regulations to come into force and grant applications to open by 23 May.

In conclusion, the scheme established by this statutory instrument will increase the deployment of low-carbon heating technologies, making crucial progress towards our climate targets. We already have a strong homegrown renewable energy sector, but investing further in heat pumps will reduce our exposure to volatile prices and help to protect British consumers. In supporting this investment, we expect to grow the market for retrofit installations, put downward pressure on costs and continue to build the supply chain in preparation for the introduction of regulations and market-based approaches later in the decade. I commend these regulations to the Committee.

16:15

[Lord Jones (Lab)]

My Lords, so much detail, so much complexity. I thank the Minister for his introduction to these historic regulations. They presage building operations in pretty well every conventional house in Britain. Perhaps there will have been nothing like it since the immediate post-World War II years, when we addressed the consequences of Göring’s Luftwaffe and Adolf Hitler’s rocketry on our homes and factories.

I served in three Administrations as a young man, and I recognise the nature of these regulations. They are the product of a dedicated department and a concerned Government, and they could have been presented by any concerned previous Government of yesteryear, but now is a unique challenge. The vocabulary and phrasing is reassuring in its familiarity, with the prosaic title and then the vocabulary which we know well: standards, eligibility, budgets, grant values, investigation, offsetting, a code, vouchers and regulation. It is the whole panoply of the reassuring, everyday Civil Service vocabulary that, in fact, describes a quite revolutionary proposition, and one so soon to impinge on the private, ordered, domestic life of pretty well everyone. It is startling that, almost in successive years, our fellow citizens have willingly signed up to lockdown—a kind of partial, self-imposed house arrest—and now to inviting plumbers, heating engineers and inspectors into virtually every one of their traditional houses.

Like many others in your Lordships’ House, I am fully signed up to green, and one cannot argue with the statistics: they are very daunting. Understandably, the Government must do their duty here and take the nation with them, whatever the difficulties. The regulations will go forward. The nation—the planet—faces mighty consequences if the Government do not present regulations such as these. However, in the context of this debate, one can ask: are they appropriate as they stand? I found the regulations’ executive summary and Explanatory Memorandum helpful amid the plethora of challenging small print, but summations raise further questions. The Secondary Legislation Scrutiny Committee report, the 32nd of 2019-21, has drawn special attention to these regulations: namely, that they are politically and legally important. Are the Government confident that there will be customer protection adequate to prevent mis-selling? What plans and what detail have the Government prepared to protect the unsuspecting household consumer? Are the regulations overambitious in their targeting?

The scrutiny committee raises doubts aplenty. Is not the 10-point plan flawed? None of this has been done before, and it is a massive challenge to government and every citizen, whose home will be invaded, necessarily, by the regulations. To install 600,000 heat pumps per year is hugely ambitious. This is a project totally new to government, to the trade and, most importantly, to the citizen. Our people are already under huge pressure from inflation and are soon to be impacted by colossal increases in their heating bills. Is not 600,000 heat pumps a year in six years overambitious?

The committee raised the question: where shall the tradesmen, the crafts women and men, the jobbing builder, electrician and plumber come from? There are no such assurances in the regulations. Is it not the case that we already find it hard to gain the prompt services of trades men and women? At paragraph 36, the Secondary Legislation Scrutiny Committee, in heavy type, draws special attention to this challenge. Reading between the lines, the committee is not at all assured by what the Government plan.

These regulations nowhere refer to the hugely inconvenient domestic consequences for the millions of families who will endure great inconvenience—literally dust, noise and disturbances of every kind. They do not consider the certain, unwelcome impact on the poor, the elderly, the sick and the disabled—indeed, the ordinary and the house-proud. There are to be costs for the citizen so inconvenienced. Surely, since the regulations bear down on virtually every householder, they should have been presented by the Government to the Chamber of the House itself. These issues require full and lengthy examination. Why have they not been taken on the Floor? Perhaps the Minister will respond. The House is not questioning the Minister; this Committee is—and it is rather a naked Committee, if I may say so.

In another place, where I was for 31 years, one’s duties frequently took the elected Member to the older decaying council estates, now referred to as social housing. Successive Governments granted welcome moneys for their modernisation. Often, tenants remained in their homes while all around them work men and women hacked and altered. They lived amid noise, dirt and dust, and their possessions were locked away in distant containers. It was unpleasant, to say the least. The fear is that many tens of thousands receiving heat pumps shall endure the same. What shall the Government do to ameliorate these inevitable problems?

