Heat Pumps - Financial Incentives
Governments around the world are increasingly turning their attention to heat pumps as a key technology in the transition towards more sustainable and efficient energy systems. The UK currently has approximately 412 heat pumps per 100,000 people, significantly lower than the European average of 3068 heat pumps per 100,000 people. In line with the UK's climate change targets, the government aims to install 600,000 low-carbon heat pumps annually by 2028.
The primary advantage of heat pumps is their high efficiency, often surpassing 300%, making them 3 to 4 times more efficient than traditional gas boilers. To provide perspective, while an average UK household typically consumes around 12,000 kWh of gas for heating annually, a heat pump would require only about 4,000 kWh of electricity to deliver equivalent warmth.
In the UK, heating homes accounts for 18% of greenhouse gas emissions. Transitioning from a gas boiler to a heat pump has the potential to save the average UK household over 8,000 kWh of energy annually. This change would lead to a notable decrease in carbon emissions, a trend that will continue with the integration of additional sustainable energy sources into the electricity generation mix. While such a shift represents a substantial step towards reducing our environmental impact and moving closer to sustainability, the initial financial costs and ongoing energy costs do not currently encourage this transition.
Currently in the UK, the cost of 1 kWh of electricity is nearly four times higher than that of 1 kWh of gas, with a standing charge close to double.This imbalance has limited the financial incentive for households to make the switch to heat pumps, thus hampering uptake and hindering government targets. With these targets to be met and the environmental impact in mind, questions arise regarding whether more should be done to improve the running cost incentives.
Two key levers available to boost heat pump incentives include shifting environmental levies from electricity to gas bills and introducing a discounted heat pump tariff for households, available against capped or market electricity rates.
Restructuring environmental levies to be applied to gas bills rather than electricity would create a more direct correlation between energy consumption and environmental impact. This strategic shift would incentivize households to transition to more sustainable heating options like heat pumps by making gas-based heating comparatively less attractive from a cost perspective. Moreover, it would align with broader climate goals by encouraging the reduction of carbon emissions associated with heating.
The introduction of a discounted tariff tailored for households using heat pumps would further incentivize their adoption. This tariff could be structured against capped electricity rates, ensuring stability and predictability for consumers. By offering reduced electricity rates specifically for heat pump users, households would not only benefit from lower energy bills but also contribute to reducing their carbon footprint. Such measures aim to promote the widespread adoption of heat pumps as part of the transition to a more sustainable energy future.