Estimation and projection of the demand for heating systems in the residential sector in England and Wales: economic theory, energy modelling and policy implications for heat pumps.

Abstract

This thesis investigates factors affecting demand for heat pumps in the residential sector in England and Wales. There are three objectives: to identify the macroeconomic and sociodemographic factors, environmental aspects, climatic conditions and policies that led to the mass deployment of heat pumps in other European countries; to assess the optimal level of heat pump adoption from a societal perspective taking account of environmental externalities; and to identify policies that could result in the mass-market deployment of heat pumps in the UK. Following reviews of studies on consumer preferences for heating systems, and markets and policies to promote heat pumps in eight European countries, two quantitative approaches are followed. The first is an econometric model based on panel data which estimates the impact of macroeconomic, sociodemographic and environmental factors on the demand for heat pumps in Austria, Finland, France, Germany, Sweden, Switzerland and the UK. The role played by three types of policies, financial/fiscal, informative and legislative, is investigated. These are found to have been significant factors in promoting heat pump take-up. A bottom-up techno-economic model simulating the choice of heating systems in the existing housing stock in England and Wales is then developed and is used to assess optimal heat pump take-up and policies that might promote their adoption. Capital cost subsidies, used in most European countries, are considered alongside the Renewable Heat Incentive approach adopted in the UK. The implications of adding the policy costs of support for renewable energy and energy efficiency to electricity prices, tilting the market against electric technologies, are also considered. The thesis concludes that financial incentives are needed to build heat pump markets, but they are not enough in themselves. Building supply chains, driving down costs and improving the performance of heat pumps are also essential.