Domestic Heat Pumps: Budget Underspend

Question

Asked by

To ask His Majesty’s Government what assessment they have made of the reasons for the underspend in the annual £150 million budget to install domestic heat pumps and other low-carbon alternatives to gas boilers.

My Lords, despite it being a challenging year for the energy sector, provisional data from Ofgem shows that we have received 14,100 applications so far. Industry has reacted positively to the scheme during its first year, with suppliers developing competitive offers alongside the grant. The Government recently launched a targeted marketing campaign to increase public awareness. We will consider options such as increased marketing, as well as keeping grant levels under close review.

My Lords, I thank the Minister for his Answer. We know that heat pumps are the only show in town today that can deliver low-carbon domestic heating cheaply and quickly. In 2022, a whopping 20 million heat pumps were installed across 16 EU countries, yet our Government fall short time after time in delivering even the basics needed for success, such as home insultation measures, a skilled workforce and improved public awareness. What plan do the Government have to move their woeful current rate of under 10,000 in almost a year on the boiler upgrade scheme to their target of 600,000 a year by 2028? Without a plan, the target is pie in the sky.

The noble Baroness obviously did not listen to the Answer that I gave her, because I just said that we have received 14,100 applications for the scheme. But this is not the only scheme by which heat pumps are installed. There are those that are installed by the private sector, and they are already starting to be installed in many new properties. A range of our other schemes—the social housing decarbonisation fund, home upgrade grant, et cetera—also support the installation of heat pumps.

My Lords, the noble Lord, Lord Campbell-Savours, will participate remotely.

My Lords, with heat pump technology plagued by misinformation, can the Government not sponsor a network of privately or commercially occupied exhibition homes with air source heat pumps installed, where potential investors can be advised on the efficacy of their installation and the need for accompanying measures of draught and insulation control, without which they are ineffective and a waste of money? A well-designed installation will give 3 to 4 kilowatts of heat output per kilowatt of mains supply. That is a good return.

I agree with the noble Lord’s figures on the efficiency of heat pumps. He will find that there are a number of show properties around the country already; a lot of the installers or manufacturers already have showrooms demonstrating the technology for prospective purchasers.

My Lords, I declare an energy interest, as in the register. Further to this and the last Question, do the Government accept that, with their full commitment to future renewables, the removal of all gas heating and cooking, and millions of new electric vehicles, we will see an enormous need not only for more generating plant but, more importantly, for a completely new electrical transmission system nationwide? It is estimated that the burden on the transmission system will increase 400%, when it is already at 100% and overloaded. Do we have the plans in place to cope?

My noble friend makes a very good point: huge investment is required to both upgrade and reconfigure the transmission grid. We are moving away from a system based on point loads to a much more diversified system of renewables, et cetera. The point is valid. Billions of pounds are being invested in the grid and we have a plan to upgrade it. It is worth saying that there will be ongoing demand for gas; it will be declining, but we will still be using it.

My Lords, we have just heard claims that are often made about heat pumps—that they generate four to five times the energy you put in. That is only in ideal circumstances, typically where the outside temperature is 15 degrees and the water temperature is about 38 degrees. The reality is that you get out about two and a half times the energy you put in. That is a good result, but not if you are expecting four to five times. I worry that these unrealistic claims of real-life performance may undermine consumer confidence and reduce the uptake of heat pumps. Can the noble Lord please ensure that real-life performance is always made clear and included in the MCS database?

The noble Lord makes a very good point. Performance will vary depending on the temperature outside. It is also worth saying that heat pumps have been installed extensively across Europe, including in countries which typically have much lower ambient air temperatures than the UK does, such as Norway. But his point is valid: we need to make sure that people are given accurate information.

Would the noble Lord, Lord Callanan, be a little less pedantic than his noble friend Lord Murray? Since the noble Lord, Lord Callanan, mentioned Ofgem in his initial reply, could he explain why Ofgem wants us to pay more for all our heating, despite the wholesale cost of gas reducing? What are the Government going to do about this?

I thank the noble Lord for a question not at all related to heat pumps. He makes a valid point: the price cap has been reduced in line with the reduction of wholesale prices. At the same time, there is a gap in funding because of government support. We have—the taxpayer has—been paying about one-third of people’s energy bills through the winter. That support is unsustainable in the longer term and is starting to be withdrawn, but I am sure the Chancellor is looking at this very closely.

My Lords, is it not fair to say that implicit in the last two Questions is the rather disappointing uptake in the number of homes putting in heat pumps? I declare that I put in a gas boiler recently and got change from £5,000. Have the Government done any work on the point raised by my noble friend Lord Forsyth on the cost for the average punter to change their home? The reality is that the markets determine what people put in. We need to look at the actual cost of installing a heat pump. If we imagine a scenario where 10% of new builds have heat pumps and the retrofit programmes go in great guns, what would it cost to install one of these things? Have we got research? If the Minister cannot answer me directly at the Dispatch Box, will he please write to me with a detailed response?

I can answer my noble friend directly: we have done lots of research on these matters. I will give him a couple of examples of existing offers. British Gas has a starting price for an air source heat pump of £2,999 and Octopus Energy is offering one for £2,500 including the upgrade grant that we are offering. It obviously depends on the circumstances of the property. There are huge number of variable factors, such as how many radiators you need—whether your existing radiators can be reused will depend on their size. There are a lot of different factors to take into consideration, but his point is ultimately valid, in that we have to make sure that the prices of heat pumps come down over time. As consumers get more used to them and volumes go up, I think that they will.

My Lords, I request a similarly detailed answer from the Minister on the costs of the hydrogen trials. As he will know, I do not support this way of moving forward. However, had we taken the same approach to heat pumps, ground source heat pumps in particular, how much would it have cost us per household for 2,000 homes? How much are we spending per household on the hydrogen trials?

As the noble Baroness is aware, we have two potential trial villages at the moment. We will make a decision later this year on which one will be selected, assuming that we get the powers to do so in the Energy Bill. We are still looking very closely at the costs of the trial. They are still to be determined, so I cannot give her an answer yet. The two gas networks are looking at the costs as we speak.