How Policy Can Cut Gas Use And Energy Bills

Heat pumps are so hot right now.

From Europe prioritizing heat pumps to reduce Russia’s reliance on gas, to the US Inflation Reduction Act provisions on heat pumps to reduce consumption costs, to the China’s rapidly growing heat pump market, efficient all-electric heat pumps are rapidly becoming the cheapest and cleanest way to heat and cool our buildings.

But because heat pump adoption is such a consumer-driven trend, government policy will play an important role in deploying this clean energy technology. Without a holistic approach, consumers and installers could miss out on the climate and economic benefits of switching from gas-fired heat pumps to electric heat pumps.

A new heat pump toolkit from the Regulatory Assistance Project (RAP), CLASP and GBPN highlights lessons learned from countries where heat pumps have become mainstream and outlines actions governments can take through the world to ensure that the policy keeps the heat pump market from getting colder.

Energy Innovation Communications Director Silvio Marcacci interviewed RAP Senior Associate Dr. Richard Lowes to find out how policy can ensure that heat pumps decarbonize our buildings.

What makes heat pumps such an important clean energy technology in the future?

Most of the heat that comes out of a heat pump comes from the surroundings, normally from the air, sometimes from the ground and sometimes from water or waste sources. Thermal energy in the environment is inexhaustible and clean, and heat pumps are an extremely efficient way to produce heat. Some of the electricity is used to move this heat around a building, for example to heat hot water or heat a room. One unit of electricity in a heat pump can supply three or four units of heat. Because heat pumps don’t burn anything, they can also reduce local air pollution.

There are very few clean heating technologies other than heat pumps, solar energy and the direct use of renewable electricity. And only heat pumps offer the advantage of producing more heat than the electricity they consume. Because of these efficiencies, heat pumps use less energy than fossil fuel alternatives and can significantly reduce greenhouse gas emissions. This is why, for many years, heat pumps have been considered central to the global journey to limit climate change and exposure to fossil fuels.

While these environmental and efficiency benefits are appreciated by energy analysts, Vladimir Putin’s war in Ukraine has, for the first time, brought heat pumps into the media spotlight. Their efficiency means they can reduce the demand for fossil fuels even when using electricity generated from fossil fuels. On electric systems that include high levels of renewables, such as in the UK, switching from gas heating to a heat pump can reduce gas consumption by around 80%.

The European Union has recognized these benefits by placing the growth of heat pumps and renewable energy at the heart of its “RePowerEU” emergency response proposals. The US Inflation Reduction Act also provides strong support for heat pumps, and the Chinese consumer market is expected to boom. These are the three largest economies in the world that are all turning to heat pumps.

If heat pump adoption is a consumer-driven decision, what can governments do to encourage adoption?

In some, mainly Nordic, countries, heat pumps already dominate building heating systems. In these places, efforts were made to remove oil heating following the oil crises of the 1970s and to maximize the use of renewable energy, including hydroelectricity. Heat pumps were a natural fit for these countries and helped develop a strong industrial base with leading manufacturers.

The main thing we can learn from these early deployments of heat pumps is that one-size-fits-all policy measures will not be enough to ensure rapid and sustained deployments of heat pumps. The deployment of heat pumps is very different from the construction of large energy infrastructures and therefore requires a very different and much more people-centred policy approach. Policy makers designing heat pump programs need to consider coordinated sets of policy measures that make it easier for home and building owners to switch to heat pumps.

The Regulatory Assistance Project’s Heat Pump Toolkit, developed with CLASP and GBPN, shows that coordinated heat pump policy packages need to consider overall energy economics and running costs heating, should provide financial support to building owners if needed and should consider how regulation can be introduced. And all of these policy changes need to be coordinated so that they work well together and are wrapped up in clear communications.

I would always encourage policy makers to spend time ensuring policies are attractive to both consumers and installers, the most important people in deployment.

What is the economic advantage of adopting the heat pump?

Heat pumps are often considered the cheapest and best form of clean heating as the world tries to limit greenhouse gas emissions, but they also offer many financial benefits. Perhaps the most exciting development globally is the rapidly falling cost of renewable electricity generation and storage technologies, an economic shift that has exceeded most expectations.

As the economics of renewable energy have improved, Putin’s war has shown the interconnected nature of global fossil fuel markets, with gas prices rising around the world due to gas shortages. Gas prices have obviously had an impact on electricity prices (a lot of electricity is produced from gas), but in general, while prices have increased across the board for gas and electricity, the relative increase in electricity prices was lower. This means that the running costs of heat pumps, often similar to gas boilers, are now increasingly profitable.

Adding renewable electricity and storage to electric systems could further reduce electricity costs and make heat pumps increasingly cost effective, even taking into account the early costs associated with switching from fossil fuel heating to a heat pump. There are, of course, other benefits to running costs alone, including removing exposure to international energy markets, maximizing foreign investment, and reducing local air pollutants, which can impact significant to public health.

Although the economic prospects for heat pumps are good, this should not prevent policy makers from taking decisive action. Additional support tends to be especially needed for low-income people for whom any heating system upgrade can be a significant and stressful expense. Other hurdles for consumers beyond economics also exist, such as being able to find an installer or managing the disconnection of fossil fuel heating technologies. Either way, the more policymakers can do, the easier the transition will be.

Which countries are currently leading the heat pump movement and which countries do you think are ready to grow in this area?

After the Nordic countries’ first steps on heat pumps, the world now seems to be heading for a hopefully much larger second wave. Some countries in particular are looking to ride the wave and show up early for their own reasons.

Ireland is an obvious example here, but because it starts from a particularly untenable position. It is dependent on fuel oil for a large part of its heating, a particularly polluting fuel, almost all of which is imported. The Irish government has committed billions of dollars over the next decade to support the deployment of heat pumps in its drive to build more efficient buildings, and the majority of new Irish buildings are fitted with heat pumps from the start.

From a political point of view, two countries of particular interest are Germany and the Netherlands. Both countries depend mainly on gas for heating, but plan to ban the installation of gas-only appliances – 2024 in Germany and 2026 in the Netherlands. It seems that hybrid devices, which combine a heat pump and a boiler or a furnace, are authorized. But in any case, such a decision would tip the market towards heat pumps.

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