This time last year the UK heat pump industry was enthusiastic, expecting unprecedented growth driven by the Government’s Renewable Heat Incentive (RHI). A year later the hangover is slowly receding and a more realistic outlook is starting to prevail.
As shown in our latest country report published under the Delta-ee Heat Pump Research Service, the UK heat pump market declined slightly in 2014 and for 2015 we at best expect a slow recovery of sales. There are 4 key reasons for this:
- The domestic RHI did not deliver a strong push for heat pumps in 2014, due to the associated bureaucratic hurdles. Instead biomass installations soared on the back of a very strong incentive and ‘lighter’ requirements for this technology.
- Low oil prices have marginalised the financial proposition for heat pumps in the traditionally strong off-gas segment.
- Social housing has been under pressure as funding is being squeezed, meaning that RSLs are looking at alternatives that are cheaper than heat pumps for reducing heating bills and carbon emissions.
- Low carbon heating takes a lower priority with the new UK Government elected in May.
The general election has worsened the policy outlook for renewable heating
All of this combined has dampened our outlook for the UK heat pump market, but the current policy environment is by far the most important factor for insecurity in the market. In short, the new Government seems to have removed low-carbon heating from the agenda.
Scrapping of the Zero Carbon Homes Policy, withdrawal of support from the Green Deal and no clear statement of intent on the continuation of the RHI all indicate a change of direction in the UK Government’s support for low carbon, renewable heating technologies and energy efficiency in homes. Arguably some of these policies were flawed or did not have the desired effect, but the greatest shortcoming so far is the current lack of any viable alternative policy propositions for the future.
The subsequent uncertainty is strongly impacting manufacturers’ and installers’ confidence to continue investing in their heat pump activities in the UK.
Manufacturers must take the initiative to drive the market
How can manufacturers buck the trend and achieve growth despite many drivers working in the wrong direction? We think they must take the initiative and engage more effectively with customers and installers alike. Furthermore, all players must strongly cooperate as an industry and look towards new business and financing models (such as Insero’s heat contracting in Denmark) to overcome the persisting upfront cost barrier. If successful in doing so, there is cause for optimism that the market could resume on a growth trajectory.