Publication - Research and analysis

Low carbon heating in domestic buildings - technical feasibility: cost appendix

Published: 22 Dec 2020

Cost appendix to accompany the technical feasibility of low carbon heating in domestic buildings report.

Low carbon heating in domestic buildings - technical feasibility: cost appendix
1 Cost of low-carbon heating technologies

1 Cost of low-carbon heating technologies

The cost of each considered low-carbon heating technology was calculated considering both capex and opex costs for the year 2020. Following cost components were included:

Capex:

  • Heating system base cost (£)
  • Additional costs (£)

Opex:

  • Maintenance cost (£/year)
  • Fuel cost (£/year)

The final cost of a technology was calculated as the sum of the capex components and the discounted opex components. The opex cost were levelised over the lifetime of the technology with a discount rate of 3.5%. Our assumptions and cost sources for all cost components are reported in sections 1.1 to 1.4.

1.1 Heating system base cost and maintenance cost

The heating system base cost includes both the cost of the main appliance and the cost of its installation, but it does not include the costs of additional components, such as hot water cylinders or radiators.

The values of heating system base cost utilised in this study are shown in Figure 1 to Figure 4, reporting costs for a range of installed heating capacities.

Technologies that are currently not largely widespread are expected to experience a reduction in cost of the main unit between 2020 and 2040, due to economies of scale. Costs for 2020 are represented with a solid line, while costs for 2040 are represented by a dashed line.

Note that the heating system base cost for all technologies depends on the heating capacity of the device. Costs are reported as a list of total costs in £ for discrete values of installed capacity within a range for the following technologies: gas boiler, oil boiler, solid biomass boiler, BioLPG boiler, bioliquid boiler, hydrogen boiler and biomethane grid injection. For all other technologies, costs are reported as a combination of a “fixed cost” (in £ per unit) with a marginal component of “variable cost” (in £ per kWth of heating capacity of the unit). These cost components are also reported in Table 1.

Annual maintenance costs considered in this study are reported in Figure 5. These are expected to be constant for devices of all capacities, with the exception of solid biomass boilers, for which the annual maintenance cost is assumed to be 14.5 £/kW.

All data sources for heating system base costs and maintenance costs are summarised in Table 2.

Figure 1: Heating system base cost – Heat pumps
A line graph showing the heating system base costs against the heat output capacity for Air Source Heat Pumps, Ground Source Heat Pumps, High temperature Air Source Heat Pumps, High temperature Ground Source Heat Pumps and communal Air Source Heat Pumps in 2020 and 2040. All technologies follow an upward trend in both years, showing a linear correlation between cost increase and heating output capacity increase based on the marginal capex figures found in table 1 for each technology. Comparatively, costs in 2040 are projected to be lower than 2020 for all technologies regardless of heating system capacity.
Figure 2: Heating system base cost – Electric heating and hybrid heat pumps
A line graph showing the heating system base costs against the heat output capacity for Electric Heating (including Electric storage heaters, direct electric heating, electric boilers) and Hybrid Air Source Heat Pumps (with gas or hydrogen boiler, bioliquid boilers and direct electric boilers) in 2020 and 2040. All technologies follow an upward trend in both years, showing a linear correlation between cost increase and heating output capacity increase based on the marginal capex figures found in table 1 for each technology. Comparatively, costs in 2040 are projected to be lower than 2020 for hybrid heat pump solutions regardless of heating system capacity, whilst costs remain the same across the years for electric heating.
Figure 3: Heating system base cost – Bioenergy boilers and low carbon gas
A line graph showing the heating system base costs against the heat output capacity for oil boilers, bioenergy boilers (including solid biomass boilers and B100 bioliquid boilers and bioLPG boilers) and low carbon gas boilers (biomethane grid injection and hydrogen boilers) in 2020 and 2040. This graph shows no change between 2020 and 2040 rates. The trend in increase correlates to the marginal capex figures found in table 1 for each technology.
Figure 4: Heating system base cost – Combinations with solar thermal
A line graph showing the heating system base costs against the heat output capacity for heating systems (Air source heap pumps, electric storage heating, direct electric heating and electric boilers) that are combined with solar thermal in 2020 and 2040. All technologies follow an upward trend in both years, showing a linear correlation between cost increase and heating output capacity increase based on the marginal capex figures found in table 1 for each technology. Comparatively, costs in 2040 are projected to be lower than 2020 for Air Source Heat Pumps combined with solar thermal, whilst costs for combination with electric heating remain the same across the years.
Table 1: Components of heating system base cost
Fixed CAPEX (£) Marginal CAPEX (£/kWth)
2020 2040 2020 2040
ASHP 4,804 3,843 300 231
GSHP 8,804 7,843 300 231
High-T ASHP 4,000 3,600 500 450
High-T GSHP 5,000 4,500 1,083 975
Communal ASHP 801 641 300 231
Electric storage heating  -  - 750 750
Direct electric heating 227 227 113 113
Electric boiler 700 700 45 45
Hybrid ASHP + gas boiler or hydrogen boiler 6,042 5,093 288 231
Hybrid ASHP + bioliquid boiler 6,546 5,597 288 231
Hybrid ASHP + direct electric heating 5,319 4,370 452 395
ASHP + solar 7,229 6,268 541 472
Electric storage + solar 2,425 2,425 992 992
Electric resistive + solar 2,652 2,652 279 279
Electric boiler + solar 3,121 3,121 209 209
Figure 5: Annual maintenance cost
A bar chart showing annual maintenance costs of 22 heating systems and combination systems per year. The annual costs for gas boilers, oil boilers, air source heat pumps, ground source heat pumps, high temperature air source heat pumps, high temperature ground source heat pumps, communal air source heat pumps, electric storage heating, direct electric heating, electric boilers and boiler with biomethane gas injection all averages £100 per year, where slightly higher costs were assigned to BioLPG boilers, B100 bioliquid boilers, hybrid heating systems and heating systems combined with solar.

