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  • 9th Mar 2022

How much are we willing to pay to make home heating greener?

One in three homeowners are willing to pay extra for a heat pump

When it comes to reducing emissions from the way people heat their homes (home heating is currently responsible for around 14% of UK emissions), the UK government (alongside many other countries) is betting a lot on heat pumps. They run on electricity, which should be 100% renewable by 2035. They also draw latent warmth from outside, even on cold days, meaning they’re three to four times as efficient as conventional heaters

But… green and efficient as they are, heat pumps are currently expensive to buy and have a few other drawbacks compared to gas boilers. They take longer to install and are often slightly more costly to run because of the higher cost of electricity compared to gas (at least for now).

The UK government has many different policy proposals in development to bring costs down and spur product and installation innovation. But for now, it’s valuable to understand how willing UK householders are to adopt a heat pump and just how much they’re willing to pay. In the first of two experiments on heat pump adoption, Nesta and The Behavioural Insights Team (BIT) have sought to answer these questions.

How did we test people’s willingness to pay for heat pumps?

BIT recruited a sample of 1,801 UK homeowners who are currently heating their homes with a gas boiler for an online experiment in December 2021. Participants were presented some basic information on heat pumps and a scenario in which their current boiler needs replacing within a year. They were then asked to choose between a replacement gas boiler for £2,000 and a heat pump which was priced randomly between £2,000 and £12,000 (inclusive of unit cost, installation and subsidies).

It’s first worth noting that this experiment has some limitations

  • it was intended as a small pilot to inform a second experiment testing different policy ideas (watch this space)
  • It provides likely upper estimates of actual adoption. This is because we used stated intentions and the hypothetical scenario where a single click for adoption is far from the hassle of real life
  • our estimate is not very precise

What did we find?

1. There is a clear early adopter group (approx. 25% of homeowners who say they are willing to pay the full current cost of heat pumps of £10-12k, figure 1). While we must take this 25% cohort with a pinch of salt (not all would complete the real-life decision), this is still a reassuringly high proportion of potential early adopters. When asked to reflect on the next five years, the proportion willing to buy a heat pump at this cost increases to one in three. If we could replicate this result in real life (although this is a big if, given the multiple other frictions which exist beyond price, it could mean hundreds of thousands of people adopting heat pumps each year, compared to just 35,000 or so at present.

Figure 1. Uptake of heat pumps at different price points in our experiment

2. There is a potential bigger buyer group of roughly one in three homeowners, willing to pay a bit extra for a heat pump (but still requiring substantial cost reductions). This cohort may be crucial to achieving government targets. Figure 1 above shows that as many as a third of homeowners might be willing to pay in the region of £4,000-8,000 for a heat pump (again, an optimistic upper figure).

What does this mean for government targets? The government is aiming for 600,000 installations per year from 2028, with around 200,000 of those going into new homes after gas boilers are phased out from new builds from 2025. As explained in Figure 2, with a few simple assumptions, this means as many as 35-40% of annual boiler replacements in owner-occupied homes would need to opt for a heat pump instead. Our results suggest this requires a target cost no higher than £4,000- £6,000, which is around half the current market cost of installing a heat pump.

Figure 2. Policy implications of the current willingness to pay for heat pumps

3. Though this gives cause for optimism, cost remains a major barrier to widespread  adoption of heat pumps. We can’t rely forever on those early adopter homeowners – at some point, heat pumps also need to be in reach and appealing to those less willing to pay a premium. Our experiment shows that the majority of homeowners wouldn’t choose a heat pump even if they cost the same as a boiler (£2,000). Indeed they may have to be quite a lot cheaper to persuade the majority – from our data we estimate that the average consumer is willing to pay around £1,500 less for a heat pump than a gas boiler (ie, just £500). Surveying respondents, we found that cost has been cited as the biggest barrier – nine in ten people said they would not choose heat pumps because of installation costs.

Eight in ten were discouraged by high levels of disruption, and seven in ten by high running costs. Asked what would change their mind, seven in ten said they would opt for a heat pump if they were cheaper to install, and six in ten would be swayed by lower running costs (Figure 3). There are feasible policy mechanisms to achieve this, since environmental levies are currently making electricity costs high, and these could readily be switched to gas tariffs instead: an idea being considered by the government. 

However, costs are not the only barrier, as knowledge about heat pumps remains quite limited. Whilst eight in ten have heard about them, just five in ten understood their basic principles of operation. Moreover, almost half of those who opted for gas boilers in the choice experiment were not convinced by the claimed benefits of heat pumps to the environment. 

Figure 3. Reasons that would convince people to change their mind on heat pumps

4. The near-term rollout of heat pumps may also be hastened, slightly, by a future phase-out of gas boilers. Among adopters, a common reason was wanting to future-proof their home. And among those who said they would not adopt one in the next five years, 14% would change their mind in the knowledge of a 2035 phase out of gas boilers. This shows  that such a policy wouldn’t just force us away from gas boilers after that date, but could be a crucial extra slice to get the government on target, by accelerating early voluntary adoption. 

What’s next? 

So in summary, there’s a mix of good and bad news in our analysis. It looks like there is a substantial group of homeowners who would consider buying a heat pump at today’s prices. There is another group who would be open to a heat pump if the cost falls. But there is also a large group of homeowners who are so far unpersuaded by heat pumps, and who might need more than just cost reductions to make the switch away from gas.

In our second experiment on this topic, we’ll explore the relative importance of multiple factors – not just the upfront cost – in boosting heat pump adoption. What if they were cheaper to run, easier to install, or supported with upfront finance? Stay tuned for more.


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