Heat Pump Economics

This post refines an earlier analysis of heat pump economics. It adds more perspective on energy price variation and uses more realistic performance assumptions for heat pumps.

The conclusions of the earlier analysis, which I still believe are correct, were:

  • In recent years, natural gas has been the heating option offering the lowest annual costs, while electric resistance heat has offered the highest annual costs.
  • Oil heat and heat pumps both cost more annually than gas and they have traded cost rankings with each other as energy prices have fluctuated.
  • Heat pump conversions will usually reduce carbon emissions, even when converting from natural gas heat.
  • The upfront cost per ton of carbon emissions saved through a heat pump conversion may substantially exceed current estimates for the “social cost of carbon.”

This post refines the second and third previous conclusions as follows:

  • Even for a conversion from an oil burner, consumers should not count on operating savings from a heat pump conversion and should recognize the risk of cost increases.
  • We have to worry a lot about the quality of heat pump installations both for efficiency and for the handling of refrigerants which are potent greenhouse gases in themselves.

Note: Heat pump conversions pencil out better in municipal light and community choice communities. See this post.

Home heating cost comparisons

Our discussion here is limited to oil heat and electric heat pumps. Natural gas has been so consistently cheap that we omit discussion of natural gas in this discussion of relative costs. The earlier analysis does consider it. (Propane, the other common heating source statewide is not used much in the urban area that I serve and I omit it here for that reason.)

Both oil and electric power are commodities that fluctuate in price. Anyone considering switching from oil to electric power will realize operating costs or savings that depend on the relative prices of these commodities as well as the efficiency of their units.

Massachusetts electric prices have risen faster than inflation over the last 20 years, even omitting the latest spike in electric prices. From January 2001 to January 2022, average Massachusetts electric prices rose from 11.86 cents per kwh to 25.36 cents per kwh — a jump of 113% — while the Consumer Price Index for northeast urban consumers went up only 60.6% over the same period.

Oil prices have also risen faster than inflation, even faster than electric prices. The next chart on oil prices covers a longer time period than the previous chart, but comparing the same period as in the previous graph — January 2001 to January 2022 — home heating oil prices rose from $1.50/gallon to $3.46/gallon or 130%.

While both oil and electric prices have generally risen and while there are market connections between oil prices and electric rates, inspection of the two curves above shows that the prices move somewhat independently: Their relationship can change over time.

The following table shows the relative advantage or disadvantage of heat pumps over oil heat over the past 9 winters, using energy pricing averages from DOER (downloaded on January 13, 2023). heating-fuels-price-estimate-for-this-winter-As the table indicates the relative prices fluctuate, and the options trade places.

Comparison of Heat Pump Operating Costs to Oil Heat Costs — Recent 9 Winters — for whole home heating systems

Winter Ending in YearElectric Average $/kwhOil Average $/galHeat Pump
Annual
$ Cost
Oil
Heat Annual
$ Cost
Heat pump cheaper by $Heat pump cheaper by %
20150.213.171,767     1,9481819%
20160.22.241,6831,377-306-22%
20170.192.571,5981,579-19-1%
20180.222.991,8511,837-13-1%
20190.233.271,9352,009754%
20200.242.872,0191,763-255-14%
20210.232.451,9351,505-429-29%
20220.273.732,2712,292211%
20230.45.523,3653,392271%
Sumn/an/a18,42417,704-719-4%
Average0.243.202,047 1,967-80-4%
Energy prices from Mass DOER. Heat pump efficiency assumption 250%; oil efficiency assumption 85%. Heating load assumed 72 MMBTU per season. NOT adjusting for load variations due to weather.

Since the cost differences are relatively small on a percentage basis, the cost comparisons depend heavily on assumptions about the efficiency of heat pumps and oil burners. The performance assumptions in the above chart reflect my conclusions in a previous post:

  • 250% efficiency for heat pumps (2.5 seasonal COP) is fairly optimistic as an average for results obtained for pumps newly installed in the field. Better results can definitely be obtained in some settings, but much worse results can also be obtained.
  • 85% performance is reasonable for a newly installed oil burner. If the comparison were to an older burner one might want to use 75%. 80% could be a reasonable guess for the mix of old and new burners out there.

It is important to acknowledge that no one knows with certainty the average field efficiency of heat pumps. It is an uncertain exercise even to predict the performance of a single pump installation. True efficiency can only be ascertained by metering a particular installed pump. It is therefore appropriate to consider the implications of a range of assumptions.

