National Audit Office report: Low heat pump uptake slowing progress on decarbonising home heating

Boiler Upgrade Scheme has achieved lower than expected uptake.

Government expects to see an eleven-fold increase in heat pump installations by 2028 based on optimistic assumptions.

NAO report recommends steps for DESNZ to improve heat pump rollout as well as calling for earlier clarity over the role of hydrogen in home heating.

The number of heat pump installations by December 2023 was less than half of planned projections; uncertainty regarding the role of hydrogen in home heating is hampering investment and effective planning, a new National Audit Office (NAO) report has found.

Home heating represents 18% of UK greenhouse gas emissions. Government sees heat pumps as the main technology to decarbonise the UK’s 28 million homes over the next decade.

The government wants to see 600,000 heat pumps installed per year by 2028 – an eleven-fold increase on 55,000 heat pump sales in 2022⁴. By 2035, government wants to see up to 1.6 million heat pumps being installed annually.

But the independent public spending watchdog says the government’s assumptions about levels of consumer demand and manufacturer supply⁵ are optimistic. The government’s flagship Boiler Upgrade Scheme has also underperformed, installing just 18,900 heat pumps between May 2022 and December 2023. DESNZ had expected the scheme would deliver 50,000 installations by this point.

A key issue behind lower-than-expected heat pump uptake is their cost to use and install. DESNZ delayed its planned work to reduce running costs, by rebalancing gas and electricity prices, for example by moving some levies and charges from electricity to gas bills⁶. The department says that price rebalancing remains an essential policy but is challenging. Heat pump installation costs also fell more slowly than DESNZ hoped.

The NAO also found that DESNZ has no overarching long-term plan to address the low levels of awareness among households about the steps required to decarbonise home heating.⁷

In response to the Boiler Upgrade Scheme’s underperformance, DESNZ increased the grant available to people replacing boilers from £5,000–£6,000 to £7,500, which has enabled some energy suppliers to offer heat pump installations starting at £500. Applications to the scheme in January 2024 increased by nearly 40% compared with January 2023, though more data is required to determine whether the change is sustained.

DESNZ is considering what role hydrogen will play in decarbonising home heating. The department has so far indicated that it will have a limited role, but it will formally take a decision in 2026.

Trials of hydrogen schemes intended to provide evidence to support the government’s decisions have been delayed or cancelled. Stakeholders told the NAO ongoing uncertainty could slow progress by limiting the ability of local authorities and industry to plan and invest.

Parts of the gas network may need to be decommissioned if natural gas is no longer in use and hydrogen is confined to certain areas of the country.⁸ DESNZ is working to develop its understanding of the consequences for gas networks of decarbonising home heating and how decommissioning could be funded.

The NAO recommends government considers providing more certainty on the role of hydrogen in home heating before 2026.

To improve its transparency and accountability on the rollout of heat pumps, the NAO says government should report its progress annually to Parliament.

The public spending watchdog is recommending government develops an overarching long-term consumer engagement plan for decarbonising home heating. And it also recommends that DESNZ accelerates its work to rebalance the cost of energy to improve heat pump uptake.

Gareth Davies, head of the NAO said:

“Government needs to engage every household to achieve its objective to decarbonise home heating as part of the transition to net zero. DESNZ’s progress in making households aware and encouraging them to switch to low-carbon alternatives has been slower than expected.”

“DESNZ must draw on its experience to date to ensure its mix of incentives, engagement and regulations addresses the barriers to progress in its current programme of work.”

Notes to editors

1. The NAO’s report, Decarbonising Home Heating, assesses the progress the Department for Energy Security and Net Zero (DESNZ) has made in decarbonising home heating since it published its Heat and Buildings Strategy in 2021.
2. The Climate Change Committee (CCC) estimates that an additional investment of £162 billion is needed from 2020 to 2050 to install low-carbon heating in existing UK households.
3. The Boiler Upgrade Scheme offers grants of £7,500, covering nearly 60% of the average installation cost of a heat pump in 2023 (paragraph 15, page nine). This is an increase from the £5,000 grant for an air source heat pump and £6,000 for a ground or water source heat pump that was available from May 2022 to September 2023.
4. Heat Pump Association data indicates that 55,000 heat pumps were sold in the UK in 2022.
5. A third of respondents to the 2023 consultation on the Clean Heat Market Mechanism reported that government’s targets would be unachievable under market conditions at the time, although this pre-dated the increased grant available through the Boiler Upgrade Scheme.
6. The government has committed to rebalance energy prices over the course of the 2020s. Electricity remains more expensive per unit than gas, making heat pumps potentially more expensive to run than a gas boiler. The government’s plans include shifting energy levies and obligations from electricity to gas bills, but its plans around this have been delayed by nearly two years.
7. A total of 30% of respondents to a government survey in summer 2023 had never heard, or hardly knew anything, about the need to change the way homes and buildings are heated to reach net zero. A further 31% of respondents knew ‘a little’ about this; 28% knew ‘a fair amount’; and 11% knew ‘a lot’. This is based on DESNZ’s Public Attitudes Tracker: DESNZ Public Attitudes Tracker
8. The government’s Heat and Buildings Strategy identified that “hydrogen gas may be able to be distributed using all or parts of the UK’s extensive gas network”, but it also stated that further work is needed to assess hydrogen network requirements.
9. For a full list of recommendations, please see pages 12 and 13, paragraphs 24 and 25. Further recommendations include government publishing an updated Heat and Buildings Strategy.