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 their industry, has changed from what was initially outlined.
Air Source Heat Pumps
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 decarbonize 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.
Clean Heat Market Mechanism (CHMM)
The CHMM’s objective is to increase the supply of heat pumps into a residential market
The Clean Heat Market Mechanism (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 market ‘incentive’ to grow 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 United Kingdom (UK); and
- 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?
With full support of the ambition and sentiment of the CHMM, the government believes that incentivizing 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).
Baxi's 2025 strategy
Baxi’s 2025 strategy clearly sets out their ambition to grow into the UK domestic and commercial heat pump market
Baxi’s 2025 strategy clearly sets out their ambition to grow into the UK domestic and commercial heat pump market, achieving decent market share within a few years, while retaining and growing their market share for gas boilers and water cylinders.
This is unchanged; the only consideration they are managing now is how to develop their approach to the market, so as to try and meet the targets set out in the CHMM within the UK Government’s time frame.
What is Microgeneration Certification Scheme (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 are a recognized mark of quality.
Membership of MCS demonstrates adherence to these recognized 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, they 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.
Clean Heat Market Mechanism (CHMM) levy
Final CHMM scheme announced on 30th Nov 2023 does not reflect the current situation in the UK domestic market
Over the last year, they 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.
They 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.
‘Market mechanism levy’ on Residential gas boilers
For this reason, and regrettably, they will be applying a ‘market mechanism levy’ of £120 on all their 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 they will use as payment to the Government for the penalty they award them for not meeting its 4% target.
Baxi 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. They will revise or remove their CHMM levy in accordance with any changes the Government makes to the scheme over the year ahead.
