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Yahoo
11-03-2025
- Business
- Yahoo
How closing the ‘spark gap' can boost heat pump adoption
For most U.S. homes, heat pumps are a no-brainer: They can lower energy bills and eventually pay for themselves all while slashing carbon emissions. But the economics don't work in favor of heat pumps for every home — and particularly not for those in states that have high electricity prices relative to those of fossil gas. Adjusting the structure of customer electricity rates could turn the tables, according to a report out today from the nonprofit American Council for an Energy-Efficient Economy, or ACEEE. The ratio of average electricity prices to gas prices (both measured in dollars per kilowatt-hour) is known as the 'spark gap' — and it's one of the biggest hurdles to nationwide electrification. A heat pump that is two to three times as efficient as a gas furnace can cancel out a spark gap of two to three, ensuring energy bills don't rise with the switch to electric heat. But in some states, the gulf is so big that heat pumps can't close it under the existing rate structures. Worse, heat pump performance can decrease significantly when it's extremely cold (like below 5 degrees Fahrenheit), so without incentives, the economic case is harder in states with both harsh winters and electricity that's much more expensive than gas, like Connecticut and Minnesota. In these places, heat pump adoption is 'hit by double whammy,' said Matt Malinowski, ACEEE buildings director. The weather might be hard to change, but the spark gap is malleable: Utilities, regulators, and policymakers can shape electricity rates. By modeling rates for four large utilities in different cold-climate states, ACEEE found that particular structures can keep energy bills from rising for residents who switch to heat pumps, without causing others' bills to go up. Flat electricity rates are a common practice. They're also the worst structure for heat pumps, Malinowski said. When utilities charge the same per-kilowatt-hour rates at all hours of the day, they ignore the fact that it costs more to produce and deliver electricity during certain hours. That's because, like a water pipe, the power grid needs to be sized for the maximum flow of electrons — even if that peak is brief. Meeting it requires the construction and operation of expensive grid infrastructure. Flat rates spread the cost of these peaks evenly across the day rather than charging customers more during the high-demand hours that cause a disproportionate amount of grid costs. But heat pumps aren't typically driving peak demand — at least, not for now while their numbers are low. Demand usually maxes out in the afternoon to evening, when people arrive home from work, cook, do laundry, and watch TV. Households with heat pumps actually use more of their electricity during off-peak hours, like just before dawn when it's coldest, than customers with gas, oil, or propane heaters. Heat pumps 'provide the utility a lot of revenue, and they do that at a time when there isn't that much electricity consumption,' Malinowski said. Under a flat-rate design, cold-climate heat pump owners 'are basically overpaying,' he added. 'Adjusting the rates to better reflect their load on the system — and the benefits to the system that they provide — is only fair.' A rate design that bases charges on when electricity is used would help course-correct. Known as 'time-of-use,' this structure charges more for power consumed during periods of peak demand and less for power consumed at other times, or 'off-peak,' coinciding with heat pumps' prime time. Utility ComEd serving the Chicago area is working to finalize time-of-use rates for households, joining the ranks of several other U.S. providers that already offer this structure, like Xcel Energy in Colorado, Pacific Gas and Electric in California, and Eversource in Connecticut. Demand-based rates are another way of accounting for a customer's peak demand profile and can help reduce a heat pump owner's energy bills. This approach tacks on fees scaled to a customer's peak demand that month. If it's 3 kilowatts, and the demand charge is $10 per kilowatt, the fee will be $30. But importantly, this structure also lowers the rates charged for the total volume of electricity. Even though households switching from gas to heat pumps under such a program would see higher charges for peak demand than before, Malinowski said 'they'll be using so much more electricity overall that they end up benefiting much more from that lower volumetric [per-kilowatt-hour] charge.' As a result, their energy bills can be lower than with a flat-rate program, the report finds. Winter discounts also help heat pumps make financial sense. In most states, electricity usage waxes in the summer — when people blast their air conditioners — and wanes in the winter, when many residents switch to fossil-fuel heating. Some