Heat Pump Week Round Table Discussion #1

In the first roundtable discussion Kim Ratcliffe, Plug Me In’s MD was joined by five industry experts to discuss a number of topics focused on looking at how energy companies can help pave the road to mass heat pump adoption in the UK.

 

Let’s introduce the panel and dive into the debate!

 

Meet the panel

 

Kim Ratcliffe, MD, Plug Me In

Chris Carberry, Smart Solutions Director, Scottish Power

Charlotte Lee, Chief Executive, Heat Pump Association

Grainne Regan, Head of Heat, OVO Energy

T.J. Root, Heat Flexibility Director, Octopus Energy

Max Waddingham, Operations Director, Good Energy

 

 

Question #1 – Why is the current heat pump strategy falling so far short of the 600,000 install target by 2028?

 

The panel noted that while the original 600,000 install target was set to help the country achieve its net-zero goals by 2050, it was perhaps overly optimistic given the current state of the market. Although it was noted that there has been a 40% increase in heat pump sales this year compared to last year, this growth is still far below what is needed i.e. a tenfold increase, to reach the goal within the next three years. To make substantial progress, the discussion focussed on the need for greater clarity and confidence in the technology, for investors, installers, and consumers alike.

 

Fuel costs

 

One of the key challenges the panel identified is the cost of fuel, particularly the disparity between gas and electricity prices. Gas remains more affordable for consumers, largely due to the green levies placed on electricity, despite the UK’s growing supply of renewable energy. The panel suggested that shifting these levies could make electricity more attractive, thereby encouraging more people to switch to heat pumps. They pointed out that on some days, the UK has an excess of renewable electricity, yet the price remains high compared to gas, which does not carry the same environmental charges.

 

Upfront cost issues

 

Cost is a significant barrier in other respects as well. The Boiler Upgrade Scheme grant, doesn’t sufficiently close the gap between the price of a traditional gas boiler and a heat pump, leaving many potential buyers hesitant. Consumers are left wondering if the long-term savings from a heat pump will justify the higher initial cost. The panel discussed the need for more flexible financing options to make heat pumps more accessible, as well as more efforts to demonstrate potential cost savings.

 

Driving consumer confidence

 

Another challenge is public hesitancy toward adopting a relatively unfamiliar technology. Consumers are accustomed to heating their homes with gas, and switching to a heat pump involves significant work and changes, including home renovations and upfront expenses. The panel stressed that this transition requires more than just supply-side incentives - it also demands stronger efforts to drive consumer demand and confidence.

 

Government efforts

 

The discussion also highlighted the political dimension of the issue. Heat pumps have become a polarising topic, with media and political debate continuing to add to the confusion. The panel suggested that the new Labour government’s apparent reluctance to take bold policy steps may stem from these political pressures. They emphasised the need for the government to adopt a clear stance and to cut through the noise, much like what was done with electric vehicles (EVs). The rapid rise of EVs, despite their higher cost, was largely driven by legislative pushes, and the panel suggested that a similar approach could work for heat pumps, but the new government need to act and commit.

 

Future infrastructure

 

Finally, the panel touched on the importance of infrastructure planning, particularly the need to stop extending the gas grid. They discussed how the electrification of heating is vital for long-term sustainability and noted that the Future Homes and Building Standard consultation, which could aid this transition, is still pending. However, any policy changes from this consultation might take up to two years to have a tangible effect on the supply chain, meaning the timeline for full electrification is still uncertain.
 

In conclusion, the discussion made it clear that while there has been some progress in heat pump adoption, much more needs to be done. Stronger government action, clearer policies, and better financial incentives will be essential to drive the necessary growth in this area.

 

Summary of key points:

 

Ambitious target: The original 600,000 install target aimed to help the UK meet its net-zero goals, but achieving the figure within three years seems very optimistic. 

 

Government reluctance: The new Labour government appears cautious about pushing heat pump policies due to political polarisation. A clear, decisive policy approach is necessary, akin to how electric vehicles (EVs) were promoted through legislative drives.

