Four ways gas standing charge reforms will affect heat pump uptake
www.nesta.org.uk/blog/four-ways-gas-standing-charge-reforms-will-affect-heat-pump-uptake/
www.nesta.org.uk/blog/four-ways-gas-standing-charge-reforms-will-affect-heat-pump-uptake/
In October’s Budget, the UK government announced its intention to scrap gas standing charges and move costs to unit rates.
Nesta has been making a case for this, mainly focusing on the fact that this is a progressive change: lower-income households will see most of the benefit and 86% of the lowest-income households will have cheaper energy bills as a result. (This paper goes into more detail about which households will pay more and less under the change.)
One of the other key arguments for it is to help incentivise electrification by shifting the price ratio between electricity and gas. The electricity-to-gas price ratio is a key concept in discussions about transitioning away from gas. Put simply, it compares the cost of electricity with the cost of gas. That matters because it shapes whether it’s cheaper to run a heat pump than a gas boiler and real-world heating decisions for households and businesses.
Electricity currently costs 3.3 times more per unit than gas. This is historically low - the ratio was as high as 4.7 in January this year - and has been driven by the war in Iran, which is pushing up gas prices faster than electricity prices. We expect the price ratio to narrow to around 3.1 in January 2027, but it might widen as and when hostilities in Iran ease and gas prices fall.
We argue that the price ratio needs to drop to 2.9 or below to make heat pumps an economic no-brainer for most households. Over time, shifting to renewables and driving up demand for electricity - so that fixed system costs are spread across more units of consumption - could reduce the cost of electricity and narrow the price ratio with gas.
But this won’t happen quickly. In the short term, the main options are to move existing costs around. We’ve long argued for removal of policy costs from electricity bills. Some were removed in 2025, but we’d like to see the UK government finish the job. However, this isn’t cheap; it would cost the Exchequer £1.7 billion per year.
The appeal of shifting costs from gas standing charges to unit rates is that it achieves a significant shift in the price ratio - in fact, bigger than removing levies - but costs the government nothing.
But how might this affect the economic case for heat pumps?
When gas unit prices rise faster than electricity unit prices, heat pumps become relatively cheaper to run. The shift would raise gas unit prices by around 0.9p/kWh. Under the current price cap, that’s around an 11% increase.
So when comparing like-for-like heating costs, the case for heat pumps will improve. The chart below shows what this might look like for a typical home, if the changes were implemented now.
It’s important to note that if this home kept its boiler, it would see the cost of gas to run it increase by £86 after standing charges are reformed. However, it would no longer pay the £108 standing charge, so overall, it would save £22 as a result of the changes.
Heat pump and gas boiler running costs in a typical home, before and after changes to the gas standing charge
This is a grouped bar chart comparing yearly running costs for a heat pump and a gas boiler, before and after changes to the gas standing charge. The vertical axis shows costs in pounds, from £0 to about £850. There are two groups of bars. Each group has a purple bar for heat pump electricity unit cost and a green bar for boiler gas unit cost.
Under the status quo, the heat pump costs about £700 and the boiler about £750. Under the reform, where gas standing charges are moved into unit rates, the heat pump cost is unchanged at about £700, while the boiler cost rises to about £835.
The chart assumes the home uses 8,000kWh of heat per year, a boiler efficiency of 0.85 and a heat pump efficiency of 3.0. Costs are based on the October 2026 price cap. The gas unit price rises from 7.97p to 8.88p per kWh under the reform.
From a consumer or installer perspective, the change should make savings estimates simpler to understand and explain. At present, to get a full picture, consumers need to consider whether they’ll be completely disconnecting from the gas grid - in which case they can save on the gas standing charge - or retaining their gas connection, even in the short term.
Calculating costs and savings based only on unit prices will be more straightforward - the saving will be based on energy use only.
Annual heat pump savings in a typical home
This is a grouped bar chart showing how much a household in a typical home could save each year by switching from a gas boiler to a heat pump. The vertical axis shows savings in pounds, from £0 to £150. There are two groups of bars. Each group has a purple bar for “saving if gas connection kept” and a green bar for “saving if gas disconnected”.
Under the status quo, the purple bar is about £48 and the green bar is about £155, so disconnecting more than triples the savings. Under the reform, where gas standing charges are moved into unit rates, both bars are equal at about £134.
The chart assumes the home uses 8,000kWh of heat per year, a boiler efficiency of 0.85 and a heat pump efficiency of 3.0. Costs are based on the October 2026 price cap. The gas unit price rises from 7.97p to 8.88p per kWh under the reform.
