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IX.a Domestic space heating and hot water costs

The cost of supplying households with hot water, heating and air conditioning and the cost of reducing energy demand through insulation and new building designs.

Technologies costed in this sector

This sector covers 4 choices in the Calculator: average home temperature, housing thermal efficiency (includes retrofit insulation and new building efficiency), heating systems electrification and non-electric fuel direction, which sets a single trajectory. This is split into three types of technology cost, which are explained below:

  • Insulation
  • New building
  • Heating and cooling systems

Exclusions: The cost of reducing average internal temperature of homes is not included. This could be met through behaviour change, perhaps supplemented by technology to allow smarter heating. This would most likely be considered a welfare loss, which is not covered in the scope of the costs captured please see: METHODOLOGY FOR COSTS CALCULATOR

Costs Methodology

This section has been split into the three types of costs discussed above. However, firstly we set out the global assumptions for number of households, which is a key driver of demand and cost. Note: the number of households is a variable that can be adjusted within the Calculator, which will change the costs of new build and heating and cooling systems. It will not change the costs of heating and cooling systems, which are determined in a separate model.

Housing assumptions

Total UK households in millions:

Description 2007 2010 2015 2020 2025 2030 2035 2040 2045 2050
Total households 26.0 26.9 28.5 30.0 31.4 32.7 34.4 36.2 38.0 40.0
  • Demolition rates are assumed to be 0.1% of housing stock, roughly 25,000 dwellings per annum
  • New build assumed to be approx. 1.1% per annum, based on an annual growth rate of total households of 1% plus replacing demolished stock 0.1%


Cost ranges

Methodology Used

The scenarios for average heat loss per home under 4 scenarios of retro-fitted insulation and new build standards were developed in a separate heating model. The costs represented here put a unit cost on the insulation technologies deployed from 2007-2050 to achieve the thermal leakiness assumptions in the Calculator (see below for new build costs).

Therefore, once the user defines the level of insulation deployed (and therefore the average thermal leakiness per home) the cost of each insulation measure is multiplied by the deployment of the insulation in that year. For example, Level 2 household thermal efficiency requires approximately 2 million homes to have solid wall insulation retrofitted by 2025. These are defined in 5 year blocks, so the cost of solid wall insulation in 2025 for level 2 is the average annual new installation (difference between 2025 and 2020 installations divided by 5) multiplied by insulation cost assumptions.

All insulation costs are treated as a one-off investment cost, these costs can be ammortised (spread out over time through borrowing) depending on the users assumptions on loan periods and cost of borrowing. Many of the costs of insulation could be financed through borrowing, for example through the green deal, but within the Calculator we have kept the flexibility to allow users to explore cash flows, as well as costs including financing assumptions, please see: METHODOLOGY FOR COSTS CALCULATOR (Treatment of Capital).

Technical assumptions

Impact of insulation measures

Insulation measure Assumed average U-value (W/m2.°C) before measure Assumed average U-value (W/m2.°C) after measure
Solid wall insulation 2.2 0.35
Cavity wall insulation 1.6 0.35
Floor insulation 0,6 0.16
Superglazing 2.2 1
Loft insulation up to 270mm 0.29 0.16
Draughtproofing 15 5
  • Lifetime = No renewal of retrofit insulation, therefore no replacement assumed up to 2050

New building

Cost ranges

Note: We believe the costs above look very far out and are put in as an initial estimate but they look too high.


New build to 2050 sees an increase from 26m to 40m houses in 2050. This is a fixed assumption and new build is assumed to be simply the difference in each time period plus 0.1% annual replacement of existing stock (roughly equivalent to a 1.1% increase per annum, see above). The number of new build is then multiplied by the costs set out in the ranges above. The costs are expressed as the extra materials and labour cost compared to pre-Zero Carbon home baseline standards[1] therefore unlike other costs in the Calculator, the figure is net of baseline standards rather than a gross cost per household.

Most other sectors show gross costs rather than incremental to allow comparison between any combination of scenarios within the Calculator, however we have not attempted to estimate the technology/raw material cost of a current home here since although this clearly impacts on energy demand it is a second order influence compared to products that directly consume energy (the majority of costs captured within our methodology). It is also for simplicity and will not effect cost comparisons between pathways.

All costs are assumed to be one-off investment costs (per home) and finance costs are a user variable within the calculator for this investment, see: METHODOLOGY FOR COSTS CALCULATOR (Treatment of Capital).

