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.

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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.

  • 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.

Heat pumps are an efficient way of producing heat from electricity; they operate by capturing the latent heat in the air, ground or water and using it for heating.

Heat pumps are expected to play a significant role in decarbonising heat in Scotland; the Climate Change Committee has described them as a ‘low-regrets’ option, and they feature prominently in Scotland’s Draft Heat in Buildings Strategy.

However, heat pump efficiency can vary across the heating season and in different buildings, meaning the costs and impacts on wider energy systems depend on the context.

This desk-based review looks at evidence on how heat pumps currently, or are likely to, perform in practice in Scottish buildings. The research identifies best practice relevant to Scotland and gaps in the available evidence.

The scope of the research was for both domestic and non-domestic buildings. However, the majority of the relevant datasets relate to domestic settings.

Key findings
  • Poor heat pump performance is most likely to arise due to poor design and specification. This means appropriate design and installation are the most important considerations to ensuring heat pumps perform well in Scotland.
  • Heat pumps are a mature heating technology used in several European countries, including countries with colder winters than Scotland. The review found no evidence to suggest that heat pumps could not operate effectively or efficiently in Scotland. 
  • The review suggests there is occupant satisfaction with heat pumps.
  • There is evidence that heat pump performance could be maximised by building confidence in heat pump technology among consumers and the supply chain. 
  • Where running costs were monitored, heat pumps were cheaper to run than previous electric, oil or LPG heating systems and are a key outcome for occupant satisfaction. 

ClimateXChange commissioned Changeworks and the Centre for Energy Policy, University of Strathclyde to review existing European regulatory models and identify learning from each that are relevant to the Scottish context. The outputs will add to a body of existing research which will inform the Scottish Government’s proposals regarding regulation in the coming years.

This report details the findings from a review of seven European DH regulatory models, including a contextualised evaluation of each model. The research used evidence gathered through a literature review and interviews. 

As a product of the research, four key components of an effective regulatory system for district heating are identified as:

  • Long term planning and commitment to DH development
  • Successful use of tools which stimulate market development and investment in the sector
  • Co-ordination of national and municipal governments, and scope for industry interests to have a say in certain regulatory issues
  • Flexibility to allow for innovation, and account for market changes

These are the key lessons to be considered for the introduction of district heating regulation in Scotland.