Heat pump tariffs introduced to reduce running costs of heat pumps

Time-of-use and type-of-use tariffs have launched to support adoption of heat pumps in the UK, where gas heating remains competitive on price.

Great Britain’s largest six energy retailers are warming up to heat pump tariffs aimed at reducing running costs for the technology.

Time-of-use and type-of-use are being launched in a bid to improve the economic case for running heat pumps. Households in the United Kingdom can access grant funding to install a heat pump through the government’s Boiler Upgrade Scheme, but the monthly cost of running a heat pump can still prove higher than a gas boiler.

If they want to encourage consumers to install heat pumps, energy retailers need to make sure that it makes financial sense. There are two ways to do so, with time-of-use or type-of-use tariffs.”

The goal is reducing the operational cost of the heat pump.

Time of use

Three companies, Octopus, EDF and Scottish Power, now offer time-of-use based tariffs that reward households when they shift their electricity consumption to times of low demand. Meanwhile British Gas and Ovo Energy have adopted a type-of-use tariff. These offer a discounted price per kWh that is solely applied to the heat pump’s consumption. Both types of tariffs are only accessible to households with functioning smart meters installed.

Scottish Power was the latest to launch a time-of-use tariff. The new heat pump tariff offers a reduced rate of £0.15/kWh when customers use electricity between 11 am and 4 pm. In promoting the new tariff, Scottish Power argued that heating hot water in the middle of the day when the average ambient air temperature is warmer is more efficient for households with an air-source heat pump.

Octopus Energy’s ‘Cosy Octopus’ tariff offers an off-peak rate for its heat pump customers that is available during three windows. Customers are charged a reduced rate of £0.11/ kWh between 4 am and 7 am, 1 pm and 4 pm, and 10 pm and midnight. The heat pump tariff also includes a peak rate, which sees customers charged roughly £0.33 between 4 pm and 7 pm. The day rate charged outside of these windows is around £0.23.

EDF’s Heat Pump Tracker tariff incentivizes consumers to shift usage to two off-peak windows. The tariff offers six hours of discounted electricity each day, from 4 am to 7 am and from 1 pm to 4 pm.

Type of use

British Gas now offers a heat pump rate for customers who purchase and install an air source heat pump from the Centrica-owned energy supplier. The tariff includes a unit rate of £0.14/kWh for electricity used to run a heat pump for the first year. Ovo has a similar deal, charging £0.15 /kWh.

One advantage to type-of-use tariffs, is that they can be combined with appliance optimization. While this does not apply to the heat pump tariffs on offer at present, these kinds of tariffs are already available for electric vehicles, which could indicate how things may progress.

For customers the type-of-use tariff could be the easiest one. For them it’s quite clear they get cheap electricity whenever they use their heat pump. For the other ones, customers need to know and remember when to run the heat pump. So, there is a bit more planning, which in the end they can do with a heat pump control and by being more engaged with their heating system.