Heat pumps and the Government’s Boiler Upgrade Scheme

Heat pumps are tipped to be one of the primary technologies for decarbonising heating in the UK, which accounts for around 14% of the UK’s emissions. The Government has a commitment to install 600,000 heat pumps per year by 2028, slightly below the Climate Change Committee recommended level of 1m heat pumps per year by 2030.

At a time of high gas prices, heat pumps also offer a route to making individual homes and the UK less exposed to the gas market volatility. As they run off electricity, they can help countries move away from using fossil fuels from places like Russia, which is a particular focus at the moment in light of the invasion and war in Ukraine.

The Government launched its new £450m Boiler Upgrade Scheme on 1^st April 2022. The scheme will fund grants of:

• £5,000 towards air source boilers
• £6,000 for ground source heat pumps
• £5,000 towards biomass boilers, but only in rural areas with populations of 10,000 people or less. The home must also meet high emissions standards to have a biomass boiler installed, which the government says is “to mitigate any negative impact on air quality.”.

In total the scheme is expected to fund 90,000 installations and will run until end of March 2025.

Air source heat pumps are heating systems that run off electricity, like a fridge in reverse.

Science shows us that heat naturally flows from warmer regions to cooler regions.

Heat pumps can seem counter-intuitive because they use the colder outdoors temperatures to heat up the warmer indoors, but they're still using the natural flow of heat, as follows:

1. Heat pumps take in air from outside using a fan.
2. This air passes by pipes containing a special fluid refrigerant that is very cold.
3. Because the refrigerant is so cold, the air is warmer (even when it feels cold outside to us) and naturally heats the refrigerant up.
4. As it warms, the refrigerant expands.
5. A mechanical compressor squeezes the fluid (like using a bike pump to pump up a tyre – it gets hot) to heat it further.
6. That heat is transferred to warm up water that flows through a central heating system to radiators.
7. The process starts all over again as the refrigerant transfers its heat to the water. This is because the refrigerant cools and condenses back into a liquid as it is passed through a nozzle that causes it to expand and cool further.

In fact, only a quarter of people (28%) know that gas boilers produce nitrous oxide air pollution, but once they do, four in ten (41%) say it makes them more likely to want to want to switch to an electric heat pump

The Government has set a target for heat pumps to reach cost parity with gas boilers by 2030, and Octopus Energy has confirmed that with the £5,000 grant from April, their heat pumps will be a similar price to gas boilers, which generally cost around £1,500 but can be more for larger or more specialised units.

Currently, an 8kW air source heat pump (the typical size and type for an average home) unit cost starts at £4,000, with £6,000 being the figure that is often quoted.

The Government recently announced that VAT on energy saving materials, including insulation and heat pumps, will be cut to 0% (from 20% standard rate, or 5% in certain circumstances) in a push to reduce gas demand in response to the gas crisis. This reduces the overall cost of both the materials and the labour, by 20% in most cases.

The type, age, composition and quality of a building will impact whether changes are needed, for example to insulation or pipes, to install a heat pump. However, a recent government study found that all homes in the UK, “from Victorian mid-terraces to pre-WWII semis and a 1960s block of flats”, are suitable for heat pumps.

Specifically, 17% (or 4.8m homes) are suitable for a heat pump today. Another 30% (or 8.4m) are suitable for a heat pump with minimal changes to the home, by installing measures which would lower bills in any case like loft and cavity wall insulation. Taken together, this means around half of homes in the UK are suitable for heat pumps with no or minimal upgrades to insulation.

Good fabric efficiency - having wall and loft insulation - will improve the efficiency of all types of heating systems, as less heat is being wasted, and will lower bills. This means that investing in energy efficiency is seen as a vital step towards lowering bills and carbon emissions for all homes, regardless of their heat source.

Due to the high gas price, and their 300% efficiency rate, heat pumps will be £260 cheaper to run per year than a gas boiler from April 2022.

In short, definitely yes.

Heat pumps are highly efficient at temperatures well below freezing. For example, manufacturer Viessmann states that at outdoor temperatures of:

• 8.3C - the heat pump would have efficiency of 380%,
• -8.3C - efficiency would fall slightly to 230%. This is still over 2x more efficient than gas boilers.

Proving that they do work in cold temperatures, Sweden already has 1.9 million heat pumps installed (the highest stock of heat pumps per capita in Western Europe). Finland and Norway are among the countries with the highest number of heat pump sales and proportion of homes that have a heat pump.

New polling suggests a third of adults (33%) say they would be more likely to get an electric heat pump to help insulate ourselves from Russia interfering in the gas market.

Polling also shows half (49%) of all ‘heat pump ready homes’ are interested in getting an electric heat pump – equivalent to about 7 million homes. If all these homes switched from a gas boiler to a heat pump, it would cut around 8% of current UK gas demand, and the need to import gas from Russia would be wiped out completely, two times over.