Lastly, the Government are fortunate to have the noble Lord, Lord Callanan, to present these challenging regulations. After all, he negotiated the pitfalls of the Brexit legislation with considerable aplomb. He would have been a marvellous member of the “Test Match Special” team of quite some years ago, alongside Messrs Johnston, Trueman, Bailey and the “Alderman”. The latter described clever defence against good bowling as “nurdling away”. The noble Lord, Lord Callanan, nurdles away so matter-of-factly and skilfully when he takes to the Dispatch Box to present these detailed, complicated regulations.

[Lord Carrington (CB)]

My Lords, I thank the Minister for his clear explanation of how the scheme will work. However, like the noble Lord, Lord Jones, I await the Minister’s response to the Secondary Legislation Scrutiny Committee’s specific comments relating to how the scheme will work in making progress towards the Government’s ambitious target of 600,000 installations by 2028 and on how realistic the Government’s current projections and targets are, given the six-year timetable.

I also want to know from the Minister why there is a seven-week delay in the introduction of the scheme. This causes severe problems for both manufacturers and installers who have geared up for the scheme’s introduction on 1 April. Will the RHI scheme be extended to cover this gap? Can the Minister also confirm that this scheme will run its full course, unlike the green homes grant, and tell us what will happen if the take-up goes beyond 30,000 installations per year? Is funding contemplated for that?

I am also interested in the Minister’s response to the part that other measures and technologies can play in achieving the same ends. Can he provide confirmation that they will receive similar financial support and incentives? Although the financial support that the boiler upgrade scheme will provide is welcome and necessary, it is important to recognise that heat pumps and biomass boilers are just two of a range of technologies that will help us to reach net zero. We need to take into account the diverse nature of the United Kingdom’s stock of domestic and non-domestic properties. This requires us to be flexible in the choices we make regarding the low-carbon solutions that are employed.

For instance, heat pumps are not appropriate or effective in a vast number of properties. Given this, the Government should adopt a technology-neutral approach to the decarbonisation of home heating, ensuring that the most appropriate and suitable solutions are used on a case-by-case basis. BEIS’s figures indicate that, in the off-grid space, roughly 1.7 million homes use fuel oil for heating, while another 220,000 use LPG. For many of these properties, which are often older, uninsulated and listed and where insulating is either unfeasible or extremely challenging, installing a retrofitted heat pump could cost £30,000 or more. Even with the maximum amount of government support, home owners in these instances would be left with a bill for £24,000 or more.

One interesting option for such properties is renewable liquefied gas, a fuel source with almost zero carbon emissions that is made from a range of sustainable feedstocks including food waste. Renewable liquefied gas can effectively utilise existing infrastructure to deliver affordable decarbonisation solutions for both domestic and non-domestic properties. Keeping costs down for the consumer is particularly important in ensuring an equitable transition. Giving too much weight to any one technology, such as heat pumps, risks leaving people behind on the journey to a greener future. I urge the Government to remain open-minded and give due consideration to those homes that are the hardest to decarbonise, where a one-size-fits-all approach is not appropriate.

[Lord Vaux of Harrowden (CB)]

My Lords, discussions on heat pumps are always interesting. Everyone seems to have a view, although few have any experience of actually running the things; I find that this is particularly the case with those who are the most enthusiastic about them. I would love to know how many noble Lords who have spoken today have installed a heat pump—indeed, whether the Minister or any other member of the Government has done so. For the record, I have; I have two heat pumps, in fact, so I do speak a little from experience.

I welcome the scheme even if, from a personal point of view, I regret that it has come a bit late for me —although I do benefit from the RHI scheme, which over its life is slightly more generous. We need to bring down the costs of heat pumps if we are to encourage their uptake. This scheme is simple and up front, so I think it is likely to be more successful than the RHI scheme, which is complex and, frankly, rather tedious with having to measure everything and send in the forms every three months.

I want to raise a couple of points of caution, based both on my own experience with heat pumps and on publicly available information, including an Answer from the Minister to a Written Question I submitted to him about a year ago. Heat pumps are often stated as being able to generate heat equivalent to three to four times the electrical energy that is put in; I have seen claims of up to five times. There has been quite a lot of press coverage over the weekend suggesting that, with these grants and based on that kind of efficiency claim, heat pumps could now be cheaper than gas. There is plenty of coverage saying it; it is not right, but it says it. Advertising in brochures for heat pumps often talks about those sorts of efficiency multiples. My own pumps claim they should achieve 3.2 times efficiency; they are less efficient high-temperature pumps, which is why it is a slightly lower number.

