Heat Pump Association call for a domestic heat pump tariff discount

Last week the Government released figures that show a 49% rise in applications for a heat pump grant in December 2023, compared to the same month in 2022. 

However progress needs to be faster than this. According to the Climate Change Committee, the  UK is not on track to hit the target of 600,000 annual installations by 2028. To do so, heat pump installations across the UK must increase ten-fold.

One of the problems preventing widespread adoption is the running cost. While the Boiler Upgrade Scheme helps reduce the upfront cost of installing a heat pump, the impact of levies on the domestic heating market means that the cost of the electricity used to operate heat pumps puts them at a disadvantage compared to systems that use gas.

Great Britain has one of the highest electricity to gas price ratios in Europe at 3.97. In their latest report the Heat Pump Association (HPA) point out that a significant contributor to this is the disproportionate application of Environmental and Social Obligations – costs for government energy policies that are recovered through consumer bills.

Domestic electricity consumers, bear around 85% of these levies, which means a typical heat pump consumer pays £170 more than an equivalent gas boiler consumer in levy costs each year.

The government have announced that they intend to redress this balance but, as this will take considerable time, the HPA have called for a temporary Domestic Heat Pump Tariff Discount to counter the ‘distortion in the domestic heating market caused by levies on electricity bills, which acts contrary to their wider decarbonisation goals.’

Craig Dolan, HPA Chair said: ‘The proposed Domestic Heat Pump Tariff Discount strategically bridges the gap between the current situation and the more complex, wider electricity market reform arrangements which whilst necessary will take considerable time. The introduction of a Heat Pump Tariff Discount will make heat pumps a more compelling financial proposition to consumers, and will drive a significant shift towards a greener and more efficient heating landscape.’

The proposal is a discount which will reduce the price of electricity used for domestic heating or hot water to an amount equivalent to exempting that proportion of electricity from levies.

Starting at 5p/kWh from 2024-26 then rising to 6p/kWh, the discount is estimated to require a maximum of £533m of discounted costs over three years. The HPA propose that this should be introduced quickly as an interim measure to bridge the gap until wider electricity market reform is completed.

Jozefien Vanbecelaere, head of EU affairs at the European Heat Pump Association said: ‘Every consumer wants bang for their buck, and to get it on a heat pump the price of electricity should be no more than twice the price of gas. Reducing taxes and levies on the electricity bill and supporting consumers in the switch to electrification is long overdue. Governments across Europe need to act today so households and businesses can move to clean and sustainable heating at a wallet-friendly cost.’