In focus

Q&A: Why are heat pumps so important for the energy transition?


The world is now in the early stages of the transition from using fossil fuels, such as gas, to more sustainable power sources as part of the battle against climate change.

Many countries have now set targets for achieving net zero carbon and the phasing out of internal combustion engine cars and the switch over to electric vehicles (EVs).

And with 14% of UK greenhouse gas emissions coming from our homes, this transition will result in radical changes to the way we heat our homes. Gas boilers will gradually be phased out and replaced with heat pumps.

What are heat pumps and why are they so important to the energy transition?

Air pumps essentially work like a fridge in reverse, using electricity to extract energy from the outside air to provide heating for homes and hot water. Heat pumps can also draw energy from the ground or from water. The heat pump units are situated on the outside of buildings and look similar to an air conditioning unit.

Heat pumps are much more efficient than a gas boiler, producing around three times the energy they use. This is because they extract heat from the environment and can do this even when the outside temperature is low. With UK electricity increasingly produced through low carbon sources, such as wind or solar, heat pumps are a clean alternative to gas-powered boilers that emit pollutants such as nitrogen dioxide.

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What’s the difference between a heat pump and a boiler?

Unlike with a gas boiler, you do not get an immediate boost of heat with a heat pump when you first turn it on. This is because water in the radiators are heated to a lower temperature with a heat pump, so a house becomes warm more gradually.

How much will it cost to switch to a heat pump?

Heat pumps are already available although they currently only account for a fraction of the home heating market at present. Heat pumps currently cost between £6,000 and £18,000, which is expensive compared to the cost of installing a gas boiler.

What changes will people need to make to their homes?

Heat pumps operate at lower temperatures than a gas-fired boiler. Consequently, old, single panel radiators may need to be replaced as they may no longer be sufficient to produce enough heat. Consumers may need to upgrade to double or triple panelled radiators, which will generate more heat. Underfloor heating also works well with heat pump technology as it operates at lower temperatures than radiators.

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Will householders save money by using a heat pump?

There are currently some cheaper off-peak electricity tariffs which householders could take advantage of when running their heat pumps. However, most people will not be saving money by using a heat pump.  This is because heat pumps, despite using less energy to create the same amount of heating, use electricity, which is around three times more expensive than gas.

We spoke to Alex Monk, a fund manager at Schroders specialising in the energy transition, for his views on heat pumps and the important role they will play as the world decarbonises.

Alex said: “Heat pumps have a hugely important role to play as we aim to transform our energy system in line with our net zero goals. When combined with the decarbonisation of the electricity grid, heat pumps have the potential to cut heating and cooling emissions by up to two-thirds. The fact that they have the dual-benefit of acting as both a heating and cooling solution at the same time is also helpful, and something that may become ever-more important as our climate evolves.

“Heat pumps are an important solution for the decarbonisation of homes because the technology already exists today in a form that is widely available and cost effective, especially in new build homes. In this respect, they are a low-hanging technological fruit. There is still work to be done to make retrofitting existing homes easier, but there are policies emerging around the world to make this process easier.

“With demand for heat-pumps expected to grow – both from new build homes and retrofits – we expect leading companies in the space to see material earnings and cash flow growth going forward. The opportunity in heating, ventilation and air conditioning is absolute vast."

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.