16:30

High expectations of these things are being set, but, sadly, the efficiency claims and performance are rarely, if ever, achieved—and only in absolutely ideal situations. When you read the small print in the brochures or whatever, you find that the claims tend to be made when the outside temperature is 15 degrees centigrade or higher and the output hot water set at 35 degrees, which is somewhat lower than normal domestic hot water temperatures of 50 to 60 degrees. Efficiency drops really quite dramatically as the outside temperature drops. Efficiency at zero degrees outside temperature can be less than half what it is at 15 degrees. The same happens as you push the output hot water temperature up.

My own experience has been a peak coefficient of performance of about 2.5 times and an average close to 2.1 times. The Minister’s Answer to the Written Question I mentioned suggested a seasonal average of around 2.4 times. These are all substantially lower than the public claims we all read about in the press, on green websites and, in particular, in manufacturers’ advertising. With electricity prices being what they are, the reality is that heat pumps are very unlikely to save money against gas.

This also does not take into account the little secret that no one tells you when you install an air source heat pump: the defrost cycle. As the outside temperature drops, the pump has to work harder. As well as becoming less efficient, it starts to collect ice around the coil, especially when the air is humid; a typical cold, damp UK winter day is about as bad as it gets. It then has to defrost, which it does by taking heat back out of your hot water tank, so just when you need heat the most, the heat pump is producing the least heat and at times actually taking heat out of the system.

The difference between a coefficient of performance of a claimed 3.5 times and an actual 2.4 times makes an incredibly substantial impact on the running costs. In many houses, other than those with perfect insulation, you may well need a secondary heat source during cold snaps to make up for the lower output and defrost problems I have just described. In my case, an additional electric boiler and a wood-burning stove have made the system workable when the outside temperature drops below about 2 degrees centigrade.

I am not trying to undermine the scheme. Heat pumps are an excellent solution in the right circumstances and will be an important part of our move to net zero, but I am really concerned that we may see a VW dieselgate-style mis-selling scandal if we are not careful and people buy heat pumps based on the unrealistic claims made to them and then find them very much more expensive to run than expected and producing less heat when it is really needed, compared with their existing boiler. If people feel misled, uptake will fall away quickly and the scheme will fail.

Can the Minister confirm that manufacturers and installers will be required to state clearly in their advertising and installation literature the real-world expectations of efficiency and running costs and realistic heat output in a typical UK winter, rather than the unrealistic claims that are currently made? This real-life information should also be included in the MCS database, rather than just the perfect information in there at the moment. As I have said, heat pumps are an excellent solution in the right circumstances, but people need to know what they should realistically expect before they buy.

I have a small second point. I was rather surprised to discover that installing a heat pump can actually have a negative impact on energy performance certificates. That means that, for a landlord looking to achieve the required EPC, there is a disincentive to install a heat pump. I have this problem as a landlord, albeit in Scotland—so it is devolved—but I think the same is true in England. That cannot make sense, so if the Minister could look at that I would be most grateful.

[Lord Oates (LD)]

My Lords, I too thank the Minister for his comprehensive explanation and for having spared the time last week, with his officials, to explain some of this stuff to me. It is welcome that we have a simpler scheme and that the Government are trying to understand that big schemes that cannot be met with the skills required, et cetera, do not bring any benefit. These are the key things that arise from the scheme.

The noble Lord, Lord Jones, raised the issue of skills, which are fundamental to everything in this area, not just in terms of heat pumps. As we green our economy, we have to ensure that we build our skills base. I know that the Minister talked about a lot of money having been spent on training under the previous green homes grant scheme and the money being spent by manufacturers. But we need to ensure that the Government, working with local authorities, skills providers and industry, are really looking across the piece about greening the economy and how we ensure that the skills are there to do it.

As I understand it, the grant scheme is to be installer led. That is obviously beneficial because the installers will, I hope, get used to that process, which will make it a bit less daunting for consumers. It is also encouraging that proper quality assurance is being required although, again, that clearly also constrains the ability to meet demand.

