We keep hearing about sales of heat pumps overtaking furnaces but for vast swaths of the country, going electric still won’t save you money. What gives?
This week, energy transition professional Elliot Firestone takes the mic to talk about making home electrification widely affordable, heat pump rates, and the long road ahead!
Opinions expressed in this message are the author’s own and do not represent the opinions or policies of Elysian Energy or any of its other employees, directors, officers, shareholders, or affiliates.
First things first: ending fossil fuel use is achievable with existing technology. The systemic barriers to electrification — the replacement of fossil end-uses with renewably powered alternatives — are primarily financial. 80 to 85 % of carbon emissions are attributable to fossil fuel use and replacing machines is appealingly simple. Fossil fuel furnaces, boilers, water heaters, and cars already have efficient electric alternatives.
Why heat pumps?
Heat pumps are more energetically efficient than fossil fuel equipment, and so are electric cars compared to ICE (internal combustion engine) vehicles. These physically efficient machines enable a transition to a renewably powered future. Cold climate heat pumps have been available in the United States for over a decade, including ducted models. Heat pump water heaters are widely available and relatively affordable, including 120v models. Combined with rooftop solar and renewable electricity generation, this approach could lead to massive reductions in emissions and costs, but achieving it will require effort.
Rooftop solar further improves the economics of the residential energy transition for individual building owners, who are able to produce their own power, and even store it for later use with batteries. Renewable electricity generation is now the cheapest form of electricity in many regions, even coupled with a modest amount of storage for load-shifting.
Unfortunately, our energy markets do not support energy transition in every part of the country. The price of electricity has risen dramatically in the past few years, driven by large utility investments as well as volatile fossil gas prices. National fuel cost averages aren’t accurate for individual building owners. There’s a large range of electric to fossil gas price ratios in the United States, ranging from under 2 to over 4.
This ratio is essential to the economics of electrification: where the ratio is smaller, electrification makes more sense, and where the ratio is larger, electrification is more expensive. This ratio is universally favorable in the South, and less favorable elsewhere. Another relevant variable, air source heat pump efficiency, also disfavors Northern states due to their colder climates.
“The European Heat Pump Association recommends a methane to electricity price ratio of 2 to support adoption, but there’s not a direct federal mechanism to regulate electricity prices, as utility rate cases are handled on the state level.”
Electrification away from fossil gas isn’t consistently cost-effective in large parts of the country right now, including New England, the upper Midwest, and New York City. While Massachusetts has good electrification policy, including generous incentives and 0% financing up to $50,000 through MassSave, a shift away from gas still isn’t worth it economically for homeowners. Some homes heated with electric resistance, fuel oil, and propane have historically seen a cost benefit from electrification even in high-cost areas, but savings are being eroded by recent electric price increases.
This geographically and economically uneven split between the cost of gas and electricity, or the spark gap, is a key issue that policymakers need to address to ensure electrification is economically feasible for all buildings, regardless of region.
Right now, electrification is easy in the South, where temperate weather and cheap electricity makes investing in heat pumps worthwhile. But in climates and utility price territories where savings are marginal, high efficiency heat pumps can struggle to pay for their increased installed price.
Here’s what needs to change.
Let’s talk about heat pump bill savings. There’s a direct relationship between heat pump operating efficiency, expressed as a percentage efficiency or Seasonal Coefficient of Performance or SCOP, and the performance of heat pumps vs. fossil fueled appliances.
Standard efficiency furnaces and boilers are 80% efficient, so at a methane to electricity price ratio of 3, it will take a 240% efficient heat pump to achieve cost parity with gas. High efficiency furnaces and boilers can be 95% efficient or more, so it’d take a SCOP of approximately 2.9 (290%) for cost parity. To achieve significant savings with a heat pump, it’s a decent rule of thumb to have the SCOP exceed the fuel price ratio.
The European Heat Pump Association recommends a methane to electricity price of ratio of 2 to support adoption, but there’s not a direct federal mechanism to regulate electricity prices, as utility rate cases are handled on the state level. So, what’s the easiest solution to energy transition in the North?
A heat pump rate!
Upstate New York electricity is massively subsidized by support for nuclear generation, approximately half a billion dollars a year of NYSERDA’s budget. Price support for air source heat pumps, applied at the consumer level, could provide enough savings on the household level to justify electrification. While OVO is able to offer radically affordable electricity for heat pumps in the UK, “delivery” charges are separated in US electricity market structure. A similar company couldn’t offer the same discount in the US, as homeowners are still left paying the distribution monopoly.
Lower rates from community providers like Municipal Light Plants can help, but don’t offer the level of discount necessary to provide savings relative to natural gas for the building owner. An effective heat pump rate will require public support, as investor owned utilities are legally obligated to maximize revenue. This is demonstrated by the recent heat pump rate offered by Unitil in Massachusetts, which offers an approximately 6 cent discount on 45 cent electricity, not enough to make electrification financially appealing. National Grid was also recently ordered to develop a heat pump rate along similar lines, and while details are forthcoming, a comparable discount won’t be enough to convince building owners to electrify.
A similar price dynamic exists for electric vehicles, which can be more expensive to operate than ICE vehicles in high electricity cost markets such as the Northeast and California. Without an economically sensible path to electrification, the United States risks its climate goals and corresponding international credibility. Carbon emissions from natural gas use in US buildings are estimated to cause hundreds of thousands of excess deaths by 2100 per year.
Investing in a heat pump rate that puts money in the pockets of American homeowners and drives a market for American HVAC and home performance companies can enable an energy transition that actually works at the scale and speed we need it to in order to prevent the worst of climate change. Without prompt policy intervention, increasingly expensive interventions will be required to achieve zero emissions from the building sector by midcentury.
Heat pump rates are the next frontier in electrification policy and this solution deserves more than pilot projects, fast.
Elliot Firestone is an accomplished energy transition professional based in Baltimore, MD. Formerly of Adobe Energy Management and ICF, Firestone is now Project Manager at Elysian Energy.
Where can I find the SCOP for Mitsubishi cold climate air source heat pumps for my climate zone?
Heat pump rates can play a significant role in addressing the "spark gap" by making heating more affordable and efficient. By offering lower rates during off-peak hours when electricity demand is lower, homeowners are encouraged to use heat pumps more, which can help reduce reliance on fossil fuels. This shift not only promotes cleaner energy usage but also helps balance energy supply and demand, ultimately benefiting both the environment and consumers.