The EU is aiming for the installation of 50 million heat pumps by 2030, equating to annual growth of 16%, reaching one third of the total 150 million boiler installations in the bloc. Helen Farrell reviews these ambitious targets and the policies that are driving them, and turns to a report by RAP to identify the weaknesses in the plan and how it can be improved. The main danger is a ‘one size fits all’ approach. Different countries have different climates, and a variety of heating challenges. The high cost of retrofitting versus installations in newbuilds may mean the latter should be prioritised when cost-efficiency matters. Homeowner affordability, public opinion, peak load pressures, heat pump skills shortages, “F-gases”, are all covered. Also, the European Tax Directive, Directive on Energy Efficiency, Renewable Energy Directive and the Energy Performance of Buildings Directive. It’s a thorough look at the policies and technologies that must be carefully designed to accelerate the decarbonisation of heating in Europe.
Even before gas prices started to rocket in 2021, heat pumps were being touted as the solution that would solve the problem of CO2 emissions in the heating sector. They are key not only to reducing dependence on fossil fuels – and, in the case of Europe, on Russian gas – but also to decarbonising buildings. The IEA calculates that EUR 60 billion currently spent on gas imports could be saved if the bloc as a whole switched to heat pumps, and forecasts that by 2050 heat pumps will meet the majority of the world’s heating needs.
Already, heat pump sales are at record levels. In Europe, they accounted for 25% of sales in the heating market in 2021. In order to reduce greenhouse gas emissions by at least 55% before 2030, building emissions must fall by more than half relative to 2015 levels.
EU: ambitious targets for heat pumps
The EU has set ambitious targets for heat pump installation, aiming for 50 million heat pumps to be installed by 2030, with an annual growth of 16%. That will be about one third of the 150 million boiler installations in the bloc. To put the target in context, in 2017 83% of Europe’s heating installations relied on fossil fuels.
Individual countries have set their own targets. In Germany, for example, the government announced in December 2021 that from 2025 any household heating system must run on renewable energy – which has been understood as an implicit endorsement of heat pumps. In the UK, the aim is for 600,000 heat pumps to be installed per year. Outside Europe, China leads the world in its promotion of heat pump water heaters.
An additional advantage is that a reversible heat pump can be used not just for heating, but also for cooling, according the authors of a recent RAP report by industry experts: as the climate heats up, demand for air conditioning units is expected to double by 2030, and the RAP authors say heat pumps have the potential to offer cooling at far greater efficiency than traditional air conditioning units. Once a standard air to air heat pump has been installed, it is a relatively simple process to subsequently change the type of heat pump in a building.
Hurdles to be overcome
Homeowners are unimpressed by the sizeable upfront cost of a heat pump installation. That cost can start at EUR 9,430, but can, depending on whether the existing insulation and radiators are compatible, reach EUR 53,000. That is in marked contrast to the average cost of a gas boiler, which retails at around EUR 3,000. As rapidly rising inflation eats away at take home pay, investing in a heat pump is an investment that fewer homeowners will be happy to make.
Nevertheless, the higher cost of gas means that the cost of installing and running a heat pump is now reaching parity with a gas boiler. Investments such as the new factory being built by Octopus Energy in Northern Ireland, which is set to manufacture heat pumps at the same cost as a gas boiler, will make heat pumps more competitive. Heat pump manufacturer Stiebel Eltron in Lower Saxony, Germany, aims to double production capacity by 2026, investing EUR 120 million in its expansion and creating 400 new jobs.
…Peak load pressures
What is going to happen at times of peak demand, once the projected 50 million heat pumps are connected to the electricity grid? There are concerns that the system will need upgrading, particularly if reliant on renewable, and therefore variable, energy. Electricity grid companies play down these worries, but there is no doubt that careful planning and infrastructure investment will be required to meet the additional demand for electricity that will accompany a mass rollout of heat pumps.
Aside from the cost, consumers may be deterred by the different heat experience delivered by a heat pump. Rather than being able to respond to varying temperatures or situations, heat pumps maintain a constant temperature. This is very different to gas or oil fired boilers, which can be adjusted to deliver sharp variations in heat as required by the householder.
Additionally, householders may balk at the size of a heat pump, which involves a large air-conditioner-style box on an outside wall, and by the noise it makes: professional advice is to locate it on a wall far away from the master bedroom. The heat pump also requires installation of a water tank – something that householders have recently dispensed with following the advent of gas-powered combi boilers which heat water on demand, and an item for which they may be hard pressed to find space.
Meanwhile, plenty of housebuilders are simply unaware of heat pumps as an alternative to fossil fuel installations. New build houses are routinely entering the market with standard fossil fuel heating, simply because of that lack of knowledge.
