Opinion: Why the CHGS is ‘a step in the right direction’

Rory Mathews, economic analyst at Ecuity Consulting LLP discusses why the CHGS is ‘a step in the right direction’.

The language used in the Government’s recently released ‘Future Support for Low Carbon Heat’ consultation might be considered as ‘music to the ears’ of long-time advocates for heat decarbonisation. There was a clear recognition of a central role for heat pumps and it was outlined that whilst further research must be undertaken on future options, such as hydrogen, support must be given to heat pumps in the short-term. Within the consultation document, the proposals for the Clean Heat Grant Scheme (CHGS) detailed the switch to an upfront grant, a change I personally welcome. With a budget of £50 million per year, it is though perhaps only a small step in the right direction, leaving a huge void of changes still needed to support the deployment levels required to decarbonise heat by 2050. The CHGS is by no means a trailblazer, with upfront grants already offered for heat pumps in several European countries, providing useful context to judge the UK’s plans, which I will explore in the remainder of this article.

UK heat pump deployment per capita currently lags behind the majority of European markets (see Figure 1). There is a clear need for policy action to be taken in the UK to change this and the CHGS is one of these steps, if done correctly. One of the biggest barriers to deployment of heat pumps is the higher upfront cost requirement; many do not have the capital needed and so by providing a grant payment, depending on size, this can be overcome.

Figure 1: Number of Heat Pumps Installed per 100 Households (Source: EHPA)

The proposed £4000 flat grant is larger than most grants from similar schemes in European markets (see Figure 2). One of the key reasons for this, as well as a smaller market, is that the UK’s homes on average have higher heat loss than elsewhere, meaning a larger heat pump is needed to meet the increased heat demand, which means higher costs. The grant could attract significant interest, but crucially overall deployment depends on the total funding available.

Figure 2: Heat Pump Grant Support Comparison (Source: Ecuity Economics)

The CHGS has £100 million of funding allocated for the two years that it is due to run, following the end of the domestic RHI. The Impact Assessment published alongside the consultation shows expected uptake of 21,700 air-source heat pumps, 2,600 ground-source heat pumps and 700 biomass installations over the two years. This is only slightly higher than the levels currently deployed under the RHI.

The Heat Pump Association’s roadmap document suggests that nearly 300,000 heat pumps will be needed per year by 2025 (see Figure 3). Whilst these levels are the type of deployment that is needed for meeting the net zero target in time for 2050, it represents a huge ramping up of deployment compared to current levels. The CHGS alone does not seem to match these ambitions, and it is clear that far more policy support is needed.

Figure 3: Heat Pump Installations per Year (Source: Heat Pump Association)

One option to fill the gap could be to increase the CHGS budget. Despite the relatively high grant level, the UK is behind international equivalent schemes, which are both already running and allocating higher funding per capita each year than is proposed to begin here in two-years’ time (see Figure 4).

Figure 4: Air-to-water (A2W) Heat Pump Grant Support, Annual Funding Per Capita (Source: Ecuity Economics)

Of course, grant funding is only part of the answer and not a long-term solution. It has been shown that a policy mix of subsidisation, carbon taxes, regulation and strong support for certification standards of skills and products has been effective at developing heat pump markets, regardless of the context. For the UK this likely means a rebalancing of the levies currently places on fuels, ambitious building regulations and the upskilling of the current heating installer base. The importance of installer skills must not be underestimated in all of this. Installers are the key point of advice for customers and hold huge sway in terms of the types and quality of heating systems being deployed.

So while I’m optimistic about the shift to upfront grant support for heat pumps, a wider policy mix of support (and potentially more funding) is needed if the Government wants to credibly demonstrate a plan to reach a mass market for low carbon heat.

References:

Department for Business, Energy & Industrial Strategy (2020). Future support for low carbon heat. https://www.gov.uk/government/consultations/future-support-for-low-carbon-heat

European Heat Pump Association (2020). Heat pump sales overview. http://stats.ehpa.org/hp_sales/story_sales/

Tado (2020). UK homes losing heat up to three times faster than European neighbours. https://www.tado.com/t/en/uk-homes-losing-heat-up-to-three-times-faster-than-european-neighbours/

Heat Pump Association (2019). Delivering net zero: A roadmap for the role of heat pumps. https://www.heatpumps.org.uk/wp-content/uploads/2019/11/A-Roadmap-for-the-Role-of-Heat-Pumps.pdf

 

 

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