Energising the heat pump market: 60 second explainer

Key Points

• Decarbonising heat must be part of the UK’s long-term response to the international wholesale gas price crisis, to protect consumers from volatile energy bills, boost UK energy security, and reduce carbon emissions.
• The energy industry is ambitious in its plans to invest in, and develop, new products and services for its customers, but barriers remain to delivery across the market.
• Heat pump markets have seen significant growth in Germany and France in recent years, and the Government must remove barriers to UK businesses expanding their offers to consumers and seize this economic opportunity for growth, jobs and levelling up before
  we are left behind.
• Heat pumps are expected to meet 65% of low-carbon heat demand, according to the Climate Change Committee’s Sixth Carbon Budget ‘Balanced Net Zero Pathway’. We could be a global leader and deliver air quality, climate, and economic growth to consumers, or we can continue to delay and see other nations reap the benefits.

Making the costs add up

The capital costs of heat pumps are being driven down, aided by the energy industry’s investments in research and development, alongside Government-supported accelerator projects. Increasing uptake of heat pumps will help to bring costs down further still. More must be done to help enable consumers to transition, building demand and enabling scaled-up supply chains and unlocking private investment. Other actions can be taken alongside addressing up front cost of these assets, for example addressing policy costs on electricity bills that increase costs and create an unlevel playing field for electric heating.

• Maximising the impact of existing Government grant schemes, in particular the Boiler Upgrade Scheme and Social Housing Decarbonisation Fund, will help raise consumer awareness and support the development of a long-term pipeline to provide confidence to the supply chain.
• Progressing the Government’s commitment in the British Energy Security Strategy to ‘reviewing costs on energy bills’ will help to ensure that consumers on electric systems do not pay disproportionately more for their heat than those on natural gas boilers.

A compelling customer narrative

Energy companies are ambitious in developing new products and services that help their customers access the benefits of low-carbon homes and buildings. The UK Government also has an important role to play in engaging with consumers about the transition to Net Zero. This consists not only of providing accessible information to consumers, but also in adopting a joined-up policy framework that works together to promote the uptake of low-carbon heating technologies.

• Information on Gov.UK about energy efficiency measures and spend-to-save options should be expanded by connecting consumers to local information providers and accredited installers that will convert consumer interest into tangible action on improving homes and buildings.
• Making EPCs fit for purpose by updating the methodology used to calculate efficiency ratings, and ensuring that the information they provide supports basic comparison between the energy performance and consumption of different buildings.
• Legislating for the phase-out date of the installation of natural gas boilers beyond 2035 to turn this ambition into a clear signal to the supply chain and consumers.
• Relaxing restrictions on the installation of air source heat pumps within permitted development rights in England to reflect modern unit sizes and noise levels will remove disproportionate barriers to heat pumps and reduce administrative burden on local authority planning departments.

Being part of something bigger

The transition to low-carbon heating is connected to broader themes of how the industry will balance a net zero power grid through increasing system flexibility, through delivering digitalisation of the whole system, and through defining the future of the energy retail market and electricity market arrangements. Supporting consumers to switch to low carbon technologies like heat pumps will help them access the benefits of that smart, optimised and flexible energy system, making the transition to net zero as cost-effective for consumers as possible, but also forging a new kind of supplier-customer relationship that evolves the way that consumers interact with energy. Government should work with industry to build the foundations for a transition to low-carbon heat that aligns with and supports the broader transition to a Net Zero power system in the 2030s.

• Guidance on smart meter installations should be brought into Building Regulations such that all new homes built under the Future Homes Standard have a smart meter installed from the outset.
• The energy industry will continue to work with Distribution Network Operators (DNOs) and their representatives to support the development of a streamlined, digitised, and automated process for connecting low-carbon technologies to low-voltage networks, and with the transmission network to support anticipatory network reinforcements.