Six months in, how is the Government's Boiler Upgrade Scheme doing?

It’s been half a year since the launch of the Government’s Boiler Upgrade Scheme in England and Wales and progress has been a little slow so far. We’ve delved into the numbers to try and understand how the new heat pump subsidy programme is progressing and to look for clues as to how the scheme might improve in future.  

The Boiler Upgrade Scheme aims to encourage property owners to install low-carbon heating systems such as heat pumps to support the transition to net zero. It offers subsidies of £5,000 for an air source heat pump and £6,000 for a ground source heat pump. 

With 30,000 vouchers available until March 2023 (and another 30,000 for each of the following two years), the latest official statistics published in September 2022 provide a good insight into the take-up of the scheme and point to what needs to happen next to make it a success. 

How many applications for vouchers have been received so far?

By the end of September, four months into the scheme, 7,321 Boiler Upgrade Scheme voucher applications had been received. Most applications (96%) were for grants towards air source heat pump installations.

The rate of voucher applications and issues has slowed in recent months

Voucher applications got off to a good start — between May and June they jumped by 40%. From June to July, applications stabilised before dropping by 16% in August. Applications seemed to recover in September, but to lower levels than seen in June. 

The drop off in vouchers issued is steeper still. Initially, it jumped from 837 to 2,095 from June to July, an increase of 150% in just one month. In the following month, the number had decreased by 29% and by September the total number of applications was down to 1,214.

This drop in applications is a surprising and slightly concerning trend. It suggests that heat pump installations in England and Wales may be slowing down, even at a time where they are taking off in most other European countries. It is too early to say whether this fall is related to early challenges with the Boiler Upgrade Scheme itself or reflects more fundamental challenges in the heat pump market. It is possible either that demand for heat pumps has not grown as much as expected (which would be surprising given our recent research on demand), or that the industry has failed to add enough extra capacity to install more heat pumps.

While applications received and issued have dropped, redemptions received and paid are still climbing

The number of applications that have progressed to the payment stage is on the rise. By September, a total of 2,891 grants had been paid, rising steadily every month since July.

How much has been paid in grants and how much is left to claim?

The amount paid in grants up to September amounted to £14.5m — around 10% of the total pot available this year.

As grants are paid to the installer, it’s striking that fewer than 40% of vouchers applied for have so far been paid out. It suggests that many installers are waiting on a big chunk of payment for their work. In an industry dominated by sole traders and small businesses, this kind of delayed cash flow can be very hard to deal with and may be one reason for the scheme’s slow start. Given that most heat pump installers can take on other work, such as gas boilers or plumbing, it is possible some are avoiding the outlay involved in installing under the Boiler Upgrade Scheme.

An installer online portal is launching at the end of November 2022, which should make it easier for installers to apply and track their application progress.

The South West and South East are leading the way when it comes to applications to the scheme

It is no surprise to see the South West leading the way on heat pump installations: Cornwall has long been  the heat pump hotspot of the UK. But uptake in the West Midlands, North West, North East and London has been much slower so far and will need to pick up if we are to make progress towards decarbonising our homes.

There are a series of steps an application goes through in order for a BUS voucher to be issued, redeemed and a grant to be paid. That being said, there are currently 2.5 times as many applications made as there have been grants paid in the scheme, with Wales and the West Midlands having slightly higher shares of grants paid relative to applications made. 

Most redemptions paid have displaced gas heating systems 

Perhaps the most striking statistic is that the majority of redemptions paid have displaced gas boilers rather than oil boilers. 

In recent years, heat pump installations have tended to be most common in areas that are off the gas grid, typically in rural areas where households use oil or other sources for their heating. This location-based uptake was partly because, before the energy crisis, heat pumps compared favourably to oil boilers on running costs, but were often more expensive to run than gas boilers. However, this pattern has flipped in the last year, with gas and electricity prices rising dramatically and oil prices rising much less. As a result, we seem to be seeing heat pumps begin to replace gas boilers in larger numbers.

Heat pump installations spiked in March 2022 and have only just recovered to 2021 levels

Another source on heat pump installations, MCS, shows installations per month climbing to just over 2,000 by September. The big spike in early 2022 reflects the rush to the end of the old subsidy scheme, the Domestic Renewable Heat Incentive, but the monthly level seems to have only just recovered to roughly 2021 levels.

What should happen next?  

While it is still early days for the Boiler Upgrade Scheme, uptake has so far been slower than most people involved in the heat pump industry would have hoped. There are good reasons to believe that interest in heat pumps remains strong and there should be scope for an increase in heat pump installations in the coming months.

However, it is possible that the Boiler Upgrade Scheme is failing to support installers, especially with long lags in receiving payments. The government should be paying close attention to how the scheme is working, listening to heat pump installers and taking action if anything does need to change.