Department for Business, Energy & Industrial Strategy
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Plan to drive down the cost of clean heat

Plans to incentivise people to install low-carbon heating systems in a simple, fair and cheap way as they replace their old boilers over the coming decade.

  • Government sets out plan to drive down the cost of low carbon heating technologies like heat pumps, working with industry to ensure that in future they are no more expensive to buy and run for consumers as fossil fuel boilers
  • households to benefit from £5,000 government grants through £450 million Boiler Upgrade Scheme to help install low-carbon heating systems, part of more than £3.9 billion of new funding to decarbonise heat and buildings
  • £60 million innovation fund launched to make clean heat systems smaller and easier to install and cheaper to run
  • funding supports government’s confirmed ambition for all new heating systems installed in UK homes from 2035 to be low carbon

Low carbon more efficient heating systems such as heat pumps will be no more expensive – and in many cases may end up cheaper – to buy and run than gas boilers, under government plans announced yesterday (Monday 18 October).

Through the Heat and Buildings Strategy, the government has set out its plan to incentivise people to install low-carbon heating systems in a simple, fair and cheap way as they come to replace their old boilers over the coming decade. This will significantly reduce the UK’s dependency on fossil fuels and exposure to global price spikes, whilst supporting up to 240,000 jobs across the UK by 2035.

New grants of £5,000 will be available from April next year to encourage homeowners to install more efficient, low carbon heating systems – like heat pumps that do not emit carbon when used – through a new £450 million 3-year Boiler Upgrade Scheme. These grants mean people choosing to install a heat pump will pay a similar amount as if they were installing a traditional gas boiler.

The £450 million Boiler Upgrade Scheme is part of more than £3.9 billion of new funding announced yesterday by the government for decarbonising heat and buildings. This will fund the next 3 years of investment through the Social Housing Decarbonisation Fund, the Home Upgrade Grant scheme, the Boiler Upgrade Scheme and the Heat Networks Transformation Programme and reducing carbon emissions from public buildings through the Public Sector Decarbonisation Scheme.

The government and industry will also work together to help meet the aim of heat pumps costing the same to buy and run as fossil fuel boilers by 2030, with big cost reductions of between a quarter and a half by 2025 expected as the market expands and technology develops.

This will support the government’s new target for all new heating systems installed in UK homes by 2035 to be either using low-carbon technologies, such as electric heat pumps, or supporting new technologies like hydrogen-ready boilers, where we are confident we can supply clean, green fuel.

No-one will be forced to remove their existing fossil fuel boilers, with this transition of the next 14 years seeing the UK’s households gradually move away from fossil fuel boilers in an affordable, practical and fair way, enabling homeowners to easily make these green choices when the time comes to replace their old boiler.

Prime Minister Boris Johnson yesterday said:

As we clean up the way we heat our homes over the next decade, we are backing our brilliant innovators to make clean technology like heat pumps as cheap to buy and run as gas boilers – supporting thousands of green jobs.

Our new grants will help homeowners make the switch sooner, without costing them extra, so that going green is the better choice when their boiler needs an upgrade.

The Heat and Buildings Strategy sets out how we are taking ‘no-regrets’ action now, particularly on heat pumps, whilst supporting ongoing trials and other research and innovation on our future heating systems, including on hydrogen. We will make a decision on the potential role for hydrogen in heating buildings by 2026, by learning from our Hydrogen Village pilot. Heat pump technology will play a key role in all scenarios, so for those who want to install them now, we are supporting them to do so.

Business and Energy Secretary Kwasi Kwarteng yesterday said:

Recent volatile global gas prices have highlighted the need to double down on our efforts to reduce Britain’s reliance on fossil fuels and move away from gas boilers over the coming decade to protect consumers in long term.

As the technology improves and costs plummet over the next decade, we expect low carbon heating systems will become the obvious, affordable choice for consumers. Through our new grant scheme, we will ensure people are able to choose a more efficient alternative in the meantime.

Recent volatile gas prices across the world have demonstrated the need for the UK to build a secure, home-grown energy sector which supports households to reduce their reliance on fossils fuels such as using gas boilers, while protecting consumers and businesses from unforeseen price spikes.

Over the coming years, industry leaders expect electric heat pumps will cost the same as gas boilers to buy and run. UK manufacturers are already making electric heat pumps more attractive to consumers and more affordable and the government wants to incentivise consumers to make the switch as quickly as possible.

To ensure electric heat pumps will be no more expensive to run than gas boilers, ministers want to reduce the price of electricity over the next decade by shifting levies away from electricity to gas. A call for evidence is expected to be published with decisions made in 2022.

