UK has highest electricity prices in Europe

The Government’s drive to replace gas boilers with heat pumps in most households is being severely hampered by a high electricity price and much lower gas price, experts have warned.

This is a key part of the reason why UK sales of heat pumps are the lowest in Europe per capita.

Installation rates are 25 times higher in market leader Norway, and 18, seven and and five times higher in Finland, Italy and Germany respectively, according to the European Heat Pump Association.

Because heat pumps run on electricity, the cost of it has a direct impact on consumer demand.

And because the price of gas is much cheaper, there is little incentive for people to replace their gas boilers with heat pumps, experts argue.

Heat pumps typically cost around £2,500 more than gas boilers, even after a Government grant that is available to help pay for them.

The average heat pump costs £13,000, requiring an upfront investment of around £5,500 (after the Government heat pump grant of £7,500 is factored in) – compared to an average cost of about £3,000 for gas central heating.

At the moment, electricity costs 3.9 times as much as gas to produce the same amount of energy in the UK – with electricity costing 24.50 pence per kilowatt hour (kWh) compared to 6.24 pence for gas, according to Ofgem.

The gap between electricity and gas prices is largely because most of the levies – such as to fund new solar and wind farms and to improve energy efficiency – sit on electricity rather than gas bills.

Furthermore, the carbon tax to discourage fossil fuel use – charged on the carbon dioxide produced when generating electricity – is not applied to the gas burned in central heating boilers.

As a result, in 2023 the UK had the most expensive electricity in Europe, compared to its gas price – and one of the highest electricity prices in absolute terms.

Experts say this is likely to be the biggest reason why the country’s uptake of heat pumps is the lowest in Europe.

The ratio is important because the higher the cost of electricity, the greater the running costs of a heat pump.

This means it will take longer to pay off the higher upfront costs of installing a heat pump through savings on heating bills, which are due to the greater efficiency of heat pumps compared to gas boilers.

What do the experts think about heat pumps?

Dr Jan Rosenow, who has advised organisations such as Ofgem, the International Energy Agency and the European Commission, said: “We’ve tracked the heat pump market for a while now and, in Europe, the UK is at the bottom of the league table.

“The number-one reason for this lack of take-up so far is that the ratio of electricity to gas price in the UK is the highest in Europe.

“Gas boilers are the status quo in this country and so people will have to switch from gas to electricity. But even though the heat pump is more efficient, if you have a very high price ratio (of electricity to gas) it becomes less attractive.”

Heat pumps take heat from the air outside the building, bringing it inside and amplifying it to the required temperature – using the same technology as an air conditioner but in reverse.

Because most of the heat is transferred rather than generated, they are as much as three to five times more efficient than conventional heating technologies like gas central heating.

But until the price of electricity comes down, those efficiency benefits are largely masked, experts say.

One approach to levelling up gas and electricity bills would see a shift of levies from electricity to gas bills, making electricity cheaper and gas more expensive, Dr Rosenow said.

“Alternatively, Government could shift levies to general taxation which would lover the price of electricity for households but not affect gas prices,” he said.

“Or it could decide to exempt electricity used for running heat pumps from levies, an approach that has been adopted in Denmark, where electricity used in heat pumps attracts tax breaks.”

Dr Doug Parr, Greenpeace UK’s policy director, told The i Paper: “Without a major increase in Government investment aimed at bringing down the upfront costs [of heat pumps]; more wind and solar energy in our grid to bring down the cost of electricity; and the delivery of a nationwide heat pump roll out scheme, the Government’s target of 600,000 installations a year by 2028 will be difficult to meet.

“But to help boost uptake and ensure success the Government must also tackle the skills gap and increase the number of heat pump engineers.”

Dr Simon Harrison, of engineering consultancy Mott MacDonald, agrees that progress is being held back by a lack of heat pump engineers, but says this will improve as the industry “scales up” in the coming years.

“I suspect a large part of the challenge for the UK is scale economies when retrofitting existing homes. Every home is different, and because heat pumps operate at lower temperature than gas boilers it can be necessary to change out radiators [for bigger ones], so it’s not always a straightforward job,” he told The i Paper.

Another good way to spur heat pump installations is to ban gas boilers in new homes, as has been done in countries such as Denmark, Austria, Belgium and the Netherlands, where heat pump uptake is much higher.

This has not happened in the UK yet although the Government is expected to announce later this year that it will implement such a ban from 2027 as part of its Future Homes Standard programme.

UK heat pump installations have also suffered because the UK had so much cheap North Sea gas for so long, gas central heating has become engrained in the UK heating system in a way it hasn’t in other countries, scientists say.

As a result, it is that much harder to prise people away from gas central heating than in other countries – even though the cheap North Sea gas has now largely dried up and gas prices have increased.

Although the UK will need to significantly increase heat pump installations in the coming years if it is to have any chance of meeting its goals, last year did see a big improvement, with a 42 per cent rise in sales.

What does the Government say?

A spokesperson for the Department for Energy Security and Net Zero said: “The energy shocks of recent years have shown the urgent need to upgrade British homes and our Warm Homes Plan will make them cheaper and cleaner to run, rolling out upgrades from new insulation to solar and heat pumps.

“We are making heat pumps more affordable by providing £7,500 towards the cost through the Boiler Upgrade Scheme, and have recently announced plans to remove planning constraints to make them easier to install.”

The Government will help more households in England to install an air source heat pump without the need to submit a planning application from this year, by removing the rule requiring them to be installed at least one metre from a property’s boundary.

Meanwhile, the Heat Pump Training Grant is providing 10,000 opportunities to train up heat pump and heat network professionals, and the number of installers being trained is keeping pace with increasing household demand for heat pumps.

The Government didn not comment on whether it would look to bring down the price of electricity relative to gas.