This appendix sets out the basis for the programme's allocation of £7.0 billion per annum (phasing from £1.75 billion in Year 2 to steady state in Year 5) for the Energy for the Future capital and infrastructure programme. The programme operates in addition to existing government energy efficiency and decarbonisation schemes and is designed as a long-duration resilience investment that continues beyond the initial five-year fiscal plan. All figures are expressed in 2025 prices unless otherwise stated.
Policy objective
The UK's housing stock is among the least energy-efficient in Western Europe. Approximately 12 million homes have an Energy Performance Certificate (EPC) rating of D or below, of which roughly 2.7 million are rated E or worse, and an estimated 6.5 million homes are in fuel poverty or at risk of it. The electricity grid was designed for centralised, one-directional power flows and lacks the demand-side intelligence required to manage a system increasingly dominated by intermittent renewable generation. These structural weaknesses compound each other: poorly insulated homes with inflexible heating systems cannot participate in demand response, and a grid without demand-side control cannot efficiently absorb renewable surpluses or manage peak scarcity.
Energy for the Future addresses both weaknesses simultaneously through three integrated investment streams: co-funded heating electrification matched to housing stock characteristics, smart grid infrastructure enabling real-time demand response at appliance level, and support for community-scale generation and storage. The programme operates as a general resilience investment — building national energy security and reducing household vulnerability to price shocks — over and above whatever the UK is doing today through the Boiler Upgrade Scheme, ECO4, the Social Housing Decarbonisation Fund, the Warm Homes Plan, and RIIO network price controls.
Programme structure and budget allocation
The £7.0 billion annual envelope at steady state is allocated across three investment streams:
| Investment stream | Annual allocation (£B) | Character |
|---|---|---|
| Heating electrification subsidies | ~4.0 | Co-funded capital grants to households |
| Smart grid and demand response infrastructure | ~2.5 | Public infrastructure and technology deployment |
| Community energy and local storage | ~0.5 | Grants, loans, and revenue-sharing frameworks |
| Total | ~7.0 |
The phase-in reflects practical rollout constraints — procurement pipelines, installer workforce capacity, and grid readiness — rather than fiscal sequencing:
| Year 2 | Year 3 | Year 4 | Year 5+ | |
|---|---|---|---|---|
| Budget (£B) | 1.75 | 3.50 | 5.25 | 7.00 |
| Heating installations (approx.) | 300,000 | 600,000 | 900,000 | 1,200,000 |
| Smart grid coverage | Pilot regions | Regional expansion | National rollout | Full operation |
Stream 1: Heating electrification subsidies (~£4.0 billion per year)
The subsidy model
The heating electrification component operates as a government co-funding subsidy, not a fully funded installation programme. The government contribution covers approximately 40–55% of the total installation cost, with the remainder funded by the householder (directly, via green finance products, or through landlord obligations). This is consistent with the co-funding model established by the Boiler Upgrade Scheme, which provides £7,500 against average total costs of £12,500 for air source heat pumps — a subsidy rate of 60%.
The programme differs from the BUS in two critical respects. First, it is technology-neutral and matched to housing stock: rather than subsidising heat pumps alone, it funds whichever electrification technology is most appropriate for the property, including solutions that are substantially cheaper than heat pumps. Second, it operates at a scale roughly ten times greater than the BUS, which has installed approximately 50,000–60,000 systems per year since launch.
Technology mix and unit costs
The UK housing stock is heterogeneous. Approximately 8 million homes are solid-walled (pre-1930), poorly suited to conventional heat pumps without extensive fabric upgrades. A further 4–5 million are in conservation areas, listed, or otherwise constrained. The programme deploys a blended technology approach:
| Technology | Target housing types | Typical total installed cost | Government subsidy | Approximate share of installations |
|---|---|---|---|---|
| High heat retention storage heaters | Solid-walled pre-1930 homes, flats, bedsits | £3,000–5,000 (whole house, 5–7 units) | £1,500–2,500 | ~35% |
| Infrared heating panels | Conservation areas, listed buildings, hard-to-treat | £2,000–4,000 (whole house) | £1,000–2,000 | ~15% |
| Air source heat pumps | Post-1950 cavity-walled homes with adequate insulation | £8,000–13,000 | £4,000–6,000 | ~35% |
| Hybrid heat pump systems | Partially insulated homes, phased transition | £5,000–8,000 | £2,500–4,000 | ~15% |
The blended average government subsidy is approximately £2,800–3,300 per household. At 1.2 million installations per year (steady state), this produces an annual subsidy spend of approximately £3.4–4.0 billion.
