I’ve recently made an effort to understand better how we are going to achieve our goal of near universal home heat electrification with heat pumps by 2050. This post draws together my understanding so far. It acknowledges uncertainties and leaves some questions unanswered.
In summary, people in the climate community and in the state administration have done a huge amount of great work to map out a path toward the 2050 goal based on our legislation. I feel that they may have put us on the most feasible path, although there are both challenges and uncertainties.
New Construction vs. Retrofits
I am optimistic about the electrification of new construction. While we have not yet legislated a state-wide building requirement for the electrification of new construction, that may become economically and politically achievable within the next few years. Many developers are already choosing all-electric HVAC systems. With hotter summers, builders increasingly recognize the need for air conditioning. Using heat pumps, builders can cost-effectively provide both heating and cooling with a single device.
More challenging is the retrofit of existing structures. Eighty percent of the housing that will likely be here in 2050 is already here and much of it was built without modern insulation. Many older heating systems use water, circulated through radiators or baseboards, to distribute heat from a central oil or gas burner. Currently available air-source heat pump technology cannot reuse existing water-based distribution systems. In many homes, the only feasible approach to heat-pump conversion is to install ductless mini-split heat pumps in multiple rooms — an approach that is not always efficient and not always comfortable.
While achieving our 2050 goals for building retrofits may be difficult, I do believe we can make meaningful progress toward those goals. The financial and practical challenges to fully electrifying an existing home can be daunting, but many homeowners are both financially able and deeply motivated to reduce carbon emissions. In addition, some are finding workable pathways to partial heat pump conversions. Others are installing heat pumps for efficient air conditioning and they can also use their heat pumps for some of their heating needs. With the incentives that we already offer for heat pumps, these three groups together have created some early momentum toward electrification. The challenge is to build on that momentum.
Building a home electrification industry
We do need to accelerate electrification if we are to achieve our goals. For now, the principal drag on the pace of electrification appears to be labor and equipment shortages, not a lack of homeowner demand. I hear again and again that people in the HVAC business have all the work they can handle and cannot always stock the heat pump units that they want to install. Many consumers report that it is hard to get contractors to propose short-term work. There are many anecdotal reports of prices rising all along the value chain, especially in the wake of the new incentives from Mass Save last spring and the new federal tax credits effective in 2023.
We should be doing everything we can to support workforce development. This is a well-recognized need — Mass Save and the MassCEC are already investing in workforce development. Workforce development figures prominently in our 2050 Clean Energy and Climate Plan.
Additionally, to attract resources to the electrification industry, we need to make sure that our existing incentive structure is credible for the long term: We want people who are considering entry into the electrification business to be able to look forward with confidence to a couple of decades worth of lucrative work to motivate their investment. Incentives need to be somewhat flexible — we should not fix them in statute. But we need a durable legislative foundation for the incentives.
We hope that we have already built a durable legislative foundation for heat pump incentives in the aggressive emissions reduction goals we have set together with the powerful regulatory authority that we have granted to the Secretary of Energy and Environmental Affairs to support those goals. We have empowered the Secretary to set emissions reduction goals for the Mass Save program and Mass Save has responded with aggressive heat pump incentives.
However, there may be several areas where adjustments could strengthen the incentive framework. Over the months to come, I hope that legislators and regulators will work together on the following agenda (some of these measures are elaborated by the report of the Commission on Clean Heat):
- Lower electric rates by shifting the funding source for electrification incentives from electric ratepayers to fossil fuel heat users — natural gas, heating oil, and propane customers; one approach to that shift could be a “Clean Heat Standard.” (Utilities could also be directed to explore equitable rate structures to support heat pump loads.)
- Restructure Mass Save so that homeowners in municipal light districts can benefit from the incentives it offers. Municipal light districts often offer lower electric rates, improving the economics of heat pump conversions. Yet homes with propane, oil, or electric heat in municipal light districts are ineligible for Mass Save incentives. (In municipal light districts, the only homes that are eligible for Mass Save incentives are those that heat with natural gas, generally the homes with the worst economics for heat pumps.) This suggestion goes together with the previous suggestion.
- Revise the statutory language that defines cost-benefit analysis for Mass Save’s planning process. Even with the social cost of carbon included as required by last year’s legislation, that math does not consistently support heat pump investments: Effectively, we need to redefine Mass Save’s statutory mission as electrification.
- Streamline the incentive bureaucracy so that both consumers and contractors can navigate it with certainty and ease. I’ve heard many reports of confusion and delay in dealing with Mass Save. Much of the Mass Save process is outsourced to regional or national contractors. On the one hand, that means we have less direct control over quality; on the other hand, it may make it easier to scale up and reduce delays.
