This week, China’s central government issued a national ‘Action Plan’ to promote heat pumps. The policy offers substantial support for heat pumps but leaves critical questions unanswered—particularly regarding the future of certain types of fossil fuel equipment that currently dominate heating.

The Plan marks a significant milestone as the first national-level policy in China dedicated to advancing the heat pump industry. It calls for heat pumps to play a major role in promoting energy conservation and reducing carbon emissions.

The Plan outlines a vision to expand heat pump production and use but doesn’t include quantitative targets. It calls for improvement of heat pump technology, increased application in building heating and industry, and integrated planning across the heat and electricity sectors.

Implications for heat pump flexibility and demand response

Around the world, flexible use of electricity will be an important part of the energy transition to support a grid dominated by variable wind and solar generation. The new action plan includes several signals that may help support a more flexible role for heat pumps and enable heat pumps to provide demand response and energy flexibility service to the grid.

The policy mentions the need for the development of better ‘intelligent control systems’ for heat pumps and more thermal storage – and hints at how more flexible use of heat pumps can alleviate pressure on the electric grid.Fleshing out this vision for flexibility will be crucial, as large-scale heat pump adoption may otherwise introduce new challenges for grid stability and peak electricity demand. Incorporating thermal storage and intelligent controls and providing demand response services could mitigate these challenges and facilitate the integration of the heating sector and the electricity sector.

Question marks about fossil heating

The policy includes several brief statements about the role of heat pumps in replacing fossil heat. It calls for “replacing coal-fired boilers with heat pumps.” It also encourages replacing residential fossil gas water heating with heat pumps “where conditions are right.” This leaves significant questions, however, about the future of fossil gas heating unaddressed: the policy does not specify the “conditions” and overlooks commercial and government buildings.

In addition, the document says very little about a major source of heating-related carbon emissions in northern China: coal-fired combined heat and power (CHP) plants. These large power plants provide electricity to the grid and also provide heat to large district heating networks that serve the greater urban areas.  

Addressing cost issues

In China and around the world, heat pump equipment often has high upfront costs (for example, compared to fossil gas boilers). Although in many cases this can be offset by fuel cost savings over time, the high upfront costs can be a stumbling block for heat pump deployment. The Action Plan acknowledges the high upfront costs and emphasizes the development of financing mechanisms, tax credits and other policies to support deployment.

However, several other cost distortion issues obscure the benefits of heat pumps in China and are not addressed in the new policy. For example, the Action Plan does not directly discuss measures to internalize air quality and greenhouse gas costs associated with fossil heating, and China’s national carbon trading scheme does not yet cover emissions from heating. This, in turn, reduces the market competitiveness of heat pumps against traditional heating sources.

Implementation details need work

This Action Plan follows a pattern typical for policymaking in China. Often, a broad but vague central policy statement (such as this Action Plan) signals to industry, investors and consumers that there will be strong official support for a certain area (in this case, heat pumps). This can have a galvanizing effect. The details, however, are often left to be fleshed out by lower-level authorities, including at the provincial and municipal levels.

In short, China’s new heating policy is a significant step forward. Important gaps still remain. 

• A roadmap is needed to comprehensively address fossil gas heating and coal-fired CHP plants in order to meet the country’s net zero goal.
• Better rules, business models and pricing mechanisms need to be set out in order to get the most out of the flexible operation of heat pumps.

These topics will be the subject of intensive discussion at the provincial and central levels in the coming months. This policy also promises to be important for the world’s energy as it focuses China’s manufacturing sector – which already produces large amounts of heat pumps for domestic installation and export – on further developing manufacturing capacity and reducing costs.