Net-zero: boiler beefs

By Richard North - December 16, 2023

It’s a gift that just keeps on giving, briefly top story on The Times website yesterday, and covered by multiple other papers, although the BBC doesn’t seem to have noticed yet.

This is what is being called a “green levy” or, officially, the Clean Heat Market Mechanism, opened up for consultation in April this year and set up in November for legislation under the Energy Act 2023 (Part 4 Chapter 1).

Thus, we knew it was coming, with the media then telling us that the mechanism would require domestic boiler producers to ensure that heat pumps made up 4 percent of their sales in the 2024-25 financial year. Failing that, they had to buy “credits” from other manufacturers to meet the target. The quota, which would rise each year, would be enforced by what was then stated as a £5,000 fine for each missed credit.

At the time, Carl Arntzen, chief executive of Worcester Bosch, said that what amounted to “fines” would push up boiler prices. With the price of a typical boiler then standing at between £700 and £1,000”, he warned that, “In some cases, for the top end of our models, we’re having to look at around a £300 price increase”.

Although we’re now getting another rush of publicity, this doesn’t seem to be driven by official action as the scheme doesn’t come into force until the start of the next financial year in April. The implementing regulations don’t appear to have been laid yet, as there is no reference to them on the government website.

This is not surprising as the Energy Bill, on which any heat pump regulations will rely, only received Royal Assent on 26 October and it will take time for the subordinate legislation to be processed into law.

Rather, what we might be seeing is a last-ditch attempt by the boiler manufacturers to delay or amend the scheme, which already seems to have undergone some changes, the “fine” now expected to be reduced to £3,000 for each unit short of the quota.

This, though, is far from clear in The Times piece which runs the headline “Boiler makers pass on £120 ‘green levy’ to customers”, telling us that families replacing their gas boilers next year are to be hit with a £120 “green levy”, “amid a deepening row between the government and industry over the cost of moving to clean energy”.

That, in some ways gives a clue as to what is going on, not least with the industry threat reduced from the £300 in September, to the much lower sum of £120 from Worcester Bosch and a “mere” £95 from Vaillant, which says there are “multiple factors” that would affect the company’s costs. Baxi, another manufacturer, has announced a market mechanism levy of £120 on all residential gas boilers, and this is to start in the new year, months before the official scheme takes effect.

But it is the response to the company announcements which gives the game away. Critics are saying that the level of the price rises being imposed by the companies far exceeded any potential costs they would face under the scheme. They described the move as a cynical attempt to increase their profit margins while blaming the government.

An official complaint, we learn, has been made to the Competition and Market Authority (CMA) asking them to investigate whether the increased charges amount to anti-competitive behaviour.

This, apparently, has also been picked up by Claire Coutinho, the novice energy secretary, who is said to be investigating the [proposed] new charges and is also considering a representation to the CMA.

Then, interestingly, a senior government source (anonymous of course) has stepped in with a heavyweight response to say that: “We have not required any increases to the price of gas boilers. Firms should not be using government policy as a fig leaf to put further costs on consumers”.

While industry representatives deny this and insist that they have no choice but to pass on their additional costs to consumers, there is clearly a schism developing within the broader industry.

Charles Wood, deputy director of Energy UK – representing the electricity suppliers and notoriously “gung-ho” for net-zero – has accused boiler manufacturers of “appalling behaviour” that was “transparently politically motivated”. This, he claims, is an “attempt to bully and manipulate the government”, which, he says, “should immediately result in an inquiry on price gouging”.

What comes over, therefore, are the first intimations of thieves falling out. The electricity supply industry, which stands to benefit most from the replacement of gas boilers with electricity-guzzling heat pumps, is seeking to defend the scheme, while the gas boiler suppliers are attempting to fight back.

The Telegraph gives some idea of the size of the problem confronting the gas boiler suppliers. This paper says that an estimated 80,000 heat pumps will be installed in 2024, but only 40,000 of these will be retrofit installations – and only these qualify against the quota.

Based on a boiler market of 1.5 million homes, government plans would require manufacturers to install 60,000 heat pumps in its first year – 50 percent higher than the forecast market size, according to the paper, which had Worcester Bosch saying that penalties are “inevitable”.

In following years, the problem gets worse. The target increases to 90,000 installations in the scheme’s second year, and to 450,000 in its fourth. Worcester Bosch points out that these targets are “clearly unachievable within the timescales allowed”. Manufacturers, the company says, would have no choice but to “pass these fines onto the market in the form of a CHMM levy”.

And in a twist which is perhaps not fully appreciated, this levy is to be treated by the government as a “civil penalty”. This leads s spokesman for Worcester Bosch to say that his company (nor the industry in general) will not benefit in any way. Neither, he says, will market growth for heat pumps. The revenue raised from the fines will go to the Treasury and not be used to grow demand for heat pumps.

The only thing it actually does is support the government’s overall goal of closing the price gap between a gas boiler and heat pump installation, using financial pressure to bludgeon the public into compliance, while pretending that fitting heat pumps will remain “voluntary”.

Bizarrely, though – something the BBC has noticed – government policy is at odds with itself. As the cost of domestic energy continues to increase – driven largely by net-zero implementation – more and more people are unwilling or unable to pay, a problem which has escalated to such an extent that debt levels for energy customers have risen to £2.9 billion.

Instead of addressing the underlying problem of over-priced energy – where French customers pay less than half the British rate for electricity – the government, through Ofgem, is proposing to lift the energy price cap by £16 between April next year and March 2025, thereby allowing energy suppliers to increase their prices by that amount, partly enabling them to recoup their losses.

Although this is a relatively small amount – and will not affect customers on pre-payment meters (who are already being screwed on debt recovery) – the logic is impeccable: when you find that your customers have difficulty in paying your already inflated bills, you simply get the regulator to allow you to charge even more.

The net outcome of that – if we carry the logic to its fullest extent – is that even more people stop paying, leading to even more price increases until, in the fullness of time, there is only one person left in the nation who is paying energy bills. If that person is king Charlie, and taxpayers meet his bills anyway, I suppose we’ll be back where we started.

Either way, the only way the fitting of a heat pump will begin to make financial sense is if there is a reduction in running costs for the average customer, sufficient to recoup the investment over a reasonable period.

But, since that is a very long way off, we can see the “boiler tax” increase year-on-year until it gets so punitive that people start to squeal – louder than they already are. Little Claire Coutinho really doesn’t realise what she is letting herself in for, although by the time the tax starts to bite, she will have been replaced by her Labour counterpart, who will have to take the flak.

One thing we will have to get used to though is the fact that this is only the start. We have the same nonsense with electric vehicles and it is only a matter of time before the government dreams up something equally insane to increase the cost of flying still further and jack up the prices of meat and dairy products.