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Households using heat pumps and EVs now saving £1,180 a year compared to fossil fuel alternatives

Using a heat pump instead of a gas boiler is now £220 cheaper per year. Image: EDF.

Using a heat pump instead of a gas boiler is now £220 cheaper per year. Image: EDF.

Households with electric vehicles (EV) and heat pumps are now saving £1,180 compared to those with petrol cars and gas heating.

With inflation at its highest rate in 40 years, it is becoming increasingly cheaper to run an ‘Electric household,’ according to new research from the Energy and Climate Intelligence Unit (ECIU).

Inflation hit 9.1% in May, over a third of which (3.2%) is being driven by energy prices due to the oil and gas crisis. According to the ECIU, for houses that use electricity to power heat pumps and EVs, the inflation contribution from energy is 2.3%, almost a third lower than the rate of 3.3% seen by households that use fossil fuels.

“There is no category in which inflation is hitting homes and businesses harder than in the cost of energy,” said Bim Afolami MP, chair of the Parliamentary Renewable and Sustainable Energy Group, in response to ECIU’s analysis.

“The UK’s wind power generation had already begun to replace our dependence on gas, the high price of which has had a huge impact on energy bills for homes and businesses. The route to cost effective and efficient energy from domestic renewable sources is through expanding home insulation and heat pump installation.”

In the year to May, gas price inflation has been almost double that of electricity, meaning heating a house using a heat pump is now more than £220 cheaper per year.

To allow low-income households in particular to benefit, support is needed to help them take up heat pumps at pace. The starting price for the technology is about £4,000 with the typical price around £6,000.

The launch of the Boiler Upgrade Scheme grant earlier this year means households can now access £5,000 to help with the cost of a heat pump, bringing it in line with that of new gas boilers. Beyond this, the government is working with industry to bring down the cost of a heat pump by 50% by 2025, and down to parity with boilers by 2030.

A recent study showed that all UK homes are suitable for a heat pump, challenging previous criticisms that the technology didn’t work in older buildings for example. This includes 4.8 million homes that would require no additional work and 8.4 million that would need just minimal changes to loft and cavity wall insulation, measures themselves that would cut energy bills.

Petrol price inflation of 30% has further increased the financial benefits of adopting an EV, making it £780 cheaper to run an EV that is charged at home than an internal combustion engine car.

This trend is expected to continue, with petrol prices rising almost daily, according to the ECIU. As such, the savings from an EV grew to £960 a year by the end of June, up £180 from the savings rate at the end of May.

Like heat pumps, more support may be needed to ensure low-income households can purchase EVs. The government ended the plug-in car grant – which offered £1,500 to support the purchase of a new electric car – in June, a move criticised by some within the EV sector as it could reduce uptake.

But the EV market has grown at pace in recent years, with EV ownership rising 71% year-on-year in 2021, alongside a growth in the second hand market. In 2021, 40,000 battery EVs changed hands, up 119% on 2020 for example, according to statistics from the SMMT.

The overall savings from homes that avoid fossil fuels through heat pumps and EVs stood at £1,000 in May. With the increased savings from EVs already, this has risen to £1,180 a year.

Dr Simon Cran-McGreehin, head of analysis at the ECIU, said electrified home heating and transport technologies were not just cheaper and less polluting, but they are also “allowing more and more homes to break free of the oil and gas markets that have Putin’s hands on the levers, doing their bit for their own and the UK’s energy security.

“For struggling families that can, even investing a few hundred pounds on insulation is now paying back in record time. Installing a heat pump with help from Government grants will cut heating costs, and the growing EV second-hand market is opening up cheaper travel costs to more households. By taking further steps to make these net zero technologies more accessible, the Government can both oppose Putin and help households to cut their bills,” he continued.

Petrol prices are continuing to rise, and gas and energy bills are set to rise again in October with the new price cap period. The default tariff price cap increased by 54% in April to £1,971 and is set to reach £2,800 for the next period, according to Ofgem’s latest forecast.

At the same time, continued volatility in petrol prices have led to forecast prices of well over £2 per litre. As such, the gap in energy costs for fossil fuel powered homes versus an ‘Electric household’ could grow to around £1,600 for the year.

The gap highlights that the benefits of switching to decarbonised solutions goes beyond reducing emissions, helping to bolster energy security as well as generate savings nationally. UK households are currently spending at least £35 billion a year more on heating and car travel than they are expected to in an electric future, added the ECIU.

The new analysis builds on a survey by the non-profit organisation earlier this year, which suggested a third of Britons are now considering installing a heat pump in an effort to get off Russian gas as energy security remains a key priority amid continued volatility in the energy market, in part driven by the Russian invasion of Ukraine.

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