The BUS officially launched on 1^st April. But installers were only able to register with Ofgem on the 11^th April.

From the 23^rd May, the scheme will open to applications and payments. This means that systems can be installed from 1^st April, and corresponding applications and payments will be paid retrospectively from 23^rd May.

This approach has faced some criticism from the heat pump industry, as installers may be out of pocket for six weeks or so between installing heat pumps in April and being paid in May. Ofgem are in control of the scheme’s administration.

1. Homeowners approach certified installers registered with the MCS standards agency. This ensures quality installations. They are advised to get multiple quotes to check value for money.
2. The chosen installer will advise on eligibility.
3. Once a quote is agreed, the installer will apply for the grant on the homeowner’s behalf.
4. Ofgem (the energy regulator) will check with the homeowner that the installer is acting on the homeowner’s behalf.
5. The BUS voucher will be issued.

The vouchers are valid for 3 months for air source heat pumps and biomass boilers, and 6 months for ground source heat pumps. All applicants must have a valid Energy Performance Certificate, and there must be no outstanding recommendations for loft or cavity wall insulation, to ensure that the fabric efficiency of the home is a suitable level to minimise bills. However, there are some exemptions for this for those that need it.

Installing heat pumps in homes will reduce bills, improve energy security, and help the UK fight rising global carbon emissions. Analysis has found installing a heat pump in an EPC band C home would cut its gas demand by 80% (the residual is due to some of our electricity still being generated from gas, which will fall over time).

Based on a ramping up of installations towards the Government’s target of 600,000 per year by 2028, 1.5 m heat pumps could be installed before 2027, giving gas savings of 17TWh per year (about 2% of current UK gas demand). This is significant, as obviously natural gas is a potent fossil fuel and contributes to global warming.

During the war in Ukraine, countries across the world are considering how they can end fossil fuel imports from Russia, which at the moment are being used to pay for Russia’s invasion. The UK currently installs 1.7m gas boilers every year. If these boilers were switched to heat pumps instead, we would wipe out gas imports equivalent to that from Russia within 2 years.[i]

The Heat Pump Association has stated that in 2021 alone, 69,000 heat pumps were sold in the UK. This year, the Association expects that more than 170,000 will be installed.[i] This shows that more people are considering moving to heat pumps anyway – a trend that is likely to hasten as the public look to switch away from gas boilers to save money on bills and reduce the UK’s dependency on places like Russia for energy imports.

There are several heat pump manufacturers in the UK; Vaillant in Derbyshire, Mitsubishi Electric in Livingstone, Scotland, and Kensa in Cornwall. These manufacturers are likely to see an increase in demand for their products as the UK increasingly looks to switch to heat pumps.

In the UK, there are currently 140,000 gas safe engineers (gas boilers installers), who have key knowledge on heating engineering and could be easily upskilled to install heat pumps. Although there are only 3,000 heat pump engineers fully qualified in the UK at present, Octopus Energy will train 1,000 green heat engineers per year at its new £10m R&D heat pump facility. Heat Pump Association members have also confirmed they can train over 7,000 installers per year across 22 centres, spread all over the UK. This shows a rapidly growing industry base of those able to install heat pumps.

The UK is already lagging behind most European countries when it comes to heat pump installation, coming joint last for heat pump sales out of 21 nations. At the top of the ranking were Norway, Finland and Estonia. France has increasing numbers of installs at over 8.6 million in 2020, an increase of over 3.9 million since 2015.

Energy efficiency and low carbon heating scheme ‘Ma Prime Renov’ in France had 190,000 applications in 2020, and 380,000 applications by mid-2021. Similar in format and grant level to the Boiler Upgrade Scheme, the average response time to applications is just 11.5 days.

Similarly, the ‘KfW’ scheme in Germany has been running for the last 10 years and has had 600,000 applications in the year up to September 2020. It provides low interest loans (1%) to people to upgrade housing and is thought to have created 900,000 jobs in total over the decade. This highlights the importance of scheme stability and ironing out any teething issues.

In Italy, the so-called “superbonus” energy efficiency and low carbon heat scheme gives consumers back 110% of the costs of installing energy efficiency and renewable technologies. It launched in 2020 but was so popular it’s been extended to 2023, with the bonus expected to fall to 50% cost by then.

In the US, sales of heat pumps are also growing. Shipments went from 2.3m units in 2015 to 3.4m in 2020, and the heat pump market there is projected to grow by 5% every year between 2021 and 2030, from a baseline value of $13bn in 2020. This is being helped along by regulations, for example the State of Washington recently voted to require heat pumps for most new commercial and large, multi-family buildings from mid-2023.