 

Slow growth: While the heat pump market has grown by 40% compared to the previous year, this is far from the tenfold increase needed to meet the target. Greater clarity and confidence for investors, installers and customers is vital.

 

Fuel costs: The cost of electricity versus gas is a significant barrier. Electricity, burdened with green levies, is more expensive, despite the growing availability of renewable energy. Shifting these levies could help make heat pumps more appealing over gas boilers.

 

Cost issues: The high upfront cost of heat pumps compared to gas boilers is another hurdle. The current BUS grant doesn’t fully cover the cost difference, which raises concerns for consumers regarding long-term savings.

 

Financing: Flexible financing options need to be explored to make heat pumps more accessible. Consumers are hesitant to adopt new technology that involves home renovations and upfront costs.

 

Future infrastructure: The discussion emphasised the importance of not extending the gas grid and focusing on the electrification of heating systems. The Future Homes and Building Standard is awaiting consultation results, which could help drive this change, but implementation may be delayed.

 

 

Question #2 - What alternative financial options should be explored to address the issues discussed?

 

The panels next discussion focused on exploring alternative business and financing models that could help address the current challenges surrounding heat pump deployment. 

 

 
Boiler Upgrade Scheme limitations

A key issue discussed was the limitations of the current BUS grant, which does not accommodate third-party ownership models. To access the £7,500 grant, customers must purchase the heat pump outright, which limits its appeal to a broader market. The panel pointed out that other countries, such as Germany, have successfully adopted models where the cost of the heat pump is rolled into the price of energy.

 

Need for more diverse business models

 

The panel stressed that a variety of business models will be necessary to make heat pumps more accessible across different price points. One model the panel explored was bundling the cost of the heat pump and energy tariff into a single monthly payment spread over the lifetime of the asset. This would help consumers overcome the significant upfront cost and appeal to a wider audience, beyond those with liquid cash or homeownership. Currently, the majority of heat pump buyers tend to own their homes and have the financial means to afford the upfront costs, but this model could open up the market to a wider demographic.

 

Flexible financing

Another key point was the need for flexible financing options that spread capital expenditures over longer periods, whether that be three, five, ten, or even 15 years. Such models could bridge the gap until heat pumps reach cost parity with boilers. However, there are risks involved, such as consumer credit risk. If a customer stops paying, it raises the question of who assumes the financial burden?

 

Chris Carberry from Scottish Power noted that various organisations are actively exploring innovative ways to address these challenges, such as a pay-as-you-save model that adjusts energy tariffs for customers while incorporating normal leasing options. Kim Ratcliffe from Plug Me In agreed, noting that heat pumps are prime candidates for new financing models that could include service and maintenance packages. She emphasised that a significant proportion of heat pump issues, around 70%, can be resolved remotely through diagnostics, reducing the perceived hassle for consumers. Bundling service and maintenance into a single offering could help address one of the common concerns about heat pumps i.e. what happens if the system breaks down? The panel agreed that creating policies that support quick and effective repairs is crucial for increasing consumer confidence.

 

Long-term cost parity

 

The panel also discussed the long-term goal of eliminating the need for financing or grant models entirely, aiming for a future where heat pumps reach cost parity with gas boilers. Until that point, financing will be essential to accelerate deployment and achieve economies of scale. 

 

Learning from past models

Reflecting on past efforts, such as the Green Deal, the panel recognised that although it aimed to attach bill savings to a property over its lifetime, its interest rates were too high, and the model ultimately failed to gain traction. Various policy measures aimed at different markets were also discussed, including the Social Housing Decarbonisation Fund, the Public Sector Decarbonisation Fund, and energy company obligations. These policies target markets that may not be able to afford heat pumps outright, but are still crucial to scaling up deployment. 
 

Policy gaps in social housing

Plug Me In’s Kim Ratcliffe mentioned working with a housing association that owns 2,500 properties, but due to policy constraints, they could only roll out heat pumps to around 350 homes – just a small fraction of their housing stock. The discussion emphasised the need to expand and refine these policies to make a more meaningful impact on sustainability in sectors like social housing.

