Dr Theodoros Arvanitopoulos, Senior Research Associate, University of East Anglia; Professor Charlie Wilson, Professor in Energy and Climate Change, University of East Anglia; and Dr Craig Morton, Lecturer in Transport, Loughborough University
9 December 2021
Decarbonising domestic heat is a major challenge for the UK’s net-zero strategy. The gas boilers that currently heat 85% of the UK’s 27 million homes need to be replaced by low-carbon heating systems. In 2020, the UK government set the goal of installing up to 600,000 heat pumps per year till 2028. This is a dramatic ramping up of installation rates seen to-date. Around 47,000 air-source heat pumps have been installed over the past decade in private and social housing in the UK. Where and why have these happened? And what can we learn from this historical experience to enable a rapid and equitable diffusion of heat pump installations over the coming decade?
Since 2011, the UK government has made financial incentives available to homeowners, private and social landlords, and tenants (with permission from homeowners), for the installation of renewable heating technologies. The Renewable Heat Premium Payment scheme (2011-2014) and the Renewable Heat Incentive (2014-current) support biomass boilers and stoves, ground source heat pumps (GSHP), air source heat pumps (ASHP) and solar thermal systems (Lowes et al., 2019).
Air source heat pumps (ASHP) are by far the most common and the focus of our analysis - referred to simply as ‘heat pumps’ hereafter. Through a Freedom of Information Act request submitted to the Office of Gas and Electricity Markets (Ofgem), we obtained access to anonymised data of existing residential heat pump installations within Great Britain from 2010 to 2020. The Northern Ireland Renewable Heat Incentive is separate to the equivalent one in Great Britain, and thus data provided by Ofgem do not include heat pump installations in Northern Ireland. The dataset provides information on the type of property, ownership, installation year, total installation cost, estimated annual generation and installed capacity. It also includes spatial information about the location (postal town) where the heat pump was installed.
The cost per kW of heat pumps in the UK have not fallen as the industry has matured
Recently published analysis by Renaldi et al. (2021) found no compelling evidence that heat pump costs have fallen as installation experience has accumulated. They used total cost data (equipment + on-site installation) from 2010 to 2019 to identify cost-improvement trajectories or ‘learning rates’ of low-carbon heating technologies. The cost trajectory for heat pumps in the UK has been largely flat. We extended Renaldi et al. (2021)’s analysis to 2020 and Figure 1 confirms their findings. Unlike other ‘granular’ low-carbon technologies like solar photovoltaics or electric vehicle batteries, there is no evidence of sustained cost reduction per kW as the industry matures and ‘learning-by-doing’ initiates a virtuous cycle of experience stimulating performance improvement (Wilson et al., 2020).
Digging deeper into the heat pump cost trajectory, we found small reductions on a cost per kW basis over the earlier years of the past decade. However, this falling trend reversed over more recent years due to rising installation costs offsetting reductions in equipment prices (Renaldi et al., 2021). We found that lower total cost per kW is associated with owner-occupied houses, and higher cost installations with other property types such as flats. This reflects the complexities of siting heat pumps in more space-constrained urban settings.
Spatial uptake of heat pumps has been uneven across UK regions
Figure 2 presents the spatial distribution of the cumulative number of heat pumps installed by 2010, 2015 and 2020 across the 380 local authorities in England, Wales, and Scotland. The maps show the rapid deployment of heat pumps over this period, concentrated outside the major metropolitan and urban areas. This reflects the greater availability of outside space and the lack of access to the gas grid outside major towns and cities. Consequently, the spatial diffusion of heat pumps to-date in the UK has not been uniform. Similarly uneven spatial distributions are observed for the historical diffusion of other innovative low-carbon technologies including Local Energy Systems (LES).
Hardware and installation costs need to come down to enable heat pump diffusion
We are currently analysing the spatial variation in heat pump installation in more detail to understand the local conditions that could stimulate diffusion. But based on our initial results, we can identify two main strategies for supporting the dramatic ramping up of heat pump installation rates needed to meet UK net-zero targets.
BEIS (2020) has identified 33 manufacturers active in the domestic heat pump market, including small players with lower market share than 1%. Cost of air source and ground source heat pumps ranges between approximately 400 – 1000 £/kW compared to 30 £/kW of gas boilers (Renaldi et al., 2021).
Widespread uptake of heat pumps thus requires significant cost reductions. Experiences with rapidly falling costs in offshore wind, solar PV, electric vehicles, storage batteries have focused attention on manufacturing scale up and learning as drivers of exponential reductions in equipment costs. However, the trend of rising installation costs also needs to be reversed if heat pumps are to become an economically viable alternative to gas boilers for residential heating.
Enabling policy frameworks are needed to spread the benefits of heat pumps more widely
The rising tide of heat pump installations also needs to spread across all areas of the UK. Economic development policies targeting disadvantaged areas, particularly in cities, can support a more equitable spatial distribution of heat pumps by providing appropriate financial and regulatory incentives to energy and technology businesses and entrepreneurs. Similar policies targeting skills, capacity, economic activity, business start-ups, and public-private partnerships drawing on local authority expertise, can also be used to drive home insulation programmes in less affluent areas and, by extension, tackle energy poverty. In this way the UK’s heat pump infrastructure programme could contribute to a wider ‘levelling up’ strategy of regional development. Our analysis underway of the local conditions associated with heat pump installations historically will allow us to develop evidence-backed policy recommendations on how to unlock and accelerate an equitable diffusion of heat pumps across the UK. Watch this space!