Learnings

Outcomes

The outcomes of the project are being fully assessed by BEIS/DESNZ currently.  This will enable them to develop a set of consumer protections for any hydrogen village trial.  Once developed, these should be tested as part of the next stage of developing the village trial.  These are set out below: 

Below is a summary of the key findings across the five research areas.

Property and rental prices:

·       Property prices are influenced by a range of different factors including location, availability of local amenities, consumer perception and demand, supply of properties and the specification or characteristics of a home. The drivers evolve over time with some becoming more or less important to buyers. These drivers are more significant than the heating system within the property.

·       There is evidence to suggest that properties with sustainable features or higher energy performance ratings can command higher prices and that these homes may be more desirable. There is consensus that this is likely to be more prevalent and largely driven by the private rented sector or commercial landlords over the coming years due to regulatory and corporate social responsibility pressures. 

·       The proposed RdSAP convention was welcomed by industry as a simple solution which is not expected to significantly impact the market. However, it will mean that the EPC for properties in the Trial area will not benefit from an improved rating unless other upgrades are made to the property. Whilst there is currently not clear causation between property prices and EPCs ratings, this is expected to evolve over time with many stakeholders suggesting that EPCs are likely to become a greater driver of prices in the future. Therefore, there is a need to ensure that the introduction of hydrogen does not negatively impact property EPC ratings, so further reforms to SAP may be needed to replace the convention at a later date. 

·       Consumer perception and reaction to the Trial may influence the saleability of a property and its value, this could be positive or negative. This can be mitigated by clear articulation of the benefits in the home from the Trial e.g. free appliance checks and energy efficiency measures. 

·       Overall, the Trial is not expected to impact local property prices significantly, subject to public support for the technology being positive and the cost of running and maintaining it was comparable to the existing, but it is not currently possible to derive an exact forecast of changes to prices. It is important to note that without gaining consumer acceptance and wider support for hydrogen heating outside and inside the Trial areas, buyers may be dissuaded from purchasing a home in the Trial area. However, initial findings from the consumer study suggests that generally the public is neutral or supportive of the use of hydrogen in homes. 

·       The provision of information to the market regarding running costs, maintenance, and disruption would help to mitigate property price impacts.

·       Longitudinal data on property prices in the region should be collected to build the evidence base for future deployment.

·       Property and rental price tracking undertaken as part of this research shows that the Trial announcement made in May 2022 did not have any statistically significant impact on market trends within the Trial areas.

·       Consumer research undertaken as part of this research suggests that a Hydrogen Trial would result in most consumers willing to pay the same for a property within the Hydrogen Village Trial as they would for an identical property outside heated by natural gas. Interestingly, more consumers (14%) said they would be willing to pay more for a property within the Trial than those who said they would pay less (10%). Most consumers said they would need to know more before deciding (37%) or that it would make no difference (38%).

·       Nearly all respondents who provided a value would pay within the -5% to +5% difference for a property in the Trial area.

·       The changes in willingness to pay are broadly similar across property purchase and rental decisions and the expected value of respondents’ next property seems to have little impact on responses.

Ease of buying and selling property 

·       The addition of low carbon technology (such as solar panels) improves desirability of property and thus can shorten the sales times. 

·       Socioeconomic factors affect priorities when buying homes thus will affect speed of sale for properties differently dependent on the buyer. Research suggests that for some younger tenants or buyers, getting on the property ladder is a greater priority than sustainability and the older the resident the more important sustainability is to them.

·       Engagement with conveyancers found that EPCs and green technology do not often come up in property transaction discussions and are deemed as a relatively insignificant ‘tick box’ within the property conveyancing process. 

·       Engagement with property conveyancers suggested that the conversion to hydrogen heating would not require the terms and conditions of property transaction contracts to be altered for the Trial. Further, fees for conveyancing transactions would remain comparable if not the same. The fee increases if the risk of the sale falling through increases. Legal firm Dentons advised that as part of the residential conveyancing protocol, the Seller is required to complete a standard Property Information Form (PIF). Questions 12 and 13 of the PIF relate to services and connections to utilities and services.  A set of standard responses to questions 12 and 13 of the PIF will require full disclosure of the contractual arrangements for the Hydrogen Village Trial to satisfy a buyer and its mortgage provider. Details around the appliances and what happens at the end of the Trial period and any relevant information around costs and compensation if applicable will also need to be included.    

