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Green Homes Grant - Extended until 31 March 2022
Last updated: 19 January 2021

The Running Costs of Heat Pumps

What Affects the Running Cost of Heat Pumps?

Heat pumps are versatile and green technologies that are very popular among customers seeking heating and cooling devices. Heat pumps can provide significant savings over traditional heating systems, due to their low running costs. For example, a ground source heat pump can reduce energy bills by at least 26% compared to a new gas boiler.

Some of the key factors affecting the running costs of domestic heat pumps are:

  • Coefficient of Performance (COP) - with typical values of 3.5 to 4.5 (ground source heat pumps) and 2.5 to 3.5 (air source heat pumps), it can save up to 52% if used only for space heating instead of a gas boiler.
  • Renewable Heat Incentive (RHI) - a grant offered by the Government that, for a 2 bedroom house, would produce an annual income of £2,539.
Estimated Average Annual RHI Payments for GSHP and ASHP
Household Size Technology Type Annual RHI Payment
2-3 bedrooms Ground-Source Heat Pump £2,539
2-3 bedrooms Air-Source Heat Pump £1,302

For a complete breakdown, see the Estimated Average Annual RHI Payments of Renewable Heating Systems

  • Insulation - necessary to be able to cut energy bills by the values stated above.

The price for installing a heat pump varies between different heat pump systems. The costs of installing an air source heat pump can vary from £8,000 to £18,000, while ground source heat pump costs can range anywhere from £20,000 to £35,000. But thanks to the savings and grants, homeowners start to earn money after a few years.

Are you interested in getting quotes for heat pumps? Let us know about your needs and preferences and we will get back to you as soon as possible with free, non-binding quotes from our qualified suppliers.

Coefficient of Performance and Efficiency

Essentially, there are three factors to be considered in order to determine the total ground source and air source heat pump running costs:

  1. the coefficient of performance of the heat pump
  2. the amount of heat needed for your house
  3. the temperature of the heat source

The Coefficient of Performance (COP) measures the efficiency of a heat pump and it does this by measuring the amount of power input compared to the amount of power output produced by the considered system. Hence, the higher the value, the more efficient the system is.

The system's actual efficiency can be calculated by the amount of work it has to do, given the difference between the outside and inside temperature. The closer the two environments are, the less work the heat pump has to accomplish in order to reach the desired temperature, thus being more efficient without being under strain or using a greater energy amount. Heat pumps can attain output temperatures of 65 degrees or more if they are designed to do so, but their efficiency will decrease and running costs will increase.

A normal figure for a heat pump is a COP of 4 which means that for each kilowatt (kW) of electricity used, 4 kW of heat is created. It is often stated as 400% efficiency which can be misleading.

Domestic heat pumps efficiency varies among manufacturers but within some boundaries. Water-source heat pumps can have a COP up to 5 and some air-source may fall below 2.5, but these values are usually rare. Normally, the COP value is between 2.5 and 4.5

COP Calculations

The COP is calculated by every manufacturer on a specific set of criteria, which might or might not include things like circulation pump and defrost cycles but do not include the electric heater.

Defining the exact running costs of heat pumps is not as easy as it sounds. There are many factors, besides the features of the heat pump itself, that influence the running costs of such equipment. Something to take into account, for example, is the Renewable Heat Incentive (RHI). The RHI offers homeowners a tariff for seven years for the production of low carbon heating.

Let's look at all of the moving factors in a practical example.

Heat Pumps on Trial: Performance in the UK

A field trial of 12 months, from 2008 to 2009, has been done by the Energy Saving Trust in order to check heat pump effectiveness. The trial monitored 83 heat pumps (29 air-source & 54 ground-source heat pumps) from installation to performance indicators. The conclusion was that if they are well-designed and installed, heat pumps can efficiently operate in the UK.

The industry obtained valuable experience from the customers that participated in this study. As expected, ground and air source heat pump running costs can change a lot due to the large numbers of variables that affect the cost structure.

For example, the upfront costs to pay for installation can range from £3,000 for solar thermal panels and can go as far as £20,000 for a state-of-the-art biomass boiler. Although the initial costs can be high, after a few years, most people experience a substantial decrease in their heating bills; the largest savings are realised by households that go off the gas grid.

Trial Results: Examples of Running Costs

Let’s assume you have a two-floor house of 200 m2 built in 2010, according to Building Regulations Standards. The admitted space heating demand is 125 kWh/m2/year, so for 200 m2 we would need 25,000 kWh per year. In addition, we need domestic hot water and if we assume there are 4 people living in the house, we would need 3.488 kWh per day, per person — which corresponds to about 60 litres of hot water per person.