Annual maintenance costs for solid biomass boilers were assumed to depend on the capacity of the appliance and to amount to 14.5 £/kWth.

Table 2: Sources and assumptions on low-carbon heating technology costs

(Technology, Sources, Assumptions)

Technology: Gas boiler

Source: As Fifth Carbon Budget, converted to 2020 prices.

No Assumption:

Technology: Oil boiler

Source: As Fifth Carbon Budget, converted to 2020 prices.

No Assumption:

Technology: ASHP

Source: 2020 values from Hybrid Heat Pumps (2017), Element Energy for BEIS

Assumption: Reduction in cost of unit and installation of 20% between 2020 and 2040.

Technology: GSHP

Source: 2020 values from Hybrid Heat Pumps (2017), Element Energy for BEIS

Assumption: Reduction in cost of unit and installation of 20% between 2020 and 2040. Assuming ground loop shared between two properties.

Technology: High-T ASHP

Source: 2020 values from Evidence gathering - Domestic High Temperature Heat Pumps (2016), BEIS

Assumption: Reduction in cost of unit and installation of 10% between 2020 and 2040.

Technology: High-T GSHP

Source: 2020 values from Evidence gathering - Domestic High Temperature Heat Pumps (2016), BEIS

Assumption: Reduction in cost of unit and installation of 10% between 2020 and 2040. Assuming ground loop shared between two properties.

Technology: Communal ASHP

Source: 6 homes used as the size of the communal heating system based on the average terrace length from HCLG English Housing Survey 2017-2018

Assumption: Assumes a communal HP serving 6 homes. Fixed and marginal capex and same as for individual ASHP and shared across the 6 homes.

Technology: Electric storage

Source: From Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS

Assumption: Capex constant for all years, as established technology.

Technology: Electric resistive

Source: From Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS

Assumption: Capex constant for all years, as established technology. Opex same as for electric storage.

Technology: Electric boiler

Source: From Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS

Assumption: Capex constant for all years, as established technology. Opex same as for gas boilers and electric storage

Technology: Solid biomass boiler

Source: Capex from Fifth Carbon Budget dataset converted to 2020 prices. Opex from NERA 2009: The UK Supply Curve for Renewable Heat

No Assumption:

Technology: BioLPG boiler

Source: Capex of unit and installation from ClimateXChange 2019, The potential contribution of bioenergy to Scotland’s energy system.

Additional opex for the delivery and storage of gas based on LPG Gas Central Heating Costs, Household Quotes 2018.