utilities offer reduced electricity prices in winter to drum up business, a structure that benefits households who heat their homes with electrons. Xcel in Minnesota drops its June-through-September summer rate of 13 cents per kilowatt-hour to 11 cents per kilowatt-hour during the rest of the year for all customers. For those with electric space heating, including heat pumps, the rate is lower still: 8 cents per kilowatt-hour — a discount of 39% from the summer rate. According to ACEEE's modeling, the winter discount alone can save Minnesota Xcel customers in single-family homes on average more than $350 annually once they swap a gas furnace for a heat pump. Combining the winter discount with existing time-of-use rates or simulated demand-charge rates (given in the study) can further reduce annual bills by another $70. In Colorado, another state ACEEE analyzed, Xcel provides both time-of-use rates and a much shallower winter discount of about 10%. Even taken together these structures aren't enough to close the spark gap for heat pumps. Pairing that discount with demand-based rates wouldn't do the trick either, the team found. Only when they used the much steeper discount that Xcel deploys in Minnesota were they able to keep customers' modeled heating bills from climbing when they switched to heat pumps. One more option for utilities and regulators: discounts specifically for customers with heat pumps. More than 80 utilities in the U.S. currently offer discounted electric heating rates, with 12 providing them specifically for households with heat pumps, according to a February roundup by climate think tank RMI. Massachusetts regulators approved a plan by utility Unitil last June to offer a wintertime heat-pump discount — the first in the state — and directed National Grid to develop one, too. Unitil's discount amounts to at least 20% off the regular per-kilowatt-hour rate, depending on the plan customers choose. Colorado policymakers are also requiring investor-owned utilities to propose heat pump rates by August 2027. The takeaway from ACEEE's results is that in some states, the above rate designs could be promising avenues to ensure switching to heat pumps doesn't raise energy bills for most single-family households. But in other cases, additional policy might be needed. Connecticut's electricity prices are so high that these rate structures weren't enough to close the spark gap, the authors found. They recommend policymakers consider broader changes like putting a price on carbon emissions, implementing clean-heat standards that require utilities to take steps toward decarbonized heating, or investing in grid maintenance and upgrades to make electricity more affordable — for all customers.
Yahoo
04-03-2025
- Business
- Yahoo
This map shows where to swap out industrial boilers for heat pumps
U.S. manufacturers rely on more than 30,000 small industrial boilers to make a large number of things: foods, drinks, paper, chemicals, clothes, electronics, furniture, transportation equipment, and more. The vast majority of these smaller boilers burn fossil fuels — mostly gas, but sometimes coal or oil. Their emissions contribute not only to climate change but to smoggy skies and elevated asthma rates, too. Swapping out such boilers for electric industrial heat pumps would be a quick win for communities and regulators looking to improve air quality, said Hellen Chen, industry research analyst at the nonprofit American Council for an Energy-Efficient Economy, or ACEEE. Only about 5% of process heat in industry currently comes from electricity, but industrial heat pumps are gaining some momentum. They've already been installed in at least 13 American factories, helping reduce pollution from brewing beer, pasteurizing milk, and drying lumber. Kraft Heinz, the famed ketchup and mac-and-cheese maker, plans to install heat pumps at 10 factories by 2030. Oat-milk producer Oatly is considering one at a New Jersey plant. And policymakers in Southern California passed a rule last summer to phase out industrial boilers, a move that will likely boost heat-pump replacements. Industrial boilers spew a panoply of air pollutants as byproducts of combustion, including nitrogen oxides, or NOx. NOx is harmful in itself but also contributes to the formation of ozone, a key ingredient of smog that can inflame airways and cause a range of respiratory problems, especially in children whose lungs are still developing. To identify opportunities to clean up air quality, Chen and ACEEE colleagues recently mapped areas where ozone levels exceed the U.S. Environmental Protection Agency standard, the number of small industrial boilers in each area, and the fuel they use. In total, they found that more than 5,400 boilers currently burn in 174 counties. The team focused on smaller industrial boilers, defined as having capacities up to 50 million British thermal units per hour, because their emissions are often overlooked, yet the equipment is the easiest to switch out for heat pumps, Chen said. 