How to heat homes and workplaces without relying on fossil fuels is one of the more difficult challenges for moving rapidly to zero carbon economies. Within the European Union (EU), the heating sector is the most energy and carbon-intensive, accounting for nearly 50% of the total energy demand in the EU, 75% of which is met through burning fossil fuels. Globally in 2017, just 10% of heat demand was met with sources of renewable energy. But, as the United Kingdom declares an intention to remove domestic gas boilers, in chilly Scandinavia, Finland has shown the extraordinary potential of one of the less visible renewable energy technologies – heat pumps.
Individual householders identified the suitability of this technology early on and invested in learning from each other. When government regulation caught up and began to support the technology with legislation, the market was already well developed and local heating engineers relatively skilled up. This illustrates a problem that many other countries will face – having sufficient knowledge among engineers and installers to make a heating rapid transition possible.
Finland has historically relied on burning biomass and oil for heating, being a country with a relatively small, thinly spaced population and large forests. In 1970, 90% of its space heating supply came from timber and oil. However, by 2012 the heating supply mix was almost unrecognisable. District heating, where heat is transmitted from a centralised source through a network of insulated pipes to multiple buildings, accounted for 40% of the supply mix, with electricity providing 21%, biomass 21%, oil 11%, heat pumps 6%, and gas contributing only 1%.
Although regulation has driven the scale of this transition, individual households have also played a key role. Much of the huge investment flowing into the purchase and installation of heat pumps in Finland has come from regular homeowners using their own cash, with limited or no government support. In the early 1990s, air source heat pumps began to be introduced from Sweden, where the technology was successful and the government had supported the market. A Finnish national heat pump association (SULPU) was established in 1999 by a heat pump entrepreneur and a heat pump researcher, with some support from the government energy efficiency agency Motiva. The entrepreneur aimed to sell 1 million heat pumps in Finland by 2020, but by 2000, the market remained small – about 10–15 heat pump resellers. They remained hampered by a lack of training, quality standards, and maintenance capacity, which kept them niche, despite their suitability for rural areas where people still largely relied on oil.
However, the organic growth of hands-on knowledge via the SULPU resulted in training and standards for installations improving throughout the 2000s, boosting the reputation of the sector and leading to increased sales. The internet brought user-led online heat pump discussion forums, where users and installers swapped knowledge to great effect in an environment of trust. The role of these online fora was particularly important in showing that heat pumps were suitable for use in Finland’s cold climate and in developing user-led innovations. In 2009, Finland was finally accepted into the European Heat Pump Association’s (EHPA) quality control committee, setting up their own national quality committee to ensure standards were consistent. SULPU, which collects sector statistics also used by the Finnish national statistics, has reported year-on-year steady increases in sales. In 2018, 70% of new built small houses choose a heat pump according to SULPU figures, and roughly an additional 5000 oil boilers are replaced with a heat pump each year.
Heat pumps, which convert energy from external heat sources (air, water, geothermal energy, etc.) have seen particularly strong growth in the past decade – they become low carbon when the energy used to drive them is derived from a renewable source. The total energy output of heat pumps in Finland currently sits at around 10 TWh, meeting approximately 15% of the heating needs of Finland’s residential and commercial building stock. In 2018 alone, sales increased by 22%, with more than half a billion Euros of investment resulting in 75,000 heat pumps being installed. This meant a country of around 2.7 million households owned one million heat pumps. Since 2000, the amount of energy used by Finnish households for heating has declined accordingly by about 15%.
The rapid deployment and installation of heat pump technologies in Finland is particularly interesting because decarbonising heat in buildings remains a difficult issue for industrialised nations, without which reaching net-zero carbon emissions will remain only a dream. In terms of heating (rather than purely cooling, another energy intensive action), this challenge is most pronounced in Northern Europe where a combination of large incumbent gas networks and dated building stock has created a situation which requires substantial investment, planning and a robust skills base to fix. Heating in the UK, for instance, accounts for 37% of total carbon emissions when including industrial usage, 17% of which can be attributed to heating and cooling in buildings and 13-14% attributed to heating in residential homes. Only 5% of homes have low carbon heating, with 85% (24.5 million homes) still dominated by gas. The same research shows 48% of the survey sample claiming they were unaware of their gas boiler having an environmental cost. Globally, heat pumps only account for around 3% of heating in buildings, emphasising the scale of the challenge that lies ahead in disrupting the dominance of fossil fuels within the heating sector. The Finnish example is prescient as it shows how the roll-out of low carbon heating options can happen, given the right level of encouragement, regulation, financial incentives and fiscal policy.
Many of the low carbon solutions to this issue are proven and in existence today, but scaling them up and installing them is where the problems lie. Some of these problems are economic, such as prices being too high in smaller, less mature markets to make heat pumps viable. Others are to do with infrastructure, such as in the UK, where existing housing stock is so energy inefficient that a mass retrofitting programme is a prerequisite to the installation of heat pumps. Others are historical, such as the dominance of so-called legacy fuels like natural gas in places like the Netherlands. This myriad of barriers emphasises the need for a mixed, flexible approach tailored to suit local conditions. Stringent top-down measures that seek to provide a blanket solution can end up costing more than locally conscious approaches and could, in fact, slow down the transition. This argument could be applied to the UK, where a top-down “blanket” all-electric or all-hydrogen approach to decarbonising heating and cooling could cost up to twice or three-and-a-half times more respectively than a locally conscious, flexible approach planned place-by-place. Finland offers a clear example of how mature markets can be created and significant local investment generated with the government providing more of an enabling role.
