Government fires up Boiler Upgrade Scheme with promise of £5,000 heat pump grants

The government’s £450m Boiler Upgrade Scheme formally kicked off yesterday, offering qualifying households grants up to £6,000 when they replace fossil fuel boilers with efficient low-carbon heat pumps.

The grant scheme is set to slash the upfront cost of heat pumps to a level where they could become cost competitive with fossil gas boilers while also delivering lower running costs at a time when energy bills are set to rise further.

The program is also designed to catalyse the expansion of the British heat pump manufacturing industry, which should help to drive down costs while creating 10s of thousands of new green jobs.

“Thanks to the government’s Boiler Upgrade Scheme, heat pumps using clean, cheaper electricity will be the cheaper, obvious choice for households choosing to replace their fossil fuel boiler,” said Energy Minister Greg Hands. “It will also kick-start a British manufacturing industry that will help bring down prices even further whilst creating huge investment and job opportunities.”

The scheme applies to all heat pumps installed since April 1st and the government said that applications for grants can now be made through a “simple application procedure that installers carry out on behalf of property owners, with the up-front funding taken off their quote” .

It is to be administered by Ofgem and has a committed budget of £450m over three years from 2022-2025, with an annual budget allocation of £150m. Property owners will be able to access £5,000 off the cost and installation of an air source heat pump; £5,000 off the cost and installation of a biomass boiler; or £6,000 off the cost and installation of a ground source heat pump.

The grants come in addition to the five-year long zero per cent rate of VAT on the installation of heat pumps and biomass boilers, which were announced as part of the Chancellor’s Spring Statement.

The launch of the grant scheme was broadly welcomed by the energy industry and business groups.

Greg Jackson, CEO and founder of Octopus Energy Group, which has invested heavily in developing heat pumps said the technology was “up to four-times more energy efficient than gas boilers but they need to come down in price”.

“The government’s new scheme will not only reduce the cost – often to the same price as a boiler – but it’ll kickstart an industry so that sooner or later we won’t need subsidies,” he said. “The scheme is super simple and we are already seeing it help families move to cheaper green heating.”

His comments were echoed by Phil Hurley, Chair of the Heat Pump Association, who said “an upfront financial incentive like this will not just help to kickstart the industry by making the technology more accessible but will also provide heating installers with the confidence boost they need to upskill”.

“With the capacity to train 40,000 installers each year, we have made huge strides as an industry to improve the heat pump training pathway, and we are hopeful that this scheme will inspire the workforce to take up the opportunities available,” he added.

However, concerns remain that further policy interventions may be required to deliver on the government’s goal of 600,000 heat pump installations a year by 2028. Just yesterday a report from the Center for Net Zero argued that further measures to promote heat pumps, boost the industry’s skills base, and provide a clear date for ending the sale of new gas boilers would be required to put the market on track to meet the target.

Similarly, industry insiders have long argued levies on energy bills should be moved off electricity and on to gas to better incentivise people to switch to cleaner heating systems. However, the Treasury has to date rejected the proposals, amidst fear that it would be characterised as a hike in gas bills at a time when they are already rising.

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