Target population
The realistic target population for government-subsidised heating electrification is approximately 18 million households:
| Category | Estimated count | Rationale |
|---|---|---|
| Gas-heated homes requiring transition | ~23 million | Total gas-connected domestic properties (86% of ~27M homes in England use gas as main heating source; EHS 2023/24) |
| Less: homes that will transition without subsidy | ~3 million | Higher-income households, new builds (Future Homes Standard), natural market-driven replacement |
| Less: homes receiving heating electrification through existing schemes by 2030 | ~2 million | See note below on the Warm Homes Plan |
| Net target population | ~18 million |
Note on the Warm Homes Plan and the 5 million homes target. The government's Warm Homes Plan (published March 2026) commits to upgrading up to 5 million homes by 2030, backed by £15 billion in public investment. This headline figure encompasses a broad range of interventions across multiple delivery channels: up to 1.7 million homes via Warm Homes Plan capital schemes (insulation, solar panels, batteries, and some clean heating for low-income and fuel poor households); up to 1.6 million homes via new Private Rented Sector Minimum Energy Efficiency Standards (regulatory, primarily landlord-funded fabric and efficiency upgrades to EPC C); up to 1.3 million homes via Social Rented Sector MEES (a combination of government-funded and landlord-funded upgrades); and up to 0.5 million new-build homes constructed to Future Homes Standard (developer-funded, with low-carbon heating and solar as standard).
The critical distinction is between homes that receive heating system electrification and homes that receive fabric or generation upgrades without changing their heating system. The Warm Homes Plan's target of over 450,000 annual heat pump installations by 2030 represents the heating electrification component. Cumulative government-funded heating replacements through the BUS (approximately 400,000 heat pumps by 2030, backed by £2.7 billion), the heating component of low-income capital schemes (estimated 500,000–1,000,000 homes receiving clean heating alongside insulation), and a proportion of MEES-driven heating switches in rented properties, total approximately 1.5–2.5 million homes by 2030. This programme's deduction of 2 million reflects the central estimate of this heating-specific subset.
The remaining 2.5–3.5 million homes within the Warm Homes Plan's 5 million target that receive insulation, solar panels, batteries, or efficiency upgrades without replacing their heating system are complementary to Energy for the Future. These homes are being prepared for subsequent heating electrification — better insulated, with solar and storage already installed, and with improved EPC ratings — making them better candidates for the heat pump or alternative electric heating installations that this programme funds. The Warm Homes Plan creates the pipeline; Energy for the Future provides the scale to work through it.
At 1.2 million installations per year from Year 5 onwards, reaching the full 18-million-household target population requires approximately 15 years of sustained deployment — extending well beyond the initial five-year fiscal plan. This is realistic: the UK took over 30 years to connect its current gas network, and the electrification transition is of comparable scale and complexity. The programme does not assume completion within the plan period; it establishes the institutional capacity, supply chains, and funding mechanism for a multi-decade transition.
Relationship to existing schemes
The programme operates alongside, not in replacement of, existing heating and efficiency schemes. The Warm Homes Plan's £15 billion investment to 2030 — comprising the expanded Boiler Upgrade Scheme (£2.7 billion), low-income capital grants (£5 billion including Warm Homes Fund contributions), consumer loans (£2 billion), heat networks (£1.1 billion), and the Warm Homes Fund (£5 billion in financial transactions) — continues under its existing governance, delivered through the new Warm Homes Agency. Energy for the Future provides the additional scale needed to move beyond the Warm Homes Plan's target of 450,000 heat pump installations per year to over 1.2 million heating electrification installations per year — the rate required to decarbonise the full housing stock within a generation.