Greg Jackson, CEO and founder of Octopus Energy, yesterday said:

This Heat and Buildings Strategy will help kick-start a cheap clean heating revolution, by bringing prices down for households and allowing companies to invest in scaling up their clean heating operations. When the new scheme launches in April, Octopus Energy will install heat pumps for about the same cost as gas boilers.

Octopus has already committed £10 million investment to its research and development and training centre dedicated to the decarbonisation of heat, and has begun training engineers at the rate of 1,000 per year.

But this is just the beginning. By scaling up the technology and supply chain in Britain, innovative companies like ours will soon be able to fit and run heat pumps without any government support, bringing us one step closer to making the UK the Silicon Valley of Energy and creating thousands of clean energy jobs throughout the country.

Electric heat pumps are more efficient, safer and cleaner than gas boilers and can help make homes more comfortable with less energy. Today we’ve crossed a massive milestone in our fight against climate change and to reduce Britain’s reliance on expensive, dirty gas.

To help grow the electric heat pump market and expand British manufacturing, a new £60 million Heat Pump Ready innovation programme is being announced, part of the £1 billion Net Zero Innovation Portfolio. The scheme will provide funding to drive technological innovation which will make the systems smaller, easier to install and cheaper to run over the coming years.

Kick-starting Britain’s new heat pump industry is expected to protect and create tens of thousands of new jobs in research and development, production, supply chain and installation over the next decade.

The Heat and Buildings Strategy builds on the Prime Minister’s 10 Point Plan, which outlined how decarbonising households and workplaces could support 240,000 jobs across the sector by 2035, with many thousands more into the future in areas such as manufacturing, developing and installing new low-carbon technologies.

With heat in buildings being one of the largest sources of UK carbon emissions, accounting for 21% of the total, there is an urgent need to deliver a mix of new, low-carbon heating solutions to meet our legally-binding target to end the UK’s contribution to climate change by 2050.

Additional quotes

Chief Executive of E.ON UK Michael Lewis yesterday said:

With the right policy framework in place, we’re confident the cost of a heat pump can be reduced by up to half over the coming years. We welcome proposals in the Heat and Buildings Strategy which are designed to tackle this issue head-on, making the green option the default option. Once we have mass demand, commercial innovation in installation and economies of scale will take over to reduce costs and give customers greater confidence in what is already a tried and trusted technology for many around the world.

Chief Executive of EDF Energy UK Simone Rossi yesterday said:

Moving away from fossil fuel heating to electric heat pumps will significantly reduce the carbon footprint of our homes and could also protect consumers from future spikes in wholesale gas prices.

It’s great to see the government backing heat pumps and announcing new policies to increase demand and develop supply chains. These actions will help drive down the cost of heat pumps and enable many more households to make the switch. EDF already offer heat pumps to customers and we look forward to using our experience to help even more people transition.

Chief Executive of ScottishPower Keith Anderson yesterday said:

Decarbonising heat is our toughest challenge on the road to Net Zero. With some 23 million UK homes to be converted to low carbon heating by 2050 we need to urgently support the delivery of proven zero carbon technologies, like heat pumps. Deploying heat pumps at scale will drive costs down dramatically over time, and will create wider economic benefits by promoting the UK supply chain and new skilled jobs.

This is where the scale and ambition of the government’s Boiler Upgrade Scheme will be invaluable. Ready access to support grants will kick-start the demand for electric heating, allowing the industry to accelerate the delivery of electrification and quickly bring down upfront costs through innovation and growing the supply chain. Other policies will also be needed to address distortions in energy bill costs and create a level playing field between a heat pump and a gas boiler.

By the end of the decade, with the right policies in place, the combined initial and ongoing costs of a heat pump can be as cheap as a gas boiler.

Adrian Letts, CEO of OVO, yesterday said:

The government’s Heat and Buildings Strategy is a hugely important step forward. With the right policies in place to support households and greater deployment, we are confident that heat pump costs can reach cost parity with gas boilers by 2030. There is still a huge challenge ahead, so business and government need to work together to ensure no one is left behind in the transition to zero carbon living.

Phil Hurley, Chair of the Heat Pump Association, yesterday said:

The heat pump industry warmly welcomes these bold steps forward. The industry in the best shape it has ever been, with sales this year already double those seen ever before.

This announcement is timed perfectly to take advantage of the Heat Pump Association’s recently-launched training course, with the industry now ready to retrain the UK’s army of installers with the capacity to train up to 40,000 per year, to ensure consumers can find a suitably trained and skilled heat pump installer when they need one.

Today’s announcement will give industry and installers a huge confidence boost that now is the time to scale-up and retrain in preparation for the mass roll out of heat pumps, as well as making heat pumps as affordable as boilers, so all consumers can soon access and enjoy the benefits of affordable, reliable low carbon heating that stands the test of time.

