New financial packages could quadruple the low carbon heating market
Latest research from Delta Energy and Environment (Delta-ee) shows that new third-party financing models will enable sales of low-carbon heating systems* to grow rapidly to more than 100,000 installations per year in the UK, if made widely available. A significant boost from a base of <30,000 units today.
Steven Ashurst, Senior Analyst and Research Manager of Delta-ee’s Microgen Insight Service comments:
“Customers have shown that they are attracted to this kind of innovation, it’s clear that third party finance will be a catalyst for growth. It will require a lot of coordination from the supply chain to get the customer proposition right, but the effort is likely to pay off”.
Delta-ee’s in-depth research with homeowners identified that 40% of UK homeowners† would rather use third-party finance to install low carbon technologies than pay upfront. Over the past 4 years our analysis has shown an increasing trend in the appeal of innovative finance, with customers and across the supply chain.
Customers are eager for more funding options to allow them to install low carbon technologies
The biggest market barrier in the UK is the high upfront cost of low carbon products. Apart from cost reduction, the only way to remove this is through finance. As part of a UK-wide householder survey, Delta-ee evaluated the level of customer demand for a range of finance options, including:
‘Product for free’ – where the customer pays nothing upfront and forfeits any financial benefit, like the RHI, to the system supplier – was the most popular offering; 14% of our sample stated they would be ‘very likely’ to use this option.
- ‘Product for free’
- Leasing / rental
- Interest free loan
- Low interest loan
- Payment tariffs (such as the government’s new Renewable Heat Incentive, ‘RHI’)
Given the size of the country’s domestic heating market, 14% uptake would result in well over 100,000 additional low carbon heating installations per year. The least favoured option was a low interest loan, with an uptake rate of 8%.
Industry is gearing up for the finance opportunity – from 2016 more players will be offering packages
Heating installers surveyed by Delta-ee believe that finance offerings (supported by a third party), will make their jobs easier and up their sales and conversion rates. Almost two thirds of the installation companies Delta-ee interviewed were in favour of offering their customers a finance deal. We’ve found that some product manufacturers are similarly energised to get involved.
With the Department of Energy & Climate Change currently exploring the option to allow third party finance under the RHI scheme, it is clear that it is only a matter of time for the legal framework to become available. The first half of 2016 will be a pivotal time in the establishment of new funding models in the low-carbon heating market.
*Including: air and ground source heat pumps, hybrid heat pumps, biomass boilers and solar thermal.
†Our sample comprised of over 600 respondents from the ‘ABC1C2’ socio-economic group.
Delta-ee is a specialist in research and consulting on heat and decentralised energy. Our Microgen Insight Service helps our clients understand customers, the future direction of the market and to develop the right customer propositions for 7 key low-carbon technologies. The research is a unique approach that integrates customer research, techno-economic analysis and market intelligence.
Jan Hughes – [email protected]
Tel: 0131 625 1011