New £9k BUS grant ‘will save up to £650 a year for oil and LPG users’

The newly-announced £9k increased payment for the Boiler Upgrade Scheme for households heated by oil and LPG could lead to a saving of as much as £650 a year with a heat pump, according to analysis by research group Nesta.

The analysis, based on current prices for heating oil and factoring in the energy cap, suggests that supporting this group to install heat pumps would give greater long-term certainty over their energy bills, in the face of little protection from oil price volatility, and would reduce household energy bills based on today’s heating oil prices, the authors said.

Whilst the oil price fluctuations can’t be predicted, it would also potentially reduce bills in the future, while accelerating the electrification of heating and reducing fossil fuel demand, they added.

The grant of £9,000 for oil and LPG homes in England and Wales matches the rural homes subsidy for Scotland.

The authors, Nesta’s Daniel Lewis and Lily Downes, note that while current oil and LPG prices are likely to ease once the geopolitical pressures subside – and thus the savings may reduce – volatility is a ‘defining feature of oil pricing, not an aberration.’

They say:

Supply shocks – whether driven by conflict, sanctions, or production decisions by major exporters – produce sharp, unpredictable price spikes and unlike gas or electricity, oil and LPG users face that volatility directly and immediately without the buffer of a regulated market.”

With the higher BUS grant added, customers of heat pumps should be able to have their systems installed at a roughly equivalent cost to fitting a new oil or LPG boiler, they note:

Our analysis shows that with the higher £9,000 BUS grant, a typical detached house might expect to pay around £3,600 in upfront installation costs, whilst bungalows, semi-detached and terraced housing can expect to pay about £2,500 in upfront costs. This is comparable to replacing an oil boiler, which typically costs between £3,500 and £5,500 for a full installation.

On its page explaining the research, NESTA has a series of graphs to show its various analyses, from cost comparisons to satisfaction surveys.

The authors recommend that the UK government should use the summer months to accelerate deployment of heat pumps, solar and batteries. They say:

Uptake of electric technologies should be treated as a core economic priority, not just a climate one. Beyond grants for electric technologies, the UK government should get creative on energy efficiency. Working with community groups and local networks they should deliver a major push on the low- and zero-cost measures households can take to reduce their exposure. This is not about restricting energy use; it is about equipping people with the information to make evidence-based decisions.”

The conclusion is that heat pumps only make financial sense if electricity is competitively priced against gas, however. The authors say:

The UK government should rebalance levies and policy costs so that electricity is structurally cheaper to use than gas – reinforcing the economics of switching for the millions of households not yet on the grid.”