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Jennifer is has nearly 10 years’ experience in the Energy Sector and since joining Delta-ee in 2010 she has been instrumental in developing new research service offerings around heat, including developing our internal customer research and building our capability in technology forecasting, strategic support and scenario development. In 2012 she co-authored a ground-breaking report on pathways for domestic heat to 2050 commissioned by the ENA, and she continues to be involved in high profile consulting assignments for our major clients.

Jennifer holds an MSc (distinction) in Ecological Economics from the University of Edinburgh.

+44 (0)131 625 1010

 

Installer attitudes to low carbon heat and microgeneration: a barrier to market success?

To get to the bottom of heating installers’ awareness of and attitudes towards low carbon heat (including the sort of supplier propositions that have most appeal), Delta-ee's Microgen Insight Service has just completed an in-depth programme of research with them. Our comprehensive, nationwide survey with 250 installers uncovers new insight into installer attitudes and experiences. Download the Whitepaper here.

Our findings revealed:

  • The key 3rd party assistance installers are looking for – from lead generation to aftersales support.
With more than 60% of conventional heating installers also interested in providing low carbon heat in the future, there is reason to be upbeat about market prospects. However to really drive engagement, installers require support from suppliers along the whole customer journey.

For many, the key challenge today is finding interested customers, and so are asking for support in lead generation as a priority. For others, it is more about feeling comfortable with those first few installs; with design and commissioning support, but also with aftersales.

Feedback also shows that installers believe the ability to provide customers with more financing options and longer product warranties will help them close the deal more often.

  • Awareness and appeal of the RHI is strong – but as we have learnt from the Green Deal, this won’t necessarily lead to high levels of installer engagement in the scheme.
Ultimately we don’t think that a lack of installer awareness should be a concern (even if they are not enthused by it: see “low-carbon at the coal face: what installers really think about the microgeneration sector”) – but, we do believe installer engagement could be a barrier to RHI uptake.


The survey provides reassurance that the majority of installers who should know about the RHI do know about it (over 2/3 of installers in our sample recognised the RHI when prompted).

Although, we do caution that high awareness will not necessarily lead to installer engagement, and so converting interest to action could be a sticking point. Across the board, more respondents recognised the Green Deal than the RHI (Green Deal had 90% awareness). And yet, in spite of this, little more than 10% had actually become Green Deal certified.

With the Green Deal as the gateway to RHI support, there is a danger that if the installer is unable to guide customers through this process themselves (which our data tells us will be the base-case scenario) they could just resort to just recommending a conventional technology instead – a sale’s a sale.

Which leads us nicely onto our next point….

  • Training remains a major barrier for installers – the ‘qualifications burden’ needs to be reduced (or the system simplified) for wider engagement with low carbon heat.

Survey participants told us that training is one of the biggest barriers to engaging in renewable heat: almost 80% of installers in our sample listed it as a concern, and over half gave it as their single greatest concern.

With an increasing list of qualifications needed to provide an end-to-end customer service (which our research with owner-occupier indicates is a preferred option) – including: specific manufacturer product training, MCS, Green Deal accreditation and the MCS (all on top of maintaining any gas safe or other base qualifications) – then the challenge becomes clear.

All this falls on the backdrop of our survey revealing that less than half of all installers ‘qualified’ to install the 5 RHI-eligible technologies have undergone MCS training. 

  • There may be a supply chain delay when the RHI is launched – renewable heat is unlikely to ‘boom’ in the same way as Solar PV.
So what does all this ultimately mean for the industry? There is no doubt that the RHI is going to be an important market intervention. Ending years of uncertainty is a fantastic next step, and for customers and vendors alike it is something tangible to get excited about.

But, this research indicates that there is still plenty of work to be done by product suppliers, and DECC, to reassure and convince installers that they should invest in this market. Certainly the scheme needs to be “here and now”, rather than “on the way” for installers to really make a move.

For the customer who is looking to install renewable heat, there will likely be supply chain issues ahead. Even with the small market size today we have seen in our previous research that installer coverage can be patchy (see our blog “Is the UK low carbon heat market ready? A case study of a customer who CAN’T buy a heat pump”).

