Decarbonising home heating is one of the biggest challenges involved in achieving net zero in the UK. After several years of exploring options and gathering evidence, heat decarbonisation in the UK is now entering a mass deployment phase, with very significant economic implications for governments, businesses, and households.
A broad consensus has now emerged on the central role of heat pumps in addressing this challenge. The UK is not alone here – many other countries also now see heat pumps as key for decarbonising home heating – but the UK is distinctive in the envisaged speed and scale of change. Heat pumps currently play a very marginal role in heating UK homes, and the number of installations, although now growing, remains very low. Alongside rapidly accelerated roll-out, UK policymakers have also set highly ambitious targets for reductions in installed costs.
There is much to commend here. Ambitious policy targets reflect the imperative for change, and the immaturity of the UK heat pump sector means there are significant opportunities to expand domestic production, create jobs and reduce costs. At the same time, radical policy ambition also presents risks of over-expectation and disappointment, in terms of the achievable pace of change and cost savings.
To inform these questions, the Technology and Policy Assessment team have conducted a systematic review of UK and international data on the total installed costs for domestic scale heat pumps, both historic and forecast, across a wide range of technology types and building contexts.
Gathering and understanding heat pump cost data is itself challenging. Overall costs vary greatly according to the type of home, technology design and the wider heating system, among other factors. Installed costs include both equipment and non-equipment costs, and the factors affecting these costs span international manufacturing supply chains and local labour markets. Cost data is often inconsistent or inaccessible, and there is a vital need for improved data quality and access to help assess progress.
Our findings present a mixed picture. In the UK, there has been little or no reduction in the average total installed cost of heat pumps over the past decade, although some cost reductions have been reported internationally. Over time, some countries have successfully combined significant market growth with reduced installed costs, but other countries have seen static or increasing costs, even with significant market growth.
Looking ahead, there are real prospects for reduced installed costs over the next decade. Most UK forecasts suggest a reduction in total installed costs by 2030 of around 20-25%. Anticipated savings are higher for non-equipment costs (through more efficient and more competitive installations) than for equipment costs (which are relatively mature). However, almost all cost reduction forecasts are significantly less than UK policy targets, suggesting that actual progress is unlikely to match policy goals.
This does not mean that ambitious policies to support heat pump roll-out and cost reduction are not desirable – effective policy support is a critical precondition and enabler of change. Rather, our review highlights the need to align policy aspiration with a realistic assessment of evidence – using data and reported experience to promote high quality and affordable heat pump installations in the UK.
Experiences of other technologies, such as offshore wind and solar PV, suggest that market expansion and cost reductions can be aligned to dramatic effect in the energy sector. At the same time, cost trends vary greatly by technology, and periods of static or increasing costs can be expected even within a longer term cost reducing trend.
The upfront cost of the UK’s net zero transition is an understandable policy priority, but it should not be the only concern. As well as decarbonising home heating, heat pumps offer energy security and efficiency benefits, economic development opportunities, and on a whole lifetime basis they can offer lower and more stable energy bills. This suggests the need for a wider view of low carbon technologies such as heat pumps, beyond radical cost reduction goals.