By John Leary (BSc Economics)
[This piece is one of the top-scoring submissions from the “Government, Welfare and Policy” module for third-year undergraduates. It exemplifies the best of student work, showcasing their ability to engage and inform with standout blog-style writing. Enjoy one of this year’s top-marked essays, a testament to the students’ passion and creativity!]
Today, across Britain, 23 million homes burn natural gas for heating. Gas enters a combustion chamber burning to heat water, which is then pumped through radiators warming rooms.
Intensive use of hydrocarbons like natural gas releases carbon dioxide, methane, and other greenhouse gasses. This changes the composition of our atmosphere and alters our climate. With this contributing to more intensive weather events, rising sea levels and the destruction of ecosystems: the UK government has set the ambitious target of making domestic emissions net zero by 2050.
The government’s heat and building strategy reports that heating buildings account for 25% of the UK’s greenhouse gas emissions and nearly half of all gas consumed. To reach net zero targets the entire economy, including domestic heating, must be decarbonised. To achieve this the government has created the boiler upgrade scheme promoting heat pumps. This includes a target for 600,000 installations of heat pumps per year from 2028.
This article will explain what heat pumps are and the case for their subsidisation. It will then identify challenges in delivering heat pump targets and potential mitigating actions. The key challenges identified are the need for additional modifications to homes, limited installation capacity and our energy infrastructure.
What are heat pumps?
Gas boilers generate heat through combustion; heat pumps work differently. Instead, heat is transferred via a series of heat exchanges. This happens through a four-stage process of evaporation, compression, condensation, and expansion.
1-Evaporation: An electric fan blows cool air over a heat exchange. This heats and evaporates a liquid refrigerant into a low-pressure, low-temperature gas.
2-Compression: The gas is sent through an electrical compressor increasing the pressure of the gas resulting in a rise in temperature.
3-Condensation: Passing through another heat exchange the hot gas heats water to around 55 degrees. This is the hot water provided to the home. Having lost most of its heat the refrigerant cools enough to condense back into liquid.
4-Expansion: This passes through an expansion valve reducing the pressure. This allows the cycle to begin again.
This process is more energy efficient than traditional boilers. Analysis published in the Energy and Building Journal found current heat pumps, even when retrofitted to old homes, were 2.7 times more efficient than gas boilers. This means for every unit of energy heat pumps can produce 2.7 times more units of heat.
Heat pump subsidies.
British homes are predominantly heated by gas boilers with over 23 million installed across the country. The objective of the government is to change this. The boiler upgrade scheme provides grants for the replacement of gas boilers with low-carbon alternatives. This subsidises the cost of purchase and installation with up to £7,5000 available towards an air source or ground source heat pump and £5,000 towards a biomass boiler. Since the scheme’s introduction 96% of applications have been for air-source heat pumps.
Purchasing a small gas boiler can cost as little as £1,000 which is significantly cheaper than the pre-subsidy price of a new heat pump starting from £7,000. Also note that the price of gas is 3 to 4 times cheaper than electricity meaning heat pumps may also have marginally higher operating costs. Thus, pre-subsidy, the fixed cost of installation is higher for a heat pump and despite being more energy efficient, the higher cost of electricity also results in potentially greater operating costs. This may be deterring people from installing heat pumps.
Switching to lower carbon heating provides a public benefit of reduced emissions, which is not reflected in the market price. A socially optimum level of consumption, which prevents continued environmental degradation and climate change, is not being achieved. In 2021 1.6-1.7 million new gas boilers were installed compared to only 55,000 hydronic heat pumps. This puts the government’s net-zero ambitions at risk.
Figure 1 depicts a simplified heat pump market with prices on the x-axis and quantity on the y-axis. Quantity demanded falls as the price rises as fewer consumers are willing and able to purchase heat pumps. Supply increases as prices rise and a greater number of firms are willing to produce a greater number of units.
Quantity Q1 represents the market pre-intervention. The boiler upgrade scheme subsidises the costs of installation by giving grants to consumers buying heat pumps. This means at any given price point there are now more consumers who can afford a heat pump shifting the demand curve from D1 to D2. This increases the quantity consumed towards the social optimum. (From Q1 to Q2).
