he New Year brings with it weighty expectations for heat pumps from government. The bulk of these plans were outlined in the Heat and Buildings Strategy, released in November last year. According to the strategy, the government has ambitions to see a stark increase in installations over 2022.

But what are these ambitions, how does the government propose to achieve them, and what does this mean for the industry?

Price drops

Firstly, government promises price reductions for heat pump installations from 20% to 50% by 2025, with cost parity with boiler installation to be reached by 2030.

When questioned about the basis on which these estimates were derived, the response from the Department of Business, Energy & Industrial Strategy (BEIS) was ‘consultation with the industry’.

However, as one of the leading players in the industry, I can confirm that while we have been asked, we could not foresee any great cost reductions to be made in the product itself.

As I recall, such a price drop was cited by one of the energy suppliers. They then slightly changed the message late in 2021 to state that cost parity would be reached if combined with the government grant of £5,000. 

Previously the claim was made without mention of the forthcoming £5,000 grant, which begs the question, what happens to heat pumps installed without the £5,000 grant? 

Insufficient grants

The government grant BEIS refers to will only fund 30,000 installations per year for three years. So, will those installations which fall outside of this bracket simply be £5,000 more expensive?

Furthermore, a market mechanism proposal within the strategy is suggesting that boiler manufacturers must sell a quota of heat pumps as well as, or perhaps instead of, boilers. One of the sales figures targets we have seen stated that the total amount of heat pumps sold this way starts at 30,000 installations annually from 2024, increasing to 210,000 in 2028, all of which appear to sit outside, or in addition to, the £5,000 boiler upgrade grant.

This means that boiler manufacturers will need to sell more units than the grant-assisted units at a price which is £5,000 more expensive. This is a highly ambitious, if not impossible, target to achieve.

Out of our control

Moreover, it appears that the Heat and Buildings Strategy expresses the ambition to see 600,000 heat pumps being installed annually by 2028, but with no proposed policy or legislation in place for existing homes, this responsibility appears to have been passed over to boiler manufacturers.

The heat pump itself is at best 50% of the total cost; it is the installation costs, remedial work, and components needed to upgrade the heating system and home which see prices grow most significantly and most commonly for homeowners.

How are boiler manufacturers expected to sell their quota of heat pumps to meet the market mechanism targets without grant funding creating a market demand or legislation, or policy changes making it happen?

It is clear the market for heat pumps has remained relatively low, with not much organic growth taking place over several years, even though most boiler manufacturers have offered them for some time.

If, after several years of trying to increase sales, with assistance from incentives such as the Green Deal and Renewable Heat Incentive, there has been no significant rise, what makes the government believe that this will change under the market mechanism with no incentives proposed to create the market?

Higher costs

As mentioned, a main barrier to heat pump installation price parity with boilers is cost of installation, remedial work, and the components to upgrade the system. Despite this, BEIS states that it sees the bulk of the 25% to 50% cost reduction coming from installation costs, not the heat pump. How, I ask, is this possible?

The components and sundries, such as radiators, pipework, and fittings, are produced in hundreds of millions, and are already very cost competitive. 

On top of this, heat pump installation is more labour intensive than a boiler replacement, and many properties will need to install a hot water storage cylinder where there presently may not be one or even the space to locate one. It is possible that many homes will also need changes to the radiators and pipework.

What about installation? The average boiler replacement takes one, perhaps two days. In comparison, a heat pump installation could be two or three times longer, depending on the amount of work needed to get the house and the heating system at optimal performance.

How can government conclude that heat pump installation costs will reach parity with a boiler by 2030 when the job itself takes this much longer?

Market mechanism chaos

It is also important to remember that most boiler installations, particularly in Q1 and Q4, are unplanned, distress installations.

Therefore, how will manufacturers convince a homeowner to opt for a heat pump when current OFGEM and MCS requirements lead to an EPC evaluation and mandatory insulation upgrades before the heat pump is installed?

This would mean asking the homeowner to live without heating or hot water until their home is fit for heat pump installation, a process which could take months. People just won’t accept that.

Installer-centric

Even if such a feat of persuasion was possible, we must reiterate that the homeowner is not the customer of the manufacturer, but of the installer.

Despite responsibility being placed with manufacturers, it is the installer who decides the specification of the heating appliance at least 70% of the time, even more so in winter.

And the likelihood of an installer being willing to install a heat pump at the same price as a boiler by the end of the decade is, at best, unrealistic.

Overall, government ought to reconsider how a heat pump price drop might be possible to achieve uptake targets, because those currently in place will not be effective in achieving decarbonisation targets.