It is very important that all those installers will be required clearly to advise home owners on the appropriateness or otherwise of installing a heat pump in their property. As we have heard from the noble Lords, Lord Carrington, Lord Jones, and Lord Vaux of Harrowden, properties vary immensely. The performance of these pumps also varies and public confidence in the scheme should not be lost—as the noble Lord, Lord Vaux, said, it could really disappear overnight. If people feel that it has been oversold and they have been provided with replacements for their heating systems which do not achieve the heat and hot water that they are used to, or have been promised, we will have a real problem. I hope that the Minister will be able to reply to those important points that the noble Lord raised.

I do not have a heat pump in my own property. I sought to get one installed under the green homes grant scheme; unfortunately, that scheme came to an end, but my property was also said not to be suitable. It is clear that not every property is suitable and that we will really have to think about those which are not. Although a lot of rural properties may well have the space for a ground source heat pump, many of them may be old and poorly insulated and it may also be difficult for heat pumps to operate effectively there. I notice that, for off-grid properties, biomass boilers are to be allowed. In response to the question of the noble Lord, Lord Carrington, I would be interested to know whether liquefied natural gas made from the organic materials that he talked about would be counted as biomass.

We have also heard about two gaps in particular, one of which is the seven-week gap in this scheme, which is obviously an important concern for manufacturers. But we also heard about the gap raised by the Secondary Legislation Scrutiny Committee between the Government’s ambition of 600,000 heat pumps being installed per year by 2028 and the 30,000 each year over the next three years under the grant scheme and the 200,000-plus heat pumps it is estimated will be installed in new builds when the new future homes standard come in. There is still a big gap there, and I am not entirely convinced that the Government have thought through how they can match their ambition with delivery.

If we are to decarbonise domestic home heating in this country, we cannot rely simply on grant schemes. I know that lots of different schemes are running, which sometimes overcomplicates things for consumers, but we really need to have fiscal incentives in place as well to encourage home owners to take various measures that can help not only to decarbonise the heating system but reduce demand, because reducing the amount of energy that we waste must be one of the central things we do. We cannot have systems in place that disincentivise the installation of heat pumps via the impact that the noble Lord, Lord Vaux of Harrowden, explained on the energy performance certificates. It would be interesting to hear the Minister’s response on that as well.

Finally, we on the Liberal Democrat Benches commend the Government on their ambition in this area and on having learned some of the lessons of the green homes grant scheme. There is obviously an issue about how we meet this 600,000 target. I am not sure that all the detail is there, but we hope to hear more about it in the coming months.

[Baroness Blake of Leeds (Lab)]

My Lords, in debates such as this, from listening to the excellent contributions from my noble friend Lord Jones, and the noble Lords, Lord Carrington, Lord Vaux of Harrowden and Lord Oates, more questions come up as we go along. I look forward to the Minister’s response on some of the technical details.

I go along with the general response in welcoming the purpose behind the scheme. The ambition is clear. Obviously, the context is the imperative to decarbonise for our net-zero targets and energy security is absolutely at the forefront of everything we are discussing at the moment, but perhaps we have not dwelt enough on the link with the cost of living crisis and the real concerns we have about people being able to afford to heat their homes, as well as all the other challenges for people bringing up families, in particular, and older people, who are also making terrible decisions about heating or eating. There is a very complex background to this, as we have heard.

The main question we have running through this is whether the amount of funding available—I thank the Minister for the detail on the background to the upgrade scheme—realistically has a chance of delivering the number of conversions laid out in the proposals.

I go to personal experience. I have talked to people over the past few days who have been considering upgrading their boiler and heard clearly the reasons why, at this moment, they have decided not to go down that route. Of course, the fundamental one is cost, but efficiency is also a major concern. Noble Lords know my background in local government; I know that the Minister visited Leeds to look at a scheme for retrofitting housing. The biggest challenge we have is retrofitting and suitability for purpose.

16:45

Another area of work I am involved in is trying to establish specific apprenticeships to deliver training for green skills. It is incredibly difficult—it does not exist at the moment. Apprentices learn the different elements from across the board; no one is coming up with a bespoke scheme to make sure that the skills will be in place. From my experience of the complexity of retrofitting generally and then from working on this upgrading scheme, I worry whether we will have the capacity to deliver the ambition.

My questions to the Minister are, first, that we know the trajectory that is being proposed, but what further steps will be taken if it is not met, and how and when will it be evaluated? Will the upgrade scheme continue for three years afterwards if successful, or is three years of pump-priming expected to be enough? Is there a next phase, and when will the Government make a decision on that? If we look at the number of properties we are planning to upgrade, we are left with 500,000 to deliver over three years. Is that realistic and achievable? I question that.

