Electrifying residential heat in the UK : the importance of heat pump cost reduction and domestic supply chain development in the presence of persisting energy price shocks

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Zhou, Long (2023) Electrifying residential heat in the UK : the importance of heat pump cost reduction and domestic supply chain development in the presence of persisting energy price shocks. In: Working for Net Zero : Ensuring Good Quality and Sustainable Jobs, 2023-05-10 - 2023-05-10, SECC Glasgow.

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Abstract

Net-zero commitments made by UK national and devolved governments present a significant challenge that requires systemic changes in the structure of the UK economy. As detailed in the Climate Change Committee’s 6th Carbon Budget, the heat electrification through switching from gas boilers to heat pumps is considered one of the central pathways to achieving net-zero ambitions. This requires actions and has the potential to impact on most UK households. Key questions remain around how we deliver and pay for such transition in ways that can deliver positive societal outcomes facing energy price uncertainty now and in the future. Whether wider economy gains can be achieved depends on multiple factors involved in the households’ heat pump purchase, installation and operation stages. Using a UK CGE model informed by energy system scenarios, we aim to understand how different heat pump cost repayment methods, in the context of a lasting energy price shock which impacts operating costs of both gas boilers and heat pumps, affects demands directed to the UK economy. We also consider whether, and to what extent, the potential economic gains associated with greater domestic heat pump manufacturing share and reducing capital spending costs faced by households, can help improve the wider economy outcomes of the residential heat electrification where the persisting exogenous energy price shock poses a huge challenge to households’ heat pump operating cost. Our findings show that the best economy wide outcomes are achieved where the Government covers the heat pump installation costs, compared with negative transitory outcomes emerging where the cost is directly passed to households. Reducing the total heat pump installation cost can help mitigate negative pressures, but the best outcomes are realised when greater share of the necessary equipment is sourced within the UK.

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