Government plans to ban new gas boilers for 2035 assume that many households will need to take out loans to finance heat pumps because they are too expensive, The Telegraph can reveal.
Documents released by the Department of Energy Security and Net Zero predict that “financing arrangements” will help increase the number of “heat pump consumers willing and able to pay.”
An official assessment prepared by the ministry suggests that companies may need to offer subsidies to encourage the use of electric heating systems that the government hopes will replace gas boilers, “to encourage households to install them”.
Such assistance may not be necessary if “consumers are provided with affordable options for multi-year financing,” the document adds.
A spokesperson said: “As with all technology, companies will work to develop options that suit consumers best, and heat pump financing could be part of that, if they find that’s what some consumers want.”
“Many people cannot afford heat pumps.”
But senior Conservatives said officials appeared to acknowledge that “many people cannot afford heat pumps” to replace their boilers, despite the Government encouraging households to buy the new systems, which can cost up to £15,000 to buy and install.
Ten days ago, Rishi Sunak announced an easing of the 2035 ban on the sale of gas boilers, declaring that the fifth of households that would be most affected by switching to heat pumps “will never have to switch at all”.
As part of his speech setting out a “more realistic, proportionate and realistic approach” to net zero, the Prime Minister also said he would increase cash grants for households replacing their boilers by 50 per cent, to £7,500.
This was based on concerns that the Conservatives’ net zero plans risk exacerbating the cost of living crisis for some households and taking people away from the plan’s decarbonisation targets.
But, even with Mr Sunak’s increase in cash grants, many households will have to pay up to £7,500 to install an air source heat pump, compared with average gas boiler installation costs of between £1,000 and £3,000.
However, officials insist that heat pump costs are now falling, approaching the costs of installing boilers.
The assumption that people will take out loans to help finance replacing their gas boilers with electric alternatives is in the official impact assessment of the government’s Clean Heat Mechanism, a policy that will see fines imposed on boiler manufacturers from next year if they fail. Meeting strict quotas stipulating what proportion of their sales should become heat pumps, to help achieve net zero targets.
It was prepared in April, five months before Sunak intervened. The official assessment notes that evidence showed those applying for the cash grants were “willing to contribute, on average, around £8,000 to the total cost of a heat pump (and therefore more than £5,000 on top of the cost of an average boiler).” “
The document adds: “In the coming years, one might expect average willingness to pay to decline as publishing increases; On the other hand, as the market develops, there will likely be an increase in consumer awareness as well as new financing arrangements that can be incorporated to make it easier to find a greater number of heat pump consumers willing and able to pay.”
He continues: “The costs incurred by companies can vary greatly. At the lower end of the range, these costs can only amount to the definition and administrative costs estimated in the section above.”
“Market barriers”
“However, market barriers and failures mean that in some cases, heat pumps may need support to encourage households to install them.”
“Additional subsidies may not be needed because obligated parties may find enough consumers willing and able to pay the full cost of heat pumps, especially if they are provided with affordable options for multi-year financing,” the assessment adds.
Sir John Redwood, a former government minister, said it was “a very bad idea” to “push people into more debt and recommend expensive heat pumps” to those who cannot afford them.
Octopus Energy recently said it is rolling out a new heat pump, the cost of which will be fully covered by the government’s step-up grant for homes that do not need new radiators and piped water tanks, at a cost of around £3,000 for other homes. .
A Department of Energy spokesman said: “The government supports homeowners who want to install a heat pump to do so.” The increase in the boiler upgrade grant makes the scheme “one of the most generous support schemes of its kind in Europe,” adding: “Heat pumps play an important role in how we reduce greenhouse gas emissions from heating, but no one will have to install one.”