We come now to the third panel, on what is deliverable for home heating and electric vehicles within the seventh carbon budget. Will the two of you please introduce yourselves and your organisations and say who you represent? Specifically in terms of the seventh carbon budget period, how deliverable do you consider the CCC’s pathway to be for your sector?

Good afternoon, everyone. I am Caroline Bragg, chief exec at ADE. We exist for two reasons: to support the decarbonisation of demand and the use of flexibility to keep the lights on, and to support the development of low-carbon heating infrastructure, particularly heat networks, but also shared ground loops, ground source heat pumps and other heat pumps, as we will talk about. The seventh carbon budget is relatively ambitious. By 2035 we need to get to a situation where every gas boiler replacement we are doing—about 1.5 million per year—is with low-carbon heating. We also need to achieve about 20% penetration of heat networks as a total of final heating demand. More than that—I am sure this is a topic we may discuss a little further—all new build from now on really needs to have low-carbon heating. We cannot be in a situation where we are adding to our retrofit deficit. So far, we are running at about 3,000 or 3,500 heat pump installations per month, if you look at Government schemes. Heat networks have grown from about 2% to about 3% over the last couple of years. Also, on the heat pump side, as you saw with the CCC’s progress update of 2025, we are roughly where they thought we were going to be but, as you know, to meet the target set out in CB7 a huge uptake is needed towards the end of the decade. On heat networks, the growth is still too anaemic.

Thank you very much.

My name is Tanya Sinclair and I am the chief executive of Electric Vehicles UK, which is an industry partnership formed of companies from across the e-mobility sector—that is car manufacturers, charging companies, energy fleets and so on. We are assembled to speak directly to the consumer, to challenge misinformation around electric vehicles, and improve the level of education and understanding about the transition. On the question at hand, the CCC states very clearly that the electrification of surface transport is a market-led transition, but what is required in order to enable that market transition is consistent policy. That is something that we do not have currently. It has a potentially detrimental impact on our ability to succeed and meet the targets that have been set out. There are aspects of good pockets of good news. The CCC estimates that price parity of the sticker price of electric vehicles will be reached around 2026 to 2028. We will probably be there at the lower end or the earlier end of that range. We are already starting to see, through a combination of Government grants and marketing and price flexing at the manufacturer side, that we are having some examples of price parity right now. However, the consistency of the message that the policy is sending to the driver is lacking, and that has a potential detrimental impact.

Do you want to expand on that?

Specifically, we can look at last week’s Budget as a good example of how there were mixed messages and mixed signals to the driver. On the one hand, we had levers pulled that provided more funding in terms of grants for the cars and for the chargers. On the other hand, we had the imposition of a tax proposed at 3p per mile for electric vehicles. Putting to one side the mechanisms of the policies and how those interact, the communications of those policies to drivers was not done clearly. To give an example, there are people out there on social media, even e-mobility professionals in my own sector, who are not aware that aspects of that policy are under consultation and that 2028 is the year that will be introduced. The detrimental impact we are seeing on market confidence started last Wednesday, yet we have two years for the policy to take force. With a bit better communication and some clear vision, to signpost what these policies are asking drivers to do, we might stay on track, according to the CCC’s forecasts.

I can tell you that if you are calling on the Government to better communicate their policies, you are not lonely in this room. But we will move on. In terms of who is buying electric vehicles, how much of it is going into the fleet, how much is going into the corporate sector in terms of new vehicles, and how many people are buying it for personal use?

The split of fleets or commercial new car purchases is around the high 30% level and rising. It is very important to understand that the enablers of that very sharp rise are to do with the vast number of businesses operating innovative leasing and financing models and products out there for drivers. Whether you are a business or an individual, used leasing, or various ways of leasing and financing company cars, are starting to take off. It is quite an exciting time from that point of view. However, the policy design around how those vehicles are going to be taxed needs to be considered. What is clear from the consultation that the Treasury has currently published—and will consult on until March next year—is that there are some aspects of how that is going to work in practice for that segment of drivers that have not been thought through. That is four in 10 drivers today; in 2028 it will be far more. It needs to be thought through from the driver’s point of view, so that they have the confidence to lease a car now, because that is a three-year lease term or more—it could be five years—and then they will come into contact with that new tax regime that may not work for them.

