Businesses urge UK Government not to lower its heat pump ambitions

Pictured: A home fitted with an air-source heat pump. Image: OVO Energy

An open letter from more than a dozen organisations has today (7 February) been sent to Energy Security and Net-Zero Secretary Claire Coutinho, following reports in recent days that she and Prime Minister Rishi Sunak are preparing to axe the Clean Heat Market Mechanism (CHMM).

The letter implores the Government not to do away with the Mechanism, calling it a “world-leading” policy and a“central pillar to the UK’s clean heat landscape”. The signatories state that the Mechanism’s requirements are “achievable” for the industry rather than being an unreasonable burden.

Under the CHMM, manufacturers and suppliers of building heating systems will be required to ensure that heat pumps make up 4% of sales in the year April 2024-25. Then, from April 2025-26, the proportion would rise to 6%. Further and steeper increases would be implemented in subsequent years.

Manufacturers unable to meet these quotas would be able to trade credits with those exceeding their targets. Otherwise, they would face a £3,000 fine per unit.

The Mechanism is intended to support an ambition for the UK to hit 600,000 heat pump installations annually by 2028, up from around 50,000 in 2021.

Decarbonising building heat is a crucial part of the UK’s net-zero transition and an area in which past policy frameworks have proven largely ineffective, according to the UK Government’s own climate advisors.

Phantom ‘boiler tax’

Yet Coutinho is reportedly considering scrapping the Mechanism following pressure from boiler manufacturers, with some having threatened to hike the price of boilers to secure funding to pay off fines. This has been dubbed the ‘boiler tax’. The Government last year ordered the Competition and Markets Authority to investigate this issue.

The letter implores Coutinho to keep the Mechanism in place. It states that manufacturers do not have to increase costs and should not need to do so to meet the proposed targets.

It reads: “Our analysis suggests that the CHMM will not present a disproportionate burden to manufacturers in the first two years. The 2024/25 first-year annual target of overall boiler sales (4%) requires the entire boiler manufacturing industry to increase sales by only about 5,000 heat pumps that year, roughly the same number of gas boilers the industry sold every day last year.

“This is highly achievable, meaning manufacturers are highly unlikely to face a deficit of credits, or associated charges. There will be sufficient demand for manufacturers to meet targets in the first two years of the scheme, especially in light of the welcome increase to the Boiler Upgrade Scheme.”

The Boiler Upgrade Scheme provides homes with grant funding for switching from fossil fuel heating to heat pumps. The maximum amount each home can claim was increased by 50% to £7,500 late last year and, subsequently, the Scheme’s original £450m funding pot was expanded by £1.5bn earlier this year.

The letter goes on to emphasise that axing the CHMM would go against the direction of travel set by some progressive manufacturers, plus energy companies, housebuilders and high-street lenders.

It has been signed by energy suppliers Good Energy and OVO; manufacturers and suppliers including Daikin, Kensa, Skoon and Rendesco; think-tank E3G; consumer finance firm Pepper Money and a range of trade bodies and campaign groups.

The UK Government stated earlier this week that no formal and final decision on the CHMM’s future has been confirmed at this stage.