Grants and funding for heat pump installation

Want to save money on energy bills, reduce your carbon footprint and keep your home warm and cosy?

Installing a heat pump may be the answer. What’s more, there is interest-free financial support available for heat pump installation in Scotland.

The Home Energy Scotland Loan scheme can help with not only the upfront costs of installing heat pumps but energy efficiency improvements, too. There is also a cashback option plus other financial support based on the renewable energy your heat pump generates.

Let's start with a general overview of the Home Energy Scotland Loan, followed by a more detailed look at financial packages for heat pumps.

Introduction to the Home Energy Scotland Loan

The Scottish Government funds the Home Energy Scotland Loan scheme. Homeowners can access the following funding:

  • Up to £15,000 to improve home energy efficiency.
  • Up to £17,500 for installing renewable energy systems, such as £10,000 for a heat pump (also open to self-builders).
  • Up to £6,000 for energy storage systems.
  • Up to £500 for installing a heat meter alongside a new heat pump

There is a cashback option for some measures, meaning you don't pay back that part of the funding.

Example

For example, with heat pumps, you could receive up to £10,000 in funding. Up to 75% could be cashback (£7,500), and you would pay back the remaining £2,500 as an interest-free loan.

Bear in mind that what cashback you get can be affected by Renewable Heat Incentive payments too - read on to find out more.

What does the Home Energy Scotland Loan cover?

The amount you can borrow and cashback values vary depending on the type of work.

Home energy efficiency loans (which offer up to £15,000 in funding) covers measures like insulation (solid wall, glazing, doors, loft, floor, cavity, room-in-roof) and heating systems (LPG, oil or gas boilers, warm air units, and high heat retention electric storage heaters) as well as gas connections. Read Home Energy Scotland Loan - in detail for more on conditions and funding options.

Home renewables systems loans (which offer up to £17,500 in funding) cover wind and hydro turbines, solar (PV) and water heating systems, biomass boilers, heat meters, and more. Read Home Energy Scotland Loan - in detail to find out more on conditions and funding options.

Heat pumps are classed as a home renewables system and are eligible for up to £10,000 funding, of which up to 75% (£7,500) can be cashback. You can only receive up to the total cost of the heat pump installation or the maximum value available for that measure, whichever is less. So, if a heat pump costs £7,000, then £7,000 is the maximum funding you can access.

There may also be other support for people living in rented accommodation. Take a look at our energy efficiency support for landlords to find out more.

The Home Energy Scotland Loan application process

If you're thinking about applying for a loan to install a heat pump, there are eight steps.

  1. Call Home Energy Scotland on 0808 808 2282 for free and impartial advice.
  2. Check heat pump suitability and home energy efficiency. This may involve further support from a specialist if applicable. Home Energy Scotland can refer you for the loan and discuss relevant energy reports.
  3. Check your current Energy Performance Certificate (EPC). For example, if loft or cavity wall insulation is recommended and can be installed, this work must be done by the time you claim loan funding. Home Energy Scotland can discuss your EPC with you. You can also apply for loan funding with cashback for these measures if they're recommended on your EPC.
  4. Invite quotes (at least three recommended) from MCS-registered installers (Microgeneration Certification Scheme). Find installers and read installer reviews on the Renewables Installer Finder.
  5. Fill in the Home Energy Scotland Loan online application form with all relevant supporting documentation.
  6. Home Energy Scotland will send you a loan offer if your loan is approved. Work can commence after a written loan offer is issued and must be completed within six months. There is ongoing support from Home Energy Scotland throughout this period.
  7. Leave a review for your installer on the Renewables Installer Finder (if registered).
  8. Submit your claim documents, including your updated EPC. Your EPC must show your heat pump has been installed, and none of the required energy efficiency improvements are outstanding.

Read our installation checklist and guide for a detailed, step-by-step explanation of the preparation and application process. It explains how to get an EPC, find installers, and more.

You can read more about the different heat pumps and how heat pumps work and debunk common misconceptions about them in our myth-buster article.

