New research from the American Council for an Energy-Efficient Economy (ACEEE) identifies commonsense electric utility rate reforms that will keep households from seeing increased bills when switching home heating from fossil fuel–fired systems to heat pumps in some of the coldest U.S. states.
The report found that in states with Read the Report high electric rates, a reduced winter rate that reflects lower grid costs during the winter is key to ensuring energy bills do not increase, especially in colder regions where the economics of heat pumps can be most challenging. These winter rates are based on the cost of service. Because maintaining the grid during hot summer months is generally more expensive, charging the same rates in summer and winter effectively overcharges customers for electricity over the cold months. Winter rates for homes with heat pumps make better use of the grid and are generally revenue neutral for utilities. Pairing heat pumps with efficiency upgrades like better insulation and air sealing further decreases electricity bills, according to the report.
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Many states are encouraging heat pump adoption to help achieve their climate targets. The study modeled the average bill impacts of electrifying home heating in four of those states—Colorado, Connecticut, Maine, and Minnesota—that are among the coldest. Using rates for the largest utility in each state, ACEEE measured the costs of electrifying detached single-family homes with cold-climate heat pumps. The research found:
- In Maine, the only state of the four without higher-than-average electric rates compared to gas, switching to heat pumps will cut monthly utility bills over the course of a year.
- Minnesota’s largest utility reduces electricity rates 35% during the winter, and as a result, heat pumps lower utility bills when heating is electrified.
- Colorado’s winter electricity rate is only 10% less than in summer, so electrification can increase costs. But if Colorado adopted a winter rate similar to Minnesota’s 35% reduction, heat pumps would not raise costs.
- In Connecticut, moving to heat pumps cuts energy costs for just under half of homes that use delivered fuels like oil or propane for heating. But electrification would raise costs for homes using gas because of the state’s markedly high electricity rates. The report recommends that policymakers consider several investments and policies to make electricity more affordable.
“We know that heat pumps cut climate pollution and can reduce home energy costs, even in the coldest states,” said Matt Malinowski, an author of the report and ACEEE’s buildings program director. “Utilities, regulators, and policymakers need to further reduce costs by encouraging heat pump–friendly electric rates and energy efficiency upgrades, especially for low- and moderate-income households.”
Broader efforts needed to spur heat pump adoption
Although energy bills can stay the same or decrease after a heat pump installation, non-financial barriers can still pose a challenge. The most significant is a lack of awareness. The report recommends marketing campaigns to educate the public about the benefits of using less fossil fuels for home heating and the availability of electric rates that can lower costs.
Another challenge is that some HVAC contractors have misperceptions about heat pumps' efficiency and costs. Embedding in-depth heat pump information in HVAC training courses, providing incentives to contractors, and encouraging a shift from getting jobs done quickly to maximizing homeowners’ long-term satisfaction can help with electrification initiatives.
“Convincing skeptical households and contractors about the benefits of heat pumps is critical,” said Reuven Sussman, an author of the report and director of ACEEE’s behavior program. “Some people have misperceptions about the savings or effort required to install a heat pump and can feel overwhelmed or uncertain. Transparency and ongoing communication engender trust and are important to overcome misperceptions.”
The report includes recommendations for utilities, regulators, policymakers, and efficiency program administrators, including:
- Utilities and regulators should provide electricity rates for heat pump customers that adhere to cost-of-service principles. Winter rates are critical. Heat pumps use more electricity during off-peak times, so winter rates, time-of-use rates, or demand-based rates encourage electrification while also helping reduce strain on the electric grid.
- Policymakers should consider providing non-ratepayer investments in electricity distribution and transmission, put a price on carbon emissions, or implement clean heat standards.
- Program administrators should use behavioral strategies to shift consumption patterns and raise awareness of heat pumps, showing how their costs compare to other options. They can also provide contractors with training to dispel myths and equip them to discuss the benefits of heat pumps with their customers.
