The UK is now making good progress toward its climate goals, but to make a cleaner, healthier planet, the transition must work for everyone. The shift to clean heat is a critical piece of this puzzle. But as we transition away from fossil fuels, we must ensure that this change benefits everyone, especially those who are most at risk of being left behind. At Nesta, we believe that a just transition - where no one is left behind and everyone has access to the same opportunities - isn't just a moral imperative, it's the only way to make this transition truly successful.

Currently, the volatility of fossil-fuel prices, and our inefficient housing stock, compound the challenge of fuel poverty for many households. Now, as we move toward cleaner energy, there's a risk of creating new divides. For instance, if the shift to technologies such as heat pumps is only accessible to homeowners with significant savings, we risk creating a two-tiered system that leaves behind millions of renters and those in social housing.

This slows down progress toward our national goals. By designing policies and business models that actively include these groups, we can unlock a massive portion of the housing stock for decarbonisation, making the transition both fairer and faster. Going forwards, a portion of our work at Nesta will focus on ensuring a decarbonised home is a reality for everyone.

Our work spans a number of key areas to help make the clean heat transition inclusive.

Social housing

Representing around a fifth of the UK housing stock, social homes have historically often been a test bed for government housing decarbonisation policy, with different approaches in England, Scotland, and Wales. A well-delivered package of retrofit, including a well-installed, efficient heat pump could give social tenants a warmer home at a lower cost - but too often it doesn’t.

Social homes can be older and of lower quality, which makes the transition to new technologies more complex. We've heard that heat pump installations under some programs are not as efficient as they could be. When tenants raise concerns, they often feel their feedback isn't fully heard or that they are blamed for not using the technology correctly. A phrase we've heard repeatedly from social housing residents is that they feel like "guinea pigs."

This is not an inevitable outcome. Heat pumps are a proven technology that can work in the majority of homes, but only if they're installed well and if residents know how to use them correctly. A lot of complexity sits behind these "ifs," which is why our partnership with Bristol City Council is exploring installation quality, post-install support, and resident experiences. This work will help us develop solutions to these challenges at both a policy and delivery level.

The private-rented sector

There is a long-standing issue in this sector where private landlords, who typically pay for retrofit measures, do not see the direct benefits of improved comfort or reduced bills. This problem is known as the "split incentive," and it often prevents landlords from making critical investments in energy efficiency. We have been working to understand if heat pumps introduce any new challenges that go beyond those a homeowner would face, and, crucially, how to design solutions that meet the needs of tenants.

Novel business models

While high upfront costs for heat pumps can put them out of reach for some households, new business models and services can change this. As the energy system changes, there will be more opportunities for innovation that directly address affordability. For example, flexible tariffs and dynamic pricing could be combined with new financing approaches to deliver a great experience of clean heat for more people with little to no upfront cost. This innovation could make it easier for more households to transition away from expensive fossil fuels.

The complex relationship between home decarbonisation and fuel poverty

Our prior work on levies has shown that a key barrier to making heat pumps affordable is the price difference between electricity and gas. Correcting this imbalance would be a game-changer, ensuring that a household's decision to get a heat pump could also make a decisive contribution to lifting them out of fuel poverty.

However, we need to look beyond market reform. We believe the best approach for government schemes is a ‘twin-track’ model. For most homes, relatively modest upgrades combined with a heat pump could suffice, and this is what schemes should prioritise to maintain momentum. But for the homes that require more extensive measures, a more complex package should be available. It would be a mistake to sacrifice the pace of getting off gas by treating all homes like the most challenging ones.

We intend to invest more time in developing detailed recommendations for the UK and devolved governments. Our goal is to show them how to design fuel poverty programs that maximise the benefits of clean, efficient heating systems and fabric upgrades, making a significant impact on both carbon emissions and household well-being.

We’d love to collaborate with social housing providers, those who are developing new business models, policymakers or innovators to test what works, speed up the development of the market and ensure we build an inclusive clean heating transition. Please get in touch with us at [email protected].