Leading energy companies, heat pump manufacturers and think tanks have welcomed announcements by the government to boost the heat pump supply chain and make it easier for families to get heat pumps installed in their homes.

The Department for Energy Security and Net Zero confirmed plans to launch the Clean Heat Market Mechanism from March 2024, incentivising boiler manufacturers to leverage their expertise to boost heat pump deployment. Measures have been taken to ensure that compliance is cost-compliant: setting achievable annual targets for heat pump installations, and reducing penalties occurred for non-compliance. Major boiler manufacturers including Vaillant and Ideal Heating have already announced investments in British heat pump facilities. 

New statistics published by the government show a significant uplift in the monthly applications for the UK’s flagship heat pump delivery scheme, with a month-on-month surge of 173% in October. This follows the uplift to the Boiler Upgrade Scheme, up from £5,000 to £7,500 – supporting more households to upgrade their systems. 

The government has also published an independent social research report: ‘Review of Air Source Heat Pump Noise Emissions, Permitted Development Guidance and Planning Regulations’. This finds that heat pumps are generally rated as quiet, and that the majority of those surveyed said they did not notice the sound of heat pumps. The recommendations from the research project have suggested changes to the current planning regulations to ensure they reflect the latest evidence. In the Autumn Statement, the Chancellor confirmed that the Government plans to consult on introducing new permitted development rights to end the blanket restriction on heat pumps being installed 1 metre from a property boundary in England.

Commenting on the introduction of the Clean Heat Market Mechanism, British heat pump manufacturer Kensa CEO Tamsin Lishman said: “This is a hugely important tool for heat pump manufacturers like us, helping to provide certainty for the future growth of the heat pump market and providing us with the confidence to continue to invest in the UK.

“Kensa’s plans to grow its heat pump production and installation ten-fold over the next decade, supporting over 7,000 skilled jobs, will hugely benefit from the additional certainty this mechanism will provide. The continued growth of companies like ours is critical to both reaching the government’s target of 600,000 heat pump installations a year by 2028 but also ensuring the British economy benefits as much as possible from this transition. 

Nigel Pocklington, chief executive, Good Energy says: “Heat is now probably the greatest challenge facing the UK’s net zero goals, we need to use every tool in the box to tackle it. Clearly carrots work for consumers, shown by the 173% increase in grant uptake in October. But sticks for businesses can work too.

“We have seen with the zero emission vehicle mandate, quotas for manufacturers to make more carbon friendly products can be relished by industries, leading to better innovation and competition, and accelerated uptake from customers which push ahead of carbon targets.

“As a heat pump installer, we want to see a varied and lively low carbon heat product marketplace which is better for UK business, consumers and the climate.”

Leo Vincent, Policy Advisor, E3G says: “We’re delighted to see a surge in interest for the UK’s flagship heat pump scheme. This 173% boom in monthly grant applications demonstrates growing appetite among the British public for clean, efficient heat.

We’re pleased to see the government move forward with its innovative supply-side policy to boost heat pump production in the UK, despite intense lobbying from the fossil gas lobby. The reality is, for leading boiler manufacturers, compliance with the scheme will be straightforward – as they already started to shift their business models towards clean heat.”

Background:

What is the Clean Heat Market Mechanism (CHMM):

The Clean Heat Market Mechanism is designed to give a clear framework and incentive structure to the heating market to encourage investment in heat pumps. From 2024, the mechanism will put an obligation on appliance manufacturers to meet annual heat pump installation targets set as a proportion of their total fossil fuel appliance sales. Each qualifying heat pump installation, including by specialist manufacturers, will generate a credit. A similar trading scheme has been successfully deployed in the UK’s energy sector through the Renewables Obligation.

The scheme will include all manufacturers of relevant appliances, regardless of whether or not they manufacture or have a corporate presence in the UK. Therefore, there will be a level playing field for national and international eligible entities.

The scheme places an obligation on the manufacturers of heating appliances to meet targets for the proportion of heat pumps they sell each year, relative to the number of fossil fuel boilers they sell. The proportion of heat pumps manufactures sell will rise annually starting at 4% of gas or oil boiler sales for 2024/25, rising to 6% in 2025/26.

Where parties fail to meet their credit obligation, and this shortfall exceeds the allowable credit deficit that can be carried forward, they will make a payment of £3,000 per missing credit. This is down from the £5,000 originally proposed. This level is set to ensure that compliance through expanding the heat pump market is more cost effective than paying a fine.

Why the CHMM will not increase boiler prices:

  • The CHMM is designed to drive investment in the production of clean, efficient heat pumps, future-proofing our appliance manufacturing industry and supply chain and creating new green jobs in the UK’s industrial heartlands.
  • The CHMM will not increase the cost of gas boilers because the scheme is implemented gradually. The first year target, 4% of overall boiler sales (or 60,000 heat pump installations), is easily achievable meaning manufacturers will not face a deficit of credits, and associated charges. The second year target, 6% of overall sales, is also achievable.
  • International examples show gradually increasing sales of heat pumps is achievable. Between 2011 and 2022, France increased heat pump sales from around 150,000 in 2011 to 620,000 in 2022. That’s an increase of 310%, or an average increase of 30% a year.
  • In 2022, the 55,000 heat pumps were sold in the UK. Therefore, the CHMM’s first year target for 2024/25 requires the industry to increase sales by only 5,000 heat pumps, or by 8% over the 2 years between 2022 and 2024.
  • Between 2021 and 2022, heat pump sales increased by over 20%. Government schemes, such as, the Boiler Upgrade Scheme, the Energy Company Obligation, Social Housing Decarbonisation Fund, and the Home Upgrade Grant will continue to support heat pump sales. Furthermore, energy suppliers such as, British Gas and Octopus Energy are offering increasingly competitive private deals for heat pumps.
  • Therefore, in the short term, heat pump sales in the UK should continue to grow at around 20% a year. If the growth rate of heat pump sales continues at 20% a year, heat pump sales should be around 79,000 in 2024, and 95,000 in 2025. Therefore, there will be sufficient demand in the market for heating system manufacturers to sell heat pumps without paying for credits in the first two years of the scheme.
  • The ambition of the CHMM will be reviewed for its third year, allowing it to balance cost to suppliers against the need to ramp up heat pump sales before the long established target of installing 600,000 heat pumps a year by 2028.
  • There is sufficient demand for heat pumps such that boiler suppliers that the CHMM will not impose additional costs on boiler manufacturers in the first two years of the scheme.