On 7 May 2026, Welsh residents will be electing their next government. This will take place under a new voting system which will bring an expanded Senedd and, if recent polls are to be believed, a new party to power.

Housing will be a key issue on the future Welsh Government’s agenda, with fuel poverty remaining at 25% and an inefficient housing stock, achieving a median EPC score of D. The US war on Iran will also impact the cost of living for many, with an expected rise in energy bills that will cancel out the savings generated in the Autumn Budget, with households reliant on oil to heat their homes most impacted.

In the 2025 Autumn Budget, the UK government abolished the Energy Company Obligation (ECO) scheme. Nesta’s analysis shows that Welsh households were among the key beneficiaries of this scheme - receiving more funding per capita than those in England. Around 33% of all heat pumps delivered through ECO, which is no longer allocating funding as of March 2026, were installed in Wales. While the scheme will only wrap up in December of 2026, its removal has already had a significant impact on Wales-based companies that depended on this funding, and we’re seeing job losses directly attributable to the abolition of ECO.

Although the UK government’s Warm Homes Plan, with its £15 billion budget, is expected to deliver Barnett consequentials for Scotland and Wales, this is unlikely to offset the impact of the closure of ECO in Wales. This means the overall effect of Warm Homes Plan’s funding is expected to be proportionately less impactful.

While a successor to ECO has already been announced, the UK government’s next fuel poverty scheme will only apply in England. This change leaves the future Welsh Government with a daunting challenge: to rethink the role of Nest, Wales’ own fuel poverty scheme, so that its considerably smaller budget, when compared to ECO, is used as efficiently as possible. There is now a significant opportunity to explore how Nest and incoming Warm Homes Plan consequentials, whatever their eventual scale, might be combined. If harnessed correctly, this could provide a blueprint for a new Welsh strategy to deliver healthy, green and cosy homes for all.

Nesta has developed a wealth of evidence and practical tools to support the transition to low-carbon heating. Here are seven actions we think a new Welsh Government should take to accelerate decarbonisation, improve the energy efficiency of Welsh homes, and grow the economy.

1) Support local authorities with delivery-oriented clean heat planning

Wales was the first nation to produce local area energy plans (LAEPs) for all its local authorities. It must now build on this to make greater progress on decarbonisation. The lack of a clear project pipeline is hampering the delivery of clean heat projects at the scale and pace required across the whole of the UK, but perhaps even more so in Wales where we have fewer homes in densely populated areas than England. At Nesta, we have been developing and testing a local heat planning tool to map and identify the most suitable low-carbon technology solutions for clusters of homes. We believe the next Welsh Government should support local authorities to develop a granular approach to clean heat, and give local authorities or Corporate Joint Committees (CJCs) a clear mandate to help prioritise projects and pool investment at scale, with revenue funding to match these new responsibilities.

2) Use clean heat neighbourhoods to address fuel poverty and decarbonisation goals head on

Despite their potential to achieve greater carbon reduction while lowering bills, shared technologies such as ambient ground loops are inaccessible to individual consumers and require place-based coordination. The Welsh Government has used its devolved powers to support a more energy efficient Wales, such as its multiyear Optimised Retrofit Programme (ORP). The future Welsh Government has the opportunity to use its funds, such as Nest, ORP and the Green Homes Wales Loan, as well as any Warm Homes Plan consequentials, to accelerate a more integrated approach to decarbonisation, drawing on local partners such as housing associations to anchor projects and create efficiencies of scale.

3) Funding to deliver heat networks in Wales

Heat networks are an opportunity to unlock low-carbon heating at scale. When they are built in the right place, they can tap into local resources, such as waste heat from industry or data centres, and are ideal for densely populated areas. However, Wales risks falling behind other nations if no step is taken to action the priority given to heat networks in the Welsh Government’s Heat Strategy. While existing heat networks in Wales can access the Heat Network Efficiency Scheme, which helps optimise heating systems that are already up and running, Wales is not part of the Green Heat Network Fund (GHNF) arrangements, leaving new projects with nowhere to go for funding beyond feasibility. This is in contrast with Scotland and England, where projects can access funding for construction and commercialisation costs. To progress with heat networks in Wales, the Welsh Government must consider rejoining the GHNF or setting up a funding stream to support heat networks in Wales.

4) A Welsh heat network zoning programme

In addition, the Welsh Government should also play a role to ease heat network projects into commercial viability. They should do this by making use of regulations to strengthen mandates to connect and consider compelling industrial sites and data centres to sell heat to heat networks. On this, the next Welsh Government could learn from zoning experiments currently underway in Scotland and England, which give zone coordination bodies extensive powers to propel the development of heat networks in pre-specified areas.

5) Build on innovative approaches to green consumer finance to decarbonise at scale

The Welsh Government has used tools such as the Green Homes Wales loan, which Nesta helped design, to stimulate consumer demand, with promising early signs of success. The next Welsh Government should build on learnings from this scheme and work with the Development Bank of Wales to support the development of area-based approaches to clean heat. This should include piloting a project to understand the implications of navigating an area-based approach to clean heat across tenure, targeting owner-occupied properties in right-to-buy or high fuel poverty areas with targeted green consumer finance options to enable them to join a Nest scheme, for example.

6) Simplify planning rules and streamline heat pump acquisition

Streamlining heat pump planning applications will be a crucial part of the process to generalise their usage and normalise heat pumps. Despite recent amendments to permitted development rights in Wales, the next Welsh Government could go further, by allowing the installation of heat pumps above ground floor level where they face the highway, and allowing more than one heat pump on any property for single-occupancy and allowing the co-location of heat pumps and wind turbines. Evidence suggests that co-locating energy generation and clean heat could support self-generation, reduce pressure on the grid and costs to consumers.

7) Support local companies to serve local communities

Wales will need supply to match the scale of the demand for decarbonisation. Currently, however, Wales has a declining heating installer workforce. A report by the Centre for Economics and Business Research, on behalf of the current Welsh Government finds there is currently a shortfall in relevant qualified workers for home retrofit. It finds that the workforce will need to grow significantly over the coming decade, largely driven by the increase in heat pump uptake required to achieve the Climate Change Committee’s (CCC) carbon pathway. The Heat Pump Association estimates that heat pump installations could increase the demand for jobs in Wales to 3,619 jobs (full time equivalent) from its current 905. The next Welsh Government should therefore prioritise a skills strategy geared at meeting the demand for heat pumps locally, creating lasting jobs for Wales, working in partnership with housing providers to ensure skills supply meets the demands of tomorrow’s housing stock.