Mixed messaging: UK primed for heat pump rollback after incentivising home solar and batteries

Pictured: A heat pump installer. Image: Baxi

National news outlets are widely reporting that Prime Minister Rishi Sunak will announce further low-carbon heating policy rollbacks this week, building on measures unveiled last autumn which weakened energy efficiency requirements for landlords and broader heat pump targets.

Sunak is reportedly set to axe a target for 600,000 heat pumps to be installed each year by 2028. For context, 55,000 were installed in 2021.

Supporting this target, a ‘boiler tax’ was set to apply to heating system manufacturers from April 2024. It would require these firms to ensure that heat pumps accounted for at least 4% of their sales, or pay a £3,000-per-unit fine.

The official name for the policy is the Clean Heat Market Mechanism (CHMM).

Late last year, the UK Government raised concerns that heating system providers were hiking prices by up to £300 per unit in order to bank more cash to cover the future fines.

Energy and Net-Zero Secretary Claire Coutino said most firms would not face fines and were, therefore, “price gouging – plain and simple”.  She ordered the involvement of the Competition and Markets Authority (CMA) in the matter. Manufacturers argued that they were not making any extra profits.

The Department for Energy Security and Net-Zero has confirmed that no formal decision has been taken on the deployment target nor requirement for manufacturers.

Greenpeace UK’s chief scientist Doug Parr said that if the Government does make the changes, it shows a “willingness to cave in to gas industry blackmail”.

Regulatory Assistance Project director Jan Rosenow said the policies are a “key pillar of British clean heat policy” and scrapping them “would be a serious mistake”.

The Government has implemented other interventions to ease heat pump uptake. Last year, the maximum amount each household could claim in grant funding for a new heat pump was boosted by 50%. Subsequently, the overall budget for the Boiler Upgrade Scheme was increased by £1bn.

Yet the CHMM was intended to deliver a third of the 2028 deployment target.

Moreover, homes are being increasingly supported to install technologies that complement heat pumps. Following the removal of VAT on home solar, VAT was zero-rated for home battery storage units just last week.

The Association for Decentralised Energy’s senior policy manager Chris Friedler said: “While plans change and households must be protected from costs being passed-on, this raises the big question of what the Plan B for getting Britain off gas really looks like. Extraordinary targets require extraordinary policies, and if the Clean Heat Mechanism isn’t it, a more acceptable backup plan is needed – fast.”

Avoiding flip-flopping

In a post on X, Rosenow wrote: “I said it before and I say it again: Setting a target and then scrapping the policies that were supposed to deliver on the target will ultimately result in the target being missed.”

Think-tank E3G’s Juliet Philips similarly criticised the Government’s repeated “policy flip-flopping” on net-zero, which “only plays into the hands of those seeking to stall progress”.

Ministers have today  (5 February) awoken to fresh calls for a long-term, joined up pathway to net-zero that builds industry confidence through the avoidance of rollbacks and other changes.

The Confederation of British Industry (CBI) has written to Chancellor Jeremy Hunt imploring him to include a reviewed and properly costed net-zero growth plan at the Budget next month.

The letter states:  “It is acknowledged that the majority of investment needed to reach net zero will come from the private sector. But to date, there has been little policy clarity on a plan to incentivise investment.”

It calls for the Treasury to “identify where green investment gaps lie and where private finance can be crowded in to close sectoral financial gaps, address market barriers and hit our net zero targets”.

Hunt’s Autumn Statement for 2023 did not include a fresh subsidy package for key low-carbon industries – something that was widely expected, to rival offerings in markets such as the US and EU.

Influential think-tank Policy Exchange recently set out plans for an alternative approach to entering the global green subsidy race, in which the UK cannot win through spending power alone. This plan is founded on consistent and predictable policies to build investor confidence.