The government has announced significant amendments to the Clean Heat Market Mechanism (CHMM), softening penalties for boiler manufacturers who fail to meet heat pump sales quotas.
These changes follow intense lobbying from the heating industry who threatened the CHMM would increase boiler prices by up to £300 as they claimed air source heat pump demand was not high enough to meet targets.
But with a reduction and extension of the scheme that was previously proposed as a "boiler tax" we look at how this could impact boiler prices.
What is the Clean Heat Market Mechanism?
The Clean Heat Market Mechanism is part of a broader policy framework aimed at promoting investment and innovation in the heating industry and to make heat pumps more appealing to consumers in the UK.
The CHMM, supported by the Energy Security Bill and Powering Up Britain policies, seeks to provide a clear and stable policy framework along with incentives for the heating industry and the broader market.
The scheme aims to do this by:
- Reducing the upfront costs of heat pumps and support households and building-owners with heat pump installations to kickstart the market;
- Reducing the running costs of heat pumps, including relative to fossil fuel boilers;
- Supporting an expansion of heat pump manufacturing in the UK;
- Growing the numbers of skilled heat pump installers, and maintain high standards in the quality of air source heat pump installations; and
- Supporting a range of other innovations to broaden the appeal, efficiency and ease of adoption of heat pumps.
In order to assist households in adopting heat pumps and to stimulate market growth by achieving cost efficiencies, the government has introduced a set of financial support measures. These include the Boiler Upgrade Scheme (BUS) and the Heat Training Grant.
What are the latest updates to the Clean Heat Market Mechanism?
The government has revised the penalty structure for manufacturers who fall short of heat pump sales targets. The new measures include:
- Reduced fines: The penalty for missing heat pump quotas has been cut from £3,000 per shortfall to £500 for the first year of the scheme starting in April 2024.
- Phased implementation: While the initial penalties have been eased, the government has signalled potential increases after 2024, subject to consultation.
- Additional support for households: The government has increased funding for heat pump grants, with an expanded budget of £295 million for the Boiler Upgrade Scheme to reduce upfront installation costs.
- Relaxed planning rules: New planning regulations will allow households to install heat pumps closer to property boundaries, making installations more accessible.
- Delayed start date: The CHMM will now begin on 1 April 2025, rather than April 2024 as originally planned.
What were the previous regulations?
Under the original CHMM, boiler manufacturers were required to sell a proportion of heat pumps relative to their gas or oil boiler sales.
Key details of the initial regulations included:
- Quota targets: 4% of boiler sales had to be heat pumps in 2024 and these targets will now be 6% in 2025.
- Severe penalties: Non-compliance fines were set at £3,000 per missed heat pump in 2024 and expected to increase in subsequent years.
- Market challenges: These regulations applied only to large manufacturers selling more than 20,000 boilers annually in the UK, excluding smaller firms.
The high fines prompted fears of price hikes for gas boilers, with manufacturers such as Worcester Bosch raising boiler prices by £120 in response to the CHMM.
Reaction to the CHMM changes
The revised CHMM penalties have been welcomed by industry representatives but have drawn mixed reactions regarding their potential effectiveness in meeting the government’s heat pump targets.
Mike Foster, Chief Executive of the Energy and Utilities Alliance, described the changes as a victory for consumers: “The scheme no longer unfairly penalises businesses and consumers. This is a big win for households across the country.”
However, some environmental groups worry that the reduced fines may slow the UK’s progress towards its net zero goals. The original plan aimed to drive heat pump installations from 40,000 annually to 600,000 by 2028.
Worcester Bosch’s CEO, Carl Arntzen, said the changes reduce immediate pressure but highlighted lingering challenges: “While the fine reduction eases short-term concerns, the UK heat pump market still lacks the scale and infrastructure to meet these ambitious quotas without significant investment.”
Impact on boiler prices
The softened penalties may reduce the immediate risk of sharp price increases for gas boilers.
Worcester Bosch previously estimated a £300 rise per boiler unit under the initial penalty regime, but with fines now capped at £500 per shortfall, the impact on prices could be less severe.
However, long-term price stability remains uncertain. Manufacturers may still face increased costs from scaling up heat pump production and compliance with evolving regulations, potentially passing these costs onto consumers in the future.
Increased government funding for heat pumps may help alleviate financial barriers for households considering a switch, but demand for the technology remains sluggish due to high upfront costs and infrastructure requirements.
The government’s revisions to the CHMM represent a compromise between encouraging heat pump adoption and addressing industry concerns.
While these changes may ease pressure on manufacturers and consumers in the short term, achieving the UK’s net zero targets will require sustained investment and policy adjustments.
For now, the reduced penalties offer some relief, but the longer-term impact on boiler prices and the heating market remains to be seen.
