Earlier this month (April 2022), the Government published the new British Energy Security Strategy. This comes in light of soaring energy prices, the war in Ukraine and the associated threat to European energy supply. The strategy aligns with the Government’s 10-point Plan for a Green Industrial Revolution and covers a range of topics from floating offshore wind through to green financing and green buildings.
What should the construction & retrofit industry take note of?
The VAT rate on insulation and energy-saving materials is cut from 20% to 0%. April 2022. The VAT cut extends on installation costs as well as materials. This move finally equalises the VAT rate between most retrofit and new-build projects. It also comes after long-term campaigning from a number of industry initiatives and exceeds the often-quoted demands to reduce the VAT rate from 20% to 5%. The VAT cut is time-limited and is scheduled to end in April 2027.
Cutting the VAT gives an incentive for homeowners and landlords to retrofit, reducing their energy consumption and operational carbon footprint. Additionally, a cut in VAT represents an incentive to retrofit existing buildings rather than demolish and rebuild. This is good news as it makes use of the emissions already embodied in the building fabric and avoids the high carbon cost of new-builds. For a mid-scale residential building, over 50% of its carbon footprint will already be emitted by the time it’s completed.
Heating & building fabric
90% of UK’s 29m households today are heated by fossil fuels and the strategy supports a shift away from gas-powered boilers. The £450m Boiler Upgrade Scheme should support the uptake of heat pumps, offering £5k / household in addition to the VAT cut. A £30m Heat Pump Investment Accelerator Competition aims to build capabilities for heat pump manufacturing. The package sets 2035 as the last year of sales for new gas boilers and targets 600,000 heat pump installations per year by 2028.
Efficient building fabric is the necessary condition for mass-deployment of heat pumps: without it, heat quickly escapes and renders any heat source inefficient. To this effect, the strategy highlights previous commitments to upgrade as many homes as possible to EPC band B and C by 2035, and a more ambitious 2030 target for homes in fuel poverty. However, it remains unclear how (if at all) the strategy synchronises the transition to heat pumps and improvements in building fabric (insulation, draught-proofing) to avoid mass installation of pumps into homes that will lose heat through leaky walls and roofs.
It remains unclear who will install the products needed to fulfill these energy-efficiency measures. There is an acute shortage of workers and skills across the retrofit value chain. Studies suggest that in some regions, some of the retrofit workforce needs to grow 48x to meet the UK’s net-zero targets. Previous experience suggests that lack of skilled labour can be a barrier to successfully retrofitting at scale: the Green Homes Grant aimed to deliver energy efficiency measures in 600,000 homes. Less than 250 Trustmark installers were registered in the scheme. (National Audit Office, 2021) and they are expected to complete improvements in 47,500 homes. Looking specifically at heat pumps, there were around 1,200 installers in 2021 (EY, 2021) who put in place an estimated 67,000 heat pumps (Heat Pump Association). The declared target is 600,000 per year by 2028. There is considerable opportunity for comprehensive training to be rolled out at scale.
It should also be noted that in the built environment, the British Security Strategy focuses on summarizing what had been announced before; e.g. in the Clean Growth Strategy (EPC rating targets), Heat and Buildings Strategy (heat pump targets and Boiler Upgrade Scheme) or the Spring Statement (VAT cut).
What measures would you like to see rolled out at scale? Get in touch in the comment section or at firstname.lastname@example.org and let us know.
Written By Rozalie Ryclova
The views expressed in this article are those of the author and do not represent the views of Thermulon or Cercula Ltd.
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