The National Audit Office has warned that heat pump sales are below expected levels, which could risk the UK’s decarbonisation efforts.
With 18% of the UK’s greenhouse gas emissions in 2021 coming from heating homes, the UK needs to decarbonise its heating infrastructure. That’s why, in the Government’s flagship Heat and Buildings Strategy, which was first released in 2021, heat pumps were set to be a key pillar in the UK’s transition away from fossil fuels.
While heat pumps remain a key technology in the fight against climate change, the National Audit Office believes that the UK Government could be doing more to encourage their adoption – with the number of heat pumps installed over the past few years dramatically lower than what was previously expected.
When it released its Heat and Buildings Strategy, the UK Government said that it expected heat pump sales to eclipse 600,000 per year by 2028. That would require an elevenfold increase on the number of heat pumps sold in 2022 – which the Heat Pump Association puts at 55,000.
That would be a monumental task for the industry to achieve on its own, and while the UK Government has attempted to increase uptake through larger grants, the National Audit Office has argued that its efforts could go further.
In its report evaluating the progress of heat decarbonisation, the NAO requested that the UK Government increase consumer awareness of heat pump technology, while also developing mechanisms to allow for cheaper installation and lower running costs.
Government indecision and delay
During its analysis, the National Audit Office argued that some of the UK Government’s recent decisions could actually risk its own targets on heat decarbonisation. That includes some of the Government’s net zero policy announcements in September 2023, such as the delay to the phase-out of fossil fuel heating systems for off-gas-grid homes.
It was initially expected that all UK homes would need to seek low-carbon alternatives to gas and oil boilers from 2026, but now around 20% are exempt until 2035. The exemption covered homes that required energy efficiency or electrical connection upgrades, lacked space for a heat pump, or homes that were located in zones likely to be connected to a heat network.
Given the number of properties made exempt, the National Audit Office has questioned what the UK Government plans to eventually do to decarbonise those homes. In its report, it noted that the Department for Energy Security and Net Zero “is yet to determine how to decarbonise home heating in around 20% of homes that may be exempt from the 2035 phase-out of new fossil fuel boilers.”
While consultations are expected to begin this year, it appears as if the Government is kicking the can down the road in the hope that ‘future innovations’ in heat pump technology and installation practices could make these homes more suitable for a heat pump by 2035 – and if not, then the potential of liquid biofuels may come into play.
Increasing uptake of Boiler Upgrade Scheme
The UK Government is trying to increase the uptake of heat pumps, with its flagship Boiler Upgrade Scheme having funded the installation of nearly 18,900 heat pumps in England and Wales from May 2022 to December 2023. However, it’s also true that the Government has underspent on the scheme due to low demand.
The original business case budgeted for up to 50,000 installations by the end of 2023, which means the underspend was estimated to be around £100 million in the scheme’s first year. That’s what led to the increase in the grant in October 2023, which saw up to £7,500 offered for each household that wanted to adopt a heat pump.
Increasing the grant means the UK Government is now covering nearly 60% of the average cost of installing a heat pump, and has led some energy suppliers to offer installations for as little as £500. That decrease in price has also meant that the number of applications to the scheme in December 2023 increased by nearly 50% compared with December 2022, and applications in January 2024 increased by nearly 40% compared with January 2023.
Despite the promising increase, the National Audit Office is still concerned that long-term running costs may be putting people off switching. With electricity prices still higher than pre-pandemic levels, and meaning more expensive per unit than gas, the potential of higher heating bills after installing a heat pump remains a concern.
To address this, the National Audit Office has called on the UK Government to “Accelerate its work to rebalance the costs of energy, for example by moving levies and obligations from electricity to gas bills.”
Industry reaction
In response to the National Audit Office’s report on decarbonising home heating, Katrina Young, Practice Manager (Heat Policy & Local Energy) at Energy Systems Catapult, commented, “The NAO report is clear in the challenges that need to be overcome if we’re to decarbonise home heating at scale and pace. Policy support has historically been focused on reducing upfront costs associated with heat pumps and insulation. While important, other barriers – such as reducing the running costs of electrified heating compared to a gas boiler – will hold us back.
“The rebalancing of policy levies and charges on electricity and gas bills is crucial to incentivise low carbon heating technologies. All options on the table, however, have potentially unequal distributional impacts on households, and the extent to which the policy will affect the heating system choice of consumers is uncertain.
“The Electrification of Heat Demonstration Project – led by Energy Systems Catapult – found that one of the key barriers faced by consumers when getting a heat pump was the perceived disruption to their home during the installation. Improving the consumer experience is fundamental to the acceleration of heat pump installation. This includes providing clear, trusted advice and support throughout the process.
“The NAO highlights the value of Local Area Energy Plans as an approach to strategically coordinate the decarbonisation of heating. The scenario modelling can provide cost-effective whole systems plans for a local area and identify “low regret” projects that can ramp up the deployment of low carbon heating. The next step is to make sure that these plans don’t sit on a shelf, and to enable local governments to take projects forward.
“For the benefit of consumers and industry, we need to tackle the hard questions now. For instance, how do we handle the gas network during the decarbonisation of homes? Whilst any decommissioning isn’t likely to happen until the mid to late 2030s, there needs to be a coordinated and strategic plan in place to avoid unequal burden of spiralling prices on consumers remaining connected to gas.”