My other concern is with new buildings. Of course, we have the introduction of the future homes standard to bring in heat pumps, et cetera, but that involves around 200,000 homes a year. How many new builds are being built at the moment with traditional gas boilers that will need to be replaced within just a few years? The question concerns deliverability, capacity and recognising the gap.

Will the Government commit to a regular review of grant levels, based on the experience of rolling out the programme: whether there is adequate take-up or whether the concerns with the programme are just too high for people to take on the risk? Is there a technology price trigger point at which grant levels will be reviewed, or will that be only at the end of the three-year period, if the scheme is to be extended?

In fairness to the Government, they recognise the risks of the scheme, which I presume is the reason why it has now changed to an installer-led two-stage voucher system. I was very struck by the comments of my noble friend Lord Jones about protection for the consumer. That is an area where I hope the Minister will be able to give us further background.

Also, can we have some clarity on the scheme itself? How will the grants be distributed? Will it simply be on a first come, first served basis for installers? Will larger installers with greater capacity for additional paperwork be at an advantage? What if demand outweighs the funding available? Will there be time-linked limits in place for the number of vouchers to be issued?

I sincerely hope that the scheme will be successful, as part of a wider toolkit, but the issue of flexibility, which was stressed by the noble Lord, Lord Carrington, is something that we need to focus on. I am certainly interested in being involved in the attempt to explore the possibility of hydrogen in future. I hope that, given the systems that people have in their properties, an alternative source of fuel could present a significant step in how we move this incredibly challenging agenda forward in a relatively short period of time.

[Lord Callanan (Con)]

I thank everybody who contributed to this short but excellent debate. There were some great contributions; I hope that I will be able to answer all the questions that were asked.

I start by re-emphasising what I said in my introduction: the decarbonisation of heat is a crucial challenge in meeting our climate targets, as heating our homes, businesses and industry is responsible for about a third of the UK’s greenhouse gas emissions. Although we have made progress—emissions from buildings fell by 20% between 1990 and 2017—we must go much further and faster to meet the net-zero target. Ultimately, net zero will mean gradually but completely moving away from burning fossil fuels for heating.

To address the point made by the noble Lord, Lord Carrington, we are clear that achieving net zero will require a range of technologies and solutions for buildings. There is no silver bullet, I am sorry to say. It is not a case of choosing whether electrification, hydrogen or heat networks are the answer. It will be a little bit of everything, possibly including some technologies that we are not even aware of yet. We should be flexible and adapt our approach depending on what our scientists deliver for us.

However, there is no question but that, whatever range of solutions is offered, heat pumps will play a substantial role in any net-zero scenario. It is therefore important that we build the market for them in the UK now. They are used quite substantially in other countries in Europe and across the world. Given the large quantities of gas that we have traditionally had, we have not concentrated as much on this technology in the UK, but it is important that we get the market moving.

This scheme is all about targeted support to grow the low-carbon heat supply chain to enable the introduction in the mid-2020s of regulatory and market-based measures that will further drive the transition to low-carbon heat in our homes and businesses. We have set an ambition to work with industry to reduce the cost of heat pumps, we hope by at least 25% to 50%, by 2025. This is ambitious but we have certainly seen some good signs from businesses in this area that we will be able to achieve it. Ideally, we want parity with current gas boilers by 2030; realistically, if we are to get mass market take-up, we must ensure that that is the case. This scheme is an important step in supporting those consumers who choose to make the switch earlier, as the noble Lord, Lord Vaux, has done. Investment in this element of the net-zero campaign will not only contribute to our carbon reduction targets but help to create high-quality jobs of the kind that the noble Baroness, Lady Blake, talked about. It will also boost our economic recovery in levelling up across the country and ensuring that we build back better.

I will take some of the points that noble Lords made. The noble Lords, Lord Jones and Lord Oates, rightly raised concerns about consumer protection and quality assurance under the scheme. This is something that we have carefully considered. To ensure that installations under the scheme are of a high quality, as I mentioned, all installers have to be certified by the MCS and members of a consumer code that ensures customers are protected by a Trading Standards Institute-approved code of practice. This ensures that property owners are covered by consumer protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer. There is a proper insurance-backed warranty on top of that if any faults are identified or in the rare cases where installers go out of business.

