A heat pump might be a lot cheaper than you think: here’s how

Combining an efficient heat pump with an energy tariff that discounts the energy used to run it could make heat pumps a temptingly cost-effective choice.

New calculations show that by taking advantage of a government grant to have a heat pump installed, and switching to the most appropriate electricity tariff, both the upfront installation cost and ongoing energy bills can be lower than the equivalent gas or oil boiler.

With the right combination, households could install a heat pump for as little as £500 and save more than £500 a year on bills. 

Sounds too good to be true? We’ve looked at the options to find out how to do it.

But aren’t heat pumps expensive?

While the initial cost to install a heat pump can be more than £10,000, it may be much cheaper depending on your situation. A recently updated government scheme promises a discount of £7,500 on the upfront price.

However, as well as that initial outlay, one of the most commonly cited barriers to installing a heat pump is the perceived high running costs. And with good reason: they are powered by electricity and electricity is currently much more expensive, per unit of energy, than gas. 

The current price cap is 27p/kWh for electricity and 7p/kWh for gas. Even allowing for the relative inefficiency of a gas boiler, to match the running costs of gas central heating a heat pump would have to be around three times as efficient.

And although heat pumps can have a seasonal coefficient of performance (SCoP) of 4.0 or more, indicating 400% efficiency across the year, there has been criticism that in cold weather they simply don’t perform at that level. That can result in higher bills or a cold home, which few people are willing to risk.

But what if the electricity running them was considerably cheaper than the current price cap? Suddenly the calculations look more promising.

Can heat pump running costs match those of gas boilers? 

Dr Jan Rosenow, Principal and European Programme Director at RAP (Regulatory Assistance Project), regularly compares the running costs of gas boilers against heat pumps. 

His latest calculations show that the running costs for a heat pump can match or beat the costs for a gas boiler, even when paying the standard capped energy prices. 

The typical UK boiler runs at approximately 85% efficiency. The graph below shows that the running costs for a heat pump with a seasonal coefficient of performance (SCoP) of 2.9 or more are lower than those of a typical gas boiler.  

Even the most efficient gas boiler (92% efficiency) can be beaten by a heat pump with a SCoP of 3.1 or more. With a very efficient heat pump operating at SCoP 4.0, you could save £259 a year.

Heat pump electricity tariffs make for the best savings 

The biggest savings for people with heat pumps, however, can be made by switching to a time-of-use tariff or a heat pump tariff that means your electricity is cheaper than the price cap.  

Dr Rosenow calculates that using the Octopus Agile tariff, which charges according to demand based on the half-hourly energy price, the savings can be considerable. 

Using an average unit price of 21.57p/kWh, this would result in savings of £214 per year at SCoP 3.0 or £395 per year at SCoP 4.0, compared to running a gas boiler.

Finally, Dr Rosenow recalculated the potential savings using OVO’s new Heat Pump Plus tariff. This tariff offers a rate of 15p/kWh for the energy used by the heat pump only; a standard rate applies to all other energy use. 

Dr Rosenow commented that the 'savings could potentially be very large, exceeding 50%'. His calculations based on the OVO tariff show savings of £434 for a SCoP 3.0 heat pump, and £560 for SCoP 4.0, compared to running a gas boiler.

Start by saving on heat pump installation

Unless you have savings that you're willing to spend, you'd be forgiven for thinking a heat pump is out of reach. But there's a surprising amount of money to be saved. 

The UK government recently increased the grant available under the Boiler Upgrade Scheme (BUS) to £7,500. This can be used to pay for a heat pump installation when replacing an existing fossil fuel heating system in England and Wales.

You'll need an MCS-certified installer who can apply for the BUS grant on your behalf. MCS hosts a database of MCS-certified contractors you can use.

The UK government's new Energy Efficient Home website helps you find out about the actions you can take to make your home more energy efficient. It includes links to find out if your home is suitable for a heat pump, and to check if you're eligible for a grant.

The Scottish Government funds the Home Energy Scotland grant and loan scheme. For air-source heat pumps the grant is up to £7,500, plus an additional £1,500 for households that qualify for a rural uplift. The remainder of the cost may be offered as an interest-free loan up to £7,500.

Many energy suppliers offer heat pumps and installations, with some claiming prices as low as £500 with a BUS grant. If your home is well insulated, with suitably sized radiators and an existing hot water tank, you may get a heat pump installed for that price. For most, however, it's likely to cost more, as you may need insulation, radiator upgrades and other 'extras'.

• British Gas offers a survey, installation and aftercare. Installs Vaillant and Daikin heat pumps with a five-year warranty that could cost you 'from £499 with a £7,500 government grant'.  
• EDF Energy partners with a company called CB Heating, which installs Daikin heat pumps with a five-year warranty.
• E.ON Energy is a Which? Trusted Trader offering Daikin, Mitsubishi and Samsung heat pump installations with seven-year guarantees, as well as an online costs calculator.
• Good Energy offers Midea heat pumps with a 10-year warranty and remote monitoring, which it claims are '20% more efficient than industry standards on average'.
• ScottishPower offers Daikin, Vaillant and Mitsubishi heat pumps with two years of annual servicing from Domestic & General.
• Octopus Energy offers heat pumps with a five-year warranty on parts and labour 'from £500'. Which? members can currently receive a 5% discount on Octopus heat pump and solar installations.
• OVO has partnered with installer network Heat Geek to offer heat pump installation 'from £500 – including the £7,500 Boiler Upgrade Scheme grant'.

Look out for heat pump tariffs

Once you've had your heat pump installed at a significant discount, the numbers show that your savings will come back more quickly if you're using a dedicated tariff.

We’ve found two tariffs currently on the market specifically for heat pumps.

OVO’s Heat Pump Plus tariff will run your heat pump for 15p/kWh. You still pay a standard capped rate (27p/kWh) for all other electricity in your home. This tariff is only available as an add-on to customers who install a heat pump through the OVO/Heat Geek offer.

Octopus Energy’s Cosy tariff, designed for heat pump owners, has three separate rates, and provides six hours of off-peak electricity daily. From 1 Oct-31 Dec 2023, the off-peak rate is 16.47p/kWh between 4-7am and 1-4pm. The day rate, charged 7pm-4am and 7am-1pm, is 27.45p/kWh, but beware the peak rate: from 4-7pm it charges a premium of 43.92p/kWh, so it may not be right for you if you need to use a lot of power during those hours.

As more switching options become available, expect to see heat pump tariffs from other energy suppliers. Other time-of-use (ToU) tariffs may also be suitable, depending on your pattern of use, but be careful of tariffs with very high peak rates, as you may not save money if you’re unable to shift your energy use away from those times (typically 4-7pm).

Use our free, independent energy comparison service to compare gas and electricity prices and find the best provider for you

All graphs by Dr Jan Rosenow. Reproduced with permission.