On the subject of the sticker price, we are talking there about new vehicles. One of the issues that has been raised, certainly with me, by the fleet industry and car rental industry is that the huge drop-off in the price of electric vehicles compared with petrol or diesel alternatives makes them pretty nervous. Have we basically already reached price parity on second-hand vehicles? Where do you think that fits into the attractiveness of electric vehicles in terms of, first, getting people to take a second-hand vehicle, and then the impact of how much those who choose to buy new ones think they are going to lose?

Looking at it on a whole-market level, the impact on the changes to the price of used vehicles is a direct consequence of the fact that the new ones are so much more popular, and there are so many more coming into the market. There is a direct impact of one on the other. I think we have to be quite circumspect about how interventionist we want the Government to be. There are a lot of people out there calling for grants on used vehicles, and calling for some sort of intervention on the residual values of vehicles. Actually, this is a 15-year-old sector. In its current shape and size, it is a decade old. We need to give a little bit of space for the market to iron out those inconsistencies as it grows.

Ms Bragg, we just heard about the impact of policy on the EV market. Your area is also very much one that is in the Government’s sights in terms of policy. Do you think there is consistency on policy as it pertains to the issue of home heating? Can you talk us through the impact that that is all having on take-up?

Obviously we are sat here, and Minister McCluskey has said in the Commons that the warm homes plan will be published this side of Christmas. We wait on that with bated breath. The Budget last week made a real play about how important the warm homes plan is going to be in terms of setting out the Government strategy for heating decarbonisation, so we hope it delivers. In terms of the big policy consistencies and some of the stuff that we see in the Budget, the No. 1 thing for getting to a point where we can decarbonise heating is around the cost of electrified heat. The Budget made an enormous step forward in terms of moving some of the levies that we face on electricity bills at the minute on to taxation. It is very welcome as the first time the Government has been prepared to do that. We are still looking at the numbers and the extent to which that truly closes the gap. It is obviously subject to efficiencies, but we are still, I think, in a situation where there are significant gaps. Let me briefly talk about them. We know that the capital cost of low-carbon heating is probably the single most important issue we need to solve over the next 15 years. We can rebalance on the operational side—there is a pathway there—but a fair, just way in which we do this between different people today, and also between generations, is one of the biggest challenges we face. The Government are not clear on that. Indeed, compared with the last Government, where there was at least signalling of a strategic decision on hydrogen for heating, for example, and a decision on the future of the gas grid, this Government has gone backwards so far on its appetite for that level of a fundamental policy shift and discussion. Secondly, we had also expected the future homes and buildings standards, which will set low-carbon heating as the default for new build, to be out already. We now understand that it is delayed. If we were to be in a situation where once again, as we were 10 to 15 years ago, the Government withdraws from a clear commitment that has stood for several years now around new builds being low-carbon right from the outset, it would be an enormous detriment to investor certainty in this area and would very severely harm the targets that we have leading up to 2030 and beyond. The final thing I will say is that within the spring budget, when you look at the Government’s plans around the £13.2 billion, £5 billion of that is financial transactions, which effectively means loans, or equity products. What we are seeing is very limited clarity on what that actually means and how it is going to support different parts of the transition for low-carbon heating. On heat networks, for which there are 500,000 domestic customers, whom we should not forget, and which are going to be a big part of the transition, the National Wealth Fund and its predecessor, the UK Infrastructure Bank, has now had heat networks as a strategic investment priority for five years or so and has not made a single significant investment in the sector. The Government are putting huge store in the role of equity and loans without the delivery vehicles needed.

