Utilities looking to encourage the adoption of heat pumps for home heating should consider rates specific to the new technology, particularly those in colder climates, the American Council for an Energy-Efficient Economy said in research published Tuesday.
“Heat pump-specific rate plans are best for incentivizing heat pump adoption, with winter discounts being a potentially important facet of those plans,” the report concluded.
A winter electricity discount “is a key rate structure change for ensuring energy bills do not increase in cold climates, which is where (in the United States) the economics of heat pumps are most challenged,” the report found. Time-of-use and demand-based rate plans “can also help reduce ongoing costs for heat pump users.”
The Inflation Reduction Act provided billions for electrification efforts, including the purchase of heat pumps. Most of those funds have already been distributed to states, experts told Utility Dive, though President Trump’s efforts to halt IRA programs and claw back funding has injected uncertainty into the clean energy space.
ACEEE’s heat pump research published this week is focused on their potential impact on electricity bills.
“Pairing heat pump installation with energy efficiency envelope upgrades further decreases ongoing electricity bills,” the report said. It also noted that flat-rate electricity rate plans increase costs for heat pump users.
The conclusions are “commonsense,” ACEEE said, and come at a time when more utilities are offering time-varying and technology-specific rares. However, flat volumetric electricity rates remain common across the U.S.; according to Brattle Group, less than 10% of households were on a TOU rate in 2021 and the number was on pace to reach 35% by the end of the decade.
“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.”
The study modeled average bill impacts of electrifying home heating in the largest utilities of four states looking to heat pumps to help achieve their climate goals: Colorado, Connecticut, Maine and Minnesota.
In Maine, switching to heat pumps will cut monthly utility bills over the course of a year, ACEEE said. But in the other three states, customers are paying higher-than-average electric rates compared to gas, necessitating new rate approaches to make the new technology pencil out.
Minnesota’s largest utility has a rate offering a 35% discount during winter for customers heating with electricity, helping to lower bills for customers heating with electricity. “Colorado’s winter electricity rate is only 10% less than in summer, so electrification can increase costs,” ACEEE said.
In Connecticut, electrifying a home’s heat would pencil out for those currently using oil or propane, “but electrification would raise costs for homes using gas because of the state’s markedly high electricity rates.”
Along with winter discounts and heat pump-specific rates, ACEEE’s report recommends policymakers consider “providing non-ratepayer investments in electricity distribution and transmission, put a price on carbon emissions, or implement clean heat standards.”
For program administrators, behavioral strategies can help shift customer consumption, and contractors need to be provided with more education about the use and benefits of heat pumps, the efficiency advocate said.
