The Clean Heat Market Mechanism

On 30th November 2023, the UK Government briefed the Heating and Hotwater Industries Council on the confirmed details of the Clean Heat Market Mechanism (CHMM), which following much feedback from Baxi and others across our industry, has changed from what was initially outlined.

What is the Clean Heat Market Mechanism?

The UK Government is targeting 600k heat pump installations each year by 2028. Air Source Heat Pumps (ASHP) are currently the only, immediately available means to decarbonise heat and hot water in homes at scale as they produce no emissions at point of use.

Coming out of the Government’s Heat and Buildings strategy, and the recently approved Clean Energy Bill, the Government has launched the CHMM to try and speed up the adoption of heat pumps in UK homes.

The CHMM is a government-designed tool, coming into effect on January 1st 2024, aimed at reducing the carbon emissions from homes through removing the dependency on fossil fuels for heating and hot water. The CHMM’s objective is to increase the supply of heat pumps into a residential market that is suffering from a lack of demand and appetite for replacing existing gas boilers with heat pumps.

CHMM aims to create a market “incentive” to grow the number of heat pumps installed in existing premises each year, providing the industry with a clear, long-term policy framework for investment and innovation. Its main objectives are:

  • Reduce the upfront costs of heat pumps and support households and building-owners with heat pump installations to kickstart the market;
  • Support an expansion of heat pump manufacturing in the UK;
  • Grow the numbers of skilled heat pump installers, and maintain high standards in the quality of heat pump installations

The announcement by the Prime Minister on 20 September 2023, to increase the grant available to households interested in switching to a heat pump to £7,500, should help to address the first of the bullets above.

How does it impact Baxi?

While we fully support the ambition and sentiment of the CHMM, the government believes that incentivising UK boiler manufacturers to sell more heat pumps – through the avoidance of financial penalties - will increase the demand for heat pumps in the UK domestic market.

In summary, for UK gas boiler manufacturers, the CHMM requires that:

  • 4% of all gas boilers sales for use in homes are to be matched in volume with heat pump sales. Gas boilers and ASHPs sold to new build properties are excluded from the scheme.
  • A penalty of £3000 will be levied against the manufacturer for each heat pump we fail to sell under the 4% target.
  • The CHMM only counts heat pumps that have been sold AND installed under the Microgeneration Certification Scheme (MCS).

Our 2025 strategy clearly sets out our ambition to grow into the UK domestic and commercial heat pump market, achieving decent market share within a few years, while retaining and growing our market share for gas boilers and water cylinders. This is unchanged; the only consideration we are managing now is how to develop our approach to the market to try and meet the targets set out in the CHMM within the Government’s time frame.

What is MCS?

The CHMM 4% quota only includes those heat pumps that have been installed under the Microgeneration Certification Scheme (MCS). MCS certifies low-carbon products and installations used to produce electricity and heat from renewable sources and is a recognised mark of quality. Membership of MCS demonstrates adherence to these recognised industry standards; highlighting quality, competency and compliance, all of which are necessary to build trust and confidence among consumers who may be thinking about replacing their gas boiler with an air source heat pump.

As well as already being active in providing training to installers, we are currently exploring opportunities that could support the growth of MCS registered installers in the market. Today, there simply aren’t enough MCS registered installers in the market to meet the targets set by the Government in 2024.

Our Clean Heat Market Mechanism levy

Over the last year we have provided in-depth analysis and evidence to advise the Government on the CHMM design. The final CHMM scheme announced on 30th November 2023 does not reflect the current situation in the UK domestic market, and will result in significant penalties for the gas boiler manufacturing sector. We firmly believe the targets set by the CHMM are simply unachievable in the time frame dictated by the Government and as a consequence, in the first year of the scheme, Baxi can expect to incur a hugely significant financial penalty.

For this reason, and regrettably, we will be applying a “market mechanism levy” of £120 on all our residential gas boilers delivered from January 1 2024. This levy is not a price increase, but a direct impact of the CHMM on our business, which we will use as payment to the Government for the penalty they award us for not meeting its 4% target.

We have every intention to continue to advise the government on how this scheme, while intended to support the development of a UK heat pump sector and market place, risks doing completely the opposite. We will revise or remove our CHMM levy in accordance with any changes the Government makes to the scheme over the year ahead.

Contact your ASM

If you are a merchant or installer, your local Baxi representative is here to help.

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