Nesta published analysis on 25 October 2022 setting out what replacing gas boilers with heat pumps would mean for UK gas use and for the wholesale cost of the gas that energy suppliers buy. The work forms part of its report, How the energy crisis affects the case for heat pumps, and uses wholesale gas prices averaged since the start of August 20221.
The report states that home heating was the single biggest use of gas in the UK in 2021, at around 37% of the total, ahead of electricity generation and industrial use. Its chart gives home heating at 37.5%, electricity at 29.8%, industrial use at 12.4%, distribution losses at 6.6% and other uses at 3.7%1. It also states that the UK imports around 60% of its gas1.
"Replacing gas boilers with electric heat pumps is one of the most effective ways to reduce gas use."
For a typical medium-sized home, the analysis models a gas boiler at 0.87 efficiency against a heat pump with a Seasonal Performance Factor of 2.76, and wholesale gas at £3.11 per therm, described as the average price since the start of August 20221. The comparison is set out below.
| Measure | Gas boiler | Heat pump |
|---|---|---|
| Annual gas use | 14,500 kWh | 4,050 kWh (to generate electricity) |
| Usable heat | 12,615 kWh | 12,615 kWh required |
| Electricity used at SPF 2.76 | not applicable | 4,571 kWh |
| Wholesale cost of gas per year | £1,542 | £431 |
| Annual saving on UK wholesale gas costs | not applicable | £1,111 |
Source: Nesta, Table 11. The heat pump figure counts the gas used to generate its electricity, at 89% of a kWh of gas per kWh of usable electricity, based on a grid with 40% of electricity generated from gas1.
Nesta states that heat pumps save more than 70% on gas use compared with a gas boiler once the gas used to produce electricity is accounted for, and that this saving would grow as the grid moves further towards renewable energy1. It puts the reduction in wholesale gas costs at over £1,100 per year per heat pump if gas remains at then current prices, and says every one million heat pumps installed could save around 0.05% of GDP (£1.1 billion) a year in wholesale gas costs. If all 23 million gas boilers were replaced while gas prices stayed that high, it estimates savings worth around 1.2% of GDP (£26 billion)1.
A separate section of the report argues that accelerating heat pump installation should be part of the government's medium-term response to the energy crisis, and that the direct economic benefits include potentially reducing net gas imports by over £1,100 per year for each heat pump installed2. It states that environmental and social levies on electricity bills add around £150 to the average bill under the October 2022 price cap, and that removing them would reduce the relative lifetime cost per year of a heat pump by £140 to £330, while decoupling gas-fired electricity prices from renewable electricity could improve it by at least £70 to £1602. It adds that gas boiler homes are likely to see 2% to 5% savings in overall energy bills from the levy shifting proposed2.
On the supply side, the report estimates there are currently around 3,000 skilled heat pump installers, and that this would need to increase roughly ten-fold in the next six years to keep pace with UK government targets for heat pump installations2. It also cites earlier Nesta research finding that a £5,000 subsidy is the single most effective measure to increase demand for heat pumps, and argues there is a strong fiscal argument for continuing subsidies beyond the 30,000 per year currently budgeted for under the Boiler Upgrade Scheme2.
Why it matters for households
The analysis frames a heat pump as a way of cutting the amount of gas a home depends on, rather than only as a way of cutting carbon. A household on a gas boiler buys gas directly; a household on a heat pump buys electricity, and the report's figures show that even with 40% of electricity generated from gas, the gas needed to run a heat pump is far less than the gas burned in a boiler1. That distinction is the basis of the heat pumps and household energy independence case, since gas is largely imported while electricity can be generated at home.
The report's savings figures are wholesale gas costs, meaning the money suppliers spend buying gas, not the amount deducted from a household bill1. The household-facing figures are the levy estimates: around £150 added to the average bill under the October 2022 price cap, and the modelled effect on the relative lifetime cost per year of a heat pump of £140 to £330 from removing those levies2. The report also notes that gas prices set the wholesale price of electricity despite most electricity being generated from other, cheaper sources, which is why heat pump running costs compared with a gas boiler do not track gas use alone2.
What happens next
The report states that the UK government recently announced it will move levies to general taxation for the next two years, and recommends making that change permanent and moving the ECO element to gas bills2. It also notes that the government is right to propose a requirement on all electric heating systems to operate smartly, and that the government and Ofgem should push for more widespread reintroduction of flexible time-of-use tariffs2. No implementation dates for those measures are given in the report.
Sources2 cited
- How heat pumps can help tackle the energy crisis | Nesta, nesta.org.uk
- Policy recommendations | Nesta, nesta.org.uk