Assumption: Opex same as for gas boiler with additional cost for the delivery and storage of BioLPG

Technology: Bioliquid boiler B100

Source: ClimateXChange 2019, The potential contribution of bioenergy to Scotland’s energy system.

NNFCC 2019, Heating Options for Off-Gas Grid Consumers.

BoilerGuide New Oil Boiler Replacement – Installation Costs (accessed 04/10/2019).

Assumption: Dedicated bioliquid installation.

Fixed opex assumed to be the same as for general boilers, plus oil tank costs. Oil tank can be rented or owned. Cost of tank rental or cost of own tank assumed to be equivalent and included in opex. Oil tank cost with installation £1,900 (over 15 yr)

Technology: Hydrogen boiler

Source: Hydrogen supply chain evidence base (2018), Element Energy for BEIS

Assumption: £153 added to cost of gas boiler to account for increased cost of Hydrogen boiler (Hydrogen-only boiler and Hyready boiler).

Uplift of 50% in the opex compared to gas boiler due to the need to replace catalyst used to reduce NOx emissions (for both Hydrogen-only boiler and Hyready boiler).

Technology: Biomethane grid injection

No Source:

Assumption: Same appliance as gas boiler

Technology: Hybrid HP + gas

Source: 2020 values from Hybrid Heat Pumps (2017), Element Energy for BEIS.

Increase in capex for Hyready boiler and uplift in opex for catalyst replacement in line with Hydrogen supply chain evidence base (2018), Element Energy for BEIS

Assumption: Hyready boiler in gas mode.
Reduction in cost of heat pump unit of 20% between 2020 and 2040.
Opex assumed to be £50 lower than the sum of the opex for the two components of the hybrid system (£100 each) due to economies of scale.

Technology: Hybrid HP + bioliquid

Source: 2020 values from Hybrid Heat Pumps (2017), Element Energy for BEIS. NNFCC 2019, Heating Options for Off-Gas Grid Consumers.

BoilerGuide New Oil Boiler Replacement – Installation Costs (accessed 04/10/2019).

Assumption: Reduction in cost of heat pump unit of 20% between 2020 and 2040.

Opex assumed to be £50 lower than the sum of the opex for the two components of the hybrid system due to economies of scale. Additional OPEX £50 for small oil tank (£750 over 15 yr).

Technology: Hybrid HP + H2

Source: 2020 values from Hybrid Heat Pumps (2017), Element Energy for BEIS

Increase in capex for Hyready boiler and uplift in opex for catalyst replacement in line with Hydrogen supply chain evidence base (2018), Element Energy for BEIS

Assumption: Hyready boiler in hydrogen mode.
Reduction in cost of heat pump unit of 20% between 2020 and 2040. Opex assumed to be £50 lower than the sum of the opex for the two components of the hybrid system due to economies of scale; uplift of 50% in the component of the opex associated with the hydrogen boiler due to replacement of the catalyst used to reduce NOx emissions when operating in hydrogen mode.

Technology: Hybrid HP + resistive

No Source:

Assumption: Capex derived by removing boiler component of hybrid heat pump and adding cost of resistive heating based on modelled kW.

Opex assumed to be £50 lower than the sum of the opex for the two components of the hybrid system due to economies of scale.

Technology: Combinations with solar thermal

Source: Costs as Fifth Carbon Budget, converted to 2020 prices. Heat delivered assumption based on NERA 2009: The UK Supply Curve for Renewable Heat, table B.13

Assumption: Heat delivered by solar collectors calculated assuming that solar thermal delivers no more than 60% of hot water demand or 643 kWh/kW, whichever is lower. Opex assumed to be £50 lower than the sum of the opex for the two components of the hybrid system due to economies of scale.

1.2 Technology efficiency and fuel use

All assumptions around lifetime, load factor, fuel type, heating efficiency and the portion of supplied space heating and hot water are reported in Table 3. The load factor was utilised to calculate peak heating demand from the annual heating demand. Heating efficiency refers to the higher heating value for combustion-based technologies.