Technical assumptions

New build fabric Scenarios 2050 Calculator Level Window U-value Floors U-value Walls U-value Roof U-value Air permeability/ m3/ @10 Pa
Part L 2006- ZCH Baseline Level 1 1.8 0.2 0.28 0.16 10
EST APEE minus triple glazing minus air permeability of 1 Level 2 1.2 0.15 0.15 0.11 3
EST APEE minus triple glazing minus air permeability of 1 Level 3 1.2 0.15 0.15 0.11 3
PassivHaus equivalent Level 4 0.8 0.1 0.1 0.08 1
  • No new build is replaced before 2050

Please see cost ranges above for more detail

Heating/cooling systems

Cost ranges

! Note: all costs are in £/kW of heat provided not £/kW of electricity, the heat to power ratios for CHP are based on the technical assumptions of the Calculator shown below in 'technical assumptions' !

Consideration should be given to adding a further heating technology. Large heat pumps (>5MWth) are being increasingly deployed in Scandinavia and elsewhere directly connected to district heating systems. The heat source maybe rivers/ sea or lake or any other heat source (sewage)and COPs of 350% to 400% can be achieved. Capital costs are very project specific but a budgetary value of £350/kWth may be used.


Defining trajectories

Users, through their combined choice of heating electrification and fuel direction, define the share of hot water and space heating demand serviced by heating systems in 2050. To get to this result in 2050, we have assumed a decreasing/increasing linear share met by heating systems from the period 2015 to 2050. The number of heaters in homes (see number of households assumptions above) is assumed to be proportional to the space heating and hot water demand serviced. For example if 50% of demand is serviced by heat pumps, we have assumed 50% of homes will have heat pumps installed.

Investment cost for heating systems Calculation

Investment costs capture all new heating systems resulting from the trajectory and through natural replacement. All heaters and cooling systems are replaced after 15 years giving 33% scrappage every 5 years. Heating systems in each 5 year block are defined by the trajectory chosen by the user. The costs are the new heating systems needed between period t+1 (e.g. 2020) and period t (e.g. 2015) given a third of all technologies in period t are scrapped. Fixed operating costs are the cost of those heating systems used in the particular time period. Please note electricity, fossil fuel and biofuel costs are accounted for elsewhere in the Calculator but the energy demand is accounted for in this sector.

To convert costs from £/kW to £/household, we have assumed a certain kW capacity needed per household to meet peak demand. We have used an average of 20kW for a gas boiler as our starting assumption. The capacity assumed per household for all heating systems is shown below:

Heating and hot water tech Size per household (kW)
Gas boiler 20
Resisitive heating 20
Oil-fired boiler 20
Solid-fuel boiler 20
Stirling engine micro CHP 20
Fuel-cell micro CHP 20
Air-source heat pump 14
Ground-source heat pump 11
Geothermal 20
Community scale gas CHP 20
Community scale solid-fuel CHP 20
Electric air conditioner 4

Note: we have assumed an installation size of 20kW for all technologies, the 20kW includes both space heating and hot water demand. Heat pumps have a lower installation size due to their >100% efficiencies (from electrcity to heat.

I don't agree with this comment. The above kW ratings are thermal ratings and so the efficiency of the system is not relevant. Boilers tend to be over sized as there is little if any capital cost penalty. This is not the case for heat pumps and sizing is more important. However, the ratings proposed for both ASHP and GSHP seem ok.

This list doesn't include gas absorption heat pumps which are currently on sale for domestic, commercial and industrial premises which given their potential for lower carbon emissions than electric heat pumps in the medium term until marginal electricity is decarbonised should be included.

The above options don't appear to allow combinations of heat sources, as we see today, to be utilised in particular the larger older properties where meeting the peak heating requirement would require either the over sizing of heat pumps, extensive insulation, seasonal storage not to mention significant growth in generation capacity which would operate at low capacity factors. Another factor to consider is the heat load duration curve which even allowing for significant insulation shows that to deliver the top 20% of heat demand would need a heat pump twice the size (as one that delivers 80%) and also requires double the generation capacity unless seasonal storage is developed. A secondary source i.e. hybrid solution of a heat pump and gas boiler could solve this peak heating issue and would most likely be more cost effective as it requires less generation to be built whilst emissions would only be marginally higher.

As part of our 2050 consultation response we included the GL Noble Denton work on "Impact of Future Energy Syatems on Energy Networks" which highlighted the differences in housing stock and how to effectively heat them to optimise energy system development. i.e. the model would benefit from segmented analysis of the housing stock to identify different solutions for different property types and ages e.g. heat pumps for flats and new build and hybrid solutions for larger old properties.

District Heating network costs

Finally, for community scale CHP and district heating from power stations, we have included the (distribution) cost of district heating networks additional to the (transmission) cost of the large piping from power plants (see XVII.a DISTRICT HEATING EFFECTIVE DEMAND COSTS) and the CHP plants themselves. We have assumed these networks do not need to be replaced over 2015-2050.[2]

Cooling system costs

Demand for cooling is set by user choices on heating/cooling comfort level. For each of the levels we have assumed:

  • Level 1 - Every household has an air-conditioning system [3]
  • Level 2 - 62% of households have air-conditioning by 2050
  • Level 3 - 27% of households have air-conditioning by 2050
  • Level 4 - No additional air-conditioning units are installed

A linear trajectory of cumulative installations is drawn from 2010 to 2050 and we have assumed units last 10 years, therefore the cost of replacements is also captured.

