Heat pump purchase dubbed ‘financially irrational’ investment

New study finds that buying a heat pump does not save money although it protects the environment

Big Zero Report 2022

Buying a heat pump is a financially irrational investment according to a new study.

The not-for-profit trade body Energy and Utilities Alliance (EUA) suggests heat pumps do save carbon compared to a gas boiler, but from a strictly financial perspective, they are not a good investment and should not be considered as a cash saving purchase.

The analysis combined both the upfront costs to install a heat pump compared to a new gas boiler, with annual running costs for a heat pump with a range of efficiencies.

Mike Foster, Chief Executive Officer of EUA said: “Heat pumps save carbon but cost you more. It’s really that simple. All too often, heat pumps are being suggested as a way to save money. They don’t. In fact, it is financially irrational to invest in a heat pump if your motive is to save cash.”

Last month, speaking on ELN the boss of EUA said: “At the minimum efficiency rates the appliances come with, which is 92% efficiency for a gas boiler, 250% efficiency for an air source heat pump and the price cap figures that Ofgem recently announced, our analysis suggests that a heat pump would cost something in the region of £268 a year more to heat your home than it would do using a condensing gas boiler.”

Mr Foster added: “This study confirms how financially illiterate it is for consumers living in homes with solid walls to consider a heat pump rather than a gas boiler, with additional insulation measures making an already bad idea, even worse.”

However, Jan Rosenow, Director of independent, non-governmental organisation Regulatory Assistance Project said: “Heat pumps can now reach cost parity with gas boilers.

“Energy prices increased significantly, the impact this is having is that efficient heat pumps with a Seasonal Coefficient of Performance (SCoP) of 3 or more can now beat gas boiler on running costs.

“With an efficient heat pump, households can now save up to 27% on their heating bills compared to a gas boiler. Heating with a gas boiler will cost households £934 per year, up from £579.

“A very efficient heat pump will only cost £723 per year, up from £536 per year. For an average household, this is a saving of £261 per year.”

Three weeks ago, in a media webinar, joined by ELN, Greg Jackson, Octopus Energy Founder and Chief Executive Officer, said: “What we really need to do now as a nation is to get heat pumps to the masses. It’s the Ford Model T of heating.”

A BEIS spokesperson told ELN: “Our £450 million Boiler Upgrade Scheme aims to incentivise millions of people into getting cheaper-to-run heat pumps by the end of the decade by slashing the price of installation by up to £5,000.

“We are also working with industry to further bring down the cost of heat pumps by up to half by 2025 and reaching parity with boilers by 2030 as the technology develops, making them ultimately the most affordable option.”

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