The noble Lords, Lord Jones and Lord Oates, and the noble Baroness, Lady Blake, made some good points about the ability of the supply chain to deliver the scale of change required. There are currently more than 1,200 MCS-certified air source heat pump installation businesses, covering every region in the UK. Record numbers have been installed over the past year. We have had extensive discussions with businesses and industry, which have informed us that they are confident they have the capacity to comfortably meet demand for heat pump upskilling over the course of the scheme and in line with our targets.

The noble Lord, Lord Oates, prompted me on this issue. In September 2020, we launched the £6 million skills competition under the green homes grant scheme to provide training opportunities for energy efficiency and low-carbon heating supply chains. I am pleased to say that a number of the heat pump manufacturers offer their own training schemes; I have visited a couple of their training workshops. MCS itself has a conversion course and some of the big installers, whose names I do not need to mention for further advertising, are rapidly upskilling their workforces. They are often boiler engineers anyway; they just need conversion courses to be able to install heat pumps. There is a lot of work going on in skills and training, and we are working closely with the DfE to make sure that we take this forward.

The noble Lord, Lord Jones, asked what the Government are doing to support vulnerable and fuel-poor households. That is not part of this SI, obviously, but we are giving a lot of financial support through a range of schemes: £950 million in additional funding for the home upgrade grant in England; £394 million invested through the Welsh Government’s warm homes programme; £800 million to the social housing decarbonisation fund; and a £6.7 billion extension until 2026 for the energy company obligation and warm home discount schemes. All of them are helping to insulate, upgrade and retrofit the homes of those on low incomes throughout the United Kingdom.

The noble Lords, Lord Carrington and Lord Oates, and the noble Baroness, Lady Blake, rightly raised the scheme’s role in meeting the 600,000 heat pump installation target. Obviously, a bit of simple mathematics will demonstrate that this scheme will not meet the 600,000 installation target on its own. It is part of a wider package of policies that we are introducing to scale up heat pump deployment and support industry. I mentioned some of the other upgrade schemes that we have; of course, many of them are already supporting heat pump installations as well. Indeed, I visited Leeds to see some of the excellent work going on up there.

As costs come down, we expect other policies to kick in as well. The noble Lord, Lord Oates, mentioned this point: by 2026, we expect around 200,000 heat pumps a year to be going into new-build buildings following the introduction of the future homes standard. In that standard, we are specifying not that the installation has to be a heat pump—we are technology neutral—just that the overall design of the new property has to be low carbon. It could use alternative sources of low-carbon heating. That will come with the future homes standard.

Along with our consultation on wider heating policies, which will also contribute to the target, new regulations are proposed on buildings off the gas grid. We have also consulted on a market mechanism for gas boiler manufacturers; we are just about to respond to that consultation. Taking all these measures together—this scheme, the social housing decarbonisation fund, the home upgrade grant, the new future homes standard, et cetera—we are confident that we can get up to our 600,000 installations a year. However, I emphasise once again that I do not expect this scheme alone to deliver 600,000 installations a year. That would be mathematically impossible with the amount of money we have available.

17:00

The noble Lords, Lord Carrington and Lord Oates, mentioned the timescale for the launch. We have taken a staggered approach to launch but the scheme is valid now and has been from 1 April. Any installations happening under the domestic renewable heat incentive that do not manage to get commissioned in time can switch to support from this scheme as well, so all installations from 1 April will be eligible. We have taken a staggered approach precisely to ensure that we do not experience the same problems as the much-maligned green homes grant. We want to ensure that all the back-office systems and processes in Ofgem are in place to ensure that payments to installers are made on time and that all those systems are robust and reliable.

As I mentioned, the scheme has been valid from 1 April. Installers will be able to register their details on the Ofgem website from 11 April, and it will start processing grant payments from 23 May. I and the chief executive of Ofgem have met with all the associations and many of the companies responsible. We briefed them on the timescales that we propose for this launch. The whole idea is to make the scheme much simpler and easier. Effectively, only three technologies are supported, so we think it should be simpler and more straightforward than the green homes grant. It is being targeted through installers rather than consumers directly, although consumers do have to give their consent to the installation. Ofgem is in regular contact with the federations representing many of the installers and we are already testing the approach with installers. I am pleased to say that the feedback has been very positive so far.

