Summary
Adveco presents research providing an overview of the UK’s commercial water heating market, establishing the baseline against which all future decarbonisation efforts will be measured. In the final part of this research series, we wrap up with key insights and recommendations for property developers and owners, policy makers and government, as we consider what is still required to take UK commercial water heating to net-zero status by 2050…
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 the final part of this research series, we wrap up with key insights and recommendations for property developers and owners, policy makers and government, as we consider what is still required to take UK commercial water heating to net-zero status by 2050…
Key Insights
This report reveals a commercial heating market in a state of controlled disruption, where deep-seated incumbent technologies coexist with rapidly growing, but still nascent, low-carbon alternatives. The market’s heavy reliance on gas is a function of established infrastructure and a high-volume replacement cycle.1 This inertia is so significant that organic change is insufficient to meet decarbonisation targets. The market’s future will be defined by policy. The Future Buildings Standard is a profound inflection point that will mandate the use of low-carbon technologies in new builds from 2025, providing a clear signal for investment and supply chain scaling.30
The high percentage growth of ASHPs masks a vast disparity in the installed base, demonstrating the immense scale of the decarbonisation challenge. The decline of solar thermal in favour of solar PV highlights a broader trend of market forces favouring versatile, multi-application technologies.9 The most credible pathway to net zero involves a hybrid approach, where heat pumps and heat networks serve as the primary low-carbon solutions for most commercial properties, while specialised technologies like industrial waste heat recovery and hydrogen address unique commercial and heavier industrial demands. 32
Recommendations For Commercial Property Owners & Developers
Prioritise long-term value over short-term savings. The 2025 ban on fossil fuels in new builds makes heat pumps and heat networks the only viable option for future-proofing assets. 30 For existing stock, an energy audit is the most critical first step. Building fabric upgrades for space heating are necessary to ensure heat pump efficiency, but not in applications for hot water.5
- Leverage Existing Support: Businesses should actively engage with and apply for grants from the Boiler Upgrade Scheme and the Industrial Energy Transformation Fund where eligible. These schemes are designed to reduce the high initial capital expenditure that is a primary barrier to adoption.34
- Plan Strategically: The performance of heat pumps for hot water, unlike space heating, is not directly linked to a building’s energy efficiency. Prior to installation, businesses are not required to invest in “fabric first” measures such as improved insulation to reduce overall energy demand. Hybrid system approaches, as opposed to building insulation, will maximise the efficiency and performance of the heat pump, allowing for the installation of a smaller, less expensive system. This allows for greater versatility in planning, and quick, low-cost-of-entry, sustainability gains for the built estate 40.
- Assess Total Cost of Ownership: The decision to switch should be based on a comprehensive analysis of the total cost of ownership, looking beyond the initial installation price. Long-term running costs and maintenance savings, combined with the potential for revenue generation from solar technologies and the ability to meet ESG objectives, can provide a compelling and robust return on investment.42
Recommendations For Government & Policymakers
To bridge the gap for the existing building stock, introduce long-term, stable financial mechanisms that provide the financial certainty needed for large-scale commercial investments, perhaps a successor to the NDRHI. A prompt and final decision on the role of hydrogen in heating is essential to reduce market uncertainty and unlock further investment.45
- Expand the Skilled Workforce: The shortage of trained installers is the single most critical barrier. Policymakers should implement targeted funding for training and apprenticeships, with a focus on upskilling existing gas engineers and providing support to smaller businesses and sole traders to enable them to enter this market.44
- Bridge the Data Gap: To make informed policy decisions and provide market certainty, government bodies should enhance public data collection. This includes providing granular, specific statistics on non-domestic installations, particularly for solar thermal systems and different commercial sub-sectors.
- Simplify the Policy Landscape: The current segmented approach with the BUS for small businesses and the IETF for heavy industry creates a potential “policy gap” for medium-to-large businesses. Consideration should be given to a single, more cohesive framework that supports decarbonisation efforts across all non-domestic property types, ensuring no segment is left without dedicated support.
Looking Ahead To 2050
The United Kingdom has committed to achieving net-zero greenhouse gas emissions by 2050 and an ambitious 78% reduction on 1990 levels by 2035, a target set out by the Committee on Climate Change (CCC).47 This legally binding obligation necessitates a fundamental shift in how the nation’s buildings are heated and powered. Emissions from non-domestic buildings alone account for approximately 4% of the UK’s total greenhouse gas emissions, representing a critical area for focused decarbonisation efforts. 47 In line with this, a key government policy is the “phasing out of high carbon forms of fossil fuel heating” in new and existing buildings.48
The UK commercial water heating market is at a pivotal inflection point, characterised by the persistent dominance of incumbent gas-fired systems and a mandated, yet challenging, transition towards sustainable, low-carbon alternatives. As of 2024, gas-fired boilers command a significant 72% share of the broader UK space heating market, with the commercial sector accounting for a substantial 26% of this total, a segment valued at approximately £273 million.1 This market position is fortified by a long-established gas grid, consumer familiarity, and lower upfront capital costs compared to newer technologies.1
The transition, however, is being driven by a powerful legislative agenda. The planned 2025 Future Buildings Standard will fundamentally reshape the new-build segment by prohibiting fossil fuel heating, creating a captive market for low-carbon solutions.30 This is complemented by the government’s long-term ambition to phase out gas boiler installations entirely by 2035 at the latest.3
In response, the market for air source heat pumps (ASHPs) is experiencing rapid percentage growth, with installations increasing by 40% in 2024.16 Despite this momentum—fuelled by government funding such as the Boiler Upgrade Scheme (BUS) and the now-closed Non-Domestic Renewable Heat Incentive (NDRHI)5 —ASHPs still represent a minuscule fraction of the overall installed base, with annual gas boiler installations outnumbering them by a ratio of roughly 45:1.17 Concurrently, the solar thermal market has seen a sharp contraction, with installations nearly halving in 2023, diverging sharply from the booming solar photovoltaic (PV) market.9
Looking to 2050, the market’s trajectory will hinge on two primary scenarios: an ‘Accelerated Electrification’ pathway, where current government targets are met, and an ‘Alternative Fuels’ pathway exploring the role of hydrogen and industrial waste heat recovery. The success of either scenario will depend on overcoming critical barriers, including high upfront costs, the need for extensive building fabric upgrades, and significant policy risks. The ultimate answer will likely be a hybrid approach, with heat pumps and heat networks dominating new builds and retrofits, while hydrogen and waste heat address the harder-to-decarbonise industrial and commercial sectors.
The UK’s commercial water heating market is at the dawn of a long but non-negotiable transition. The legislative framework is now in place to force change, and the market for low-carbon alternatives is beginning to scale. The path to 2050 is not linear but will be defined by a series of inflection points, with the Future Buildings Standard being the first. Success will hinge on a collaborative effort to overcome the significant barriers of cost, infrastructure, and public acceptance, but the roadmap is now clear: the future of commercial water heating is overwhelmingly low carbon.
Read Part 1 | Part 2 | Part 3 | Part 4 | Part 5 |
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