Home electrification makes financial sense

Climate Change

24 Oct

24 Oct 2025

One year in, my savings from electrification have been less than forecast but still impressive and would justify today’s installation cost

In October 2024, I completed my electrification journey, adding a home battery and EV to the heat pump I’d installed the year before and the solar panels we installed a decade ago. Back then I estimated we would save 65% in our total energy bills. I now have a year of data to test this assumption. The outcome isn’t quite as good as I’d estimated. But we have still made an impressive saving of 48% versus what our bills would have been with gas central heating and without a heat pump, solar, battery, or EV.

Where did I go wrong?

So what makes up the 17% point difference between the saving I’d estimated and the saving we got?

13% points - the biggest contribution by far - arose from the fact that we drove our cars much less than I’d estimated. Switching from petrol to electric results in a fuel saving of around 85% (2p per mile vs 12p per mile). I’d assumed we would drive 15,000 miles of which 12,000 would be in our EV, in line with our long-term average usage. Instead we drove only around 8,000 miles of which 5,500 were in our EV. So although the proportionate saving on driving costs was broadly as expected the £ saving was lower, resulting in a lower percentage impact on our overall energy bill. Where did all the miles go? No kids at university this year, my parents no longer with us, and no UK road trips just mean we’ve been in the car much less.
5% points came from my assumptions about savings from having a battery. These savings come from filling the battery up overnight at cheap rate and using that instead of higher rate electricity during the day. I made two mistakes in my estimates. First, I ignored round-trip losses from charging and discharging the battery, which I’ve now included at an estimated 10%. Second, I overlooked that in summer, strong solar means that the battery is not fully depleted by evening so the overnight cheap-rate charge is not at the full battery capacity of 13.5kw.
There are then some much smaller pluses and minuses. I’d ignored standing charges in my calculations last year, which through adding a fixed amount to the before and after costs reduce the percentage saving. This was offset by our solar savings being a bit greater than expected, with very little wastage to the grid.

But it’s still a very impressive saving, resulting in total energy bills more than £2,600 lower than would have been the case without electrification.

What would my installation cost today?

Does this justify the capital expenditure? As I've documented elsewhere, my installations were quite expensive with my heat pump costing around £25,000 to install (excluding the Government grant) and solar plus battery about £15,000. A total of £40,000, before accounting for the cost of switching to an EV. However, I somewhat bungled my heat pump installation. Moreover, I did not qualify for the Government grant because of the complexities of the planning system, which I have since overcome.

But things are improving, not only because of simplification of the planning system for heat pumps. Battery and solar costs are falling, competition increasing, and heat pump installers getting smarter about what level of upgrades to pipes, radiators, and hot water cylinders is really necessary. I decided to take a look at what I could install my system for today.

Octopus Energy will do a battery and solar installation comparable to mine for £12,400.
Heat Geek have introduced an exciting new Zero Disruption installation service. This uses AI analysis of hundreds of high quality installations to assess how many new components are really needed for a cost-effective system. You can get an online estimate in minutes. They also guarantee the efficiency (and hence running costs) of the heat pump in use. A system comparable in size and efficiency to mine would now cost £11,250 to install, without any Government grant. With the £7,500 Boiler Upgrade Scheme this falls to £3,750, not much above a new boiler installation.
An EV now costs 18% more than a typical petrol car in the UK. I’ve always spent less than £30,000 on a car (my EV was an e-UP which cost me just under £17,000 new) so this amounts to an increment of at most £5,000.

So the total cost of my electrification journey, done today and without my cock-ups, would be a little under £29,000 before the Government heat pump grant, falling to £21,500 with the grant.

Do the sums add up?

So does the financial case stack up? The answer is: Yes.

We can calculate the present value of the £2,600 annual saving over the (conservative) 15 year life of the heat-pump / battery / solar system. The saving itself is linked to energy prices which we can expect to increase in line with inflation, so we can expect the saving to maintain its value in real terms as well. But the level of savings is not guaranteed and is dependent on relative differences between gas and electricity prices as well as the tariffs available. So it’s subject to some risk. A reasonable starting point is to assume that the cashflows from these savings are broadly as risky as the returns on an stock market portfolio, so let’s use a 4% per year real discount rate, which would be suitable for that risk level. This is being applied to savings out of after tax income and ignores expenses so is equivalent to a pre-tax real discount rate of around 5% per year or even a bit more.

Using this rate, our £2,600 saving has a present value of around £21,000 over ten years and £29,000 over 15. In other words the investment pays back over ten years if the government grant is included and 15 years without. When judging the economics I tend to prefer to use figures without the subsidy - it can’t go on forever and in any case someone has to pay for it. Even without the subsidy the investment in electrification delivers a good return over even a conservative expected life for the system. The subsidy of course makes it even more attractive to an individual consumer today.

The capital outlays are of course high, but are now getting within the realms of consumer finance. Adding £21,000 to a mortgage with 20 years left to run would add around £1,700 to the annual repayment, £900 less than the savings in bills. Even at £29,000 the additional mortgage cost is covered by the savings immediately in the first year. If the switch to a heat pump is done when the boiler needs replacing, the installation cost of the boiler also needs to be offset from the capital cost, reducing the incremental cost further.

I don’t want to understate the challenges. The capital costs are still out of reach for many and the long-term savings are uncertain. Heat pump installations can be disruptive. But costs are coming down and heat-pump installer expertise is improving, resulting in lower costs, higher efficiency, and less disruption.

I used to think that electrification - and especially getting a heat pump - was only worth it if you cared about reducing your carbon footprint and asthma-causing pollutants. But the different components work together beautifully as a package and now make financial sense in their own right, with the carbon reductions coming for free as a cherry on top of the cake.

And at 7-8 Tonnes per year, it’s quite a cherry.