Heat pumps are several times more efficient than boilers but so far have struggled to undercut them partly because electricity prices are several times higher than gas.
The competitive balance could be about to change, however, as the combined effect of time-of-use electricity tariffs and new AI-driven ‘optimisers’ promises to cut heat pump running costs by as much as 60%.
That would make heat pumps far cheaper to run than a boiler and could galvanise the transition to low carbon heating according to experts in the field.
The new devices also make life easier for installers by simplifying the commissioning of a heat pump and reducing the need for repeat visits.
Optimisers from Homely and PassivUK have already demonstrated heat pump savings of 20-30%, while a startup called HavenWise claims it can save up to twice as much.
How optimisers work
Optimisers cut running costs in two ways.
First, they improve the heat pump’s mechanical efficiency by controlling the temperature of the radiator fluid rather than simply switching it on and off like a normal thermostat.
Second, they feed a local 24-hour weather forecast and details of a time-of-use electricity tariff such as Economy 7 or Agile Octopus into a machine-learning algorithm. The algorithm soon discovers how much heat the home needs to maintain the temperature set by the occupants and works out how to provide it efficiently and cheaply.
The optimiser might choose to generate more heat when it’s a bit warmer outside, for example, meaning the heat pump has less work to do.
Or, if tariffs are set to rise, it could heat the home beforehand at cheaper rates to avoid more expensive electricity later on.
And, if the choices conflict, the optimiser should work out the best trade-off over the next 24 hours – all while keeping the internal temperature steady and close to the customer’s set-point.
Think of it as satnav for lower cost low-carbon heating – picking the best direction of travel to result in the lowest possible cost.
Making the installer’s life easier
Most heat pumps already come with a form of optimisation known as weather compensation. This saves energy by automatically reducing the temperature of the radiator fluid when it’s milder outside. But weather compensation reacts only to the current outdoor temperature and cannot see a day ahead as the optimisers do.
Setting the weather compensation curve is one of the trickier aspects of commissioning a heat pump and can lead to repeat call-outs for the installer. Optimisers set the curve automatically and continuously, however, meaning neither the installer nor the customer need worry about it any longer.
“Getting the weather compensation curve right can involve quite a bit of trial and error”, says Nathan Gambling, a heating engineer and host of the low-carbon heating BetaTalk podcast, “but an optimiser does it all for you. And that’s a really big benefit to installers and their customers.”
Technology developers
Homely is the pioneer of heat pump optimisers and has now sold “several thousand” devices in the UK and Europe. The company has tested its system in a climate-controlled hangar at the University of Salford and claims it can deliver savings of £444 or 43% for an average home.
This comparison is questionable, however, because it assumes the user has switched to the Cosy Octopus time-of-use tariff but continues to heat through the most expensive peak period and kept weather compensation turned off. This would not be a sensible way to use the Cosy tariff and these assumptions inflate the savings attributed to the optimiser.
Octopus’ Variable and Cozy tariffs compared. NB Octopus Energy has added another time slot to the Cosy tariff since Homely did its analysis. Source: Homely
Homely defends the comparison, however, on the basis that some heat pump owners do behave this way and end up paying more than they should. The company’s Product Manager Peter Bullock adds that “£444 looks plenty credible when held up against the real-life data – plenty of customers saved more than that through tariff optimisation alone”.
The company also presents what seems a fairer comparison between a heat pump running on the Cosy tariff as optimised by Homely and one running on a single rate tariff with weather compensation. Here Homely saves £158 or 21%. Even on this basis, a heat pump should be cheaper to run than a boiler.
PassivUK‘sPassive Smart Thermostat increases the mechanical efficiency of a heat pump by 17% compared to a standard manufacturer’s thermostat, according to an analysis of several hundred heat pumps by the Energy Savings Trust. PassivUK says other features like time-of-use tariff optimisation would raise savings to 23%, or 30% if the home has solar panels.
“A well-controlled heat pump will be cheaper to run than a gas boiler”, says Ian Rose, PassivUK’s Sales and Strategy Director. “Add a heat pump tariff and solar PV into the mix and those benefits only improve.”