The heat and building strategy forecasts that the increased use of heat pumps and other low-carbon heating solutions will prevent the emission of 2.6 million tonnes of carbon dioxide over the scheme’s lifetime. However, for the scheme to be a success the government must address three key challenges: the need for additional modifications to homes, the installation capacity of the sector and concerns around energy infrastructure.
Housing modifications.
The government housing and building strategy estimates that 90% of homes would be suitable for heat pump installation. For heat pumps to operate efficiently, homes must first have a sufficient level of insulation. Analysis in the Journal of carbon neutrality predicts that in the UK less than half of homes are sufficiently insulated. This means that before heat pumps could be considered additional work would first have to be carried out. Works, such as installing double or triple-glazed windows typically cost £3,000-£5,000 in a family home. As well as insulation the heat pump association highlights that other heating infrastructure may have to be replaced in the home. Data from surveys of installers highlighted that 75% of homes required some radiators to be replaced with 32% requiring work on pipework.
Additional work increases the financial cost and disruption in people’s homes. The boiler upgrade scheme is solely for direct costs associated with buying and installing heat pumps. The installer provides a quote for the work and applies it to the scheme. Thus, the grant does not cover additional costs of installation like installing adequate insulation. This leaves people paying potentially much higher total costs to install pumps with limited financial support from the scheme.
To support the decarbonisation of Britain’s homes the government must provide measures to improve home energy efficiently more widely. Programs supporting better glazing and insulation would further reduce energy costs whilst preparing homes for heat pump installation in the future.
Sector capacity.
To meet the government target of installing 600,000 heat pumps a year from 2028 the number of annual installations must rise ten-fold. The current supply chain cannot support this. The limited number of qualified heat pump installers poses a challenge. The heat pump association highlights that there are roughly 4,500 qualified, competent installers currently working in the UK. To reach the 2028 target they estimate the sector will need 50,200 qualified staff. This is an increase of almost 45,000.
To support the training of staff the government has created the heat training grant. This offers a grant of £500 to support the cost of training. This has come in tandem with the expansion of apprenticeships in the sector. However, the uptake of training positions has been limited. To meet targets the government must work with industry to encourage new trainees. Without a significant expansion of the skilled workforce, there will not be capacity in the sector to deal with an increase in demand for heat pumps. Thus, limiting any gain from subsidised prices.
Energy infrastructure.
Energy enters a typical British home in two ways: through the electrical grid and the gas network. Increased electrification of heating through heat pumps will decrease demand on the gas grid by increasing demand on the electrical network.
Figure 2 shows the half-hourly profile of heat and electrical demands in the UK. This compares total electrical demand and a measure of energy consumed for heating across half an hour in the UK. The grey represents national electrical demand and the red a synthesised heat demand. At peak heat demands during the winter, the maximum demand for heat was six times higher than the highest demand placed on the electrical grid. Heat demands are volatile due to changing climatic conditions. During peak demand, the energy transported through the gas network is greater than that sent through the electrical grid. The grid, in its current form, would not be able to handle peak energy demand if all homes had electric heating. Even with higher energy efficiency found in heat pumps, a shift to electrical heating will require significant modification of the national grid.
The national grid is already undergoing work to increase capacity. Western Power’s low carbon strategy highlights that smart grid technology may also be able to help. This includes automatically using pumps during off-peak times, such as during the night, to help alleviate strain on the grid. However, this technology has not been fully developed.
Expansion of total capacity on the grid combined with smart-grid technology is key in keeping a gas boiler-free Britain warm. The government must support the development of these new technologies and the construction of new transmission infrastructure.
Final comments.
The government has ambitious plans to decarbonise heating by 2050. The boiler upgrade scheme has an important role to play in reducing the cost of heat pumps and encouraging their installation. However, to support the transition, the boiler subsidy must be a part of a wider set of measures.
A broader focus on domestic energy efficiency is required from the government. Greater emphasis on policies supporting better insulation will get homes ready for heat pumps whilst lowering potential additional costs associated with their installation.
Even if subsidies encourage the take-up of heat pumps, targets cannot be met unless the sector has extra capacity for installations. Further action must be taken to develop the supply chain and expand the workforce.
Heat pumps change the way homes consume energy. Transmission infrastructure on the electrical grid must be improved whilst incorporating new smart-grid technologies to balance electrical demands.
Bibliography:
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