Laura Bishop, Chair of the Ground Source Heat Pump Association, yesterday said:

The Ground Source Heat Pump Association warmly welcomes the release of the Heat and Buildings Strategy. We look forward to a consistent policy environment which will drive growth in our sector and the UK economy on the path towards achieving Net Zero.

Ground source heat pumps represent a long-term infrastructure asset which delivers unrivalled efficiencies in generating clean heat, and we hope the policy will underpin the mass market roll out we have been anticipating for some time.

Shaun Edwards, Chief Executive Officer Groupe Atlantic UK, ROI & North America, yesterday said:

Ideal Heating welcomes the publication of the Heat and Buildings strategy and the continued support from the UK government to low carbon heating systems, particularly heat pumps. As a manufacturer of multiple heating technologies including heat pumps, we feel we are in an excellent position to support our customers as the market transitions to lower carbon heating solutions.

This commitment from the UK government allows Ideal Heating to continue investment in UK heat pump R&D facilities and skills, as well as additional manufacturing capacity, ensuring we meet the specific demands of UK homes and installers whilst strengthening the local supply chain.

Notes to Editors

  • experts are clear there will need to be a mix of new, low-carbon heating solutions into the future for different property types in different parts of the country – such as electric heat pumps, heat networks and potentially hydrogen
  • at present, there are over 14,000 heat networks in the UK, providing heating and hot water to around 480,000 consumers
  • on the potential for hydrogen being used for home heating, trials are currently underway to determine the safety, feasibility, costs and benefits. The government will take decision on hydrogen’s role in heating homes by 2026.
  • the new Boiler Upgrade Scheme will run alongside other funding packages such as the Social Housing Decarbonisation Fund and Home Upgrade Grant that are helping low-income and vulnerable households with the cost of installing low-carbon measures and improving energy efficiency
  • the Heat and Building Strategy is also setting out government ambition to build on the UK’s strong track record in improving the energy performance of its homes. As homeowners switch to low-carbon heating and upgrade energy efficiency measures, they will be directly benefiting themselves by investing in their property, increasing its value and seeing reduced energy bills as well as having warmer, more comfortable homes to live in
  • the UK currently has 40% of homes receiving a band C energy rating - up from just 9% in 2008 - and the government will continue to drive improvements to poorer performing homes, in line with the government’s commitment for as many homes as possible to achieve EPC band C by 2035 where cost-effective, practical and affordable, and to ensure as many fuel poor homes as reasonably practicable achieve a band C rating by the end of 2030
  • funding support will be targeted to those who need it most through schemes such as the Social Housing Decarbonisation Fund and Home Upgrade Grant, while improvements to public sector buildings will continue to be made through the Public Sector Decarbonisation Scheme
  • we are investing £1.3 billion this year alone to support people to install energy efficiency measures and low carbon heating by allocating support across several existing government schemes, including the Green Homes Grant Local Authority Delivery Scheme, the Home Upgrade Grant and the Social Housing Decarbonisation Fund
  • the government’s Heat Network Transformation Programme will aim to continue to develop and grow the heat network market and to address some of the challenges of decarbonising the UK’s heat sector
  • the £3.9 billion of new funding for decarbonising heat and buildings from 2022 to 2025 will be broken down as follows:
    • £1.425 billion through the Public Sector Decarbonisation Scheme
    • £950 million for the Home Upgrade Grant scheme
    • £800 million for the Social Housing Decarbonisation Fund
    • £450 million for the Boiler Upgrade Scheme
    • £338 million for the Heat Network Transformation Programme
  • the government is also announcing a further £65 million funding for the Flexibility Innovation Programme which will deliver funding for a range of innovative projects that will help manage increased demands on the UK’s electricity system in a green future. Funding for this and the Heat Pump Ready programme will come from the £1 billion Net Zero Innovation Portfolio
  • the government is also launching the Heat Network Efficiency Scheme (HNES) demonstrator programme. This programme will help existing heat network projects in England and Wales ensure they are running at optimal levels to maximise carbon savings and heating services provided to households and businesses
  • there will be no single policy or technology that cuts carbon emissions to virtually zero, but a diverse mix of technology, such as heat pumps and potentially heating appliances fuelled by hydrogen, alongside green projects like heat networks, that will combine to decarbonise heat in buildings over the next 3 decades
  • on hydrogen for home heating, trials are currently underway to determine the safety, feasibility, costs and benefits. The government will take decision on hydrogen’s role in heating homes by 2026
  • at present, there are over 14,000 heat networks in the UK, providing heating and hot water to around 480,000 consumers

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Original article link: https://www.gov.uk/government/news/plan-to-drive-down-the-cost-of-clean-heat

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