'In areas where the baseline community pollution burden is already high, there is a really important opportunity,' Chen said. Heat pumps are 'a cleaner and more efficient technology that is ready for adoption today.' Depending on the boiler size, fuel type, and other aspects, the reduction in onsite NOx emissions from swapping just one industrial boiler for a heat pump is equivalent to taking 400 to 10,000 cars off the road, by Chen's calculation. The industrial emissions reductions would add up. Some counties host large stocks of these smaller boilers: Cook County, Illinois, has 297; Philadelphia County, 127; Harris County, Texas, 123; and Los Angeles County, 111, per the ACEEE map. Heat pumps are available now for low-temperature industrial processes, making them well-suited to industries like food and beverage manufacturing, which relies almost exclusively on heat below 266 degrees Fahrenheit (130 degrees Celsius). Low-temperature heat also plays a significant role in areas like chemicals and paper production. Industrial heat pumps, which were first developed in the 1980s, are wildly energy efficient and can use just one-third to a quarter as much energy as boilers. Depending on the relative prices of gas and electricity, that superior efficiency can deliver lower operating costs. Heat pumps can also improve product quality by providing more precise temperature control. Back in 2003, the Department of Energy found that heat pumps produce higher-quality dried lumber. Plus, heat pumps can have a smaller physical footprint than boilers with similar capacities since they don't store fuel, making them advantageous for facilities with limited floor space. Since they're modular, they can be installed in parallel to meet heat demands as needed, Chen said. Added up, these and other co-benefits can save facilities another 20% to 30% on top of reduced energy costs. The major impediment to switching out combustion boilers, which can last 20 to 40 years or more, is the upfront cost. The payback period for an industrial heat pump retrofit is typically on the high side — between five and seven years, Chen said. 'Unfortunately, many companies are looking for very short ROIs [returns on investment] of under three years,' Chen said, making the business case difficult even if the lifetime savings are great. In new facilities, heat pumps can cost the same as gas boilers to install, she noted. Policy support can make it more logical for a business to take on these upfront costs. At least one air quality regulator is beginning to push industries to decarbonize. Last year, California's South Coast Air Quality Management District passed a first-in-the-nation measure that aims to gradually phase out NOx emissions from 2026 to 2033 from more than 1 million large water heaters, boilers with capacities of up to 2 million British thermal units per hour, and process heaters in the area, which will necessitate the switch to electric tech. Chen hopes to see more regulators follow the district's lead as well as tackle what is to her the biggest hurdle to electrification in the U.S.: the relatively high cost of electricity compared with gas, known as the 'spark gap.' The spark gap, the ratio of average electricity price to fossil-gas price (each in dollars per kilowatt-hour), varies from state to state. A ratio of less than about three to four typically makes switching to a heat pump more economically feasible without additional policy support because industrial heat pumps are about three to four times as efficient as gas boilers and thus can lower operating costs, Chen noted. Electric utilities and regulators could redesign rates to make the electric equipment more attractive. The idea has precedent for home heat pumps, though hasn't been realized for industrial ones yet, as far as Chen's aware. State and federal programs are also helping to defray the capital costs of electrifying. California provides $100 million for electric upgrades at factories through the Industrial Decarbonization and Improvement of Grid Operations program. Colorado offers competitive tax credits — up to $168 million in total — for industrial facilities to install improvements that reduce greenhouse gases. Under the Biden administration, about $500 million was granted to Kraft Heinz and others for projects cleaning up emissions from process heat, part of a $6 billion windfall for industrial-decarbonization demonstration projects. But the fate of the awards is unclear as the sweeping federal funding freeze ordered by President Donald Trump in January has, so far, failed to fully thaw. With momentum growing for zero-emissions equipment like heat pumps, 'we're hoping that … more facilities will see them as a viable technology that's ready to go,' Chen said, and that companies 'will be more confident about applying this technology within their own facilities.'