- Support consumers with better coaching so that they can make their way through the complex choices involved in heat pump installations — for most consumers, changing their HVAC system is a once-in-a-lifetime experience. Like the previous item, this is both a workforce challenge and a management challenge.
- Increase borrowing limits and simplify the borrowing process for homeowners seeking to make larger efficiency or electrification investments, possibly making additional capital available through a “green bank.”
- Develop a building energy rating scheme to recognize and honor the progress that consumers make through insulation and electrification. This may involve direct building audits or it may be driven by energy use measurements. If building ratings were published, independent researchers could deepen public policy analysis of the installed home base. Additionally, both Mass Save and individual contractors could better target marketing efforts.
- Through the previous suggestion or through other measures, find ways to better target outreach to the most promising homes for heat pump conversions.
This agenda will likely take several years to accomplish.
Funding electrification over the long term
At the moment, most observers seem to feel that our current collection of rebates and tax credits is creating adequate demand for electrification retrofits — demand sufficient to substantially raise prices and create industry backlogs. An immediate increase in the dollar value of available incentives might further raise prices without accelerating progress or could lead to greedy haste and a decline in installation quality that we would later regret. Heat pump conversions have to be done right to benefit the environment and the consumer. Unless a conversion is reasonably well-conceived and executed, it may increase both emissions and costs. We should, for now, focus on the agenda in the preceding section which will have the effect of gradually increasing the reach of incentives and better targeting their use.
However, although demand now seems strong as compared to supply, there are clear indicators that demand is finite:
- Capital costs of heat pump installation are substantial and the operating cost impacts are hard to predict because they depend on both energy market variables and installation-driven performance variables. See the evolving series of posts under “Economics of heat pumps” in this listing.
- Most homeowners are cost-sensitive, and even many of those who are carbon-motivated may be daunted by the costs of a whole-home conversion or even a substantial partial conversion. See survey results.
- Industry models of heat-pump installation project fairly low adoption rates.
Eventually, we are going to have to make a collective judgment call about whether to substantially increase incentives for whole-home and partial conversions. To achieve our 2050 goals, the annual investment in rebates and tax credits may need to grow substantially.
No one really knows what the average whole-home electrification project will cost over the next couple of decades. One variable is the level of energy efficiency retrofit (insulation, etc.) that should be combined with heat pump installation; there is no consensus on what statewide average building performance will be needed to achieve our 2050 goals. Bigger heat pumps can reduce the need for insulation, but they are more expensive to install and run and they place a larger demand on the power grid. Good quality insulation is universally recommended in heat pump conversions, but what “good” means is uncertain.
Based on my own experience and based on all the numbers I’ve seen or heard, I believe that the average cost of retrofitting for 2050-level energy efficiency and full electrification will work out to over $30,000 per housing unit and perhaps over $100,000 per housing unit. Using necessarily round numbers, that adds up to something between $75 billion and $250 billion over the next 28 years — $3 to $10 billion per year. Looking at it another way — supposing optimistically that homeowners could borrow at no interest over 30 years to execute the projects — that’s roughly $100 to $300 per month for each housing unit. As another comparison, Mass Save’s current spending totals only about $1 billion per year
Right now, installers are busy picking up the low-hanging fruit — the affluent and highly motivated homeowners, and among them, those with the easiest conversions — but eventually, we are going to have to reach the more challenging conversions and the homeowners with less desire or capability to pay a large share of the installation costs. The necessary incentive levels for installation will need to rise substantially. The necessary public investment of several billion per year may require federal assistance on a scale well beyond the Inflation Reduction Act.
An all too likely future compromise is the same uncomfortable compromise that we are making out of necessity right now: Instead of targeting only whole-home conversions, we are currently targeting mostly partial conversions. Partial conversions may not take us all the way to our stated climate goals, although if done right, they will move us to meaningfully reduced emissions and may reduce the need for grid enhancements. See further discussion below. We are looking forward to release of the Mass Save progress data for 2022 as an early indication of how things are going.
Systemic Challenges and Opportunities
As we electrify homes, we are increasing the load on the electric system and reducing the load on the natural gas system. At scale, this shift will have large consequences.
Increased peak winter electric grid loads
Since heat pumps draw several-fold more power on a very cold day than air conditioners on a very hot day, we will face new winter power peaks that will substantially exceed today’s summer power peaks. These new peaks may require additional regional generating capacity and challenge both the regional transmission system and local street distribution systems. The costs of the necessary upgrades have not been fully understood, although they may be manageable if they are phased in over several decades.
