Green Heating Credit could overcome heat pump running cost differential

A Green Heating Credit could help to bridge the gap in running costs between heat pumps and gas boilers, Baxi has proposed. A new White Paper by the manufacturer, Affordable Low Carbon Heat, has found that the average annual cost of operating a heat pump is £236 more per year than a gas boiler.

With the government targeting 600,000 heat pumps installations a year by 2028, the paper sets out that ongoing higher running costs will be an obstacle to progress towards low-carbon heat in the UK.

The affordability gap in running costs for heat pumps is largely because of a 25.5 per cent environmental levy on electricity. Heat pumps use electricity and so pay higher environmental taxes even though they are a low-carbon source of heat.

The paper proposes that the government should pay a £250 a year Green Heating Credit for heat pump owners, which would refund the extra levy paid on electricity. The government has already announced a Clean Heat Grant that will support householders with up to £4,000 towards the installation of a heat pump from May 2022 but ongoing running costs remain the issue, says Baxi.

Baxi UK & Ireland managing director Karen Boswell said at a round-table event launching the paper: “Affordability is the most important question facing the industry. The report models the affordability of low-carbon heating against traditional methods. Heat pumps provide a good solution but higher running costs could reduce their popularity.”

The main findings of the report’s modelling averaged across four different types of housing are:
• The average annual running cost of a low-carbon air source heat pump remains £236 more than a gas boiler
• Air source heat pumps are typically £282 a year cheaper to run than the oil boilers typically used in off-grid homes
• Initial installation costs average £7,060 for an air source heat pump compared with £1,500 for a gas boiler and £3,350 for an oil boiler.

Baxi research also shows just how important affordability is to customers. Saving money was seen as the most attractive reason for switching to a heat pump (by 66 per cent of respondents). The survey found that a Green Heating Credit of £250 a year would increase interest in a heat pump for three-quarters of surveyed consumers. The prospect of higher running costs is a disincentive for 40 per cent.

Karen added: “Heat pumps could play their part as we decarbonise the nation’s heating but we need to bridge this affordability gap. A Green Heating Credit would be fairer to heat pump users who are investing in decarbonising their heating and it is fair to consumers using traditional forms of heating as it won’t affect their heating bills.

“It also leaves room for alternative low-carbon heating technologies such as hydrogen to emerge.”

Matthew Aylott, who is leading the government’s Electrification of Heat project, said at the report’s launch that the forthcoming Heat and Buildings Strategy – which is likely to be published shortly – would set out the government’s actions over the next decade. It’s likely to include targeted regulation, market-based incentives and public involvement to support the deployment of heat pumps. The government would consult on regulation and incentives following the publication of the report, he said.