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How Government Grants May Be Inflating Heat Pump Installation Prices and What Could Happen If They’re Scrapped

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Mars
 Mars
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As the UK braces for a likely change in government this July, the debate over environmental subsidies, particularly the Boiler Upgrade Scheme (BUS), is intensifying. Voices demanding the elimination of government grants are growing louder, especially from installers and industry insiders who believe that government subsidies are inflating installation prices. Many of these installers argue that the excessive paperwork required to comply with subsidy programmes contributes significantly to higher costs. This begs a critical question: If the new government scraps the BUS, what happens to heat pump installations? Will prices plummet or will they stay inflated?

To grasp the potential impact, we need to examine the current costs associated with heat pump installations. An average heat pump installation cost in the UK is around £12,500, with £7,500 typically covered by the BUS, leaving homeowners to foot a £5,000 bill. However, there’s a widespread perception that these fees are artificially inflated due to subsidies provided by the BUS and previously by the Renewable Heat Incentive (RHI).

Our own experience with heat pump installation lays bare the troubling financial landscape:

  • Installation Fees: £5,400 for three days of labour by two installers, equating to £1,800 per day. This rate demands scrutiny.
  • Commissioning: An additional £500, adding to the already steep costs.

These figures reveal a stark reality: installation fees alone account for roughly 30% of the total invoice. The high daily labour rate raises serious questions about value for money, especially given the lack of tailored design and the mediocre performance in the case of our system, and we charged an additional £800 + VAT for a buffer tanks we didn't ultimately need.

Political Context and Future Prospects

The upcoming election is poised to influence the future of renewable heating. As political parties unveil their manifestos, their stance on subsidies and environmental initiatives will be crucial.

Conservative Manifesto Pledges

  • Never force people to rip out their existing boiler and replace it with a heat pump: Ensuring consumer choice and avoiding mandatory replacements.
  • Reviewing and reforming standing charges: Addressing cost structures to make energy pricing fairer.
  • Funding 100,000 high-quality apprenticeships: Investing in skilled labor to support green industries.
  • Introducing more efficient local markets for electricity: Enhancing market efficiency to benefit consumers.
  • Giving households the choice of smart energy tariffs: Providing options for more flexible and cost-effective energy usage.
  • Cutting waiting times for grid connections: Accelerating infrastructure improvements to support renewable energy.

Liberal Democrats' Manifesto Pledges

  • 10-Year Emergency Upgrade Programme: Includes free insulation and heat pumps for low-income households.
  • Zero-Carbon Homes: Mandating that all new homes be zero-carbon, promoting the integration of heat pumps as standard.
  • Real Cost Coverage: Providing incentives that cover the actual costs of installing heat pumps, addressing the issue of inflated prices.
  • Landlord Requirements: Reintroducing mandates for landlords to upgrade their properties' energy efficiency to EPC C or above by 2028, encouraging wider adoption of heat pumps.
  • Decoupling Electricity Prices: From wholesale gas prices, aiming to make electricity – and thus heat pump operation – more affordable.

The one that stands out for me in the context of this article is: "Real Cost Coverage: Providing incentives that cover the actual costs of installing heat pumps, addressing the issue of inflated prices." Do the Lib Dems know something that we don't or are they just guessing?

The Consequences of Scrapping the BUS

If the new government decides to abolish the BUS, several scenarios could unfold, each with profound implications:

  • Price Correction: Without subsidies, installation prices may fall as companies vie for business. This could democratise access to heat pumps, but will the quality suffer? Will this create an even faster race to the bottom?
  • Market Contraction: Alternatively, the removal of financial incentives might shrink demand, driving some companies out of business and potentially increasing prices due to reduced competition.
  • Suppliers: Plumbing merchants who have invested heavily in heat pumps might struggle to shift stock and could face hard financial times.
  • Technological Innovation: The industry might be forced to innovate, cutting costs and improving efficiency to remain competitive.

In light of all of this, homeowners considering heat pump installations should rigorously research and obtain multiple quotes to ensure they’re not falling victim to inflated prices. The experiences and costs detailed here highlight the urgent need for due diligence in navigating this complex market. The debate over government grants and their impact on pricing is far from settled, and we must continue to question and challenge the status quo to protect consumer interests.