Percentage cost advantage of heat pumps on average over past 9 winters as a function of assumed efficiency.

Heat Pump Efficiency Oil Efficiency
80.0%
Oil Efficiency
82.0%
Oil Efficiency
85.0%
300% — achievable in single zone ductless, one or two large rooms with market leading heat pumps18%16%13%
250% — common field result based on publications and interviews2%0%-4%
200% — not an uncommon result in field installs, some even worse-22%-25%-30%
See spreadsheet calculator here. Discussion of assumptions here.

Under the most positive comparison for heat pumps — 300% heat pump efficiency and 80% burner efficiency — the cost difference for a typical house over the past 9 winters (considering price variation, but not weather variation) would sum to $3,457. But, since the savings are so variable and uncertain, one should discount them heavily; speculative long term savings have little relevance to the economics. In perspective, the best-case heating operational savings are small compared to whole home heat pump installation costs (typically now running in the $25K to $30K range according to recent anecdotal data). Even with available incentives, conversion to heat pumps is likely to be much more expensive than replacing an oil heat system, so a conversion from oil heat to heat pumps should be undertaken for reasons other than heating cost savings.

The same math applies for partial conversions where upfront costs may be lower, but operating savings (if available) are also proportionately lower and incentives are also generally lower. However, in partial conversions, an additional dimension of uncertainty arises — how much will the pump be used? In a full conversion, one can assume that the heating load will be what it was under the old system and that the pump must meet that load. In a partial conversion, where the existing heating system will continue to carry part of the load, the pump may not be used all the time, so it has less opportunity to generate savings, even if it is efficient enough to do so. Conversely, the pump may be used heavily to keep one particular room extra cozy with the result that it actually increases cost, even thought it is efficient.

For both full and partial conversions, the high sensitivity of savings to efficiency assumptions and the high variability of efficiency results in the field together point to the importance of a thoughtfully designed installation and a well qualified installer.

Carbon Emission Comparisons

When homes convert to heat pumps (fully or partially), they add to the winter load on the electrical system. Today and at least for the next few years, marginal winter load in New England is served by natural gas powered generators. When natural gas is scarce, as it was during the cold snap this past Christmas, oil generators may take over. Oil is dirtier than gas, but also more expensive than gas and so is used relatively rarely.

In the previous post, I made the argument that heat pumps save carbon even if they are powered by electricity supplied by natural gas generators. That math works unless the heat pump seasonal coefficient of performance drops below 1.9. I don’t hear anyone arguing that field performance is that bad on average, but it’s clear that performance often can drop that low, so once again, good design and installation matter.

Lastly, also to the importance of good installation: The “working” refrigerant fluid used in heat pumps is a highly potent greenhouse gas. In our Daikin pumps, the working fluid is a common compound known as R410A, the use of which must be phased down under recent federal law. R410A does not deplete ozone, but if released, contributes to global warming approximately 2000 fold more potently than carbon dioxide. There are several pounds of the fluid in the system. So, if that substance leaked through poorly installed couplings or was disposed of improperly at end of life, it would effectively add several tons of carbon dioxide to the atmosphere, offsetting a couple of years worth of the savings achieved through the use of the heat pump.

Return to heat pump outline

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

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32 Comments

  1. Thanks Will – that tracks with everything I’ve seen on the Internet about heat pumps. When we were looking to replace our gas installation we had an additional requirement — we were also looking for something very quiet and the Heat pump + gas seemed like it would have fit the bill. Inthe end the cost of the heat pump and finding a very quiet furnace convinced us to go pure gas. Also, when considering carbon math you need to know the source of the electric. MA is still mostly a gas-burner state with biomas second. Solar is 19%, wind 1.5% plus some imported Hydro (and we’re a net-importer, not exporter). Until we can get the cost of electricity down with large-scale dependable renewability (read: we need safe reliable nuclear options, like Thorium or Fusion) we’re probably still better-off with pure solutions.

  2. Thank you, Senator, for this excellent cost-benefit analysis. I have investigated the use of electric heat pumps and have come to the very same conclusion- the savings in terms of climate change emissions are dubious at best. The energy efficiencies you note in your analysis are very, very optimistic. I recently had our 102-year-old home evaluated for retrofitting our natural gas/baseboard system and the efficiencies of the units sited by the engineer were much lower. Also, I had not considered the potent climate change refrigerant. That was surprising and troubling information.
    That said, I do think heat-pump geothermal may be a much more viable , cost and climate saving effective alternative. I would love to install it in our home – we have the space in our backyard but there are simply no experienced companies in the area doing residental installs. A big draw back is the potential problem of hitting the water-table. In any event, National Grid and Eversource are conducting 2 small scale mix-use neighborhood ground source projects. I’m hopeful and cautiously optimistic they will be successful. Otherwise, with current technology, we will never reach our climate goals.