The wider relevance of the Finnish example is that it sheds light on a potential thorn in the side for rapid transition in other nations: the low-carbon skills gap. Installing nearly one million heat pumps is not done overnight or by a single company – it requires a constellation of contractors, trades and supply chain operators to be done at scale. In many countries there are real concerns that – despite government investment, grants and incentives to pursue low-carbon options and technologies in light of net-zero targets – the skills base to actually deliver it is limited. Decarbonising heat is therefore far more than just a technical fix: it requires an industrial and vocational approach that centres on developing manufacturing capacity, building the skills base for installation and creating a professional, regulated industry that makes the choice of switching to low-carbon heating an easy, streamlined and affordable one.
Finland was forced by the oil shock in the 1970s to look at alternative technologies. Due to their long and cold winters, Finland’s demand for heating is one of the highest in Europe, which makes the challenge of decarbonising heat even more urgent. There is also a very limited gas grid throughout the country, making alternative sources of residential heating essential. Heat pumps suited the country’s relatively cheap electricity and lack of gas infrastructure for many isolated communities, but the quality at this time was unreliable and they remained a niche technology. The market only began to expand rapidly in the 2000s, when legislative measures to encourage low-carbon technologies – through a series of incremental building regulation changes in particular – supported the growth of the market and the level of expertise generated by peer-to-peer learning enabled an accelerated rate of installations.
Finland currently has a target of reaching carbon neutrality by 2035 – 15 years ahead of the UK, the EU and South Korea. This means it now has a favourable policy environment for the scaling up of heat pumps as well as the natural resources to do so in its abundant geothermal power. Meanwhile, the SULPU has played and continues to play an important role in communicating the benefits of heat pumps to the public and to policymakers, lobbying, carrying out surveys and providing data to support the transition.
Today, heat-pumps have become the go-to source for residential and commercial heating, bolstered by affordable prices, new service-led business models and tax rebates. In 2018, air-source heat pumps reached sales of 47,000, ground-source heat pumps 8,000, air-to-water heat pumps 4,000, and exhaust-air heat pumps 3,000. Around 40% of Finland’s housing stock is detached, making it easier to install ground source heat pumps as you must lay underground pipes outside. Detached homes account for 85% of Finland’s non-industrial primary heat pump output and ground source heat pumps more than a third of total output. Heat-pumps provide an excellent means for demand-side management of the power grid and are flexible, able to use water volumes, buildings, geothermal wells and other features as energy resources. A recent survey found that for every time an electricity-heated house has a full-power heat pump installed, two oil-heated and district-heated houses can be heated with the power and energy that have been saved.
The staggering speed of heat pump installation growth in Finland has been enabled firstly by the circumstances of geography and environment – and these may enable its continued expansion. The current market is dominated by air-source heat pumps, but ground-source heat pumps also play a starring role: there are more than 100,000 geothermal wells across Finland, with a combined depth of 20,000km – half the earth’s circumference. This has made heat pumps an attractive investment for industry, housing developers and homeowners with a return on capital of between 10% to 15%. Electricity is also relatively affordable in Finland, making it a sensible alternative for those homeowners looking to replace their carbon-intensive heating. Heat pumps are popular because they require little space and are convenient – there is no need to refill fuel as with oil or wood. When it comes to residential heating and behaviour change, research shows that making the low-carbon option as easy as possible can increase uptake, leveraging consumers’ natural propensity to ‘go with the flow’.
The country’s robust policy environment has helped, with a series of energy efficiency, emissions mitigation and supporting building regulations policies. A wide range of government policies, targets and taxes increasingly encouraged a switch from fossil fuel based heating systems to renewables from about 2000, including national climate and energy strategies in 2005, 2008, 2013 and 2017. Fossil fuel taxation has tripled since 2011 (tax on heating oil more than doubled between 2004 and 2017) and the National Building Code (SRMK) provides stringent energy performance standards that include the building’s heat supply. Since 2014, heat pumps must be installed in every new home, while a government subsidy covers up to 20% of the costs of switching: Also, 45%-60% of the costs of household renovations, extensions and heat-pump installations are tax-deductible. This has also helped develop green building skills within the labour market, with an estimated 3000 people now employed in the sector. As a result of early adoption, peer to peer learning through online fora and the formation of the national heat pump association (SULPU), a primed, self-starting market emerged, albeit with the conducive conditions created by the government. As a result, training and standards for installations improved throughout the 2000s, boosting the reputation of the sector, increasing homegrown innovation and leading to increased sales. Its depth and breadth of know-how was then able to grow into a comprehensive product and installer network, covered by a trusted certification scheme.
The momentum of the heat pump market in Finland is now generating a variety of innovative and disruptive business models that are likely to accelerate further the rate of installations. The ‘heat-pump heat-sales model’, for example, commonly called the service model, involves the service-provider paying for the heat pump and then delivering the heating as a service. The customer is invoiced monthly for the energy they use, with all maintenance being handled by the service provider. This model works particularly well in serviced apartment buildings, public housing blocks and commercial office spaces where owners might be less likely to invest themselves.
This case study was originally published on the Nesta website here.
This case study was produced in partnership with Nesta as part of a series looking at energy transitions, some from other countries, and some from the UK’s recent past.