One year in, what effect has the Boiler Upgrade Scheme had?

By Lauren Orso and Andrew Sissons

The Boiler Upgrade Scheme, which provides grants to people in England and Wales to install low-carbon heating systems such as heat pumps, got off to a mixed start in its first year, according to data released today. During year one, 15,768 people applied to the scheme, some way short of the roughly 30,000 grants on offer. Given how important heat pumps are to the UK’s journey to net zero, the relatively slow uptake of subsidies this year is a little concerning. However, a closer look at progress over the course of the scheme’s first year reveals some positive signals alongside room for improvement and growth.

This article sets out Nesta’s analysis of the Boiler Upgrade Scheme’s first year, with highlights that include the following.

In total, the scheme has saved 17,000 tonnes of CO2 emissions, equivalent to the emissions from 55,000 people flying from London to New York.
Over 4,600 households have used the scheme to replace their gas boiler with a heat pump – nearly double the number replacing oil boilers.
The policy is a boost in predominantly rural areas – constituencies such as St Ives, Brecon and Radnorshire and Hexham lead the way with some of the highest shares of vouchers issued per household.
Wales has had around 15% more applications and redemptions paid per 10,000 households than England.
Adoption of the scheme per household is highest in areas where house prices are close to the national average and average hourly wages are too.
Comparing the scheme to its predecessor, the Renewable Heat Incentive, indicates that the Boiler Upgrade Scheme started off well initially but has slowed in uptake at the point it should have started to accelerate.

The Boiler Upgrade Scheme comprises 11.5% of the funding available in the Heat and Buildings Strategy for England

The Boiler Upgrade Scheme provides grants to encourage property owners to replace existing fossil fuel heating with more efficient, low-carbon heating systems including air source heat pumps. The subsidy scheme was announced alongside other measures in the Heat and Buildings Strategy in November 2021. It made up 11.5% of the total funding available in that strategy, with most of the remainder allocated to energy efficiency in social housing.

In March 2023, the Boiler Upgrade Scheme was extended until 2028, although no new money for the scheme has been announced yet.

The total policy cost of the Boiler Upgrade Scheme is £450 million, but the UK Government estimates it is set to deliver £650 million of social benefits, such as avoiding costs arising from poor air quality, and an overall Social Net Present Value of £310 million.

In March, activity was consistent with January and February 2023

March data shows that 36% of money made available for the scheme’s first year has been spent. However, it should be noted that the way the Boiler Upgrade Scheme vouchers work is in two stages: an MCS-registered installer applies for the voucher on a household’s behalf and claims the voucher rebate at the end of the works.

Voucher applications received stood at 53% of the maximum number of vouchers available, but as many as 76% of this total had been issued at the end of the financial year. This is despite the fact that the scheme was live for applications at the end of May 2022 and the online application portal didn’t launch until late November.

However, there has been a delay in turning some of these vouchers into payments. Voucher applications must be processed before a voucher is issued. Following this, a redemption application needs to be processed before a redemption payment to the installer is made. The impact of this processing time is reflected in the data.

At the close of the 2022/23 financial year, around three in five applications received have translated to redemptions paid. While it seems that the implementation of the scheme has improved after some early teething problems, the wait to get paid may be one of the factors that has contributed to a slow start to the scheme over the last year.

Where is take-up of the Boiler Upgrade Scheme highest?

An ad-hoc statistics release in January 2023 revealed parliamentary constituencies where take-up of the Boiler Upgrade Scheme has been highest. St Ives can claim the title of heat pump capital of England during 2022, while Brecon and Radnorshire leads the way in Wales. The data reveals other hotspots where the scheme has gained traction.

The map does indicate that uptake is higher in places where heat pumps are already popular and where heat pump installers are currently based. Yet further analysis could identify other places like South Cambridgeshire where demand for the scheme is disproportionately high in relation to existing shares of heat pumps or installers – ie, where the Boiler Upgrade Scheme might be driving demand.

South Cambridgeshire is the constituency with the second-highest share of vouchers issued by household, but the top 10 is predominantly comprised of constituencies in the South West of England.

This tallies with a regional look at all Boiler Upgrade Scheme activity. In the South West, 11.1 voucher applications per 10,000 households have been received so far and 8 redemptions per 10,000 households have been paid.

Comparing England and Wales puts Wales marginally ahead when looking at applications received and redemptions paid per 10,000 households.

Yet according to a data dashboard published by the certification body MCS, the number of heat pump installations per 10,000 households is significantly higher in Wales than in England. It would be interesting to explore how much of this figure is heat pump installations in social housing, driven by Welsh Government policy.

