Chapter 13: RHI vs BUS - Heating Policy Confusion

NOTE: What do RHI and BUS stand for?

The last 50 years - the rise and rise of the gas combi-boiler

For the last 50 years, Britain has benefited from easy access to natural gas. Nowadays 85-90% of homes are heated with natural gas, which replaced a number of inferior solutions, including:

1. Coal derived gas
2. Coal fires and back boilers - which are more hazardous and created vastly more localised pollution
3. Heating oil and storage heaters - which remains common in the most rural areas, but has been squeezed out of most suburbs and larger villages by the arrival of natural gas

Over the same period, the number of homes and buildings with proper central heating has grown from x% to x% (TODO: find dumers and source). Whereas previously, homes might have had a number of manually controlled fireplaces, and some rooms e.g. bedrooms and kitchen/bathrooms that went largely unheated. This has significant health benefits, especially for the vulnerable and elderly.

More recently, combi (combination) gas boilers have also enabled many homes to ditch having a separate hot water tank. By burning a lot of gas very quickly, much quicker than typically used for central heating, they enable homes to heat enough hot water to run showers and baths on-demand. Over the same period, homes have also abandoned loft tanks for fresh water, the combination of which has freed up significant storage space, which is of particular value in smaller properties and in parts of the country like London and the South East which have seen the most rapid growth in property prices.

The volume of gas boiler sales has also meant significant improvements in their efficiency, which in well installed properties can now push 90%.

Turning tide post 2000

In the last 20-25 years, the previous infallible status of gas combi boilers has started to wane somewhat.

First, Britain's production of domestic North Sea gas peaked in the year 2000, when it covered almost all our annual gas demand, and has declined about 70% since then, meaning we now import about 50% of our gas annually. In the peak winter heating season, this figure can reach 70-80% and the majority of our seasonal imports come from far-flung LNG (Liquefied Natural Gas) markets like the US and Qatar. LNG gas is more expensive because it has to be liquefied at high pressure and transported across oceans in specifically designed tankers. Turning the gas into a high-pressure liquid requires masses of energy, meaning LNG is about 15-25% higher in carbon emissions than pipeline gas. This is especially true for US shale-derived gas, where there are extra carbon emissions associated with fracking the rock formations and processing the gas before liquefaction.

And LNG is also much less secure than UK gas, or gas imported under long-term pipeline contracts with our neighbour Norway, because LNG cargoes go the highest global bidder, which can include rapidly growing Asian markets, and are dependent on the political stability and goodwill of producers like the US and Qatar.

Starting in 2003 and escalating to the full-scale 2022 Ukraine invasion, Russia has become an increasingly less reliable and desirable pipeline gas supplier to continental Europe, where it was previously so dominant that countries like Germany had no LNG import facilities and many others relied exclusively on Russian pipeline gas. Over this period, Russia has threatened to cut off gas supplies at least 15 times, including major disputes in 2006, 2009, 2014, and 2019 that disrupted supplies to Eastern Europe and created political pressure on Western European countries. This pattern of using energy as a political weapon has put the UK competing with demand for both LNG cargoes and Norwegian pipeline gas, even though the UK itself has never directly bought much Russian gas.

GDP versus short-term cost savings

It's worth going into a bit more discussion here about the difference between trying to find the cheapest and most convenient way of heating our homes and businesses and taking the long-term approach in terms of what's best for our economy, living standards and incomes.

In the short-term, for many of the last 20-25 years, importing increasing volumes of gas from abroad has been cheaper and easier than sourcing the same energy from alternative sources, like nuclear, wind or domestic shale. However, each time we install or replace a gas boiler, we commit ourselves for that boiler's lifetime, typically 10-15 years, to importing more foreign gas. And when we buy energy from abroad rather than making it ourselves, that money creates very few jobs in our own country, and raises very little in tax revenues for our Government. Instead, it helps other countries.

The balance of trade is rather neglected as a concept. Put simply, it shows the net surplus or deficit in how much the country as a whole spends. If you look at oil and gas over the last 25 years, then as a percentage of our overall income (or GDP), the cost of energy imports has risen dramatically, from being around £75 per person in 2000 when North Sea production was at its peak, to reaching £1,200-1,500 per person during the 2022 energy crisis. Even now, with prices having moderated, energy imports still represent about £600-900 per person annually - a significant drain on our economy that was partly avoidable.

Had we invested more in domestic energy sources like nuclear, wind and shale gas, then we might have paid more upfront for the energy, particularly the investment required. However, much of that investment would have stayed within the UK economy, we would have better infrastructure and assets, and during energy price shocks like 2022, our economy would have been more insulated. This is true even if domestic energy producers had been allowed to increase their prices, provided we had sensible profit (including if needed, windfall) taxes in place to collect and redistribute.

For a detailed analysis of the UK's missed opportunity with shale gas development, including the economic benefits, environmental considerations, and political factors that led to its rejection, see Chapter 21: Shale Gas - A Missed Opportunity.