Richard Warren, director of public affairs at heat pump manufacturer, The Kensa Group, discusses the opportunity presented by the newly confirmed Clean Heat Market Mechanism ahead of its launch in April 2024.
The Kensa Group were delighted to see the government confirm the introduction of the Clean Heat Market Mechanism (CHMM) from next year. This innovative and well-thought-through supply-side reform will be a huge boost for key industry players and provides certainty for the future growth of the heat pump market, giving Kensa and others the confidence to continue investing in green British manufacturing.
As Britain gets most of its heating through gas, the sector accounts for almost one-third of the UK’s annual carbon footprint. This means we need to remove the need for gas. The CHMM can help us do this in a number of ways:
Firstly and most importantly, the CHMM provides a critical market signal for year-on-year growth in the heat pump market towards a trajectory of 600,000 by 2028. Boiler manufacturers will be required to sell heat pumps equivalent to 4% of their boiler sales in 2024 and 6% in 2025, increasing to hit the overarching target by 2028. In the absence of a clearer policy on a boiler phase-out, this growth trajectory is critical to confidence in the sector, allowing companies like ours to continue to invest.
This increased certainty over the role heat pumps will play in decarbonising the UK’s heating systems should also help grow demand for gas engineers to retrain to also fit heat pumps, which is critical to building the supply chain necessary for the transition. The current low growth rates in the UK heat pump market do little to encourage retraining in the sector. By increasing the demand for heat pumps, the CHMM should hopefully help address this issue by, in turn, increasing demand for retraining and, therefore, widening the overall skills base.
Secondly, the mechanism provides a real incentive for boiler manufacturers that dominate the home heating market to produce, market and sell more heat pumps. At present, boiler manufacturers and their contractors understandably have a strong interest in business as usual, requiring little change to their business operating models. Consequently, the advice that most householders are provided with when their boiler reaches the end of its life will nearly always be to opt for another boiler.
This is further exacerbated by the uncertainty surrounding hydrogen, despite the increasing consensus that it has no role to play in home heating – an option which would be wildly expensive as it takes six units of electricity to get one unit of hydrogen. Nonetheless, in the absence of a clear decision on hydrogen heating from the government, some companies are happy to use the uncertainty to present hydrogen boilers as the future of home heating and therefore dissuade households from installing a heat pump. The Competition and Market Authority’s investigation into the marketing of ‘hydrogen blend’ boilers speaks to this.
Finally, as a heat pump manufacturer, Kensa will be awarded a credit for each heat pump it sells and installs into an existing home. These credits can be sold to boiler manufacturers to help them meet their scheme responsibilities and, in doing so, provide an additional revenue stream to heat pump manufacturers. This will then be used to further discount heat pump installations in addition to support from schemes like the Boiler Upgrade Scheme helping to make heat pumps increasingly attractive. A similar trading scheme has been successfully deployed in the UK’s energy sector via the Renewables Obligation.
However, as positive a step as the CHMM is, there remain critical elements and gaps in the policy landscape that must be addressed alongside it, not least the introduction of the Future Homes Standard and measures to reduce the cost of electricity.
Lowering electricity prices is perhaps the single biggest step to transitioning UK homes to heat pumps. With electricity four times more expensive than gas in the UK there are still currently only marginal bill savings to be had from switching to a heat pump, although a heat pump is over three times more efficient than a boiler.
One of the primary reasons for this disparity is the significant environmental and social levies placed on electricity bills, with almost none on gas. The government has previously committed to making significant progress on the issue by the end of 2024, but progress has entirely stalled. It is vital we see action on this issue quickly.
Simultaneously, introducing the Future Homes Standard to ensure that all new homes are built with heat pumps as standard from 2025 is critical to rapidly expanding the deployment of heat pumps. This move alone would increase installation numbers to close to 200,000 a year, a massive step forward to the 2028 target and to the development of the supply chain needed for the transition.
It seems counterproductive that homes are still being built with a gas grid connection and a boiler. The cost of installing a heat pump instead is negligible in relative terms, preventing an expensive retrofit in the future, and preventing further investment in gas grid infrastructure that will need to be retired in the not-too-distant future. We are hopeful that a consultation on this new building standard will be published very soon. It cannot come soon enough.*
Looking beyond these broad measures to electrify our heating, the government must also start to look at area-based approaches more intently. Important steps have been made with regard to heat networks but technologies, such as Kensa’s networked heat pumps, still sit in somewhat of a policy vacuum. The approach of individual ground source heat pumps (GSHPs) in each home connected to a shared network of boreholes and pipes in the road provides an optimal solution for the ~50% of UK homes that are terraces and flats and lack the outdoor pace for individual HPs.
Policies such as Local Area Energy Plans, or Scotland’s Local Heat and Energy Efficiency Strategies, are critical to unlocking these area-based technologies that have the potential to drive down heat pump installation costs when applied at scale, but also to ensure that all homes can have a low-cost heat pump, not just those with the garden space for it.
As we approach the end of the year and start a new one, we are cautiously optimistic about action for heat pumps in 2024. We’ve seen year after year of delays, but with the introduction of the CHMM, a likely consultation on the Future Homes Standard, rumours of an electricity price rebalancing, and a newly revitalised Boiler Upgrade Scheme, I’m confident that our heat pump market will soon be booming.
*Since the time this article was written, the UK Government has published the Future Homes Standard requiring all new homes to be “net zero ready” from 2025, with heat pumps as standard.