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Move environmental levies off electricity bills to boost heat pump uptake, government told

A Warm Homes Agency should be established to provide training for installers. Image: Kensa Contracting (one of the signatories).

A Warm Homes Agency should be established to provide training for installers. Image: Kensa Contracting (one of the signatories).

Environmental levies should be moved off of electricity bills to make sure it's always cheaper to run a heat pump than a boiler, a number of business and civil society groups have said.

Led by environmental consultancy Third Generation Environmentalism (E3G), the consortium has called on the government to introduce a 'Fair Heat Deal' to make it more attractive to move from fossil fuel boilers to clean heat pumps. Such a deal would help ensure switching to heat pumps is affordable, helping the public benefit from cheaper energy bills, warmer homes and lower emissions.

A key recommendation for this deal is to shift levies from electricity bills. Currently 23% of an average electricity bill is made up of environmental and social obligation costs, which fund numerous decarbonisation programs, while gas bills are comprised less than 2% of such costs.

This imbalance between gas and electric bill levies is increasingly drawing criticism as it drives up the cost of switching to a heat pump for many. A report from the Environmental Audit Committee in December warned that the cost of electricity could cause the rollout of heat pumps to fail, as the technology must be made affordable for consumers.

As buildings are responsible for nearly a quarter of the UK’s total climate emissions, there is an increasing need to switch to low carbon heating solutions. The Climate Change Committee has said that heat pumps will play the largest role in decarbonising the UK’s heat supply.

Beyond changing environmental levies, the groups have urged the government to provide free heat pumps and insulation for fuel poor and low-income households, and provide grants for everyone else to equalise the cost of a new heat pump with a gas boiler.

This call follows the early closure of the beleaguered Green Homes Grant, which had offered support to homeowners keen to install heat pumps as well as technologies like solar thermal.

It is essential to provide customers with the right financial support and incentives to move to low-carbon heat, said Emma Pinchbeck, CEO at trade organisation Energy UK, one of the Fair Heat Deal signatories. “Doing so is a major challenge but one that can’t be put off any longer if we are to reach the Net Zero target,” she added.

“Heat pumps will play a major role in this transition and Government needs to put in place the right measures to promote the rapid uptake required by the 2028 target – as well maintaining a high standard of customer protection and ensuring accurate information on all the choices available.”

The UK’s Ten Point Plan includes a commitment to rollout 600,000 heat pumps into home by 2028.

Further financial incentives within the Fair Heat Deal include removing VAT on green home products and their installation, echoing calls from the wider renewables industry, including within a report produced by the Energy Systems Catapult earlier this month which showed removing VAT on heat pumps could save £10 billion for homes. A 'Green Stamp Duty' should also be introduced to reduce the cost of low carbon homes.

Finally, a Warm Homes Agency should be established to train installers, the group argued, to help create quality green jobs in every part of the country.

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