Avoiding the inefficient heating system trap

What happens if you get a new heating system installed and it turns out to be badly installed and inefficient? One thing is certain: it will cost you a lot of money. Efficiency is a measure of how much energy your heating system uses to generate the heat you need. Lower efficiency means you use more energy, and energy is currently very expensive.

But there’s another question that is harder to answer: what should you do about it? Can you get your installer to come back and fix it? Can you complain? How will you even realise your heating system is costing you too much money?

This problem is an issue for the low carbon heating industry. One of the most widely used arguments against heat pumps is that they don’t work very well. While this is untrue in general, it is true for a minority of poorly installed heat pump systems (just as it is for poorly installed boilers). The best counter to this argument is to make sure all heat pumps are well installed — that they’re efficient and keep energy bills as low as possible.

But it’s also a fuel poverty and social justice issue. Poorly installed heating systems of all kinds — boilers, direct electric, heat pumps — impose huge costs on households. Many homes already have gas boilers that are too large and set to inefficient settings, which is making the current energy price crisis more painful. The switch to low carbon heating is also a chance to switch to more efficient, cheaper heating and save families money.

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The market won’t fix this problem itself, for two reasons. First, most customers just won’t know how efficient their system is. Most people don’t understand SCOPs (Seasonal Coefficients of Performance) or monitor their smart meter data (if they have one at all). They just notice their energy bill going up, without knowing why.

Second, people are generally much more swayed by the upfront cost of things — the cost of buying a new boiler or heat pump — than by the ongoing month-to-month costs. Supercharge Me, a brilliant new book by Corinne Sawers and Eric Lonergan, sets out the logic behind this clearly. Ongoing bills, like gas bills or petrol costs, are price inelastic — people don’t change their behaviour much when the price goes up. People mostly change behaviour when they make decisions about buying new kit — like a heating system or a car. We need to focus incentives on the big, infrequent purchases, not the day-to-day ones.

And this leaves us with quite a big problem: it may well be a better business model to offer a heat pump installation that’s cheaper upfront but is less efficient, and costs much more to run. This would be disastrous for many households.

Nesta’s recent analysis estimated that running costs make up 55% — 65% of the lifetime cost of a heat pump. A heat pump installation that costs £5,000 with an SCOP of 2.5 will cost you more than a £10,000 installation with an SCOP of 3.5 overall. The less efficient heat pump would cost an extra £500 a year to run in a typical home at current electricity prices. But it is very likely most people would choose the option which is cheaper upfront but less efficient and more expensive in the long run.

If your heating installer also happens to be your energy supplier the incentives look even worse, as Adam Gillesphy set out so clearly on a recent BetaTalk podcast. They could install an inefficient heating system that uses more gas or electricity, and then sell you that energy. If we’re not careful, heating systems could end up like Nespresso machines or razor blades: buy them cheap, get locked in to expensive ongoing costs.

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So how could we change these incentives and protect customers from falling into an inefficient heating trap? I don’t have concrete answers, but I want to share a few ideas. Some of these ideas would be voluntary measures — getting companies to take action on efficiency because it’s good business — and some would need to be regulatory — legally enforcing standards on efficiency.

One option is to make sure new heat pump systems (and all other heating systems, ideally!) have monitoring built in. Stephanie Willis has proposed an open monitoring approach, whereby heat pump manufacturers ensure their systems can openly share their efficiency data once installed, so that customers (and anyone else?) can see if they’re losing money to a poor installation. In the same way it’s easy to find out your broadband speed, it would be great if you could easily find what SCOP your heat pump was performing at. This sounds like a great principle, but there are some questions we’d need to answer:

· How would you make it accessible to the average consumer who is not obsessed with smart meter data?

· What could customers actually do if they found out they had an inefficient system?

· How would you get manufacturers and installers to agree to it — as a voluntary industry standard or a regulatory requirement?

Another approach is to regulate more explicitly. The UK government is planning to introduce a new market-based mechanism, which will oblige boiler manufacturers to also sell a quota of heat pumps. We have already argued that this mechanism should include an efficiency obligation, to ensure manufacturers don’t meet their obligation with poor quality heat pump systems. A more hands-on regulatory approach could set minimum efficiency standards for heat pump systems, with penalties for those who fail to meet them. However, regulation can be expensive and complicated — and it is often hard to persuade a government to prioritise it.

A further option is to focus on assurance and consumer redress. The accreditation process for heat pumps, run by MCS, currently focuses on an installer’s credentials pre-installation — it does not include extensive checks on actual installations. Having a clearer route for customers to complain about poor heat pump systems could help to expose low quality installers, and hopefully prevent future customers having the same experience.

A different, more industry-led approach would be to shift towards “heat as a service” models, where customers pay for the amount of heat they get, not the energy they use. That would put the incentive on to suppliers to make systems more efficient and reduce energy use.

Of course, these measures could work well in combination. If the heat pump industry did adopt an open monitoring standard, it would be easier for customers to know when to complain, and easier for an assurance body or regulator to spot poor installations.

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The efficiency of heating systems is a big issue, for the climate and for energy bills. There are some worrying incentives in the heating market which could leave households facing unnecessarily high energy bills. There are different ways we could tackle the problem, through a mix of voluntary and regulatory means. It is clear, though, that the heating industry and government need to work together to tackle this issue before it turns into a bigger problem.