How can we boost uptake of heat pumps beyond the effect of subsidies?

Heat pumps are a far more eco-friendly way to heat our homes, however expensive installation and running costs pose major barriers to their adoption. In a previous blog we found that as much as 30% of homeowners with gas boilers would consider switching if the price halved.

The UK Government’s Boiler Upgrade Scheme, a £5,000 subsidy for heat pumps, is a good way to encourage people to make the switch, but what other tools could we use to boost adoption? This is the question Nesta and The Behavioural Insights Team (BIT) sought to answer in our second trial on heat pump adoption.

What we did 

Using our online experimental tool Predictiv, BIT recruited a sample of 8,016 UK homeowners who currently heat their homes with a gas boiler. We gave participants basic information on heat pumps, and told them to imagine their current boiler needed replacing within a year and that an engineer had assessed their home as suitable for a heat pump. They were then asked to choose between a replacement gas boiler or a heat pump. We randomly showed participants 3 of the following 8 heat pumps: 

1. A control heat pump under the current market condition
2. A heat pump with a reduced installation cost of £5,000 (equivalent to the current Boiler Upgrade Scheme)
3. A heat pump where amount can be paid with an interest free loan over 12 years
4. A heat pump where the installation time is reduced from 10 days to 3 days
5. A heat pump with a lower running cost, from £25 more to £20 less than a gas boiler per month
6. A heat pump with both the reduction in the installation cost and an interest free loan
7. A heat pump with a reduced installation cost and a lower running cost
8. A heat pump with a lower running cost and an interest free loan

It’s first worth noting that this experiment has the same limitation as the first one: it likely provides upper estimates of actual adoption. This is because (i) we used stated intentions – a hypothetical scenario where this measure is a proxy for adoption is far from the hassles involved in real-life adoption journeys and (ii) we have assumed the participants’ homes are heat pump ready. 

What works to boost heat pump adoption?

1. One in eight participants chose the heat pump over a gas boiler in the current market situation but all our interventions would significantly boost this number. Heat pump uptake significantly increases when reducing installation costs by £5,000 (+10 pp), introducing a zero interest loan (+9 pp) and reducing running costs of the heat pump from £25 more to £20 less than a gas boiler per month (+7 pp). These effects are statistically significant at the 1% level, meaning we have a high degree of confidence they were caused by our interventions.
2. Reducing installation time by 1 week did not impact uptake. This seems inconsistent with our finding from Trial 1 (where 6 out of 10 would choose a heat pump if it were easier to install in their home). This may be because the number of days it takes to install a heat pump is a poor proxy of installation hassle, or the description lacks specificity, (e.g. hot water turned off, rooms to be vacated, paper work etc).
3. Combining multiple policies together can increase uptake beyond the sum of implementing them in isolation:
   1. Reducing both installation cost by £5,000 and running costs together increased heat pump uptake by up to a further 13 pp.
   2. Both reducing running costs and allowing installation costs to be paid over time increased heat pump uptake by up to a further 8 pp.
   3. Heat pump uptake does not further increase by lowering installation cost and providing a payment plan together.

What does it mean for heat pump policies? 

Reducing the upfront cost is still the most impactful solution policy-makers can use to promote heat pump adoption. However lower running costs and delayed payment via interest free loans also have the potential to significantly increase uptake, especially when coupled with the former approach.

Indeed, taken together, halving installation cost, reducing running costs and providing financing options could increase overall uptake of heat pumps by around 44 pp. Then again, this would be a potential upper bound, given these estimates are from an online experiment.

Provide financing options

Our results suggest that providing an interest-free loan over 6 or 12 years is comparable to a £5,000 subsidy in driving uptake. It is cheaper to service an interest-free loan than provide subsidies, so policymakers should consider financing options. Provision of a loan is particularly valuable when running costs are reduced (increasing uptake by a further 8 pp, in addition to the main effects). This is perhaps intuitive, since taking on debt for a sizable investment is more appealing when that investment pays for itself over time.

Reduce running costs

In consumers’ eyes, reducing running costs is comparable to halving the upfront costs or spreading it over time. This implies switching the environmental levies currently imposed on electricity to gas tariffs can complement the current boiler upgrade scheme.

If you are a local council, bank or energy company interested in testing some of these heat pump solutions in the real world, please contact us to explore opportunities to collaborate.