Heat Pump Sector Deal Expert Advisory Group: final report

5. The current state of the heat pump market in Scotland

Before considering what should be in a sector deal to drive the rapid development of the heat pump market in Scotland, it is necessary to understand the present market and the structure of the industry, as these are the starting points. This section provides background on Scotland's heat pump sector and the current rate of heat pump deployment in Scotland.

5.1 Scotland's heat pump supply chain

According to currently unpublished research by Delta EE for Scottish Enterprise, there are some 210 companies operating in Scotland's heat pump sector with approximately 5000 employees in total.

The upstream supply chain in Scotland includes manufacturers such as Mitsubishi, Star Renewable Energy and Sunamp. A number of other heat pump manufacturers such as Daiken, Vaillant, Kensa and NIBE are also present in Scotland through regional sales offices.

Mitsubishi's site in Livingston is a strategic location for the supply of air source heat pumps into the European market; it has the capacity to produce up to 300,000 units per year and employs over 1400 staff. Mitsubishi also has a European research and development centre at Livingston.

Star Renewable Energy is based in Thornliebank with over 250 staff and produces water source heat pumps available in modular capacities ranging from 50kW to 8MW. Star has significant experience in deploying heat pump solutions as part of large-scale heat network project across Scotland and Europe.

Sunamp is an East Lothian based manufacturer of heat batteries that can be integrated with heat pumps to allow them to be installed in space constrained homes and to take advantage of flexible tariffs by producing and storing heat when electricity is cheapest.

The downstream heat pump supply chain covers the businesses who offer heat pump installation and maintenance. Some firms are heat pump specialists but the majority offer heat pumps alongside conventional heating and plumbing services. This part of the supply chain contains a high proportion of SMEs and also micro businesses with less than 10 employees.

Scotland's heat pump sector also extends to other stakeholders. These include social housing providers who are introducing heat pumps into their stock, education and training providers such as Scotland's further education colleges and third sector organisations. These last include the Energy Saving Trust, which provides information, advice and support on heat pumps to consumers and organisations as well as delivering Scottish Government loan schemes which provide interest-free loans to householders and small businesses for a variety of sustainable energy measures including heat pumps. Other third sector organisations such as Changeworks, Warmworks and Zero Waste Scotland act as managing agents for Scottish Government schemes supporting heat pump installations for domestic consumers and small businesses.

5.2 Existing rate of heat pump deployment

The ability to provide an exact figure for the current number of heat pumps deployed in Scotland each year is limited by the data available. However, based on the data from the Microgeneration Certification Scheme and the new build EPC register there are 3000-4000 domestic heat pumps installed annually in Scotland with additional much smaller numbers installed in non-domestic properties and large-scale heat networks. Of these the large majority are air source heat pumps (ASHP) with almost all the rest being ground source heat pumps (GSHP).

Available data shows installations in existing properties have stayed broadly constant since 2015 but the number of heat pumps installed in new build homes has increased over the last four years as tighter emissions standards introduced in 2015 building regulations exert an effect.

5.3 Heat pump support mechanisms

The Scottish Government provides significant funding (£20m in 2020-21) for interest free loans for a variety of sustainable energy measures including heat pumps, which represent a large proportion (up to 66%) of total loans made. Loans are available to both the domestic and SME sectors.

Other Scottish Government programmes also provide support for heat pump installations including the Warmer Homes Scotland scheme, the Low Carbon Infrastructure Transition Programme and the Social Housing Net Zero Heat fund. Levels of support through these routes are quite significant, for example in 2021 the Scottish Government launched a second £30 million call through the Social Housing Net Zero Heat Fund and committed to make up to £100m available over the course of the current Parliament.

In addition the UK Government's Renewable Heat Incentive (RHI) provides grant support for domestic heat pump installation, however, this is closing in 2022. According to the UK Government's Heat in Building Strategy, the replacement Clean Heat Grant will provide up to £5000 per installation, less than under the RHI, making domestic heat pumps a less attractive option than at present.