Heating efficiency of heat pump technologies varies depending on the flow temperature at which space heating and hot water are delivered and is reported in Table 4. The efficiency of a heat pump is expressed as the seasonal performance factor (SPF), defined as the ratio of the supplied heat to the total electrical energy demand over one year. The combined SPF, utilised to calculate electricity consumption, includes the delivery of heat for both space heating and for hot water production, assuming the ratio between space heating and hot water production is 3.5:1. The hot water SPF is assumed to be the same as the space heating SPF when operating with flow temperature of 60°C.

Table 3: Assumptions on lifetime, load factor, fuel use and heating efficiency
Technology Lifetime Load factor Fuel Heating efficiency % space heating demand % hot water demand
ASHP 18 16% Electricity - Peak Table 4 100% 100%
GSHP 22.5 16% Electricity - Peak Table 4 100% 100%
High-T ASHP 18 16% Electricity - Peak Table 4 100% 100%
High-T GSHP 22.5 16% Electricity - Peak Table 4 100% 100%
Communal ASHP 18 16% Electricity - Peak Table 4 100% 100%
Electric storage 15 16% Electricity - Off peak 100% 100% 100%
Electric resistive 15 11% Electricity - Peak 100% 100% 100%
Electric boiler 15 7% Electricity - Peak 100% 100% 100%
Solid biomass boiler 15 16% Biomass 74% 100% 100%
BioLPG boiler 15 7% BioLPG 87% 100% 100%
Bioliquid boiler B100 15 7% Bioliquid 84% 100% 100%
Hydrogen boiler 15 7% Hydrogen 87% 100% 100%
Biomethane grid injection 15 7% Biomethane 87% 100% 100%
Hybrid HP + gas boiler 15 25% Electricity - Peak Table 4 80% 0%
Gas 87% 20% 100%
Hybrid HP + gas boiler, with hot water cylinder 15 25% Electricity - Peak Table 4 80% 80%
Gas 87% 20% 20%
Hybrid HP + bioliquid boiler 15 25% Electricity - Peak Table 4 80% 0%
Bioliquid 84% 20% 100%
Hybrid HP + bioliquid boiler, with hot water cylinder 15 25% Electricity - Peak Table 4 80% 80%
Bioliquid 84% 20% 20%
Hybrid HP + hydrogen boiler 15 25% Electricity - Peak Table 4 80% 0%
Hydrogen 87% 20% 100%
Hybrid HP + hydrogen boiler, with hot water cylinder 15 25% Electricity - Peak Table 4 80% 80%
Hydrogen 87% 20% 20%
Hybrid HP + direct electric heating 15 25% Electricity - Peak Table 4 80% 0%
Electricity - Peak 100% 20% 100%
Hybrid HP + direct electric heating, with hot water cylinder 15 25% Electricity - Peak Table 4 80% 80%
Electricity - Peak 100% 20% 20%
DH 15 7% Heat from DH 100% 100% 100%
Combinations with solar 18 N/A Solar N/A 0% 60%
Gas boiler 15 7% Gas 87% 100% 100%
Oil boiler 15 7% Oil 84% 100% 100%
Table 4: Heating efficiency of heat pump technologies
Technology Flow Temperature (°C) Space heating SPF Combined SPF
2020 2040 2020 2040
ASHP 35 3.60 4.06 3.12 3.62
40 3.40 3.87 3.00 3.50
45 3.00 3.48 2.75 3.25
50 2.70 3.19 2.54 3.04
55 2.40 2.90 2.33 2.83
60 2.10 2.60 2.10 2.60
GSHP 35 3.77 4.31 3.51 3.96
40 3.59 4.07 3.38 3.8
45 3.40 3.84 3.25 3.64
50 3.21 3.60 3.11 3.47
55 3.02 3.35 2.97 3.29
60 2.83 3.09 2.83 3.09
Communal ASHP 35 3.60 4.06 3.12 3.62
40 3.40 3.87 3.00 3.50
45 3.00 3.48 2.75 3.25
50 2.70 3.19 2.54 3.04
55 2.40 2.90 2.33 2.83
60 2.10 2.60 2.10 2.60
High-T ASHP and GSHP 75 2.95 3.00 2.95 3.00

An improvement of 0.5 in the combined SPF at flow temperature of 60°C is assumed between 2020 and 2030, in line with assumption of the 5th Carbon Budget Advice analysis by the CCC[1].

