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

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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. 

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. 

‘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. 

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.

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.