In order for a heat pump to be installed, a specialist survey is first required to assess the insulation of the property and its existing radiators. Without adequate insulation, the heat pump will be less efficient than a fossil fuel powered system. Small, older radiators will be incompatible with a heat pump system.
The installation itself is also complex, with the electrical wiring of many buildings unable to accommodate the extra electricity needed by heat pumps, which run on 220/240 volts like window unit air conditioners do. If a gas boiler breaks down, the easiest and cheapest solution for a homeowner is to swap it with another gas boiler. Installing a totally different type of system that may have implications for the building’s wiring is a big ask, and unlikely without some major subsidies. A recent UK study found that 80% of heat pumps were less efficient than fossil fuel boilers simply due to poor installation.
In Germany, the lack of skilled manpower is holding up installations. Hans Schmidt, owner of a heat pump firm in Bavaria, told Politico that it was near-impossible to find heating technicians in Germany. ‘We’re desperately looking for people,’ he said. ‘Once I called the job centre and said I need installers for heating systems. They started laughing.’
The UK’s Heat Pump Association has launched a mass drive to train up installers, raising the skills base from just 3,200 installers in 2021 to 50,000 in 2030. The plans include an expansion of its training facilities from 22 to 37, and introduction of a simplified syllabus. Meanwhile, the European Heat Pump Association (EHPA) is playing down the lack of installers, saying it is possible to upskill heating installers in just five days.
Heat pumps use refrigerants called fluorinated gases. F-gases were developed in the 1990s to replace the ozone-killing chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs). However, like CO2, F-gases drive global warming and are stable, so will remain in the atmosphere for a long time.
In 2015, the EU imposed annual production quotas for F-gases in order to promote the use of alternatives. DG Clima, the European Commission’s department responsible for F-gas regulation, is now mulling a steeper phase down in quotas, starting with a potential 50% cut from 2024. The danger now is that this could hold up the push for more heat pumps.
‘Any new measure in the revised F-Gas Regulation that would limit in a foreseeable future the availability or the choice of refrigerants (bans, stricter quotas) would necessarily slow down the speed at which heat-pump equipment will be deployed,’ warned an industry coalition in March 2022, made up of the manufacturers’ group, EPEE, the European contractors association, AREA, and the EHPA.
Having a full range of F-gases available is necessary ‘to speed up the massive deployment in a safe and highly efficient manner,’ the group said in a letter to the European Commission.
But alarm bells may soon sound over widespread and growing use of gases that contribute to global warming.
Looking for answers: RAP’s recommendations
Many of these issues are acknowledged by EU industry specialists. In its recent report, the Regulatory Assistance Project (RAP) has taken a look at the hurdles confronting the heat pump sector, and how EU policy could support a mass roll-out of heat pumps at the level required. Its main aim is to offer guidance on how to improve the EU’s Fit-for-55 package to encourage greater use of heat pumps.
The paper demands a clear strategy and policy stability to drive long term investment and decision making, as well as a mix of different policy measures to ensure that the journey towards heat pumps is simple, provides good consumer outcomes and develops good jobs and skills.
…Policy and regulatory reform
Policies should include pricing mechanisms to ensure that heat pumps cost less than fossil fuel systems (including running costs); financial support to cover the additional capital costs associated with first-time heat pump installs, as well as the insulation and heating system upgrades that may be needed to get the buildings heat pump ready; and appliance standards to drive an eventual ban on fossil fuel heating.
The report acknowledges the different strategies for heating in Europe’s Member States. In areas like the Nordic countries, where there is a greater penetration of heat pumps, consumers rely on communal heating infrastructure such as electricity grids, heat networks and gas grids, while in warmer states customers make heating decisions for their own individual properties, rather than as a community.
Where consumers are looking to heat their own properties, they are likely to view the promotion of new technologies with caution. They are wise to look beyond the headlines. For example, while government and media trumpet the benefits of air-to-air heat pumps, the RAP report suggests cooler countries should consider introducing higher manufacturing standards or promoting ground source heat pumps. This is because in cooler countries, the COP ratio is likely to be lower because of the lower ground or surface air temperatures.
In response to the concerns about the global warming potential of F-gases, the report notes that newer heat pump models can use refrigerants with lower global warming potential, which means they can operate at higher temperatures, potentially reducing the need to replace existing radiators.
To reduce running costs, RAP advocates ‘smart’ tariffs or ‘time of use’ tariffs, which will maximise the use of lower-cost electricity. It also proposes using under floor heating rather than radiators in order to achieve greater efficiency.
