Speed up ‘spark gap’ reform to aid heat pump uptake, ministers urged

The government has been urged to improve disappointing heat pump uptake rates by pushing ahead with projects to rebalance levies placed on gas and electricity bills.

Earlier this week, Ofgem unveiled figures showing a £61 million underspend on the 2023/24 budget for the Boiler Upgrade Scheme (BUS).

This is less than two-thirds of the £150 million annual budget earmarked for the BUS, which provides grants for homeowners replacing fossil fuel boilers with heat pumps.

It was the second year in succession that the BUS has not hit its target with just £51 million worth of grants dished out in the ten-month period that the scheme was operating during 2022/23.

The latest figures also follow last November’s move by the government to increase the size of individual BUS grants from £5,000 to £7,500.

Bean Beanland, director for growth & external affairs at the Heat Pump Federation (HPF), told Utility Week that the annual figures did not reflect the “month on month growth” growth in BUS take-up since the 50% increase in grant levels.

In addition, he said that there has been a wider “hiatus” in heat pump sales, which fell by 4% across Europe last year and has been blamed on wider cost of living increases.

But the main factor hindering uptake of heat pumps is the continuing “spark gap” between electricity and gas prices due to the additional environmental and social policy costs and levies, which apply to the former but not the latter, Beanland said.

The government pledged last year to set out plans to rebalance electricity and gas costs during 2023/24 but has yet to do so with proposals understood to have been presented to energy secretary Claire Coutinho.

Junior energy minister Lord Callanan told the House of Lords last month that a consultation on rebalancing energy costs would be published “later this year”.

Beanland warned that significant growth in heat pump sales will not materialise unless the government publishes a really favourable consultation that shifts policy costs from electricity.

He added: “There’s no visibility or vision for consumers to latch on to that says that electrification is going to be cheaper for them ultimately.”

Beanland, who predicted last year that this year’s BUS budget would be “blown” due to increased applications, also said the HPF wants the unspent funding to be brought forward into this year’s pot rather than letting the Treasury claw it all back as is normal government practice.

Charlotte Lee, CEO of the Heat Pump Association, said it was “disappointing” that the BUS budget was not fully spent for the second year.

However, she said that the figures should be set against the “backdrop” of a 125% growth in UK heat pump sales over the past six years.

She added: Since the grant uplift, we have witnessed a steady and consistent increase in applications to the scheme averaging just over 2,000 applications each month between November 2023 and March 2024.

“If this end-of-year trend continues, we anticipate that the Year 3 budget (£150m in 2024-25) will be spent in full.”