The flow temperature of the system was assigned to each archetype by choosing the lowest flow temperature suitable to meet the specific heat demand, as reported in Table 5.

Table 5: Flow temperature of heat pumps depending on the archetype’s specific heat demand
Specific heat demand (W/m[2]) Flow Temperature (°C)
< 80 35
80 - 100 40
100 - 120 45
120 - 150 50
> 150 unsuitable

1.3 Additional costs

Additional costs considered in this study include costs for the installation of additional components required by the new low-carbon heating system (e.g. hot water cylinder or low-temperature radiators) but also costs for the removal of components of the old heating system that are no longer required (e.g. boiler decommissioning) and costs for equipment not linked to the heating system (e.g. replacement of cooker/hob when moving to a non-gas based heating technology).

A list of the additional costs related to equipment and measures is reported in Table 6. The applicability of these costs will depend both on the new heating technology that is being installed and on the counterfactual heating technology which is being decommissioned. In fact, some of the additional components of the counterfactual heating system may be utilised for the new heating system. Table 7 and Table 8 show an overview of how these costs were applied.

Table 6: Additional cost components
Equipment / measure Fixed capex (£) Marginal capex Source Assumptions
Hot water cylinder 1,059 - Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS 180L storage volume
Additional thermal store to allow some use of Off-peak electricity 1,711 - Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Two 180L hot water cylinders with shared installation cost
Point-of-use hot water systems 2,060 - Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Typical installation of 3 electric taps and 1 electric shower per dwelling
Conversion to low T radiators 1,100 to 2,567 - Hybrid Heat Pumps (2017), Element Energy for BEIS Applied in dwellings with existing wet heating system. Depending on building size.
Replacement of cooker/hob 315 - Analysis of Alternative UK Heat Decarbonisation Pathways (2018), Imperial College for CCC Weighted average across gas households, based on cost of £500 (2017 prices), 23.9m gas households, with 14.8m gas hobs and 8.4m gas ovens.
Installation of wet distribution system 1,273 5 £/m[2] Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Only applied in dwellings with electric system
Removal of wet heating system 204   Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Only applied in dwellings with non-electric system
Decommissioning of boiler 509   Analysis of Alternative UK Heat Decarbonisation Pathways (2018), Imperial College for CCC Includes decommissioning of other non-cooking gas appliances
H2 conversion costs - hydrogen boiler, hydrogen hybrid HP 560   Hydrogen supply chain evidence base (2018), Element Energy for BEIS £509 for pipework and £51 added as labour cost for the switchover of the Hyready boiler from gas to H2.
Additional pipework for communal ASHP in flat 3,364 - Element Energy modelling for private sector client (2018) Excluding internal emitter replacement. Includes heat exchange unit and meter. 2.5m service pipe per flat, 10m lateral pipe and 3.1m heat riser per floor, pump, installation and labour.
Additional pipework for communal HP in terrace house 6,157 - Element Energy modelling for private sector client (2018) Excluding internal emitter replacement. Includes heat exchange unit and meter. 30m external pipeline per communal heating system and 2.5m service pipe per house.
Wiring for direct electric heating 89 135 £/kW Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Only applied in dwellings with non-electric heating when switching to electric heating
Wiring for storage heating 509 178 £/kW Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS Applied in dwellings with non-storage heating when switching to storage heating
Table 7: Application of additional costs (1/2)
New system Existing system Removal of wet system Installation of wet system Communal heating pipework and meter Storage heating electrical wiring Resistive heating electrical wiring Hot water tank
ASHP
GSHP
ASHP + solar thermal
Gas N N N N N Y
Oil N N N N N Y
Electric N Y N N N N
High-T ASHP
High-T GSHP
Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Communal ASHP Gas N N Y N N Y
Oil N N Y N N Y
Electric N Y Y N N N
Electric storage
Electric storage + solar
Gas Y N N Y N Y
Oil Y N N Y N Y
Electric N N N [1] N N
Electric resistive
Electric resistive + solar
Gas Y N N N Y Y
Oil Y N N N Y Y
Electric N N N N N N
Electric boiler
Electric boiler + solar
Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Solid biomass boiler Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
BioLPG boiler Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Bioliquid boiler B100 Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hydrogen boiler Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Biomethane grid injection Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hybrid HP + gas Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hybrid HP + gas, with hot water cylinder Gas N N N N N [2]
Oil N N N N N [2]
Electric N Y N N N N
Hybrid HP + bioliquid Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hybrid HP + bioliquid, with hot water cylinder Gas N N N N N [2]
Oil N N N N N [2]
Electric N Y N N N N
Hybrid HP + hydrogen Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hybrid HP + hydrogen, with hot water cylinder Gas N N N N N [2]
Oil N N N N N [2]
Electric N Y N N N N
Hybrid HP + direct electric Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N
Hybrid HP + direct electric, with hot water cylinder Gas N N N N N [2]
Oil N N N N N [2]
Electric N Y N N N N
District heating Gas N N N N N N
Oil N N N N N N
Electric N Y N N N N