We will go next to Sarah Gibson, but before I do Mr Rhodes wants to make a declaration.

I do not intend to ask any questions during this panel, but I should declare that I have recently agreed to become a vice-president of the Association for Decentralised Energy.

Congratulations.

To a certain extent, you have probably answered some of my questions, but you mentioned that you understood that heat pump deployment was in line with the CCC’s pathway, while I understood that it was far below and required a near tenfold increase by 2030. I just wondered what barriers, other than the ones you have mentioned, you think are causing the gap, if there is a gap? What would be the single most sensible intervention to make a difference?

If you look at the way in which the balanced pathway works within the CCC, it does show quite a moderate uptake until about the late 2020s to 2030, and then you see this enormous increase. It is super interesting, because in some respects that hockey stick that you see is flattering the Government’s plans on clean power by 2030 to a point, because the huge electricity demand increase we are going to see, including from the electrification of heat, comes after 2030. That is why the CCC can say we are roughly where we thought we were going to be in 2025 for the balanced pathway, but it still means that you need to see an enormous uptake going forward. To say a little bit more about some of the barriers, the cost of electricity is the No. 1, along with the capital cost. If I can say a little bit more about how that works across tenure, on the domestic side obviously the subsidy programmes that we have now are primarily focused on owner-occupiers. We have the social housing decarbonisation fund, but obviously we have seen significant reductions in the budget there. The other thing this Government inherited from the last Government, and have still made no progress on, is the private rented sector minimum energy efficiency standards. The lack of those standards is leaving a huge gap, for a very significant part of households in the UK. More than that, we have had the clean energy jobs plan, which is very useful, and you can see the scale of the challenge within that. We are training significant numbers of installers in the country now, and that needs to continue to grow, but we could do more there. Particularly on the heat network side, for example, the dedicated training courses are very important. Finally, we cannot look at the last year in terms of energy policy without being extremely mindful of customer protection and guarantees around installation and quality standards. We have the microgeneration certification scheme, we have retail codes, and from January the heat network sector will be regulated by Ofgem, with some of the toughest customer technical standards in this market, but we need to look at making sure that that is a very important pillar of what we do going forward.

The skills deficit comes up in everything we discuss. We mentioned high electricity prices being a major obstacle. What specifically is driving that imbalance? What reforms on levies, tariffs and flexible markets would quickly ensure that heat pumps are no more expensive to run than gas? Cheaper would be better.

Cheaper would be 100% better. The spark spread in the UK is really interesting. If you look at 10 to 15 years ago, we were roughly on par with what you would see on average in Europe, and over the last 10 years we have seen it significantly increase to the 1:4 ratio that we are roughly at now. That is a combination between our tending to have lower gas prices than the rest of Europe and our tending to have much higher electricity prices than the rest of Europe. Higher electricity prices are caused by two things. The first is that the way in which our electricity system works is that gas still sets the price the majority of the time, and in more periods of the year than in comparable countries. Secondly, we put huge numbers of levies on our electricity bills. In terms of what we can do, the renewable obligation has moved. We may talk about it, but the ending of ECO will also have an impact across electricity and gas in terms of bills. As I said, it does not also impact non-domestic buildings, which I am sure we will come on to. We will have to see how far it gets. The Government have said they think that, on average, it takes about £150 off a domestic bill. You are probably not getting that far off in terms of parity from an operational perspective, but it really does depend. On flexibility and how bills are going to change going forwards, you will have seen the Select Committee evidence given by energy suppliers over the course of the last month. What is really interesting about how electricity bills are going to change over the next five to 10 years is that wholesale cost will probably stay about the same, but the really big impact is all the non-power costs that we are going to be putting on to the bill. We have already seen, for example, that the expansion of transmission infrastructure in this country is probably going to add about £100. We will have to see how that flows through, because if we have more electrification as well as other changes to the wholesale price, it may be neutral. However, we have not even reached distribution yet, and that will add to the bill as well. Thirdly, we are in a situation now where if you look, for example, at five years ago, we were spending about £500 million on turning wind farms off. We spend about £1.2 billion now, and the National Energy System Operator expects that to rise to about £8 billion, and it could even go further by 2030. All that is coming on to electricity bills and is making the job harder.

