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The UK Heat Pump Market – Challenges and Rays of Hope

Challenges

This piece was inspired by a conference I attended recently, hosted by NESTA (National Endowment for Science, Technology and the Arts). The conference contrasted the UK’s heat pump market with that of Sweden. In doing so, it highlighted the UK’s structural challenges to wider and faster adoption of heat pumps. Here are some of the points I picked up.  Heat pumps are a critical step on our electrification journey, yet only about 1 or 2% of UK homes have them compared to about 6% in Germany, 20% in France, 45% in Sweden, and 60% in Norway. Our huge challenge is made all the more complicated by a series of structural difficulties that need surmounting. But it’s not all doom and gloom! There are reasons for optimism, which I’ll discuss towards the end of this piece. The structural challenges are mostly about the UK’s policy, infrastructure, and market readiness:

Image: an installed heat pump

 1.      The spark gap: UK electricity prices are almost four times higher than gas prices per unit of power output, making heat pumps less financially appealing than gas. This price imbalance—known as the spark gap—is a major hurdle. In France and Sweden, the gap is narrower (gas is generally half to a third of the price of electricity). Note, as a counter to this seemingly insurmountable price challenge, heat pumps are generally about three or four times more efficient than gas boilers, so they are still able to claw back much of the disadvantages brought by the gap. Yet they would perform much more compellingly were the gap reduced.
 
2.      Unbalanced energy levies: These explain part of the reason for the spark gap. The UK places heavier levies on electricity than gas. These originate from a time when renewables were expensive, but nowadays they’re cheap. Yet the old levies remain on electricity, perversely handicapping the very fuel we’re trying to promote. This choice is significantly slowing the take-up of heat pumps and electrification generally.

3.      Gas price setting the electricity price: The price consumers pay for electricity in the UK is still largely dictated by gas prices, even when renewables are hugely abundant, e.g., when it’s windy and sunny and our solar and wind turbines can supply nearly all our needs. This prevents consumers from benefiting from low-cost renewables. Were electricity prices more dynamic, consumers could buy cheap, store power (e.g., via batteries or thermal storage), and use it when prices were high. This is effectively arbitrage activity that would, in itself, reduce price volatility and reduce wasteful curtailment of renewables.
 
4.      Frequent policy changes: Unlike Sweden's consistent government policies, the UK’s frequent policy changes (remember Rishi Sunak’s “pragmatic transition”) discourage long-term investment and make it harder for the heat pump market to thrive.
 
5.      Regulatory barriers and planning delays: UK homeowners face long delays in securing planning permission for heat pump installations, in contrast to Sweden’s quicker, simpler process.
 
6.      Underdeveloped distribution networks: The UK’s local electricity distribution network is underprepared for the increased load heat pumps will place on electricity distribution. Swedish homes generally have pre-existing higher capacity ratings (many homes switched directly from resistive heating, which required higher capacity, to heat pumps). The UK network will require costly upgrades.
 
7.      Complex installations: In the UK, air-to-water heat pumps are needed for most homes given UK homes generally use radiators. This makes installations more complex and expensive compared to Sweden’s more widespread use of simpler air-to-air systems.
 
8.      Minimal infrastructure: Despite being a much larger country, the UK installs far fewer heat pumps annually than Sweden (in absolute terms). There is currently minimal infrastructure around heat pumps – supplier and installer networks need to grow and benefit from economies of scale.
 
9.      Cultural and professional resistance: In the UK, there is widespread resistance to heat pumps. Many homeowners accept myths such as them providing insufficient heat or being noisy (both untrue). Perhaps far more perniciously, very many plumbers also advise against them as a matter of course (most aren’t qualified to fit them, so there’s a cynical reason behind much of this professional scepticism). All told, this creates a barrier for consumers, unlike in Sweden and other countries where heat pump adoption is encouraged by widespread acceptance, professional training, and a positive discourse.
 
10.  Lack of incentives for low-income households: The UK has not yet implemented a comprehensive strategy to use carbon tax revenues to support heat pump adoption for low-income households. In particular, this is needed when the spark gap is so high. This leaves vulnerable groups unable to access the benefits of heat pumps.
 

Some rays of hope

Despite all this gloom, there are some positives. Our data from the Home Electrification Tracker Survey (HETS) 2023/24 shows some nascent interest. Familiarity with heat pumps is growing in the UK, and quite rapidly, quarter on quarter. Over the last 5 quarters, familiarity in France and Germany has been stable, with around 47% of homeowners being familiar. But in the UK, although starting at a lower base, it’s growing faster, from 28% to 35% of homeowners in just over the last year and a quarter of tracking. And this has fed across into interest in owning a heat pump, with very similar increases in the numbers of homeowners expressing an interest in a heat pump for their next heating system. Installations are growing too. They’ve risen from 25,000 in 2019 to 60,000 in 2023. And the number of qualified installers has risen from around 3,000 in 2022 to nearly 8,000 in 2023 and probably nearly 9,000 in 2024. The UK Government is offering one of the most generous grants in Europe to help with installation costs (up to £7,500), and there is a strong and clear appreciation of their environmental benefits. New providers such as Octopus and Aira are entering the market and are, or will be, promoting heat pump offerings quite aggressively. Banks such as Barclays are building and promoting green loans businesses, making financing of a new heat pump more straightforward for homeowners. Finally—and quite importantly—there’s more data available. On the sales side, organizations such as Ambient are collecting data, and on the demand side, our HETS offering is building a huge resource of multi-country, comparative, time-series data on homeowner opinions, providing a better understanding of homeowner decision-making, tracking what encourages or impedes faster adoption of heat pumps and other home electrification technologies.

See https://www.electrifyresearch.co.uk/ for more info on HETS / Electrify Research
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