We’re starting to hear more from the Government about how it plans to improve the energy efficiency of five million homes over the next five years through its Warm Homes Plan.
Two recent announcements include the launch of the Warm Homes Grant, which will be rolled out in April 2025, and additional funding for the Boiler Upgrade Scheme (BUS), along with a relaxation of some of its qualifying criteria.
While both are well-intentioned initiatives, I can’t help feeling we’ve been here before and are likely to end up here again, as these schemes face the same hurdles as previous ones - unless more is done to generate demand.
If we look at the Boiler Upgrade Scheme, since its launch in 2022, its impact has been somewhat underwhelming. Between 23 May 2022 and 31 March 2023, just over £50m of the allocated £150m budget was spent. While in the following year, from 1 April 2023 to 31 March 2024, around £89m was claimed - again, well under the allocated £150m.
Under the scheme, eligible households can claim up to £7,500 towards the cost and installation of an air source or ground source heat pump, or £5,000 off the cost and installation of a biomass boiler. In reality, while you might find a heat pump at that price, the additional work required can easily add a couple of thousand pounds to the final bill.
Early this year we saw the previous Government scrap the need for insulation to be fitted in order to qualify for the heat pump. Labour has gone one step further and removed the need for planning permission to install a heat pump and scrapped the rule requiring heat pumps to be installed more than one metre from a property boundary. It is also doubling the budget to £295m for 2025/26.
While the new planning measures might lead to a modest increase in uptake, let’s be honest, most homeowners just don’t seem interested in installing heat pumps or, in some cases, simply can’t.
The reasons for this aren’t always clearcut, but it’s time we acknowledge that grants may not be the silver bullet the Government is hoping for. Installing a heat pump can involve significant disruption compared to simply replacing an old gas boiler. Even with the ban on gas boilers set for 2035, the current lack of demand, high costs, and insufficient investment in the supporting framework for heat pump installations make me doubtful the Government will achieve its targets.
UK Finance recently reiterated its call for the Government to galvanise demand for retrofitting and suggested several ways to encourage homeowners to take action. These include a public-facing campaign, educating people on the benefits of retrofitting, creating a Government retrofit advisory service, and delivering the long-awaited updates to Energy Performance Certificates (EPCs).
Until the Government makes up its mind on EPCs, there is still a fear among some that installing a heat pump will do more harm than good to their EPC rating, with the calculations still focused on the cost of heating a home, rather than its carbon footprint.
The mortgage market has also tried to drive demand for energy upgrades over the years, but most of these efforts have proved in vain. A recent report from Nationwide highlighted that despite extensive marketing of its 0% interest Green Additional Borrowing product, it received only 2,200 applications, totalling £21.1m, between June 2023 and September 2024.
Need to walk before we can run
It feels like we’re hurtling towards a crossroads. Either the Government goes all in with measures that go beyond just offering funding, or we accept that we won’t meet our net zero target by 2050.
While it could be argued that widespread action can only be achieved through legislation, it’s understandable why the Government is hesitant, especially in the current financial climate - and I’m sure many homeowners feel the same.
Another option could be to perhaps lower our ambitions and start smaller, instead of focusing on heat pumps, put that energy and money into more manageable measures like insulation and new windows - which are less intrusive and in most cases, less costly.
This may in part be some of the thinking around the Government’s Warm Homes Grant (WHG) when it launches next April. WHG will be delivered through local authorities and target low-income households with EPC ratings of D to G. It will be open to owner-occupied homes and private rental properties, however landlords will need to contribute 50% of the installation cost beyond the first fully funded property.
Applicants will be able to receive up to £30,000, split between energy efficiency upgrades such as insulation and solar panels and low-carbon heating solutions such as air source heat pumps. The Government has allocated £500m to the grant, and it’ll be interesting to see how much interest it generates and also in the first instance, how many local authorities apply for the funding.
Heat pumps are still a hard sell, but I can certainly see the offer of up to £15,000 for insulation and new windows being popular, providing there’s enough awareness about the scheme to encourage applications.
The benefit to a borrower’s EPC can also be somewhat clearer with measures such as double glazing and insulation. We know through our own national team of accredited Domestic Energy Assessors (DEAs) and retrofit assessors that smaller measures such as insulation and new windows can be extremely beneficial for some properties. Without legislation, installing a heat pump still feels like going out on a limb to some homeowners.
For now, the Government may be ticking some boxes with its Warm Homes Plan, but it feels like it’s not fully addressing the underlying issues or the lack of demand. Any meaningful actions on energy efficiency - for residential properties at least - still seem to be on the back burner.
