In March 2023, the Government’s Department for Energy Security & Net Zero published its proposal for a Clean Heat Market Mechanism.
Its purpose: “To set out policy proposals and invite stakeholder views on the introduction of a market-based mechanism to support the development of the market in low-carbon heating appliances, principally electric heat pumps”.
In layman’s terms: How do we sell more heat pumps and discourage people from using traditional boilers.
The government has confirmed the initiative is set to proceed in 2024, despite facing strong opposition from boiler manufacturers and industry associations. This initiative imposes obligations on manufacturers to meet specific targets for the sale of heat pumps relative to their gas and oil boilers. Failure to meet these targets will result in financial penalties.
In the inaugural year of the scheme (April 2024 to March 2025), manufacturers are required to sell heat pumps equivalent to 4% of their boiler sales in the UK. This target increases to 6% in the second year. The mechanism primarily affects manufacturers with annual sales exceeding 20,000 gas boilers or 1,000 oil boilers.
Manufacturers can earn ‘credits’ through the installation and notification of heat pumps, facilitated by certification schemes like MCS. Those falling short of the targets face a penalty of £3,000 per missing credit. Installations involving hybrids, where a heat pump is combined with a fossil fuel boiler, earn half a credit.
Notably, the installation of boilers in new-build properties does not contribute to the target calculation, at least until the introduction of the Future Homes Standard in 2025.
The penalties for missing targets have been adjusted from the originally proposed £5,000, and the government did not proceed with the suggestion that heat pump manufacturers must produce supply chain plans, though this might be considered in the future.
Manufacturers subject to the CHMM must submit an annual report on their boiler sales, which the Environment Agency will administer, regulate, and enforce, imposing penalties for various non-compliance issues.
It has been speculated that many manufacturers will not hit these targets, and thus, will need to apply a £150 levy to the cost of a wholesale boiler in order to pay the ensuing penalties.
