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Taking the heat out of the net zero challenge
Mitie’s Net Zero Navigator 2025 has revealed much more than five key trends that will shape decarbonisation in the year ahead.
Our accompanying survey of 100 sustainability decision makers illustrates the concerns and challenges of those on the path to net zero – together with an apparent dichotomy in the data…
84% of respondents claim they are confident they can align with the UK Government’s commitment to decarbonise by 68% compared to 1990 levels by 2030.
Yet 78% say they face difficulty securing capital to fund large transformation projects required to reach net zero.
What’s really going on?
Mitie’s Plan Zero Director, Mike Sewell, explains why these figures give a timely reminder of what’s holding back decarbonisation in the UK. And he confirms what needs to happen to put things right.
The Government has been very clear about UK carbon reduction targets.
Organisations must play their part in achieving a 68% reduction by 2030. Prime Minister Sir Keir Starmer has further pledged to reach an 81% cut by 2035, ahead of working towards a 100% reduction by 2050.
When I read that 84% of Net Zero Navigator survey respondents feel confident about 2030, while 78% admit difficulty in gaining funding, I saw no contradiction. Most organisations are already reducing energy use and increasing efficiency. They may be investing in renewables or perhaps generating their own power locally. Power Purchase Agreements can make this even more cost effective, so vast amounts of capital aren’t required.
All things considered, the UK looks to be broadly on track to hit the 2030 carbon reduction target of 68%. Our survey figures tell me UK organisations share this confidence. They’ve implemented quick wins and delivered low-cost changes. However, what comes next doesn’t look quite so rosy.
Hitting the ‘heat wall’
The problem is that sustainability leaders need to find the funds for heat decarbonisation, which isn’t currently so cost effective. You could say they hit the ‘heat wall’. To get to that 100% decarbonisation goal by 2050, they need to change their heat solution for a less carbon intensive alternative. Doing so may cost as much as 80% of their decarbonisation spend. That means getting stakeholder buy-in is particularly difficult. So to my mind, heat decarbonisation is the UK’s biggest net zero challenge.
What about grants?
With challenging net zero targets to reach, some kind of Government incentive would seem an obvious catalyst to get there. However, since the end of the Non-Domestic Renewable Heat Incentive in 2021, there has been no overarching solution available.
Public sector bodies are lucky to have the Public Sector Decarbonisation Scheme (PSDS). This is specifically focused on providing grants to help suitable organisations with heat decarbonisation projects. This year the scheme’s rules have been relaxed to some extent, allowing Public Finance Initiative (PFI) applicants for the first time. Unfortunately private sector applicants need not apply. They’ve been left out in the cold.
The Green Heat Network Fund is open to the private sector, but comes with its own limitations. While grants of up to 50% are available, heat networks aren’t common among commercial organisations. That means private sector organisations have virtually zero grants or subsidies they can apply for.
A cross-sector solution is required to make sure the sustainability leaders who find funding a challenge can secure the investment they need.
The energy price isn’t right
When searching for a solution, it’s important to note UK electricity prices are among the highest in Europe. In contrast, our gas prices are among the lowest anywhere. I believe we aren’t going to achieve heat decarbonisation needs in the UK while we maintain this gas/electricity price difference. To encourage organisations across the public and private sector to move from cheap, unsustainable gas to more expensive electricity generated from sustainable sources, Government should intervene.
The Climate Change Levy (CCL) is the main issue. This was introduced in 2001 to encourage utility companies to invest in low carbon solutions. CCL was originally applied to electricity because it is used universally, whereas gas usage isn’t quite so widespread. This was done for the right reasons at the time; collecting money via electricity to invest in decarbonisation was a good thing. It also drove organisations to become more energy efficient, which helped reduce energy demand and therefore greenhouse gas emissions. However, now the resulting energy price difference is creating an issue in the marketplace.
Move CCL from electricity to gas
So what’s my solution?
I support moving the CCL from electricity to gas, but crucially in a staged approach. This will avoid undermining current energy efficiency / renewable energy generation plans. At the same time, it will give organisations confidence to invest in heat decarbonisation with a clear understanding of how reduced electricity costs drive the business case for these large transformational projects.
My reasoning is that organisations are facing not only the higher cost of implementing a non-fossil fuel solution, such as an air source heat pump, but also higher operating costs due to UK electricity prices. So, a change in our energy pricing approach would mitigate operating costs. At the moment all we have is the cost of installation mitigation for the public sector via the PSDS. And that’s nowhere near enough.
Action required
Mitie’s Net Zero Navigator survey feedback reflects that while organisations are comfortable with decarbonising up to 2030, they don’t have the money to decarbonise heat, which is essential for net zero. The economics just don’t stack up. I’m not advocating a Government subsidy, but I do support moving the fiscal burden from electricity to gas. Nor is it a case of, ‘This will all work out better if gas costs you twice as much.’ It’s in the Government’s hands because what’s driving prices is their taxation structure.
I’m certain these changes would create a more level playing field – one in which heat decarbonisation would surge. Ultimately, if they retook our survey, I’m also certain those who faced difficulty getting investment would confirm that was no longer the case. More importantly, achieving net zero by 2050 would come within reach.
Do you agree with Mike? Let us know by emailing [email protected].
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