Analysis published by the Energy and Climate Intelligence Unit (ECIU) on 28 February 2022, and last updated on 8 March 2022, concluded that running an electric heat pump will be cheaper than operating a gas boiler from April 2022, when the energy price cap rises1. The finding rests on the gap between gas and electricity price increases: gas bills have risen 97% between April 2021 and April 2022, while electricity prices have risen just 54% over the same period1.
The ECIU attributes the divergence to renewables cushioning electricity prices. Gas is still used to generate 40% of the UK's electricity and usually sets the price for all generators, so gas price rises feed into electricity prices, passed to consumers about six months later through the next price cap1. Surging gas prices, which quintupled in 2021, accounted for at least £500 of the bill increase1.
The price cap is rising from £1,277 to £1,971 in April 20221. It had been predicted to reach £2,400 in October 2022, but the ECIU says the Ukraine conflict has escalated estimates to around £3,000, a £600 increase on previously expected levels, with gas driving the vast majority of the rise1. By that point, all of the UK's 28 million homes are likely to have their bills limited by the price cap as fixed price deals end1. The ECIU notes some doubt that bills will reach this level, citing significant data gaps needed to forecast future bill levels1.
On the supply picture, the ECIU states the UK gets just 5-6% of its gas imports from Russia, via LNG tankers rather than pipelines, equal to 3-4% of UK consumption, but remains tied to international gas markets affected by a drop in global supply1. Russia is the second largest gas producer, at 17% of global output in 20201. Germany halted the approval process for the Nord Stream 2 pipeline1.
A heat pump distributor, Alto Energy, cites research in Current News that a heat pump on average will be cheaper by £260 per year than a gas boiler by April 2022, and points to the Boiler Upgrade Scheme offering households £5,000 to upgrade to heat pumps2. The ECIU does not give a figure for the running cost difference1.
"running a low carbon heating system like an electric heat pump will be cheaper than operating a gas boiler from April"
| Measure | Figure |
|---|---|
| Price cap, now | £1,2771 |
| Price cap, April 2022 | £1,9711 |
| Price cap, October 2022 (predicted) | £2,4001 |
| Price cap, October 2022 (escalated estimate) | around £3,0001 |
| Gas bill rise, April 2021 to April 2022 | 97%1 |
| Electricity price rise, same period | 54%1 |
| UK gas imports from Russia | 5-6%1 |
Why it matters for households
For a household weighing up heat pump versus gas boiler running costs, the significance is that the running cost comparison has moved. A heat pump's running cost depends on the price of electricity and the efficiency of the unit; a boiler's depends on the gas price. When gas prices rise faster than electricity prices, the balance shifts towards electric heating, which is the mechanism the ECIU describes1. The ECIU also notes this is likely to be even more so if gas prices remain high into 2023, as they are predicted to1.
The wider point concerns exposure. The UK's direct imports of Russian gas are small, but the price paid for gas is set in international markets, so a home heated by gas remains exposed to global supply shocks regardless of where the molecules originate1. A home heated by a heat pump is exposed to electricity prices, which the ECIU says have been cushioned by cheaper renewables such as offshore wind and solar1. Neither route removes exposure to energy prices entirely.
The ECIU also sets out the effect of the building itself. Upgrading a home from EPC band D, the average UK rating, to band C, the Government's target band for 2035, on average reduces heat demand by 20%1. If all band D homes were upgraded to band C, UK total gas demand would be cut by 7% and net imports by 15%, an impact the ECIU says would be larger than opening six new North Sea oil and gas fields1. It adds that most gas fields would take a few years to start production and their output would decline, whereas insulation gives a permanent reduction in imports1.
What happens next
The price cap rises in April 20221. The ECIU says the Government has set a target to install 600,000 heat pumps per year by 20281. Alto Energy states the Boiler Upgrade Scheme, offering households £5,000 to upgrade to heat pumps, launches at the same time as the April price cap rise2. The ECIU says the next cap, in October 2022, had been predicted at £2,400 before the conflict escalated estimates to around £3,0001.