Summary

Heat pumps are the leading technology in decarbonising heat and a major determinant of the more than doubling of electricity demand expected by 2050. This raises questions about the impact on both households and the grid, with concerns about peak demand in particular.

However, there is surprisingly scant empirical evidence of the impact of heat pumps on demand, and even less on the impact of price to help optimise demand. Despite engineering estimates that heat pumps are 3 to 4 times more efficient than gas boilers, the real-world evidence comprises mostly descriptive studies of in-situ performance of a handful of heat pumps. Accurate estimates of future heat pump demand - and its flexibility - are crucial for energy systems contending with the expansion of grids in an efficient and low-cost way.

Using Octopus Energy data, Centre for Net Zero investigates the causal impact of air-source heat pump installations and the further impact of adopting a time-of-use tariff, Cosy, designed specifically for heat pump users, on energy demand.

Key findings

Our results point to significant reduction and optimisation of demand - reducing consumers’ energy bills, supporting the grid, and enhancing the societal value of heat pumps:

① Heat pumps reduce households’ total energy use by 40%, and carbon emissions by 36%, evidencing the real-world impact of their superior efficiency over gas boilers.

② Time-of-use pricing for heat pumps is very effective at shifting demand, halving consumption during the evening peak and reducing annual consumer bills by 18% compared to standard tariff.

③ Load-shifting away from peak periods is possible even on the coldest days, when the grid needs it most.

④ All types of buildings provide flexibility, while consumers previously on time-of-use tariffs show even greater shifts in consumption.

⑤ The current UK heat pump subsidy, the Boiler Upgrade Scheme, provides positive welfare benefits relative to costs, with £1.24 of societal benefits for every £1 spent.