A combination of batteries, solar power, and demand management can help mitigate power peaks, but there is no escaping the need for substantial upgrades of generation, transmission, and distribution. Consider a cold snap generating very low temperatures throughout the northeast. With all homes calling for electric power for heating, the potential for demand management would be limited. Solar output is always down when the sun is low in the winter and, if the cold snap followed snowfall, the solar output would be nil. The batteries in electric vehicles, if immobilized and exhausted to supply heat, could last a day or two. Battery backup systems supporting another two or three days of operation would cost homeowners $5,000 or $10,000 per year at today’s prices. Especially if the cold snap lasts for several days, the grid will need to deliver much more power than ever before.*
* Even large battery systems will only last two or three days at most. For example, according to our installed power meters, our super-insulated two-family home with efficient lighting and solar thermal hot water used a total 40 kilowatt hours of power (kwh) per day per unit in December 2022’s moderate cold snap; many electrified single-family homes with more typical insulation could require 60 to 100 kwh/day. For comparison, a long-range Tesla model S battery holds 100kwh . A system of 10 Tesla powerwall batteries holds 135 kwh and costs over $80,000. The estimated lifetime of a powerwall is 10 to 12 years.
There are two additional major strategies for lowering the winter peak loads:
- Simply do not do as many whole home conversions — do partial conversions instead. Partially converted homes, homes that still have fossil-fuel systems along with their heat pumps, could rely on those fossil-fuel systems during winter peaks and so take load off the grid. However, the extent of emissions reductions in a partial conversion depends on the percentage of the heating load that is served by the legacy fossil system — hard to project or fully control. Uncertainty of emissions reductions aside, a large installed base of partial conversions will require continued use of fossil fuel heating; even if use is rare, we will need to preserve our natural gas pipes in the streets or switch many homes to use of a stored fuel like oil or propane (or some biofuel) — not an attractive prospect. On the other hand, the practical and financial challenges of whole home conversions may force us to this strategy.
- Reduce heat pump power needs by switching from air-source heat pumps to efficient networked ground-source heat pumps — an intriguing concept that is very early in the vetting process as a possible strategy to implement at scale.
Narrowing the customer base supporting natural gas infrastructure
Pursuant to a legislative mandate to reduce leaks, gas companies are engaged in an ongoing investment program to repair or replace old pipes. Many advocates are asking whether this investment makes sense if we are hoping to fully electrify all homes — especially since as more homes leave the gas system, the per-home cost of the investment will rise.
Some are hoping that coordination between gas repair plans and electrification plans could reduce unnecessary gas replacement investment: Utilities and communities could work together to target neighborhoods for full electrification along particular branches of the gas distribution tree. This would allow the gas utilities to forego infrastructure upgrades on those branches. Coordination may be hard to implement in practice, but it’s certainly worth discussing and utility coordination is among the recommendations of the Commission on Clean Heat.
Equity in Electrification
Through the years ahead, we need to sustain a focus on equity. Since doing heat pump conversions from oil or gas does not necessarily save operating costs, a low rate of low-income heat pump conversions does not necessarily disadvantage low-income people. An important exception is heat-pump conversions from electric resistance heating which is expensive for renters to run, but cheap for landlords to install. Low-income electric resistance conversions should be a high program priority. Additionally, home weatherization, even without electrification is a high priority both economically and for better comfort; several Mass Save programs speak directly to this priority.
The real equity issue in the building sector may be air conditioning: As temperatures rise, air conditioning is going to become as much a necessity as heating and we need to make sure that all our residents have access to it. From that perspective, it may become more attractive, even mandatory, to do a lot of partial conversions, installing heat pumps primarily for air conditioning and hoping for heating benefits as a secondary priority.
The Carbon Tax Alternative
We should remain open to the possibility of a carbon tax, although the politics are challenging. As one looks at the complexity, the bureaucratic snafus, and the questionable outcomes that characterize our electrification programs today, one appreciates why economists usually prefer broad-based market incentives created through taxation rather than project subsidies policed by a bureaucracy. Politically, it’s difficult for one state to impose a substantial carbon tax on its own. We’d need a national carbon tax, but that is hard to imagine in our current national political climate.
We’ll continue do the best we can with the tools we have. We’ll go as far as we can go. And we’ll continue to try to better discern the path ahead. Personally, I’m still struggling with a number of questions, some of which have already been well studied by others, some of which will yield to more study, some of which will likely remain imponderable until the future unfolds.