A warm, cosy home comes with a price – and not just our spiralling gas bills. Heating our homes makes up around a sixth of the UK’s carbon emissions, and for most of us, a boiler is the most polluting thing we own.

Addressing this problem means reassessing how we heat our homes. The most effective solution is to replace gas-guzzling boilers with heat pumps, which are cleaner, more efficient and run on electricity instead of gas.

But heat pumps are expensive – too expensive for most people. They cost £10,500 upfront on average, compared to around £2,000 for a gas boiler.

And even though heat pumps are much more efficient than boilers – they use three to four times less energy per unit of heat – they don’t currently reduce your energy bills either. That’s because electricity is so much more expensive than gas in the UK, even during the current gas price crisis.

So how do we bring down the cost of heat pumps and ensure that the greener option is also cheaper? Well, this is a mission with two parts: we need to make heat pumps cheaper to install and cheaper to run.

Improving the installation process

Heat pumps cost a lot to buy – not due to the heat pump itself, but because of the challenges of installing them in homes. Our analysis shows that you can buy a heat pump unit for around £2,000 to £4,500, depending on size. But the rest of the upfront cost – typically around £6,000 to £8,000 – seems to come from installation.

Every home is different, and fitting a new heating system is complicated. How much heat does your home need? It depends on how big it is, how well insulated, and how much you use it. Where will the heat pump go – is there a convenient space outside your home? Are the radiators big enough to heat your home? Is the system designed to run efficiently?

Installing a heat pump system is skilled work; it takes time and there is only a select group of engineers with experience of doing it well. This complexity makes heat pumps costly, but it also makes the price very hard to predict. We found huge price variations in our research, with 16% of heat pumps costing more than £15,000.

So how can we reduce this upfront cost? First, by doing more installations. The UK government envisages 600,000 heat pump installations a year by 2028, up from around 35,000 at present. As installers get bigger order books and more experience, they should be able to reduce costs - we think by as much as 40% by 2035.

Second, we need more innovation around the installation service. The wider heating and plumbing industry has not increased productivity for over 25 years. Using modern software to improve design calculations and streamline the customer journey could help cut costs. Octopus Energy have been drawing inspiration from pit stops in motor racing to speed up the process.

Third, we need many more skilled heat pump installers, especially if we’re to get close to the 600,000 target. Having more installers should increase competition and supply, helping to reduce prices. Incentivising more people to train as heat pump installers should be a high priority for the government.

But reducing the upfront cost of heat pumps is only one part of this story. We also need to make heat pumps affordable to run.

Making heat pumps cheaper to run

There is huge scope for reducing the running costs of heat pumps, and the most important thing is to make electricity cheaper.

First, the government must remove the levies currently charged on electricity – equivalent to 25% of a typical bill. Doing this would reduce the running costs of a heat pump by up to £600 a year.

Energy companies could also help by offering heat pump tariffs, which reward customers for using electricity at cheaper, greener times of day. Increases in heat pump efficiency – similar to those we have seen over the last few years – could further eat into running costs.

According to our modelling, making all three of these changes would reduce the annual cost of running a heat pump by £450 in a mid-sized home. That would make it £250 cheaper to run than a gas boiler, which helps to offset the higher upfront cost.

Reduced running costs also open the door to financing – spreading the upfront cost into monthly payments, like we currently do when buying a car. And if a heat pump brings you lower monthly energy bills, you can use the savings to help pay back the finance, making heat pumps a more attractive proposition both to potential customers and lenders. This is something banks and other financial institutions should actively look at.

If we bring all of these elements together – improvements to the installation ecosystem, lower running costs and smarter financing – then heat pumps will soon become the cleaner, greener and cheaper way to heat our homes.