Breaking news 14 March 2024: The Energy Secretary has delayed the implementation of CHMM until April 2025 in order to protect consumers, so all of the discussion below is moot.

There has been a lot of hype and misinformation about a new UK ‘boiler tax’ introduced 1st January 2024.

So what does it mean and what will it cost?

The simple answer is ‘About £100’. The full answer is more difficult, please read on if you’ve got the patience to follow my ramblings.

Firstly, these are my own personal views from a ringside seat in the domestic central heating industry and a personal interest in living a sustainable life.

As background, the UK government has committed to reduce greenhouse gas emissions by 78% by the year 2035 compared to 1990 levels. This requires a huge reduction in the burning of fossil fuels.

The 4 major sources of greenhouse gasses are transportation, electricity generation, industry, and domestic heating. We are, as a nation, making progress in most of these areas.

• Hybrid and battery electric vehicles are now becoming commonplace.
• Coal-fired power stations are being replaced by new offshore wind farms and renewed investment in nuclear power.
• Industry is reducing its power consumption, but it’s a challenge for energy-hungry factories smelting steel  and machining aircraft components.
• Which brings us to domestic heating.

UK homes are predominantly fueled by natural gas produced in our offshore fields, pipelines from Norway, and by tankers of liquefied natural gas from the USA and Middle East. This dependence on imported fuel triggered the 2022 price-shock when Russia invaded Ukraine.

The solution isn’t clear or obvious, and there are many vested interests in jeopardy:

• The ‘gas industry’ for lack of a clearer term, has a vested interest in continuing our dependence on natural gas, or an alternative such as a methane-hydrogen mix or pure hydrogen. Oil fired boilers can now run on Hydrotreated Vegetable Oil (HVO) a renewable an biodegradable alternative to fossil fuel oil.
• The oil & gas producers who have huge investments in refineries.
• The gas distributors who manage the infrastructure of pipes and pumping stations.
• Manufacturers & distributors of heating systems, fires and cookers.
• The installers and service engineers who maintain the apparatus and proudly advertise their ‘Gas Safe’ and ‘OFTEC’ qualifications on their vans.

Other European countries have chosen their preferred approach, and Northern European nations are advocating heat pumps as their preferred solution. I first encountered an air-to-air heat pump in Austria 15  years ago on a newly built home with amazing level of insulation, ventilation and heat recovery. It worked well, even with thick snow on the ground.

So what is a heat pump? In a nutshell it is a heating system which runs on electricity and ‘concentrates’ the heat found in the ground, or air, to warm a home. The preferred type in the UK is called an air-to-water heat pump, which can have an efficiency of ~300%.

Wow! 300% efficiency sounds great, right?

But what this means is that for every 1kW worth of electricity it will generate 3kW of heat as if it were generated purely by electricity. Think of a fan heater.

And this is the rub. At the time of writing, the OFGEM energy cap is set at:

• Natural Gas 6.89 pence per kWh
• Electricity 27.35 pence per kWh

So electricity costs about 3 to 4 times the cost of gas per unit of energy.

Hmmm… that 300% doesn’t sound so great now does it?

Efficiencies and losses come in to the calculation too:

• Electricity can be converted into heat very efficiently. An electric fan heater provides instant heat; panel heaters too. Heat pumps, as mentioned can have an efficiency around 300%.
• A modern gas condensing gas boiler is up to 90% efficient, but this is a best-case figure when it is recovering energy by condensing waste gasses back to heat. Further losses are found in pipes and radiators so the real-world efficiency can be more like 50-70%.

So the total running cost can be broadly similar with energy prices at their current levels.

Fossil Fuels = BAD, Heat Pumps = GOOD. Is that right Mr Sunak?

The UK government has been incentivising the adoption of heat pumps with a home owner grant of up to £5,000 per installation, increased to £7,500 in October’s mini budget. I view this as the ‘carrot’. And so far it has had limited success encouraging the uptake of heat pumps

So from 1st January they also introduced the Clean Heat Market Mechanism (CHMM) to encourage large boiler manufacturers to supply heat pumps instead of gas and oil boilers. I view this as the ‘stick’. People with vested interests are calling this a ‘boiler tax’.

Manufacturers like Baxi, Ideal, Vaillant and Worcester who each produce more than 10,000 boilers per year have a target to supply 4% of heat pumps during the year 2024-2025, and 6% by 2025-2026. These companies do not expect to reach these targets, and the penalty for shortfalls equates to £3,000 for each heat pump they don’t sell, or about £100 per gas boiler sold. Vaillant have mentioned £95, Worcester £120. The big-4 boiler companies have acted in a coordinated manner, and this has already raised eyebrows in the industry as it has a whiff of price fixing and cartel-like behaviour.

The boiler companies claim they won’t benefit from this extra cost, nor the distributors or installers. This cost is expected to be passed straight on to the homeowner during a cost-of-living crisis.

Exceptions

This is where it gets weird and doesn’t show joined-up thinking:

There is no incentive to deal with the elephant in the room – the poor thermal efficiency of many British homes with their draughty windows, poor insulation and cold walls. The revised conditions Heat pumps will be cheaper and easier to install – GOV.UK (www.gov.uk) now state that home owners are longer required to install cavity wall or loft insulation to use the scheme. IMHO this is madness.

UK manufactured boilers built for export aren’t affected. Has anyone bought a van load of boilers in Dublin?

New build homes aren’t subject to the CHMM levy. Gas boilers won’t be allowed in newly built homes after 2025 according to current legislation, I don’t have the exact cutoff date. As a consequence of this I expect we will see boilers slip out of new build house builders’ warehouses and on to the ‘grey market’ as replacement boilers for existing homes. This has happened for years, and boiler manufacturers have tried to contain it with warranty validation, but it continues.  I expect the extra price pressure of the CHMM levy will create a ‘smugglers charter’ and play in to the hands of unqualified installers who won’t register boilers with Gas Safe for Building Regulations Compliance, nor with manufacturer for warranty and safety recalls. This could be deadly.

Wow, that’s a lot of information and speculation!

To summarise; in an attempt to incentivise the adoption of heat pumps:

• New boilers for existing dwellings will increase in cost by about £100 from January 2024. This is across all boilers, from a £700 Main Eco Compact for a small flat or a £3,000 oil-fired Worcester Heatslave.
• Distributors and merchants have seen stock shoot out their doors as savvy installers stockpiled them at pre-increase prices.
• Homeowners will be more inclined to have their boiler repaired than replaced.
• Boilers intended for new-build homes will be cheaper and may end up in existing homes, installed by unqualified people looking for a bargain.

Will this achieve the stated goal? Who knows, only time will tell.

This new policy reminds me of the law of unintended consequences, often cited but rarely defined, that actions of people—and especially of governments—always have effects that are unanticipated or unintended. (Thanks Wikipedia)

And finally, to quote a wise friend “The beatings will continue until morale improves”

Rant over.

Lee