A heat pump might be a lot cheaper than you think: here’s how

Combining an efficient heat pump with an energy tariff that discounts the energy used to run it could make heat pumps a temptingly cost-effective choice.

Recent calculations show that by taking advantage of a government grant to have a heat pump installed, and switching to the most appropriate electricity tariff, both the upfront installation cost and ongoing energy bills can be lower than the equivalent gas or oil boiler.

With the right combination, households could install a heat pump for as little as £500 and save more than £500 a year on bills. 

Sounds too good to be true? We’ve looked at the options to find out how to do it.

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But aren’t heat pumps expensive?

While the initial cost to install a heat pump can be more than £10,000, it may be much cheaper depending on your situation. The government-funded Boiler Upgrade Scheme provides a discount of £7,500 on the upfront price for homeowners in England and Wales. The Scottish government also offers a similar scheme.

However, as well as that initial outlay, one of the most commonly cited barriers to installing a heat pump is the perceived high running costs. And with good reason: they are powered by electricity, which is currently much more expensive, per unit of energy, than gas. 

At the time of writing, the energy price cap is 24.50p/kWh for electricity and 6.24p/kWh for gas. Even allowing for the relative inefficiency of a gas boiler, to match the running costs of gas central heating a heat pump would have to be more than three times as efficient.

And although heat pumps can have a seasonal coefficient of performance (SCoP) of 4.0 or more, indicating 400% efficiency across the year, there has been criticism that in cold weather they simply don’t perform at that level. That can result in higher bills or a cold home, which few people are willing to risk.

But what if the electricity running them was considerably cheaper than the current price cap rate? Suddenly the calculations look more promising.

Can heat pump running costs match those of gas boilers? 

Dr Jan Rosenow, Principal and European Programme Director at RAP (Regulatory Assistance Project), has compared the running costs of gas boilers against heat pumps. 

His calculations show that the running costs for a heat pump can match or beat the costs for a gas boiler, even when paying the standard capped energy prices. 

The typical UK boiler runs at approximately 85% efficiency. The graph below shows that the running costs for a heat pump with a seasonal coefficient of performance (SCoP) of 2.9 or more are lower than those of a typical gas boiler.  

Even the most efficient gas boiler (92% efficiency) can be beaten by a heat pump with a SCoP of 3.1 or more. With a very efficient heat pump operating at SCoP 4.0, you could save £259 a year.

Heat pump electricity tariffs make for the best savings 

The biggest savings for people with heat pumps, however, can be made by switching to a time-of-use tariff or a heat pump tariff that means your electricity is cheaper than the price cap.  

Dr Rosenow calculates that using the Octopus Agile tariff, which charges according to demand based on the half-hourly energy price, the savings can be considerable. 

Using an average electricity unit price of 21.57p/kWh, this would result in savings of £214 per year at SCoP 3.0 or £395 per year at SCoP 4.0, compared to running a gas boiler.

Finally, Dr Rosenow recalculated the potential savings using OVO’s Heat Pump Plus tariff. This tariff offers a rate of 15p/kWh for the energy used by the heat pump only; a standard rate applies to all other energy use. 

Dr Rosenow commented that the 'savings could potentially be very large, exceeding 50%'. His calculations based on the OVO tariff show savings of £434 for a SCoP 3.0 heat pump, and £560 for SCoP 4.0, compared to running a gas boiler.

Start by saving on heat pump installation

Unless you have savings that you're willing to spend, you'd be forgiven for thinking a heat pump is out of reach. But there's a surprising amount of money to be saved. 

A government grant available under the Boiler Upgrade Scheme (BUS) contributes £7,500 for homes in England and Wales. This can be used to pay for a heat pump installation when replacing an existing fossil fuel heating system.

You'll need an MCS-certified installer who can apply for the BUS grant on your behalf. MCS hosts a database of MCS-certified contractors you can use.

The Scottish Government funds the Home Energy Scotland grant and loan scheme. For air-source heat pumps the grant is up to £7,500, plus an additional £1,500 for households that qualify for a rural uplift. The remainder of the cost may be offered as an interest-free loan up to £7,500.