·       Concern was shared from stakeholders that if the properties remain on hydrogen heating after the Trial and the hydrogen is more expensive than natural gas, then the marketability of the property may suffer leading to increased difficulty in buying or selling.  Therefore, the Government’s commitment to price matching to methane during the Trial and the reversion back to natural gas after the Trial would mitigate this. A further enhancement or benefit would be to offer a beneficial tariff in the market after the Trial for the residents involved if hydrogen continues to be used. 

·       The overall feeling was that the introduction of hydrogen could be positive, but this depends on the outputs of the Trial – at present there is not enough evidence to make a full judgement.

·       Property market tracking undertaken as part of this research shows that the Trial announcement did not have any significant impact on the number of property transactions in the Trial areas.

·       Consumer research suggested that for consumers looking to buy, a Hydrogen Trial is an attractive feature with the majority of consumers (51%) being more likely to move to a home in a Trial area than an identical home heated by natural gas. A significant proportion of consumers (39%) said it would make no difference. A small proportion of consumers (10%) stated they would be less likely to move to the Trial area. It should be noted consumers were not given the option to answer “don’t know” to this question.

·       When considering a situation in which a buyer learns about the Trial after choosing a property, 37% would be more likely to move to the area, 58% stated it would make no difference and only 5% stated they would be less likely to move to the area. It should be noted consumers were not given the option to answer “don’t know” to this question.

Ability to find new tenants

·       In the current market there is a severe lack of rental properties on the market and this means that properties are changing hands rapidly - rental properties are selling in half the typical time.

·       Since April 2020, landlords cannot let properties which are covered by the domestic minimum energy efficiency standard regulations if they have an EPC rating below the minimum - the Government set out its ambition in the Heat and Buildings Strategy that rental properties should reach EPC band C by 2025 for new tenancies and by 2028 for existing tenancies. Stakeholder engagement suggested that the effect of EPC rating is more prevalent in the commercial sector than the residential sector. There was concern towards how in the Trial, the EPC ratings of properties using hydrogen heating would remain the same and not reflect the environmental benefit of hydrogen heating.

·       Stakeholder engagement conducted for this report suggests that the main priority for landlords is finding the cheapest way to meet minimum EPC standards and minimising disruption for tenants, however given that the rdSAP convention is expected to treat hydrogen the same as natural gas, there will be no positive or negative impact on EPC ratings. Whilst this is sensible and was welcomed by representatives from the hydrogen industry, it could potentially be a challenge for landlords and commercial property owners that may have a focus on environmental performance ratings. These stakeholders are likely to want to see an improvement in EPC rating and therefore they may need further incentivisation in the form of wider property upgrades to demonstrate the benefit of involvement in the trial. Further reforms to SAP may be needed to replace the convention at a later date to ensure that hydrogen heating is appropriately recorded and the benefits reflected.

·       There was some concern about disruption at the beginning and end of the Trial. Engagement with local landlords may be needed to understand how boiler replacement could fit into their maintenance schedules and minimise disruption for tenants. 

·       The general feeling was broad positivity towards hydrogen heating. Engagement indicated that there are plenty of buildings in the UK which are only suited to combustion heating. The main issue identified was getting the first adoption of the technology as then others would be more likely to follow and have evidence to consider.

·       Rental property market tracking undertaken as part of this research shows that the Trial announcement made in May 2022 did not have any significant impact on the number of unlet properties in Ellesmere Port and Redcar, with both towns generally following national trends.

·       Consumer research suggested that for consumers looking to rent, a Hydrogen Trial is an overall attractive feature with most consumers (50%) being more likely to move to a home in a Trial area compared to an identical home outside of the Trial area heated by natural gas. A significant share of consumers (41%) said it would make no difference. It should be noted consumers were not given the option to answer “don’t know” to this question.

Availability and cost of mortgages

·       Lenders such as NatWest and Nationwide have stated ambitions that at least half of their mortgage portfolio will be rated EPC C or above by 2030 showing the importance of energy efficiency within the mortgage sector.

·       Whilst they haven’t broken through at scale yet, green mortgage deals are starting to be offered more regularly and there is an expectation for this to increase in the future as regulation develops.

