Heat pump rollout could mitigate impacts of higher energy prices

Researchers from the United Kingdom’s University of Strathclyde have analyzed how heat pump rollout could mitigate high energy prices.

The research team used a CGE model to evaluate economic outcomes across four scenarios, each varying in heat pump costs and levels of domestic manufacturing.

“The novelty of our work is that it provides an understanding of how the adoption of heat pumps by households interacts with energy price shocks, something that has not been explored in the existing literature,” corresponding author Dr. Antonios Katris told pv magazine. “We also move a step further by taking into account the ambitions of the UK Government regarding the installation costs of heat pumps and explore the implications of meeting them, or not, to the expected outcomes.” 

The research team used the UKENVI CGE model, based on UK data, to analyze the economic impacts. They set 2018 as the baseline year and projected economic behavior through 2060, with electricity and gas prices modeled on the highest estimates in the UK Treasury Green Book.

The scientists considered different scenarios. The central scenario ran in the simulation and assumed that the average cost of purchasing and installing a heat pump starts at GBP 7,531 ($9,621), with 54% of the total spend directed to the UK economy (25% of the heat pumps, 50% of the ancillary equipment, and 100% of the installation costs). The second scenario assumed a total price of GBP 11,810, 58% of which is spent in the United Kingdom (25%, 50%, and 100%, respectively).

In the third scenario,  GBP 11,810 was the starting price as well, but with 83% spent in the local market (75% of the heat pumps, 70% of the ancillary equipment, and 100% of the installation costs). In the last scenario, GBP 7,531 was assumed to be the total cost, with 81% spent in the United Kingdom (75%, 75%, 100%, respectively).

In all four cases, the researchers assumed that the cost of heat pumps is covered directly by UK households via interest-free loans that allow them to spread the cost over 10 years. Rollout was assumed to be finalized in 2050, with a total of 10.23 million heat pumps installed.

“We can see in the results that the high volume of domestic content and the comparably higher value of manufacturing and installation activity enable the best economy-wide outcomes in some time frames, including the period of high energy prices (until 2030),” the academics said. “High domestic content, even with consistently high installation cost, could ease the negative gross domestic product (GDP) pressures of the higher energy prices by 0.077% in 2024 (instead of 0.037% in our central case) and the mitigation increases to 0.12% by the end of the high price period in 2030.”

The academics concluded that a “key parameter determining the extent in which the heat pump rollout will mitigate the negative effects of higher energy prices is the evolution of the heat pump installation cost.” They added that “ultimately, maximizing the economy-wide gains associated with the heat pump rollout requires establishing a strong domestic supply chain.”

The presented their findings in “The importance of heat pump cost reduction and domestic supply chain development in the presence of persisting energy price shocks,” which was recently published in Energy Strategy Reviews.

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