How heat pump funding works in Scotland

Heat pumps can be a significant upfront investment.

A typical air source heat pump costs between £9,000-£11,000 to install, depending on house size, insulation, and desired temperatures. A typical ground source heat pump system may cost around £14,000 to £19,000 to install.

The Home Energy Scotland Loan will help with the upfront costs of heat pump installation. In addition, the UK government's Renewable Heat Incentive (RHI) can help make the running of heat pumps more affordable — see the RHI section below for more.

With the Home Energy Scotland Loan, you can borrow up to £10,000 with up to 75% cashback (£7,500) for a heat pump. The amount you can borrow covers the heat pump cost, up to the loan's £10,000 limit.

Example

For example, if you borrowed the maximum of £10,000 with 75% cashback (£7,500), you would have to pay back £2,500 as an interest-free loan.

You choose how long to take to repay the loan up to the following maximum number of years:

  • Under £5,000: 5 years
  • £5,000 - £9,999: 10 years
  • More than £10,000: 12 years

There is no early repayment clause if you wish to pay off the interest-free loan early. You will still need to pay your loan if you move home.

All applications are subject to affordability and credit checks. If your application is successful, Home Energy Scotland will send you a loan offer.

Funding operates on a first-come, first-served basis and is subject to availability or until the end of the financial year – whichever is sooner.

You cannot start work until you’ve received the loan offer in writing. If you receive a loan offer this financial year, you have up to six months to carry out the work and claim your funding.

You may be able to combine the Home Energy Scotland Loan with other schemes and incentives. However, loan eligibility does not indicate eligibility for any other programmes of support.

Self-builders can apply for home renewables systems under the loan (not energy efficiency). You will need to provide planning permission documents with your application and title deeds with your claim.

If your application's successful, you'll need to pay an administrative fee of 1.5% of the total loan value - up to a maximum of £150 per application. But you can apply for multiple measures in one application, and this fee will be covered in your monthly repayments.

You will need to use a certified installer for some improvements.

Energy Saving Trust administers these loans and is authorised and regulated by the Financial Conduct Authority. All loans are subject to availability, and terms and conditions apply.

Read more about application conditions. 

Use our Funding Finder to find out what support may be available to you.

There is an extra £500 cashback available for heat pump meters installed alongside a new heat pump. To qualify for heat meter funding, you must be prepared to supply with your heat pump performance and data readings up to four times a year if asked in the future. This data will help us understand Scotland's heat pump performance.

As an example, let's assume you have received approval for a £10,000 heat pump loan with 75% (£7,500) cashback, meaning you repay £2,500 as an interest-free loan.

In practice, the £500 heat meter funding is similar to cashback, so your overall loan repayment remains £2,500.

You will require a heat pump meter if you want to apply for the Renewable Heat Initiative (RHI). However, if you do not claim heat meter funding, you do not have to share your heat pump and other renewable heating systems' performance data.

You can also borrow up to £500 (including up to £200 cashback) for what is known as a secondary improvement.

You must combine a secondary improvement with one of the energy-efficient improvements or renewables systems listed above, such as heat pump installation.

Examples include cylinder thermostats, heating controls, or hot water jackets. Talk to our advisors for more information.

More funding options

Loans and heat pumps aren't suitable for everyone. We run thorough affordability and credit checks after your loan application. Remember, Home Energy Scotland offers free, impartial advice on both the improvements you can make and the financial support available to you.

Depending on your circumstances, you may qualify for other financial support through schemes such as Warmer Homes Scotland, Energy Company Obligation (ECO), or Home Energy Efficiency Programmes for Scotland (HEEPS).

You can use our Funding Finder to find out what support may be available to you.

Renewable Heat Incentive (RHI)

We've covered the upfront costs of heat pump installation through the Home Energy Scotland loan.

The Renewable Heat Incentive (RHI) offers payments towards renewable heating costs in your home. That means it could help you with your heat pump's running costs.

