How Policy Can Cut Gas Use And Energy Bills

Heat pumps are hot right now.

From Europe prioritizing heat pumps to cut Russian gas dependence, to the United States’ Inflation Reduction Act heat pump provisions to cut consumer costs. Efficient all-electric heat pumps are quickly 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 deploying this clean energy technology. Without a comprehensive approach, consumers and installers could miss out on the climate and economic benefits of switching from gas to electric heat pumps.

A new heat pump tool kit from the Regulatory Assistance Project (RAP), CLASP, and GBPN highlights lessons learned from nations where heat pumps have gone mainstream and outlines steps governments can take across the world to ensure policy keeps the heat pump market from cooling off.

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

What makes heat pumps such an important clean energy technology moving forward?

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

Very few clean heating technologies exist other than heat pumps, solar, and direct renewable electricity use. And only heat pumps offer the efficiency advantage of producing more heat that the electricity they consume. Because of these efficiencies, heat pumps use less energy that fossil fuel alternatives and can significantly reduce greenhouse gas emission. That’s why for many years, heat pumps have been seen as a centrally important as part of the world’s journey to limit climate change and fossil fuel exposure.

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

The European Union recognized these benefits by making the growth of heat pumps and renewable energy central to its ‘RePowerEU’ emergency response proposals. The United States’ Inflation Reduction Act also provides significant support for heat pumps, and China’s consumer market is widely expected to explode. That’s the world’s three largest economies all going huge on heat pumps.

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

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

The key thing we can learn from these early heat pump rollouts is that single policy measures will not be sufficient to deliver rapid and sustained heat pump deployments. Deploying heat pumps is quite different from building big energy infrastructure and therefore needs a very different and much more person-centric policy approach. Policymakers designing heat pump programs must consider coordinated packages of policy measures that make it easy 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 heating running costs, should provide financial support for building owners where necessary, and need to think about how regulation can be introduced. And all of these policy changes must be coordinated so they work smoothly together and are wrapped up in clear communications.

I’d always encourage policymakers to spend time ensuring that polices are attractive to both consumers and installers, the most important people in the rollout.

What is the economic upside to heat pump adoption?

Heat pumps are repeatedly seen as the cheapest and best form of clean heating as the world tries to limit greenhouse gas emissions, but they also provide plenty of financial upside. 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 projections.

As renewable energy economics have improved, Putin’s war has shown the interconnected nature of global fossil fuel markets, with gas prices increasing around the world as a result of the gas supply squeeze. Gas prices have obviously had a knock-on to electricity prices (lots of electricity is produced from gas), but in general while prices have gone up across the board for gas and electricity, the relative increase in power prices has been smaller. This means the running costs of heat pumps, often similar to gas boilers, are now increasingly cost effective.

Adding renewable electricity and storage to power systems could further cut electricity costs and make heat pumps increasingly cost effective, even taking into account the first-time costs associated with switching from fossil-fueled heating to a heat pump. There are, of course, other upsides to just running costs, including removing exposure to international energy markets, maximizing inward investment, and reducing local air pollutants, which can have a significant impact on public health.

While the economic outlook for heat pumps is good, that shouldn’t detract from the need for policy makers to take decisive action. Additional support tends to be particularly needed for those on lower incomes for whom any heating system upgrade can be a major and stressful outlay. Other hurdles for consumers beyond economics also exist such as being able to find an installer or managing disconnection from fossil heating technologies. In any case, 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 primed to grow in this field?

After early moves by the Nordic countries on heat pumps, the world now seems to be moving towards a second, and hopefully much bigger wave. Some countries in particular are looking to ride the wave and pop up early for their own reasons.

Ireland is an obvious example here, but because it is starting from a particularly unsustainable position. It is reliant on oil for much of its heating, a fuel which is particularly dirty, and nearly all of which is imported. The Irish government has committed billions of dollars across the next decade to support heat pump deployment in its drive towards more efficient buildings, and the majority of new Irish buildings have heat pumps from the outset.

From a political perspective, two particularly interesting countries are Germany and the Netherlands. Both countries rely mostly on gas for heating, but have plans to ban the installation of gas-only appliances — 2024 in Germany and 2026 in the Netherlands. It looks as though hybrid appliances, which combine a heat pump and a boiler or furnace, may be allowed. But in any case, such a move would still flip the market towards heat pumps.