- Heat pumps could cut bills by more than £400, according to E3G
- The government needs to cut levies from electricity
- Big reform of system needs for technology to hit potential
Heat pumps have the potential to almost halve energy bills if the government made the right policy changes, such as removing levies from electric heating, according to a study by climate think tank E3G.
The report found that a typical household with an annual gas bill of £820 could cut its outgoings to £375 by switching to a heat pump. However, installing a heat pump on its own would not be enough, with E3G saying policymakers need to significantly change the way electricity is taxed and regulated.
If you want to learn more about government grants for heat pumps, read our dedicated guide.
Heat pumps have grown in popularity in the UK in recent years, thanks in part to government grants, such as the Boiler Upgrade Scheme. However, uptake is still held back because while the technology cuts carbon emissions, it does make energy cheaper because the wholesale price of electricity is four times that of gas.
To help make heat pumps meet their bill-cutting potential, E3G says the government should make four changes.
The first would be to remove levies from electrical heating. This is an idea that has been suggested numerous times, and would in theory fix the price difference between gas and electricity, a phenomenon called ‘the Spark Gap’.
At the time of writing, gas costs 6.33 pence per kilowatt hour (KwH) and electricity is 25.73 pence per KwH.
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The Spark Gap is caused largely by the levies placed on electricity by the government, the proceeds of which go towards funding renewable energy production in the UK. As things stand, more than 25% of the cost of electricity is down to these levies.
What is the Spark Gap? Our guide will tell you everything you need to know.
By removing these levies into other areas of government income, such as general taxation, would save households up to £150 annually on heat pump running costs.
Separate data from heat pump company Aira found that 48% of MPs would support removing levies from electricity to make heat pumps cheaper for UK households, with support coming from all parties.
The second proposal from E3G is to reduce electricity prices through system reform which would include extending Contracts for Difference, the process by which the government supports renewable energy projects, by 10 years. This would reduce uncertainty and lower bills by £90 a year.
How much does a heat pump cost? Our dedicated page will give you the clearest idea of how much a heat pump will set you back.
The third step from E3G is to drive up performance standards for low-carbon heating. The think tank proposed that the government invest in innovation that could improve the efficiency of heat pumps and support households with outdated electric heating to upgrade. This could, according to E3G, save households £140 a year.
Finally, E3G says it is vital the government ensure consumers can access cheaper off-peak electricity. The think tank has called for ministers to “unleash the potential of consumer-led flexibility” by giving households the right information about choosing the best available energy tariff. By doing this, £175 could be cut from the average bill.
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