High Costs Putting People Off Heat Pumps: Watchdog

An engineer checks the installation of a Daikin 7KW heat pump on a model house within the Octopus Energy training facility in Slough, England, on Nov. 2, 2021. Leon Neal/Getty Images

Uptake of heat pumps has been less than half that predicted under the government’s grant scheme, with high costs and low consumer awareness to blame, the independent public spending watchdog has said.

The National Audit Office’s (NAO’s) report on decarbonising home heating published on Monday found that under the government’s Boiler Upgrade Scheme, just 18,900 heat pumps were installed in England and Wales between May 2022 and December 2023.

The Department for Energy Security and Net Zero (DESNZ) had expected the scheme would see 50,000 households convert their gas boilers to heat pumps by that point.

In October, the government announced that grants for installing air or ground source heat pumps would increase from £5,000 and £6,000, respectively, to £7,500.

Heat pumps work by taking in heat at a low temperature from the ground or air and increasing it to a higher temperature before transferring the heat into homes for hot water and heating rooms.

The government sees domestic heat pump installation as a key technology for achieving net zero emissions, setting itself a target of 600,000 installations per year by 2028, up from 55,000 sales in 2022. The expectation is that this rate would increase by up to 1.6 million a year by 2035.

Expectations from government to see this eleven-fold increase in heat pump installations in the next four years have been branded “optimistic” by the NAO.

Costs ‘Key Factor’ Affecting Demand

The NAO said costs associated with installation and running a heat pump system were a “key factor” affecting demand.

The report stated that the average market rate for replacing a gas boiler with a heat pump was around “four times higher than replacing like-for-like,” citing the average cost of heat pump installation last year as £11,287.

While that is a 6 percent fall on 2021, the watchdog said that installation costs would have to decrease “around three times faster over the next two years if they are to reach the minimum 25% reduction ambition.”

Pressures on the global supply chain, such as the shortage of semiconductors, and high energy prices increasing the cost of manufacturing were highlighted by DESNZ as reasons for costs having not fallen more.

Which? magazine quotes the Energy Saving Trust as estimating a ground-source system can cost between £14,000 and £19,000 to install, while the more common air pump can cost between £7,000 and £13,000.

The NAO report highlighted high running costs being a factor, noting that the government delayed plans to “rebalance energy prices” by nearly two years.

“Electricity remains more expensive per unit than gas, making heat pumps potentially more expensive to run than a gas boiler,” the report said.

Rebalancing gas and energy prices would involve shifting green and energy levies and obligations from electricity to gas bills.

A heat pump stands outside a property as part of a green housing project retrofitted by Kirklees Council, in Huddersfield, England, on March 16, 2022. Ian Forsyth/Getty Images

Public Awareness

The independent public spending watchdog also noted that 30 percent of the public said in a summer 2023 survey they had never heard of, or knew hardly anything about, changes needed to how buildings are heated in order for the government to meet its net zero requirements.

A further 31 percent knew “a little” about it, 28 percent knew “a fair amount,” while just 11 percent knew “a lot.”

Gareth Davies, head of the NAO said: “Government needs to engage every household to achieve its objective to decarbonise home heating as part of the transition to net zero.

“DESNZ’s progress in making households aware and encouraging them to switch to low-carbon alternatives has been slower than expected.”

While applications for the Boiler Upgrade Scheme had increased by nearly 40 percent in January 2024 compared with January 2023, the NAO said that “more data is required to determine whether the change is sustained.”

Need to Be Realistic About Consumer Demand

Responding to the report, Chairwoman of the Parliamentary Public Accounts Committee Meg Hillier said, “DESNZ need to be realistic about levels of consumer demand, raise public awareness of heat pumps and work with industry to make heat pumps more affordable for households.”

The Climate Change Committee, an independent public body, estimates the government will need to invest an additional £162 billion from 2020 to 2050 to install low-carbon heating in existing households.

A DESNZ spokesperson said, “By helping rather than forcing families to install heat pumps, with a 50% bigger heat pump grant, we have boosted applications by nearly 40%.”

The spokesperson added that the government’s “Welcome Home to Energy Efficiency campaign is running on TV, radio and newspapers, reaching 16.6 million households with advice and information about how heat pumps, insulation and solar panels can cut their emissions and energy bills.”

Rules Pushing Heat Pump Sales Delayed

Last week, the government delayed requirements on boiler companies to increase the number of heat pumps they sell to April 2025.

The Clean Heat Market Mechanism had required manufacturers to match or substitute 4 percent of their natural gas boiler sales with heat pumps or face a £3,000 penalty for each missed installation.

The measures, originally due to be introduced on April 1, had resulted in manufacturers increasing prices on boilers by as much as £120—dubbed the “boiler tax”—to cover the costs of the potential fines.

The government also dropped a requirement for households to have installed loft and cavity wall insulation in order to qualify for the £7,500 heat pump grant.

Gas Engineers Reluctant to Retrain

In February, MPs heard that gas engineers are reluctant to retrain as heat pump installers because current gas engineering work is more stable and there was not currently the “market pull” encouraging the transition.

Mark Crowther, a fellow at the Institution of Gas Engineers and Managers, told the Energy Security and Net Zero Committee that in his experience, engineers were also reluctant to move into working with heat pumps because they are considered “high risk,” not only in terms of the “complexity of heat pumps installation,” but over fear of callbacks to properties for malfunctioning systems.

“They’re frightened of their Trustpilot ratings,“ Mr. Crowther said, ”It’s just a high risk. Why would you try to push a heat pump when you can make good money banging out condensing boilers?”

PA Media contributed to this report.