Is prepayment the next big frontier for air source heat pumps?

The UK is lagging far behind other comparable countries in installing heat pumps and the government risks not achieving its goals for net zero as a result.

A recent report showed that just 55,000 heat pumps were installed in the UK last year compared with 600,000 in France even though the markets are similar in size. Interestingly, the UK Government is only targeting the current French figure by 2028. View the report here.

There are plenty of reasons for the slow take-up of heat pumps in the UK but there is one sector of the market that has been largely overlooked when it comes to potentially fast-tracking the adoption of heat pumps in the UK – the prepayment market.

There are around 7.8 million on prepayment meters in the UK, with a disproportionate number of those people on low incomes.

Yet recent changes to government grants for replacing gas boilers as well as other considerations means that installing a heat pump is not out of reach.

The Energy Saving Trust says that it costs approximately £7,000 to £13,000 to install an air source heat pump.

That sounds out of reach for most households in a cost-of-living crisis but the figure can be recouped in a range of ways.

On 23 October 2023, the Government increased the grant available to householders for installing an air source heat pump from £5,000 to £7,500.

That may still not be enough to cover the cost of the installation but it can be made affordable in other ways.

Many mortgage lenders, such as Barclays and the Nationwide, now offer money towards eco home improvements.

Barclays’ Greener Home Reward, for example, offers borrowers looking to fund home improvements £2,000 towards the cost of installing an air source heat pump. Halifax offers £1,000 as part of its Green Living Reward scheme.

According to the government, there are around 7,000,000 properties in the UK which fall into the easy-to-install category for heat pumps and which will require little or no adaptation to use one.

So why isn’t it happening?

There are challenges, sure. There is a shortage of qualified and experienced heat pump installers. This is important because the installer needs to do a thorough analysis of the home and its heating requirements in advance to make sure the heat pump is the right size for the property.

A good heat pump installer will go over every square foot of the building to work out the heat loss from every room with various differences in inside and outside temperature and uses that to work out the necessary radiator sizes to give the right heat output.

Then you need to fit a heat pump that works for that output requirement. If the pump is too small, you can’t heat up the home as quickly as you want. If it’s too large, the pump cycles on and off. While this is not a problem for a gas boiler, restarting a pump uses a lot of power so it is better to have it operating for a chunk of time, for example for several hours during a cheap electricity period.

Some of the schemes on the market at the moment use standard sizes of heat pumps that might not be right for a property, meaning that the sums do not add up.

In some ways, the Government’s ECO4 scheme for houses on lower incomes is actually hindering the installation of heat pumps for lower income households.

Under ECO4, householders can have their boiler upgraded if it is older than a certain age. In many cases they are installing new combi boilers and often taking out an old boiler which might have a hot water tank. That’s efficient compared to the old system but it locks in that carbon use for the next 10 to 15 years for that home when a heat pump might be a far better option for the environment.

The new generation of smart tariffs also helps make replacing a boiler with a heat pump affordable for all. Procode’s Intelligent Data Adapter technology enables energy providers to offer tariffs that are much more flexible than the fixed unit price of old.

There are already various smart tariffs on the market that are starting to leverage the clever technology that is being provided by the smart meter rollout, including tariffs that offer cheaper electricity targeted at households with an installed air source heat pump. Other smart tariffs are designed for families with electric cars.

Such smart tariffs are set to become even more common in the future as the government aims for Net Zero and consumers aim to take advantage of their actual usage.

The costs of electricity under these tariffs are still more than gas but the final piece of the jigsaw is that air source heat pumps are up to four times more efficient than gas boilers. Ongoing running costs for a heat pump can be assumed to be roughly half that of a gas boiler.

Procode is investing significant time and effort into supporting socially responsible smarter tariffs across both credit and prepayment.

Replacing a boiler and installing an air source heat pump now makes sense financially. When you also consider that running an air source heat pump significantly reduces the carbon footprint of heating by at least 73%, it really could be a no-brainer. Those 7 million homes that are easy to change could see the UK overtake its neighbours to become a world leader.