Electricity price reform could unlock wider heat pump adoption

Making clean heating affordable requires more than efficient equipment. Electricity tariffs, installation quality and the cost of upgrading buildings all influence whether households and businesses can justify switching

Energy UK has called for changes to electricity pricing to strengthen the financial case for clean heating, arguing that the gap between electricity and gas prices remains a major obstacle to adoption.

Its new report, Sparking Change, proposes reducing the domestic electricity-to-gas unit-price ratio to 3:1 by 2030, then to 2.5:1 in the longer term. The industry association estimates that achieving 3:1 from April 2028 could support at least 250,000 additional heat pump installations by 2030. That projection draws on European uptake patterns; it is not a guaranteed outcome.

The proposed measures include transferring remaining electricity policy costs to taxation and recovering gas standing charges through consumption-based prices. However, the report makes the latter conditional on addressing supplier cost-recovery risks and protecting vulnerable households with high gas consumption. These are recommendations, not an enacted policy package. Energy UK report.

Understanding running costs

The central distinction is between energy efficiency and financial savings. Heat pumps move heat rather than generating it solely through combustion or electrical resistance. Their seasonal performance factor describes how much useful heat they deliver for each unit of electricity consumed across the measurement period. But that efficiency advantage does not, by itself, establish whether they are cheaper than gas heating.

Consider an illustrative comparison using a heat pump with a seasonal performance factor of 3.0 and a gas boiler operating at 90% efficiency.

If electricity costs four times as much as gas per kilowatt-hour, the heat pump’s energy cost for delivering the same amount of heat is approximately 20% higher. Reduce that price ratio to 3:1, with performance unchanged, and its energy cost becomes approximately 10% lower.

This calculation excludes installation, finance, maintenance and standing charges. It demonstrates why pricing reform can alter operating economics without any change to the equipment, and why running-cost savings should not be confused with whole-life payback.
Measured Performance Matters

British field evidence also shows why comparisons should use measured system performance rather than assume every installation achieves the same efficiency.

Energy Systems Catapult’s final performance analysis for the Electrification of Heat Demonstration Project reported a median annual seasonal performance factor of 2.78 across 428 analysed air-source heat pump installations. The middle half ranged from 2.55 to 3.05. Its measurement boundary included circulation pumps and supplementary electric heating.

Performance declined as heating-water flow temperatures increased, underlining the importance of the temperatures a building’s heating system requires. The study also recorded useful performance during sub-zero conditions, although cold-day efficiency was lower than annual performance.

These findings support heat pumps’ practical potential while demonstrating substantial variation between installations. The homes were screened for suitability, so the results should not be treated as a performance guarantee for every property. Energy Systems

Catapult performance report

For purchasers, the implication is straightforward: an assessment should explain the expected performance of the complete heating system, the assumptions behind projected bills and how those expectations will be checked after installation.

Different industrial requirements

For businesses, electrifying heat involves decisions that extend beyond replacing a boiler. A government-commissioned assessment of industrial electrification distinguishes building heating from processes with widely differing temperature requirements. It examines several technologies, including heat pumps, resistance heating and electric-arc systems, rather than treating heat pumps as a universal substitute for fossil-fuel equipment.

Available waste heat can improve the opportunity for heat pumps by reducing the temperature increase they must provide. However, the assessment notes that existing heat-recovery arrangements can leave cooler residual streams, affecting the performance achievable from further recovery.

The investment calculation must also account for process modifications and electrical infrastructure. Replacing combined heat and power equipment can remove on-site electricity production as well as heat supply, changing the economics of the wider facility. Government industrial electrification assessment.

The practical conclusion is that a favourable electricity tariff strengthens the business case, but cannot replace a site-specific engineering assessment.

Planning beyond equipment

Electrical connections are another potential constraint, including for public buildings. Drawing on project-delivery experience, Salix advises organisations to engage their distribution network operator early to establish available capacity, possible reinforcement requirements and realistic connection timescales. These requirements can shape both project budgets and delivery schedules. Salix delivery guidance.

For schools, hospitals and other large estates, this means considering the electricity connection alongside heating design and funding, rather than after equipment has been selected.

Taken together, the evidence points to two complementary priorities: improving the price of electricity relative to gas, and ensuring individual projects deliver the performance their business cases assume. Affordable clean heat depends on both.