The UK is currently in an energy crisis caused by the high price of gas, and urgently needs to use less gas. Because the UK imports around 60% of its gas, this is having a serious impact on the UK economy, draining the money spent on energy bills out of the economy. Home heating is the single biggest use of gas in the UK, accounting for around 37% of use in 2021, more than electricity or industrial use (see chart 1).

Replacing gas boilers with electric heat pumps is one of the most effective ways to reduce gas use. That is partly because heat pumps run on electricity, rather than burning gas directly - and more than half of the UK’s electricity is produced by renewables and nuclear. And it is partly because heat pumps use energy more efficiently than boilers; for every unit of gas it takes to heat a home with a boiler, heat pumps use three to four times less energy.

Table 1 below shows how a gas boiler and a heat pump compare in terms of gas use in a typical medium-sized home. It assumes the gas boiler has an efficiency of 0.87 (ie, it produces 0.87 units of usable heat per unit of gas used), while the heat pump has an efficiency (Seasonal Performance Factor) of 2.76. It also assumes wholesale gas prices are at £3.11 per therm, which is their average price since the start of August 2022 [1]. The table suggests that:

• Heat pumps save more than 70% on gas use compared to a gas boiler, once the gas used to produce electricity is accounted for. This figure is based on the current electricity grid with 40% of electricity generated from gas [2]. As the electricity grid moves further towards renewable energy in future this saving will increase even more.
• A heat pump would reduce wholesale gas costs (ie, the amount of money UK energy suppliers spent buying gas) by over £1,100 per year if gas remains at current gas prices, and assuming the makeup of the electricity grid remains constant.

This saving could be hugely beneficial for the UK economy, because the majority (60%) of gas is imported to the UK. Assuming that any marginal reduction in gas use is used to reduce imports, the £1,100 per year saving from installing a heat pump is a direct benefit to the UK economy. Given that the UK government is now subsidising energy itself as part of the Energy Price Guarantee, any savings on wholesale gas costs could directly benefit the exchequer.

At current prices, every one million heat pumps installed could save the equivalent of around 0.05% of GDP (£1.1 billion) in wholesale gas costs every year, assuming the electricity mix remains constant. If all 23 million gas boilers could be replaced with heat pumps while the price of gas remains this high, the savings would be worth around 1.2% of GDP (£26 billion).

[1] ONS System Average Price of gas. This is the average daily price from 1 August 2022 to 9 October 2022.

[2] UK Energy Flow Chart 2021. In the very short term, it is likely that extra electricity demand from heat pumps would be met by more use of fossil fuels. However, as the grid is gradually increasing its share of renewables over time, we have assumed that the makeup of the grid remains constant for simplicity.

Notes:

* Source: Nesta analysis of home archetypes

** This calculation is based on the UK Energy Flow Chart for 2021. It shows 24.6 mtoe (million tonnes of oil equivalent) of usable electricity produced, with 30.2 mtoe lost in conversion or transport. It also shows gas producing 21.8 mtoe of electricity, 39% of the total. That means that for every unit of usable electricity generated, 0.89 units of gas was used in 2021.

*** Source: ONS System Average Price of Gas