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Air source heat pumps make sense without the RHI!

Posted by Chris Davis on 18 June 2012 at 9:09 am

The delay of the domestic portion of the renewable heat incentive (RHI) to summer 2013 may have been disappointing for some customers looking for this as a call to action to upgrade their ageing heating systems. However, with oil prices continuing to rise, increasingly the financial argument for upgrading to air source heat pumps  already stands firmly on its own two feet without the need for a motivational incentive.

What we now have is an indication of ongoing support for domestic renewable heat in the shape of the Renewable Heat Premium Payment (RHPP) phase 2 and without doubt the talk from Climate Change minister Greg Barker and down through his department (I meet with his officials quite regularly) is that plans for a domestic RHI for air source heat pumps are firmly on the agenda and progressing.  In the meantime we have the RHPP which in the case of air source heat pumps equates to a one off payment of £850. 

Nice to have if it's being offered, but for homeowners heating their property with oil or LPG, the savings and benefits over their existing system should already be significantly attractive enough to make the upgrade very worthwhile anyway.

Let’s assume for a moment that your oil boiler is nearing the end of its life and will need replacing in the next few years. Recent analysis we've carried out shows the "payback" on installing an air source heat pump in an existing property can now be as little as 6 years - and that's without taking into account any possible future RHI income or increases in oil prices! 

Here's how we work this out:

• Typical 4 bedroom detached house, heated by oil. Cavity wall and loft insulation.  • Annual heating and hot water costs: £2,300

• Heating system type:  radiators (so heat pump efficiency adjusted accordingly)

Expected savings from an air source heat pump:   • Over an old, inefficient oil boiler: £1,230/ year

• Over a newer, more efficient oil boiler: £774/year

The approximate total replacement cost of the oil boiler with an air source heat pump is around £8,500, including 5% VAT, installation of the heat pump and a new domestic hot water cylinder.

Factoring in that if you were to replace your old oil boiler with a new one this would cost around £3,000 anyway, plus the benefit of an £850 RHPP grant.  So the additional cost to you is only £4,650.

So here are your options: 1. Invest an extra £4,650 now, save yourself (at today’s oil prices) £774 year, every year for the next 20 years; that’s effectively a 17% annual return on your investment

2. Don’t invest the extra £4,650 and install a new oil boiler instead.  You’ll save a bit on oil bills in the short term, but as oil prices rise, watch your annual savings diminish and still have high heating bills every year.  And that’s before we start talking about the drawbacks of bulk fuel purchasing, spot energy prices and problems of oil theft.

It's clear then that in the right circumstances householders don't need the RHI to make installing an air source heat pump stack up. Unlike solar PV, you will use all the energy you generate to make real savings against your ever increasing fuel bills. At the end of the day, this is really what renewables are all about, incentive or not! 

Photo:  copyright: Dimplex

If you have a question about anything in the above blog, please ask it in the comments section below.

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3 comments - read them below or add one


ChrisDavis from Comment left on: 26 June 2012 at 5:53 pm

Thanks for the comments, yes just to confirm that the example I showed here was simplified for the purposes of the blog and just uses current electricity and oil prices for the purposes of comparison on the basis that we would of course expect BOTH electricity and oil to rise in the future. As the previous comment says however, with regulation of electricity prices it is reasonable to expect these to be modest compared to oil, which is to a large extent beyond our control (ie driven by the middle east). 

The beauty of a heat pump system is that because such a significant proportion of the heat produced is extracted from the environment, fuel price increases have a much lower overall impact on running costs of the system compared to oil.

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Marath0nmanComment left on: 26 June 2012 at 5:14 pm

I am going ahead with an ASHP installation basically for the reasons set out by Chris Davis. In my view, oil prices will continue to increase and our Government does nothing to regulate home heating oil prices. However, the Govt does regulate to some extent electricity and gas prices and pressurises the utility companies to limit price increases. I don't see electricity prices rising to the same degree as oil prices. Also over the long term more and more electricity will be produced by renewables, hopefully limiting price rises.

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Current Energy Solutions Ltd

Current Energy Solutions LtdComment left on: 18 June 2012 at 9:37 am

Of course you need to factor in that Air Source Heat Pumps use a lot of electricity and there will be considerable increases in electricity prices over the coming years. 

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