Richard Lowes – Research Fellow at Exeter Uni – takes a look at the relationship between the Clean Heat Market Mechanism and proposed boiler price rises:
The government has announced that the Clean Heat Market Mechanism, a new policy to support the deployment of heat pumps will go ahead from next year. The policy is very similar to the one for electric vehicles which mandates manufacturers to ensure an increasing proportion of their sales are electric each year. Heat pumps need to be deployed at scale in the UK, not just as part of our environmental goals, but also to reduce gas imports.
The whole world and its dog recognise how important heat pumps are for a clean energy system, but boiler manufacturers do not want to change their businesses as fast as is needed. Their trade body has paid companies to ‘spark outrage’ about heat pumps among the general public and as I know from my research, the gas industry has been lobbying government heavily to slow down their rollout.
The Clean Heat Market Mechanism scheme will work by requiring big boiler manufacturers to provide certificates for a number of heat pumps installations relative to the number of boilers they sell each year. In year one (24/25), for every 100 boilers sold, 4 heat pump installation certificates would need to be presented (4%). This is roughly the same size as the current market, so year 1 is not expected to bite at all. The policy is market-wide, so the certificate from a heat pump manufactured by Vaillant or NIBE could be sold to another brand and could make up their 4%. Over time, the percentage will be increased, in line with the national heat pump target. Only if targets are missed, would there be any fines.
At the same time, the government is funding heat pumps via the Boiler Upgrade Scheme and also via the energy company obligation for struggling homes. There is a very generous balance between carrot and stick.
But there is now a coordinated effort to kill the new Clean Heat Market Mechanism policy. The boiler manufacturers have hated it from the start, probably because they know it will work. They’ve told the government to can it and tried to undermine it with modifications. But government has cracked on. The industry has had some success. The government document released two weeks ago has made the scheme significantly less onerous for manufacturers. Potential fine levels are down, and if manufacturers miss targets, they can catch up more easily in the following years. In any case, the Clean Heat Market Mechanism only requires a small fraction of the heat pumps needed to meet our national energy goals. A successful energy transition would see manufacturers going well beyond these targets.
Tactics to try to kill the scheme have now become deceptive and the industry is trying to wind everyone up including installers, merchants and the media. There is no justification for the price increases which some manufacturers have threatened as a result of the policy. In year one of the scheme i.e. next year, the scheme is expected to have little or no financial impact because there will be enough heat pumps sold on the market to meet the target.
The £120 ‘tax’ suggested by two manufacturers would assume that zero heat pumps are installed and certified under the policy and every single fine possible was issued, a totally implausible scenario which would require the heat pump market to shrink to nothing. And even if no heat pumps were sold in year one, that level of fine would be impossible, because of the way that the scheme allows targets (35% of certificates) to be carried forward to the following year.
If I can understand how this policy works, I presume the regulatory experts in the companies can too. So I think two things are happening here. Firstly, the companies are trying to make as much noise as possible to try and get the scheme cut and they are willing to deceive people in the process. But I also think that these companies all putting up their prices together (which always looks dodgy in any market) may simply be a way of masking their own price increases and blaming the government for it.
It’s perfectly reasonable to argue with the speed of the heat pump roll-out. The timelines are extremely challenging. But to be so dishonest about your lobbying and market tactics is shameful in my opinion, particularly during a cost-of-living crisis, primarily caused by gas prices.
There is also a sensible conversation to be had about how best to fund these heat pumps, but dishonesty is not the way.
As the Clean Heat Market Mechanism continues it will start to bite and that is exactly the point of it. But the proposed price increases for next year are unjustifiable on the grounds of this policy. For anyone who says this scheme will shut down British manufacturing, it’s designed to do exactly the opposite. The Clean Heat Market Mechanism is there to provide market certainty and encourage investment in heat pump manufacture, installation and training. We’re already seeing investment in heat pump manufacturing and amazing UK innovations. As I pointed out in Installer previously, by trying to delay, boiler manufacturers are risking their own future.
Richard Lowes is Research Fellow at Exeter Uni, Senior Associate at global energy think tank the Regulatory Assistance Project, a non-executive director at the Scottish Government. He lives in a heat-pumped and solar-powered Victorian terrace in Falmouth, Cornwall.