However, progress needs to be much faster. According to the Climate Change Committee, the UK is not on track to hit the 2028 target of 600,000 annual installations and to do so would require a ten-fold increase in installations.
The increase in the BUS funding has triggered a significant increase in grant applications but the high upfront cost of making the switch to a heat pump is only one of the obstacles to widespread adoption.
With the UK having one of the highest electricity-to-gas price ratios in Europe, at 3.97, the running costs are a considerable deterrent to switching from gas-fired heating. A new report from the Heat Pump Association (HPA) considers a range of options to tackle this key challenge in the acceleration of heat pumps for domestic heating.
The industry body’s latest research highlights a significant contributor to the high electricity prices – the distortive impact of Environmental and Social Obligations on the domestic heating market – often referred to by government as “policy costs” and known commonly as “levies”, domestic electricity consumers bear around 85% of these levies, which means a typical heat pump consumer pays £170 more than an equivalent gas boiler consumer in levy costs per annum.
With the Government having committed to ‘rebalancing’ by the end of 2023/4, the HPA is calling for a temporary Domestic Heat Pump Tariff Discount to be introduced quickly as an interim measure to bridge the gap until the wider electricity market reform is completed.
Wallet-friendly sustainable heating
Commenting on the release, HPA CEO, Charlotte Lee said: “Our research provides a roadmap to address the current distortion in the domestic heating market, which is undoubtedly hindering heat pump deployment. Reducing the price of electricity relative to gas is the sector’s number one policy ask.
“Action must be taken to change the energy price signals so that the lowest carbon heat is the lowest cost heat, which in turn will accelerate the deployment of heat pumps and support the government’s decarbonisation goals.”
Additionally, Craig Dolan, HPA Chair, noted: “The proposed Domestic Heat Pump Tariff Discount strategically bridges the gap between the current situation and the more complex, wider electricity market reform arrangements which, whilst necessary, will take considerable time. The introduction of a Heat Pump Tariff Discount will make heat pumps a more compelling financial proposition to consumers and will drive a significant shift towards a greener and more efficient heating landscape.”
The proposed discount will reduce the price of electricity used for domestic heating or hot water produced by hydronic heat pumps to an amount equivalent to exempting that proportion of electricity from levies. Starting at 5p/kWh from 2024-2026 then rising to 6p/kWh, the discount is estimated to require a maximum of £533m of discounted costs over three years.
Jozefien Vanbecelaere, head of EU affairs at the European Heat Pump Association said:
“Every consumer wants bang for their buck, and to get it on a heat pump the price of electricity should be no more than twice the price of gas. Reducing taxes and levies on the electricity bill and supporting consumers in the switch to electrification is long overdue.
“Governments across Europe need to act today so households and businesses can move to clean and sustainable heating at a wallet-friendly cost.”
James Dyson, Senior Researcher at E3G said: “Reducing heat pump running costs is crucial to make clean heat affordable, desirable, and accessible for all UK households. A targeted exemption on levies for clean heating does just this, making heat pumps as affordable to run as a gas boiler. It also has a relatively low price tag for the government, meaning this approach represents great value to accelerate the transition to net zero.”