The two programmes are designed to be mutually reinforcing. The Warm Homes Plan builds the installer workforce, matures the supply chain, reduces unit costs through market growth, and upgrades the fabric of millions of homes. Energy for the Future takes that foundation and extends it to the full scale of the transition, while adding the smart grid demand response infrastructure that the Warm Homes Plan does not fund. A household that receives insulation and solar panels through the Warm Homes Plan in 2028 becomes a more cost-effective candidate for an Energy for the Future heating electrification subsidy in 2030 — the insulation reduces the required heat pump capacity, and the solar panel reduces the running cost.
Stream 2: Smart grid and demand response infrastructure (~£2.5 billion per year)
The demand response requirement
The transition to a renewable-dominated electricity system requires a fundamental change in the relationship between supply and demand. Under the legacy system, supply follows demand: power stations ramp up and down to match consumption. Under a renewable-dominated system, demand must increasingly follow supply: consumption must flex to match the availability of wind and solar generation.
This requires infrastructure that does not currently exist at scale: the ability for the grid operator (NESO) to signal into homes and businesses in real time, requesting or instructing the reduction or deferral of specific categories of consumption — heating, hot water, EV charging, refrigeration, washing — during periods of system stress, and the corresponding ability to incentivise consumption during periods of renewable surplus.
NESO's Clean Power 2030 analysis identifies a requirement for 10–12 GW of demand flexibility (excluding storage heaters) by 2030, roughly a four- to five-fold increase from current levels. Delivering this at household scale requires three layers of investment:
Investment components
Appliance-level demand response hardware and software (~£1.0 billion per year). Smart controllers, home energy management systems, and communications modules that enable individual appliances (heat pumps, storage heaters, EV chargers, hot water cylinders, battery systems) to receive and respond to grid signals. At steady state, this covers the cost of equipping approximately 2–3 million appliances per year across new heating installations (Stream 1) and retrofit of existing smart-ready appliances. Unit costs range from £100–300 per appliance for a communications module and controller, plus £200–500 per household for a home energy management hub. The programme funds the demand-response capability layer; the appliance itself is funded through Stream 1 (heating) or by the householder.
Grid-side control platforms and communications (~£0.5 billion per year). The NESO and DNO systems infrastructure required to aggregate millions of individual demand-response assets into a coherent, dispatchable resource. This includes real-time telemetry, forecasting algorithms, dispatch optimisation, cybersecurity, and the communications backbone (likely a combination of cellular, broadband, and dedicated mesh networks). This is analogous to the investment that electricity systems worldwide are making in Distributed Energy Resource Management Systems (DERMS), but at national scale.
Distribution network reinforcement for bidirectional flows (~£1.0 billion per year). The existing distribution network was designed for one-way power delivery from substations to homes. As households install solar panels, batteries, EVs with vehicle-to-grid capability, and flexible heating systems, the network must handle power flowing in both directions — from homes back to the grid during export periods, and from the grid to homes during import periods. This requires substation upgrades, transformer replacements, monitoring equipment, and in some cases new cable routes. The £1.0 billion per year is additional to the existing RIIO-ED2 allowance of ~£4.4 billion per year, which covers baseline maintenance and modest reinforcement but does not fund the transformational smart grid investment required for full demand response at scale.
Stream 3: Community energy and local storage (~£0.5 billion per year)
This stream supports community-owned renewable generation, neighbourhood-scale battery storage, and local energy trading platforms. The policy rationale is both practical and political: community-scale assets provide grid flexibility services (frequency response, peak shaving, voltage management) while giving citizens a direct stake in the energy transition and keeping energy revenues within communities.
