The Times, 14 April 2023
Industry body labels scheme a tax break for the wealthy, suggesting more have been installed in Cornish holiday homes than in Birmingham
A flagship green energy scheme to encourage homeowners to ditch their gas boilers has been branded an “embarrassment” after uptake in the first year was only a third of the planned level.
The government’s boiler upgrade scheme had a budget of £150 million to subsidise 30,000 ground or air source heat pump and biomass boiler installations between its launch in May last year and the end of March this year. Yet figures published by the energy regulator Ofgem show that fewer than 10,000 installations were completed under the scheme in this period.
Ministers have set a target of 600,000 heat pump installations a year within the next five years and the sale of gas boilers will be banned by 2035.
Heat pumps work by drawing heat from the air or ground to provide hot water and central heating.
An air source pump can cost between £7,000 and £14,000 to buy and install, while a ground source pump costs between £15,000 and £35,000. The government scheme provides a subsidy of between £5,000 and £6,000 depending on the type of system used. In addition to the grant, there is no VAT on installation, offering a further saving of thousands of pounds…
Mike Foster, the chief executive of the trade body, said: “It takes a certain type of genius to fail to give away £150 million of taxpayers’ money and this wretched scheme looks like it has done just that. When will the government actually listen to the people, the majority of whom simply cannot afford a heat pump, subsidised or not.”
10) Gordon Hughes: Heat pumps epitomise the economic folly of Net Zero
The Daily Telegraph, 13 April 2023
Amid the cacophony of claims about Net Zero there is little concrete analysis of its wider impact in macroeconomic terms. For all the magical thinking about green jobs and technologies, the true benefits appear trivial when compared with the massive scale of expenditures required – and even more so when we account for the huge destruction of our existing capital stock, from cars to industrial machinery.
Think of a three-bedroom house currently heated by gas. My work suggests that installing an air source heat pump, upgrading radiators and improving insulation could cost £15,000 or more. Even after spending that money, many will find the level of comfort inadequate.
But this is only the tip of the iceberg. That heat pump will require green electricity if it’s to help meet net zero. So we must also allow for building and operating the wind farms, backup storage and grid network needed to replace gas heating with electricity. All those costs must be recovered through higher electricity prices, or direct government subsidies. Even if energy costs revert to “normal” pre-2021 levels, my calculations suggest that electricity prices could well double.
Along with the higher demand, and allowing for a reduction in gas use, this could be equivalent to a net increase in bills of £1,000-£1,200 per year for our hypothetical 3-bedroom house. Moreover, we must allow for the higher costs of servicing and eventually replacing heat pumps. With a life-cycle of 15 years, this would effectively add £400-600 per year to household expenses.
These costs would likely be capitalised into property values for owners who decide to contribute to net zero by opting for a heat pump. Calculating the present value of the servicing and running costs on a green grid indicates they could knock somewhere around £10-15,000 off the value of our 3-bedroom house, on top of the £15,000 or more spent on the change.
And housing is only the start of our Net Zero capital losses. Schools, hospitals, offices, shops and factories will have to be extensively refurbished or replaced to accommodate electric heating, and will then incur higher operating costs. A significant fraction of buildings and other assets could be abandoned as no longer economic. That could have the knock on effect of driving up both residential and commercial rents paid by housing tenants and businesses.
Then, there is transport and the hasty replacement of petrol or diesel vehicles by electric vehicles. Less obviously we must allow for the reorganisation of urban and suburban areas in the name of Net Zero and “15-minute neighbourhoods”. Our whole social infrastructure – shopping, schools, community facilities – has been built over many decades on the assumption of cheap private and public transport. A large part of this may have to be replaced, at vast but unknown cost.
Still, this is only one side of the capital account. Every year the UK spends 17-18 per cent of GDP on gross investment, much of which goes to replace old and worn-out assets. Arguably, this is too low, leading to the UK’s dismal productivity record. Detailed calculations by the Cambridge engineer Professor Michael Kelly suggest that the investment required for the current Net Zero timetable will exceed £3 trillion, or 1.2 times UK GDP. Either other investment must decline or the burden will fall on household spending.
In summary, in pursuit of Net Zero by 2050, around a quarter of all UK investment will be devoted to replacing existing assets. The knock-on effect means that what’s left of the UK’s original asset base could well get older and more expensive to operate. Prospects for future improvements in productivity or healthcare or education are at risk of shrivelling in the face of endless demands to fund the energy transition.
These costs result from needless haste. A practical date for Net Zero, 2080, would be consistent with the natural cycle of asset ageing and replacement, protecting the economic interests of our children and grandchildren. It would also seem to stand a better chance of delivering a sustainable low carbon future. The 2050 target is on a collision course with reality.
Professor Gordon Hughes is a retired Professor of Economics at the University of Edinburgh, and a former senior adviser on energy and environmental policy at the World Bank
