Heat as a Service proposition: One of the keys to unlocking the residential retrofit market for heat pumps

Policymakers in many countries and regions have set high ambitions for accelerating the deployment of heat pumps to reach climate ambitions, especially in Europe, to reduce the dependence on fossil gas. However, in some countries the upfront cost of a heat pump, and sometimes a low awareness of the technology, is still a barrier for many consumers. Alternative business models could be a solution to overcome these barriers since they could both reduce the upfront cost for the end consumer and reduce their risk. In addition, alternative business models could unleash the potential of “economy of scale” to reduce production costs and could also enable cluster control of heat pumps to stabilize the electric grid.

End-user economics rarely stack up for heat pumps, particularly compared to gas; an installed heat pump costs two to four times that of a gas boiler, and in many markets, it is difficult for heat pumps to achieve running cost savings with current energy price ratios. ‘Heat as a Service’ can improve customer economics by removing or reducing – the upfront cost barrier for a heat pump and giving greater certainty about running costs through a fixed-rate heat cost. Awareness and trust in heat pumps remain low amongst a large share of heating customers in many of Europe’s biggest markets, so buying a heat pump remains a “risky” prospect. ‘Heat as a service’ can remove the risk of poor heat pump performance and breakdowns from the end-user by providing maintenance, remote monitoring, and guaranteeing the heat outcome.

Energy suppliers are the leading providers of service-based contracts today, and we expect them to drive much of the growth in sales over the next decade. Rental/leasing models are also offered by several established and new entrant specialist heating service providers, who are increasing the competition in the market.

The majority of the market for heat contract sales is taken by gas boilers; there is a long history in Germany of such contracts. In the Netherlands, as much as 8% of all heating systems are sold on a contract. This growth could be possible for several reasons: – A growing number of companies are now becoming interested in the heat services market, and we expect strong growth as players seek new revenue streams to take advantage of the expanding heat pump market and make up for lost revenue from energy sales.

Heat as a service, and the range of service-based heat propositions discussed in this article, can play a key role in the decarbonization of heat in the existing buildings segment, potentially supporting the installation of a further 100,000 heat pumps per year or more across Europe’s main markets by 2030. From an end-user perspective, heat as a service offers a lower risk, lower upfront cost way for residential customers to access lower carbon heating systems such as heat pumps. From a policy-maker perspective, heat as a service overcomes some of the major barriers to decarbonizing heat in existing buildings and could be one of the key tools in the toolbox to tackle this segment, where very little progress has been made to date.

This text has been shortened by the HPC team

Read the full article by Lindsay Sugden, published in the Heat Pumping Technologies Magazine no 3, 2021.

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