Nesta’s evidence on the Boiler Upgrade Scheme
This is a copy of Nesta’s submission to The Environment and Climate Change Committee’s recent inquiry on the Boiler Upgrade Scheme written by Andrew Sissons, Deputy Director of Nesta’s sustainable future mission, and Cara Sanquest, Campaigns Lead. The Boiler Upgrade Scheme provides grants for the installation of low-carbon heating systems in domestic and small non-domestic properties. The Committee examined how effective the scheme has been, and is likely to be, including by exploring the experiences of grant applicants and recipients.
Andrew Sissons, Deputy Director of Nesta’s sustainable future mission, also gave oral evidence to the committee, the transcript can be found here.
Cost
15. How does the overall lifetime cost of a heat pump compare to fossil fuel boilers (and hydrogen boilers), including upfront costs for the unit and labour, associated installation costs (insulation, pipework), and running costs?
The median cost of installing a heat pump is higher than for gas boilers in all property types. Data from MCS shows the median cost of an air source heat pump has increased slightly over recent years, from around £9,000 in 2015 to £10,500 in 2021, an increase of 15%. The early figures from the Boiler Upgrade Scheme suggest median installation costs have risen to around £13,000 in 2022, although this may reflect slightly larger heat pumps being installed under the scheme.
In terms of whole-life cost of owning a heat pump, the biggest factor is running costs, primarily the electricity used to run the heat pump. When installation and running costs are combined, heat pumps currently cost between £450 per year for smaller homes and £770 per year for larger homes more than gas boilers over their lifetime[1]. A typical breakdown of heat pump installation costs can be found in our report.[2].
Heat pumps turn energy into heat much more efficiently than gas boilers. However, their running costs have, until recently, been at least as high, because UK electricity prices track gas prices (and electricity was costing four to five times more per unit than gas).
However, the energy crisis has made heat pumps relatively cheaper compared to gas boilers. As gas prices have increased, the ratio of electricity-to-gas prices has fallen, making heat pumps relatively cheaper to run. Efficient heat pumps (those with an efficiency around 2.9) now have similar running costs to a gas boiler. Running costs are now £100-£250 cheaper for heat pumps than before the energy crisis and the whole-life cost of a heat pump relative to a gas boiler is reduced by £70-£160 per year.
Installers and assessors
17. Are there sufficient numbers of quality installers and assessors now and is the pipeline sufficient to meet targeted numbers of installations in future years?
The UK Government has set a target of 600,000 heat pumps a year being installed by 2028. There are currently between 20 and 25 heat pumps fitted per trained installer per year.
Around 27,000 heat pump engineers would be needed to meet the UK Government’s target of 600k by 2028, assuming current levels of installations per worker. This is a roughly nine-fold increase in six years. We estimate that if the number of installations per worker per year remains constant, around 37,000 installers would be needed by 2030 and 62,000 by 2035, notwithstanding any increases in productivity. Increasing installations per worker per year to 40 would reduce the number of workers required further, to 15,000 in 2028 and 35,000 in 2035[3].
Our analysis has found that there are approximately 1,300 installer companies MCS-certified to install air source and ground source heat pumps in the UK. The top 10 companies by the number of installations were responsible for 16% of total MCS-certified installations from 2010 to 2021. There are large variances across the UK in the number of heat pump installers. The highest concentration of MCS-certified installation companies per 100,000 people is in the Highlands and Islands region of Scotland which has 11 times more installer companies than the West Midlands, the area with the lowest concentration.
Gas Safe data from 2019 shows that there were about 130,000 registered gas engineers.. Helping gas engineers make the switch into heat pumps will be an important part of achieving the UK Government’s goals on heat pumps, as will providing pathways for new trainees into the industry.
18. Are training and qualification arrangements fit for scaling up installations to meet the Government’s target for 600 000 installations by 2028?
The cost of training to be a heat pump installer is high. For a sole trader, the cost can be up to £2,500 and training needs to be repeated every five years. The Boiler Upgrade Scheme (BUS) is only open to MCS-certified companies and there are also costs associated with obtaining MCS certification. To install air source heat pumps under the MCS contractor scheme, an installation company would typically have to pay £840 for its initial registration and an annual renewal fee of £684.34. Other costs might include assessment fees or administration fees. There is also an opportunity cost coming from the time taken to complete the application process. The full cost to retrain can exceed £5,000.
