Energy UK Explains: The Clean Heat Market Mechanism

Heating homes and cutting energy bills

Updated April 2025

What is the Clean Heat Market Mechanism?

• The CHMM is a Government initiative to incentivise investment in heat pump supply chains.
• The policy requires heat appliance manufacturers to sell (or purchase credits for) an increasing number of heat pumps as a percentage of boiler sales going into existing homes each year. The Government has set the 2025/26 target at 6% of relevant boiler sales and a £500 payment would be required for any missed heat pump sales.[1]
• Alongside the Boiler Upgrade Scheme (BUS) providing grants for consumers to purchase heat pumps, the CHMM gives businesses the certainty to invest and expand at a sustainable rate, while developing their supply chains. It will support more customers to switch to a heat pump as economies of scale help to reduce costs.
• Many boiler manufacturers already sell heat pumps, and with significant grants available and rising consumer interest, Energy UK analysis does not expect a financial impact on those manufacturers until at least 2026.
• Flexibilities in the CHMM allow obligated manufacturers to carry forward up to 35% of the annual target from one year to the next, giving them more time to adjust their business operations where needed. Obligated manufacturers can acquire credits from other manufacturers to supplement credits they earn from their heat pump sales.[2]

Why is it important that we decarbonise our buildings?

• Heat from households represents around 17% of the UK’s emissions and our housing stock is currently the oldest and draughtiest in Western Europe.[3] As a consequence of this, homes’ energy demand is significant and bills are higher than they would be if greater energy efficiency measures, including heat pumps, were installed. Heat pumps are 300-400% efficient, meaning they convert one unit of electricity into 3-4 units of heat (compared to the newest gas boilers, which convert one unit of gas into just under one unit of heat (94% efficiency)).[4]
• Incentivising a change to a heat pump will help protect UK customers from international gas prices, reduce the UK’s dependence on gas imports and increase the use of our own clean energy.
• The world is moving towards low-carbon energy and the UK has the potential to be a global leader, resulting in economic growth, job creation, and export potential.

How are customers being supported?

• Heat pumps are currently available with grant funding via the Energy Company Obligation (ECO) and Boiler Upgrade Scheme (BUS). Additionally, many energy suppliers offer further help around installation, and can apply for grants and funding on customers’ behalf.
• Between April 2022 and February 2025, more than 33,000 heat pumps have been installed through ECO4.[5]
• Up to the end of February 2025, 72,263 BUS applications have been received (for heat pumps and biomass boilers) and the scheme has paid out 46,707 vouchers to installers at a total cost of over £300 million. In the first two months of 2025 alone, there were 7,228 applications for BUS grants, two-thirds higher than the same period last year. Both January and February 2025 were ranked in the top three highest months for applications.[6]
• As part of the 2024 Autumn Budget, the Government announced that the BUS budget for 2025/26 is £295 million. The budget for future scheme years from 2026/27 onwards will be confirmed as part of the Spending Review.[7]

References

1. Clean heat market mechanism: proposal to change the scheme start date to 1 April 2025 (DESNZ, 2024)

2. Clean heat market mechanism (DESNZ, 2023)

3. Decarbonising the UK’s housing stock (Lloyds Banking Group, 2023)

4. Heat pump vs gas boiler: How do they compare? (Homebuilding & Renovating, 2024)

5. Household Energy Efficiency Statistics, headline release March 2025 (DESNZ, 2025)

6. Boiler Upgrade Scheme statistics: February 2025, (GOV.UK)

7. Autumn Budget 2024, (GOV.UK)

About Energy UK 

Energy UK is the trade association for the energy industry with over 100 members – from established FTSE 100 companies right through to new, growing suppliers, generators and service providers across energy, transport, heat and technology.  

Our members deliver nearly 80% of the UK’s power generation and over 95% of the energy supply for 28 million UK homes as well as businesses. The sector invests £13 billion annually and delivers nearly £30 billion in gross value – on top of the nearly £100 billion in economic activity through its supply chain and interaction with other sectors. The energy industry is key to delivering growth and plans to invest £100 billion over the course of this decade in new energy sources.