From policy to practice: The UK's Clean Heat Market Mechanism revisions explained
Martyn Bridges, Director of Governmental and External Affairs at Worcester Bosch, discusses the Government's recent revisions to the Clean Heat Market Mechanism.
The Clean Heat Market Mechanism (CHMM) is an initiative first proposed under the UK’s previous Conservative government. It essentially fines gas and oil boiler manufacturers if heat pumps don’t account for at least 6% of their installations.
Initially, due to launch in April last year, it has been pushed back to April 2025 with the current Energy Minister making revisions as part of its Warm Homes Plan to decarbonise UK heating systems.
So what’s changed?Following an industry consultation, which Worcester Bosch has been a part of, we got confirmation that the clean heat market mechanism is to go ahead. Although the new government has decided to press go, it comes with some radical changes.
Firstly, the levy will be reduced from £3000 to £500 for every extra boiler over the limit for the CHMM’s first year. This will rise back to £3,000 the following year, with the expected proportion of heat pump sales to rise from 6% to 10%.
Most fundamentally, both counts for boilers and heat pumps will start on the 1st April 2025. Originally, the proposal was split, with heating producers counting the number of boilers sold from 1st January and the number of heat pumps from 1st April. You can see why there was confusion. Bringing the dates together is clearer, and will prevent mass hysteria and stocking up on boilers before any price increases are implemented.
Understandably, there was a delay. When a new government comes into power, it tends to appraise everything. The policy was probably semi-drafted, if not fully drafted and therefore required a thorough review to determine if the new ministers agreed with the policy.
The heat pump and boiler equationThe mechanism itself is much the same as before, but with the greatly reduced penalty of £500 for every unmet heat pump sale rather than the original £5000, which was then reduced to £3000.
Although it's an improvement. It isn't cheap. £500 is still a huge amount of money for a manufacturer who's going to sell a lot of boilers because they have to sell or match 6% of their boiler sales with heat pumps. In simple terms, for every 100,000 boilers sold, the producer has to sell 6000 heat pumps - that’s no easy feat, given there are many barriers of heat pump adoption among homeowners.
The necessity of driving greater demandMechanisms are an unusual device or policy which don’t really do anything to increase the demand, which is ultimately how markets work.
Whilst the market for heat pumps is showing an improvement this year, it is still not large enough for every manufacturer who is set a quota to actually sell enough.The market simply isn't large enough as it stands which means it’s almost certain that manufacturers will be making something that an end user unfortunately does not want.
This is operating in the same way as car manufacturers and their EV policy, where a percentage of cars sold must be either plug-in hybrid cars or fully electric cars. Recently car manufacturers have approached the government to say that the targets are impossible to meet and warned that high fines and increasing expenses will endanger jobs in the United Kingdom.
We don’t want this to be the same in the heating industry. We need further policy intervention to make the demand for heat pumps higher, and that really comes down to reducing the price of electricity in the UK, which is the most expensive in Europe. Reducing the cost of electricity would decrease the running costs of heat pumps which would make them more popular for end users. I know people would certainly see a benefit in spending the upfront set-up cost to have their ongoing bills reduced compared to if they were using gas or oil.
Overall we welcome the Minister's intervention and common sense approach in making these fines slightly more realistic, however further policy changes are still required to increase heat pump adoption in the UK. We all agree on the goal, we just need to ensure there are proper incentives to get there.