 

In summary, the panel concluded that a mix of innovative financing models, better policy frameworks, and efforts to reduce consumer risk will be necessary to grow the heat pump market. Only by accelerating deployment can the industry reach a point where financing and grant models are no longer needed, and heat pumps become a mainstream, affordable option for all.
 

Summary of key points:

 

• Boiler Upgrade Scheme (BUS) limitations: The current BUS grant does not allow for third-party ownership models, requiring customers to purchase heat pumps outright to access the £7,500 grant, limiting its broader appeal.
• Leasing models from other countries: Other countries, such as Germany, successfully use leasing models, where the cost of the heat pump is rolled into energy prices, making it more accessible.
  
• Need for diverse business models: Current heat pump buyers tend to be homeowners with liquid cash. A variety of models are needed to cater to different price points and to those with less upfront capital.
• Flexible financing options: Financing models that spread costs over periods of 3, 5, 10, or 15 years are crucial, though they involve risks like consumer credit defaults.
• Service and maintenance bundling: Bundling heat pump service and maintenance into financing models, as many issues can be solved remotely, addressing consumer concerns about breakdowns.
• Long-term goal of cost parity: The panel discussed the importance of eliminating the need for financing models once heat pumps reach cost parity with boilers. Until then, financing will accelerate deployment and economies of scale.
• Learning from past models: The panel reflected on the failure of the Green Deal, which aimed to tie bill savings to properties but struggled with high-interest rates.
• Policy gaps in social housing: There is a need to expand policies like the Social Housing Decarbonisation Fund, as current constraints prevent scaling up heat pump installations in social housing stock.

 

 

Question #3 – What collaborations are required to ensure there is buy-in for heat pump rollout from stakeholders?

 

The panel’s discussion on heat pump rollout collaboration emphasised the critical need for cohesive efforts from all stakeholders within the industry. They all agreed that a siloed approach, where various parties focus only on their specific agendas, would only lead to further fragmentation in what is already a divided market. 

 

Collaboration is key

The panel discussed that to ensure success, everyone - from those working on new builds to those focused on domestic retrofits and social housing - must come together, unified in their strategies and objectives. The panel was unanimous in agreeing that collaboration is absolutely critical, particularly as the early adopter market requires collective effort and cooperation to move forward.

 

Flexibility in heat pump design

The panel also stressed the importance of flexibility when designing heat pump systems, recognising that different types of homes require different solutions. New builds, which are "heat pump ready" due to better insulation, can adopt standard heat pump systems with relative ease. However, homes that require higher temperature systems, due to the prohibitive cost of replacing radiators, need special consideration. These homes present a financial challenge for residents, making the rollout of heat pumps more difficult. Therefore, the panel suggested that building standards should reflect these realities, and higher temperature systems should become more widely accepted to ensure heat pumps are accessible to all.

 

Get the DNOs on board with greater flexibility

Beyond the systems themselves, the panel discussed the role of Distribution Network Operators (DNOs) and the barriers that currently exist in connecting heat pumps to the grid. It was noted that larger installers often have an easier time navigating these complexities, while smaller installers face a heavier burden when trying to connect to the DNO network. The panel called for more streamlined processes that allow faster, easier connections, particularly for smaller businesses to ensure a smoother deployment across the industry.
 

Equipping installers with the right tolls and information

The panel identified that heat pump installers are pivotal players in the heat pump rollout, as they often serve as the initial and main point of contact between the technology and the consumer. Installers spend significant time in customers’ homes, and they are tasked with explaining how the heat pump works and whether it’s the right fit for the customer’s specific needs. However, with such a vast number of heat pump models and tariffs available, some installers can feel hesitant to discuss energy products due to their complexity. This underscores the need for proper training and support. The panel emphasised that installers must be equipped with the right tools and information to have comprehensive conversations with customers, helping them make informed decisions.
 
Ultimately, the conversation circled back to what had become the discussion’s core theme: “collaboration”. No single industry or entity can bring about the widespread adoption of heat pumps on its own. Success requires the collective efforts of installers, infrastructure managers, policymakers, and energy providers, all working together to build an efficient and effective system for heat pump deployment.

