Octopus Energy bets big on heat pumps to cut customers’ energy bills

In a Slough warehouse engineers are testing an alternative green energy supply.

‘It’s some serious f------- science we’re doing here,” Greg Jackson declares proudly as he gestures around a lofty warehouse in Slough. “I wake up every day and feel good about it,” his colleague Peter Konowalczyk adds. “I believe we are changing the world.”

Jackson and Konowalczyk are not working on a cure for cancer or a magic pill to deliver clean water to Africa. From this warehouse in a sleepy trading estate in Slough, the pair are working on something much more prosaic – but perhaps no less consequential: heat pumps.

The electrically powered devices, slated to eventually replace gas boilers in the vast majority of homes, could help save the planet by slashing our carbon emissions, according to supporters such as Jackson.

Working like fridges in reverse, they absorb heat from outside air and compress it to increase temperature in people’s homes. They are four times more energy efficient than gas boilers and six times more than burning hydrogen for heating, potentially offering the promise of cheaper bills to those who install them. Jackson says this simple arithmetic is why his company has decided to back them.

“Ye cannae change the laws of physics!,” the chief executive quips, quoting Star Trek’s famous engineer, Scotty.

Jackson, a Cambridge economics graduate, founded green energy supplier Octopus Energy in 2015 and has grown it rapidly to serve over three million domestic customers. Now, he is hoping to convince many of them to install heat pumps. Octopus has set up a £10m research and development centre in Slough aimed at making them cheaper and easier to install.

Inside the R&D centre, he beams proudly at two newly built houses, before unexpectedly giving one of them a big kick, just to prove it isn’t made of plasterboard. “See,” he grins, “it’s an actual, proper house!”

The full-size properties – both three-bed, one in the style of a red brick 1970s semi and the other built to modern standards – are laboratories to test how well heat pumps work in different types of homes. At the moment the devices are relatively uncommon, owing to their huge cost, space requirements and what proponents insist is an undeserved reputation for worse performance.

A heat pump can cost between £7,000 and £13,000 to install, according to Which?, compared to around £3,000 for a gas boiler.

Only 54,000 were installed domestically in 2021. That is an improvement on 2020’s figure of 37,000 but still dwarfed by the 1.7m gas boilers installed annually.

Efforts to turn the tide on heat pumps have thus far largely stalled. The Government’s scheme to hand those who install heat pumps a voucher worth £5,000 has also got off to a disappointing start: official figures show barely more than 5,700 people have sought to take up the offer so far, out of a possible 30,000 vouchers available this year.

Against a Whitehall target for 600,000 pumps to be installed annually by 2028, it doesn’t look very promising. Then again, electric cars had their doubters in the early days too. “Elon Musk and Tesla took electric cars from a niche thing to something that people aspired to own,” Jackson says. “Now every manufacturer is clamouring to get behind them.”

He believes the scepticism will melt away once heat pumps are proven to work in millions of homes across the UK. Octopus could be the Tesla of heat pumps if that proves to be the case.

The company has doubled down on the technology, buying a business that makes heat pumps – Northern Ireland-based Renewable Energy Devices – and announcing plans to train 1,000 plumbers a year who will install them. Which brings us back to why Octopus has built its own houses.

Jackson freely admits heat pumps aren’t as efficient in draughty Victorian and Georgian homes, so he and his colleagues are focusing their efforts on the roughly 40pc of Britain’s housing stock that can get the devices bolted on immediately without issue.

This applies to most homes built since the 1970s under more modern building regulations (hence the red brick semi). Jackson has tasked a crack team of “boffins” at the Octopus warehouse in Slough with making the devices even more efficient and bringing down their cost.

The effort is being led by Konowalczyk, who has worked for employers including Centrica and the Ministry of Defence and is described as the building’s resident “mad scientist”. He has already filed dozens of new patents for the company.

During a visit, the team of roughly a dozen – a mix of engineers, data geeks and software writers – are pouring over complicated technical analysis and making prototype components using 3D printers.

Incredibly, the whole facility was set up in a matter of weeks. What they have found so far is that the heat pumps can be installed in their typical homes without needing to replace the two-bar radiators and provide both hot water and toasty heating. One drawback is that currently a water tank is required alongside the standard heat pump unit on the outside of the house in order to get hot water quickly. This still means that for a house that may not have space for a tank, it is difficult for a heat pump to compete against a combi boiler when it comes to comfort.

For the millions of people living in older period homes in Britain, hugely expensive insulation is also needed to make getting a heat pump worth it.

Jackson says Octopus is working on solutions to all these problems.

He rejects suggestions that heat pumps – when installed correctly – are inferior to gas boilers as plain wrong. They are widely used in nordic countries and Northern Ireland already, he says.

What about other technologies? Could Octopus turn out to be backing the wrong horse?

The Government has so far refused to wholeheartedly commit to any particular technology in its “future homes strategy”. Other options being explored include infrared heating, district heating networks and potentially even hydrogen, which would be produced using green power. Jacob Rees-mogg, the Business Secretary, recently claimed that piping green hydrogen to people’s homes could be a “silver bullet” in the battle to cut carbon emissions. Jackson dismisses hydrogen out of hand. “You’ve got a load of incumbent industries that push hydrogen because they own pipes. But there’s not a wellinformed, independent source out there that thinks hydrogen for heating is viable.” The differing views, however, underline the fact that the future of heating Britain’s homes remains a contested topic.

Martin Young, an energy analyst at Investec, says the UK Government’s “reluctance” to take a side means there is uncertainty over which approach to take – but also a big opportunity for those who find the winning formula. And if heat pumps win the day, the technical possibilities are mind-boggling.

By electrifying heating, it will become possible to “load share”. This is where clever software shifts the times your home draws power at cheaper, quieter periods – allowing network operators to manage the grid more efficiently.

Coupled with the introduction of electric cars and chargers, it means you could draw power from the battery of the vehicle parked outside your home and use it to run your heat pump – and receive a reward for cutting your consumption at peak hours. But Young says the company can still expect stiff competition from the likes of British Gas and other suppliers who have been big installers of boilers and will want to get a slice of the heat pumps market. Jackson says he is not worried about wasting his investment in heat pumps, which amounts to “tens of millions” . The waiting list for heat pumps stands at 26,000 already – before any major advertising campaign. Over the next five years, he predicts annual installations will ramp up from “the thousands, to the tens of thousands, to the hundreds of thousands”.

Back in Slough, Octopus engineers are awaiting the arrival of two gigantic weather chambers. The huge, housesize boxes can simulate different climates, from pouring rain to snow or savannah-style heatwaves. They will be used to stress-test heat pumps. Konowalczyk is raring to press on with the experiments. “People say they don’t have heat pumps but that’s not true,” he says. “They are already part of our lifestyles: We all have fridges and use air con in cars. Change always creates tension. But with rising energy prices this winter, I think people will become more open-minded.”

‘You’ve got a load of incumbent industries that push hydrogen because they own pipes. But there’s not a wellinformed, independent source out there that thinks hydrogen for heating is viable’