Legend:

Y - Applies for all dwellings

[…] - Applies for some dwellings. See numbers below.

N - Does not apply for any dwellings

[1] Only applies if the counterfactual technology is direct electric heating

[2] Only applicable where the heat pump is meeting the hot water demand. Where the boiler is meeting hot water demand then on-demand hot water from a combi boiler is assumed.

Table 8: Application of additional costs (2/2)
New system Existing system Point of use DHW Radiator upgrades Decommission boiler and non-cooking gas appliances Decommission / replace cooking appliances Installation of liquid fuel tank Hydrogen pipework and conversion
ASHP
GSHP
ASHP + solar thermal
Gas N [4] Y [6] N N
Oil N [4] Y N N N
Electric N [4] N N N N
High-T ASHP
High-T GSHP
Gas N N Y [6] N N
Oil N N Y N N N
Electric N N N N N N
Communal ASHP Gas N [4] Y [6] N N
Oil N [4] Y N N N
Electric N [4] N N N N
Electric storage
Electric storage + solar thermal
Gas [3] N Y [6] N N
Oil [3] N Y N N N
Electric N N N N N N
Electric resistive
Electric resistive + solar thermal
Gas [3] N Y [6] N N
Oil [3] N Y N N N
Electric N N N N N N
Electric boiler
Electric boiler + solar thermal
Gas N N Y [6] N N
Oil N N Y N N N
Electric N N N N N N
Solid biomass boiler Gas N N [5] [6] N N
Oil N N Y N N N
Electric N N N N N N
BioLPG boiler Gas N N N [6] N N
Oil N N Y N N N
Electric N N N N N N
Bioliquid boiler B100 Gas N N Y [6] Y N
Oil N N Y N Y N
Electric N N N N Y N
Hydrogen boiler Gas N N N [6] N Y
Oil N N Y N N Y
Electric N N N N N Y
Biomethane grid injection Gas N N N N N N
Oil N N Y N N N
Electric N N N N N N
Hybrid HP + gas Gas [3] N N N N N
Oil [3] N Y N N N
Electric N N N N N N
Hybrid HP + gas, with hot water cylinder Gas N N N N N N
Oil N N Y N N N
Electric N N N N N N
Hybrid HP + bioliquid Gas [3] N Y [6] Y N
Oil [3] N Y N Y N
Electric N N N N Y N
Hybrid HP + bioliquid, with hot water cylinder Gas N N N [6] Y N
Oil N N Y N Y N
Electric N N N N Y N
Hybrid HP + hydrogen Gas [3] N N [6] N Y
Oil [3] N Y N N Y
Electric N N N N N Y
Hybrid HP + hydrogen, with hot water cylinder Gas N N N [6] N Y
Oil N N Y N N Y
Electric N N N N N Y
Hybrid HP + direct electric Gas [3] N Y [6] N N
Oil [3] N Y N N N
Electric N N N N N N
Hybrid HP + direct electric, with hot water cylinder Gas N N N [6] N N
Oil N N Y N N N
Electric N N N N N N
District heating Gas N [4] Y [6] N N
Oil N [4] Y N N N
Electric N [4] N N N N

Legend:

Y - Applies for all dwellings

[…] - Applies for some dwellings. See numbers below.

N - Does not apply for any dwellings

[3] Point-of-use hot water system is an option to provide on-demand hot water where a combi boiler is not available/used to provide hot water in space constrained homes. This is therefore applied in space-constrained homes assumed not to have a hot water cylinder (assumed to be the case here in all homes where the existing system is a boiler) in the following cases: (i) alongside electric resistive or electric storage heating; (ii) alongside hybrid heat pump + resistive heating (not alongside any other types of hybrid heat pump).

