Heat pumps could now be CHEAPER over a lifetime than gas boilers

Heat pumps could now be CHEAPER over a lifetime than gas boilers for the first time: Eco-friendly devices cost £260-a-year less as energy crisis sends bills rocketing

  • Lifetime cost of heat pump is now about same as gas boiler for the first time, environmental think tank says
  • Air source heat pump costs £10,500 to install but Government grant and VAT cut has lowered this to £4,975 
  • Soaring cost of gas means heat pumps are now up to £261 a year cheaper to operate than a normal gas boiler

The lifetime cost of a heat pump for a UK home is now about the same as a gas boiler for the first time – making the switch more attractive for millions of households concerned about soaring bills, a think tank claimed today.

Installing a new air source heat pump costs £10,500 on average – but the Government is now providing a £5,000 grant for sufficiently insulated homes and VAT has been cut from 5 per cent to zero, giving a new cost of £4,975.

Analysis shared with MailOnline today by environmental think tank the Regulatory Assistance Project (RAP) also found the soaring cost of gas means heat pumps are now up to £261 a year cheaper to operate than a gas boiler.

Figures revealed in the study also showed that a new gas boiler costs an average of £2,700 to install and £984 to run per year, while a heat pump costs between £723 and £964 a year to run depending on its efficiency.

The RAP said the 54 per cent rise in the energy price cap to an average of nearly £2,000 a year from today has changed the head-to-head running costs, meaning an efficient heat pump can now be cheaper than a gas boiler.

When installation is factored in, the heat pump would be £412 cheaper over a decade if it lasts to the maximum of its estimated lifetime of 20 to 25 years while the gas boiler lasts the minimum of its lifetime of 10 to 15 years. 

This Regulatory Assistance Project graph shows the lifetime cost of a heat pump for a home is about the same as a gas boiler

The Regulatory Assistance Project environmental think tank has also given these Illustrative examples of the impact that pricing can have on the relative economics of heat pump retrofitting compared to gas boilers

This graph shows how running costs for heat pumps are now much more favourable than before, given the Government grants and VAT cut for heat pumps – along with the soaring cost of gas. The Regulatory Assistance Project said a heat pump with an ‘Seasonal Coefficient of Performance’ (SCoP) rating of 3.0 or above can now achieve cost parity with gas boilers

This Regulatory Assistance Project graph replicates the same calculation but adds in capital costs. It gives the required SCoP as much higher and around 3.2 to 3.5 depending on efficiency of the gas boiler, in order to achieve cost parity

This graphic shows the top ten European countries by the share of households with heat pumps installed, per 100 households

RAP director Jan Rosenow told MailOnline this morning: ‘With gas prices rising at record levels even though electricity prices are up too, heat pumps now have similar running costs to gas boilers. 

‘Heat pumps are still more expensive than gas boilers but with the new government grants and VAT reductions the cost to households are a lot lower now. Not every heat pump will save consumers money. 

Heat pumps v gas boilers 

AIR-SOURCE HEAT PUMP

  • Installation cost: £4,975 (with £5,000 grant + no VAT)
  • Annual running cost: £723 to £964
  • Average lifetime: 20 to 25 years
  • Installation cost per year: £249 (20yrs) to £199 (25ys)
  • TOTAL COST OVER 10 YEARS: £12,128 (£2,488 installation [presuming 20yr life] + £9,640 running)

GAS BOILER 

  • Installation cost: £2,700
  • Annual running cost: £984
  • Average lifetime: 10 to 15 years
  • Installation cost per year: £180 (15yrs) to £270 (10yrs)
  • TOTAL COST OVER 10 YEARS: £12,540 (£2,700 installation [presuming 10yr life] + £9,840 running)
  • This makes a heat pump £412 cheaper over 10 years 

 Data provided by the Regulatory Assistance Project 

‘They need to be installed so that they can deliver a high efficiency. And of course there are uncertainties around the cost of energy in the future. But the business case for heat pumps in the UK has never been stronger in my opinion.’

The think tank said that a heat pump with a ‘Seasonal Coefficient of Performance’ (SCoP) at 3.0 can beat a gas boiler on running costs, although this comparison does not include the cost of the installation of a heat pump.

It added that gas prices could come down again in the future but we ‘don’t know when and by how much’.

The Office for Budget Responsibility has warned the price cap is likely to rise by another 42 per cent in October which would equate to a record increase of £830, taking the average annual bill above £2,800.

The RAP also pointed out that even if gas prices come down again, the Government plans to ensure that heat pumps retain their running cost advantage.

This is based on a sentence in the Government’s Heat and Buildings Strategy released in October last year, which said: ‘We want to reduce electricity costs so when the current gas spike subsides we will look at options to shift or rebalance energy levies (such as the Renewables Obligation and Feed-in-Tariffs) and obligations (such as the Energy Company Obligation) away from electricity to gas over this decade.’

