Gas heating bills for UK households remain over a third higher than before the energy crisis. The only credible, long-term option to reduce heating bills is to replace imported fossil gas with cheaper electric alternatives. With the right policy changes, the average household heating bill could be over £400 lower with a heat pump than with a gas boiler.
Our analysis finds that a typical household with an annual gas bill of £820 per year could potentially reduce their bills to around £375 by switching to a heat pump – but only if government takes action to unlock the potential for savings.
We propose four reforms through which government can act to reduce electric heating bills, ensuring low-carbon heating offers reliably lower bills. These actions would substantially benefit households with less efficient forms of electric heating, as well as those with heat pumps. Households with direct electric heating include some of the poorest in the country, and are twice as likely as other households to experience fuel poverty.
1. Remove levies from electric heating
Introduce an Affordable Electric Heating Tariff, which exempts electricity used for heating from legacy policy costs. Set out a longer-term roadmap for fully eliminating legacy policy costs from all electricity bills.
Potential savings on typical annual heat pump running costs: ~£150
2. Reduce electricity prices further through electricity system reform
Deliver reforms to maximise savings from a clean power system, and publish a comprehensive Electricity Bills Strategy by the end of 2026. This should include plans to continue to reform Contracts for Difference, reducing uncertainty regarding future transmission network charges. Regulation to ensure gas plants cannot generate unjustified profits is also key.
Potential savings on typical annual heat pump running costs: ~£90
3. Drive up performance standards for low-carbon heating
Monitor installed heat pump efficiency and set a target to increase the average performance by 25% (from SCOP 2.8 to SCOP 3.5). Invest in innovation that could improve installed performance and support households with outdated electric heating to switch to more efficient options.
Potential savings on typical annual heat pump running costs: ~£140
4. Ensure consumers can access cheaper off-peak electricity
Unleash the potential of consumer-led flexibility for all, by introducing standards which ensure all new electric heating systems are “smart ready”. Strengthen price signals for flexible tariffs and support innovation to automate heat pump load shifting. Ensure households receive information about choosing the best available energy tariff.
Potential savings on typical annual heat pump running costs: ~£175
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