Talking New Energy: Are Heat Pumps on Track for 2030?

[00:00:01.800] - Jon Slowe

Welcome to Talking New Energy, a podcast from LCP Delta. I'm Jon Slowe.

[00:00:07.590] - Charmaine Coutinho

And I'm Charmaine Coutinho. Together, we're exploring how the energy transition is unfolding across Europe through conversations with guests at the leading edge.

[00:00:17.970] - Jon Slowe

Hello, and welcome to this bite-sized episode. Today, we're looking at heating markets, and in particular, markets for low-carbon heating. I'm joined by my colleagues, Klara Ottosson. Hello, Klara.

[00:00:31.040] - Klara Ottosson

Hello.

[00:00:32.300] - Jon Slowe

And Zoltan Karpathy. Hello, Zoltan.

[00:00:34.590] - Zoltan Karpathy

Hello, hi.

[00:00:36.290] - Jon Slowe

I thought a nice structure would be to look back at three highlights in 2024 and three highlights for 2025. That way we can contextualise some of the developments that we expect to see over the rest of 2025. To start with, let's look back at 2024. Klara, I think you're going to pick out three the key things in the heating markets, low carbon heating markets, from 2024. What stood out for you?

[00:01:07.660] - Klara Ottosson

Highlights might be a bit of a strong word. I'd say the first one is a clear low light.

[00:01:13.580] - Jon Slowe

Okay.

[00:01:14.100] - Klara Ottosson

Obvious one. I don't think anyone has missed the downturn that we saw on the heating market in 2024, which was most severe for heat pumps. The only country really that we saw with a positive trend is the UK, where heat pumps for space heating actually grew by over 30%. But overall, sales of heating appliances in Europe declined by around 16%, while for heat pumps alone, that decline was 35%, which is huge. And some countries seeing sales dropped by much more than that.

[00:01:46.940] - Jon Slowe

So, market's moving in completely the wrong direction then to decarbonise heat. Okay, we'll come back to a why maybe in a minute. So, first, a low light rather than a highlight. What about number two?

[00:02:00.550] - Klara Ottosson

So, that's on a much more positive note.

[00:02:03.300] - Jon Slowe

Good, good.

[00:02:03.390] - Klara Ottosson

Industry has really taken steps to lower a key barrier for heat pump uptake, which is the high running cost that is a huge problem in some markets. And they've done that by introducing a huge number of heat pump tariffs over the course of 2024. Now, heat pump tariffs weren't a new thing in 2024. It's not the first time we saw them, but the number of tariffs took off in several markets. And we also saw some countries introduce the first ever heat pump tariff, like in Italy and Spain, for example.

[00:02:37.360] - Jon Slowe

Okay, so, yeah, the running cost, often that's a spark spread, isn't it? Between electricity and gas prices means that heat pumps can be expensive to run or maybe not much cheaper than a gas spoiler, but if you can bring the heat pump tariff down, that really helps the competitiveness of heat pump running costs.

[00:02:55.520] - Klara Ottosson

Yeah, exactly. It's encouraging to see industry stepping up where maybe policy is lacking in this area.

[00:03:02.220] - Klara Ottosson

Great. Okay. Third highlight or low light, depending on what's coming, looking back at 2024.

[00:03:09.250] - Klara Ottosson

Yeah, I'd say it's another positive. It's really encouraging to see the increasing amount of private finance that is being deployed to support the heating transition, and more specifically, talking about asset-backed securitisation deals. To accelerate the uptake of low-carbon heating, we definitely need better customer financing and asset-backed securitisation, or ABS enables this. It's really encouraging to see these announcements that were made by Enpal and Aira, and Hometree in 2024. We really think it's just the beginning and very excited to follow this process and hear about more private finance entering the market this year and beyond.

[00:03:51.820] - Jon Slowe

That's critical, isn't it? Because heat pumps are a higher upfront cost. We mentioned the running cost. Hopefully, many places are low running cost. If we were to move towards widespread adoption of heat pumps, I think that finance is going to be really important, isn't it?

[00:04:10.110] - Klara Ottosson

Yeah, exactly. I mean, subsidies will only get you so far. We can't go to mass market relying solely on that. So, we're in need of better finance instruments to achieve wide scale adoption, for sure.

[00:04:23.140] - Jon Slowe

Okay, so looking back at 2024, one big low light, big decline in in sales of, well, the heating market, generally heat pumps in particular, and two positive things, heat pump, tariffs and finance. Zoltan let's look ahead to 2025 and see what you expect to see. Again, picking up maybe three things. What three things would you pick out to look for already a couple of months, nearly a couple of months into 2025, but what would you expect to see going forward?

