Challenges in Heat Pump Adoption Amidst Low Gas Prices in Europe

Heat Pump Adoption Faces Hurdles Amidst Low Gas Prices

Recent reports indicate that governments and the European Union (EU) are falling short in their efforts to encourage the transition from fossil fuel-dependent heating systems to heat pumps. Support schemes vary significantly in quality, and gas prices remain artificially low compared to electricity, complicating the adoption of cleaner technologies.

The European Heat Pump Association (EHPA) has revealed a staggering 47% drop in heat pump sales in the first half of this year compared to the same timeframe in 2022. The only exception to this trend is Scandinavia, where heat pump technology has already become mainstream.

Upon analyzing the pricing dynamics of electricity versus gas, the EHPA discovered that the peak sales of heat pumps in 2022 coincided with a period when the unit cost of electricity was less than 2.5 times that of gas across most of Europe. Heat pumps function similarly to refrigerators but in reverse; they extract energy from the air or ground and transfer it to home radiators, ultimately proving to be more cost-effective than gas heating, even when electricity prices are approximately double that of gas.

However, with the EU successfully securing alternative gas supplies to replace Russian imports, gas prices have plummeted. A combination of low wholesale prices and varying tax rates has resulted in gas now costing a third or less of the price of electricity in many European regions. ā€œIf EU governments are truly committed to energy sovereignty, competitiveness, and sustainability, they must ensure that energy prices are structured to favor heat pumps,ā€ stated Paul Kenny, director general of EHPA, on October 21.

On October 23, government representatives are expected to convene in Brussels, where Hungary, currently presiding over the rotating EU Council, will make another attempt to reform the Energy Taxation Directive.

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This reform, proposed by the European Commission in July 2021 to promote a transition to cleaner energy, has stalled in the Council. Taxation remains one of the few policy areas requiring unanimous agreement among all 27 EU member states.

Another potential avenue for increasing heat pump adoption lies in national support schemes; however, these policies are often ineffective. Governments have previously faced criticism for providing financial incentives for the installation of modern gas boilers. While these may improve energy performance in the short term, they lock households into fossil fuel reliance for 15 years or more.

The Warsaw-based Reform Institute recently highlighted seven ā€œdeadly sinsā€ frequently found in support policies, which differ greatly from country to country. Among these is the relatively high price of electricity. The think tank also pointed out the failure to link subsidies to income, which disproportionately benefits wealthier households, as well as the complexity and delays associated with subsidy schemes, and the absence of specialized loans to assist with the high upfront costs of heat pump installation.

With buildings, particularly heating systems, responsible for 40% of the EUā€™s energy consumption and approximately a third of its greenhouse gas emissions, the bloc will need to deploy an estimated 60 million heat pumps by 2030 to meet its target of a 55% reduction in net emissions compared to 1990 levels.

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Yet, current sales figures suggest that the EU is on course to fall short by about 15 million units, which the Reform Institute equates to a missed opportunity to reduce gas imports by 23 billion cubic meters. ā€œWhat is at stake is the avoidance of approximately 45 million tonnes of CO2 emissions annually,ā€ remarked Aleksander Śniegocki, director and co-author of the report. ā€œThis is comparable to the emissions produced by Denmark or three Ryanair-sized airlines,ā€ he added, noting that this represents about 10% of the emissions reductions needed between now and the end of the decade.

The EU has the potential to play a pivotal role in coordinating national schemes, guiding governments toward successful strategies. ā€œCurrently, what we have is a highly uneven and fundamentally flawed policy framework across member states,ā€ Śniegocki explained, emphasizing the need for the Commission to facilitate the exchange of best practices and to standardize approaches to heat pump support.

In the aftermath of Russiaā€™s invasion of Ukraine, the EU called for a doubling of heat pump deployment rates but has since paused the initiative after closing a public consultation in August 2023. A clearer picture of future EU executive priorities will emerge on November 5, when Dan Jorgensen, the commissioner-designate for energy and housing, is set to face a hearing in the European Parliament.

ā€œIf Europe aims to achieve energy sovereignty, maintain competitiveness in a net-zero economy, and decarbonize heating and cooling, heat pumps are indispensable,ā€ concluded EHPAā€™s Kenny in an interview with Euronews. ā€œWe are optimistic that the incoming Commissioners will recognize the critical importance of this issue.ā€

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