Heat Pumps Today

20 By Graeme Fox, Technical Director at the BESA Group Levelling the playing field on domestic heat pump installations Heat pumps are very much still flavour of the month with policy makers as we transition towards our net zero ambitions of 2050. Parliament’s Climate Change Committee repeated the Heat Pump Association’s roadmap in highlighting that 600,000 heat pumps need to be installed annually rising to over 1m installed annually within a few years if we are to achieve these targets by 2050. Laudable as these ambitions are, however, there has been a severe lack of joined up thinking at times within the corridors of power – but this year saw a seismic change of understanding which may yet have enormous implications for these ambitions. A great leap forward In July 2014 HMRC introduced a scheme which effectively just took the products on the enhanced capital allowances list and applied a 5% VAT rate on the low carbon heating products from that list when installed in a domestic environment. A great leap forward to applying heat pumps of all types in domestic situations and a move which undoubtedly saw a rise in sales and installations of small reverse cycle air conditioning heat pumps for conservatories, extensions, or even whole house heating applications where the homeowner wanted to move away from traditional fossil fuel burning towards greener heating. This reduced VAT rate was challenged as illegal by the European Commission, however, and UK Government spent the next few years fighting a legal infraction ruling by the Commission against them for altering VAT rates and skewing the market. The concept of reducing VAT on energy saving heating products remained a key target for UK Government, however, to encourage and incentivize the uptake of heating solutions with significantly reduced carbon consumption. In October 2019, in response to the EU’s infraction proceedings, UK Government introduced “social conditions” and a 60% test that October | November 2022 Graeme Fox, Technical Director, BESA Group L E G I S L A T I O N had to be applicable for the 5% rate to still be applied. In effect it meant that the vast majority of domestic heat pump installations would not be able to apply the reduced rate any longer and revert back to the standard rate of 20%. And even worse, reverse cycle air conditioning units were now explicitly removed from the scheme altogether. This led to mass confusion in the market with some contractors charging 5% even when it did not apply, and others charging 20% even where they could have applied 5% simply because they were afraid of falling foul of a ruthless VAT inspector. Losing out BESA and REFCOM members reported losing out on contracts where they had correctly applied the 20% rate only to find they had lost out because their competitor had only charged 5% erroneously. On a £10,000 valued contract that represented a difference to the homeowner of £1,500 so it is not difficult to see why those applying 5% were getting all the work. The BESA have been having conversations with all manner of policy and decision makers over recent years trying to educate people as to what a heat pump actually is, mainly driven by the fact that every time I am involved in conversations with politicians and civil servants and they are discussing heat pumps, they were in fact only ever actually referring to air-to-water monoblock small packaged domestic systems. They rarely, if ever, realised that air conditioning units are all heat pumps when the reverse cycle valve is energised. General misunderstanding Misconceptions about the energy efficiency of split heat pumps of the reverse cycle variety were common, as was the general misunderstanding about what the term “heat pump” even means. There was even a misconception that we still used resistance heaters to boost the air off temperature in a reverse cycle system – something I haven’t seen for around 30 years now and a throwback to when reversing the cycle in an air conditioning unit only provided air off temperatures around the 35°C mark due to the inefficiencies of the systems and the refrigerant in use at the time. Times have certainly changed and modern systems are more than capable of providing supply temperatures around the 55°C mark. As a result we published BESA’s TB 054 - a basic introduction to heat pumps which was aimed at the policy makers but which has since been widely used as an education piece for members in helping their customers understand what the technology is and how it can save them money. An even simpler infographic style flyer has now been produced and widely disseminated among Government departments. Reduced rate VAT From a lobbying point of view the guidance has opened doors which had previously remained firmly shut, as policy decision