A lot of hot air: are heat pumps really the best low carbon option for heating our homes?
Read anything about how to decarbonise our homes when it comes to heating, and heat pumps appear like a beacon of hope in a quagmire of climate crisis and rising energy costs. Lauded as a way to save the planet and reduce our energy bills at the same time, the government has set a target to install 600,000 air source heat pumps (ASHPs) every year by 2028.
But are they really the answer? At Oaklin, we have conducted in-depth research into the options for energy transition in the home and when it comes to heat pumps, things are more complicated than they first appear.
"…we have conducted in-depth research into the options for energy transition in the home and when it comes to heat pumps, things are more complicated than they first appear."
In the UK, there are around 23 million natural gas boilers. A switch to a cleaner way to heat our homes is paramount. But one of the biggest challenges we face today is the rising cost of living and heat pumps are not a cheap option.
Heat Pumps are only part of the solution
ASHPs work efficiently only in properly insulated homes but Britain is full of old, drafty housing. The cost of insulating these homes is not insubstantial. Once you factor in the cost of the heat pump unit itself, replacing of pipework, insulation, installation of a new water tank and larger radiators – all of which are required for an ASHP - with labour costs, it has been estimated at a staggering £26,000-£65,000 for a typical three-bedroom house
Take into account rising interest rates and the effect on mortgage repayments and even with the government’s grant of £5,000 to install a heat pump, it seems unlikely that many households can shoulder the costs. In fact, our research suggests that currently a maximum of 30% of households could afford those costs.
Another issue is the need for specialist installer training; heat pumps can’t be installed by a standard plumber. Our research for a client suggested that for the government target of 600,000 heat pumps per year to be reached, at least 22% of available plumbers would need to be trained in ASHP installation. That figure currently sits at between 2-4%.
Heat pumps are part of the solution. They undoubtedly make sense for new build properties where the use of an ASHP can be incorporated into the design from the start. Installation in new houses will be accelerated by the government’s policy of banning natural gas boilers in new build properties from 2025. But this does not help the 80% of us living in older buildings.
"…companies who set to benefit financially from selling ASHPs are actually hedging their bets on hydrogen being the long-term option for heating our homes…"
As part of its Clean Heat Market Mechanism, the government has proposed that from next year, boiler manufacturers will have to make heat pumps account for 4% of their total yearly sales. This has been called “absurd” by the Energy and Utilities Alliance (EUA). Boiler manufacturers are not usually responsible for installation itself, something normally left to plumbers. They do not typically deal direct to the consumer and have limited ability to track or influence installation decisions.
If the take up of ASHPs is not as the government hopes, it leaves manufacturers in the impossible position of producing, or importing, something no one wants. If this is too much of a challenge financially, manufacturers may decide to produce only boiler parts instead of whole units to avoid the 4% quota.
This could result in the worst of all scenarios where the initiative does nothing to stimulate the market for heat pumps, and the consumer is left paying more for separate parts. We could even see a situation rather like Cuba after America’s trade embargo, which gave rise to a thriving market in spare parts for 1950s cars.
With a huge push from government and private companies to adopt heat pumps, and a distinct lack of current regulation, there is also the danger of mis-selling to consumers. This may tempt unscrupulous installers to cash in on the higher installation costs of ASHPs. In fact, ASHPs installations are already subject to a Competition and Markets Authority (CMA) review regarding mis-selling.
Why are these challenges in the switch from gas boilers to heat pumps not mentioned more often? It seems partly because the government does not currently have another credible and readily available alternative. It could also be because a variety of companies and think tanks now have a vested short-term interest in championing ASHPs. It may be a surprise to discover that the same companies who set to benefit financially from selling ASHPs are actually hedging their bets on hydrogen being the primary long-term option for heating our homes. This is evidenced by their heavy investment in new domestic hydrogen production and transmission assets across the country.
Why is this? The government does have a clear hydrogen production strategy to 2035. Supported by the World Economic Forum’s predictions for global hydrogen production capacity, it seems that by 2035, hydrogen will become widespread in homes and industry.
Could Hydrogen be the long-term answer to our home heating needs?
Work to upgrade the high- and low-pressure natural gas network to make it safe for hydrogen use is already underway. Hydrogen (from any source, renewable and otherwise) is slated to be introduced to the UK natural gas network with a blend of up to 20% hydrogen to natural gas in 2023.
Despite some claiming that hydrogen in the home is a pipe dream, boiler manufacturers have been able to show that hydrogen-ready boilers need minimal intervention to swap to 100% hydrogen. In December, the government launched a consultation on the role of hydrogen in the home.
"A variety of technologies will be used in a variety of settings, from heat pumps and hydrogen to centralised heat networks capable of heating high and low-density housing, and direct electric heating."
The cost of these boilers will be comparative to natural gas boilers and unlike ASHPs, do not require root-and-branch retraining for installation engineers or invasive changes to homes. Should the government give the green light to its hydrogen home heating policy - the deadline for which is 2026 - these manufacturers can alter production to hydrogen-ready boilers (bolstered by legislation that proscribes natural gas boilers).
As for the cost of hydrogen in comparison to gas, it is already cost competitive with natural gas, albeit in its grey form (produced from fossil fuels, not renewable energy). But by 2025, green hydrogen looks set to cost the same as natural gas. What is missing, is the regulatory framework enabling global commodities exchange-style trading of physical hydrogen on the market. Once in place, this will accelerate its adoption.
Fragmentation in the home heating market is an inevitable outcome of the energy transition. A variety of technologies will be used in a variety of settings, from heat pumps and hydrogen to centralised heat networks capable of heating high and low-density housing, and direct electric heating. This is a very different scenario from what we have been used to when it comes to home heating.
If no coherent policy environment or credible alternative arises to heat pumps, we predict that 55% of the 23 million natural gas boilers will still be here in 2050. Even if the take up of ASHPs is better than predicted, once hydrogen becomes readily available, how many homeowners will still be willing to pay the costs associated with installation and maintenance?
What is needed is transparent and objective discussion around the real costs of heat pumps and for the government to give a clear, consistent message on the role hydrogen can play in domestic heating. The absence of clear direction and commitment in these areas leaves both businesses and consumers facing uncertainty about how they should be contributing to the UK’s net zero goals. Our conclusion is that more change is coming than has yet been widely understood and manufacturers and consumers need to ready themselves for a series of sizeable shifts in the home heating market. There will be more choice, competition and complexity than ever before.
Alex is an Associate Partner at Oaklin, having been at the company since 2017, with a proven record of delivering business critical outcomes in complex environments. He has extensive experience in shaping and leading programmes spanning strategy, architecture, technology delivery, and operational turnarounds. Alex is sought for his ability to distil clarity from ambiguity, build cross-functional teams and inspire them to action.
-  Retrofit figure excludes PVs (photovoltaic) materials and battery packs. Based on Oaklin research and the government-funded study Nottingham Carbon Neutral Housing: Cost vs Carbon Retrofit Roadmap by the University of Nottingham.
-  Research based on ONS data and market data, as of January 2023.
-  Calculations from ONS data, natural gas commodity price data, the Department for Business, Energy & Industrial Strategy and Oaklin analysis.