Heat Pump Supply Contracts: How Social Housing Providers Can Stay Out of Hot Water

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Heat Pump Supply Contracts: How Social Housing Providers Can Stay Out of Hot Water

Key Contact: Liz Gibbons

In recent years, social housing providers in Wales have been increasingly encouraged and incentivised to transition to heat pumps across their housing stock. This transition is seen as critical, not only for reducing carbon emissions but also for addressing energy security and mitigating the impacts of global energy price volatility, both of which have proven to hit social housing tenants particularly hard during the energy crisis.

Into the mix comes the Welsh Government’s Heat Strategy for Wales, published on July 15, 2024, which includes a target of 580,000 heat pump unit installations by 2035. The plan to decarbonise heating across the nation and align with ambitious net-zero commitments is the first of its kind in the UK and reflects Wales’s leadership in addressing the climate crisis. Heating currently accounts for around 50% of energy use in Wales, with a significant portion derived from fossil fuels.

The Strategy supports heat pumps as the primary solution for domestic heating, complemented by other technologies where appropriate.

So, what do housing associations need to know to protect themselves from avoidable costs?

Keep your contract game hot

Increasing the use of heat pumps in the industry will require forming relationships with heat pump providers and entering into supply contracts with new companies supplying new products. This can be daunting.

These are a couple of key points for social housing providers to consider when thinking about entering into heat pump supply agreements:

  1. Delays to project/construction:

Project delays, which are increasingly common given the current pressures on the construction industry, could mean that pumps already purchased can’t be used immediately (i.e. they will need to be stored therefore incurring storage fees). If the contractor is not liable for the storage fees, social housing providers may need to come up with a way to reduce this risk. One mitigation could be to implement a call-off ordering system with the heat pump manufacturers to reduce the need to keep stock on hand (i.e. only what is needed is made at that time).

  • Minimum purchase obligations and grace periods:

Heat pump contracts may include minimum purchase obligations, which social housing providers may struggle to meet (ie. tenants may object to their installation or take time to convince, projects may be delayed etc.). A breach of these kind of clauses often results in contractual penalties. It is important to look out for these clauses, consider any threats to their breach and negotiate a grace period to allow yourselves to meet obligations in next sales quarter (or timescales of the like). Perhaps a “carry forward” option can be negotiated, whereby heat pumps bought in excess of the annual minimum purchase amount from a previous sales quarter can make up deficit in the current sales quarter.

  • Think about your warranty!

Long timescales for installation of heat pumps (which could also be made longer due to delays as discussed above) means that if warranty period starts upon delivery, a defect may not be discovered until after the warranty period. This rendering the warranty obsolete. It is essential that start dates for warranties are from the date of installation instead- or longer warranties should be negotiated.

Should you require any further advice on matters relating to social housing or supply contracts, please contact Liz Gibbons or John Tay.

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