As the industry prepares for the launch of the RHI in the coming months, it is worth considering what the installer proposition – not just the customer proposition – for renewable heat will be.

For further information on any of the issues raised in this Whitepaper please contact Steven Ashurst at steven.ashurst@delta-ee.com.

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UK low carbon heat, coming to the boil - Annual value to double to £0.5 billion by 2016

The market for residential low carbon heating products (including solar thermal, air source heat pumps, ground source heat pumps, micro-CHP, biomass and hybrid technologies) is set to take off, according to the latest forecasts from the Delta-ee Microgen Insight Service. 

Annual installations of low carbon heating products are to rise from ~30,000 this year to 80,000 in 2016, making the market worth more than £0.5billion – more than doubling its current value.


A key catalyst for this growth is the recently announced (domestic) Renewable Heat Incentive (RHI), scheduled for launch in 2014. The tariff announcement marked the end of years of uncertainty which had left the low carbon heat markets flat. It will give industry participants the confidence to invest in supply chains and to develop new customer propositions, like those that developed around PV, such as “heat pumps for free”.

We will also see growth expanding into new segments.  Currently, sales are concentrated in social housing and new build properties – which together account for 77% of installs. However, owner occupiers are expected to grow their market share to over 40% of installs by 2016. Uptake will be driven by attractive paybacks in this sector (5 years or less in some cases) as households take advantage of the RHI. Companies that develop propositions for these households will be the big winners in the growing low carbon heat market.

In technology terms, heat pumps will increasingly dominate the low carbon heating market; growing from ~15,000/year today to upwards of 45,000/year in 2016.   For customers using heating oil today, air source heat pumps – with the RHI – are a competitive alternative. The inclusion of hybrid heat pumps in the RHI will provide an innovative low carbon solution for on-gas customers too.

What does this mean for market players?

  • Energy suppliers: have a significant opportunity to tap the market growth.  Some – such as EDF and British Gas – are already developing a portfolio of low carbon solutions for their customers.  
  • Boiler manufacturers: hybrids have significant potential and could be a game changer for involvement of leading boiler companies – Vaillant already has a hybrid heat pump product on the market.
  • Low carbon product manufacturers: an opportunity to be early movers on innovative propositions for off-gas grid owner occupier customers. For Daikin and others, hybrids will be a driver for engagement with on-gas customers too.
  •  Installers: great opportunities to grow and diversify business – expect new training opportunities from manufacturers and distributors.
The full market forecasts report, including the key segments and customer groups to target is available via the Delta-ee Microgen Insight Service. 
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RHI = Really Happy Industry

The domestic Renewable Heat Incentive (RHI) has finally been unveiled, and the industry couldn’t be happier. This is the end of the beginning – the RHI represents the first step on the path to meeting the UK 2050 carbon targets.

Tariffs of: 7.3p/kWh for Air/Water Heat Pumps, 12.2p/kWh for biomass, 18.8p/kWh for Ground-Source Heat Pumps and 19.2p/kWh for Solar Thermal, are to be paid over 7 years.  In addition, hybrids (combined heat pump – boiler systems) are eligible for RHI payments, and there will be a metering bonus.  This is great news – and will exceed the expectations of many in the industry who had started to think the domestic RHI might never happen. Delta-ee strongly believes that this could be a catalyst for significant market growth, with these tariff levels providing paybacks for some technologies of less than 5 years.  

What does this mean for customers?
  • Owner occupiers are a diverse group – the RHI will provide a strong financial case for investment, with paybacks of less than 5 years for some technologies. Now industry needs to innovate to deliver the propositions which they are looking for.
  • Self-builders have been recognised as an important customer segment - small but central to the roll out of low carbon heat, and with an appetite for investment (our research shows over 25% of self builds come with some form of microgeneration).
  • Social landlords have a critical role to play in growing low carbon heat - they remain committed to reducing fuel poverty. And - with funding always a concern – the RHI gives them a guaranteed revenue stream which will have strengthening appeal as rent arrears are on the rise. 
  •  Private landlords have been recognised for the first time as having a role to play in uptake of low carbon heat.

 What are the next steps for industry?

