Unlocking the Economy Wide Benefits of Heat Pumps - The Role of Electricity and Gas Prices

This briefing considers the economic gains that could be realised through the deployment of heat pumps for the decarbonisation of residential heat. Heat pumps are more efficient that gas heating systems and can ultimately lead to important energy demand reduction across the residential sector. However, under prevailing market conditions where the retail price of electricity is high relative to gas, the bills savings and wider economy benefits usually associated with substantial energy efficiency increases are not evident.

In this paper we focus on how, and to what extent, the electricity-gas price differential determines whether the energy efficiency properties of heat pumps will lead to energy bill saving for UK households. This issue becomes increasingly important when we consider how the changes in household energy bills and real spending power can drive a wide range of economy wide impacts.