The RAP said gas boilers typically have a lifetime of ten to 15 years and modern heat pumps 20 to 25 years.

That means if spread over the lifetime, the cost per year of a capital investment for a gas boiler is £180 and for a heat pump it is £249, assuming possible lifetimes of 15 years for a gas boiler and 20 years for heat pumps.

But if the assumption of 10 years for a gas boiler or 25 years for a heat pump is made, the heat pump would be £199 per year and the gas boiler £270 in terms of capital costs – making the heat pump cheaper. 

Air source heat pumps (pictured in Kent last year) cost £5,000 to £12,000 to install, based on the home’s size and insulation 

Air source heat pumps absorb heat from the outside air at low temperature into a fluid to heat your house and hot water. They extract renewable heat from the environment, meaning the heat output is greater than the electricity input

Ground source heat pumps circulate a mixture of water and antifreeze around a ground loop pipe. Heat from the ground is absorbed into the fluid and then passes through a heat exchanger, and running costs will depend on the size of the home

Heat pumps, which use electricity to generate heat from air, ground or water, have very high upfront installation costs

The conclusion was that with a SCoP of 3.2, heat pumps are now achieving cost parity after the new Government incentives are factored in fully – those being the heat pump grant and VAT cut.

How much will gas boiler alternatives cost you?  

AIR SOURCE HEAT PUMPS (£5,000-£12,000)

Air source heat pumps absorb heat from the outside air at low temperature into a fluid to heat your house and hot water. They can still extract heat when it is as cold as -15C (5F), with the fluid passing through a compressor which warms it up and transfers it into a heating circuit.

They extract renewable heat from the environment, meaning the heat output is greater than the electricity input – and they are therefore seen as energy efficient.

There are two types, which are air-to-water and air-to-air, and installing a system costs an average of £10,500 but can be more or less, depending on the size of your home and its insulation. A Government grant of £5,000 and no VAT now means the actual average is at £4,975.

GROUND SOURCE HEAT PUMPS (£11,000 – £20,000)

Ground source heat pumps use pipes buried in the garden to extract heat from the ground, which can then heat radiators, warm air heating systems and hot water.

They circulate a mixture of water and antifreeze around a ground loop pipe. Heat from the ground is absorbed into the fluid and then passes through a heat exchanger.

Installation costs between £11,000 to £20,000 depending on the length of the loop, and running costs will depend on the size of the home and its insulation.

The Government is offering a £6,000 grant and no VAT on installations. The systems normally come with a two or three year warranty – and work for at least 20 years, with a professional check every three to five years.

HYDROGEN BOILERS (£1,500 – £5,000)

Hydrogen boilers are still only at the prototype phase, but they are being developed so they can run on hydrogen gas or natural gas – so can therefore convert without a new heating system being required.

The main benefit of hydrogen is that produces no carbon dioxide at the point of use, and can be manufactured from either water using electricity as a renewable energy source, or from natural gas accompanied by carbon capture and storage.

A hydrogen-ready boiler is intended to be a like-for-like swap for an existing gas boiler, but the cost is unknown, with estimates ranging from £1,500 to £5,000.

The boiler is constructed and works in mostly the same way as an existing condensing boiler, with Worcester Bosch – which is producing a prototype – saying converting a hydrogen-ready boiler from natural gas to hydrogen will take a trained engineer around an hour.

SOLAR PHOTOVOLTAIC PANELS (£4,800)

Solar photovoltaic panels generate renewable electricity by converting energy from the sun into electricity, with experts saying they will cut electricity bills.

Options include panels fitted on a sloping south-facing roof or flat roof, ground-standing panels or solar tiles – with each suitable for different settings. They are made from layers of semi-conducting material, normally silicon, and electrons are knocked loose when light shines on the material which creates an electricity flow.

The cells can work on a cloudy day but generate more electricity when the sunshine is stronger. The electricity generated is direct current (DC), while household appliances normally use alternating current (AC) – and an inverter is therefore installed with the system.

The average domestic solar PV system is 3.5 kilowatts peak (kWp) – the rate at which energy is generated at peak performance, such as on a sunny afternoon. A 1kWp set of panels will produce an average of 900kWh per year in optimal conditions, and the cost is £4,800.

SOLAR WATER HEATING (£4,000-£7,000)

Solar water heating systems, or solar thermal systems, use heat from the sun to warm domestic hot water.

A conventional boiler or immersion heater can then be used to make the water hotter, or to provide hot water when solar energy is unavailable.

The system works by circulating a liquid through a panel on a roof, or on a wall or ground-mounted system.

The panels absorb heat from the sun, which is used to warm water kept in a cylinder, and those with the system will require a fair amount of roof space receiving direct sunlight for much of the day to make it effectively.

