Opinion Piece by Laura Bishop, GSHPA
24 May 2021
Since November 2020 when Boris Johnson announced the much vaunted ‘600,000 heat pumps per year by 2028’, the conversation surrounding the decarbonisation and electrification of heat has increased enormously. There are many benefits of switching to heat pumps including carbon emissions reduction by using renewable electricity, clean air through reduced combustion, and the ability to balance the national grid through demand-side response. On a regular basis, we are seeing articles in the national newspapers and on social media commenting on this very topic. Not all are in favour of a large scale switch to heat pumps and there are concerns being raised about the capacity of the electricity grid (which can be managed – see the earlier point on the demand-side response). But whether in favour or not, heat pumps are newsworthy.
This is music to the ears of those who have been working in the industry for a long time where heat pumps have been the poor, eccentric, distant cousin of natural gas and oil boilers. However, we are all aware that there is a big gap between Government rhetoric and actual ‘boots on the ground’ action. Sadly, the non-domestic Renewable Heat Incentive (RHI) scheme for commercial heat pumps (and other renewable heat technologies) came to an end in March 2021, at the point when things were starting to get interesting. The domestic scheme carries on for one more year to March 2022 and plans are in place for a subsequent domestic grant scheme; the clean homes grant. However, unfortunately, there is nothing currently in place for any building not classed as domestic. And there is a plethora of those buildings in the UK. The only exception to this is the Public Sector Decarbonisation Scheme (PSDS), which is a grant scheme aimed at decarbonising publicly owned buildings. Two tranches of funding have been released so far and the latest tranche funded several large GSHP systems. I don’t believe in long term subsidising of technologies; eventually, they have to stand on their own two feet. However, with the current disparity between gas and electricity prices and the relatively high cost of installing a ground source heat pump, it is difficult to see how to make systems compete financially on a level playing field. As is often the case, we have the dilemma: carbon reduction OR cost reduction. People should not have to make that choice.
A current job I am working on has brought this problem into sharp focus. The owners of a large business park running on ancient gas boilers are keen to adopt a ground source heat pump replacement with a new district heat network. Running a very simple payback model based on business as usual and then a switch to GSHP provides a simple payback of 139 years. Not a very attractive prospect. It’s clear to see why though with a gas price of just under 4p/kWh and an electricity price of 16p/kWh. Of course, there are ways to improve that payback. For example, reducing the electricity price to 8p/kWh by utilising on-site generation and by adopting time of use tariffs, reduces the payback to 12 years. Then there are efficiency improvements that can be addressed and green finance opportunities for low costs of borrowing. However, the onus is on the client or developer to work through these options. If you are unaware of the clever ways of reducing running costs or reducing capital costs, the chances are the project will be rejected in favour of the well-known, well-established gas boiler system. As a result, opportunities for large scale movement to heat pumps are lost.
It’s encouraging to see many businesses and local authorities as well as individual homeowners still more than interested in adopting heat pump technology, and my considered opinion is that this will continue to happen despite the current inertia from Government to move from talk to action. For this to be made possible, it is necessary to be able to gain access to finance for capital costs and reduced electricity prices. Historically, electricity has been subject to higher taxes and levies than gas, resulting in a financial disadvantage for electric heating systems. Now that the national grid has undergone substantial decarbonisation, it makes sense to move those taxes and levies to the more carbon-intensive fuel, natural gas. There is evidence that the balance of gas and electricity prices will be considered in the forthcoming Call for Evidence on Consumer Funding, Fairness and Affordability. This could be a real game-changer for the deployment of GSHP in the UK and cannot come soon enough.