(The rise in energy prices in the UK on April 1st 2022 affected gas more than electricity. The ratio between the two prices has changed. Using the COP assumptions in this article, removing all environmental levies from electricity and placing them on the price of gas would now mean that a heat pump would currently reduce the overall bill if a heat pump is installed).

Even after deducting all environmental levies, heat pumps remain more expensive than gas.

Some comments about a previous post on the costs of heat pumps focused on the effect of high levies imposed on electricity in the UK. The purpose of this short piece is to suggest that even after moving all environmental and social charges from electricity to general taxation, air source heat pumps will still have higher energy costs than gas boilers.

This is a fundamental obstacle to the government’s plans for a huge growth in air source heat pump use.

In the previous article I used the prices for electricity and gas provided by British Gas, the UK’s largest supplier, for a household in Oxford.

These were over 17.7 pence per kilowatt hour for electricity and 3.3 pence for gas.

The ratio between these numbers is about 5.33 times. This implies that unless a heat pump is very much more efficient, the household’s energy costs will rise substantially when one is installed. This is what is usually experienced by families around the UK, if my email inbox is any guide.

Heat pumps can be very efficient, putting up to 4 units of heat into a house for each unit of electricity consumed. But typically in the UK air source heat pumps do not deliver efficiency gains of anything like this number. Academic research for the UK government suggests that the real ‘Seasonal Performance Factor’ is probably below 2.8.[1]

Even after taking into account the efficiency loss of a gas boiler, arising from the small percentage of the energy value of gas not being delivered into hot water, heat pumps will therefore be very much more expensive.

Calculating the impact of ‘Environmental and Social Obligation Costs’ on the economics of heat pumps.

I looked at British Gas’s most recent ‘Consolidated Segmental Statement’ for 2019.[2]This allowed me to deduct the financial charges loaded onto electricity prices. (These arise from costs such as Feed-in Tariff payments).

If we removed all these costs entirely for 2019, the price of electricity would decline by about 23%, bringing it down to about 13.4 pence per kilowatt hour or just over 4 times the price of gas. At this ratio, and assuming 85% efficiency for a gas boiler, switching to a heat pump will still add about 22% to a household’s bill for home heating.

The government could take one further obvious step. It could transfer all the current Environmental and Social Obligation Costs from electricity to gas. This action would approximately equalise the cost of running an air source heat pump and operating a gas boiler in the average UK household.

If the UK wants to push heat pumps – and I can certainly see the logic of this ambition, even with all the reservations expressed in my previous post – it will have to radically shift relative gas and electricity prices. It needs to cut electricity prices by a quarter and add a quarter to gas. I wonder whether there is any impetus to achieve this?

[1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/606829/DECC_RHPP_160428_On_performance_variations_v20.pdf

[2] https://www.centrica.com/media/4011/centrica-2019-ofgem-statement.pdf