The £0.5 billion per year funds a combination of capital grants (typically 30–50% of project cost, with the remainder from community share offers, co-operative lending, or local authority investment), technical assistance for project development, and the regulatory and digital infrastructure for local energy trading. At an average project size of £1–3 million and a 40% grant rate, this supports 400–1,200 new community energy projects per year — a substantial increase from the current base of approximately 300 active community energy organisations in the UK.
Revenues from community energy projects (sale of electricity, grid services payments, avoided import costs) accrue to the community organisations and are not scored as programme revenue. This is a conservative treatment: in practice, successful community energy projects generate returns of 5–10% on capital, which partially offset the grant cost over time. The programme does not depend on these returns for fiscal sustainability, but they represent an uncounted benefit that strengthens the economic case.
Fiscal profile and duration
The programme is a long-duration capital investment. Unlike the Universal Energy Service (which is a permanent operating subsidy to replace standing charge revenue) or GB Energy Network (which is a permanent payment funding the transmission owners' allowed revenue), Energy for the Future has a natural arc:
Years 2–5 (ramp-up). Spending increases from £1.75 billion to £7.0 billion as installer capacity, supply chains, and grid infrastructure are built out. Heating installations scale from ~300,000 to ~1.2 million per year. Smart grid deployment moves from pilot regions to national coverage.
Years 5–15 (sustained deployment). The programme operates at or near its £7.0 billion steady state. The primary driver is the continued rollout of heating electrification across the 18-million-household target population, with smart grid and community energy investments running in parallel. Annual installation rates of 1.0–1.2 million households are sustained, progressively addressing harder-to-treat properties as the programme matures.
Years 15–20 (tapering). As the target population approaches saturation, heating electrification spend declines. Smart grid investment shifts from deployment to maintenance and technology refresh. Community energy continues at a reduced rate. Total programme spend may decline to £3–4 billion per year — still substantial, but reflecting a shift from buildout to stewardship.
Year 20+ (maintenance steady state). Ongoing replacement cycles for heating systems (15–20 year life), smart grid technology refresh, and continued community energy support. Programme spend stabilises at approximately £1.5–2.5 billion per year, funded from the same budget line but at a lower level.
For the purposes of the programme's five-year fiscal model, the steady-state figure of £7.0 billion per year is the correct allocation. The tapering described above occurs beyond the plan period and does not affect the distributional analysis calibrated to 2025 incomes and tax base.
Demand response and the transmission peak signal
The transmission demand charge once carried a peak-avoidance signal through the Triad mechanism, under which large consumers reduced demand during the three half-hours of highest winter demand. That signal has already been substantially weakened by charging reform. Ofgem's Targeted Charging Review moved the bulk of the demand charge, the Transmission Demand Residual, onto a fixed daily charge banded by site capacity (Authorised Supply Capacity) from April 2023, leaving only the smaller forward-looking locational element on the Triad basis. The removal of the remaining transmission demand charges under the Universal Energy Service and GB Energy Network therefore removes a charge that is now largely fixed rather than a strong live peak signal. The substantive point is what replaces it. A renewable-dominated system needs far more demand flexibility than a diminishing Triad signal could deliver, and Stream 2 of Energy for the Future provides it directly. The smart grid demand response infrastructure replaces an intermittent price signal, confined to a few winter half-hours and acted on mainly by large metered consumers, with a continuous, granular control mechanism in which the grid signals appliances to modulate consumption in real time based on system conditions. This operates across the entire domestic and commercial building stock rather than only the largest sites.
The combination of the Universal Energy Service and GB Energy Network (which complete the removal of transmission demand charges) and Energy for the Future (which builds direct demand response infrastructure) is therefore intentional and internally consistent. The programme does not rely on the old Triad incentive, which charging reform had already largely retired; it puts a more effective and finer-grained mechanism in its place, one that operates continuously and reaches a far larger population of flexible assets.
