Guidance

Energy Security Bill factsheet: Low-carbon heat scheme

Updated 1 September 2023

Nearly half the fossil fuel gas consumed in the UK each year goes on heating. Electric heat pumps use electricity rather than burning gas or oil. They are also highly efficient and consume around a third of the energy of a gas boiler for the same heat output. Accelerating the transition to heat pumps therefore has a key role to play in reducing our reliance on volatile global gas markets.

Why are we legislating?

As the Government’s Heat and Buildings Strategy set out, heat in buildings accounts for around 25% of greenhouse gas emissions. Our heating needs to be almost fully decarbonised as we transition to a net zero economy.

Moreover, since nearly half of the fossil fuel gas consumed by the UK each year goes on heating, accelerating the transition to ultra-efficient electric heat pumps has a key role to play in reducing the country’s reliance on volatile global gas markets. Heat pumps are highly efficient electric appliances that transfer and intensify heat from the outside air or ground into a building. They can produce around three units of heat for every unit of electricity they use and so significantly reduce a property’s energy demand when replacing technologies such as fossil fuel boilers. And as a higher proportion of the UK’s electricity generation mix comes from renewable sources each year, electric heat pumps become even greener and further contribute to our energy security.

The Prime Minister’s Ten-Point Plan therefore established an ambition to grow the market in heat pumps to 600,000 installations per year by 2028. The Bill will enable the introduction of a new Low-Carbon Heat Scheme to help achieve this, building on policies already helping to kickstart the heat pump industry, such as the Boiler Upgrade Scheme.

How the Bill will achieve this

The Bill enables the introduction of a new Low-Carbon Heat Scheme. This scheme would be similar to those that have helped give businesses the clarity and confidence to invest in other important emerging supply chains – for example, in low emissions vehicles and renewable electricity generation.

Under initial plans set out in a recent Government response to consultation, the new scheme, when introduced by subsequent secondary legislation, will place an obligation on the manufacturers of fossil fuel heating appliances to meet a rising standard for low-carbon heat pump sales as a proportion of their total appliance sales. Manufacturers will be able to meet the new standard either through sales of their own heat pumps, or by purchasing credits from other heat pump manufacturers, or a mix of both.

As a result, the scheme will provide industry with a policy framework to invest in ways to make heat pumps a more attractive and simpler choice for a growing number of UK households. This will help to build the heat pump supply chain to the minimum scale needed by the end of the decade, while keeping the choice with consumers.

FAQ

Why is a scheme like this needed?

The Government has set out its ambition to support the growth of the heat pump market to around 600,000 installation per year by 2028. This presents clear opportunities for businesses throughout the supply chain to innovate to support consumers in that transition to low-carbon heat.

However, in order to have the strategic confidence to invest in bringing forward the products, services and new business models to seize those opportunities and scale the market, industry needs a clear policy framework of aligned incentives. The role of market-wide mechanisms like this is to provide that.

How will consumers benefit from a scheme focussed on industry?

With companies having a clear incentive framework to invest in supporting more UK consumers to make the switch to a heat pump, consumers will benefit from a thriving competitive market in which a growing range of products and services are offered to suit an increasingly diverse set of consumers and buildings so that more and more households can decarbonise their home.

Aren’t heat pumps more expensive to buy and run than gas boilers?

With this scheme when it is introduced from 2024 and other existing and forthcoming policies, the Government is confident that the installed cost of heat pumps will fall significantly over the coming years as the market scales up, making heat pumps an increasingly attractive and affordable option for more and more UK households. In the Heat and Buildings Strategy, we set an ambition to work with industry to achieve 25-50% reductions in the upfront cost of installing a heat pump by 2025 and for cost parity between owning and running a gas boiler and a heat pump by 2030.

In the meantime, we are funding installations to kickstart the market, for example through schemes such as the Boiler Upgrade Scheme and the Home Upgrade Grant. The Chancellor’s 2021 Spring Statement also announced that installing heat pumps and other energy efficiency measures will have a zero VAT rating for the next five years, further contributing to reducing costs and help the market to reach scale.

Can heat pumps keep homes warm?

Yes. Heat pumps are already used around the world, including countries such as Norway (where over 60% of homes are heated with a heat pump), Sweden and Germany.

An estimated 90% of UK homes are technically capable of being heated with a heat pump, with sufficient energy efficiency and internal electrical connection capacity. The Government-funded Electrification of Heat Demonstration Project also recently published findings that there was no class of UK housing that could not be heated with a heat pump.

Evidence from the Government’s recently closed domestic Renewable Heat Incentive scheme reflects an overwhelmingly positive consumer experience with heat pumps, with very high rates of satisfaction in follow-up surveys among those who had installed a heat pump under the scheme.

Background

Heat pumps are an established technology but have historically been less common in the UK than in many other countries like Sweden and Norway. An estimated 55,000 ‘hydronic’ heat pumps – those that connect to a water-based central heating system – were sold in the UK in 2021. By comparison around 1.6 - 1.7m gas boilers are currently sold each year.

The most common types of hydronic heat pumps are air-source heat pumps, which extract heat from the air, and ground-source heat pumps, which extract heat from the ground. Both can operate even at cold temperatures.

A number of existing Government schemes support the deployment of heat pumps, including in particular the £450 million Boiler Upgrade Scheme, which provides consumer grants of up to £6,000 towards the cost of a heat pump. The Home Upgrade Grant and Social Housing Decarbonisation Fund also provide targeted support to heat pump installations, as well as other building decarbonisation measures. In March 2022, the Chancellor announced a five-year zero VAT rating for heat pumps and their installation.

The new Low-Carbon Heat Scheme will complement these measures to further support the growth of the UK heat pump market and help to enable cost reductions throughout the supply chain as it reaches a mass-market scale.

Further information

The following documents are relevant to the measures and can be read at the stated locations:

• Consultation on a market-based mechanism for low-carbon heat (2021), and Government Response (2022)
• Heat and Buildings Strategy (2021)