Decarbonising heat remains one of the core challenges of reaching net zero in the UK, with the sector responsible for around 17% of carbon emissions, about 13-14% of which can be attributed to domestic homes.
Heat pumps are set to play a central role in this, with the government announcing a target of 600,000 heat pump installations per year by 2028 within its ten point plan in November 2020. However, there are a number of key challenges that could threaten this target, not least a skills shortage.
A report from the Energy Systems Catapult earlier this year found that a retrofit skills shortage was holding back decarbonisation, specifically flagging low carbon heating as an area of concern.
“Decarbonising our homes is an urgent challenge,” said Geraldine Newton-Cross, commercial director at Energy Systems Catapult.
“If consumers are to welcome changes to their heating systems at the pace required to meet our carbon budget, they need professionals who can hold their hand as they retrofit their homes, not just provide piecemeal recommendations about favoured technologies.”
Currently in the UK there are an estimated 3,000 trained heat pump engineers, but to hit the government’s rollout target at least 27,000 more will be needed in the next six years. This requires an increase of 4,000-6,000 more engineers per year, with more being trained per year than exist in the whole industry at the moment.
So how is Britain going to tackle the skills shortage, to ensure heat pumps can help the sector decarbonise at pace?
A historic lack of demand
According to Edward Thompson, vice chairman of the Ground Source Heat Pump Association (GSHPA) it is important to understand why there is an impending skills shortage, and core to this the historical lack of demand for the technology.
“Why are heat pump installations running at around 2% of heating installations in the UK when the figure for Norway is around 96%?” said Thompson.
“The answer to this is because UK government taxation policy makes heat pumps unattractive: up until 1 April 2022 the environmental levies on domestic electricity amounted to around 25% of electricity bills, but only 2% of gas bills. The position has improved marginally since the lifting of the price cap on 1 April. But the environmental levy on electricity bills is still around 20%, compared to 1.8% on gas.”
People who may otherwise have been keen to adopt a heat pump to reduce their emissions from heating therefore have been held back by the high running cost.
Indeed, amid the continued energy crisis in the UK, driven by record high gas prices, the calls to move environmental levies off electricity have continued to grow. Organisations like the Climate Change Committee have called for levies to be moved into general taxation in its most recent progress report, while last year a number of utilities called gas and electricity levies “outdated”.
Given the current energy crisis, the economics of running a heat pump have recently changed, making it more than £220 cheaper per year to run than a gas boiler. This follows the cost of gas surging over the last year. While this has also driven up the cost of electricity – which is set on the basis of marginal generation, predominantly gas – it has not risen to the highs of gas prices.
The price cap was increased by 54% in April, and will increase to £3,549 per year for dual fuel in October. According to Cornwall Insight’s most recent predictions it could jump to £4,266 in January.
To tackle this in the short term, the government, Ofgem and National Grid amongst others have brought in some measures to boost the UK’s energy security, through actions like increasing renewable energy deployment, for example. As part of this, the decoupling of electricity prices from marginal gas costs is being considered – which would ease the cost of running a heat pump – as is the movement of the environmental levies.
An emerging – but growing – sector
Currently however, it does not seem to be holding back the growth of the heat pump sector in the UK.
Whilst the lack of historic demand has led to a skills shortage, it is not yet “proving to be a throttle to the market” according to Bean Beanland, the Heat Pump Federation’s director of Growth & External Affairs, and will only become so if uptake starts to really ramp up.
This is unlikely to happen under the recently introduced Boiler Upgrade Scheme – which is limited to 30,000 units per annum – he noted. Indeed recent analysis from the GSHPA found that between 3 May and 30 June 2022 just 857 Boiler Upgrade Scheme vouchers were issued and 169 redeemed for <45kWth heat pumps.
It found that during that period, 62% of GSHPA members saw a drop in customer enquiries for individual heat pump installations.
“However, proposed legislation for both the Future Homes Standard (2025?) and the ban on replacement fossil fuel boilers off the gas grid (domestic scale from 2026?) could drive up numbers considerably. This provides a relatively short window for the heat pump industry to encourage fossil fuel technicians/engineers to transition over, and the number of new apprenticeship entrants,” Beanland continued.
“For both groups to want to take the training, they will need clear signals from government that there will be heat pump jobs to go to. Government would probably say that these are already in place with the consultations, etc., however, I think that we really need to see the legislation in place to really concentrate minds.”
Balancing the economic trajectory
Amidst a cost of living crisis, the upfront higher price of a heat pump remains a challenge to driving an increased demand. The starting price for the technology is about £4,000 with the typical price around £6,000. Meanwhile a new boiler will set you back £600 – £2,500, depending on the type of system etc.
This is a substantial difference, in particular when taken with the higher running cost of electricity than gas prices prior to the current crisis. Whilst there are schemes such as the Boiler Upgrade Scheme looking to tackle this discrepancy however, if there is a shortage of engineers to install the heat pumps, this could drive up the cost again.
Other factors are working to drive down the cost as adoption grows, placing a fine balance on the economic trajectory of the technology.
Beanland pointed to the work currently being undertaken by supplier Octopus Energy’s heat pump division, which is working to expand, to provide economies of scale.
“This will, if successful, start to filter through to the wider marketplace, although there will always be the need for more costly, bespoke installations in more challenging homes,” he said.
“Octopus, as is widely known, is initially targeting a limited range of housing to allow it to ‘standardise’ much of what it intends to do, so driving down the man-hours required on site.”
Again, the impact of the expansion of the industry on mitigating the economic challenges of heat pump adoption will have to manage its own challenges, not least expanding the supply chain at a time when there are well documented constraints on components such as microchips.
“There are currently other temporary supply side issues in providing components for the manufacture of heat pumps due in part to COVID issues and international transport issues,” said Thompson, GSHPA.
“These will clear in time if the fiscal background is adjusted to remove the barriers to installing heat pumps.”
As an international industry however, the extent of UK growth alone on the wider supply chain may be modest in terms of absolute numbers.
“Manufacturers are already saying that they can ramp up production at the sort of rate that is anticipated for demand growth. Increases in UK manufacturing capacity will also help,” said Beanland.
“Mitsubishi is increasing capacity in Scotland, Vaillant is building an entirely new production line in Derbyshire, Kensa has massively increased factory space and RED has ambitious plans, following Octopus’ investment.”
The core challenges facing the rollout of heat pumps therefore are a lack of historical demand in Britain has led to challenges including a skills shortage that is likely to grow if left unchecked, levies on electricity making them more expensive to run and a higher upfront price tag due to the smaller scale of the sector and limited government support.
This article will continue in a second post, looking at what is being done, and what still needs to be done, to tackle the heat pump skills shortage.