  3. I have long been pondering the concept of tidal hydro-power. Coastal New England has a number of locations where this could be tested. The prime example, of course, is the Bay of Fundy, where tides range up to 50 feet with two complete tidal cycles a day. The Passamaquoddy Bay Tidal Power Project was conceived in the 1920’s and was started in the 1930’s by the Roosevelt administration. It was never completed. But there are many other New England locations where the use of tidal power could be tested. With the changes in technology and energy economics, we should be taking advantage of this pollution-free unlimited resource which is independent of wind or sun.

  4. Good analysis. Myself, I would practical and emotional considerations. We can easily afford a heat pump installation, but we won’t even consider it. Reasons are:
    1. Feasibility. Efficient pumps will require deep drilling for the heat exchanger. That is simply impossible for a townhouse/two-family house setting. It’s mostly impossible for the single-family houses in our area.
    2. Performance. That might be true for older models, but what I learned from early technology adopters, is that those heat pumps are always running to yield just a lukewarm air in winter and coolish air in summer. Far from comfort.
    2. Operation cost. Air exchange heat pumps, even the newer ones are insane energy hogs when temperatures drop below freezing. I saw those at my unlucky neighbor’s (without gas hook-up). $700-800 for a modest condo. And it was BEFORE the electricity price spike of this year.
    3. Reliability. That heat pump from a presumably reliable manufacturer had to be repaired out of warranty twice already. About $1500 per call.
    4. Amortization. To justify the purchase and installation costs, we should stay in our place for at least 10 more years. That is just too much of a commitment.

    1. I do think the current models are better. Ours are working very well this winter and they were great for air conditioning last summer. They are more efficient than the air conditioning system we had. The jury is still out on their heating efficiency in our case, and I’ll report on that in March or April.

  5. Thanks, Will. I had already pretty much decided that any heat pump would have to wait for the new owners of our house. Perhaps in 10-15 years the situation will be quite different. I hope so! I remember, however that McLean Hospital explored heat pumps in the 1990s and found them not ready.

  6. “if that substance leaked through poorly installed couplings…”
    Unless quantified, this is an argument of deflection. (Is that yours or from a constiuent?) The following article and the paper it’s based on make an effort to quantify the emissions from heat pump refrigerant leakage: http://www.solarblogger.net/2021/03/do-we-need-to-talk-about-fugitive.html My reading is that in climates with high heating needs the leakage offsets a significant but fairly small amount of the emissions saving from not needing the gas burners.

    Social cost of carbon, if used to justify inaction, is moral bankruptcy cloaked in technocracy. (That’s not an attack on you personally: I know your family does a lot to reduce your own emissions and that you are among the better senators on this issue.) You wrote two concluding remarks in your earlier post exploring SCC I want to highlight: 1. “We need to apply economic discipline to choose the most cost effective approaches” and 2. “The question is not what theoretical future damages will be, but what we are willing to pay today to achieve our stated emission reduction goals.”

    The first is perfectly reasonable. If there’s a more economical approach to reducing heating based emissions per person I’m all for that. Or if it makes sense to focus on more low hanging fruit and delay dealing with building emissions (probably doesn’t since the burners, particularly for new construction, have long lifetimes) that’s okay.

    However, the only moral answer to the second point is that we will pay what it takes to avert suffering as well as we can predict what that will be. We should shield our own poor from costs using progressive taxation or simply cutting checks (things we should be doing more of even if global warming turned out to be not a threat), but putting a price of $51 a ton or whatever it is and letting ourselves off the hook for whatever change exceeds that price is not acceptable behavior. Shall I scan the internet and the public library for descriptions of 19th citizens from our state who deflected abolitionist arguments saying they agree its bad but that their livelihood involves trade with the slave owning states? Shall we compare whether technical innovations or new fuels had as much to do with slavery no longer being as needed as with our making moral progress with our current waiting around for technologies that allow us to do what is right without giving up on our favorite kinds of shopping?

