Clean Heat Market Mechanism 2024 Update

At Howarth, we strive to keep our trade and retail clients informed of any new and upcoming news within the merchanting industry. And on November 30, 2023, the government announced its long-awaited response to the Clean Heat Market Mechanism (CHMM), which will come into effect on January 1, 2024, with a few minor adjustments.

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What is the Clean Heat Market Mechanism?

The Clean Heat Market (CHMM) aims to speed up the gradual adoption of heat pumps by requiring boiler manufacturers to encourage customer demand for heat pumps and hybrid systems.

Why has the Clean Heat Market Mechanism been introduced?

The CHMM was developed to assist the UK in meeting its aim to achieve Net Zero CO2 emissions by 2050. And to achieve this goal, the government plans to install 600,000 heat pumps each year by 2028. This is because the current annual installation rate for heat pumps is roughly 60,000, whereas the installation rate for boilers is upwards of 1.5 million.

Home heating and hot water production is one of the largest contributors to CO2 emissions, accounting for an estimated 16% of the national total. Currently, natural gas-fired heating and hot water systems are installed in around 23 million UK households, with another 1.5 million houses on the gas grid using oil or LPG.

Ultimately, CHMM has required boiler manufacturers to sell and install Air Source Heat Pumps on an annual basis in proportion to the quantity of fossil fuel boilers supplied. If they fail to sell their target amount, the manufacturers face a fee for each Air Source Heat Pump that falls short. Manufacturers who exceed their sales targets can sell 'credits' from their excess to less successful competitors, allowing the latter to escape penalties.

As a result, we may need to use other heating systems in our houses. While numerous methods are being tested and developed, the most easily accessible are electric heat pumps or hybrid systems. If you are interested in understanding more about Air Source Heat Pumps, we have a blog on our Inspiration & Advice page that outlines more information about them. You can access it here.

What does this mean for builder’s merchants?

Financials

It was recommended to place CHMM obligations on retailers, but this was rejected. While this is a possibility in the future, the CHMM's current structure means that merchants will bear the financial impact of the scheme due to boiler manufacturers' actions.

Likewise, the impact on working capital is hard to measure until we have an improved understanding of lead times, order cycles, and the diversity of products entering the market. If stocking efficiencies are not discovered, a straight comparison in unit cost shows that stockists would need to hold between 5x and 10x the £ value in heat pumps as boilers to service the same number of heating projects.

Logistics

As volume develops, merchants will be affected by the combination of size and weight as compared to a gas boiler. While the latter are 5 to 9 per pallet and can be handled by one person using low-cost equipment, the former require one or more pallets, weigh more, and can also present human handling challenges.

It is unlikely that many UK boiler manufacturers will overshoot their target, and since a small overshoot can be carried forward to the following year, credits being sold are likely to come from heat pump manufacturers who do not have a fossil fuel boiler division.

Training and Marketing

The merchant workforce has decades of experience with fossil fuel boilers and associated products, and this knowledge is critical to developing value.

The transition to heat pumps will need both customer-facing and supplier-facing colleagues to be familiar with not just the technical specifications of heat pump devices, but also how they interact with newly installed or pre-existing system components.

The focus of marketing will also shift. Households recognise the necessity for a gas boiler, but the installer is frequently responsible for selecting the brand and model. With minimal awareness of heat pumps and greater material costs, there will be a huge need for information from both homeowners and technicians.

Therefore, we will continue to monitor and observe the scheme and will do all we can to make this information as easy as possible to understand. Our Online Customer Service Team will also be available to go through any questions our customers may have regarding the scheme, and you can contact them on the number 01472 907051.