Is this what is called “wishful thinking”?

21st Mar 2022

 

I’ve revisited the Government’s Heat and Building Strategy recently, and I’m increasingly struck by the “optimistic” tone contained in some chapters. I expect a Conservative government to be championing the power of the market to deliver, in the same way, as I would expect a Labour government to champion the role of the state to stimulate change. But I was struck at just how optimistic the strategy is regarding some key policy drivers.

For example, there is an awful lot of policy credibility resting on the relative costs of heat pumps compared to gas boilers. And what is planned to drive down the costs of heat pumps are some heroic assumptions about what the market will deliver. To give you some perspective, pick up a brochure from a builders merchant, as I did and just look at the numbers in black and white. For an average semi-detached home, the gas boiler itself is around £900; the equivalent heat pump kit (including hot water tank) is approximately £6000. This cost differential is not going to disappear overnight.

But what is the government assuming? Well they, and their cheerleaders on Twitter, are banking on the Boiler Upgrade Grant to drive up volumes sold, therefore reducing the unit price to a more comparable level. Superficially, that seems to make sense. But just as UK gas prices are driven by global market prices, the same applies to heat pumps. They are a proven, existing technology. They are established, with a supply chain already in place. The Boiler Upgrade Grant will subsidise 30,000 units a year but will it drive down costs? Last year, around 60,000 heat pumps were sold in the UK, the vast majority of them imported. Across Europe, 2 million heat pumps were sold last year. So the obvious question is why, when 2 million a year are already sold, will an extra 30,000 units bring down costs? The answer is, they won’t.

For the supply chain, it is an even more stark assessment. The components of a heat pump are common with air con units; these costs will determine the product cost. Across the globe, 150 million air con units were sold last year (three Chinese firms selling over half). Why would an extra 30,000 heat pumps in the UK deliver cost reductions in a 150 million-unit market? They won’t but it looks good on paper, even if it is wishful thinking.

Best wishes

Mike Foster, CEO

Mike Foster

EUA's Chief Executive

 

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