  7. Will, I suggest adding a more explicit discussion of the decision to replace an oil or gas system when that system reaches the end of its useful life. Not a lot of people will replace a system that is still working.
    It sounds like a switch to a heat pump could be advantageous or close to cost-neutral when the old heating system gives out. But it’s not clear whether you are considering all the costs when installing a heat pump. The electrical panel is one item. Also, most old houses have hot water or steam radiators. What would you have to do to circulate the heat? Retrofitting duct work is a big expense and has a lot of collateral effects on the interior.
    There isn’t much discussion of air conditioning in connection with heat pumps. Are heat pumps a good choice for that? There are plenty of old central air systems that will need replacement and that might also be a consideration when making a total energy plan for a house.

    1. Ducted air source heat pumps (ASHP) are an excellent replacement for central air (whole house A/C systems), and for the most part can simply use the existing ductwork. They are definitely more efficient so would save on the electric bill. But they can additionally be used to provide heating in shoulder seasons, reducing reliance on a fossil fuel burning system.
      Whole house cold climate heat pumps are the conversions Will is mostly talking about. They can be ground source (very expensive, but much more efficient), air source (fairly easy installation, still highly efficient), either being available in ducted or ductless (also called mini-splits) systems. An existing heating system can be left in place as as ‘backup’, for extremely cold situations where heat pumps lose their efficiency advantage, either manually or automatically switched over with an intelligent controller. But properly sized and designed they can provide the entire heat load, even down to negative temperatures.
      In any event, ‘heat’ from the heat pump is circulated using its own blowers, not water or steam in a hydronic system. It would work in parallel.
      Electric service does not necessarily have to be increased, as power consumption tends to be in the 10s of Amps, not hundreds.
      The key takeaway, as Will repeatedly notes, is to have a system properly sized, designed (layout of indoor units), and installed by a professional with significant experience.

    2. The data presented here indicate that in many cases, a benefit-cost analysis limited to the heating system will favor replacing the existing heating system rather than doing a heat pump conversion. Including panel upgrades or duct work will just move an already low benefit-cost ratio even lower.

      But heat pumps make great air conditioners — any heat pump powerful enough to heat your home in winter will do a great job providing air conditioning. So, when you include the air conditioning benefits, the benefit-cost ratio can become more favorable.

      And, there are many other reasons to want to spend the money to install heat pumps.

  8. Thank you Will. This is such a thoughtful and comprehensive analysis. I continue to forward your writings on this issue to my Cambridge City Councilors for their much needed edification.

  9. While I appreciate your position I still see the same problem that needs to be tackled first – that is power production – with out addition sources of power (including nuclear) heat pumps are useless. The second issue to be addressed is infrastruction of the power grid – which according to engineers at National Grid needs to be 4 times what it is now.

    I don’t have an issue with heat pumps but we need to be practical
    Lastly I also believe in a secondary source of heat for each home in case of power outage

    1. A power outage will shut down your existing heating system as well, unless you have a very old gravity hot water system.
      The ideal situation is to add rooftop solar (if possible) to your house to offset electricity consumed by the heat pump.
      The REALLY ideal situation is to then add batteries (though the economics do not yet justify it) so that you would not lose power in an outage.

  10. Hi Will,

    Thanks for this update. I like to keep up on what is going on in the space.

    Best, Paula Furst Neckyfarow

  11. Hi Will,
    No offense but you spent a lot of time and words to discover the obvious – heat pumps are not ready for prime time in cold climates. If we get a multi day cold snap with single digit temperatures/negative wind chill temps you may come to regret having your natural gas disconnected.

    1. Hi, Mike,

      There are three different questions:

      (1) Do heat pumps work in our climate? Yes. They really do — the new cold climate pumps are perfectly adequate to supply all the heat in a home in Massachusetts. During the cold snap at Christmas, my pumps were not even working hard — I have power meters on them so I know.

      (2) Are heat pumps economically advantageous for the consumer in our climate with our energy prices? The answer to that is all too often ‘no’, but it is complicated and that is the main subject of this post.

      (3) Do heat hump conversions lower carbon emissions? Yes, if done reasonably well.

    2. Climate Change is a religion, Mike.
      You can’t talk them out of it.
      If they say you MUST bow to that religion, then you must.
      They have nothing better to do with their lives than force things on you and into you.
      It’s Bolshevism.
      Get used to it.

        1. I agree too. There are more of us than meets the eye, just not in this forum where someone (see notes below) finds danger in elevated CO2 level at Mauna Loa, a mere 20 miles from Kilauea, an active volcano. Quite a shocking finding – and probably my fault too.
          Once John Kerry, and his Davos buddies, give up the private jets, I’ll find the Green utopia a tad less hypocritical.

