How Octopus Energy is preparing to shake up the heat pump market

Utility Week’s Lucinda Dann visited the UK’s first R&D centre for heat pumps to find out how and why Octopus Energy is preparing to install them on a mass scale from April 2022.

The government’s boiler replacement scheme may only be for 30,000 heat pumps per year for three years from April 2022, but Octopus Energy is expecting the scheme to act as a catalyst for revolution within the heat pump sector.

As such, it has spent the last few months busily preparing for the launch of the scheme at its new £10 million heat pump research and development centre in Slough.

The company has set itself an ambitious goal; cutting the cost of installing a heat pump to the same as it is for a fossil fuel boiler within 18 months. The company is laser-focused on achieving its goal.

It expects some of that cost reduction to come from buying hardware directly from manufacturers, with the rest being from quicker installations and a strategy of focussing on the easiest homes first.

Building an army

One of the main issues keeping costs high is a shortage of heat pump installation engineers due to it being a cottage industry, Octopus says.

Therefore, its focus ahead of the scheme’s launch in April is training an army of engineers to carry out the expected work.

Most of the company’s R&D centre is currently focussed on training and around 1,000 trainees are expected to pass through Octopus’ programme a year.

Having designed the training programme itself, the first recruits started their learning in November, and with training times depending on previous experience, around 400 engineers, or 100 teams, are expected to be ready for the scheme’s launch.

The company says the trades which are taking the training course include labourers, people with heating and plumbing experience already, and electricians.

All of the engineers taking part in Octopus’ training scheme will be employed by the company itself, with many of the electricians having been working on installing smart meters until now.

John Szymik, chief executive of Octopus Energy Services says the cost of installation is high partly due to highly skilled tradespeople being involved in the whole installation process, including unloading the heat pump off the van.

Octopus’ model will be different, he says due to the companies’ size and resources.

“We will have a big pool of electricians who will appear just for the necessary bit.”

Initially the company will only be looking to take on installations in London and the home counties, expanding to other areas soon after.

“We won’t necessarily be able to cover the whole market by April, but we are working towards it,” he says.

Focussing on the 40% that are ready to go

Inside an innocuous warehouse on the Slough Industrial Estate are two full-sized three bed houses, complete with carpets, radiators and fitted kitchens.

One has been designed to modern standards, while the other is to 1970s specifications.

The company says that the two houses represent around 40% of the UK’s housing stock and have been built to allow engineers on its heat pump training programme to work within real-life spaces to connect-up the new technology.

They are also representative of the types of houses Octopus will be targeting as it hopes to create momentum in the market.

“Up until now the heat pump market has been a cottage industry, with most installations being really bespoke off-gas grid projects which require extensive planning and surveying,” says Szymik.

“Our job is to create a market.”

Houses built to modern specifications, of which there are nearly 3,691,500, or 17% of the UK housing stock, are ready for a heat pump today.

These homes will not require any additional insulation, making them the quickest, and cheapest homes to install heat pumps into.

Another 12%, or 2,438,900 homes have been built to 1970s standards which will only require some additional insulation at installation to achieve the best efficiencies.

Despite claims that homeowners will have to change all of their radiators to much larger ones, Szymik expects to only change at most one radiator per house based on a whole heat loss calculation for each room.

He adds that Octopus is only interested in the retrofit market currently, rather than new build or commercial, and will look to install heat pumps in both new and existing customers’ homes.

Although the company is only interested in a niche section of the housing market, the scheme is open to all homeowners, but Szymik says this won’t be a problem.

“Any increase from the scheme will be helpful, even if it is not all taken up by the target market of well-insulated homes who could have a heat pump installed tomorrow.”

Key to encouraging the uptake of heat pumps will be being able to interrupt the usual decision-making process which sees customers opt to replace an existing gas boiler when it breaks with another one.

But Octopus is confident customer demand will be high based on the limited marketing they have done around heat pumps up until now.

“We did a marketing campaign where we asked people if they were interested in getting a heat pump and being part of a trial, but it was so popular that we got so much interest, we had to turn that off after two days,” says Aimee Clark, head of commercial, electrification of heat.

Around a quarter of those emailed said yes immediately, she adds.

Octopus will not be looking to offer financing to customers to cover the upfront costs, as this would excuse it from needing to bring down costs.

“Lazy installation businesses will rely on finance to avoid being relentless about cost reductions,” says Szymik.

Two potential sticking points in the uptake of heat pumps could be the management of the voucher scheme itself, and the fact that houses receive a lower energy performance certificate (EPC) after having a heat pump installed.

On both fronts the company has been working with the government, says Szymik.

“We have been doing a lot of work with the government on the voucher scheme, we know they have learnt lessons from the Green Homes Grant.”

Heat pump development

The second part of the R&D centre will be the construction of a proper lab facility which will include weather chambers that can be set to produce specific weather conditions that mimic real-life, allowing developers to see how heat pumps would have performed during past weather events.

Despite being a relatively mature technology, Octopus’ head engineer for the electrification of heat, Peter Konowalczyk, says there is plenty of development still to be done.

The company wants to work with smart control manufacturers to optimise them for use with heat pumps.

It is also trying to influence manufacturers in how they design the controls of the heat pump itself, such as those for separate heating and hot water, as these will be critical for heat pumps to make full use of the company’s time-of-use tariffs.

Already heat pump owners are turning their heat pumps off for short periods when the electricity price is highest to help reduce running costs.

Octopus says the cost of running a heat pump has been reduced to being just 4% higher than gas due to its Agile tariff, but real progress will not be made in this area until the cost of environmental levies are switched from electricity to gas, it says.

It also hopes to develop more sophisticated ways of varying a heat pump’s electricity demand by varying the compressor speed.

Szymik says buying direct from manufacturers has already reduced the cost of the heat pumps themselves, which make up around half of the total price, by 40% but the company has not ruled out becoming a manufacturer itself one day in order to gain full control over component development.

For the moment, R&D work is focussed on the immediate problems such finding a solution for the 7% of homes which have microbore pipes, the 50% of homes without hot water storage and the 14% of homes which are flats.

Despite traditionally not being seen as a heating solution for flats and high-rise buildings, Konowalczyk says it is perfectly feasible to connect-up individual tenants using an indoor heat pump which is connected to outside in the future.

After that, the focus will be on decreasing the size of heat pumps and improving their aesthetics.

“It is difficult to make a heat pump even more efficient, but we can make it smaller. The focus for the last 10 years has been on efficiency, but now that we have reached [a coefficient of performance] of five, that is enough,” says Konowalczyk.