Heat Pump Association proposes energy bill discount for heat pump users

HPA's Charlotte Lee

The Heat Pump Association (HPA) has published its latest research on options for overcoming the impact of Environmental and Social Obligations on the domestic heating market.

This report and extensive background analysis sets out the implications of a range of options to tackle one of the key challenges in the acceleration of heat pumps for domestic heating – running costs.

HPA’s report sheds light on a critical factor impacting the market, which is the high electricity prices in Great Britain, relative to gas. Great Britain (GB) has one of the highest electricity to gas price ratios (3.97) in all of Europe, nearly double that of the EHPA recommended ratio of 2. A significant contributor to high electricity prices is the disproportionate application in Great Britain of Environmental and Social Obligations – often referred to by government as “policy costs” and known commonly as “levies”.  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 per annum.

The government has committed to outlining a clear approach to gas vs. electricity price ‘rebalancing’ by the end of 2023/4 and agreed with the Skidmore Review recommendation that significant progress affecting relative prices should be made by the end of 2024. In response to this challenge, the HPA calls on the government to introduce a temporary Domestic Heat Pump Tariff Discount to counteract the distortion in the domestic heating market caused by levies on electricity bills, which acts contrary to their wider decarbonisation goals.

Cost reduction

The discount will reduce the price of electricity used for domestic heating or hot water produced by hydronic heat pumps to an amount equivalent to exempting that proportion of electricity from levies. Starting at 5p/kWh in 2024/25- 2025-26 and rising to 6p/kWh in real terms in 2026/27, 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 between today’s situation, and the time when wider electricity market reform is completed.

Commenting on the release, HPA CEO, Charlotte Lee said:

Our research provides a roadmap to address the current distortion in the domestic heating market, which is undoubtedly hindering heat pump deployment. Reducing the price and electricity relative to gas is the sector’s number one policy ask. Action must be taken to change the energy price signals so that the lowest carbon heat is the lowest cost heat, which in turn will accelerate the deployment of heat pumps, and support the government’s decarbonisation goals.

Additionally, 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.

To read the report in full click here