Blog Post

Programs to Electrify Space Heating Are Growing

June 25, 2020

Across the United States, programs that electrify space heating in homes and buildings — primarily using high-efficiency heat pumps — are growing rapidly. An ACEEE topic brief released today shows that current-year budgets for the 23 programs we reviewed are nearly $110 million, up 70% from the prior year.

Read the Topic Brief

These programs are most extensive on the West Coast and in the Northeast, but are beginning in other regions as well. Many of these programs are run by utilities (investor-owned, municipal, and cooperative) but some are run by states, cities, and independent organizations designated by states. While space heating electrification programs are early in their evolution, many are refining their approaches, adjusting incentives, adding components, and piloting complementary approaches.  

These programs build on a policy framework in several states (discussed in a recent post) that promotes decarbonizing electricity generation and then using this cleaner electricity to replace fossil fuels where feasible and practical.  

In areas with high use of delivered fuels (fuel oil and propane), such as the Northeast, many programs target customers using these fuels, because the economics of electrification in these situations are often better than when displacing natural gas. Likewise, a few programs, such as in California, Connecticut, Illinois, and Michigan, are encouraging all-electric new construction — another market segment with favorable economics.  

Most programs encourage weatherization to reduce loads when buying a new heat pump, and about one-third require it. The bulk of program participants use heat pumps and existing fossil fuel systems, with the latter operating on very cold days when the heat pump cannot handle the full heating load.  

An increasing number of programs are looking to encourage heat pumps as primary heating systems. In regions with growing use of air conditioning, ductless heat pumps are a popular way to add both supplemental heat and efficient air conditioning to homes that are difficult to retrofit with central air conditioning. 

Several programs offer upstream incentives to contractors or distributors, finding that such an approach increases participation. High incentives, such as those enabled by allowing credit for fossil fuel savings and not just electric savings, and/or by putting value on greenhouse gas emissions reductions, also increase participation. 

Electrifying water heaters 

While our topic brief focuses on heat pumps for space heating, programs to promote heat pump water heaters are also extensive.  

For example, the Sacramento Municipal Utility District (SMUD) measures its success based on avoided carbon; it has a program to encourage homes with gas water heaters to install electric heat pump water heaters when an existing water heater needs replacement. It offers $3,000 incentives for converting to heat pump water heaters; these incentives typically cover more than 90% of the costs of the new water heater, including conversion costs. In 2019, more than 1,000 heat pump water heaters were installed. The pace picked up in 2020, with 436 units installed in the first quarter. 

Likewise, the California Public Utilities Commission earlier this year approved $45 million for utility heat pump water heater programs through the Self-Generation Incentive Program (which is separate from energy efficiency funding). 

Electrifying vehicles and commercial buildings 

Programs to date emphasize the residential sector. While commercial applications are often eligible, they are usually not targeted, and where targeted, the emphasis is on smaller buildings. Analysts and programs are just starting to consider electrification opportunities in the commercial sector — ACEEE will release a report on this subject in the fall. 

There are also large electrification opportunities in transportation, with many state and utility programs promoting electric cars, trucks, and buses, as well as the charging infrastructure and rates needed to support electric vehicle (EV) deployment. For example, Southern California Edison has an approximately $350 million, 5-year Charge Ready Transport Program to support the infrastructure for heavy duty EVs. Pacific Gas & Electric has a similar program, and San Diego Gas & Electric will be starting its program later this year.  

Likewise, programs in a number of states are assisting with charging and vehicle purchases in low- and moderate-income communities. (ACEEE will have a report on these charging station programs next year.) 

While COVID-19 and the recession are affecting these programs in the short term, the increased pre-pandemic activity shows that decarbonization through electrification is gaining attention — attention that will likely grow as more and more policymakers, businesses, and consumers embrace decarbonization.  


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