About Nesta

Nesta is an innovation foundation. For us, innovation means turning bold ideas into reality and changing lives for the better. We use our expertise, skills and funding in areas where there are big challenges facing society.

Cost is a key issue for low-carbon heating and there are several actions the UK Government can take to make this more affordable. Low-carbon heating tends to have higher upfront costs than fossil fuel heating, but it is typically much more energy efficient.

Policy action to help with these upfront costs – including subsidies, access to finance and support for cost-reducing innovation – is important, but so are reforms to reduce the cost of electricity and low-carbon heating.

Delve into our latest work on making low-carbon heating affordable, or return to the main page to explore our other policy areas.

What steps can the Government take to make heat pumps and other low-carbon heating technologies more affordable? Our research has focused on the different aspects of heat pump costs, from installation to running costs, to identify policy solutions to make low-carbon heat the cheapest option.

Reports:

In this report we explore how various factors affect the whole-life costs of heat pumps and boilers. We identified conditions that could lead to price parity between heat pumps and gas boilers over the next decade. We present three scenarios which demonstrate the trade-offs between policy choices and interactions with market and technological developments.

This report provides a detailed analysis of heat pump costs and explores ways to make them more affordable. While heat pumps are currently more expensive than gas boilers, modest changes in running costs and a £5,000 upfront subsidy could make them cost-competitive. Our findings indicate that these adjustments could reduce the whole life cost of heat pumps to £60-£110 less per year than gas boilers, promoting wider adoption.

The report highlights the crucial role of heat pumps in reducing the UK's gas consumption during the energy crisis. Replacing gas boilers with hydronic heat pumps can cut gas use by over 70%, yielding significant economic benefits –  including saving approximately £1,100 per home annually and reducing wholesale gas costs by around 1.2% of GDP. Despite this policy actions, such as shifting levies and decoupling electricity prices from gas prices, are essential to make heat pumps financially attractive for households.

What is the most effective way for the Government to offer financial incentives to go green at home? Our work has looked at how to make subsidies work better, and the case for offering government-backed loans for green measures.

Reports:

This report examines how to improve a government incentive scheme for low-carbon heating in England and Wales, focusing on enhancing appeal and increasing uptake. By engaging industry stakeholders, we identified issues and missed opportunities within the current and previous schemes. Although specific recommendations were not made, we outlined problem statements and potential opportunities for future work aimed at increasing household adoption of low-carbon heating systems through better-designed subsidies.

The report explores financial barriers to adopting green home upgrades, focusing on heating solutions like heat pumps. A randomised control trial with 8,000 UK homeowners revealed that 55% would make upgrades with financial support, and most believe the government should offer green finance. Key features for successful financing include low interest rates, flexible terms, and comprehensive support. Policy recommendations highlight the need for a government-backed finance service, emphasising heat pumps for their high decarbonisation potential.

How much are households willing to pay to get a heat pump? Our research tested a range of different prices and incentives to understand at what point heat pumps become more financially attractive.

Reports:

Our report with the Behavioural Insights Team studied how incentives affect homeowners' choices between heat pumps and gas boilers. In an online experiment with 8,016 participants, we tested a £5000 subsidy, a low-cost loan, and lower running costs. All incentives increased the likelihood of choosing a heat pump, with some combinations proving particularly effective.

In collaboration with the Behavioural Insights Team, we surveyed 1,081 homeowners to gauge their willingness to pay for heat pumps. Our findings revealed that 25% would cover the full cost (£10,000-£12,000), and about one-third are open to paying extra for reduced emissions. Despite these promising trends, cost and lack of information remain significant barriers.

How can the UK make electricity cheaper and generate more of it? Our work has proposed ways to lower the all-important electricity-to-gas price ratio. We’ve also considered the scope for renewable energy to move us into a world of abundant energy.

This blog demonstrates how electricity is more expensive than gas in the UK due to the marginal pricing of gas-generated electricity, carbon taxes on electricity, and policy costs levied on electricity bills. This price disparity affects the UK's net-zero targets, as it discourages the adoption of electric heating solutions like heat pumps. Lowering electricity prices relative to gas can make heat pumps more affordable but policy reforms, including shifting levies to general taxation, are crucial to achieve this.

Record-breaking temperatures in 2022 underscored the urgency of addressing climate change, but a promising report from the International Renewable Energy Authority highlighted a dramatic decline in the cost of solar and wind power from 2010 to 2021. This trend suggests a potential era of energy abundance, contingent on building sufficient infrastructure. With renewable energy being intermittent, excess supply could be transformative, enabling innovations like sustainable desalination and carbon capture, but also presents risks of environmental exploitation and waste.