Households in the UK could save more than £500 a year on heating bills if the government reformed the energy system to make electricity cheaper, according to new analysis from the thinktank E3G. Heat pumps, which are more efficient than gas boilers and key to achieving net zero targets, remain underused due to high running costs tied to how the UK’s energy market is structured.
Current Costs vs Potential Savings
At present, households with heat pumps face average heating bills of around £920 annually compared with £820 for those using gas boilers. However, E3G estimates that bills could be roughly halved, saving households about £555 a year, if changes were introduced to rebalance electricity and gas pricing. Without reform, some households see little to no savings from switching, a factor that has slowed installations and fueled criticism from opponents of net zero policies.
Proposed Reforms
E3G’s analysis highlights several measures that could unlock savings:
- Shifting green levies from electricity to gas could save households around £150 per year.
- Reforming the pricing system, which ties electricity costs to the most expensive gas-fired power station, could save £90 annually.
- Improving installation standards and access to efficient heat pumps could save £140.
- Providing wider access to off-peak electricity rates could deliver savings of £175 per year.
Together, these changes could make heat pumps significantly cheaper to run and more attractive to households.
Policy and Market Response
Ed Miliband, the UK energy secretary, has acknowledged the challenge of heat pump affordability, while the government’s chief scientist admitted that current costs pose a problem. The Department for Energy Security and Net Zero is expected to outline its “warm home action plan” this autumn. A government spokesperson said the UK is one of Europe’s fastest-growing markets for heat pumps and pledged to explore price rebalancing to deliver better outcomes for consumers.
Conclusion
The E3G report underscores how targeted policy reforms could turn heat pumps into a cost-saving and climate-friendly option for millions of households. With energy bills still high and the UK seeking pathways to net zero, rebalancing the market could not only ease financial pressure on consumers but also accelerate the transition to cleaner, more efficient heating systems.
