Government grants for replacing gas boilers with heat pumps may run out three years earlier than expected, according to an advisory body.
The Boiler Upgrade Scheme could see its £450 million worth of vouchers depleted by 2024 if uptake continues at its current rate, according to analysts at the Energy and Climate Intelligence Unit (ECIU). The research suggests that current uptake rates would hit 150,000 heat pump installations by 2024 — but £450 million of vouchers would fund only 90,000 of those.
The shortfall in funding also throws into doubt the government's target of installing 600,000 ground source or air source heat pump a year by 2028 to meet its Net Zero targets.
What is the Boiler Upgrade Scheme (BUS)?
The government introduced the Boiler Upgrade Scheme to assist homeowners in England and Wales in covering the initial expense of installing heat pumps to boost uptake of the carbon-friendly technology.
Under this policy, which has a budget of £450 million, eligible homeowners can receive grants of £5,000 for air source heat pump installations and £6,000 for ground source heat pumps.
Homeowners still need to cover any additional costs beyond the grant amount although installers such as Octopus and British Gas have reduced their installation fees to bring costs down further.
When was the BUS meant to run until?
The scheme was initially meant to run until 2025, however, due to the lack of households using the scheme, which was described as "disappointingly low" by the House of Lords Environment and Climate Change committee, the scheme was extended until 2028 earlier this year.
Although even with this extension the government were warned their target of 600,000 installations per year by 2028 was unlikely to be met due to high upfront costs, a lack of installers and a lack of public awareness of low-carbon heating systems.
Why could the scheme be running out of cash?
The government has allocated £450 million towards the Boiler Upgrade Scheme with the aim of installing 600,000 heat pumps in British homes per year by 2028. Each installation would cost up to £6,000 in vouchers.
Existing uptake was at 7,641 installations in January 2023 (£49.7 million in vouchers) since the access to the online portal was opened in November 2022, according to Ofgem figures. Monthly heat pump installations are therefore growing at a rate of approximately 10% each month, according to statistics from the Department for Energy Security and Net Zero.
After crunching the figures, analysts at the Energy and Climate Intelligence Unit (ECIU) have pointed out that there is a significant shortfall in funding to cover even existing uptake, let alone the 600,000 per year government target.
They said that if the 10% rise in uptake each month continues, demand for the Boiler Upgrade Scheme will hit 150,000 heat pump installations by 2024. This would take it beyond the £450 million worth of funding for vouchers that is available, with a shortfall of £90,000.
What would this mean for the scheme?
If the government wants to meet its targets of installing 600,000 heat pumps a year by 2028 to meet its Net Zero aspirations, it is clear that more funding will be needed.
If not, with no funding available uptake of heat pump technology in British homes will stall. Jess Ralston, of the ECIU, said that if this happens Britons will continue to be reliant on fossil fuels and gas imports.
“The gas industry has said that the North Sea will continue to decline in the coming years so unless we start to rapidly shift away from gas boilers now, we’ll become even more dependent on foreign gas imports," she said.
David Hilton, an expert in heating from Homebuilding & Renovating, says that if the government doesn't address the funding concerns, this situation could lead consumers to postpone their installations due to insufficient incentives. It may also erode consumer confidence in adopting heat pumps.
Hilton explains that streamlining the process for homeowners is hugely important too, highlighting that planning permission hurdles also need to be addressed as well as additional investment in installer training and qualifications.
Could additional funding be made available?
A spokesperson from the Department for Energy Security and Net Zero was keen to voice assurances that vouchers would continue to be available.
“We dispute this analysis and fully expect to continue having vouchers available throughout next year. The scheme will be extended for 2025 with new, additional funding in each year until 2028, and we are completely confident we will meet our target of 600,000 heat pump installations,” the spokesperson said.
Bean Beanland, Director for Growth & External Affairs for the Heat Pump Federation (HBF), supports the government's stance, explaining that there isn't a fixed budget for the Boiler Upgrade Scheme and the £450 million could be increased if deemed necessary.
He adds that heat pump installations are becoming cheaper for British homeowners and with the price of electricity predicted to fall as well as the price of installing a heat pump, government heat pump grants will eventually not be needed. He states "Actually, we'd much rather have fairer prices for electricity and no incentives".