[4] Applied when standard radiators are deemed to be insufficient to supply peak heat demand, based on an assumed oversizing factor for standard radiators of 1.3: if (1.3 x baseline space heating demand) divided by (required oversize factor x energy demand after energy efficiency) is less than 1 then radiator upgrades are required. The required oversize factor is determined by the flow temperature of the system.

[5] Cost is applied in the model, but suitability assumptions do not allow biomass boilers in on-gas homes therefore this cost is not applied in practice

[6] Assume that 62% of gas households have a gas hob and 35% have a gas oven; a weighted average cost is applied to all gas households assuming £500 conversion cost for either hob, oven, or hob and oven replacement, and assuming all households with a gas oven also have a gas hob.

1.4 Fuel cost

Fuel costs considered in this study for the period between 2020 and 2050 are shown in Figure 6 and Figure 7. Data sources and assumptions behind the cost of fuels and grid electricity are summarised in Table 9. The methodology and assumptions around the cost of hydrogen are reported in section 1.4.1.

Figure 6: Cost of fuels and grid electricity
A line graph projecting how the costs of fuels in p/KWhr for electricity, heat from district heating, LPG, bioLPG, biomethane, B100 bioliquids, oil and gas may change over the time period 2020 to 2050 with most costs rising slightly between 2020 and 2030 then levelling out, with the exception of heat from district heating, bioliquid and biomethane costs remaining steady throughout.
Figure 7: Cost of hydrogen
A line graph showing the reduction of the cost of hydrogen from 2020 to 2050 based on the 4 displayed production methods of electrolysis, low and high demand, and reforming and carbon capture and storage, in low and high demand.

Table 9: Sources and assumptions on the cost of fuels and grid electricity

(Fuel type, Sources, Assumptions)

Fuel type: Electricity (Standard, Off Peak, On Peak)

Source: Projections from BEIS Green Book data tables, Long-run variable costs of energy supply (LRVCs): Electricity LRVC – Central, Domestic.

Off peak cost = 60% on-peak cost from Evidence gathering for electric heating options in off gas grid homes (2019), Element Energy for BEIS

Assumption: "Electricity - Standard" composed of 70% on-peak and 30% off-peak

Fuel type: Heat from DH

Source: Cost calculated from modelling results based on District heating and local approaches to heat decarbonisation (2015) Element Energy for CCC 2015

No Assumption:

Fuel type: LPG (bottled gas)

Source: Costs based on ratio of annual retail cost of LPG compared to natural gas from Biopropane for the off-grid sector (2016) EUA

No Assumption:

Fuel type: BioLPG

Source: Costs based on ratio of annual retail cost of biopropane to natural gas from Biopropane for the off-grid sector (2016) EUA

No Assumption:

Fuel type: Biomethane

Source: Costs based on ratio of annual retail cost of biomethane to natural gas.

For large scale production, cost of biomethane: USD 0.65/LGE = 7.36 $c/kWh (from IRENA, Biomethane), natural gas price of 4.3 $c/kWh (from Oxford Institute for Energy Studies 2017, Biogas: A significant contribution to decarbonising gas markets?).

Cost assumed to remain constant over time (from IRENA 2013, New fuels for transport: the cost of renewable solutions).

Assumption: Assuming large scale production of biomethane. Cost of biomethane assumed to be 70% higher than natural gas in 2018.

Fuel type: Bioliquid 100

Source: Costs based on ratio of annual retail cost of bioliquid B100 to diesel.

Proportion of cost of Bioliquid B100 and of diesel from DOA alternative fuel price report (from US DOA, Alternative Fuel Price Report).

Assumption: Cost of Bioliquid B100 25% higher than for diesel in 2018.
Cost assumed to remain constant over time from 2020.

