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What price heat?
Thomas Briault and Stuart Allison from Arup explore our tendency to over-simplify how we think about the price of heat, and show some findings from recent work which shed light on the facts behind the figures.
We have been working with a number of clients recently to look at the price customers pay to keep warm using individual gas boiler systems.
Our first finding: most people do not make a distinction between heat and gas.
What we pay for gas is around 4p/kWh with an £80 per year standing charge (source: uSwitch for a dual fuel energy bill from the six largest suppliers).
But the supply of gas alone does not get customers heat. To calculate the true costs of heating – with a guaranteed heat supply, all year round - we need to take into account their boiler efficiency, maintenance of that boiler and the replacements costs when it comes to the end of its useful life, typically every ten years or so.
In terms of maintenance, the cost of gas boiler maintenance cover, with zero excess, is typically £150-£200 per year. The consumer rights group Which? has carried out research suggesting that a boiler maintenance package with zero excess is not the cheapest solution for householders, who could save money by using their local plumber to fix repairs whenever needed. However, this means that the resident does not have a guaranteed supply of heat, since a plumber could take days to arrive with the correct parts and would not pay you a penalty charge for any delay in arrival.
Although all residents hope they will not have to replace their boiler while in their property, on average boilers need replacing once every 11 years, often at a high capital cost. Even a social housing provider ordering in bulk would struggle to keep the installed cost below £1500, meaning the annualised cost of boiler replacement is likely to be between £110-£220, depending on size and complexity.
When all of these costs are factored in, we begin to get a picture for the price of heat, rather than simply the fuel utility costs.
The graph below shows the total bill for a two bedroom apartment using around 3,500kWh/yr (assuming design standards for a new Code for Sustainable Homes Level 4+ building). The actual cost of heat is not 4p but closer to 14p/kWh.
Some elements of these costs are fixed and do not vary between customers. These account for some £330 of the overall bill, regardless of how much heat the customer uses.
District Heating systems are another way to provide guaranteed, year round, uninterrupted heat, and they can do this at a discount to the figures shown above for individual gas boilers. Performance and prices are linked: if heat is down for more than 24 hours, the district heating operator will often pay a penalty charge to their customers.
In many cases, the discount on the price of heat is achieved with a developer contribution towards the capital cost of the district heating network and/or energy centre. Although communal gas boiler solutions are often cheaper when including the capital costs, they do not provide the necessary carbon reductions to enable developers to meet their planning and building regulation requirements without incurring additional capital investment in measures such as solar panels.
Currently gas fired CHP is the cheapest way to roll out technology-agnostic district heating, but it does inherently have a carbon impact and this will worsen as the grid decarbonises. We are therefore now working on is assessing the best option to replace the gas fired assets, and there are a wide variety of options being explored.