As far as installation goes, the report’s authors are firmly in favour of fitting heat pumps in new builds: the costs of installing at the time of construction are lower and the process is more straightforward compared to retrofitting heat pumps into older buildings. Policy moves to ban fossil fuel heating systems in new builds will help accelerate the adoption of heat pumps, the report suggests. The authors also note that heat pumps are particularly appropriate for industrial use, as they can be deployed either at scale or in small units.
Policy and regulatory reform form the mainstay of the RAP recommendations. They advocate capital support to eliminate upfront costs, pricing policies to support lower ongoing heat pump running costs, regulations to drive purchasing behaviour, and a framework of skills development and consumer protection to encourage take up of the technology. They also propose an additional carbon tax on heating fuels to push consumers towards carbon neutral alternatives. An additional move would be to adjust the EU’s proposed revision to the Emissions Trading System Directive, which proposes an emissions cap that would generate income for a social climate fund to reduce fuel poverty. The report suggests using that money to help fund heat pumps for low-income households and improve the economics of fuel-switching, and warns that policy and regulation are needed to support the ETS proposals.
The RAP authors single out the European Tax Directive for criticism, arguing that its rates are not related to energy or carbon content. They want to see tax rates that reflect the higher energy content and environmental impact of fossil fuels and unsustainable biomass. Such moves would give a boost to the electrification of the heating sector and therefore to heat pumps.
The Directive on Energy Efficiency is found wanting as it allows maintaining and even expanding heat generation from natural gas, and does not restrict the use of biomass in heating. The RAP report calls for an improved definition of district heating that would limit the use of gas and biomass.
Unsustainable biomass heating should be capped by a revised Renewable Energy Directive, the report advises. Electricity generated from renewable sources should count towards a mandatory renewable heat target; and if no cap is introduced, then a multiplier should be introduced for non-biomass renewable heat technologies, including heat pumps.
Regulation is another area in which revision is required, suggests the report. It backs the proposed reform of the Energy Performance of Buildings Directive (EPBD) to call for decarbonisation of buildings, not just energy performance, and calls for more stringent minimum energy performance standards.
The revised EBPD currently under discussion would require all new builds to be zero emissions by 2030, with public buildings required to meet these standards by 2027. The RAP report calls for this deadline to be brought forward to 2025.
Taken together, the RAP recommendations offer a useful overview of the proposed revisions to the Fit-for-55 package, alongside their own suggestions for how to improve those revisions. They offer a number of proposals that the EU is likely to take into consideration, as the pressure to reduce emissions intensifies. There is a danger, however, of a ‘one size fits all’ approach to the introduction of heat pumps or low-carbon alternatives, with a combination of penalties and fixed costs to push homeowners and builders towards the technologies.
The EU’s suggestions take little account of the squeeze on household income caused by general inflation and the recent massive spike in energy costs, and instead lean on the ETS scheme to provide funds to offset the costs for low-income households. Nor do they make allowances for the fact that, as governments reel from the costs of the recent Covid-19 lockdowns and associated social support, funds are not so freely available as they were in 2019. No figure is put on the cost of the measures proposed.
In a crisis, it is always tempting to reach for simple, ‘off-the-shelf’ solutions. Heat pumps are a clear example where a single solution is being presented by governments and trade bodies as the answer to a complex issue. Little account is taken of the efforts already taken to introduce cleaner technology. For example, since 2005, all new gas boilers in the UK have been required to be condensing boilers, which offer 90% efficiency. Will householders be ready to invest again in a new technology?
There are other ways to heat a building without recourse to harmful gases or unpredictable upfront costs. For example, orientation of a building in relation to the sun will maximise its natural heating and cooling potential. Installation of solar panels or wind power can generate clean electricity to power standalone heaters. Thermal energy storage can tap into the constant temperatures of the sub-soil aquifer. Targeting support at new builds, which have adequate insulation and radiator systems, will avoid some of the excessive costs associated with retrofitting heat pumps into older buildings.
Take a look at one alternative approach, in the Orkney Islands in northern Scotland. The windy climate means that the community generates an excess of electricity from wind power. Instead of being curtailed, the electricity is now being redirected to power smart quantum storage heaters in the islanders’ homes. Each heater costs around EUR 820.
As the drive for heat pumps continues, governments are now confronted by the need to introduce costly subsidies and incentives if they are to meet their targets. Studies show that heat pumps are not as squeaky clean in practice as they are on paper, due to poor installation and other issues highlighted above. In current inflationary times, many will shy away from the high upfront costs. The climate and average temperature vary in each European Member State, and the chances are that the solutions for each Member State – be it type of heat pump, or type of heating technology – will also vary. Perhaps energy planners need to open their minds to the alternatives.
Helen Farrell writes on the energy sector
This article was first published in the EU-China Energy Magazine – May Issue, available in English and Chinese, and is published here with permission
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