The UK government has opened the second round of the Heat Pump Investment Accelerator Competition, allocating grant funding to companies that invest in heat pump manufacturing and strategically important components on British soil. The scheme, administered by the Department for Energy Security and Net Zero (DESNZ), aims to build a robust domestic supply chain for heat pump technology as the UK accelerates the transition away from fossil-fuel heating.
What the programme funds
The competition provides capital grants for production facilities, tooling, and component manufacturing. Eligible investments include assembly lines for air-source and ground-source heat pumps, refrigerant circuit components such as compressors and heat exchangers, control electronics, and modular housing for outdoor units. The programme explicitly targets investments that increase UK-based value creation, reduce import dependency, and create or safeguard manufacturing jobs.
Unlike the first round, which prioritised large-volume manufacturers, the current call is open to both established OEMs and component suppliers entering the heat pump segment. The government has not disclosed the total funding envelope, but industry observers expect grants in the low- to mid-seven-figure range per project, mirroring the scale of round one awards.
Industrial policy in action
The timing is deliberate. Britain's Boiler Upgrade Scheme and regulatory phase-out of new gas boilers from 2035 have created political consensus on heat pump adoption—but the UK remains heavily reliant on imports from Europe and Asia. According to official statistics, fewer than 15 per cent of heat pumps installed in the UK in 2024 were manufactured domestically. The gap between policy ambition and industrial capacity is stark.
The government's strategy rests on two pillars: demand-side incentives (the Boiler Upgrade Scheme, which offers capital grants of up to £7,500 for heat pump installations) and supply-side investment (the Accelerator Competition). By funding production capacity ahead of peak demand, policymakers hope to avoid the supply bottlenecks that plagued the solar PV rollout a decade ago.
For European manufacturers, the UK's approach raises a familiar question: build locally or risk being locked out by future local-content clauses? While the current competition does not mandate UK ownership, it implicitly favours firms willing to commit capital and headcount to British sites. Vaillant UK, Worcester Bosch, and Daikin UK have already expanded their UK footprints in recent years, positioning themselves for a policy-driven market ramp.
Implications for European heat pump makers
The announcement comes as Germany, France, and Italy roll out their own industrial subsidies for heat pump production. Germany's climate fund, France's MaPrimeRénov' scheme, and Italy's tax incentives are all designed to protect domestic manufacturing. The result is a fragmentation of the European market that could undermine economies of scale and drive up costs for end users.
UK-based subsidiaries of continental groups now face a balancing act: invest in British capacity to secure grant funding and future market share, or concentrate production on the continent where labour and logistics costs remain lower. The calculus depends on how seriously one takes the risk of future trade barriers. If the UK were to introduce local-content requirements for subsidy-eligible heat pumps—a mechanism used in the US Inflation Reduction Act—continental exporters could find themselves at a structural disadvantage overnight.
Component suppliers face a different dynamic. Manufacturers of compressors, four-way valves, expansion devices, and plate heat exchangers can serve multiple OEMs from a single UK site, spreading investment risk. The second round of the Accelerator Competition explicitly encourages applications from Tier 1 and Tier 2 suppliers, signalling that the government recognises the strategic importance of component depth. A heat pump assembly line without local compressor supply remains vulnerable to global logistics shocks.
Market context and timing
The UK heat pump market grew by approximately 13 per cent year-on-year in 2025, driven by strong uptake in new-build housing and early replacement of ageing oil boilers in off-grid areas. The Boiler Upgrade Scheme saw application volumes stabilise after initial teething problems, and installer capacity has improved as training programmes scale. But the market remains concentrated in the South East and Eastern England; penetration in the North and Midlands lags.
Against this backdrop, the second funding round represents a bet that demand will continue to compound. The UK government's Net Zero Strategy calls for 600,000 heat pump installations per year by 2028, up from roughly 75,000 in 2025. Closing that gap requires not only more installers but also more factories. The Accelerator Competition is the policy lever designed to pull forward investment that would otherwise wait for clearer demand signals.
For the German market, the UK programme offers a cautionary parallel. Germany's heat pump installations surged in 2023 and 2024, but supply-chain constraints led to delivery delays and price volatility. Britain's approach—funding capacity ahead of peak demand—could reduce price risk, but it also risks stranded assets if policy support weakens or consumer adoption slows.
What happens next
Applications for round two close later this year, with grant awards expected in early 2027. Successful bidders will be required to demonstrate that projects can be operational within 18 to 24 months. The government has indicated that a third round may follow if uptake remains strong.
For European manufacturers, the UK programme is a signal worth heeding. Industrial policy is no longer confined to tariffs and quotas; grant competitions, local-content clauses, and subsidy eligibility criteria are the new tools of trade. The question for continental OEMs is whether to treat the UK as an export market or as a manufacturing foothold. The answer will shape the competitive landscape for the rest of the decade.
