A high volume of articles have appeared in the UK media relating to speculation that the Government’s Clean Heat Market Mechanism (CHMM) might be withdrawn.
A number of these articles include significant accusations that Baxi (and others in our sector) are expecting to profit from the CHMM, which is intended to support and improve the take up of sustainable and clean heating solutions in homes, specifically through growth in the uptake of heat pumps. While we fully support the intent of the CHMM, we have tried to advise the CHMM’s policy designers of significant problems with the mechanism that do not reflect our role in the actual market for heat pumps in the UK today.
While some revisions were made to the CHMM following a period of stakeholder consultation, the policy as announced on 30 November 2023, and coming into effect from January 1st 2024, remains unachievable, and sets Baxi up to fail. It requires that we sell a volume of heat pumps equivalent to 4% of the volume of our residential gas boiler sales (less the first 20,000 units sold), with a penalty of £3000 levied for each heat pump we fail to sell below that target. We have made it clear that this is an entirely unachievable target and the resulting penalties would run into tens of £millions of pounds, causing significant harm to our business and risk our ability to continue to operate.
A key error in the scheme seems to be the assumption that Baxi already has a significant market share for heat pumps in the UK. This is entirely incorrect. In fact, we would need to sell 100 times more heat pumps in 2024 than we sold in 2023 to avoid a penalty. Even if we tripled our sales, our penalty would still be in the tens of £millions. This is the only reason why we have needed to add a surcharge of £120 to our residential boilers, to pay the government a penalty for something that we made clear was, effectively, impossible for us to achieve.
So the accusation that we are profiting from the CHMM surcharge is unfounded. We have always been transparent about the need to add a surcharge to residential gas boiler prices, based on these anticipated penalties introduced under the CHMM. As such, we have planned to ringfence surcharge funds for the sole purpose of paying the penalty payments to the government, for not selling enough qualifying heat pumps. However, if the CHMM is withdrawn or significantly revised, we have consistently and publicly said we will remove the surcharge and return any funds no longer required for a penalty that have already been collected.
Some articles have questioned why we have been collecting the surcharge from 1st January 2024, when the CHMM doesn’t come into effect until 1st April. In fact, the detail of the CHMM states that while heat pumps sold are counted from 1st April, the calculation of 4% of boiler sales is taken from 1st January.
Another significant error in reporting has been the suggestion that the UK market is currently around 60,000 heat pumps sold into the residential sector each year. With approximately 1.5million new gas boilers sold in the UK each year, the 60,000 annual heat pump sales represents the target 4% of boiler sales. But under the CHMM, only around half of these would be counted towards a reduced penalty as the other half are sold into new build properties which are exempt from the scheme.
UK boiler manufacturers make up only around a third of the current heat pump market in the UK. Incumbent heat pump manufacturers who do not make gas boilers in the UK are exempt from mandatory targets within the scheme. It is unlikely that they will be relaxed about new UK market players like Baxi coming in and taking market share, despite the ambition we have to take market share off them.
Finally, CHMM demands that heat pumps are not only sold, but installed in homes by MCS qualified installers. Many areas of the country do not have access to these installers and so even if we sold a heat pump, but it wasn’t installed under the MCS scheme, we would still not remove the threat of a government imposed penalty of £3000. In 2023, only around 36,000 heat pumps were installed under MCS, just over half the average annual total. That means the existing market size would need to double in one year for the CHMM’s 4% target to be met.
Baxi is investing millions in its training facilities, doubling our annual capacity to train installers up to the MCS standard. Many of our courses are free to installers and we provide additional support to give installers the confidence to get involved in sustainable heating solutions, such as heat pumps. We are committed to sustainable heating solutions, and to working with government, customers and our industry partners to design and deliver incentives that work, with the objective of providing affordable, reliable and sustainable heating and hot water for all.