The UK is moving quickly towards low carbon heat as the Government brings in new measures to cut reliance on fossil fuel boilers and increase heat pump installations.
At the centre of this shift is the Clean Heat Market Mechanism, also known as the Heat Market Mechanism or CHMM. It is designed to grow the clean heat market, influence boiler manufacturers, and support national efforts to expand heat pump sales.
This guide breaks down how the scheme works, who the CHMM applies to, and what businesses, property owners, and consumers should understand when planning future heating systems and investment decisions.
Speak to an energy expert todayWhat Is the Clean Heat Market Mechanism?
The Clean Heat Market Mechanism is a Government scheme created under the Energy Act 2023 to expand the UK heat pump market by placing specific obligations on boiler manufacturers. The aim is to speed up the shift from fossil fuel boilers to clean heat across the UK.
Under the scheme, manufacturers must ensure that a set proportion of their relevant boiler sales is matched by qualifying heat pump installations. If they cannot meet this requirement, they must purchase CHMM credits to make up the difference. This creates a market mechanism that reduces reliance on gas and oil boilers and encourages expansion of heat pump supply chains.
The scheme supports the UK’s low carbon heat target by directing the market towards air source heat pumps, ground source heat pumps, and hybrid heating systems as long term replacements for fossil fuel heating. It is part of the wider national strategy to improve energy security and increase competition in clean heat technologies.
Quick Overview: What Are CHMM Credits?
CHMM Credits are compliance certificates used by boiler manufacturers to meet their Clean Heat Market Mechanism obligations.
One CHMM credit is earned for each qualifying heat pump installation. Installations must be MCS certified and installed in existing UK properties. Eligible systems include air source heat pumps, ground source heat pumps, and approved hybrid systems.
Manufacturers that do not generate enough credits through their own heat pump sales can purchase credits from other manufacturers that exceed their targets. Credits are traded through the official CHMM registry managed by the Environment Agency.
If a manufacturer still falls short, it must make a payment in lieu instead of buying a credit. For 2025 to 2026, this payment is £500 per missing credit. This effectively caps the market value of a credit.
Failure to meet the requirement has no direct impact on businesses or consumers, as the obligation and any penalties apply to manufacturers only.
How the CHMM Works
Annual heat pump targets
Manufacturers must meet defined annual heat pump sales targets based on a proportion of their boiler sales.
- 2025 to 2026: At least 6% of relevant boiler sales must be matched with certified heat pump installations.
- 2026 to 2027: The target increases to 8%, equal to a 33.33% increase in the size of the obligation.
Manufacturers can meet targets through direct heat pump sales or by purchasing credits from other manufacturers that have exceeded their quota.
Penalties
If manufacturers fail to meet targets, they must pay a financial penalty for every missing heat pump. Depending on the specific policy year and interpretation, this has been described as £500 per missed installation or £3,000 in later guidance.
Flexibility mechanisms
Manufacturers can carry forward up to 35% of unmet obligations into the next year, giving them time to adjust supply chains and increase production scale.
Who the CHMM Applies To
Boiler manufacturers
The CHMM applies directly to boiler manufacturers that sell a defined number of gas boilers or oil boilers within the UK. They are legally required to meet targets or purchase credits.
Heat pump supply chains and installers
Although installers and suppliers are not obligated under the scheme, they are indirectly affected as manufacturers expand their heat pump supply chains to meet targets. This is likely to increase demand for MCS certified installers, equipment suppliers, and specialist engineers.
Businesses, landlords, and property owners
Ordinary businesses and property owners are not required to replace existing boilers or install heat pumps. The obligation is on manufacturers only. There is no ban on new gas boiler installations for businesses or consumers, although future policy changes may encourage or accelerate a shift towards low carbon heat.
How the CHMM Affects Businesses
Long term low carbon planning
The CHMM is designed to increase competition and reduce heat pump costs. As the market grows, businesses are likely to see declining installation costs for air source heat pumps and ground source heat pumps. This is intended to make low carbon heat more accessible for both commercial and residential properties.
Support for sustainability goals
Businesses working towards net zero or ESG commitments may find it easier to adopt low carbon heat systems as the market expands, installers grow in number, and supply chains become more efficient.
Talk to an Energy Expert
Heat Pump Options for Businesses
Air source heat pump
The most common option in the UK market, suitable for small to medium sized commercial premises. Supported through the Boiler Upgrade Scheme.
Ground source heat pump
Offers higher efficiency for larger sites with suitable land.
Hybrid heating system
Combines a heat pump with a gas boiler or oil boiler, allowing gradual transition from fossil fuel to clean heat.
Biomass boiler
Suitable for certain rural businesses or off grid properties as an alternative to fossil fuel boilers.
Funding for Heat Pump Installations
Boiler Upgrade Scheme (BUS)
The Boiler Upgrade Scheme offers property owners and businesses grants of £7,500 for heat pump installation. The BUS supports air source heat pumps and ground source heat pumps and is part of the Government’s effort to increase low carbon heat uptake in England and Wales.
Future funding through the Warm Homes Plan will provide grants, no interest loans, and low interest loans, with further details to follow.
Conclusion
While the Clean Heat Market Mechanism scheme does not place obligations on businesses or property owners, it is set to influence boiler pricing, supply chains, and long term heating strategies. As manufacturers scale up heat pump supply and invest in cleaner technology, the cost and accessibility of low carbon heat systems are expected to improve. Businesses that prepare now will be well placed to manage future energy costs and support sustainability goals.
Talk to an Energy ExpertFrequently Asked Questions:
No. Gas boilers and oil boilers remain available for decades. The CHMM is not a ban on fossil fuel boilers. Its purpose is to increase heat pump sales by placing obligations on manufacturers.
Possibly. Some manufacturers have increased boiler prices in anticipation of fines for missing heat pump targets. This has informally been called the boiler tax, although the Government has not introduced any formal levy on households or businesses.
Manufacturers must ensure a proportion of their relevant boiler sales is matched by heat pump installations or CHMM credit purchases. For 2025 to 2026 the target is 6 percent of boiler sales. For 2026 to 2027 the target rises to 8 percent.
They must pay a penalty for each missed heat pump installation. Depending on the scheme year and interpretation, fines may be around £500 or £3,000 per missing unit.
No. There is no requirement for organisations to replace existing fossil fuel boilers under the CHMM. Businesses can continue using and installing boilers if they choose.
Heat pumps must be installed by an MCS certified installer to qualify for grants and to ensure quality standards. The Microgeneration Certification Scheme tracks heat pump installations nationwide.
Yes. Manufacturers can purchase CHMM credits from other manufacturers that exceed their heat pump targets. This provides flexibility while maintaining overall heat pump growth.
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