Policy mechanisms to support heat pump deployment: A UK case study based on techno-economic modelling

Abstract

The UK has adopted ambitious climate targets aiming to reach net zero GHG emissions by 2050). One pathway for decarbonisation is the electrification of space heating, at the same time as the power system is decarbonised through a rising share of renewable sources. Heat pumps (HP) offer a potentially highly efficient form of electric heating and could make an important contribution to the transition to a low carbon economy. Compared to several North and Central European countries, the level of adoption in the UK has been low. The research question in this paper is what are the factors that might lead to a mass-market take-up of HP in the UK residential sector? This question is addressed using a techno-economic model which compares investments in HP with competing options (e.g. gas boilers) under a number of scenarios regarding progress on the efficiency of HP, energy prices and supportive policies like a feed in tariff (in the UK the Renewable Heat Incentive), capital grants and the removal of the climate policy cost from electricity prices. The comparison is made from a social utility and a consumer utility perspective. The goal of this study is to identify those policy mechanisms that would enable decarbonising heat through heat pump uptake at least cost for society. The methodology developed is suitable for exploring the take-up of other low-carbon options, and is therefore of wider international relevance. The study showed that HP efficiency, the assumed shadow carbon price and the inclusion or not of climate policy costs in the electricity price were the factors with the highest impact on HP uptake. Key policy recommendations include the removal of the climate policy cost from electricity prices and the introduction of financial incentives (e.g., capital grants) as necessary conditions to overcome the high up-front and running costs which hinder HP adoption.