UK heat pump maths doesn't add up
Almost a third of the UK’s carbon emissions come from heating. The emissions from keeping our homes toasty in our mild winters are about the same as from petrol and diesel cars. Whereas electric vehicle investment has taken off to decarbonise transport, progress to clean up heating has been painfully slow, with only 9% of homes using electric-only heating. Heat pumps offer a tantalising and brain-bendingly efficient solution to the problem, but they’re not taking off. One in six new car registrations were electric last month, versus just 0.2% of homes installing heat pumps last year.
Heat pumps are touted as the saviour to reduce heating emissions because they run on electricity. Their efficiency is mind-boggling. For every unit of electrical energy used to power the heat pump, 2-3 units of heat energy come out, summoning heat from the air outside through engineering wizardry. This means that for the average British household, energy consumption for heat could fall from c. 11,700 kWh per year using gas boilers to c. 3,500 kWh using a heat pump at 300% efficiency. Yet this decrease in energy consumption may not make a household better off.
Firstly, heat pumps are costly, ranging from £2,400 up to £34,000 to install. The type of heat pump, as well as the size of dwelling and complexity of the installation, drive the variation in cost. The British government is tackling affordability with innovation investments and installation subsidies of up to £7,500. Investors are excited about the possibility of leasing these heating solutions to generate recurring, predictable revenues. Both these financing supports bring down the up-front investment of a heat pump, but it’s not clear the investment will actually save any money.
Because of how gas and electricity are priced in the UK, energy costs may not reduce for the average household, even with the best-case energy efficiency scenarios. Per unit, electricity prices are over four times higher than gas, which erases the benefit from efficiency gains. By my (simple) math, a 300% efficiency boiler costs over £150 more per year than a 90% efficiency boiler, for the average household’s heating bill. More detailed savings estimates provided by comparison websites vary wildly, making this a confusing investment. This cost rise is 0.5% of median UK household income, before considering the annualised cost of the capital investment.
The potential for savings decreases further if the house is poorly insulated, like many UK homes, as the heat pump will not operate at its maximum efficiency. An Energy Savings Trust trial suggested that heat pump energy efficiency drops to 200-220% outside of lab conditions.
One reason for the energy price disconnect, aside from lower operational cost, is that the UK taxes electricity generators for the carbon they produce. This is material given that 33% of the grid still runs on fossil fuels as of 2023, even though carbon prices have declined in recent months due in part to allowing electricity generators to emit more carbon.
The same taxes do not apply to gas. If these were added at a rate of £64.90/tonne, the government’s carbon emissions penalty rate from December 2023, gas bills would increase by c. £140 per year.
Another way households could make up the price difference is if they can disconnect from gas connections altogether by shifting all cooking, space and water heating to electric. This would save £115 per year in standing charges, the cost of simply having the option to turn on the gas stove or heat.
It’s not obvious to me that a heat pump makes sense for the average cost-conscious British household without significant supports or reforms that impact annual running costs. The government has so far targeted their support to reducing installation costs or improving efficiency through innovation, which does help. Indeed, almost 40,000 heat pumps were installed in 2023, a record year. But even if the capital cost could be reduced to zero, households are potentially signing up to pay higher monthly bills for the next twenty years, without any predictability.
The government could tax gas like they do electricity, offer annual subsidies or guarantees for operational costs, and additionally support the installation of electric cooking such that households can completely disconnect from gas. The government could also continue to fund innovation to increase efficiency, and expand insulation subsidies to make more homes energy efficient. Or, they could simply ban people from installing new gas boilers to force the switch, as was previously planned for next year but now pushed to 2035. Transitioning to cleaner heating will not happen fast enough unless it makes economic sense, or people are forced. Making it cheaper for Britons to use clean energy is probably the more appealing option for voters.