Would balancing the network help that?

Yes, exactly. So much of net zero is so hard and the system is messed up in both directions, but we could solve it. Obviously the Government have a very ambitious plan to get to 12 GW of consumer-led flexibility by 2030. With domestic heat pumps, the use of thermal storage, for example, whether that is domestic or on a much larger scale, as you see in Europe, is going to be a big part of that. We can do that in such a way that we can help to keep the lights on and reduce overall costs, and consumers will likely see about £100 off their bill by 2030 and then £300 to £400 by around CB7.

You are definitely preaching to the converted in this room. Something else that I want to go on to is heat networks. I have to say that this is a personal question, as I have never understood why deployment is still so fragmented and low. I lived in northern Spain where the Ascó nuclear power station, which is huge, heats an entire town and where Barcelona during the Olympics put in a waste-to-heat installation and did district heating for an entire business district. They just go ahead and do it. Also in Catalunya they made sure that all their data centres provide heat to relevant things, mostly schools and that kind of thing. What is holding back that sort of large-scale network expansion? What needs to change? Why are we not doing it?

In the Energy Act 2023, we made two big steps forward in terms of the use of, exactly as you say, low-carbon heat networks that use the 310 TWh of heat that we currently waste. Two things happened. First, customer regulation, which is so important. We are in a situation where this sector—even though it has almost 500,000 domestic customers—is not regulated, so customer regulation is very important. That will come in from January next year. Then we have heat network zoning, which has been quite an important part of driving uptake in other areas and is effectively a form of regional planning that will compel large buildings, often commercial buildings, to connect to heat networks where that is the cost-effective way for them to decarbonise. It will also start a better conversation when it comes to how we talk to the providers of waste heat. For example, we have an enormous heat network that has been built in London using data centre heat. That was driven by planning policy, which said that you must make your data centre effectively able to give heat were there to be a heat network that is there. You see that in some developments now, but you do not see it in all. What will happen is that through heat network zoning, as long as it is commercially viable, so the costs work on both sides, you will be required to give your heat. That is important, but we are still not there yet. The big thing that is holding us back is that the cost of electricity for commercial buildings is still far higher than the gas boilers they are currently using. We saw in the spring budget the withdrawal of any funding for public sector decarbonisation. That was an enormous part of what was driving large-scale heat network deployment, because public sector buildings are often the big users of heat in local areas, so they are particularly important as part of what we call anchor loads for heat networks. That was removed with no consultation, as part of a last-minute deal, as far as I understand it, in the spring budget, and there has been no replacement. Finally, this comes back to the National Wealth Fund, because we do not have in this country a track record of deployment of heat networks, even though they are so common in Scandinavia and in other countries. The weighted average cost of capital—the cost of financing large infrastructure in this country—is higher than it is for other types of infrastructure, and also higher than heat networks in other jurisdictions. The National Wealth Fund should play an important role in that. If they are not going to help with WACC, what are they meant to be doing? What we are seeing is that the products they are bringing to market are not truly crowding in investment or that different from what the private sector can provide itself.

