The higher upfront cost compared to gas boilers is a challenge for increasing rollout of heat pumps and effective financing options are required to enable this.

This report identifies how innovative business models, such as subscriptions including payment plans, financing and ‘heat as a service’ models, could support the rollout of heat pumps by helping with the upfront investment, which is often a challenge for consumers.

Through a literature review and analysis, and in-depth discussion with stakeholder groups, it explores how three business models could be implemented in Scotland via pilot schemes.

Summary of findings

• A limited number of heat pump finance offerings are currently available to customers in Scotland. Other than an upfront purchase, most of these are finance only payment plans for the purchase of the heat pump only. Uptake for these plans is very low. Funding from the Scottish Government currently includes an up to £7,500 interest-free loan and a grant to the equivalent value. There are heat pump on subscription offerings across Europe, but these are also fairly limited, reflecting an immature market.
• The following range of business models could be applied to heat pumps in Scotland: a) finance only, b) financing lease, c) subscription, d) heat as a service.
• Adding the installation of energy efficiency measures, an energy tariff suitable for heat pumps and energy advice to these propositions could increase their appeal.
• There are non-financial barriers such as complexity of installation, consumer difficulties in understanding fuel bill savings and a current lack of consumer demand.
• Specific barriers to heat pump subscription models include lack of understanding and reassurance around consumer protection and contractual issues – for example, when moving properties.
• Stakeholders have a mixed appetite for piloting new approaches, with the main challenge being provision of finance. Other challenges and risks include ensuring heat pump performance and supply chain capacity.

For further details, please download the report.

If you require the report in an alternative format such as a Word document, please contact info@climatexchange.org.uk or 0131 651 4783.

Building-level energy storage allows consumers to capture cheap electricity or heat when it is available and store it for later use.

This report examines the extent to which such technologies could help to reduce household energy costs when installed alongside zero-carbon heat technologies.

We also present results from a simulation exercise to determine the cost effectiveness of electric batteries, heat batteries and thermal storage installed alongside heat pumps.

The key findings show that currently there is little commercial benefit to the householder installing storage without localised electricity generation. However, the potential role of domestic storage in smoothing peak demand periods on the grid indicates that building-level storage will be required to support the decarbonisation of heat through electrification.

Recommendations

• Once published, the monitoring results from ongoing projects with building-level storage should be reviewed for evidence of financial savings for consumers. This includes the UK Department for Business, Energy and Industrial Strategy (BEIS) electrification of heat pilot, OVO Energy’s trial with Powervault and various project that are funded by the Scottish Government.  
• Ensure the Distribution Network Operators (DNOs) in their transition to District Systems Operators (DSO) actively provide support for local and national flexibility markets by engaging with aggregators when planning for the increased future demand on the grid.
• Where feasible, installers and property owners should be encouraged to pair thermal storage with heat pumps. Although there is limited evidence of the direct financial savings that this can provide for consumers, the benefits of improved system efficiencies, heat pump longevity and the ability to ease pressure on the grid during peak periods will provide indirect financial benefits.
• Grant funding or some form of financial incentive may be necessary to encourage the installation of thermal storage with heat pumps.
• Further research is conducted to understand what the identified savings from existing and ongoing research might mean for rates of fuel poverty.