Under the current energy price cap, heat pump and boiler running costs are fairly similar: the typical home in our example above saves £48 on direct running costs by switching. (They can save more by using time-of-use tariffs, but here we’ve assumed they have a single rate tariff.)
Getting off gas completely currently enables homes to make a more substantial saving from switching, as they no longer have to pay the standing charge.
But this often requires consumers to take extra steps, such as removing a gas hob and arranging for their gas supply to be capped, and not all households do this immediately.
Shifting the gas standing charge to unit rates would mean that savings don’t rely on removing a home’s gas connection, and would enable consumers to realise bigger savings from switching straight away.
Moving standing charges to unit rates means households that consume more gas will see an increase in their gas bills overall. This also means they’ll see bigger total savings by switching to a heat pump. The tipping point is around 12,400kWh per year: homes that use more gas than this will pay more when standing charges are reformed, and will see more benefit from switching to a heat pump.
At the moment, heat pump uptake is skewed towards properties that use more heat than average. Heat pump certification data suggests that homes installing heat pumps expect to use around 16,800kWh of heat per year on average, while the typical home in our examples above has a heat demand of around 8,000kWh per year.
This skew towards larger properties is likely driven in part by income levels, but this isn’t the only factor. Microgeneration Certification Scheme (MCS) data also suggests that installation costs don’t scale perfectly with heat demand. Bigger heat pumps cost a bit more in total than smaller ones, but are cheaper per kW, so the economics make more sense for larger-than-average properties. These homes likely also have more space, making installation slightly easier.
So reforming gas standing charges will sharpen incentives to switch for homes that are already more likely to do so. For a home using 16,800kWh of heat each year, the total savings from switching increases from £209 to £281 when standing charges are reformed - and don’t rely on this home disconnecting from gas completely. (Again, this home could save even more if it used a time-of-use tariff, or if its heat pump performed better than we’ve assumed).
Annual heat pump savings in a larger home
This is a grouped bar chart showing how much a household in a larger home could save each year by switching from a gas boiler to a heat pump. The vertical axis shows savings in pounds, from £0 to £300. There are two groups of bars. Each group has a purple bar for “saving if gas connection kept” and a green bar for “saving if gas disconnected”.
Under the status quo, the purple bar is about £100 and the green bar is about £210, so disconnecting from gas roughly doubles the savings. Under the reform, where gas standing charges are moved into unit rates, both bars are equal at about £280.
The chart assumes the home uses 16,800kWh of heat per year, a boiler efficiency of 0.85 and a heat pump efficiency of 3.0. Costs are based on the October 2026 price cap. The gas unit price rises from 7.97p to 8.88p per kWh under the reform.
Conversely, smaller homes will see their gas bills drop overall when standing charges are moved to unit rates. This is because at the moment, the standing charge forms a relatively larger proportion of their bill. This means they’ll get bill savings directly from the reforms, but on the flipside, they’ll have slightly less to gain by switching to a heat pump.
So what does this mean overall?
When it comes to heat pump uptake, there are clearly some benefits and some drawbacks in shifting gas standing charges to unit rates, but we’d argue that the former outweigh the latter.
Creating a bigger incentive for homes that might already be ‘primed’ to switch could see uptake grow more quickly.
Homes that use more gas are also more polluting, so focusing here will likely have a bigger impact in cutting emissions. With no standing charge, there will be less immediate incentive for households to get off gas completely, but retaining a gas hob contributes relatively little to carbon emissions - cooking only accounts for around 3% of gas use in an average home. (And there are other good reasons to switch to induction hobs, so households might do it anyway.)
On the other hand, dampening the incentive for smaller homes to switch could mean that heat pumps increasingly feel like something that only makes sense for larger properties. It’s important to note that it will be easier and quicker to realise heat pump savings in practice, though, as laid out in the third point above. Smaller homes currently need to get off gas completely in order to realise the full benefits of switching. In future, the savings might be a bit lower, but it will be easier to realise them.
When it comes to action that the government can take quickly to shift the price ratio, reforming gas standing charges makes a bigger difference than other potential options, like removing levies from bills (and doesn’t cost the government anything).
But on its own, it still makes a relatively small difference to the case for heat pumps. For most homes, the shift in heat pump savings one way or the other won’t be more than £55 per year. Nevertheless, we’d argue the move sends a positive message about heat pump adoption - and when it comes to shifting the price ratio, every little helps.
