This post aims to analyse the economics of installing, using, and maintaining various different heat sources based on daily data characterizing the heating requirements and solar PV generation of my house (a 1970s 4-bed detached with as much retrofit insulation as we could reasonably do).

Modelling energy use:

Detailed data was taken from the heating season Oct 2024 to March 2025 when we only had a gas boiler. This included daily gas consumption which was used to compute the heat demand in kWh per day.

Winter electricity use for heating and hot water via an A2W heat pump was modeled at the night rate for 5 hours (5/24^th of what was required each day), at the solar export rate for all of the solar PV yield for that day, and at the standard rate otherwise. (The solar PV battery was assumed to provide all of the electricity for background electrical consumption, i.e. non-heating use). Summer electricity use for hot water via an A2W heat pump was assumed to be covered by the night electricity rate, and heating 50-50 by the night rate and solar export rate. Heat pump efficiency was assumed to be 3.8 at a design flow temperature of 42.5C (all radiators replaced) and 3.17 at a design flow temperature of 55C (no radiator replacements); this includes hot water heating (a reduction in SCOP of 0.22 on average according to Heat Geek figures). The same efficiency value was used for every day, which is a little optimistic, since efficiency is lower at colder outdoor temperatures when more heat is required.

For an Air-to-Air (A2A) system complementing gas, winter heating of 4660kWh was assumed at a SCOP of 5.2, as achieved over the 2025/26 heating season when we had A2A in place as well as gas. Half of this was assumed to be at the electricity night rate and the other half at the solar export rate, since our A2A was not run on standard rate electricity. Gas was responsible for all hot water and the remainder of the heating requirement.

Modeling electricity cost:

To illustrate the economics of each heat source with changing energy prices, gas and electricity prices were modeled as follows. Different values for the gas price were considered from 4p to 14p per unit. The standard electricity price was modeled as 1.32 times the gas price plus 15.8p. This equates to the relationship between gas and electricity prices as set by Ofgem for the period Oct to Dec 2026, and the fact that the domestic gas price effectively contributes 40% of the price of domestic electricity, with the remaining 60% a fixed cost. This model resulted in the table of prices below. Overnight prices are 1.5p below the electricity price contributed by gas and the solar export price is 1.5p above. (Govt and energy company policy could result in prices that vary considerably from those shown in this table. I have simply gone with a reasonable approximation that matches up with today's pricing).

Capital costs:

The amortized capital costs of installing each heating option were taken over a 17.5-year period (typical life assumed to be 15-20 years). These were added to annual running costs and maintenance costs to give an overall economic cost, which was plotted on a graph for gas prices varying from 4p to 14p. These gas prices defined the corresponding electricity prices via the table above. Where new radiators were assumed, their capital costs were amortized over a 35-year period, representing the much longer lifespan of these passive components. Total installation costs assumed were £10250 for the A2W heat pump, £4000 for radiators, £3000 for a gas boiler and £3300 for A2A. The BUS grant was assumed to be £7500.

Results:

A number of different systems were considered including an A2W heat pump with and without radiator upgrades, a combination of gas boiler and A2A system, and gas alone. Further, different cost bases were considered including the full economic cost (FEC), the BUS grant, and whether the system was already in place i.e. disregarding the sunk costs of existing equipment that would be discarded but otherwise did not need to be replaced.

The dotted lines on the graph illustrate the Full Economic Cost (FEC) of installing a new system of the various types: Red – gas boiler, Green – A2W heat pump and new radiators (42.5C flow temperature), Purple - A2W heat pump with existing radiators (55C flow temperature), Blue – A2A and gas boiler.

Conclusion 1: Where an existing heat source must necessarily be replaced and the Full Economic Cost of any replacement met, A2A and a gas boiler (dotted blue line) is the most economically effective for all gas prices from 4.5p per unit to 14p per unit. (A gas boiler alone is marginally cheaper when gas is 4p per unit).

The solid green and solid purple lines show the effect of the BUS grant (as compared to the dotted lines of the same colour).

Conclusion 2: Where an existing heat source must necessarily be replaced and the BUS grant is available for A2W heat pumps, A2W with and without radiator upgrades (solid green and purple lines) are very close in amortized costs and the most economically effective for all gas prices from 4p per unit to 14p per unit. Choice here depends on whether the capital cost of new radiators can be met and the life remaining in the old ones.

The solid red line represents a nearly new gas boiler that does not need replacing. Similarly, the solid blue line represents a nearly new gas boiler and A2A system that do not need replacing. Finally, the dashed blue line, represents adding a new A2A system to a nearly new gas boiler that does not need replacing.

Conclusion 3: Where only a nearly new gas boiler is present (red solid line), for gas prices over 6p per unit, the BUS grant makes it economically viable to replace it with an A2W heat pump with or without new radiators (green and purple solid lines). For gas prices under 7p per unit adding an A2A system is however a more economical alternative (dashed blue line).

Conclusion 4: Where a nearly new gas boiler and A2A system is present (solid blue line), simply retaining it is economically the best option for gas prices below 13p per unit. At higher gas prices, the BUS grant makes an A2W heat pump with a radiator upgrade marginally more cost effective (solid green line).

Conclusion 5: Given that the BUS grant cannot plausibly subsidize A2W heat pumps for all, when it stops the economic alternative for many people with existing Solar PV will be partial decarbonization via the addition of an A2A system to complement their gas boiler. This will have the advantages of providing both cooling and heating system redundancy, as well as not requiring a large subsidy through taxation or higher energy prices to make it financially viable.

Note, the Govt. Energy Price Guarantee limited the gas unit rate to 10.3p from Oct 2022 to June 2023, so prices well above that level may be unlikely due to Govt interventions to avoid them.