The noble Lord, Lord Carrington, asked whether the scheme should adopt a technology-agnostic approach. It does not because it is a heat pump approach, but generally we are technology agnostic. Yes, we support heat pumps, but we also support the development of low-carbon hydrogen through a scheme that is similar to the contracts for difference; we will announce the details of that shortly. Some hydrogen trials are already going on. In particular, in my area of the north-east, there are two hydrogen houses, which I have visited.

Realistically, as a technology, hydrogen is still in its early infancy in terms of our ability to produce large quantities of it at a realistic cost. However, science and technology might be our friends here. As the industry gets used to producing it and new techniques come on board, it could very well play a role in domestic heating, although the evidence at the moment suggests that it is more likely to play a role in industrial processes, heavy goods vehicles, et cetera. However, it is possible to blend up to 20% hydrogen, even into the current gas main. It will operate perfectly satisfactorily with existing boilers, fires, et cetera—indeed, trials are going on to do that at the moment.

Current evidence suggests that heat pumps are technically suitable for most buildings. Between 80% and 90% have sufficient energy efficiency and internal electrical connection capacity to accommodate a heat pump system. I think it was the noble Lord, Lord Carrington, who made the point about biofuels, such as bioLPG and hydrotreated vegetable oil. Biodiesel may also play a role in future off gas grid decarbonisation, although it is important to add that these fuels are not completely carbon free. They are potentially suitable for properties that are not suitable for a heat pump.

I have been receiving lots of correspondence on this subject, but we think further evidence is needed to consider what role, if any, biofuels could play and whether it would be more appropriate to use available biofuel stocks for transport road fuels, et cetera. There is a debate to be had about what we do with the relatively limited quantities of biofuel feedstock that would be available, so it is important to consider that in terms of the wider policy framework. We will, of course, always keep the list of eligible technologies under review.

The noble Lord, Lord Vaux, also made some excellent points. I agree with much of what he had to say about the efficiency of heat pumps and how important it is to be up front and honest with consumers about the running costs of these systems. He is absolutely correct that the impact on a household’s bill of installing a heat pump will depend on a lot of household-specific factors: the efficiency of the heat pump and how much insulation they have installed, et cetera. It is very important that we provide appropriate information. Of course, I am not responsible for what installers themselves will say or for what much of the media will say, but government publications will certainly be up front and straightforward with people about what the costs are.

Currently, installers are required to provide customers with an estimate of the annual energy performance of the system before the point at which the contract is awarded, so that they make a properly informed decision about the installation. I hope the noble Lord’s installer provided him with an appropriate estimate.

The noble Lord, Lord Oates, raised an important point, which I think was also mentioned by the noble Lord, Lord Vaux, about the role of energy efficiency and EPCs under the scheme. There is of course a trade-off: the original purpose of an EPC was to provide information about the running costs of a system, rather than necessarily the carbon efficiency. Clearly, given the imbalance of costs between electricity and gas at the moment, there is the potential—not in every case—that installing a heat pump would give you a worse EPC. Ultimately, we will need to address that in rebalancing the costs of electricity and gas, but the noble Lord is quite right. Again, I get lots of letters about this, but the purpose of EPCs is to provide a consumer who is buying or renting a property with information about the running costs and how much they will spend. The carbon impact is important but we have to balance it against the information provided on running costs, which is where the corollary comes in. Ultimately, the solution is to rebalance electricity and gas prices.

The noble Baroness, Lady Blake, asked when and how grant values will be reviewed. As I mentioned in my introduction, we have a power to keep them under review. The Secretary of State can change the grant amount and, clearly, we will monitor the take-up of the grants and the market closely. We will keep them under constant review throughout the duration of the scheme; we have the flexibility to amend them if we need to. A lot of external factors are influencing the market at the moment: a shortage of components, with difficulties in the importation of such parts; scheme demand; and a number of wider market changes. Vouchers will operate on a first-come, first-served basis and it is important that we are able to keep the budget under constant review. We have an amount of money available for this spending review period. I cannot predict what might happen in future spending reviews but we have £450 million available for the first three years of its operation, which I hope will be sufficient funding to satisfy demand. Obviously, I cannot give any promises about what future spending reviews will do or what funding will be available.

I think I have answered all the points. I am sure that somebody will remind me if I have not. Let me underline once more that these regulations are a vital part of reaching our legally binding greenhouse gas emissions target. I thank all those who have contributed to the debate and commend these draft regulations to the Committee.

Motion agreed.