A rather new condensing gas boiler performs at 95% efficiency, meaning the gross energy required will be 26,316 kWh/year. With current gas prices of 2.97p, that would cost you £782 per year.

The average water consumption of four people in a house would be roughly 5,093 kWh per year for water heating of up to 60°C. With the 95% efficiency, that would result in 5,361 kWh per year, costing £160/year.

Let’s take a look at heat pumps. Assuming you need 25,000 kW for heating with a heat pump that has a COP of 4.3, you would need 5,814 kWh electricity. With electricity prices of 13p/kWh, it would cost £756 per year for space heating.

To consider domestic water heating with your heat pump, you need to bear in mind that most heat pumps can only heat to 50°C by themselves, without using their built-in electric heater. For four people, that would add up to 4,054 kWh per year in electricity consumption. The annual costs of that would amount to £123. However, if you do want to heat to 60°C, you have to consider an additional £132 per year — this is due to the extra electricity used to heat the water from 50°C to 60°C.

All in all, that means heat pumps have slightly higher running costs than a new condensing gas boiler would, if 60°C is required.

When investing in heat pumps, though, it’s strongly recommended to apply for the Renewable Heat Incentive scheme to lower your running costs. With the RHI, you earn money for 7 years for the energy you generate. The current tariff for air source heat pumps is 10.85p/kWh and for ground source heat pumps it’s 21.17p/kWh.

Taking the example above into account, it could mean that for a total of 6,762 kWh of electricity used per year for the heat pump, you could earn £734/year for ASHP and £1,432/year for GSHP.

Tariff p/kWh by Technology

For an average air-source heat pump, like an air to air heat pump or air to water heat pump, when the outside temperature is above 7 degrees Celsius, will run at COP 3 when distributing heat to an underfloor heating system.

Met Office data has shown that the average UK temperature from November to March (1971-2001) is constantly below 7 degrees, the monthly average varying from 4.2 to 6.9 degrees, thus the COP will be lower than usual. The COP will be around 2.8, given the variations in the outside temperature.

Due to the weather scenario, the heat pump will need 3,928kWh of electricity for space heating at a cost of £510 and another £460 to produce DHW, thus ending up with a total of £970 per year. The reduction in air source heat pump running costs would be of only 3.5% in comparison to a gas boiler.

If you’re using the heat pump to produce DHW as well, your running costs will increase. As stated above, when the ground-source heat pump is used for space heating only, the running costs are reduced by 52%. When the heat pump needs to provide DHW as well, the reduction is only 26%.

A draughty house with poor insulation will need a higher temperature flow to ensure the desired indoor warmth. This will increase the workload and reduce the efficiency of the heat pump. More often than not, this is where air-source fails and results in air source heat pump cost in the UK being rather high.

Annual Heat Demand and Running Costs Breakdown
Household Size 1 Bedroom 2-3 Bedrooms 4+ Bedrooms
Estimated Annual Heat Demand* 8,000 kWh 12,000 kWh 17,000 kWh
Gas £290 £435 £615
Electricity £1,145 £1,720 £2,435
Oil £325 £490 £690
LPG £525 £785 £1,110
Coal £325 £485 £685

* The annual heat demand is in accordance with the Typical Domestic Consumption Values

However, the main reason for high GSHP costs is poor installation or installation in unsuitable properties. For ground-source heat pumps, the problem might be the ground array as there might be insufficient pipework in the ground or the pipes might be too close to one another.

There is a definite amount of heat trapped under the ground and the heat pump will work harder to extract heat if a great amount is needed, a fast supply is required or there is less heat than what is necessary. Henceforth, the COP drops dramatically and ground source heat pump costs go through the roof.

Air source heat pump running costs are dependent on a number of factors. They operate at peak efficiency when used together with underfloor heating system or air convection heating systems, and if the building is already well insulated.

In addition, when installing an air source heat pump you need to consider where you will physically place it. You will reduce air source heat pump running costs if you place the heat pump in an area that has a lot of natural sunlight and is not cluttered, thereby allowing the air to flow freely. If you are looking at air source heat pump costs in the UK, you should ensure that these four factors are addressed, as they will facilitate in the heat extraction process and will result in lower air source heat pump running costs.

In conclusion, the rules for using a heat pump properly remain the following:

  • They must be used in a well-insulated house
  • Used either with underfloor heating or low-temperature flow radiators
  • It might be useful to have a separate heat source for DHW, ideally solar thermal panels

If you do not pay attention to these rules, you risk getting an expensive machine with high running costs and CO2 emissions.

