Water Heating In The UK – Part Four: Legislation and Regulations

Adveco presents research providing a data-driven overview of the UK’s commercial heating market, establishing the baseline against which all future decarbonisation efforts will be measured. In part four, the research analyses the profound impact of past, current, and planned legislation on the commercial water heating market, identifying key policy changes and future market inflection points…

Historic and Current Policy Framework

Government policy has historically been the primary catalyst for change in the UK heating market. The Non-Domestic Renewable Heat Incentive (NDRHI), which closed to new applicants in March 2021, provided long-term, output-based financial support to businesses installing renewable technologies for space, water, and industrial process heating. ²³ The scheme made large-scale renewable projects bankable by providing predictable, long-term revenue streams over 20 years. ²³ Its closure marks a significant shift away from this model.

The Boiler Upgrade Scheme (BUS), which provides upfront grants of up to £7,500 for ASHP and GSHP installations, is primarily targeted at the domestic market but is also available to “small non-domestic buildings”.⁴ This has created a new, albeit limited, market segment eligible for direct financial support. However, this one-off capital grant model lacks the long-term financial certainty that was a hallmark of the NDRHI, which may have created a policy vacuum for large-scale commercial and industrial players who require predictable, long-term returns on their significant capital investments. The overarching policy is the Net Zero Strategy, which commits the UK to a 100% reduction in greenhouse gas emissions by 2050 from a 1990 baseline, following a recommendation from the Climate Change Committee (CCC).³³

The Boiler Upgrade Scheme (BUS)

The Boiler Upgrade Scheme (BUS) is a cornerstone of the UK government’s current strategy to decarbonise heat. Launched in May 2022 and scheduled to run until the end of 2027, the scheme provides upfront capital grants to property owners in England and Wales.³⁴ The grants offer £7,500 towards the cost of an air or ground source heat pump and £5,000 for a biomass boiler. ³⁴ Crucially, the scheme is open to “small and medium non-domestic buildings” with an installation capacity of up to 45 kW, covering the vast majority of such properties. ³⁴

The design of the BUS, particularly its “installer-led” application process, has been a significant factor in its success. This approach minimises the administrative burden on property owners, with the installer responsible for applying for the grant and discounting its value from the customer’s invoice. ³⁴ Industry representatives have hailed the scheme as a “real catalyst” that has stimulated homeowner interest and driven a surge in grant applications.³⁵ For example, applications to the BUS in August 2024 more than doubled compared to August 2023. ³⁵  The scheme is part of a broader package of policies designed to scale up heat pump deployment and reduce costs. ³⁴

The Legacy of the Non-Domestic Renewable Heat Incentive (NDRHI)

The Boiler Upgrade Scheme replaced the long-standing Non-Domestic Renewable Heat Incentive (NDRHI), which closed to new applicants in Great Britain on March 31, 2021, with all pathways to accreditation ending by March 2023.³⁶ The NDRHI operated on a different model, providing quarterly payments for up to 20 years based on the amount of heat a system generated.³⁷

From its launch in 2011 to its closure, the NDRHI accredited 22,703 installations and made total support payments of £6.95 billion, with annual payments surpassing £1 billion for the first time in the year to March 2025.³⁸ The scheme’s legacy is defined by a notable technology preference, with solid biomass boilers and ground source heat pumps accounting for 77% and 12% of all accredited installations, respectively. ³⁸ The long-term, output-based payment structure of the NDRHI provided a strong business case for technologies with a predictable energy yield, leading to what some critics described as an “excessive focus on biomass”.³⁹ This is a clear demonstration of how different policy designs can directly influence market outcomes. The shift from a long-term revenue scheme to an upfront grant in the BUS has successfully steered market preference towards heat pumps by de-risking the high initial capital cost, which was a major barrier to adoption. ³⁴

The Energy Performance of Buildings Directive (EPBD): Influences From Europe

The Energy Performance of Buildings Directive (EPBD) is the European Union’s primary legislative tool for improving the energy efficiency of buildings and reducing greenhouse gas emissions.  First introduced in 2002 and revised multiple times, its main objective is to move the building stock towards a zero-emission standard by 2050. The most recent revision, adopted in May 2024, introduces stricter targets and new measures to align with the EU’s climate goals. Following Brexit, the UK is no longer legally bound by the EPBD. However, the directive’s principles have been influential and are reflected in the UK’s own domestic policies, such as the Energy Performance of Buildings (England and Wales) Regulations 2012, which consolidate previous EU directives.

The EPBD aims to make all new buildings zero-emission by 2030, with new public buildings meeting this standard by 2028. This means buildings must have a very low energy demand and produce zero on-site emissions from fossil fuels. The EPBD emphasises a “renovation wave” to upgrade the existing building stock. It requires member states to create national renovation plans with targets for reducing energy consumption and phasing out fossil fuel boilers. There is also a push for a gradual rollout of solar energy installations on buildings.

To achieve this, the EPBD mandates Minimum Energy Performance Standards (MEPS) for non-residential buildings, requiring the worst-performing buildings to be renovated. By 2030, all non-residential buildings must be above the 16% worst-performing buildings, and by 2033, they must be above the 26% worst-performing ones. Although not directly adopting the new EPBD, the UK’s own regulations continue to evolve, often mirroring the EU’s direction and ambition.

The Future Buildings Standard (2025): A Market Inflection Point

The most significant legislative driver for the commercial water heating market is the upcoming Future Buildings Standard (FBS). This standard, coming into effect in 2025, will prohibit the installation of fossil fuel heating systems in all new non-domestic buildings.² This is a profound move that eliminates the choice of incumbent technologies, creating a 100% low-carbon market for new construction. The policy explicitly states that gas, hybrid, and hydrogen-ready boilers will not meet the proposed standards.²

The future of commercial decarbonisation is set to be profoundly influenced by the forthcoming Future Homes and Buildings Standards. These standards, which will mandate low-carbon heating in all new build homes and non-domestic buildings, will make heat pumps the default choice from 2027 onwards.²² The government’s commitment is to ensure that new properties are “zero-carbon ready” and will not require retrofitting as the electricity grid decarbonises.⁴⁰ This policy is expected to be a major market driver, building on the already observed trend of a dramatic rise in the number of renewable installations on new-build properties.⁴¹ In the first half of 2025, installations on new builds accounted for 28% of the total, a significant increase from 21% in the same period a year prior.⁴¹ The introduction of this standard will provide long-term regulatory certainty for the sector and create a consistent pipeline of projects, which is essential for scaling up the supply chain and workforce.

The standard proposes that all space and water heating demands in new builds be met by low-carbon sources, with notional buildings designed around the use of an air source heat pump or a 4th generation heat network.² The FBS is not merely a regulatory update; it is a forced market transformation for the new-build segment. It provides a clear, stable signal to manufacturers and installers to invest in the supply chain for heat pumps, heat networks, and related technologies, addressing the workforce and supply chain issues that have been noted as barriers to adoption. The FBS thus acts as a market-building mechanism, providing the entire supply chain with the confidence to invest in manufacturing and training, which in turn will help to strengthen the supply chain to support low-carbon approaches.

In the fifth part of this research series, we consider the barriers to commercial adoption of sustainable water heating, and we consider the barriers to commercial adoption of sustainable water heating and plausible future scenarios for the UK commercial water heating market, considering different technological pathways and the impact of policy and market forces through to the 2050 net-zero deadline…

Read Part 1 | Part 2 | Part 3 | Part 4 | Part 5 |

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