UK will have to spend £9bn more in foreign gas if it fails to ramp up heat pumps

May 05, 2023

By: Nicholas Earl

A lack of government ambition in ramping up the installation of heat pumps, and the failure to clampdown on new gas connections will force the UK to spend a further £9bn on extra gas imports from overseas vendors, warned the Energy and Climate Intelligence Unit (ECIU).

This would be both more costly, potentially driving up household bills, and more carbon intensive than clean energy alternatives.

In the climate advisory body's latest analysis, it predicts that laws requiring manufacturers to supply heat pumps and still allowing gas connections for new homes will see the UK buying an addition 200TWh of foreign gas between 2024 and 2035.

This is the equivalent of 16m homes’ annual gas use or the supplies contained within 200 LNG tankers.

Costs would rise to £1.35bn in 2035 alone, and cumulatively rise to £9bn over a 10-year period between 2025-2035.

The calculations are based on current predictions that show gas futures contracts will remain at two to three times pre-energy crisis levels for the rest of the decade, despite declining spot prices.

It also factors in expectations of declines in North Sea oil and gas production, amid an increasingly harsh investment regime and the rollout of renewables.

Jess Ralston, energy analyst at the Energy and Climate Intelligence Unit (ECIU), said: "The government faces a choice; continue subsidising oil and gas, and leave households exposed to volatile gas prices, or direct investment through bold policy into renewables instead.

"Every heat pump we install means less gas needs to be bought from places like Qatar, with the income going to renewables on British soil or seabed instead."

Previous ECIU analysis showed that as domestic fossil fuel production continues to decline, rising gas imports could mean that a house with a gas boiler and standard electricity demand would pay as much as £5,700 to foreign gas companies by 2035, including £140 per year to Qatar.

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The government launched a consultation in March earlier this year on the potential for a clean market mechanism – a set of production targets to trigger an upsurge in electric heat pumps – which closes today.

This would involve an obligation on the manufacturers of gas and oil boilers sold on the UK market to hold credits corresponding to qualifying installations of heat pumps in proportion to their relevant UK boiler sales.

The proportion is expected to be stepped up over time in line with the scale of growth in low-carbon heating.

The government's preferred position – Option One – will mean manufacturers of fossil fuel heating appliances will need to hold low-carbon heat pump credits representing four per cent of their relevant gas boiler sales above 20,000 units for the first 12 months of the scheme, which would begin next year.

For the second year of the scheme, the credit target will increase to six per cent.

The government expects these targets to correspond to credits for qualifying heat pump installations totalling around 60,000 in 2024/25 and around 90,000 in 2025/26.

ECIU however, warns that these targets are no more ambitious than current heat pump sales, and that market mechanism must aim to create a mass market for heat pumps.

It favours the more ambitious ‘Option Two’ which is a first-year credit target of 5.5 per cent and an eight per cent target in the second year.

An eight per cent obligation target in the second year would support around 125,000 heat pumps being delivered, well ahead of the more conservative first option.

It wants this option to be combined with the The Future Homes Standard, due to come into force in 2025, which initially promised that new homes will be fitted with ‘low carbon heating’ – which would mean either heat pumps or hydrogen-ready gas boilers.

The government has not yet confirmed its position on whether new homes will be allowed to be connected to the gas grid.

Heat pumps remain a nascent industry in the UK today, despite over 20m being installed across Europe.

Energy firms such as Octopus Energy and British Gas have pledged to reduce the cost of heat pumps to as low £2,500-£3,000 with the help of the Boiler Upgrade Scheme grant.

However, there are concerns over consumer support for heat pumps – with the House of Lords’ Environment and Climate Change Committee slamming the government's incumbent scheme as "seriously failing" in February earlier this year.

Since its launch in May 2022, official figures reveal that only 7,600 of the first 30,000 heat pump vouchers had been redeemed by the end of January, using up just £38.4m of the first year's £150m budget.

The government has been approached for comment.

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