Posted by: @editor

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The government has announced that VAT will be removed from household electricity bills for six months from 1 October, which should save the average household around £45, so it’s hardly transformative, but for heat pump owners it raises a much bigger question... is this the beginning of a serious attempt to rebalance electricity and gas prices or just another temporary sticking plaster?

I think the decision to remove VAT from electricity and not gas bills was driven by two factors. Firstly, not everyone has mains gas whereas most people do have a domestic electricity supply, so in terms of 'cost of living' help, it reaches most everyone. Secondly, there is the premiss of reducing taxation on the clean(er) fuel that they wish to incentive people to switch to, and continuing to tax the FF that they wish to dis-incentivise.

Is it a sticking plaster? Yes. VAT is removed from October to the end of the financial year, so 6 months giving an average saving of £22.50 putting it firmly in sticking plaster territory. What's worse is that it's likely to be entirely swallowed up by Ofgem cap price increases in October, so runs the risk of backfiring politically (you promised help with the cost of living, some breathing space, and my bills have actually gone up). Of course every little helps, but many voters may not see that distinction.

Getting back on topic here, if we take the average gas usage of 9,500kWh used for the Ofgem price cap figures at 7.33p/kWh, we have an annual gas bill of £696.35. Assuming all of this is used for heat with a condensing gas boiler of 90% efficiency, we see 8550kWh heat delivered to the house.

If we compare that with an ASHP of conservative average SCOP of 3.0, would require 2850kWh of electrical input to deliver 8550kWh of heat. Assuming a heat pump tariff is used and an average import price of 20p/kWh, we see an annual cost of £570 (before the VAT reduction). If we are able to achieve a SCOP of 4.0, those costs fall to £427.50, around 40% cheaper.

The nature and continued roll out of CfD scheme means electricity prices are increasingly locked in and thus less susceptible to influence by global events, whereas gas prices continue to be fully exposed. At current pricing, a well installed ASHP with good efficiency is already significantly cheaper to run than a gas or oil boiler. As you are already well aware, design and installation quality are key to low running costs.

For reference, my own ASHP delivers around 9,800kWh of heat per year at a SCOP of around 4, and for the first year when I ran the system without any batteries on the Cosy heat pump tariff, achieved an average import price of 20p/kWh over the winter months. I do not believe there is anything special about my installation - in fact there are a few things that could be improved.

@jamespa Smart move by Burnham, although minor it ticks 90% of the correct boxes and easy to do.
Although will become an irrelevance once the massive implications of power /food shortages and kimi k3 play out.