  12. Will, your thoughtfulness, thoroughness of analysis, and honesty in approaching an issue and reporting your findings is a rare and wonderful commodity is politics, and very much appreciated. Thank you.

  13. People don’t like being forced to do anything.
    When costs come down, people will switch naturally. Ever think of that?
    Now we’re being told (yes, the Feds said this so don’t say it was just a suggestion) to not REinstall gas stoves and perhaps to get rid of the ones we have.
    These are all power plays by the Democrats and Left to order people around and force them to adopt the religion of climate change (formerly known as global warming but since we see lots of cooling they can’t use that term any longer).
    And how do we know that all electricity use is benign?
    There are scientists who believe that the electromagnetic fields it generates may in some instances be deleterious. There is controversy about this.
    Stop forcing things on people and worrying them about being compelled to do things that may in fact be negative from a cost and health point of view.
    Please cease this endless Leftist compulsion and just fix the potholes.

    1. Dee, please stop making everything out to be some “leftist” plot. I can assure you that carbon-based generation is on the way out. It will occur slowly but over the next few decades all electricity in this state and every state will come from clean energy sources. Furthermore, you’re going to have a difficult, possibly impossible time, finding a gas stove, and, if you do, no company will supply gas to your home. Our heating and cooling systems will all be pure electric, whether it’s resistive heating or heat generated through or air or ground sources. We don’t light our homes with whale oil anymore and people in the later decades of this century will similarly look back on oil and gas heating systems as antiquated. I don’t want to state which company I work for and what my qualifications are, but I can assure you that what I’m saying is true, not some set of “alternate facts”.

      Recent readings of atmospheric CO2 measured at the summit of Mauna Loa in Hawaii, at Barrow, Alaska, and at Cape Grim, Tasmania, Australia, all show alarming rises. The latest figures I saw were slightly over 420 ppm as of January 13, 2023. This is dangerous, uncharted territory, every bit as harmful as ozone-depleting chlorofluorocarbons (CFCs). Besides acting as a greenhouse gas, CO2 is absorbed by the oceans, acidifying them (CO2 + H20 –> H2CO3, or carbonic acid.) Just as the world recognized that CFCs were destroying the ozone layer which shields the planet from ultraviolet radiation from the sun, so, too, are entities coming to realize how harmful carbon-based fuel is. Many, many companies and organizations are recognizing that “going green” can not only be good for business, it can have a very good effect on the bottom line. For example, many years back, a major office tower here in Boston undertook a project to replace traditional light bulbs with compact fluorescents (CFLs). A friend of mine was a Project Manager at the utility and told me the cost savings represented a savings of about 30% for the building. The tower management made their money back in something like five years. I did the same thing in my apartment and I verified the savings – my electric bill went down by about 30%. I have gone further and gradually replaced CFLs at they burnt out with LED bulbs and saw further savings. I use less electricity now that I did 5 or 10 years ago, despite the number of electrical appliances and devices I use.

      These are facts, not propaganda by a political party or group. Please do your homework and educate yourself about the scientific and business benefits of moving towards a carbon-less economy. Start with Scientific American and the many excellent governmental, non-profit, and corporate websites discussing this issue. Both Eversource and National Grid have pages discussing their commitment to clean energy. See https://www.eversource.com/content/general/residential/about/sustainability/renewable-generation and https://www.nationalgridus.com/net-zero.

      1. Holy cow. It’s like listening to a snake handler speaking in tongues at a backroads bijou church. Germany went “green,” or so it thought, and is now rapidly becoming a deindustrialized Detroit after swearing off the Russian fossil fuels it had convinced itself were no longer needed. The world will be happily running at least partially on fossil fuels for many decades to come, but COVID provided a tantalizing taste of absolute power that’s proven irresistible.

        1. Your reply is in bad faith as you appear to mock it for your own lack of ability to understand it.

          Russia’s narratives (that are parroted on Fox News’ bow-tie talking heads, shocker) about Germany’s industrial plant collapsing without Russian natural gas are demonstrably untrue. Germany has already replaced its natural gas needs from elsewhere using LNG tanker import terminals recently constructed there and in Denmark, or through the Netherlands via rail tankers.

          Let’s get back to discussing facts, even if you can’t follow the science.

  14. I would like to add that improving the thermal insulation of an existing home might be more comfortable and efficient and perhaps in New England a more effective way to reduce energy consumption in all forms. Thanks, Will, for your on-going evaluations and real-life experience on these critical issues.

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