There could be larger gains in future. A startup called HavenWise is developing an optimiser that it claims will cut costs compared to an average-efficiency heat pump running on standard tariff with weather compensation by up to 60%. If so, it would undercut a gas boiler by more than half.[i]
HavenWise was founded by Alex Nelson, a former captain in the Royal Logistic Corps who started to develop the algorithm logic while taking a masters degree in robotics, and Henri Casteleyn, an energy engineer turned McKinsey consultant. Their company is backed by Carbon13, a climate innovation accelerator.
Unlike Homely and PassivUK, HavenWise does not yet have any independent corroboration of its performance. But it does have a year’s worth of computer simulation and last winter started to demonstrate the algorithm on a number of heat pumps, including mine – all running on the Agile Octopus time-of-use tariff. HavenWise says the average saving so far is 59%.
It’s a small sample but the company is confident it can replicate the results in larger trials this winter. “We used a year of real data and ran a year’s worth of computer simulations, and now the live results with several different makes of heat pump have confirmed what we expected”, says Alex Nelson.
The company also claims it can reduce the cost of heating the hot water tank – when heat pumps are usually at their least efficient – by an average of 60%.
Lifetime saving versus gas heralds heat pump boom
If optimisers can deliver savings between 30% and 60%. they could galvanize the transition to low carbon heating according to Andrew Sissons, Deputy Director of Nesta, a sustainable innovation charity.
The organisation recently published a policy report called How to make heat pumps more affordable andhas since modelled the impact of the optimiser savings. It found that with the current installation subsidy of £7,500, heat pumps would undercut boilers not only on running costs but on lifetime costs too – including purchase, installation, maintenance, and 15 years of energy bills.
“If the optimiser can save 30%, heat pumps would cost less than a boiler every month, all in”, says Sissons. “That makes it easier for banks to offer financing to eliminate the upfront cost for the consumer, so this could be a pivotal moment.”
This kind of financing is already beginning to emerge. The Swedish company Aira recently raised £125 million to install heat pumps in Britain and Europe at no upfront cost to the homeowner and recover the money through monthly payments. The company aims to install five million heat pumps in the next 10 years. A UK-based installer hopes to launch a similar financing scheme later this year.
Such deals should make heat pumps affordable to many more people creating a huge opportunity. Nesta estimates Britain will need 6,000 more installers each year until we reach around 60,000 by 2035.
“In Britain we need to install well over 20 million heat pumps in the next couple of decades and the costs and financing are starting to come good”, says Nathan Gambling, “so there has never been a better time to train up as a heat pump installer.”
The Agile effect
It’s important to understand the HavenWise results are flattered – as any optimiser’s would be – by the recent performance of Agile Octopus compared to standard tariffs (Homely says it avoided Agile in its study for this reason).
Most time-of-use tariffs come with fixed prices for different times day, but Agile tracks the wholesale electricity market, meaning prices change every half hour – although they are fixed and published a day in advance. Occasionally, when demand is low and renewable generation high, Agile tariffs turn negative – meaning the company pays its customers to consume electricity (see charts).
Four sample days of Agile Octopus pricing: Tariffs change every half hour, are different every day and sometimes go negative (bottom left), meaning the company pays its customers to consume electricity.
Over the past year the average Agile tariff has been more than a third lower than the Ofgem cap, according to data supplied by Agile Buddy, an independent website.
That means it has been possible for heat pump owners to make decent savings compared to standard tariffs simply by switching to Agile and setting the thermostat a couple of degrees cooler during the peak hours from 4pm to 7pm – even without an optimiser.
Stripping out that effect, HavenWise’s savings would have come to 39%.
“It’s true that at current prices heat pumps can make significant savings based on Agile alone”, says Alex Nelson of HavenWise, “but to get the maximum savings possible with weather forecasts and time-of-use tariffs you need an optimiser. Our results show the extra savings can be twice as large.”
The Agile tariff may not be for everyone because it responds immediately to any international volatility and soared during the energy crisis to as much as 70% higher than the Ofgem cap. Should those conditions return, Octopus offers same-day switching to a standard tariff.
For those seeking more security, time-of-use tariffs with fixed prices for fixed periods each day are widely available. Alternatively, OVO’s Heat Pump Plus tariff offers a flat rate 15p/kWh for the electricity consumed by your heat pump but charges 30p/kWh for the rest.