[00:04:58.170] - Zoltan Karpathy

Yeah, the first one is the overall expectations for the year across Europe on our European level. I think first, I should mention the first big ticket item, which is the end of a subsidy programme for standalone fossil fuel boilers. So, this started in January, and it has been outlined in the new EPBD. However, we don't really expect this measure alone to cause a massive drop in boiler sales. Rather, it will contribute to a gradual declining trend for this technology. In a lot of markets, still the spark spread is in the favour of gas boilers, even though there are no incentives available anymore.

[00:05:41.290] - Jon Slowe

Okay, so that's going to just help to tilt the markets away from fossil fuel fuel boilers towards heat pumps, but that alone won't do the job as you've said. It's running costs, it's lots of other things that need to be done.

[00:05:53.110] - Zoltan Karpathy

Exactly. What we see is really beyond '25 towards 2035. It's a gradual decline in a lot of markets is gradually decreasing to the level of the natural replacement market for gas boilers. But nevertheless, for '25, we expect this year to be a year of reset before steady growth out to 2030 and beyond for low-carbon technologies and heat pumps in particular.

[00:06:22.050] - Jon Slowe

Okay. What would your second thing to watch for be for 2025?

[00:06:28.390] - Zoltan Karpathy

Yeah, the second item would be the top three markets to watch this year. And Germany is an obvious pick for the first market to watch, especially elections are happening this weekend. So, the big question is what will happen after the elections with low-carbon technologies and related policies. What we expect is the Building Energy Act could be amended and subsidies for low-carbon technologies, for heat pumps to reduce. On the other hand, heating with gas and oil are already more expensive starting from January due to the CO₂ price growth and also growth in gas network fees. Overall, looking at this market, we expect a slight improvement for heat pumps this year, but nevertheless, for the entire heating market will be some challenging conditions. Second market would be UK. Finally, the clean heat market mechanism will start this year. It's been a big talking point in the past year or so. The first year will be more like a trial run for the remainder of the policy, and there will be some consultation happening on the future of this scheme related to the quotas and the value of the fine going forward. We anticipate this scheme to trigger more discussions around clean heat standards in general in Europe, but also national levels.

[00:08:05.120] - Jon Slowe

Okay, so UK has often been, well, it's one of Europe's biggest heating markets, but it's a sleeping giant for the heat pump market. Maybe this is the start of that sleeping giant waking up or the continuation of it waking up. I'll stop the analogy there. What's the third market, Zoltan?

[00:08:22.540] - Zoltan Karpathy

Well, the third one, I think it's an unexpected pick. This would be Austria. And the reason I picked this is because this year, Austria becomes the first country in Europe to implement a replacement mandate for coal and oil boilers, which were built more than 25 years ago. We haven't seen such an initiative before, and it's really fascinating to see how this will be carried out in practise. If it is going ahead, it could actually serve a blueprint for other countries in Europe.

[00:08:57.180] - Jon Slowe

Okay. I bet there's a frightening number of old coal and oil boilers still running in Austria and across other countries.

[00:09:04.400] - Zoltan Karpathy

It's a big potential, yes, to replace, especially with low-carbon heat.

[00:09:09.540] - Jon Slowe

Okay, we're running out of time. In very quickly, your third thing to look for in a nutshell.

[00:09:15.090] - Zoltan Karpathy

I think the third thing would be, are we witnessing a changing market landscape this year? There have been a wave of high-profile mergers and acquisitions in the past few years. I can mention Carrier buying Viessmann. It's quite a topical situation as the new US administration is turning it back to the energy transition. I can see it's a real possibility for some US corporations to enter or increase their presence in Europe, either through a resistance or by forming partnerships. We could see the race for the pie to heat up even more.

[00:09:53.600] - Jon Slowe

Yeah. Okay, that's really interesting. Maybe some companies upping their game in Europe, and we've already had some new entrance like Aira and Quantum, for example. A changing landscape of players in the European heating sector.

[00:10:09.760] - Zoltan Karpathy

Yeah, that's great.

[00:10:12.790] - Jon Slowe

Okay. Well, a huge amount that we could unpack with that, But hopefully that's given listeners a sense of some of the big developments last year and what to look out for the rest of this year. Thank you, Klara. Thank you, Zoltan, for your contributions and time.

[00:10:27.940] - Klara Ottosson

Thank you so much.

[00:10:29.820] - Jon Slowe

Thank you. And thanks everyone for listening. Hope you enjoyed that bite-sized episode on what to watch for in Europe's heating markets and look forward to welcoming you back next week. Thanks and goodbye.

[00:10:42.850] - Charmaine Coutinho

Thanks for tuning in.

[00:10:45.310] - Jon Slowe

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[00:10:53.990] - Charmaine Coutinho

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