What Is the Renewable Heat Incentive?

The details of the Renewable Heat Incentive (RHI) were made public by the UK government in April 2014 for England, Scotland and Wales. The Renewable Heat Incentive has two schemes:

  • Domestic RHI - is tax-free. It consists of subsidy payable every quarter for 7 years.
  • Non-Domestic RHI - It is a subsidy payable in 20 years.

These plans have separate tariffs, different joining conditions, rules and application processes.

Estimated Annual Domestic RHI Payment
Technology Type* 1 Bedroom 2-3 Bedrooms 4+ Bedrooms
Ground-Source Heat Pump £1,693 £2,539 £3,597
Air-Source Heat Pump £868 £1,302 £1,845
Biomass Boiler £550 £836 £1,185
Solar Thermal** £186 £310 £475

* RHI figures are based on the estimated annual heat demand as stated above

** RHI payment for solar thermal is based on the deemed annual generation figures listed on the Microgeneration Certification Scheme (MCS) Certificates. In the given example, the estimates are 900kWh, 1,500kWh & 2,300kWh

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Every year on the 1st of April the tariff rate changes to adjust to the Retail Price Index. Ofgem is responsible for administering both programmes. In order to join the RHI scheme, a domestic Energy Performance Certificate (EPC) is required. An EPC offers information regarding a household’s energy use and also hands out recommendations on how to reduce energy waste and save money.

UK government is likely to launch the Clean Heat Grant scheme which is expected to be a replacement for RHI after it ends on 31 March 2022. The new scheme aims to provide support for increasing deployment of heat pumps.

How to Submit the Application?

You can submit your application at Ofgem either online or by phone. When you do it on the phone, you can ask for a digitally assisted application. You can complete your application with the help of an adviser and receive the necessary information afterwards, by post.

This certificate is a necessary requisite every time you sell, buy, or rent a property. It is also a part of the Green Deal Assessment and represents a requirement for most people who wish to join the domestic RHI. During your Green Deal assessment, an advisor will inform you of how much money you can save and the renewable heat technology which suits your house the best.

Regarding installation, each city council has different rules for renewable heat systems. If you are in doubt don’t hesitate to contact your local council and it will determine whether you need planning permission before starting installation.

What Energy Sources Are Covered by the RHI?

According to the RHI scheme, there are 4 different renewable heat technologies that are eligible with the programme. Consumers will receive a different tariff per kilowatt hour of heat energy produced. The amount of money you get depends on the technology you choose for your home. These are the latest tariffs for the approved renewable technologies:

  • Air-source heat pumps - 10.85p/kWh.
  • Ground-source heat pumps - 21.16p/kWh.
  • Biomass boilers - 6.97p/kWh.
  • Solar thermal panels - 21.36p/kWh.
Estimated Average RHI Payments over 7 Years
Technology Type Installation Cost 1 Bedroom 2-3 Bedrooms 4+ Bedrooms
Air-Source Heat Pump £8,000 - £18,000 £6,076 £9,114 £12,915
Ground-Source Heat Pump £20,000 - £40,000 £11,851 £17,773 £25,179
Biomass Boiler £10,000 - £19,000 £3,850 £5,852 £8,295
Solar Thermal £3,900 - £5,000 £1,302 £2,169 £3,326

* The RHI payments are based on the figures in the table 'Estimated Annual RHI Payment'

Domestic RHI are payments which are founded by the Government. Hence, Department for Business, Energy and Industrial Strategy (BEIS) introduced heat demand limits which came into force from 20 September 2017, to help ensure that subsidies represent good value for money. These demands are applicable for air source heat pumps, ground source heat pumps, and biomass plants.

These heat demand limits refer to the heat demand of your property. Any property with a heat demand above the relevant heat demand limit will be paid the same as if their heat demand were equal to the relevant heat demand limit. The figures are depicted in the table below:

Annual Heat Demand Limit
Technology Type Annual Heat Demand Limit
Air-Source Heat Pump 20,000 kWh
Ground-Source Heat Pump 30,000 kWh
Biomass Boiler 25,000 kWh

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Written by Attila Tamas Vekony UX Manager Attila is the UX Manager at GreenMatch. He holds a degree in international business with four years of coordination experience in marketing, user experience, and content creation. Attila likes to write about solar energy, heating technology, environmental protection, and sustainability. His and his team's articles appeared in well-known sites such as The Conversation, Earth911, EcoWatch, and Gizmodo.
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