Confidence is impacted by an uptick in misinformation around electric vehicles, and there is no causation but there is a correlation. Before going on to talk about where that misinformation comes from and its impact, I would say that there is a high degree of confidence in this market. The products are superb. There is charging and there is some misinformation about the fact that charging is problematic or difficult for some people, but for a lot of people it is there and it is working perfectly well. Before we go on to talk about the problem areas, there is a lot of confidence and there are a lot of products available and a really bright outlook. With that said, the misinformation and the lack of a clear source of non-marketed, non-sales places to go for consumers to get impartial data about what EVs mean for them, rather than national statistics, is proving to be a barrier to uptake. A 2023 YouGov survey found that when researching buying a car, drivers tend to trust friends and family the most. That is their most preferred place to go above online research for talking about what their next car purchase is going to be. If there is a proliferation of misinformation through online spaces and through talking down the pub, even, that is going to have a direct impact on the confidence and the propensity of those consumers to get into electric cars. As an aside, the work of Electric Vehicles UK was set up to meet the problem that was diagnosed in the last couple of years and provide a place where people can go and feel the product, touch, see and drive an electric vehicle, where prior to that it was something that was out of reach for them, especially if, for example, you are interested in an electric car but your only option to see one is to go into a sales environment when you might not be ready to do that. There is a big confidence-building piece that needs to happen in the presales pipeline to ensure that there is some clear, first-hand information that builds confidence before people are ready to buy.

This is an interesting question and to answer it I will split out the home and then the public low-powered charging—your destination-type workplace charging—and then your high-powered charging in places such as motorway service stations. There is a market failure that is not present across all of them. It is very interesting to hear talk about the National Wealth Fund, because the National Wealth Fund has identified by its very presence in the EV charging sector a market failure. It is supporting and debt financing EV charging companies; that is quite an indicator of where the problem areas are. There are a number of reasons, and it is not all to do with the charging business model. There are challenges in the price differential between home charging and charging in destinations. Part of that is to do with the vehicles. When I had my first EV I would be lucky if I could get 100 miles out of it. They are now regularly pushing a range of 500 miles. You do not need to use chargers as often as you once did as little as five years ago. It is now the case that those charging companies may be modelled at a certain level of utilisation of their chargers and secured investment against that level of utilisation, and that is not being met. The business model is changing before our eyes, very quickly, and yes, there are more vehicles, but they are also performing far better. I am quite circumspect about the fact that we must enable the market to settle down and understand the behavioural aspects of charging—that people will charge at home and might not use those en-route motorway chargers, for example, as much as we thought they were going to need to, and that the destination charging and the low-power charging might be the ones that are the most utilised. The final thing I will say on the charging challenge is that we must not let talking about the failures or the problems with charging interfere with the fact that there is a very robust outlook for the market and the cars are fantastic and are very capable. We must not let the tail wag the dog when we talk about charging, which is an enabler of a healthy vehicle market.

It is all of those, but that is a well-established area. It is important to talk about whether we always need more, and about what is meaningful for the driver in terms of their charging provision relative to them locally. I think the starting point—the origin of the problems when we talk about how much charging we need—was the Government setting a numerical target for the number of chargers. What that does is, first, send a signal to the market to just put them in anywhere, not really giving much mind to the speed or the location, or whether that is fitting for the driver. What we have now is a fixation on how many chargers we have going in the ground, but also not counting them consistently, so we sometimes count connectors, we sometimes count charging units that have sometimes two connectors and we sometimes count locations. We need to be consistent there but, on top of that, we are missing what the driver needs in all this, which is knowing where the chargers are relative to them. If I do not drive an EV yet—I do—I want to know whether charging is going to be readily available at the places where I need it, not how many there are in the country or how many there are in my constituency or council area, which are not geographies that necessarily mean much to my daily life.

Fleet and freight is a challenge, because in addition you have to square away a business model before you then have that driver acceptance piece. You must do both those things, and it is a challenge in addition to the fact that the product has been slower to come to market at a competitive price point. Certainly, from the point of view of vans, the single policy that is going to make a difference is staying the course on the ZEV mandate. That is for cars as well, but for vans it is significant. I will end it there.

Thank you both very much indeed for that evidence. Unfortunately, we have been cut short by the Division bell. We have covered the majority of what we wanted to cover, and we have had a very strong response in terms of the issues facing both your sectors. However, we will write to you on one area and ask you to provide written evidence instead, if we may. It is probably not worth asking you to come back for the sake of one further element. I will now bring this session to a close. Thank you very much for your attendance.