The UK government's new Energy Efficient Home website helps you find out about the actions you can take to make your home more energy efficient. It includes links to find out if your home is suitable for a heat pump, and to check if you're eligible for a grant.

Many energy suppliers offer heat pumps and installations, with some claiming prices as low as £500 with a BUS grant. 

If your home is well insulated, with suitably sized radiators and an existing hot water tank, you may get a heat pump installed for that price. For most, however, it's likely to cost more, as you may need insulation, radiator upgrades and other 'extras'.

• British Gas offers a survey, installation and aftercare. Installs Vaillant and Daikin heat pumps with a five-year warranty that could cost you 'from £499 with a £7,500 government grant'.  
• EDF Energy partners with a company called CB Heating, which installs Daikin heat pumps with a five-year warranty.
• E.ON Energy is a Which? Trusted Trader offering Daikin, Mitsubishi and Samsung heat pump installations with seven-year guarantees, as well as an online costs calculator.
• Good Energy offers Midea heat pumps with a 10-year warranty and remote monitoring, which it claims are '20% more efficient than industry standards on average'.
• ScottishPower offers Daikin, Vaillant and Mitsubishi heat pumps with two years of annual servicing from Domestic & General.
• Octopus Energy offers heat pumps with a five-year warranty on parts and labour 'from £500'. Which? members can currently receive a 5% discount on Octopus heat pump and solar installations.
• OVO has partnered with installer network Heat Geek to offer heat pump installation 'from £500 – including the £7,500 Boiler Upgrade Scheme grant'.

Once you've had your heat pump installed at a significant discount, the numbers show that your savings will mount up more quickly if you use a specialist heat pump tariff.

Which heat pump tariff is best?

We’ve found a few tariffs currently on the market designed for heat pump owners. You'll need to have a smart meter that records half-hourly consumption to sign up for one of these, or any other time-of-use tariff.

EDF Energy's Heat Pump Tracker tariff is currently advertised as a 'trial'. It offers six hours of low-cost electricity daily (4am-7am, 1pm-4pm). During these hours, you get a discount of 10p/kWh off the standard tariff rate in your region. The standard rate is charged at all other times, with no peak rates.

Good Energy's fixed-term heat pump tariff supplies 100% renewable electricity at a low rate of 10p/kWh for seven hours every day (5am-9am, 1pm-4pm). It charges 29.79p/kWh at all other times.

Octopus Energy’s Cosy tariff, designed for heat pump or electric boiler owners, has three separate rates. It provides eight hours of cheaper, off-peak electricity daily during three separate time periods (4am-7am, 1pm-4pm, 10pm-midnight), which it says is 51% cheaper than the standard day rate. The day rate varies according to the region you live in, and is charged at all other times except the 4pm-7pm peak. But beware that peak rate: between 4pm and 7pm, it is charged at 45% above the day rate in your region, so it may not be right for you if you need to use a lot of power during those hours.

OVO’s Heat Pump Plus tariff will run your heat pump for 15p/kWh. You still pay a standard rate for all other electricity in your home - this can be on any of OVO's tariffs. The Heat Pump Plus tariff is only available as an add-on to customers who install a heat pump through the OVO/Heat Geek offer, or who have a compatible heat pump (as listed on the OVO website).

Scottish Power's Heat Pump Saver tariff has a cheaper rate of 14p/kWh between 11am and 4pm every day, with a standard rate for the remaining hours. 

As more switching options become available, expect to see heat pump tariffs from other energy suppliers. Other time-of-use (ToU) tariffs may also be suitable, depending on your pattern of use, but be careful of tariffs with very high peak rates, as you may not save money if you’re unable to shift your energy use away from those times (typically 4-7pm).

The cheapest tariff for you will depend on when you use the most energy, and how flexible you can be with your electricity use. To make the greatest savings, you'll probably need to schedule your heating, hot water and appliances using electronic timers or smart programmers, or be at home most of the day to manually switch things on and off at the right times.

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Note: The graphs on this page were calculated using Oct-Dec 2023 price cap data and tariffs. The energy price cap is revised every three months, but the principle behind the calculations remains sound.

All graphs by Dr Jan Rosenow. Reproduced with permission.