The total cost of a heat pump over an average 15-year lifetime, including the system, installation and running costs, could soon be £60–£110 per year cheaper than a gas boiler, according to a new report from the charity Nesta. This is the largest such analysis to date, using data from 60,000 heat pump installations in the UK.

In addition to the existing £5,000 government grant available in England and Wales to reduce installation costs, this cost reduction would be realised under three conditions:

• Shifting social and environmental levies from electricity to gas
• Suppliers offering discounted heat pump tariffs
• Increasing the efficiency of heat pump systems in homes

The most significant change would be achieved by shifting levies from electricity to gas, a move that ministers are already reportedly considering. This change would take £600 per year off the cost of running a heat pump in a large, detached home, compared to a gas boiler. If the government makes the change to levies, it could open up new financing offers to spread the upfront cost of a heat pump into monthly payments.

Some providers such as Octopus Energy already offer dynamic tariffs that vary by time of day, and Good Energy previously offered a dedicated tariff for heat pump users. Heat pumps have become steadily more efficient over recent years, and there are significant further gains to be made either by installing units that work at lower flow temperatures or installations that match the highest quality of current installations.

In addition to the above measures, a householder without other gas appliances (i.e. cookers) could stop their gas supply entirely. This could save an additional £60–£90 per year by removing the need to pay for a gas standing charge.

The Nesta team analysed data on 60,000 heat pump installations in the UK since 2010, and found large variations in installation costs. Heat pumps typically cost around £9,000 to install in a flat, rising to around £11,000 in a mid-sized home and £13,000 in a large detached house. However, there is scope to reduce this cost over the coming years, particularly by training more highly skilled heating engineers to fit heat pumps.

The report also shows how important running costs are to the overall cost of a heat pump, accounting for 55%–65% of the lifetime cost. Heat pumps are far more efficient than gas boilers, typically using around three to four times less energy to heat a home, but are held back by the very high cost of electricity in the UK. Making electricity cheaper, including by using more cheap solar and wind energy, will make heat pumps a far more affordable option for households.

Andrew Sissons, Deputy Director of Nesta’s sustainable future team, said:

“Heat pumps may be a more expensive option for many homes at present, but there is huge scope for their cost to fall over the coming years. Our analysis shows that, with relatively modest changes, heat pumps could soon become a better overall investment than a gas boiler.

“In future, we should be able to buy a heat pump in the same way we buy a car: using finance to pay monthly, rather than having to pay everything up front. The only difference is that a heat pump should last at least 15 years.

“If heat pumps become cheaper over their lifetime than a gas boiler, many more people will be able to afford them and will be better off financially. Given the gas price crisis we are facing, this is hugely important because heat pumps replace imported gas with electricity made in the UK, most of which now comes from low-carbon sources.

“The government should make the changes to electricity levies as soon as possible, and help to train more highly skilled heating engineers. If they do, heat pumps will offer us a cheaper, cleaner way to heat our homes. They will also reduce our exposure to the volatile international gas market, in which Russia produces a tenth of all global supply.”