How Healthy is the Heat Pump Market Today?

Heating our homes and businesses is still one of the most challenging areas of the UK energy system to be decarbonised. Many avenues are being researched, including deeper levels of energy efficiency, broad-scale electrification, low-carbon heat networks and the development of hydrogen as a new heating fuel.

Latest industry analysis has revealedthat in 2018 the heat pump market grew by over 20% in units delivered compared to 2017. This growth is great news for the heat pump industry, as well as the environment, since heat pumps make considerable carbon savings when compared to traditional fossil fuel alternatives. It is also indicative of the times we live in, as more customers are switching away from fossil fuel boilers and installing energy efficient heat pumps in their homes.

A near-term, low carbon solution for heating our homes could be to electrify the provision of domestic heat through heat pumps, allied with heat storage technologies. The big question that needs to be addressed is whether it is workable to roll out heat pumps in large numbers and more pertinently whether heat pumps will be able to replace gas boilers in a decarbonised future.

Heat pumps are an excellent choice for housebuilders. Because heat pumps make significant reductions to the carbon dioxide emissions for a property, considerable improvements will be created in the EPC (energy performance certificate) ratings for the property. This not only helps with building regulations compliance but also potential homebuyers who are becoming increasingly discerning about the choices they make with heating and hot water in the property. Traditional oil and LPG boilers are being seen more and more as unattractive propositions.

Furthermore, the Government plans to ban boilers in new build homes by 2025 so it would be wise to get started sooner rather than later.

Heat pumps are the leading low-carbon option for buildings not connected to the gas grid. The number of installed heat pumps in the UK is projected to rise from 150,000 in 2018 to between four and six million by 2035. However, the rate of heat pump installations so far has been very slow, achieving an average of only 18,000 installations each year since the start of the Renewable Heat Incentive (RHI) in 2011.

The Domestic RHI provides financial incentives to owners of domestic properties who install renewable heating technologies such as ground source heat pumps and solar thermal on their premises. These payment amounts are determined by the amount of renewable heat generated by the household, and the current tariff rates.

Advanced technologies such as dual-source heat pumps, are expected to offer growth opportunities to the market. Dual source heat pump systems consist of a main cold source heat pump that is supported by an additional heat source. There are two options available that have been studied in detail, air source heat pumps combined with solar collectors and ground source heat pumps coupled with solar collectors.

Regen’s (a not-for-profit centre of energy expertise and market insight) recent analysis shows that up until now that domestic heat pumps have generally been installed in new-build properties, social housing developments or properties that are not connected to the gas network. Heat pumps have proved to be attractive in these cases because they are either replacing more expensive heating solutions such as oil, LPG or direct electricity or in the case of new developments or multiple-occupancy buildings there are benefits from reduced installation costs. 

Currently, while the carbon savings are significant in replacing a gas central heating system with a standard heat pump system there is only limited financial value in doing so. The main problem here is the higher price of electricity compared to gas. With the present costs involved there are no energy bill savings for on-gas houses meaning the total value generated is, therefore, the difference between the RHI income and the capital cost of installing a heat pump system.

There are however certain conditions that would improve the case for installing a heat pump in an ‘on-gas’ house. An ideal time to install a heat pump is when your boiler needs replacing to avoid the boiler replacement cost. If your property has a suitable outside area available horizontal ground loops could be used to reduce groundwork costs. Cost per customer could also be lowered if you are able to use a shared water or ground loop that connects a series of heat pumps. Other options include connecting to a heat network that supplies waste heat at a cheaper rate (city-wide heat networks are under construction in Bristol) or purchasing heat pumps in bulk to achieve economies of scale. If you can combine all these options installing a heat pump could become much more attractive though not all homes will be suitable.

If you are considering installing a heat pump in an electrically heated home the value will vary depending on your heat demand. Greater demand will mean greater bill savings, more RHI income and importantly more carbon emissions avoided. If you have a small electrically heated flat with a lower heat demand a small 3 KW Ground source heat pump connected to a shared ground loop can be used which will work out cheaper to install and maintain.

In the current market making a case for heat pump installations in on-gas properties is very difficult due to the comparatively low price of gas. It is however encouraging to see that there are strong financial inducements for installing heat pumps in many off-gas and new-build properties.

Around 87% of UK homes are connected to the gas grid which makes it a major challenge to decarbonise domestic heat. If heat pumps are to play a major part in reducing our carbon emissions, there will need to be cost reductions in addition to continued support through the RHI or a similar scheme post 2021. Many of the opportunities for cost-reduction could be delivered by an energy service company offering a supply, installation and service package over the lifetime of the asset.

The heat pump market is still in its infancy but there is scope for manufacturing, installation and maintenance processes to be optimised and as a result less costly in the future.