·       Some stakeholders suggested that if the Trial was to revert to natural gas, then it limits the opportunity for sufficient evidence to have been gathered. Reverting to natural gas was described as ‘defeating the purpose of the Trial’. 

·       Mortgage lenders require assurances on the safety side of hydrogen heating within the home. The letter of assistance from the HSE was not mentioned specifically in this context but it can be assumed that this would form an important part of the engagement materials that would be useful to share with industry. Assurances are also needed on the future cost to consumers of hydrogen heating, assuming the Trial does not revert from hydrogen, as these may impact long term affordability calculations.

·       If marketability of property is not impacted by the Trial, stakeholder engagement suggested there will be no change in the ease of obtaining a mortgage. 

·       It is recommended that the GDNs engage with members of the Building Societies Association and UK Finance to ensure consistency when liaising with consumers within the Trial area to alleviate any concerns regarding mortgages.  

Changes in availability and cost of insurance

·       Home heating systems make up a single digit percentage of total insurance premiums. Some higher risk heating systems such as oil-based boilers or open fires can increase insurance premiums, yet overall, home heating systems are not deemed as significant drivers of premiums. Insurers are by nature risk adverse and base risk calculations on historic data. The general sentiment from the engagement with insurance providers was that hydrogen heating would not be deemed as an ‘adverse rating risk’ and therefore no significant change in insurance premiums would be expected. However, if an increase in insurance premiums materialises, then the Trial will need to provide financial support to cover any rise in costs. It is expected that insurance products would not need to change to cover hydrogen – although specification around specialist hydrogen engineers to work on boilers may need to be added to terms and conditions. One insurer identified that if the hydrogen boilers and appliances were owned by the GDN (rather than directly by customers), home insurance would not cover the boiler / appliances, but would cover any damage resulting from an incident relating to hydrogen boilers or appliances.  An industry-wide view should be sought.  Worth noting though is that any issues with the appliances themselves during the trial would be covered by the GDN.The reliability and cost of hydrogen boilers compared to natural gas boilers will play a significant role in whether premiums remain the same in the future. Overall, there was a varied view towards hydrogen heating across the stakeholder interviews – a common theme was that a declaration of safety (similar to KIWA’s declaration for the Lochem Trials) would help provide confidence and ease concerns. A HSE Certificate of safety would also provide insurers with the confidence that the risk of using hydrogen for the Trial is comparable to that of natural gas. The ABI state that residents will not need to declare a switch in their heating system unless specifically asked, in which case they should disclose to ensure their cover is still valid.

Lessons Learnt

The different stages of the project have enabled some key learnings to be gained throughout the project.  Given the low levels of knowledge around hydrogen being explored, the approach to the project widened to investigate new technologies more broadly, their consumer acceptance and their impact on the property market.  This has unlocked greater learnings around the role new technologies play in society and how they become more accepted over time, becoming embedded in everyday life.  These can be used to better inform the evolution of hydrogen as an energy supply and in wider public education.

The learnings gained will help the Government to define its approach to consumer protections for any hydrogen village trial.  Further testing may be appropriate as they are developed to ensure they meet consumer needs and build on the learnings from this project.  Some stakeholders also felt that hydrogen benefits through lower emissions, or additional insulation should be incorporated into the EPC rating, and that this needs to be considered beyond the indicated RdSAP convention.  The government also has a role to play in providing support and protections in the property space.  Engaging experts will reassure residents as gas suppliers and networks have limited experience in this area.  Additionally, the HSE need to give the trial its safety sign off as this will also offer independent, expert reassurance to residents.

The project methodology has given strong indications as to how best engage potential interview respondents, potentially utilising specific companies that can source the right people in a quick and effective manner as well as using appropriate levels of incentivisation. A clear lesson needs to be setting appropriate timelines (both project scheduling and total duration) to conduct the project to ensure scheduling around small business/industry leaders and sufficient time for introductions, scheduling, follow ups and so on.

Thinking about the local stakeholder engagement, it may be that this specific element has to be incorporated into other village trial feedback programmes in future stages.  Capturing local feedback is a key part of the learnings but needs to be planned so as not to over burden local residents while maintaining a balance of useful feedback while testing specific hypotheses with knowledgeable and real residents. The property topics have certainly been raised in the villages sooner than anticipated, with clarity and confidence required by residents.