  •  Innovative customer propositions – the industry needs to deliver innovative financing solutions, low cost loans, and potentially leasing options to deliver flexible options for customers. Owner occupiers in particular are diverse, and for many, up-front cost will remain a key barrier. Already in the UK and Europe, we have seen the market react with solutions – demonstrating that with the right mix of incentive and financing, customers will really have the confidence to invest.
  • Streamlined customer journey – a big challenge with the roll out of the RHI may be keeping the customer engaged through the whole process. Whilst no-one in the industry will disagree that it is important for properties to be energy efficient before renewable heat is installed, there is a danger that the link to the Green Deal could lead to a long customer journey, which could prove too much hassle for some. Industry needs to plan for how to mitigate this.
  • Make some noise to customers and to installers – awareness of incentives and low carbon heat technologies amongst owner occupiers especially is low (Delta-ee customer research 2012/2013). Customers need to understand what technologies and incentives are available for them, and the installer will have a critical role in this. This is a challenge given that the market is full of “one man bands” – smaller installers. Engaging these installers will be critical for getting the message out into the market. 

Industry reaction:

 “Daikin is very pleased that the RHI has finally been announced.  It is particularly positive news for the Social Housing sector as they are now eligible for RHI. It is also good news for our installer partners who have already made the commitment to become MCS accredited”.  Nancy Jonsson, Daikin UK

“The much anticipated launch of the RHI today marks a step forward for renewable heating. For installers, the launch of the domestic RHI means a growing need to embrace Green Deal assessments. In addition, installers should take steps to undertake adequate training on renewable products, in addition to credentials such as MCS accreditation, to take advantage of what we hope to be a spike in installations in the next 24 months” Jon Tedstone, BDR Thermea

 “I am delighted to see that the domestic RHI has been announced today and I believe there are a lot of reasons to be optimistic. For the customer, we have seen a crisis in confidence over the last 18 months. In our latest in-depth interviews with owner occupiers, it was clear that low-carbon heating is considered high risk, and there was a belief that even Government didn’t really have faith in the technologies. The start of the domestic RHI will help the industry to offer reassurances to these customers, and it also provides an opportunity to develop some interesting propositions that should really get the market moving”. Jennifer Arran, UK Microgeneration Research Manager

 “The RHI is fantastic news.  The European heat pump industry has long-awaited confirmation of the scheme which is expected to drive significant growth of heat pump sales in the UK – a market which could potentially become one of the largest heat pump markets in Europe.  The economic framework for growth is now in place.  Hopefully the RHI will encourage the growth of financing offers, low cost loans for heat pumps to help the customer get over the initial upfront cost barrier.  We have already seen examples of these sort of approaches in other markets such as France and Germany - GDF Suez and EDF in France both offer loans, and in Germany, Vattenfall is testing a model of owning heat pumps on customer sites and selling the heat back at a preferential rate.”  Lindsay Sugden, Heat Pump Research Manager

Click here for more information on the Microgen Insight Service and the Delta-ee Heat Pump Innovation Monitor Service and download a PDF version of this blog entry here
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Is the UK low carbon heat market ready? A case study of a customer who CAN’T buy a heat pump

As part of its on-going research program the Microgen Insight Service team carried out in-depth phone interviews with owner-occupiers. This included interviews with on-gas and off-gas owner occupiers, and specifically with a small number of owner-occupiers who are planning to install, or have just installed a microgeneration technology.
 
While the results again reiterated issues around cost and fear (see previous post Growing Awareness of Microgeneration is Stifled by Fear) they also revealed some new insight into how customers think about purchasing microgeneration - in particular around controls, interaction with their system, and how they move beyond general interest to what, where and how to buy.   
 
Is the industry ready to deliver?
 
One critical question the interviews raise is whether the industry is consistently ready to deliver microgeneration technologies to customers. In particular the low carbon heat technologies which are a much more complex sale than PV, for example. Undoubtedly RHI delays and uncertainty have reduced investment along the supply chain to build slick sales processes for the future -  but is the industry maximising its current sales opportunities – and effectively capturing those customers who are ready to buy today?
 
