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The impact of changes to RHI tariffs on the UK heat pump market

The latest Delta-ee podcast focuses on the impact of the latest changes to the RHI (Renewable Heat Incentive) tariffs and the impact they will have on the UK heat pump market.

Steven Ashurst, Senior Analyst and Micro-CHP Research Service Manager, and Lukas Bergmann, Senior Analyst and Heat Pump Research Service Manager, suggest the changes in tariff point towards a positive future for air source heat pumps.

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Despite being one of Europe’s largest heating system markets, heat pump sales remain weak in the UK – how can the industry find optimism on the road ahead?

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:

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5 years in the making – now it’s over to the industry to make the Domestic Renewable Heat Incentive work!

Today (Wednesday 9th April 2014) the low carbon heating industry in the UK breathed a collective sigh of relief as five years of waiting finally ended, and the ground-breaking domestic renewable heat incentive (RHI) scheme is officially launched.

Will Customers Go For It?

Delta-ee’s recent customer research with rural on and off-gas home owners reveals that the RHI scheme has high appeal for many customers. However, the research also shows there are a number of potential barriers that could reduce uptake. These include:
  • Costs and bureaucracy associated with the link to Green Deal Assessments (which make the customer journey longer and more complex).
  • A continued lack of awareness of low carbon technologies among both customers and installers.
  • Customer fear of moving from old familiar technology to new “unproven” technology.
This makes a market boom unlikely: we will see evolution, not revolution. The industry will have to work hard to make it a success – particularly to educate installers and customers, and to reassure customers that heat pumps, biomass and solar thermal are not ‘high risk’ technologies. Selected quotes from our customer research include:


Despite these potential barriers however, Delta-ee is positive about market prospects:

How Is The Industry Likely To Respond?


Many of the major players welcome the introduction of the scheme, which has benefits for customers, installers and the supply chain, while helping the UK meet its long term carbon reduction targets.

Some manufacturers have (or will) introduce new products into the UK market to allow customers in many different types of home, both on-gas and off-gas, to benefit from the scheme.

Selected reactions from leading industry players include:
  • David Lacey, Commercial Director Heating and Renewables at Daikin UK
  • John Kellett, General Manager of Heating Systems at Mitsubishi
  • Jim Moore, Managing Director Vaillant Group UK & Ireland
  • Andrew Clough, nPower
Read the full press release here.

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There is at least one good thing about the DRIS and that is - it is better than nothing. It is not surprising that the industry we... Read More
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Installer attitudes to low carbon heat and microgeneration: a barrier to market success?

To get to the bottom of heating installers’ awareness of and attitudes towards low carbon heat (including the sort of supplier propositions that have most appeal), Delta-ee's Microgen Insight Service has just completed an in-depth programme of research with them. Our comprehensive, nationwide survey with 250 installers uncovers new insight into installer attitudes and experiences. Download the Whitepaper here.

Our findings revealed:

  • The key 3rd party assistance installers are looking for – from lead generation to aftersales support.
With more than 60% of conventional heating installers also interested in providing low carbon heat in the future, there is reason to be upbeat about market prospects. However to really drive engagement, installers require support from suppliers along the whole customer journey.

For many, the key challenge today is finding interested customers, and so are asking for support in lead generation as a priority. For others, it is more about feeling comfortable with those first few installs; with design and commissioning support, but also with aftersales.

Feedback also shows that installers believe the ability to provide customers with more financing options and longer product warranties will help them close the deal more often.

  • Awareness and appeal of the RHI is strong – but as we have learnt from the Green Deal, this won’t necessarily lead to high levels of installer engagement in the scheme.
Ultimately we don’t think that a lack of installer awareness should be a concern (even if they are not enthused by it: see “low-carbon at the coal face: what installers really think about the microgeneration sector”) – but, we do believe installer engagement could be a barrier to RHI uptake.


The survey provides reassurance that the majority of installers who should know about the RHI do know about it (over 2/3 of installers in our sample recognised the RHI when prompted).

Although, we do caution that high awareness will not necessarily lead to installer engagement, and so converting interest to action could be a sticking point. Across the board, more respondents recognised the Green Deal than the RHI (Green Deal had 90% awareness). And yet, in spite of this, little more than 10% had actually become Green Deal certified.

With the Green Deal as the gateway to RHI support, there is a danger that if the installer is unable to guide customers through this process themselves (which our data tells us will be the base-case scenario) they could just resort to just recommending a conventional technology instead – a sale’s a sale.

Which leads us nicely onto our next point….

  • Training remains a major barrier for installers – the ‘qualifications burden’ needs to be reduced (or the system simplified) for wider engagement with low carbon heat.

Survey participants told us that training is one of the biggest barriers to engaging in renewable heat: almost 80% of installers in our sample listed it as a concern, and over half gave it as their single greatest concern.

With an increasing list of qualifications needed to provide an end-to-end customer service (which our research with owner-occupier indicates is a preferred option) – including: specific manufacturer product training, MCS, Green Deal accreditation and the MCS (all on top of maintaining any gas safe or other base qualifications) – then the challenge becomes clear.

All this falls on the backdrop of our survey revealing that less than half of all installers ‘qualified’ to install the 5 RHI-eligible technologies have undergone MCS training. 

  • There may be a supply chain delay when the RHI is launched – renewable heat is unlikely to ‘boom’ in the same way as Solar PV.
So what does all this ultimately mean for the industry? There is no doubt that the RHI is going to be an important market intervention. Ending years of uncertainty is a fantastic next step, and for customers and vendors alike it is something tangible to get excited about.

But, this research indicates that there is still plenty of work to be done by product suppliers, and DECC, to reassure and convince installers that they should invest in this market. Certainly the scheme needs to be “here and now”, rather than “on the way” for installers to really make a move.