In addition to the relatively high cost of training, our analysis has found that there is no wage premium attached to heat pump installations.The minimum annual average advertised salary for all installation engineers (including gas and heat pump engineers) is approximately £37,000 per year while the minimum annual average advertised salary for heat pump installations engineers is approximately £35,200 per year.
The three- to four-year process of training as a gas and oil heating engineer or plumber via an apprenticeship or college, then transitioning into heat pumps can be discouraging, particularly for those looking into joining the industry as a career change later in life. On the other hand, the negative reputation of fast-track courses can also dissuade people from entering the workforce. For those entering the industry via a gas heating or plumbing apprenticeship or college qualification, learning about heat pumps is likely to be minimal.
Training to be a heat pump engineer is complex and there is a lot of variation in training courses from half-day courses to five-day courses. Some courses include practical elements while some are theoretical. Engineers can therefore come out of training with varying levels of competency.
Other barriers include lack of incentives to take on apprentices
19. Does the scheme provide the level of certainty required for installers and assessors to retrain?
Nesta’s research suggests that a perceived lack of demand for heat pumps is a key factor preventing more heating engineers from entering the market. There are two important signals from the UK Government that may be contributing to this perception.
- Not making a decision on the role of hydrogen in home heating until 2026, which enables some manufacturers to suggest there are better alternatives to heat pumps.
- Capping the Boiler Upgrade Scheme vouchers at 30,000 per year, which suggests the UK Government only expects the market to be small in the next few years.
Installation process
22. To what extent is the hassle factor a constraining factor in low-carbon heat take-up, and, if so, what measures can address this?
Installing a heat pump system, or most low-carbon heating systems, is more complicated and takes longer than a gas boiler. It involves preparation time, installing a hot water tank and potentially upgrading radiators or heat exchanges. Nesta mapped out the customer journey from first thinking about heat pumps through to having one installed and living with it. Our research suggests a typical customer journey for a heat pump takes around two to six months[4]. This long lead time becomes more of a barrier for people in distress who have to replace their heating system because their current one has broken down as they will often be seeking an immediate like-for-like solution.
Public awareness
2. Is sufficient information available and publicised which supports consumers to make decisions about installations (including on price and design)?
It is hard to get accurate information on installation and running costs of heat pumps. People get information from charities and advice services, the government, peers, installers, manufacturers and online searches. Public information should focus on running costs, which is difficult because the cost can vary depending on the efficiency of the heat pump.
Scheme design
4. Is the scheme designed in such a way to achieve its objectives, from the perspectives of consumers, installers, and third parties?
Fewer than 50% of vouchers applied for have been paid out as of October 2022[5]. The vouchers are eligible for three months which creates a real risk that installers or customers will lose out on getting a grant.
The level of the grant for ground source heat pumps needs to be looked at again because uptake is low and a ground source heat pump costs more than £1,000 more than an air source heat pump. The £6,000 ground source heat pump figure seems not to be working so well, given very low takeup of vouchers for ground source heat pumps.
We have not hit this problem yet, but there is a risk associated with the 30,000 cap on BUS applications each year. The current policy is “first come, first served”, so if an installer installs a heat pump and applies for the grant, but they have all been taken for that year, those installers may end up out of pocket. We need to make sure that there is more flexibility and an indication that, if this scheme works, the Government will extend it, or at least will look after installers who, in good faith, try to follow the scheme.
Nesta submission: Environment and Climate Change Committee enquiry on the Boiler Upgrade Scheme — Andrew Sissons, Deputy Director, and Cara Sanquest, Campaigns Lead
References
[1] https://www.nesta.org.uk/report/how-the-energy-crisis-affects-the-case-for-heat-pumps/
[2] https://media.nesta.org.uk/documents/How_to_reduce_the_cost_of_heat_pumps_v4_1.pdf
[3] https://media.nesta.org.uk/documents/How_to_scale_a_highly_skilled_heat_pump_industry_v4.pdf
[4] https://www.nesta.org.uk/project-updates/how-understanding-user-journey-heat-pump-adoption-will-generate-innovation/
[5] https://www.nesta.org.uk/data-visualisation-and-interactive/six-months-in-how-is-the-governments-boiler-upgrade-scheme-doing/