The interviews reveal that the purchase process today for low carbon heating is not always straightforward and effective. The customer sales journey can be long, complex and overly onerous – often heavily reliant on the quality and reliability of individual installers.  Critically there is a lack of a reliable trusted source of information, and in some cases customers have to spend a lot of time and effort in the purchase and installation process, which results in frustration and ultimately apathy.
 
Consider respondent X below – this respondent is a textbook “perfect” customer for microgeneration:
 
RESPONDENT X – Planning to Install an ASHP
 
Profile:
  • Off-gas – currently uses LPG
  • Financially secure – with approx. £8,000 - £10,000 to spend on a renewable heating system,
  • An investor -  thinks of installing a renewable heating system as an investment for the future, considers payback
  • A non-mover – settled, no plans to move house
  • A researcher – has done considerable research into different technology options, has already decided they would like an air source heat pump
  • A “green” customer – already has solar PV installed
Customer journey:
 
Phase 1: Research – an interested customer who goes out of their way to find out relevant information, research via the internet and by contacting the relevant associations. Decision to look into new technology following a recommendation from an insulation installer
 
“I’ve done a lot of internet research…I even went as far as finding a ground source heat pump association who gave me some names”
 
Phase 2: Decision point – customer decides ground source heat pumps are too costly for them, but decides they would like to install an air source heat pump, they are looking to cut their gas bill and have worked out the rough payback on a system based on online information
 
Phase 3: Quotation – getting a quotation was surprisingly difficult. Onus is on customer to follow up and after 6 months only 2 quotes have been delivered, neither of these installers have actively tried to follow up on the potential sale
 
“I’ve contacted 12 companies [about ASHP] - only four responded, two of those said they would call to set up a visit then didn’t, one came to see me and quoted but I never heard from him again after I go in touch and the fourth didn’t come to see me in the end but gave me a quote”
 
Phase 4: Outcome – customer apathy, why should I be chasing them? Unless the installer gets back in touch the customer is likely to abandon plans to install
 
“I’m standing here with £8K and saying somebody please come and give me one of these things and the industry is saying no”
 
“It’s been a great frustration. I’ve got to the stage now where I’ve just lost interest”

 
So what?
 
So what does this tell us? It’s only one customer – an anomaly or representative of the market? We believe somewhere in between. In a separate “mystery shopping” exercise we had some excellent experiences, but several where we really had to chase and push to get a response to our sales inquiry.
 
This highlights that there are key challenges in the market today:
  • The installer – who can be the ‘face’ of a brand - is a critical link in the sales journey, and is not always effective in facilitating a smooth customer journey.
  • Other ‘larger’ vendors offer a mixed experience – some excellent – in particular ‘renewable energy specialists’, but some very poor
  • Customers desire for a single point of contact in their sales and installation journey is not always being met
  • There is a lack of a trusted advisor in the market – an opportunity for companies to ‘claim’ this ground?
  • There are some customers ready to buy today, but some are being frustrated by unresponsive installers and vendors.
 
Subscribing to our Microgen Insight Service will help your business to make the best decisions today and develop the right propositions for the right customers. For more information email me at jennifer.arran@delta-ee.com or call me on +44 (0) 131 625 1009.
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Growing Awareness of Microgeneration is Stifled by Fear

As part of our ongoing research programme, the Microgen Insight Service team held focus groups in March 2013 to gauge awareness of microgeneration technologies among owner occupiers. So, what do they think of microgeneration?

Generally the results highlighted an improvement in awareness to microgeneration (compared to research carried out by Delta-ee in 2012). However, in contrast to last year, fear has become a much stronger barrier to uptake, with some customers stating this as a bigger concern over the up-front costs of the technology. This fear can manifest itself in a variety of ways – but it is clear that the latest delay to the domestic RHI will, for many, reinforce the lack of trust in incentives and undermine customer confidence in the technology further.  

Some of the key themes from the focus groups are highlighted below:

In principle, customers like many of the new technologies and their awareness of these technologies is improving.
Compared to last year’s research, the Delta-ee focus groups revealed that customers have an improving awareness of microgeneration. Emerging technologies also have high customer appeal in principle. Most participants were open to trying new technology – “I’m not in love with my boiler, I would try something new.”

