For many European countries, heat pumps are seen as an important enabler in the decarbonisation of the domestic heating stock. New build regulations are increasingly supportive, helping heat pumps gain a foothold in new build markets.
Why are we not seeing more growth in heat pump sales in the retrofit market?
Economics remain one key reason – largely in terms of upfront cost, but also running costs in some cases where gas and oil prices remain low compared to electricity. Because of this, heat pumps in existing buildings are still mainly being installed by social housing and wealthier “tech-savvy” private homeowners (with the exception of more mature markets such as the Nordics). Subsidies and finance schemes (such as the RHI in the UK, the KfW Energy Efficient Grant in Germany) are one effort to tackle the upfront cost barrier, and the emergence of service-based business models may also help.
The second key barrier is in making end-customers aware that a heat pump could be an option for their home, rather than simply calling an installer they know to replace a boiler with a boiler.
Customers are guided by installers
In our recent routes to market research, we explored several key relationships that installers have with other value chain players. Growth in high efficient heating technologies, like heat pumps, may require installers or others to be better at engaging with customers.
While we are seeing more direct-to-customer heat pump advertising from energy suppliers (e.g. E.ON in the UK) and online sales platforms (e.g HomeQGo in the Netherlands), we know that local installers are still by far the number one source of influence on the end-customer in terms of heating system choice. In fact, according to our UK research, trust of installers is especially high. Theoretically, installers would be the perfect choice to inform their customers about heat pumps, assuming they are a good technical fit for the property in question.
Installers don’t like change, though. If they have been installing boilers for years, it will be tough to convince them to install heat pumps. Investing in time and training for new technologies business is a risk – why should they take that risk when they have enough business and demand for the technologies they do sell? Especially to install heating systems that require higher skills, more customer education, and a perceived risk of more call-backs than they are used to. Most installers are market followers, not market creators.
Growing heat pumps sales in the retrofit market could be done two ways: either the installer makes the end-customer aware of their options and makes the sale; or the sale is carried out by a third party and the installer is a subcontractor. This second option is likely to be the most effective in creating a step-change in sales.
- Installers shouldn’t have to explain to customers what a heat pump is. As an industry, heat pump providers will need to continue to do a lot of work on marketing and general awareness raising. Electricity suppliers are well placed to do this. Online marketplaces and sales channels for heating systems could also play a major role over time, as will service-based offerings.
- Allow most installers to stay focused on installing, and not the awareness, education and sales process. For example, through third-parties coordinating the sale and after sales, and guaranteeing business through servicing contracts with heat pump providers. Our research tells us that this role will not be popular with all installers, so segmentation of the installer market will be needed to promote this to the right ones.
The installer skills gap is still a barrier to growth in the heat pump stock in most markets, but growing awareness and subsequently demand will incentivise installers to overcome this. Industry associations and manufacturers are already subsidising training schemes and marketing heat pumps to installers – although in many markets more could be done.
No matter how the heat pump industry ultimately reaches the end-user, active engagement with installers is required across the value chain to build capability and ultimately installers’ confidence in the technical properties and economics of heat pumps.