Nevertheless, the chart below demonstrates that households in Wales could be making better use of the Boiler Upgrade Scheme than they are currently.

There is a different scheme in place in Scotland

Funding for renewable measures in homes works differently in Scotland. For heat pumps specifically, up to £9,000 is available for households that qualify for a ‘rural uplift’. For all others, the maximum available is £7,500. Another difference is that the remainder of funding requested can be taken as an optional interest-free loan.

In the fiscal year 2020-21, 762 heat pumps received funding through the Home Energy Scotland loan scheme, which works out at around 3 installations per 10,000 households. MCS data shows increasing installations since this time, but comparing the schemes is difficult as they work differently and due to the fact that more recent figures for Scotland are unavailable.

Heat pumps are not just going into richer areas of the country

It’s sometimes thought that heat pumps are mainly concentrated in wealthy parts of the country, but the Boiler Upgrade Scheme data suggests a more mixed picture. While we don’t have data on the exact homes that have installed heat pumps, the areas of the country with the most heat pumps seem to be broadly in line with national averages for wages and house prices.

The parliamentary constituency data reveals that the majority of vouchers redeemed have been in constituencies where the average wage is around or just below the national average.

Take-up of the Boiler Upgrade Scheme is also highest in constituencies where house prices are around the national averages for England and Wales.

Installations are highest in predominantly rural constituencies but, according to the separate MCS dataset, from January 2022 until April 2023 in England and Wales, flats and terraced houses accounted for a third of air source heat pump installations. Flats alone accounted for over 10,000 installations over the same period.

While there are limitations to what we can tell from looking at parliamentary constituencies, it is clear that heat pumps are popular in many areas of the country that are about as prosperous as the country as a whole.

Comparing the Boiler Upgrade Scheme to its predecessor, the Renewable Heat Incentive, is a good way to assess performance so far

The Boiler Upgrade Scheme effectively took over from the Domestic Renewable Heat Incentive (RHI), which provided payments for the generation of renewable heat from eligible renewable heat technologies from 2014 to 2022. While the RHI operated through tariff-based support and payments were made on a quarterly basis over a seven-year period, the Boiler Upgrade Scheme replaced this funding with a flat-rate payment.

Comparing the application activity of both schemes in their first year and beyond shows that the Boiler Upgrade Scheme started positively, but momentum slowed in comparison to the RHI after six months.

Despite Boiler Upgrade Scheme applications slightly slowing over the winter, MCS data for England and Wales shows that heat pump installations show no sign of stalling.

Heat pumps installed under the the Boiler Upgrade Scheme to date have saved 17,000 tonnes of CO2 emissions per year

Most of the heat pumps installed so far under the Boiler Upgrade Scheme have replaced higher-carbon heating systems, primarily gas, oil and direct electric heating. In particular, the number of households using the scheme to replace gas boilers is nearly double the number switching from oil to a heat pump.

We estimate that these installations so far will save 17,000 tonnes of CO2 emissions each year, which is equivalent to the emissions of over 55,000 people flying from London to New York each year.

This data only applies to vouchers that have been redeemed so far (around 8,000 heat pump installations) and shows the huge potential of the Boiler Upgrade Scheme to reduce carbon emissions from our homes.

Assumptions:
Average heat demand of 12,000 kWh per home
SCOP of 3 for heat pumps, between 0.8 and 0.9 for other heating sources
Carbon factors for each fuel type from:
https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2022

What we hope to see in the Boiler Upgrade Scheme’s second year

Despite the slow start, there are some early signs of promise from the Boiler Upgrade Scheme. In Nesta’s view, it is the right policy, but it needs to be supported by other changes to accelerate the uptake of heat pumps. Governments in the UK can help heat pump installations to take off by:

Reducing the price of electricity, by permanently removing levies on electricity bills and considering more radical steps to make electricity cheaper
Renewing their commitment to phase out fossil fuel boilers by 2035 or earlier, and clearly signalling that heat pumps – of various types – will be the most common replacement for boilers
Supporting the development of affordable finance for heat pumps, so that households do not need to find thousands of pounds upfront to switch to low-carbon heating
Supporting more heating engineers to transition into low-carbon heating, both through training and supporting them through the early stages of installing heat pumps.

With the right policies and continued innovation from the heating industry, the Boiler Upgrade Scheme can have a successful second year and accelerate the UK’s journey towards greener, cleaner heating.