How much does it cost to run a heat pump?

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The home heating industry is reaching a boiling point: we need to ditch gas boilers fast to cut emissions and make an impact on the climate crisis. One of the most promising avenues for affordable green heating is heat pumps. If the UK’s homes switched to heat pumps, we’d reduce our heating carbon emissions by 73% overnight, wiping out around 10% of the UK’s overall carbon emissions.

My name is Aimee, and I'm part of Octopus’ crack team of heat pump avengers, on a mission to help everyone make their next boiler purchase a green one. I truly believe heat pumps are the answer: they’re not new technology at all – they work just like a fridge in reverse, and already provide affordable clean heating for millions in places like Sweden. Of course, lesser-known technologies can spark (understandable) debate and confusion.

I recently spotted this piece in the Times about Michael, a recent heat pump adoptee who’d been left with unusually high electricity bills – nearly double his typical heating costs – and I had to investigate further.

Here’s what I found out, crunching the numbers of 1,000 Octopus Energy customers with heat pumps. I hope it’ll help people like Michael make the best decision for them and help UK policymakers to set fair pricing policies for the future.

On a standard electricity tariff, you’d likely spend 50% more on heating with a heat pump right now (but that's changing fast)

Heat pumps are magically efficient (around 4x a gas boiler), but the way gas and electricity is currently priced (with all the carbon taxes applied to electricity and not gas) means it’s 6x as expensive. What’s the result? On a standard electricity tariff, most people would pay around 50% more on their heating bills.

Right now, if you were on our smart tariff Agile Octopus, you could keep your heating costs within 2% of a typical gas boiler

The good news is that if you signed up to a smart tariff like Agile Octopus, and programmed your heat pump to run more in off-peak periods (when power is greener and cheaper) you could significantly reduce your heat pump costs. Our 1,000 Agile Octopus customers only paid 2% more on average than they would with a typical gas boiler on their heating bills.

Your heat pump could even save you 31% compared to a typical gas boiler, if the carbon taxes were removed from electricity

At the moment, electricity unfairly harbours all the carbon taxes designed to make our grid more green (while dirty gas gets off scot-free). If these taxes were distributed more fairly, (something we’re campaigning hard for), heat pump running costs would be 31% cheaper than gas boilers.

Your heat pump might even save you an extra £385 a year

if you factor in some of the other costs you might get rid of by ditching a gas boiler, like gas boiler cover and a gas standing charge.

Here's what you need to know about the real costs to run heat pumps

First, some super-quick heat pump basics

Heat pumps are almost magically efficient: they take low level heat from a natural source (like the air) and use a small amount of electricity to generate that into a much larger volume of heat. For every 1kWh of electricity you put in, you might get 3.5kWh of heat out, which is an efficiency of 350%!

To compare that to a gas boiler… the very most efficient ones are only around 90% efficient, so for every 1kWh of gas you put in, you might get 0.9kWh of heat out, which is 4 x less efficient than a heat pump.

Are heat pumps really more expensive?

We ran some analysis on 1,000 Octopus Energy customers who recently installed a heat pump and found that on a standard electricity tariff, they would pay 54% more for their heating.

But, by setting their heat pump to run in off-peak periods where energy is cheaper and greener on our smart tariff Agile Octopus, they reduced this extra cost to almost zero.

That means right now, you could run a heat pump on the UK’s greenest electrons for just £14 per year more than it’d cost to run a gas boiler.

Home heating cost competitiveness: comparing heat pumps to gas

Heat pump vs gas boiler cost comparison.png

How can we make heat pumps cheaper?

One of the main cost barriers to heat pumps is the fact that high, outdated carbon taxes are still imposed on electricity instead of on gas.

If these taxes were removed from electricity, heat pump running costs would be 31% cheaper than gas boilers, and if they were applied to gas the difference would be even greater.

The UK’s electricity is getting greener every year – last year, a record 43% of all the UK’s power was renewable – but the carbon taxes which are used to fund this are only applied to electricity and not gas. So we have a situation where green electricity is paying a high carbon tax, but dirty gas isn’t. This means we’re actually encouraging people to burn fossil fuels over clean electricity. It's a bit like applying a sugar tax on bottled water… where’s the sense in that?

We’re asking policymakers to more fairly allocate these taxes, to stop penalising people who take up green energy options, and help us transition to a low carbon future. We’re on it but If you’d like to do something to show your support, you can sign the petition here.

What about Michael?

For his costs to have doubled, Michael’s heat pump must be unusually inefficient. The Times explained that Michael’s home is one of a small % of homes (~15%) with ‘microbore’ (very thin) pipes, which can restrict the heat pump flow and impact efficiency. However, a good heat pump installer can take that into account and build other things into the design to overcome this.

For such a high increase, there might be other factors contributing – for example, market energy prices have more than doubled in the last year (in large part due to a global shortage of gas pushing prices to a 16 year high. Greening up our electricity supply would mean the price of gas would have far less impact on electricity prices as well).

Show me the numbers

If (like me) you're more of a numbers person - here’s what I’d expect someone like Michael to spend on his heating with a gas boiler and heat pump, with different heat pump efficiencies:

Gas boiler:

Gas consumption 17000kWh Ofgem high usage
Gas unit rate 3.33p / kWh Ofgem price cap
Gas boiler efficiency 90% A-rated boiler
Total annual gas heating bill £566

Heat pump – good efficiency:

Heat pump efficiency 3.5 Standard, good efficiency
Standard electricity unit rate 18.95 p / kWh Ofgem price cap
Agile-optimised unit rate 13.27 p / kWh 30% reduction
Agile-unit rate excluding carbon taxes 8.91 p / kWh 23% reduction
Heat pump bill (standard) £828 46% increase on gas
Heat pump bill (Agile) £580 2% increase on gas
Heat pump bill (Agile, no carbon tax) £389 31% decrease on gas

Heat pump – 'poor' efficiency (still more than 2x as efficient as the best gas boiler):

Heat pump efficiency 2.5 Sub-standard, poor efficiency
Standard electricity unit rate 18.95 p / kWh Ofgem price cap
Agile-optimised unit rate 13.27 p / kWh 30% reduction
Agile-unit rate excluding carbon taxes 8.91 p / kWh 23% reduction
Heat pump bill (standard) £1160 105% increase on gas
Heat pump bill (Agile) £812 43% increase on gas
Heat pump bill (Agile, no carbon tax) £545 4% decrease on gas

Making heat pumps an easy choice

The right engineer could’ve accounted for Michael’s home’s unusually thin pipes, and with the right energy tariff (and some fair redistribution of carbon tax) could’ve saved him hundreds on his bills too.

The good news is if you’re looking into a heat pump, you should never have to run these calculations. All MCS certified installers are required to give you a detailed running cost breakdown, specific to your home and heat pump system, so you can decide whether to install a heat pump in your home.

We hope you do, and we’ll do everything in our power to make it cheaper and easier for people to switch to greener heating technologies.

If you’d like to find out more about what Octopus is up to in the heat pump space, hear from Octopus' green heat expert Peter.

Published on 13th August 2021 by:

image of Aimee Clark

Aimee Clark

Green heating expert

Hey I'm Constantine, welcome to Octopus Energy!