Project Summary

To meet the demand that heat pumps and other LCTs will place on the network significant reinforcement will be required, it is critical that the cost of scale of this is managed effectively.

EqualLCT will accelerate the roll out of heat pumps combined alongside energy efficiency and flexibility products to facilitate the transition to net zero while also ensuring that peak heat demand is reduced thereby reducing the levels of network reinforcement that would otherwise be needed.

Attractive commercial offerings will facilitate the net zero transition, reduce bills for customers through reduced network reinforcement costs and in home energy efficiency.

Innovation Justification

EqualLCT meets Innovation Challenge 2 (Greater Heat Flexibility), by developing a data-driven approach to identifying areas where the coordinated roll out of HPs and EE could be used to reduce heating related network peaks, creating headroom for further connections or deferring network reinforcement. Our approach allows greater potential for flexibility services to be used to manage remaining network peaks.

By Alpha's conclusion, EqualLCT aims to achieve the 3 key outcomes, as detailed in our Appendix:
*Geospatial mapping tool demo
*Quantified long-term benefits of EE+ flexible heating
*EE + Heat Flex Incentive framework

In the project's NIA-funded Phase 1, EqualLCT gathered a consortium to understand the challenges of specific consumer segments and identified barriers to mass deployment of LCTs across a range of customer segments. The appendix details our key findings and how these shaped our SIF Alpha application, along with details of how we've built on the learnings from other innovation projects such as UKPN's SHIELD and SSEN's SAVE.

Deploying EE and flexible heating at scale is a cross-industry effort. We will continue NIA consortium engagement in Alpha to understand challenges and develop solutions. Consortium feedback on LENZA's evolving data requirements will inform us:

1.what data technology providers and energy retailers need to identify investment opportunities
2.how to design an appropriate incentive framework for the EE + HPs commercial model.

Please see the Appendix for further details.

EqualLCT aims to address significant market and regulatory barriers that prevent mass deployment of EE/HP across wider customer segments. We have detailed
these in the Appendix.

Advanced HP rollouts are at TRL 7 and IRL5 but are currently CRL 5 when compared with traditional alternatives. Through appropriate regulatory reform and financial incentives, including those in this proposal, we aim to increase CRL to 7 by the end of Alpha, and to 9 by the end of Beta.

For our demonstration geospatial mapping tool, we will prove the concept for the new use case (TRL 3) in Alpha and successfully demonstrate and operate technology (TRL8) in Beta. Although the LENZA platform is being used in other environments, we are adding new user segments who have historically not been consumers of networks data.

The SIF Alpha Phase leverages the existing LENZA tool to overlay with housing stock, customer segmentation data and location-specific accessible network flexibility revenue schemes. As SSEN owns LENZA, Alpha will test within SSEN'slicence area. Beta will expand the concept GB-wide so the methodology fits all DNOs to influence RIIO-ED3.

We will explore end-to-end commercial viability with appropriate incentive frameworks. In Beta, we will conduct consumer trials and collaborate with knowledgeable LCT value chain partners.

In conclusion:
*The long-term network benefits from EE and flexible heating are relatively unproven and poorly quantified, the value remains unclear and there is no current mechanism in RIIO price controls for DNOs to support long term future demand reduction.
*Given the complexity and risk level of the project, the next phase of EqualLCT is best delivered by SIF innovation funding, where there is a strong track record for cross-industry collaboration. The multi-phase approach of SIF aids concept development through to detailed design and a demonstrator.

*The investment case for EE and HPs is weak without support, especially for the"squeezed middle". Alpha is required to explore how long-term network benefits can improve it.
*Our NIA Phase proved engagement is not solely sufficient. A tool is required to provide open data sharing between stakeholders (e.g. energy suppliers). While there is value and appetite for solution deployment, without digital solutions, enduring collaboration and EE and HP uptake is hampered.

EqualLCT Innovation Justification Appendix.pdf (opens in a new window) (/application/10145484/form/question/44130/forminput/123567/file/767677/download)

Impacts and Benefits

Note: All financial figures in Q6 are pre-capitalisation and pre-discounting. 'Outputs Dashboard' in attached CBA file shows post-capitalisation and post-discounting total NPV.

Achieving net zero will see increased volumes of new HPs connected to the network. Whilst it is likely that some EE improvements may be done to the property, this may only be the minimum required to enable the project (e.g. to meet subsidy requirement).

This will be particularly true for households with limited up-front access to finance, including the "squeezed middle" segment. As such, our hypothesis is that heat demand will be higher than they might otherwise be, with adverse impacts on network peak demand, as well as higher bills for households. The purpose of EqualLCT is to support efficiency upgrades and encourage investment in EE, especially in constrained areas, to mitigate associated network peaks, reduce customers energy bills and reduce emissions. The improved LENZA platform will help the EE/LCT supply chain better identify and target potential properties.

Net benefit

Under our current scope and assumptions, we expect £60m total benefits and £25m total costs, resulting in £34m net benefits from EqualLCT.

How many households are in scope?

We expect over 48,500 homes in the SSEN license area to participate in EqualLCT, from 2026 to 2040. To estimate the number of beneficiaries, we identify the number of homes that satisfy the following criteria:

*Number of HP installs expected in SSEN region
*Proportion of inefficient homes
*Proportion of homes in constrained areas
*Proportion of those homes which could participate

What are the key benefits captured through EqualLCT?

EqualLCT is expected to bring three broad benefits, summing to £60m for the SSEN licensed area.

Direct Benefit 1. Savings from network reinforcement due to reduction of peak demand
(c.£48m)

With additional EE, peak demand on networks can be reduced, deferring or avoiding reinforcement costs. Importantly, implementation of EE will provide lasting benefits to the network on an enduring basis.

We measured expected peak reductions from inefficient home (EPC E) to efficient home (EPC C), which is estimated at 2.25kW of peak reduction on average. To understand the value of peak reduction, we used avoided flex procurement cost for simplicity. Assuming the DSO needs to procure demand turn-down for constrained areas, we expect c.£48m benefits for the network.

Indirect Benefit 1. Savings on customers' bills (c.£11m)

With improvements in EE, customers will consume less electricity on heating and reduce their bills. By improving from EPC E to C, each home can reduce its average electricity consumption by 1,440 kWh and bill by c.£353 on average each year. While the DNO will not fully fund the EE investments from customers, DNO will provide partial payments to customers, which will improve uptake. Therefore, we have attributed 10% of this benefit to Equal LCT.

Indirect Benefit 2. Carbon savings (c.£0.38m)

With 1,440 kWh reduction of electricity consumption from each home, we expect 1,150 tCO2e carbon reduction through 2026-2040. We assumed that 10% of thisis via EqualLCT. This equates to c.£0.38m value using carbon price.

Key Delivery Costs

Cost 1. EE suppourt to consumers (c.£24m)

EqualLCT will support customers who are willing to make EE improvements. We have assumed the DNO will share half of the network benefits from reduced peak demand (Direct Benefit 1), which equates to c.£500 subsidy to each participating home, totalling c.£24m cost for SSEN. Through Beta, we will test if this is sufficient to 'tip over' enough customers to invest in energy efficiency.

Cost 2. Spatial data mapping (c.£1.25m)

This includes the cost of developing new capabilities and ongoing licensing costs.