Comment by Richard Halsey, Innovation Director, and Edmund Hunt, Design Lead at Energy Systems Catapult.

Our buildings are responsible for around a third of our national emissions and the majority associated with heating. With over 28 million homes we must find a way to accelerate our transition to low-carbon heating solutions if we are to achieve Net Zero.

The pace of UK domestic heat decarbonisation remains sluggish at best

The government remains committed to a target of having 600,000 heat pumps installed per year within 5 years. Today however, we are achieving just 10% of that in the UK (European Heat Pump Association 2022) and are second from last in the European heat pump installation league.  So why is it so hard for us?

Unlike other countries, we are not heavily subsidising low carbon heating like in Italy or being tough with a ban on installing natural gas boilers in Germany.  Whilst we might have leaky and old buildings, unlike the Scandinavian and German heat pump champions, our ability and potential to deliver low carbon heat is little different to many of our European counterparts.

The Electrification of Heat Demonstration project has found that heat pumps can be designed to work for the full range of our housing archetypes but that we need to reduce costs, minimise disruption and ensure effective installation and reliable operation for households if we are to accelerate uptake.

With so many competing pressures on our public finances we may struggle to dig deep with generous subsidies, so what alternatives do we have if we are going to keep pace with our European counterparts on delivering a Net Zero future for domestic heating?

We need to focus on delivering warm and comfortable homes without the carbon

The government’s proposed Clean Heat Market Mechanism aims to put the onus on manufacturers of fossil fuel heating through heat pump installation targets and associated credits related to volume of natural gas and oil boiler sales. This policy mechanism represents an important step in building market confidence and our domestic supply chains; however, we might also need to turn to work at making low carbon heating more appealing for people and removing the barrier of large upfront capital costs. One potential solution to do just that and identified in the recent Net Zero Review is helping households switch to low carbon heat through Heat-as-a-Service.

Heat-as-a-Service can take various forms.  At its heart it is offering an outcome to customers – warmth – rather than products (i.e., boilers) or units consumed (i.e., kWh). It can also include financing to help overcome upfront capital costs, enabling customers to better afford being warm and comfortable at home without the carbon.

It could also include maintenance and insurance to limit the pain of breakdowns as well as enabling monitoring and optimisation of systems post installation.  Fundamentally, the provider takes responsibility for achieving the customer’s desired outcomes. This is different to today, where the customer is typically responsible for getting warm in their home, with little control on how best to do that or knowledge on how best to achieve the outcome they want or how much it will cost.

Heat-as-a-Service therefore has the potential to help households navigate complex choices across technology, finance, system operation and optimisation including accessing the value of being flexible whilst achieving what they want – comfort.

At Energy Systems Catapult, using our Living Lab of digitally connected homes, our research into peoples’ needs and uses of heating at home has shown that if we focused on giving people a warm and comfortable home, the switch to low carbon heating systems such as heat pumps could face less resistance and be more easily adopted.  We previously developed and trialled the concept of ‘Heat Plans’ where people bought a version of Heat-as-a-Service for comfort – these Heat Plans could then be extended to include new controls, heating systems, and energy efficiency measures such as improved insulation.

Rather than burdening people with the difficult choices of how to heat their home or what measures might be needed to prepare it ready for a low carbon heating technology, the Heat Plan service provider would sort it out.  In these trials we found that 85% of those households using Heat Plans would be open to switching to low carbon heating compared to just 30% of those not using a Heat Plan.

Our research into metered energy savings at home has also found that both consumers and service providers need a reliable method for initially estimating and then measuring and monitoring performance of solutions after installation and this is likely to be central to the delivery of a wide range of Heat-as-a-Service offerings for households.

Heat-as-a-Service could also provide a means of helping those households really struggling to keep warm in a world of volatile and uncertain energy prices and advancing technology. We have found that it is possible to both find and help people most at risk from ill health as a result of living in a cold home and provide tailored support in the form of a Warm Home Prescription. Scaling the delivery of Warm Home Services could provide an effective way of targeting public support at the right level and to those people that need it most in delivering both health and energy outcomes. It also has the potential to enable decarbonisation for those households that might really struggle to adopt new technologies and effectively maintain and operate them.

Heat-as-a-Service has a number of potential consumer, system, and business benefits

The Net Zero Infrastructure Industry Coalition, supported by Mott Macdonald, National Grid and The UK Green Building Council has been exploring the benefits and challenges of accelerating Heat-as-a-Service in the UK. This has identified some clear benefits for businesses including acquiring new, and retaining existing customers with longer-term relationships and increased value from more appealing customer offers.