Fuel type: Gas

Source: Projections from BEIS Green Book data tables, Long-run variable costs of energy supply (LRVCs): Gas LRVC – Central, Domestic

No Assumption:

Fuel type: Oil

Source: CCC's long-term targets analysis (2019)

No Assumption:

1.4.1 Hydrogen cost

While the cost of hydrogen predominantly depends on the chosen type of production technology and on the year of demand, additional costs for repurposing the current gas network to operation with hydrogen must also be considered. Additional costs considered in this study include the cost of upgrading the gas distribution and transmission networks, as well as the creation of hydrogen interseasonal storage in large salt caverns, as reported in Table 10.

Table 10: Gas network repurposing, cost components
Capex (£bn) Opex (£bn/yr)
Distribution grid repurposing[2] 22.2 0
Hydrogen transmission network[3] 4.9 0.28
Hydrogen storage[3] 6.5 0.39

The cost of the infrastructure upgrade is assumed to be levelised over a period of 30 years with a discount rate of 3.5%. The deployment of the grid upgrades and of the storage capacity is expected to occur gradually, achieving 10% of completion in 2020, 75% by 2030 and 100% by 2040, such that only the capex of the completed portion is incurred.

The network upgrade cost per kWh of hydrogen produced was finally estimated for a high-demand and a low-demand scenario. The values of high hydrogen demand are based on the “Full Hydrogen” scenario utilised in the recent report on hydrogen in the UK by the CCC, considering repurposed gas networks and widespread hydrogen availability, with heating delivered by hydrogen boilers[4]. The values utilised for low hydrogen demand consider a less intensive utilisation of hydrogen, leading to roughly half the demand of the “Full Hydrogen” scenario.

Deployment rates, assumptions on hydrogen demand between 2020 to 2050, as well as total discounted upgrade costs per kWh H2 are reported in Table 11.

Table 11: Gas network repurposing, deployment and total cost
Unit 2020 2030 2040 2050
Deployment of upgrades and H2 storage % 10% 75% 100% 100%
Capex £bn 3.4 25.2 33.6 33.6
Opex £bn/yr 0.67 0.67 0.67 0.67
Hydrogen demand (high) TWh/r 21 203 385 704
Hydrogen demand (low) TWh/r 13 101 192 352
Network upgrade cost (high H2 demand) p/kWh H2 4.1 1.0 0.6 0.4
Network upgrade cost (low H2 demand) p/kWh H2 6.6 2.0 1.3 0.7

Two main types of technologies for the production of low-carbon hydrogen were considered in this study: reforming with CCS and electrolysis.

Steam Methane Reforming (SMR) is currently the most common reforming technology employed for hydrogen production. While Advanced Reforming with CCS has the potential to offer a higher capture rate than SMR with CCS, this technology is expected to be deployed at commercial scale at a later date. In this study it was assumed that low-carbon reformed hydrogen is produced exclusively via SMR + CCS until 2030, after which the portion of hydrogen produced with advanced reforming + CCS will increase, reaching 50% of production in 2040 and 100% in 2050.

The most mature technology for the production of electrolysed hydrogen are alkaline electrolysers, currently producing the vast majority of electrolysed hydrogen worldwide. A minor portion of global hydrogen is produced with Proton Exchange Membranes (PEM), a cheaper technology which is currently at the demonstration stage5. In this study it was assumed that alkaline electrolysers dominate the production of electrolysed hydrogen until 2025, after which PEM electrolysers are introduced at scale, reaching 100% of electrolysed hydrogen production by 2040. All fuel production cost assumptions are reported in Table 12.

Table 12: Cost of hydrogen production
 Unit 2020 2030 2040 2050
Reforming + CCS[5] p/kWh 4.4 4.4 4.4 4.4
Electrolysis[5] p/kWh 9.2 8.6 7.3 6.2

Figure 7 reports the cost of hydrogen including both production and levelised cost of network repurposing. Cost estimates are produced for both reforming and electrolysis technologies in case of both high and low hydrogen demand.

Note that the fuel costs reported for the reforming option will be subject to fluctuations of the cost of natural gas. Additionally, electrolysed hydrogen may be cheaper if produced with low-cost electricity from excess low-carbon power generation, preventing renewables curtailment and providing flexibility to the grid. However, the limited availability of very low-cost electricity is expected to restrict the supply of low-cost hydrogen to 44 TWh in 2050, i.e. ~6% of consumption in the high hydrogen demand scenario[5].


Contact

Email: zeroemissionsheat@gov.scot