North Sea: government go-slow on heat pumps could see UK hand over £9bn for foreign gas

A less ambitious ‘heat pump mechanism’ requiring manufacturers to supply heat pumps and allowing gas connections to new homes could see the UK buying an additional 200TWh of foreign gas, from countries such as Qatar, between 2024 and 2035. This is the equivalent of over 16m homes annual gas use or the gas contained within over 200 LNG tankers.

The analysis from the Energy and Climate Intelligence Unit (ECIU) estimates that by 2035, the cost of these extra gas imports for heating could reach over £9bn, according to current predictions that show gas prices will remain at 2-3 times pre-energy crisis levels for the rest of the decade [1].

Lower imports while the North Sea declines can be achieved by accelerating the rollout of renewables, making homes more energy efficient and fitting low carbon heating, the analysis shows.

Commenting on the analysis, Jess Ralston,EnergyAnalystat the Energy and Climate Intelligence Unit (ECIU), said:“Those calling to slow down the production of heat pumps are essentially locking the UK into greater foreign gas dependence and the kind of price volatility that we’ve seen over the past year. This worked out really badly for UK bill payers. British renewables like offshore wind in the North Sea have a lower carbon footprint than gas, whether that be from the North Sea oil and gas companies that sell to the highest bidder, or gas from abroad.

“The Government faces a choice; continue subsidising oil and gas, and leave households exposed to volatile gas prices, or direct investment through bold policy into renewables instead.

“Electric heat pumps sales are booming in Europe and the US, who are dubbing them ‘freedom pumps’ in the light of Russia’s interference in the international gas market. Households with ‘hydrogen ready’ gas boilers are at risk of being left with a stranded asset as hydrogen may never be pumped into the grid at scale. Every heat pump we install means less gas needs to be bought from places like Qatar, with the income going to renewables on British soil or seabed instead.”

Taking the oil and gas industry’s estimates about supply from the North Sea into account, the research also found that imports could be around 40TWh (c.10%) higher than predicted in 2035, should the UK choose to allow new homes to have a gas grid connection and the less ambitious market mechanism for gas boiler manufacturers. The extra imports could come at a cost of £500million in 2030, rising to £1.3bn in 2035.

However, the costs of gas to individual households could be even more significant as new, cheaper renewables come online to replace gas in electricity generation. For example, a new build home that is built in the next few years with a gas boiler could expect to spend around £3,500 more on gas by 2035 than a new home with an electric heat pump, and an existing home that continues to use a gas boiler could spend around £4,000 on gas by 2035. Foreign gas companies would benefit from the bulk of this (£3,000), as the North Sea continues to decline and imports rise in the 2020s and 2030s.

The Future Homes Standard, due to come into force in 2025, initially promised that new homes will be fitted with ‘low carbon heating’ [2]. However, despite a commitment to consult on the specifics in ‘Spring 2023’, the Government has not yet confirmed its position on whether new homes will be allowed to be connected to the gas grid. If new gas grid connections are allowed, then housebuilders may choose to fit ‘hydrogen ready’ boilers, which are gas boilers until, and if, hydrogen is ever pumped into the gas grid at scale. In addition, hydrogen is expected to continue being made from natural gas in the short to medium term, which could increase the UK’s dependency on gas further.

The clean heat market mechanism will require fossil fuel boiler manufacturers to sell a set proportion of heat pumps from 2024, with the proportion rising every year [3]. However, the Government’s preferred option is no more ambitious than current heat pump sales, whereas the more ambitious option being consulted could deliver more heat pumps and so more gas savings. The market mechanism aims to create a mass market for heat pumps, as it is a nascent industry in the UK today, despite over 20 million being installed across Europe [4].

Octopus Energy and British Gas have recently announced that they will reduce the costs of fully installed heat pumps, including the Boiler Upgrade Scheme grant, to as low as £2,500 and £2,999 respectively [5]. British Gas will also offer a money back guarantee. Currently, heat pump manufacturing sites in the UK include those in Cornwall, Derbyshire, Northern Ireland and Scotland [6].

Almost two-thirds of households in Norway have heat pumps, and a recent UK Government study showed that heat pumps are highly efficient, typically 3x more efficient than gas boilers, in the UK even down to -6C [7]. An earlier study also found that “There is no property type or architectural era that is unsuitable for a heat pump”, “from Victorian mid-terraces to pre-WWII semis and a 1960s block of flats”. [8]

Potentially as a result of soaring gas bills and a push for energy independence, globally heat pumps have been tipped as a major technology for reducing reliance on Russian gas and an area of economic growth. Both the EU and US have backed heat pumps in their Inflation Reduction and Net Zero Industry Acts respectively [9].

Previous ECIU analysis has shown that as the North Sea continues to decline, gas imports from foreign countries will rise unless gas use is cut across the economy, including for heating, electricity generation and industry. A household with a gas boiler and standard electricity demand could pay as much as £5,700 to foreign gas companies by 2035, including £140 per year to Qatar [10].