 

 

Summary of key points:

Collaboration is key: All stakeholders must work together to avoid market fragmentation and ensure a unified heat pump rollout, especially for early adopters.
 
Flexibility in design: Different homes need different heat pump solutions, with higher temperature systems necessary for older homes. Building standards should reflect this diversity.
 
Streamlining DNO connections: Smaller installers face challenges connecting heat pumps to the grid. Simplified processes with DNOs are needed for smoother deployment.
 
Installer tools and training: Installers need better tools and training to confidently explain heat pump options and tariffs to customers, ensuring informed decisions.

 

 

Question #4 – How do we ensure consumers feel involved and are prepared to make an informed decision?

 

This roundtable discussion centered on how to involve consumers in the transition to heat pumps and ensure they can make informed decisions. One of the key points raised was the issue of public awareness and misinformation. Misinformation about heat pumps remains a barrier, with many consumers sceptical of the technology’s reliability. The need for effective public education campaigns was emphasised as crucial to dispelling myths and building consumer confidence.

 

Drive adoption through tariff awareness

 

The conversation then shifted to how energy retailers play a role in educating customers about the benefits of heat pumps. Smart meters, for instance, allow for more efficient energy use by offering time-of-use tariffs and flexible pricing, which can help consumers save money while optimising the efficiency of their heat pumps. It was noted that communicating these benefits clearly to consumers is essential to driving adoption.

 

Remove barriers and simplify transition

 

However, the panel acknowledged that many consumers are satisfied with their current heating systems, which are seen as reliable, cost-effective, and familiar. For heat pumps to gain traction, the panel discussed how the process of transitioning must be simplified. Currently, the market is seen as too complex, with too many barriers in place for the average consumer. It was agreed that the industry must work on making the switch to heat pumps as easy as possible, removing confusion and uncertainty about whether heat pumps are suitable for different homes.

 

Collaborate on communication

 

Collaboration across the sector was again highlighted as a way to ease this consumer journey. The panel explored how companies need to move beyond their individual commercial focuses and work together to provide clear, unified packages that make sense for consumers. Larger companies may find this easier, but it was stressed that the entire industry needs to support consumers with transparent financial offerings, alongside educational efforts, to make the transition more appealing.
 

Ultimately, the discussion concluded that a combination of better public awareness, clearer financial offerings, and cross-sector collaboration would help consumers feel more confident in choosing heat pumps. By making the journey simpler and more transparent, the industry can foster greater consumer involvement and acceptance of this vital technology.

 

Summary of key points:

 

• Promote tariff awareness: Energy retailers should educate consumers about time-of-use tariffs and flexible pricing via smart meters, helping them save money and maximise heat pump efficiency.
  
• Remove barriers: The current market is too complex, and barriers must be removed to make switching to heat pumps easy, reducing confusion and ensuring suitability for different homes.
  
  
• Collaborate across the industry: Companies need to work together to offer unified solutions, transparent financial options, and clear communication to help consumers confidently transition to heat pumps.

 

 

Question #5 – Summarise the strategy shift needed to achieve the heat pump targets. 

 

Each panel member was asked to summarise what needed to happen in order to meet the country’s current heat pump and net zero targets.

 

“The strategy needs to be focused on consumer centric financing models, seamless installation processes and real collaboration between private and public companies.” Charlotte Lee, Heat Pump Association

 
“We need to make getting a heat pump as cheap and as easy as getting a boiler.” T.J. Root, Octopus Energy

 

“Lead by example – we can’t afford to wait around for government to do what we need them to do – it’s up to players like ourselves to launch the products, educate our customers.” Groene Wegen, OVO Energy

 

“Heat pumps are already a better solution than gas boilers – they just need to be a cheaper to run solution.” Chris Carberry, Scottish Power

 
“Heat pumps just need to be more accessible through lower costs so they become an unconscious choice for consumers.” Max Waddingham, Good Energy