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UK heat pump market likely to double by 2025

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With the Chancellor’s recent announcement that fossil fuel heating could be banned in all new homes built after 2025, there will no doubt be significant opportunity for low carbon heating into the future. However, while we wait with anticipation for building regulations to be updated, there is still strong potential for growth in UK heat pump market.

Delta-ee recently reviewed the opportunities and barriers for heat pumps to assess how the market is likely to develop over the next few years. Despite the uncertainties surrounding future support for heat pumps after the Renewable Heat Incentive ends in 2021, and the potential negative impacts of Brexit on the heating market (however that might eventually pan out!), our central forecast foresees the UK heat pump market doubling in size by 2025.

Increasing uptake in the new build market will be the main driver for this growth, supported by some large-scale shared ground loop projects and increased confidence in hybrid heat pumps. Though we believe growth could be more than twice as high to 2025 with the right policies and regulations – and if fossil fuel heating is then banned in new builds, we could see the market really take off from 2025 onwards.

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Where will the new sales come from?

There are a number of trends across key customer segments that will drive the market to 2025:

  • New build will continue to be critical for growth: growth in the self-build market is expected to be a key market driver over the next few years, particularly for air source and ground source heat pumps. For now, we’re waiting for the building regulations to be updated to incorporate a significantly reduced electricity carbon emissions factor that will make it easier to pass new builds with electrically driven heating.
  • Cities are going beyond the minimum regulations: the Greater London Authority has already adopted the reduced emission factor, and because their methodology does not include direct electric heating in carbon savings calculations, heat pumps are likely to be the best option from a carbon perspective – so it will be interesting to see how much this impacts the market this year.
  • For retrofit, the biggest growth could be from shared ground loop installations: Over the next few years, the ground source heat pump market will be boosted by large-scale shared ground loop developments in housing association retrofits. One example is the project in Enfield, where Kensa has been contracted to install its Shoebox heat pumps in 400 flats. The communal nature of the scheme allows Enfield Council to receive payments under the Non-Domestic Renewable Heat Incentive (RHI) for the next 20 years.
  • Split ownership models are also on our radar: One business model that will be interesting to watch is split ownership for shared ground loop infrastructure, where the costs of installing and maintaining the ground array are funded by an investor, while only the individual heat pump units are paid for by housing developers. Kensa claim this model will make GSHPs cheaper than air source heat pumps and, in some cases, even gas boilers.
  • Assignment of Rights may have a small impact: ‘Assignment of Rights’ finally came into force in late 2018. It was hoped this would address the issue of high upfront costs, but we believe that many prospective investors will be deterred by the perceived complexity of the process, narrow margins and the impending end of the RHI.
  • Confidence in hybrid heat pumps is growing: Regional governments and housing associations are showing greater interest in hybrids, following the successful installation of 75 hybrid heating systems under the Freedom project. Confidence has also been bolstered by the recent Committee on Climate Change conclusion that hybrid heat pumps could be a key technology in future decarbonisation (they give a figure of 10 million hybrids in on-gas buildings by 2035).

And what next?

Demand response applications have already been demonstrated by trials such as the Freedom project, and the introduction of more time-of-use tariffs and heat-as-a-service offerings will certainly also be beneficial for the heat pump market. We don’t see these being significant market drivers before 2025 in our central forecast, but we do expect smart electric heating and innovative business models – along with updated building regulations – to play an important role thereafter.

Find out more

To find out more about Delta-ee’s low carbon market forecasts and our electrification of heat research, please get in touch with Roxanne Pieterse on our Heat Insight Service or Cate Lyon on our Electrification of Heat Service.

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