Yahoo
29-01-2025
- Business
- Yahoo
Almost half of US states haven't done the bare minimum to cut utility bills
During his first week in office, President Trump withdrew from the Paris climate agreement, declared an energy emergency, renewed his vow to 'drill, baby, drill,' and began dismantling American climate policy. That has left environmental advocates looking to states to lead the nation's efforts to burn fewer fossil fuels — and a report released Wednesday shows there is much more they can do. One of the most powerful tools at each state's disposal is the ability to work with utilities to encourage energy efficiency. But, the report from the American Council for an Energy-Efficient Economy, or ACEEE, details how only 26 states, along with the District of Columbia, have established a so-called 'energy efficiency resource standard,' or EERS. These targets, set by legislators or utility regulators, require utilities to implement programs — such as weatherization or rebates on appliances — that cut energy consumption by a certain amount each year. 'There is more work that needs to be done,' said Jasmine Mah, a senior research analyst at the Council and an author of the report. Since 2012, just three states have added such a standard, while New Hampshire, Ohio, and Iowa repealed theirs in favor of less ambitious or scaled back programing. Arizona is also pursuing a rollback. Mah says the report is aimed at state policymakers and regulators, who could shift that tide. 'We hope that highlighting the positive impacts of having an EERS in place would encourage states to pass a policy,' she said. An earlier ACEE report found that, as of 2017, states with an energy efficiency resource standard saw four times the electricity savings as states without one. In 2023, states with such a plan accounted for about 59 percent of the U.S. population but 82 percent of the savings. 'States aren't doing this just because of climate change,' said Barry Rabe, a political scientist at the University of Michigan who studies energy and climate politics. 'There is an economic advantage.' Fossil-fuel friendly Texas, Rabe noted, was the first to adopt an EERS in 1999. But efficiency can become less of a priority when energy supplies are abundant and costs are stable. 'The decline in interest,' Rabe said, 'has in some degree coincided with the massive increase in natural gas use in the U.S.' Still, the Council also found that many states have gone beyond baseline policies and implemented what the report dubs 'next-generation' initiatives that aim to lower greenhouse gas emissions, spur electrification, serve lower-income populations, and reduce consumers' financial energy burdens. All but four of the 27 states (including DC) with an energy efficiency resource standard have implemented at least one such effort, but only nine have adopted all of them, leaving plenty of room for growth. 'We found that low income targets are the most common complimentary goal related to efficiency standards,' said Mah. '[But] not many states had provisions for energy affordability.' The report spotlights five states that have been particularly effective at employing these programs. Illinois has targeted using only clean energy by 2050. Massachusetts aims to install half a million heat pumps by 2030. Michigan mandates that utilities dedicate at least 25 to 35 of their energy efficiency funding to programs serving low-income customers. Utilities in New York and Minnesota have capped the portion of a customer's income that can go toward utility costs at 6 and 4 percent, respectively. President Trump's push to repeal the 2022 Inflation Reduction Act, or IRA, likely won't impact state EERSs because they are generally funded through fees added to utility bills. 'We see that as probably the best way to bring significant funds,' said Justin Brant, the utility program director at the Southwest Energy Efficiency Project. Critics of Arizona's EERS, which was adopted in 2010, point to the $3 billion cost to customers. 'Utilities should select the most cost-effective energy mix to provide reliable and affordable service, without being constrained by government-imposed mandates that make it more expensive for their customers,' said Arizona Corporation Commissioner Nick Myers, in a statement last year. But the state's largest electric utility found that, in 2023, EERS investments reaped about twice as much in returns as was spent. 'We're saving money for all customers, even those who aren't participating,' said Brant. The IRA does provide nearly $9 billion for energy efficiency and electrification programs, almost all of which is distributed via states and could be used on next-generation programs, like those serving low-income households. That money has already been awarded. But the Republican-controlled Congress could roll back federal tax credits for energy efficiency and electrification, which indirectly make it easier for states to achieve their energy efficiency resource standard and next-generation goals. Brant says he would add another policy to the Council's 'next-generation' wishlist for states: programs that encourage customers to spread out the timing of their daily energy use. Lower peak demand means power plants don't need to be as large and that, he said, will be especially critical as renewable energy becomes an increasing part of the country's electricity mix. 'Time shift is not something that this report looked at,' he said. 'I think that's another piece that needs to be prioritized.' This story was originally published by Grist with the headline Almost half of US states haven't done the bare minimum to cut utility bills on Jan 29, 2025.
