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What price heat?

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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.

b2ap3_thumbnail_Arup-graph.png

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.

 

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  • Guest
    Marko Tuesday, 02 December 2014

    Good to see this post back up in edited form. :)


      You have chosen extremely favourable costs for maintaining and replacing a gas boiler.


    In my view replacement is more like £2,500 when you include the cost of gaining access to a property (be it the day off work as a private individual or liaising with tenants and abortive visits in a landlords context - costs which you should also include when pricing maintenance, visits for the purpose of quotations, time spent procuring the boiler replacement etc), plus the costs of making good afterwards given that no replacement is every like for like.

    Social housing providers can and do share their data and will most will be in the £2,000-2,500 range once all costs are accounted for. How many have you asked and how was the question phrased? Do you believe you captured the full cost of providing warm homes?

    It's setting an extremely high bar for a heat network to match and I don' think there's any reason to be overly generous to the industry. ;)


      You imply that only local plumbers take days to arrive with the correct part for a gas boiler.


    How exactly are brand-name national providers any different? Do they drive vans that contain every part for every boiler ever manufactured in order to guarantee same-day service?

    There is a valid argument that a national provider can dispatch somebody to inspect the boiler the same-day - and if you read the small print this is all that the likes of British Gas actually guarantee - but the unqualified implication that they're any less reliant on exactly the same supply chain as individual plumbers is bunk in my view.

    Some manufacturers can provide a service level guarantee via their dealer network. Some leased boiler providers will stock parts for same day nationwide service. This comes at a price point far beyond that which you describe though. (£500-600/year for a leased boiler with meaningful service level agreement)


      You imply in your second to last paragraph that CHP can provide lower carbon heating that individual gas boilers.


    What CHP and heat network performance assumptions are you making to achieve net carbon emissions reductions for the reference 3,500 kWh/home/year heat loads? Can you reference any real world data to support those performance assumptions?

    Serving 3,500 kWh/year homes efficiently is technically possible but difficult and I'm not aware of any [commercial] UK scheme that is able to offer net carbon emissions reductions vs. individual gas boilers for such heat loads.


      You state that district heating systems can provide heat to consumers at a discount to individual gas boilers, and that in many cases this discount is due to the developer making a contribution to the capital cost. That implies that in some cases this is not the case.


    This implies that there are schemes that can provide heat to consumers at a discount to individual gas boilers without a developer making a contribution to the cost. Can you give a relevant example please?

    Taking this further: there are plenty of examples where a 3rd party other than the developer subsidised the cost of heating for consumers.

    Can you give any relevant examples where the scheme can provide heat to consumers at a discount to individual gas boilers WITHOUT a developer making a contribution to the capital cost, a 3rd party subsidising the fuel cost (tax subsidies for biomass etc), a 3rd party subsidising the deployment cost (grant funding for feasibility studies; carbon emissions reductions; affordable warmth etc), or a 3rd party subsiding the cost in any other manner (low interest loans, loan guarantees, planning conditions that devalue the land and thereby subsidise the network, or taxes that distort the natural market)

    i.e. - a district heating system that is genuinely cheaper rather than merely a tool for wealth transfer which can be achieved using an ESCo and any technology.

    I don't doubt that district heating systems can be cheaper than individual gas boilers, but residential heat loads of 3,500 kWh/home/year are extremely challenging to serve. (the Danes base their numbers on houses larger than shoeboxes which consume an average of 18,100 kWh/home/year in weather that's twice as cold as ours when measured by degree-days... ...plus gas taxes)

    Google will find you a fascinating publication by Hyde Housing Association titled "The Technical and Financial Viability of Community Heating (CH) Systems" - a great insight into the true nature of heat networks as currently deployed in the UK. Better to read first hand than take Bill Watts's word for it. ;)

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