Electrically heated homes pay higher taxes than homes heated by gas boilers (per unit of energy consumed) because of greater levy costs.
Resource
Business model: Clean heat discount
In the UK, electrically heated homes pay higher taxes than homes heated by gas boilers (per unit of energy consumed) because of greater levy costs*.
This model could address this challenge by providing a ‘Clean Heat Discount’ to electrically heated households.
For a predefined amount of electricity, eligible households would receive a discount on energy bills equal to the amount they would usually pay in levies.
The cost of implementing the scheme could be covered using wider UK Government funding aimed at increasing energy efficiency and tackling fuel poverty.
* E3G. (2024). Creating a heat pump mass market in the UK: Unlocking access to affordable clean heat.
Primary benefits
- Reduces the running costs of heat pumps so that heating costs are comparable to, if not cheaper than, using a gas boiler.
- Research suggests that an annual levy exemption on 3.5 MWh of electricity (the assumed amount of electricity used by a heat pump to heat a medium-sized home to the same degree as a gas boiler) could save consumers on average £130 a year *.
- Could be used in combination with other propositions, potentially resulting in higher cost reductions than each proposition in isolation.
- Unlike other models, does not require manual control of heat pump performance on behalf of customers, though customers will still need to register for the subsidy and undergo eligibility testing.
* E3G. (2023). Make clean heat accessible to all: Options for lowering heat pump running costs.
Key risks and considerations
- The Clean Heat Discount is currently only a concept, and the UK Government has not committed to trialing it.
- There is currently no national register for home heating to identify eligible households.
- Co-ordination between numerous stakeholders would be required to enable implementation — likely requiring a significant awareness raising campaign.
- Does not reduce capital cost of heat pump installation, meaning proposition is primarily targeted at able to pay market.
- Further research is required to determine whether the scheme could be implemented without being considered as a subsidy/ loss of revenue.
Case study: E3G proposal
E3G. (2024). Creating a heat pump mass market in the UK: Unlocking access to affordable clean heat.
Overview
E3G is proposing a targeted exemption of levies for electric heat users in the form of a ‘Clean Heat Discount’. E3G has calculated that an annual 3.5 MWh exemption of electricity for electrically heated homes could reduce running costs by around 15% for heat pump households and 5% for direct electric heating households.
Alongside sixteen other organisations, E3G have written to the UK Treasury calling on them to enact this proposal.
Financials
The levy exemptions could save consumers on average £130 a year.
At maximum uptake, the scheme could amount to £390 million a year for all electric heating — £90 million a year for heat pumps and £300 million for direct electric.
Scale of deployment
Applicable to all electrically heated households in Great Britain subject to eligibility testing.
| Heating type | Before levy discount (£) | After levy discount (£) | After smart tariff (£) |
|---|---|---|---|
| Gas boiler | 694 | 694 | 694 |
| Heat pump (COP 2.8) | 843 | 673 | 586 |
| Heat pump (COP 2.94) | 803 | 673 | 586 |
| Direct electric | 2,362 | 2,229 | 2,228 |
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