Energy Systems Catapult have complied a list of potential business models and funding mechanisms that support heat pump adoption. The report describes these, with case studies, and summarises their key benefits.
Resource
During the PANZ project, Energy Systems Catapult explored a range of business models and complementary funding mechanisms that could encourage rural heat pump adoption. Central to this strategy is the establishment of a retrofit one-stop shop (OSS) in Peterborough.
An important part of our research, that informed our decision to prioritise the retrofit OSS model, was an initial assessment of business models and complementary funding mechanisms that could encourage rural heat pump adoption. This report outlines the longlist of options considered during that initial research phase.
Designed as a practical resource for other local authorities, this report aims to serve as a knowledge bank that accelerates learning, minimises duplication of research effort, and provides a strong foundation for further, context-specific exploration.
The report examines the following business models to support heat pump deployment. This models are available on Net Zero Go to explore in greater detail.
Business model benefits summary
The tabs below summarise the key benefits of each business model presented in this report, along with an overview of their relative commercial maturity.
Click the button to view the business model in more detail.
Heat pump finance
This model enables rural households to benefit from the installation of a heat pump without paying upfront costs. Instead, households pay monthly instalments to recover the initial investment.
Heat Pump-as-a-Service (HPaaS)
In this model, heat pump owners pay no upfront cost; they instead pay a monthly service fee.
Comfort-as-a-Service
CaaS is an outcomes-based business model where customers pay for a guaranteed level of comfort rather than kilowatt-hours of energy.
Retrofit One-Stop Shop (OSS)
Retrofit OSSs aim to provide householders with all the assistance they need to retrofit their homes, in one place.
Pay-as-You-Save (PaYS)
In PaYS business models, some or all of the energy bill savings achieved by retrofitting a home are used to pay back the capital cost of the measures.
Heat pump flexibility
Heat pump owners are incentivised to shift their energy usage in line with flexibility events.
Smart electricity tariffs
In this model, heat pump owners are incentivised to shift their energy usage in line with times that energy is cheaper.
Clean heat discounts
Electrically heated homes pay higher taxes than homes heated by gas boilers (per unit of energy consumed) because of greater levy costs.
Maximising self-consumption
In this model, households pay installers to install solar panels in combination with a heat pump to reduce reliance on grid imported electricity and the amount they spend on energy.
Community-owned renewable heat
This model provides heat pump owners with discounts on their energy bills through investing in a cooperative.
*Reductions observed compared to energy bills for heat pump households without access to the business model proposition.
Please note that this section reflects data and insights available at the time of writing (December 2024). No subsequent updates have been made.
Funding mechanisms
These funding mechanisms complement the business model options with the goal of further reducing financial barriers to heat pump adoption (reflects data and insights available at the time of writing April 2025).
The tabs below summarise the suitability of each funding mechanism for supporting heat pump deployment in rural areas. Suitability considers both the alignment of these mechanisms to heat pump assets and their availability in the UK market
Group purchasing
An approach where numerous customers (e.g., homeowners/landlords) buy heat pumps at scale to achieve cost reductions
Concessional finance
An approach were customers purchase heat pumps using loans with concessional terms offered by finance providers (e.g., lower interest rates or longer repayment schedules).
Property-linked finance
A finance option where the repayment of a loan is tied to a property rather than an individual, so if the property is sold, the new owner takes on the obligation to continue repaying the loan.
Community crowdfunding
A fundraising approach where individuals, businesses and organisations contribute money to support projects that benefit the community (e.g., decarbonisation projects).
Community shares
A fundraising approach where individuals can raise capital by purchasing shares via a community share offer, making them co-owners in community owned projects (e.g. renewable generation projects).
Carbon credit monetisation
An approach which would unlock funding for heat pumps within the wider context of social housing retrofit, specifically by monetising carbon credits generated from emissions reductions.
Local carbon offset funds
An approach which involves setting up a local carbon offset fund to collect carbon offset payments from developers, which would be repurposed to fund heat pump installation.
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