New programs nudge homeowners to switch to electric heat pumps

Blog Post | August 01, 2018 - 10:00 am
By Steven Nadel , Executive Director

From coast to coast, several programs are starting to help homeowners switch from space and water heating fueled by oil, propane, and natural gas to high-efficiency heat pumps powered by clean electricity. Multiple studies have found such conversions will be necessary to achieve deep cuts in carbon dioxide emissions (see here and here), while also saving energy and money for customers. Our recent ACEEE report profiled a few programs, primarily in California and the Northeast, that are promoting electrification and often combining equipment incentives with other energy efficiency measures.

Leadership from California

Perhaps the most aggressive program is operated by the Sacramento Municipal Utility District (SMUD), a municipal utility serving Sacramento, CA. SMUD recently started a program that offers a $2,500 rebate for replacing a gas furnace with a heat pump (and also sealing ducts and installing a smart thermostat), a $3,000 rebate for replacing a gas water heater with a heat pump water heater, and an additional $2,500 for taking specified steps to move toward becoming an efficient all-electric home.  Additional information is available here. Because this program is new, results are not available yet. SMUD is also planning to give rebates for new all-electric homes and is considering a smaller rebate for homes that are electric ready, meaning they have adequate electric service, breakers, wiring, and plugs to be easily converted to all electric, even if some gas appliances are installed at the time of construction.

Cold-climate heat pumps in the Northeast

Initial results are available for programs promoting cold-climate heat pumps in Maine, Massachusetts, and Vermont. Efficiency Maine, the state’s primary efficiency program administrator, is leading a ductless heat pump program for residential and commercial customers. For example, residential customers can receive a $500 rebate for the first indoor unit and $250 for a second one. Since 2011, more than 25,000 units have been installed through the program. Administrators attribute the high adoption rate to the large cost savings from switching from oil to high-efficiency electric heat pumps, particularly during years of high oil prices. The high rebate amounts have also encouraged a substantial number of customers to adopt the technology.

Massachusetts views electrification as a strategy to meet its grid flexibility and grid modernization goals. The state has two heat pump programs: Mass Save (operated by the state’s utilities) and the Massachusetts Clean Energy Council (MassCEC) Clean Heating and Cooling program (operated by the state). Both programs offer incentives for ductless and ducted heat pumps that meet specified efficiency criteria. In the utility program, incentives are higher for higher efficiency levels. In the state program, higher incentives are available for low-income households. Customers can combine Mass Save and MassCEC rebates. Both programs have had successful starts – the MassCEC program has incentivized more than 9,000 units since it began in 2015, and Mass Save incentivized about 9,000 heat pumps in 2016 alone.

Vermont’s 2016 Comprehensive Energy Plan identifies heat pumps as a strategy for meeting its goals for reducing fossil fuel consumption. Efficiency Vermont (a statewide “efficiency utility”) launched a ductless heat pump program in 2014 that provides a $600–800 per unit midstream incentive to wholesale distributors, and distributors are required to pass the savings to contractors through an instant discount. Customers can also receive incentives from their electric utilities, which are driven in part by a state requirement to help customers reduce fossil fuel use.  Homeowners can also rent a ductless heat pump through the program. Monthly rates range from $41.99 to $54.99 depending on the equipment size; agreements run for 15 years. Installation, materials, and maintenance are built into the flat monthly fee. To date, the program has incentivized more than 8,200 heat pumps, including more than 1,000 leased units. Efficiency Vermont attributes this success largely to the sizable upstream incentives, made possible by using both electric savings and fossil fuel savings in its cost-benefit calculation. These large incentives, paired with strong supply chain engagement, have driven participation.

Additional information on these programs, as well as other programs in Connecticut, New York, Rhode Island, and the Pacific Northwest can be found in our recent report.

These programs can increase the market share of high-efficiency heat pumps in attractive applications, and they can also highlight what does and doesn’t work in terms of both technologies and programs.