Are we sleepwalking into a spending black hole with heat pumps

As the installation of heat pumps is skyrocketing, without the correct skills available in the sector, landlords, housing associations and councils are facing a potential build-up of risk over the next few years. Ambisense has developed a unique set of analytical tools that leverage the power of IoT sensors that provide critical insight into the performance and lifespan of heat pumps.

In this article, I talk about the challenge of scaling heat pump installations and where this risk may come from.

High stakes in the race to decarbonise heating

As someone who was involved in the early days of heat pumps nearly 20 years ago it has been really something for me to see the growth in a sector I’m so fond of.

Heat pump sales grew by 34% in Europe in 2021 – an all-time high. Over 2 million units were sold in 21 countries – nearly 560,000 more than in 2020. With 17 million heat pumps in the EU, that’s nearly 14% of the heating market.

In some markets, the growth is spectacular, with Finland and Germany forging ahead at 50% and 53% respectively.

In the UK 35,000 heat pumps were sold in 2020, however, this is set to change dramatically. Estimates are that nearly doubled in 2022 and over the coming years as part of the government’s plan to decarbonise heat and reduce building emissions it will be pushed to breaking point by targeting 600,000 installations per year by 2028.

If the government is to reach its 2028 target, the household retrofit market will also need to contribute a majority of the 600,000 annual installations.

In Ireland, the Climate Action Bill plans to install an incredible 600,000 heat pumps by 2030 at a total cost of €28 billion.

SEAI’s National Heat Study suggests that 78% of houses could accommodate an air source heat pump without improving insulation levels.

Pushing boundaries and unintended consequences.

The construction sector is under enormous pressure to deliver on its potential but hamstrung by many factors not least rising costs and labour and skills shortages with 75% of contractors having issues recruiting skilled operatives.

Meanwhile, a separate survey for net-zero skills among supply chain firms found 95% of firms were affected by skilled labour shortages.

It doesn’t take a genius to figure out that rapid growth in a complex sector awash with funding serviced by a low-skilled, under-resourced workforce carries significant risk.

But the risk may not be where you think.

Yes, poorly installed heat pumps are likely to underperform. However, the less seen risk may well be capital risk/exposure down the line.

My 17-year-old heat pump

17 years ago, I installed a ground source heat pump. It’s served me well but I can’t deny, with a certain anxiety every winter, I wonder what I will do when it finally gives out.

This isn’t like replacing a boiler; like many, I don’t have the cash in the bank to replace it. There are currently no grants for replacing old renewable technology. So, when it does go, it’s a hefty bill.

Now imagine instead of 15 years plus, your heat pump fails at 10 years or even less.

But how realistic is this?

For some, and the fact is we don’t know how many yet, I’m afraid it’s inevitable.

Whether it be through poor design or installation, or the appropriateness of the installation in the first instance there are heat pumps running right now in a stressed state that will inevitably shorten their lifetime.

While the physics of heat pumps are often portrayed as simple and well understood, (just big fridges) there are not just big fridges.

There is a finesse, a skill set, and a level of experience required for the proper design and installation of these systems, not to mention the level of knowledge required by service technicians and by their users to maintain performance.

The fact is, heat pumps that are running in a suboptimal condition will run the risk of a considerably shorter life span. From running at higher temperatures than they should to turning on and off (compressor cycling) more than recommended and more.

At Scale

If you’re a social or private landlord, a housing authority, or even an investor, you’re sitting on 500 - 5,000 or 10,000 heat pumps. What exposure do you have to the early failure of these expensive systems?

I would argue, in the context of high growth, low skills. The risk is considerable. How will you manage the early failure of a percentage of these systems with no grants or government funding the second time around? How will you spot trends that red flag risk of underperformance early?

What will the brand reputation damage be to schemes, manufacturers, or even asset owners?