Pathway set out to end gas and electricity price imbalance

The government has launched moves to even up the balance between gas and electricity prices but has stopped short of bringing forward the 2035 boiler ban in the government’s wide-ranging new Energy Security Plan.

The plan, which has been published today (Thursday 30 March), says ministers accept the recommendation of ex-energy minister Chris Skidmore’s Independent Review of Net Zero that the government should make significant progress on the relative prices of electricity and gas by the end of 2024.

The government has also accepted the review’s recommendation that it should commit to outlining a clear approach to rebalancing gas and electricity prices by this time next year.

The plan says that such a rebalancing will generate the clear short-term price signal required for households and businesses to adopt lower-carbon, more energy efficient technologies like heat pumps, which it describes as vital to helping the government hit its decarbonisation targets.

Various environmental and social policy levies add around £150 per annum to the typical annual electricity bill but are not applied to gas.

However the government has not accepted Skidmore’s recommendation that its proposed ambition to phase out natural gas boilers by 2035 should be brought forward by two years, although the proposal will be given further consideration.

The plan also says ministers will be pressing ahead in 2024 with the Clean Heat Market Mechanism, which is designed to incentivise boiler manufacturers to increase installations of low-carbon heating systems.

A separate consultation paper on the mechanism, proposes that in 2024/25 manufacturers of heating appliances will have to sell one heat pump for every 25 UK gas boiler sales above 20,000 units. This should deliver around 60,000 heat pumps, according to the paper.

This proportion will then increase year on year, initially rising to 6% of manufacturers’ boiler sales in 2025/26. By 2028/29, the paper proposes that the mechanism should be delivering around 400,000 heat pump sales.

To help encourage the adoption of decarbonised heating, today’s announcement confirms an extension to 2028 of the Boiler Upgrade Scheme, which provides grants of up to £5,000 for households switching to heat pumps.

Also confirmed in the plan is an extension to 2028 of capital support for the growth of low-carbon heat networks, including £220 million for the Heat Network Transformation Programme during 2025/26 and 2026/27.

Reacting to the government’s announcement, National Infrastructure Commission chair Sir John Armitt said: “The intention to rebalance gas and electricity prices will help reduce the operating costs of heat pumps, electric vehicles and other low carbon technologies. The sooner this can be achieved, the better.

“The extension of the Boiler Upgrade Scheme will give it more time to make an impact, but without a drop in upfront costs for consumers it is difficult to see how it will prompt the necessary uptick in heat pump installations. The lack of a revised spending commitment means it is hard to assess the contribution the scheme will make to government’s own target of installing 600,000 heat pumps a year by 2028.”

Bean Beanland, the Heat Pump Federation’s director of growth & external affairs said the security plan provided enhanced policy to support the government’s target of 600,000 domestic heat pump installations by 2028.

“The commitment to significant progress on gas vs. electricity price rebalancing by the end of 2024 has been a core federation ask and is fundamental. The extension to the Boiler Upgrade Scheme out to 2028 will drive investment in the supply chain and skills; it is now up to industry to partner with government in boosting awareness and uptake. Couple these to the confirmation of the intention to phase out installations of new and replacement fossil fuel heating systems in buildings off the gas grid, starting from 2026, and the full implementation of the Future Homes Standard in 2025 and the target remains in the sights.”

Juliet Phillips, senior policy advisor at thinktank E3G, added: “While there’s still a long road ahead to decarbonise the UK’s homes and get off expensive and polluting fossil gas, today’s announcements signal that the government is backing clean, electric heat as the major solution. Steps to lower the running costs of electricity and boost the heat pump market help lay the foundations for the take-off of clean heat in the UK.”