Treasury urged to introduce clean heat discount to encourage heat pump uptake

By Adam John

A number of organisations including Eon, EDF and Nationwide have written to the Chancellor calling on him to introduce a “clean heat discount” to reduce the costs of electric heating.

The letter, spearheaded by the E3G thinktank, is signed by 16 organisations which have raised concerns about levies imposed on electricity bills, penalising households using electric heating.

The organisations believe a targeted discount will make heat pumps “more desirable and affordable” while at the same time support the significant number of fuel-poor homes currently using direct electric heating.

Per unit of energy consumed, the letter explained, levy costs are almost eight times more expensive for electricity than gas.

It added: “Providing a ‘clean heat discount’ for electric heating users could help ensure households switching to a heat pump are able to feel the economic benefit of lower bills.

“Denmark already uses a similar dual tax rate for electric heating and has experienced a surge in heat pump installations.”

It argues that using general taxation to pay for the policy is the most progressive way to cover the costs.

It continued: “Exempting electrically heated homes from paying an amount equivalent to 3.5 MWh (equivalent to the Renewables Obligation, Feed in Tariff, Energy Company Obligation and Great British Insulation Scheme levies) would save consumers on average £130 a year if implemented in 2024/25.

“Direct electric heating systems are used by a disproportionately high number of fuel poor homes. Therefore, making the exemption applicable to electric heating will deliver significant co-benefits for fuel poverty. The savings equate to 15% of heat pump and 5% of direct electric running costs. Maximum uptake of the scheme would amount to £390 million a year for all electric heating, or £90 million a year for heat pumps and £300 million for direct electric.”

The letter concludes by encouraging the Treasury to support the Department for Energy Security and Net Zero in a consultation on the discount, as well as to allocate funding in the Spring Budget.

It additionally requests a meeting with the Chancellor to “further discuss the benefits of this option”.

Signatories include:

Responding to the letter, a Department for Energy Security and Net Zero spokesperson said: “Our plans to power up Britain include rebalancing gas and electricity costs, so even more consumers can benefit from cheaper and cleaner energy and green products.

“We are looking at a range of options for longer term energy market reform, including the rebalancing of gas and electricity prices, with the impact on consumers at the heart of our approach.

“We’ve also increased heat pump grants by 50% to £7,500 – making it one of the most generous schemes in Europe.”