Our research at Energy Systems Catapult simulating Heat-as-a-Service for Demand Side Management found widespread uptake by consumers had the potential to enable coordinated demand side response of heat pumps through service providers managing their customers’ heating systems in avoiding peak electricity usage. This provided both household and wider system cost benefits, although it also identified a number of potential risks and unintended consequences such as increased energy consumption outside of peak periods.

We are starting to see more businesses seeing the potential and developing solutions along the Heat-as-a-Service roadmap. From companies like Centrica launching a warm home guarantee for new heat pump installations to Baxi working with the Advanced Services Group at Aston University to develop its propositions for Heat-as-a-Service. Energiesprong UK has been developing an integrated comfort and billing service for Net Zero retrofit and startups like Heatio are working with established energy retailers like E.ON to develop a range of heat pump-based home energy services. Sero Homes, supported by Legal & General are developing fully serviced Net Zero new homes and many more start-up and scale-up businesses are raising an interest in developing Heat-as-a-Service offers through our Energy Launchpad innovator support programme.

How can we unlock the potential?

So why aren’t businesses selling, and consumers buying and enjoying the benefits of Heat-as-a-Service in the UK? Whilst there are some clear business benefits and it has the potential to unlock uptake of low-carbon heating solutions for many customer segments in the UK, there are several barriers that need to be addressed if it is to work for both people and businesses and be scaled up successfully. These include concerns from Heat-as-a-Service providers on regulatory complexity, consumer awareness and trust, and business model viability in particular.

Our research into the role of energy retailers in delivering Net Zero with OVO Energy highlighted the need for businesses to mainstream innovative propositions and develop new ones that meet the needs of consumers, including the vulnerable. The evolution from energy retail to service provision will require businesses to build more integrated solutions, but that these need to be simple and easy to understand for consumers and be delivered though a foundation of trust focused on outcomes.

Aligned to this, businesses need policy and energy market arrangements that incentivise and reward innovation in outcome-based energy services. This is needed to help overcome the current barriers to adoption and help to accelerate uptake and effective operation of low carbon heating technologies.

Government needs to manage risks and create policy and regulation that supports a functioning market for heat services that works for both businesses and consumers if it is to play a material role in decarbonising our homes. This will need industry and consumers to develop a shared language for different Heat-as-a-Service offerings that can allow households to compare and contrast different service options and utilise home and technology data to tailor services to meet people’s needs at a price they are willing to pay.

Clearly labelling through Kite Marks for the Net Zero impact of different service propositions as well as simple metrics around things like target temperatures and the time it takes to reach them could all form part of a shared service vocabulary.

Realising the potential of Heat-as-a-Service will require collaborative research and innovation across a range of different areas, including business models and financing, customer behaviour and preferences, regulation and policy, service design, system integration and interoperability of different low carbon heating technologies. To achieve this, we believe:

1. The Government and innovation funding bodies needs to support businesses in developing and testing a wide range of innovative and digitally enabled Heat-as-a-Service solutions and creating the conditions to bring the most promising and appealing of these to market quickly. This needs to be collaborative working with consumers and focus on packaging technologies into outcome-based solutions. Ideally this would bring many service providers together to build a shared service language with related metrics and develop service provider outcomes and incentives that encourage uptake whilst also managing risks.
2. The regulator needs to consider and introduce more sophisticated means of measuring competition that reflect the energy outcomes desired for consumers, such as keeping warm and decarbonising energy used in our homes and allow long term customer relationships to be developed that ensure value and support efficient delivery and use of energy in the home and move away from simply focusing on retail switching.
3. Businesses need to do be ambitious and invest in developing and testing Heat-as-a-Service solutions with real consumers, understand value and risk, collaborate to build roadmaps and associated supply chains for Net Nero heat. They need to use data and digitalisation to bring different technologies together in integrated solutions for customers that makes low carbon energy simple and easy, overcomes key barriers for different customer segments and builds trust in delivering services that provide valued heating outcomes for households.

Businesses and wider energy industry stakeholders, policymakers, researchers, and customers will need to work together to prove desirability, viability, and scalability, build a common language, and create a sustainable environment if Heat-as-a-Service is to grow in the UK and be more than just hot air.