Caveats and limitations
Co-funding model creates distributional risk. The subsidy covers 40–55% of installation cost, requiring householders to fund the remainder. For owner-occupiers in the bottom two income quintiles, even a subsidised installation of £1,500–3,000 may be unaffordable without access to zero-interest green finance. The programme assumes that green finance products (potentially delivered through the National Savings Bond framework referenced in the main programme) are available to bridge this gap, but the design of these products is not specified here. For social housing tenants, the landlord (local authority or housing association) bears the co-funding cost; the programme's subsidy rates should be calibrated to social landlord capacity, which may require higher subsidy rates for this segment.
Installer workforce capacity. Scaling from ~60,000 heating installations per year (current BUS rate) to 1.2 million per year requires a roughly twenty-fold increase in the qualified installer workforce. This is the binding constraint on the phase-in timeline and the primary risk to delivery. The Skills Centres legislation (referenced in the parent policy) is designed to address this, but the lag between training investment and productive capacity is 2–4 years. The Year 2–5 ramp-up is calibrated to this workforce constraint, not to fiscal availability.
Smart grid cybersecurity. A system that enables external signals to control domestic appliances creates a cybersecurity attack surface that does not currently exist. The grid-side control platforms (Stream 2) must incorporate defence-grade cybersecurity from inception, not as an afterthought. The cost estimates include a cybersecurity allowance within the control platform budget, but the threat landscape will evolve and may require additional investment.
Technology risk in demand response. Appliance-level demand response at the scale envisaged (tens of millions of connected devices responding to grid signals) has not been demonstrated anywhere in the world. The UK would be a first mover. Pilot programmes in other jurisdictions (Australia's demand response trials, California's flex alerts, the Netherlands' smart grid pilots) have demonstrated the concept at smaller scales, but the engineering and behavioural challenges of national-scale deployment are unproven. The phase-in from pilot regions (Year 2) through regional expansion (Year 3) to national rollout (Years 4–5) provides staged learning, but this remains a programme with meaningful technology and delivery risk.
Revenue from community energy is not scored. Community energy projects generate returns that partially offset grant costs over time. A more aggressive fiscal treatment would score these returns as programme revenue, reducing the net cost. The conservative treatment adopted here — zero revenue — means the £7.0 billion figure overstates the net fiscal cost of the programme to the extent that community energy projects succeed commercially.
Sources
- DESNZ, Annual Report and Accounts 2024 to 2025 (2025).
- DESNZ, Warm Homes Plan (March 2026).
- MHCLG, English Housing Survey 2023 to 2024: Headline Report (2024).
- DESNZ, Boiler Upgrade Scheme Statistics: July 2025 (July 2025).
- DESNZ, Clean Power 2030 Action Plan (2024).
- NESO, Clean Power 2030: Advice to Government (2024).
- Ofgem, RIIO-ED2 Final Determinations (November 2022).
- Ofgem, RIIO-2 Electricity Distribution: Annual Report 2024 to 2025 (January 2026).
- Meek, C., * In-Situ Heat Pump Performance*, Renewable Energy Consumer Code (2024)https://www.recc.org.uk/news/new-data-analysis-provides-evidence-on-in-situ-heat-pump-performance
- HomeOwners Alliance, How Much Does A Heat Pump Cost? 2026 (January 2026).
- House of Commons Library, Gas and electricity prices during the 'energy crisis' and beyond, Research Briefing CBP-9714 (May 2026). https://researchbriefings.files.parliament.uk/documents/CBP-9714/CBP-9714.pdf
- Community Energy England, State of the Sector Report 2024 (2024).
- New Economics Foundation, Warm Homes, Cool Planet: Free Basic Energy Proposal (2022). https://new-economicsf.files.svdcdn.com/production/files/WarmHomesCoolPlanet\_Sep2022.pdf
- New Economics Foundation, The National Energy Guarantee (2023). London: NEF. https://neweconomics.org/2023/04/the-national-energy-guarantee
All figures in 2025 prices. Installation cost ranges reflect 2025/26 market pricing for supply and installation including VAT. The programme's fiscal allocation of £7.0 billion per year is a government contribution within a co-funded model; total economic investment including householder and community co-funding is substantially higher.