For the customer who is looking to install renewable heat, there will likely be supply chain issues ahead. Even with the small market size today we have seen in our previous research that installer coverage can be patchy (see our blog “Is the UK low carbon heat market ready? A case study of a customer who CAN’T buy a heat pump”).

As the industry prepares for the launch of the RHI in the coming months, it is worth considering what the installer proposition – not just the customer proposition – for renewable heat will be.

For further information on any of the issues raised in this Whitepaper please contact Steven Ashurst at steven.ashurst@delta-ee.com.

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The UK Self Build Sector: In decline, but of increasing importance for microgeneration sales

Delta Energy & Environment’s latest Microgen Insight Service report on the UK Self Build market reveals a marked decline in the number of completions in 2012. Should the microgen industry be worried about the state of one of its key niches?  We’re optimistic that, with the aid of measures such as the RHI, the market outlook for this sector will sufficiently improve.

Self build stats give cause for concern, although Delta-ee sees the microgen opportunity being sustained.

The figures are concerning; the annual number of self build completions fell by 25% in 2012. Serving as an indicator of market health around 2 years previous, the latest statistics reflect a contraction largely in line with the difficulties facing the housing market as a whole in 2010/11. Those who we spoke with, including the National Self Build Association (NaSBA) highlighted how people hoping to undertake their own project faced a particularly challenging credit scene.  So, is it as doom and gloom as the figures suggest?  And what does this slump in one of their key markets mean for microgen vendors?  Currently, around 1-in-3 self builders install (at least) one microgeneration system and, despite the fall in the number of them, we expect their level of interest to be maintained – and even increase – over the coming years.

In recent years the government, along with a handful of industry insiders including newly appointed ‘Champion of the Self Build Industry’, Kevin McCloud, has committed to a range of measures targeted at doubling the number of self builds by 2025.  Such initiatives include the Custom Build Investment Fund, which, administered by the Homes and Communities Agency, provides £30 million worth of funding for self build projects.  These drivers, along with DECC’s recent decision to grant self builders eligibility for the RHI, lead Delta-ee to conclude that this sector should remain an important destination for microgen products. 

A simplified passage through the RHI should facilitate greater engagement with renewable heat from self builders.

In principle, the Renewable Heat Incentive offers a real opportunity for manufacturers to increase uptake rates amongst self builders. This group typically has an above average income, is made up of people designing their once in a lifetime dream home and, most importantly, is disproportionately open to innovative and environmentally-savvy technologies.  Our customer research shows that self builders are primarily driven by economic motivations to install low-carbon technologies, however many are also attracted by the ethical merits as a secondary driver.  In particular we see the added incentive of a <7 year payback buoying interest for products whose self build sales are crucial – namely biomass boilers and ground source heat pumps.  Plus, with their brand new EPCs expected to stand in lieu of a Green Deal assessment, self builders should be in line for the simplest customer journey of the lot.

Undeniably, a smaller pool of self builders equates to a smaller pool of potential microgren customers.  But based on what we’re hearing from/seeing in the market, self builds should remain a key target audience for most microgen manufacturers.  Delta-ee’s latest residential market forecast sees annual microgen installations in self builds rising by 75% to around 7,500 in 2016.  Capitalising on such potential of course will require market players to develop a clear understanding of self builder preferences and their concerns in order to formulate a winning market strategy.

For further insight from our report on the state of the self build market, and the outlook for microgen across all end-user groups, please click here.

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UK low carbon heat, coming to the boil - Annual value to double to £0.5 billion by 2016

The market for residential low carbon heating products (including solar thermal, air source heat pumps, ground source heat pumps, micro-CHP, biomass and hybrid technologies) is set to take off, according to the latest forecasts from the Delta-ee Microgen Insight Service. 

Annual installations of low carbon heating products are to rise from ~30,000 this year to 80,000 in 2016, making the market worth more than £0.5billion – more than doubling its current value.


A key catalyst for this growth is the recently announced (domestic) Renewable Heat Incentive (RHI), scheduled for launch in 2014. The tariff announcement marked the end of years of uncertainty which had left the low carbon heat markets flat. It will give industry participants the confidence to invest in supply chains and to develop new customer propositions, like those that developed around PV, such as “heat pumps for free”.

We will also see growth expanding into new segments.  Currently, sales are concentrated in social housing and new build properties – which together account for 77% of installs. However, owner occupiers are expected to grow their market share to over 40% of installs by 2016. Uptake will be driven by attractive paybacks in this sector (5 years or less in some cases) as households take advantage of the RHI. Companies that develop propositions for these households will be the big winners in the growing low carbon heat market.

In technology terms, heat pumps will increasingly dominate the low carbon heating market; growing from ~15,000/year today to upwards of 45,000/year in 2016.   For customers using heating oil today, air source heat pumps – with the RHI – are a competitive alternative. The inclusion of hybrid heat pumps in the RHI will provide an innovative low carbon solution for on-gas customers too.

What does this mean for market players?

  • Energy suppliers: have a significant opportunity to tap the market growth.  Some – such as EDF and British Gas – are already developing a portfolio of low carbon solutions for their customers.  
  • Boiler manufacturers: hybrids have significant potential and could be a game changer for involvement of leading boiler companies – Vaillant already has a hybrid heat pump product on the market.
  • Low carbon product manufacturers: an opportunity to be early movers on innovative propositions for off-gas grid owner occupier customers. For Daikin and others, hybrids will be a driver for engagement with on-gas customers too.
  •  Installers: great opportunities to grow and diversify business – expect new training opportunities from manufacturers and distributors.
The full market forecasts report, including the key segments and customer groups to target is available via the Delta-ee Microgen Insight Service. 
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