In the greater scheme of things, the next government might have a significant impact on renewable heating. We will continue to update this piece as more information becomes available from other parties, ensuring you have the latest insights to make informed decisions.

This topic was modified 1 month ago 3 times by Mars

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(@gunboatdiplomat)
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Whether prices are higher than they should be is certainly something that has crossed my mind.
For example as part of a quote I've received I need 8 radiators replacing at a cost of approximately £900 for the radiators themselves and £1700 for the labour for a total of £2600. While I realise inflation has played its part I had 10 radiators replaced in 2021 for £1600 parts & labour. Say 8 radiators is 66% of what I had done in 2021 then replacing 8 in 2021 would have cost ~£1056. Lets say we've had 100% cost increases in 3 years for labour & parts - I'd expect the cost today to be £2112, not £2600.  I may be underestimating inflation here of course.
However if I'm overpaying by a few hundred on the radiators, what else am I overpaying by? Should my £7000+ quote really be £5000ish? Should someone with a £5000 quote really be paying closer to £3000 after the grant? That would be much closer to a boiler replacement in cost.
A side-note - for those of you who ask "Why didn't you replace your radiators with heat-pump ready ones in 2021?" that is a valid question and one that annoys me every day! If I only I had known more at the time.

This post was modified 1 month ago by Mars

   
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(@derek-m)
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@gunboatdiplomat

For comparison I would suggest that you look at the price of radiators on the Screwfix website and the cost of heat pumps on the Appliances Direct website.


   
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(@ivanopinion)
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I can certainly believe that some installers are padding their quotes a bit, knowing that the £7.5k BUS will still result in a net cost that enough customers are willing to pay. But I can't believe that the result is fees that are bigger than they would be if there was no BUS. That would mean that all installers are making profits of more than £7.5k on each install.
I'm sure installers would like to make profits of >£7.5k per install, but supply/demand suggests that at least some installers would decide it is better to reduce the profit margin and quote a lower price, so that they win more jobs. Profit margin goes down, but profits go up.

This post was modified 1 month ago by Mars

   
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Toodles
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@ivanopinion Though in my experience (for what they may be worth, if anything!) installers appear to have far more requests for installations than they can cope with. Maybe it is ‘kidology’ when installers say that the order book is full and they can’t look at another install for at least 6-9 months (or sometimes even more). As. have related before, of the total of 21 companies I approached in  2022, at least ten didn’t even bother to reply! Regards, Toodles.

This post was modified 1 month ago by Mars

Toodles, 76 years young and hoping to see 100 and make some ROI on my renewable energy investment!


   
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Mars
 Mars
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Posted by: @gunboatdiplomat

For example as part of a quote I've received I need 8 radiators replacing at a cost of approximately £900 for the radiators themselves and £1700 for the labour for a total of £2600.

This is where I struggle. The rad pricing looks fair enough to me. Two years ago (maybe three now) we had five rads replaced. It took two guys about four hours to do that along with balancing (which they did horribly). So let's call it a full day for the eight rads. Isn't £1,700 in your case a tad steep for that work?

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(@gunboatdiplomat)
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@derek-m yes absolutely I've been looking both to recent work I've had done (to try and assess labour costs) and also Screwfix/stelrad and others to validate part costs.

@editor yes the radiator prices themselves seem fair while the labour costs seem a bit pricey. Also the prices for parts/labour included with installing the ASHP are VAT-free so that £1700 is more like £2000 if it was a standalone job. Personally that feels too high. 

I mean without the BUS it would be a difficult proposition to consider an ASHP - £13000-£15000 is just too much. So in that sense it's a positive to have it. Just a shame a the costs are probably a bit inflated still if you aren't careful. 


   
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(@derek-m)
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@gunboatdiplomat

It makes one wonder how Appliances Direct can offer a 7kW heat pump for a purchase price of £1399, a 8kW one for £1999 and a 11kW one for £2399.99.

I wonder how much profit installers make on each heat pump they buy and install?


   
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