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Octopus Energy acquires heat pump manufacturer RED in move to create ‘Model T moment’ for sector

Octopus Energy has also invested £10m into a research and development centre for heat pumps. Image: Octopus Energy.

Octopus Energy has also invested £10m into a research and development centre for heat pumps. Image: Octopus Energy.

Octopus Energy has acquired heat pump manufacturer Renewable Energy Devices (RED), as it targets cost reductions through expansion.

It will initially take a controlling interest in the firm based in Craigavon in Northern Ireland, ahead of full acquisition by the end of the year.

The multi-million pound partnership will see RED’s existing factory being significantly expanded, with an additional 100 engineering jobs created by 2024. The factory will be able to produce over 1,000 heat pumps a month by the end of 2022, and will continue to grow beyond this.

As well as increasing production, Octopus Energy is planning to incorporate its smart grid technology into the heat pumps, allowing them to take advantage of cheap energy when there is surging renewables on the grid, and reducing the load at peak times.

Additionally, by using the smart technology, homes that also have an electric vehicle charger or solar panels can enhance their efficiency. For example, solar panels can reduce the cost of running a heat pump by as much as 70%.

By scaling production, Octopus Energy and RED are hoping to bring down the costs of heat pumps.

“This agreement will involve major investments into heat pump manufacturing, creating valuable green jobs across the UK and helping increase our energy security by getting more homes off gas, and drive down costs for customers,” Greg Jackson, founder and CEO of Octopus Energy Group said.

“This is the “Model T” moment for the heat pump industry. Thousands of heat pumps rolling out of RED’s Craigavon factory a month is just the beginning. Like the original Ford, we’re planning to scale production every year, cutting costs even further and making heat pumps affordable for everyone.”

With surging power prices in the UK, the economics of operating a heat pump have already changed. Following the jump in the price cap at the beginning of April by 54%, it is now around £260 cheaper to run a heat pump than a gas boiler over a year.

Interest in the technology has unsurprisingly grown, and is expected to play a core role in the decarbonisation of heat in the UK. Heat pumps sat at the centre of the government’s Heat and Buildings Strategy, released in October 2021.

The strategy included the announcement of new Boiler Upgrade Scheme, which was launched on 2 April and provides £5,000 grants to households to switch from a gas boilers to a heat pump. Additional government support to help reach the UK’s target of 600,000 heat pump installations a year by 2028 includes scrapping the 5% VAT on home energy efficiency technology over the next five years, including heat pumps, announced in the Spring Statement.

In the British Energy Security Strategy – released last week largely to disappointment in the energy industry – further support for the technology was announced in the form of the Heat Pump Investment Accelerator Competition, a £30 million scheme designed to increase heat pump manufacture in the UK.

“The Energy Security Strategy has laid out a future where we will be powered by homegrown renewable and nuclear energy and heat pumps using this cleaner, cheaper electricity will allow us to warm our homes,” said business and energy minister Lord Callanan.

“The government’s Boiler Upgrade Scheme will make grants of up to £5,000 available for fitting this green technology and together with private sector investment such as this by Octopus Energy, we're making heat pumps an affordable, convenient and obvious choice for consumers – especially with global gas prices at record highs.”

Octopus Energy’s acquisition of RED builds on previous commitments to the rollout of heat pumps, including investing £10 million into a research and development centre for the decarbonisation of heat.

RED was founded by Dr Jason Cassells and incorporated in 2014. It designs and manufactures a range of patented air source heat pumps in-house, including the controls, software and heating distribution systems used.

“When I founded RED, I had a dream to make heat pumps affordable, to put as many heat pumps in as many homes as possible and to make green heating accessible to everyone,” said Dr Cassells.

“With Octopus’ financial backing, industry knowledge and tech expertise combined with our heat pump know-how, this dream will finally become reality. We’re at the cusp of a clean heating revolution, and Octopus is leading it.”

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