The RHI is open to householders, including private and social landlords, until 31 March 2022. However, a new build does not qualify unless it is a self-build home.

You could receive 28 quarterly payments over seven years if you are eligible and stick to the rules throughout the scheme.

If interested in receiving RHI payments, check the eligibility requirements carefully at the Energy Saving Trust website.

Use the RHI Calculator to estimate how much you could receive. You can input information from an EPC or answer some quick questions about your home for guideline payments.

An example of how RHI can help with your heating bills

The amount you receive depends on many factors, but the following example, for illustrative purposes only, helps illustrate how RHI works.

As an example, let's take a 3-bed detached home in the Edinburgh area, built between 1950 and 1964, with medium loft insulation and cavity wall insulation. We’ll replace an older (pre-2005) gas boiler and show how RHI could help with an air source and a ground source heat pump.

Entering the property details above into the calculator estimates a house floor area of 104m² with a space heating demand of 16,590kWh and hot water demand of 2,748 kWh.

Our example house could be eligible for the following quarterly RHI payments:

Air source heat pump: £325 per quarter, £1,300 a year. TOTAL = £9,100 RHI payments over 7 years (28 quarters).

Ground source heat pump: £650 per quarter, £2,600 a year. TOTAL = £18,200 RHI payments over 7 years.

These 7-year payments have been calculated using the May 2021 tariff levels of 10.92p per kWh for air source heat pumps and 21.29p per kWh for ground source heat pumps, and do not apply any year-on-year inflationary percentages. Other renewable energy sources like biomass boilers and solar thermal are eligible too. The amount you receive every month can change.

How loan cashback and RHI payments work

Staying with our example, let's assume approval for a £10,000 heat pump loan, with 75% cashback (£7,500), leaving a £2,500 interest-free loan to repay. There follows a successful application for RHI payments, too.

The loan cashback value is then deducted from the RHI payments every quarter for seven years. So that £7,500 cashback over 28 quarters means £267.85 will be subtracted from each quarter's RHI payment. Using our 3-bed Edinburgh home example from above, that gives:

Example 1 – air source heat pump

The air source heat pump RHI: £325 per quarter

Cashback deduction: -£267.85 per quarter

Quarterly RHI payment: £57.15

Example 2 – ground source heat pump

The ground source heat pump RHI: £650 per quarter

Cashback deduction: -£267.85 per quarter

Quarterly RHI payment: £382.15

Note: 

  • All figures are representative and subject to change. Check Ofgem for the latest RHI tariffs.
  • The values given above are estimates only for an imagined house. They are intended for illustrative purposes only. The domestic RHI calculator can only estimate payments based on the information provided and does not confirm eligibility for the scheme.
  • Heat pumps need to have a meter for performance to be eligible for RHI. In some cases, they may also be metered to calculate payments. If metered for payments, then your quarterly RHI payment will vary. If the amount to be subtracted (from grant funding) is greater than the RHI payment for that quarter, then the leftover deduction will roll over to the next quarter.
  • If interested in receiving RHI payments, you should first check the eligibility requirements carefully. The Home Energy Scotland Loan is not linked to other schemes, nor is eligibility for the loan indicative of additional support eligibility.
  • The domestic RHI does not currently support air to air heat pumps, all log stoves, pellet stoves without back boilers, and hybrid PV/thermal panels.

Heat Pump Meters

Heat pumps need to have a meter for performance to be eligible for RHI. In some cases, they may also be metered to calculate payments. If metered for payments, then your quarterly RHI payment will vary. If the amount to be subtracted (grant funding already received) is greater than the RHI payment for that quarter, then the leftover deduction will roll over to the next quarter.

Take action today

Home Renewables Selector

Check if your home is suitable for a heat pump and find out how much carbon and money you could save.

Green Homes Network

Read stories from those who've installed, or book a visit or chat with a homeowner to find out more.

Funding Finder

Find out what funding and support is available to help you install a heat pump.

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