What’s stopping home-owners from investing in new technologies?
The majority of responses to this question were fear and cost. Many feel that up-front cost is a key barrier, and compared to our results 12 months ago, home owners are much more fearful.

The ‘magic 5% of customers’ (see There's a "magic 5%" of customers out there - but what will make them buy?) are more sensitive to up-front costs than ever. Green issues and other motivations for installing have become weaker – it’s all about cost for many people.

Home owners are also scared of making the wrong decision and are sceptical about the reliability of government incentives. They worry about the performance and longevity of new technology, and being stuck with something which has quickly become obsolete. They feel that investing in new technology would be a ‘leap of faith’ at this stage, and that many of the promises made about benefits are ‘too good to be true’.

How can I find the magic 5% of customers who DO want to invest?
Subscribers to the Delta-ee Microgen Insight Service have access to the latest customer research, which combined with market, policy and techno-economic analysis, helps to build robust forecasts and helps subscribers build the strongest proposition they can. The types of support we have identified that would win over the magic 5% includes:
  • A longer than average warranty – which would include free maintenance and parts if the system breaks down.
  • A servicing and maintenance contract – which many are willing to pay for.
  • Independent Energy Advisors – to offer neutral advice and be a go-to person.
  • A safety net – protecting customers and providing a source of technical support if their system breaks, and the installer is no longer in business.
  • Bespoke case studies – demonstrating the fuel bill savings they could expect in a home like theirs.
Subscribing to our Microgen Insight Service will help your business to make the best decisions today and develop the right propositions for the right customers. For more information email me at Jennifer.arran@delta-ee.com or call me on +44 (0) 131 625 1009.

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Ecobuild 2013 – More Products But It’s A Tough Market

Ecobuild is the UK’s largest annual event for sustainable design, construction and the built environment.  Low carbon and decentralised energy technologies are prominent, and this year several of the Delta-ee team spent time exploring the trade fair and talking with exhibitors and other attendees.  We summarise below some of the things we took away from Ecobuild 2013.

More products specifically designed for the UK market.  A number of exhibitors introduced products specifically designed for the UK market.  These included:
  • Stiebel Eltron with a new monobloc ASHP, specifically designed with the UK and French market in mind, and designed to be easy install
  • Laily and Coates, a recent start-up company, exhibited a heat pump specifically designed for UK housing and climate – developed by a Guernsey based entrepreneur
  • Worcester Bosch were displaying their ‘hybrid’ ASHP product
  • BDR were showing their new ASHP product for the first time in the UK – this is launching later in 2013, once it has MCS accreditation.
  • Ochsner Heat Pumps are providing “tailored” ASHPs for the UK market based on an home energy assessment and specific design of the heat pump by their engineers
The RHI – now or never please (but preferably now!)  One of the strong themes that came through several conversations is that frustration with the RHI is close to becoming anger. There are expectations among the industry that the domestic RHI is likely to be further delayed as DECC still has a number of key questions to address. There are two potential sources of anger:
  1. UK subsidiaries of international companies have for three years talked up the UK as a growth market, but that growth has yet to materialise. Corporate head offices may soon start seeing better opportunities in other markets and some may reduce their commitment to the UK if growth does not become evident soon.
  2. The negative impact uncertainty has on the market. Prior to the RHI, the market was growing organically at a reasonable rate. However since the delays to the RHI it has broadly stagnated, as customers and suppliers await clarity. So unless the RHI is finalised soon, the industry may wish it had never been proposed in the first place.  
We heard a lot of mixed feelings about the Green Deal.  The supporters are often working hard to promote it – and many have a vested interest in its success.  However, there are other players in the market, including many that are not yet participating directly, that see that the opportunity with customers as small. This is due to both the complexity of the scheme and the long customer journey.  Delta-ee’s own research with customers (see our Microgen Insight Service) suggests that while the concept is seen positively, the implementation is lacking.

Tough economy showing through.  The event was well-attended (although perhaps quieter than previous years) and while many of the major companies were out in force, there were a small number of big names missing from the exhibitor list.  Perhaps just a reflection of the prevailing economic climate?

Will clarity on the RHI and Green Deal help kick-start the market?  We’ll be addressing this question, and many others, throughout 2013 for subscribers of our Microgen Insight Service.
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