Technical assumptions

Heating system Hot water efficiency Space Heating efficiency Electricity supplied to grid
Gas boiler (old) 76% 76% -
Gas boiler (new) 91% 91% -
Resisitive heating 100% 100% -
Oil-fired boiler 97% 97% -
Solid-fuel boiler 87% 87% -
Stirling engine micro CHP 63% 63% 23%
Fuel-cell micro CHP 45% 45% 45%
Air-source heat pump 200% 300% -
Ground-source heat pump 300% 400% -
Geothermal 85% 85% -
Community scale gas CHP 38% 38% 38%
Community scale solid-fuel CHP 57% 57% 17%

Note: Conversion losses are equal to 100% - hot water efficiency (or space heating efficiency) - electricity supplied to grid.

Heat to power ratios are found from either hot water or space heating efficiency ratio to electricity supplied to grid. For example, for Gas CHP the ratio of heat to power is assumed to be 38%:38%, therfore 1:1.

  • Lifetime - All are assumed to last for 15 years
  • Rosie says: talk to Hunter about the boiler efficiency issue (the numbers you have are overestimates in practice) and to Hunter/Penny about lifetimes, as parts of a heat pump can last 30-40 years with only some parts needing a more frequent replacement*

A note on conversion losses:

In general, conversion losses are reallocated to heating and cooling. The exception is CHP where they are kept separate. This is conceptually inconsistent, but looks right on the sankey diagram.

Questions to stakeholders

  • The costs of new build look very high, could you provide any evidence on the additional cost of greater thermal performance standards modelled in the 2050 Analysis?
  • Should we calculate material and labour costs of all new build, including today's standards (the baseline) rather than just additional? Or will this increase the scope of 'costs' in the Calculator too far?
  • We have assumed a constant peak size for heating systems, should this fall given greater thermal efficiency of houses or would this have to also take into account significant behaviour change in spreading demand or require additional storage? We could do this through ratios of thermal leakiness reduction, could you suggest another methodology?

It would be reasonable to assume that the heating peak falls with improvements in thermal efficiency. Demand side participation for electric heating offers further scope which would require behaviour change coupled with storage (either through using the inherent storage capability or through additional storage) but may only be used infrequently when the system is under stress.

  • Most heating systems are between 15 and 20 years although we have a fixed assumption of 15 years. Does this bias against low carbon technologies with a longer life (larger scale heating, heat pumps etc)? Or is it a realistic assumption that economic lives of technologies are unlikely to differ significantly?
  • Should we differentiate between a 1st time investment cost e.g. of converting from a gas boiler system to a heat pump system and a replacement cost once this has occured or is this largely covered within the range?
  • Have the right technologies for Micro CHP been chosen, which reflect the technology assumptions in the calculator?


  • What are reasonable (or past) assumptions for the distance between power stations and a distribution network for district heating?
  • Similarly for 10MW dedicated CHP we have assumed no transmission piping cost, what would the distance be? 1 mile was previously mentioned
  • We have assumed no cost in adjusting power plants to use the waste heat (except a loss in electricity produced). Is this assumption fair?
  • Does the district heating distribution network cost cover the extra cost of heat exchangers and converting homes with gas boilers to be suitable for district heating?

Changes to the model since March 2011

2007-2015 we have assumed every new heating system is Gas, from 2015-2050 there is a linear trajectory based on the trajectory choice for the 2050 target. The number of new installations are calculated simply by any positive difference (i.e. we're not counting scrapped boilers) over the previous 5 year time block.

Changes to make in the future

Need to cross check the baseline figures against the new DECC housing model[4]


Where do you consider the benefit of additional electricity from CHP?

The electricity is counted and therefore reduces cost in power generation when CHP heat is chosen, since it is either displacing fossil fuel generation or is assumed to earn income from export.

The Green deal will surely reduce the cost of these measures through financial support?

The green deal will ammortise the costs i.e. spread the investment cost, which is an option that can be chosen when the costs are added up to give a total for the sector. We have not hard-wired in financing costs or discounting because we want people to explore the effects of these variables on costs.

Surely a lot of insulation has already been taken up, how do you account for this?

We have revised our insulation trajectories in March 2011, following the Call for Evidence. Our level 1 includes current policy to 2012 (this will not include the Green Deal) and we have assumed BAU uptake thereafter.


2050 Costs team lead - Michael Clark, Rees Howell

Working-level analyst - Robert Towers (DECC), Rosie Cornelius (CLG), Alistair Rennie (DECC)

  1. Building Regulations 2006, Part L (Conservation of Fuel and Power), as amended.
  2. District heating network Cost Data
  3. See July 2010 report page 99