Breaking the decarbonisation deadlock of electricity prices

Social landlords have already made real progress, backed by funding streams like the Social Housing Decarbonisation Fund (SHDF), its successor the Social Housing Fund, and to a lesser degree the now-defunct ECO4 programme.

Nationally, the energy efficiency of social homes outperforms those in the private rented sector – nearly 82% of Peabody residents’ homes are rated Energy Performance Certificate (EPC) Band C or above, compared to fewer than half of homes in the private rented sector. But progress is slow.

The reality is that we have the tools to decarbonise homes, primarily by installing heat pumps, but the current electricity-to-gas price ratio makes this transition financially challenging for residents. Why would you replace a gas boiler, which is cheaper to run and easier to maintain, with a heat pump that’s more expensive and disruptive to fit?

“This pricing structure – driven by legacy taxation and levies on electricity bills – means that even when housing providers install heat pumps at no cost to residents, those residents can end up paying more to heat their home”

Electricity currently costs between three and four times more per unit than gas, despite producing roughly half the carbon emissions (when the combination of energy sources used to generate that electricity is considered). And while we welcome the announcement in the Budget that from April 2026 Ofgem’s price cap will reduce electricity rates by about 13%, and gas by about 6%, we believe more can be done.

This pricing structure – driven by legacy taxation and levies on electricity bills – means that even when housing providers install heat pumps at no cost to residents, those residents can end up paying more to heat their homes. To offset this, we add solar panels and insulation.

This is not ideal, since it increases the cost of the work and in turn reduces the amount we have available to spend on maintaining residents’ homes or building new ones. So what do we need from government?

First, change to the way energy is taxed so it truly reflects the carbon cost of each fuel. This could cut electricity prices by as much as 30%, making heat pumps cost-neutral or cheaper to run than boilers for most households.

We also need special, cheaper energy prices (social tariffs) for people who use heat pumps. These could be paid for using government or green funding schemes like the SHDF. And flexible pricing, as well as smart thermostats allowing residents can heat their homes when electricity is cheapest, could cut running costs by between 30 and 40%.

Without greater changes to pricing, the government is effectively asking social housing providers to choose between cutting carbon emissions and keeping energy bills affordable.

Retrofit strategies have traditionally focused on improving a building’s structure and insulation – what’s known as a fabric-first approach – before upgrading heating systems. While this makes sense in theory, it’s costly and delays progress. 

Waiting until every home has an EPC rating of Band A or B before installing heat pumps could mean many homes don’t get them until 2030 or later. Meanwhile, solid-wall insulation can cost up to £25,000 per home, further limiting the number of homes that can be upgraded.

Modern high-temperature heat pumps offer a different path – one that prioritises immediate carbon reduction over eventual perfection. Even in poorly insulated homes, these heat pumps, powered by the UK’s increasingly renewable grid, reduce carbon emissions by between 50 and 70% compared to gas boilers.

They work with existing radiators and pipework and can be installed in just a few days, meaning housing associations could retrofit hundreds of homes with minimal disruption for residents, in a fraction of the time. 

“Modern high-temperature heat pumps offer a different path – one that prioritises immediate carbon reduction over eventual perfection”

Of course, there are some trade-offs. High-temperature heat pumps aren’t as efficient as the low-temperature ones used in very well-insulated homes. But even so, they still produce more than twice as much power as the electricity they use – far better than a gas boiler, which wastes around 10 to 15% of the energy it burns. Waiting until every home is perfectly insulated before switching means missing out on years of carbon savings we could achieve right now.

This isn’t an argument against improvements to a home’s structure. Insulation remains important for comfort, health and long-term running costs. But as an organisation, we need to be pragmatic and do what we can, when we can, if we’re to meet our net zero targets.

For starters, in the lead-up to 2030, we should be installing high-temperature heat pumps in homes with an EPC Band C rating, re-balancing electricity prices to keep running costs below those of gas, and prioritising homes with old gas boilers to minimise waste. Then, between 2035 and 2050, we should move to lower-temperature systems as homes become better insulated.

This approach isn’t just about cutting carbon. By replacing old, inefficient heating systems with modern heat pumps, we can significantly reduce harmful emissions, while also tackling fuel poverty, improving residents’ health and reducing damp and mould in homes.

The faster we roll out heat pumps, the sooner residents can see their effectiveness in cutting carbon, giving them a tangible stake in the journey to a greener future.

Richard Ellis, director of sustainability, Peabody