The cost of installing a typical system is between £4,000 and £5,000, but the savings are lower than other options because it is not as effective in the winter. In the Buckinghamshire property it would be £7,000.

BIOMASS BOILERS (£5,000 – £19,000)

The renewable energy source of biomass is generated from burning wood, plants and other organic matter such as manure or household waste. It releases carbon dioxide when burned, but much less than fossil fuels.

Biomass heating systems can burn wood pellets, chips or logs to heat a single room or power central heating and hot water boilers.

A stove can also be fitted with a back boiler to provide water heating, and experts say a wood-fuelled biomass boiler could save up to £700 a year compared to a standard electric heating system.

An automatically-fed pellet boiler for an average home costs between £11,000 and £19,000, including installation, flue and fuel store. Manually fed log boiler systems can be slightly cheaper, while a smaller domestic biomass boiler starts at £5,000.

But the study also found not all heat pumps will achieve such an efficiency – and ‘there is no guarantee that a heat pump will save people money but it is now much more achievable if good efficiencies are delivered’.

An air source heat pump looks like an air conditioning unit on the outside of buildings and works like a fridge in reverse, using electricity to extract energy from the outside air to provide heating for homes and hot water.

There are also heat pumps that draw energy from the ground or water, but these tend to be more expensive and can cost anywhere between £13,000 and £35,000 depending on the size of the system required.

Because they are extracting heat from the environment – which they can do even at low outside temperatures – they produce around three times the energy they use, making them much more efficient than a gas boiler.

UK electricity is increasingly powered by low carbon sources such as wind, making heat pumps a cleaner alternative to burning gas while they also cut local air pollutants, such as nitrogen dioxide, that boilers emit.

While the new Government grant will provide £5,000 for an air source heat pump, the amount is raised for £6,000 for a ground source heat pump, for homes in England and Wales that are sufficiently insulated.

VAT is also being removed for installations of the clean tech, along with insulation to make homes cosier, which will further bring down the cost. Energy company Octopus has confirmed that with the £5,000 grant, it will offer heat pumps at a similar price to gas boilers – meaning they could cost as little as £3,000 to install.

All heating technologies – including gas boilers – work more efficiently and save homeowners money if their home is well insulated – with improving insulation to save energy being a key part of cutting emissions from buildings. This is something that the campaign group Insulate Britain focused its demonstrations on last year.

A recent Government study found all homes in the UK, from Victorian mid-terraces to 1960s blocks of flats, are suitable for heat pumps. But energy experts estimate that only about a fifth of homes, some 4.8million, are suitable for a heat pump today. Another 30 per cent, or 8.4million, need minimal changes such as loft and cavity wall insulation, which they say will also cut bills.

Homeowners have also been advised that because radiators on heat pumps operate at a lower temperature than with gas, they might need to swap a few of the oldest single panel radiators to ensure they are big enough to heat the room sufficiently. 

These can normally be replaced with double or triple panelled radiators that fit in the same spot.

Underfloor heating works well with heat pumps because it operates at a lower temperature than radiators, so this will continue to work in homes that have the system – but it is not necessary to install it. 

Boris Johnson acknowledged earlier this week that people are ‘anxious at the moment about putting in ground source, or air source, heat pumps to heat their homes’. 

While the Prime Minister said on Wednesday that he believed costs will come down very fast, he has also pointed to hydrogen as an alternative way of heating homes. The gas could be put through the gas pipe network to heat homes with new boilers that can use hydrogen instead of fossil gas. 

He said: ‘People are anxious at the moment about putting in ground source, or air source, heat pumps to heat their homes. Everybody’s worried about having to replace their boilers at vast expense.

‘For some people that will be the right solution, I think the price of those things will come down very fast as more are made. But you’ve also got a look at the possibility of going back to where you were actually in the 60s and 70s when town gas contain a lot of hydrogen. And you could put a lot more hydrogen into the pipes.’

The Prime Minister also said that the ‘ambition to keep going on the path to net zero’ has ‘not been adulterated or lost at all’.

Speaking to MPs on Wednesday, he also threw his weight behind offshore wind in the drive to produce more electricity in the UK.

The energy strategy promised by the Prime Minister has been delayed amid reports of Cabinet infighting, including a row over ending the effective moratorium on onshore wind farms.

The Prime Minister told MPs that he believed offshore wind had ‘massive potential’ but made no mention of turbines located inland. He also stressed the need for new nuclear development, including smaller modular reactors.

The strategy was promised by Mr Johnson in response to the turmoil in global energy markets caused by Vladimir Putin’s invasion of Ukraine and is aimed at addressing long-term failures to secure domestic production. But while it was expected in March, the plan has been repeatedly pushed back.

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