Steven Ashurst, Senior Analyst at Delta-ee comments:
“It’s still early days for the low carbon heat market in the UK, but by 2017 we expect it to capture around 1-in-20 of the installation market.”
A key driver for growth is the domestic Renewable Heat Incentive (RHI), introduced in spring 2014.
With the Department of Energy & Climate Change indicating that the RHI will remain in place until 2021, manufacturers are becoming more confident to make investments in their supply chain and marketing to drive the market. This is enabling installers to develop their skills and capabilities to fit heat pumps and hybrid systems, and end users to become increasingly familiar and confident with alternatives to traditional heating systems (primarily boilers).
While the RHI is a world first, the policy is far from perfect. Problems with the policy identified in Delta-ee’s research include:
- it does not address the high upfront cost barrier of low carbon heat systems – a critical factor to customers
- it is administratively complex
- it has not been well-marketed
- it does not address the issue of local electricity grid connection – which can be a significant additional cost for heat pumps
The research also identifies other important drivers contributing to the growth of low carbon heat including:
- New products entering the market e.g. hybrid heat pumps and fuel cell micro-CHP becoming commercially available to UK customers.
- Innovation of customer propositions e.g. new financing schemes to remove the high up-front cost for customers.
- Expectations of rising energy prices to 2020 and beyond.
- Cost reductions arising from economies of scale in manufacturing and a more competitive installer market.
- The ability of Local Authorities to specify microgeneration in new build developments.
- Social housing providers (who remain an important part of the low carbon heat market) using the RHI as an opportunity to generate a new revenue stream and meeting affordable housing / fuel poverty targets through low carbon heat.