Not much COP?
Some in the industry question the savings claimed by optimiser developers more broadly, however. Adam Chapman, the founder of Heat Geek, a network of some 2,000 heat pump installers, argues that if a heat pump has been installed correctly, there shouldn’t be much inefficiency left for the optimiser to eliminate.
Adam points out that the Seasonally Adjusted Coefficient of Performance (SCOP) for heat pumps in Britain is 2.8, meaning that, over the course of a year, the average machine produces 2.8kWh of heat for every 1kWh of electricity it consumes. (That’s far higher than a gas boiler, which on average converts only 83% of energy contained in the gas into usable heat – equivalent to a SCOP of 0.83).
But Heat Geek says the heat pumps it installs have an average SCOP of 4.3, more than 50% higher than the national average, which the company attributes to its rigorous training. “The savings you can make by installing the heat pump correctly in the first place are bigger than those claimed by most of the optimisers”, says Adam. He accepts, however, that for less well installed machines, the optimiser savings could be large.
The optimiser companies counter that even if a heat pump has been well installed, the additional gains from optimising a weather forecast and time-of-use tariff are still significant.
“Whether your heat pump installation is world-class or just mediocre, optimisation will still prove a cost-effective way to reduce overall running costs and environmental impact”, says Homely’s Peter Bullock.
Another reason, argues Henri Casteleyn of HavenWise, is that efficiency isn’t always the most important factor when some of your energy comes for free, as it can with the Agile Octopus tariff.
“Most of the time, higher efficiency does save you money”, says Henri. “But when the electricity price is very low or negative, you want to make the most of it, and it can make sense to run the heat pump hotter for a while even though that is less efficient. But only an optimiser can make those trade-offs and keep your home comfortable.”
Like many in the industry, HavenWise thinks negative pricing will happen more often in future as wind and solar capacity grows.
The big boys pile in
Homely’s optimiser works through a hub and thermostat costing £200, while PassivUK’s system of hub, programmer and thermostat costs £210 for one zone or £240 for two. Homely charges an additional £25 year for tariff optimisation (mechanical and weather optimisation are included in the equipment cost).
The HavenWise optimiser needs no extra hardware provided the heat pump is internet enabled, since its algorithm works online through the manufacturer’s API (application programming interface). The company plans to charge only an annual subscription after a free trial period.
It is not just small independent companies who are developing optimisers, however, and the competition is hotting up.
Among the energy suppliers, EDF Energy has confirmed it is developing an optimiser and HVP Magazine understands so is OVO Energy. Thermostat maker Drayton says it too is “considering” introducing one.
Aira’s heat pumps, which it both manufactures and installs, come with a full-service optimiser called ‘Aira Intelligence’ built in. The company says this helps make the total lifetime cost of its heat pumps 25% lower than a boiler at current gas and electricity prices.
Octopus Energy’s Kraken software already provides optimisation for its Cosy 6 heat pumps, which it manufactures itself, and for Daikin models through that company’s API. Octopus says it is also working to integrate with Mitsubishi, Vaillant, NIBE and Samsung and hopes to make a series of announcements by this winter.
Alex Schoch, Octopus Energy’s Head of Flexibility, explains that while optimisers have so far done a “fantastic job” of cutting costs for individual customers, they will soon have to become even more sophisticated.
That’s because the rapid take-up of heat pumps could stretch the capacity of local electricity grids, meaning that optimisers will need to take account not only of the needs of an individual home but also the balance of electricity supply and demand in the neighbourhood.
Octopus already does this through contracts with Distribution Network Operators (DNOs) who need to reduce demand during peak hours in areas where local grid capacity is tight. These commitments influence how Kraken optimises individual Octopus heat pumps, EV chargers and batteries, but the company insists that customer comfort is always the top priority.
Indeed, the company argues that by helping to relieve local grid congestion, heat pump owners will earn further financial benefits.
“If we’re going to electrify heating it can’t be every home for itself, because we’re going to have millions of heat pumps”, says Alex. “But if we can work out how to optimise for individual homes and balancing the system, we’ll be able to pass on huge savings in grid operating costs to the customer.”
This article was first published in HVP Magazine