Are heat pumps the key to accelerating the energy transition?

by Trang Chu Minh | Sep. 24, 2022

Heat pumps have long been heralded as a vital solution to electrification yet they only account for less than 10 percent of global building heating demand, according to the International Energy Agency (IEA).

The IEA's Net-Zero Emissions by 2050 Scenario would require the installation of 600 million heat pumps globally by 2030, up from 177.3 million in 2020.

In addition, with energy security being top of mind in response to rising geopolitical tensions and continued supply chain disruptions, the IEA also highlighted the deployment of heat pumps as part of its 10-point plan to reduce dependence on Russian natural gas.

Heat pumps operate similarly to refrigeration systems such as air conditioners (ACs), with the only difference being that they produce hot instead of chilled water and/or air, and offer both heating and cooling options.

During winter months, heat pumps transfer heat from the cold outdoors to heat your home, while during summer, they remove heat from the air inside and push cool air back. Because they transfer heat from the air, water or ground instead of generating it by burning oil or gas such as boilers or furnaces, heat pumps consume a lot less energy and are at least three times more energy efficient compared to conventional heating and air conditioning systems. As heat pumps run on electricity, if that electricity is sourced from renewable energy, they can make a substantial contribution to building decarbonization.

Despite their proven benefits in terms of greater energy efficiency and reduced carbon emissions, heat pumps have not yet seen the same market growth as solar, wind or batteries, due to challenges related to costs, shortage in qualified installers and insufficient manufacturing and policy support.

Heating, ventilation and air conditioning (HVAC) systems typically last 15 to 20 years, so households would realistically only consider replacement every one to two decades if their existing equipment breaks down. In such emergency cases, families will opt for the cheapest equipment that's readily available on the shelves, with heat pumps often not the most accessible or affordable option.

"A few things need to align to make sure people get a heat pump under those conditions. Contractors need to be familiar with the technology, so they’ll recommend it. Heat pumps need to be in stock at the local distributor, so people don't need to wait too long. The price needs to be low enough, so families can afford the upfront cost. And any subsidy program needs to be simple enough to navigate, so people can actually get the money," said Alexander Gard-Murray, a political economist at Brown University's Climate Solutions Lab.

All HVAC systems — not just heat pumps — are expensive to install, and although heat pumps offer savings on utility bills in the long run, switching to them might require higher upfront costs, including home upgrades besides the installation itself.

The average cost of a heat pump varies from country to country and will depend on labor costs, the local climate, the size of your building, installation complexity and equipment type. In the U.K., for example, a heat pump would cost around $12,000 compared to approximately $8,500 in Poland, according to Jan Rosenow, Director of European Programmes at the Regulatory Assistance Project (RAP), an energy non-profit.

In the U.S., climate research platform Carbon Switch estimates installation costs to range between $3,500 and $20,000, with an average cost of approximately $14,000 after rebates. The installation of a higher-end heat pump that's better suited for colder climates could go up to $18,000-25,000, according to Nate Adams, CEO of HVAC 2.0, which focuses on building more cost- and energy-efficient homes. A basic HVAC system costs between $9,000-12,000.

However, once installed, households could save between 12 and 55 percent on their annual electricity bills, according to a study by CLASP, a nonprofit advocating for more sustainable and energy efficient appliances. The exact amount of savings would again depend on the same factors that determine heat pump costs in addition to your current heating and insulation system.

Operating costs vary by climate and energy costs, but as natural gas prices soar and renewable energy production increases, "heat pumps are very likely to be the cheapest heat source in all but the coldest climates," said Adams, who aims to make electrification accessible to all homeowners through practical solutions such as "The Electrify Everything Course."

Importantly, Carbon Switch has shown that switching to heat pumps could help households cut carbon emissions by up to 228 tons — more than going vegan, which would reduce your carbon footprint by approximately 1 ton a year, and 10 times more compared to installing LED lighting.

Creating the right financial support mechanisms, which could reduce the upfront costs of installing heat pumps, and policy changes that would encourage an increase in heat pump manufacturing are vital to drive greater adoption, experts say.

Reforming energy taxes could be one policy lever to lower the running costs of heat pumps compared to heating with oil or gas, shares Rosenow. Some countries have also announced a gradual ban on fossil fuel heating systems, including Germany which set a target of installing heating systems which use a minimum of 65 percent renewable energy by 2025. Under its Boiler Upgrade Scheme, the U.K. offers grants to reduce the cost of installing air or ground source heat pumps.

In the U.S., the Inflation Reduction Act (IRA) put in place a slew of incentives, including a 30 percent tax credit of up to $2,000, but it only applies to heat pumps which achieved the Consortium for Energy Efficiency (CEE)'s highest tier for efficiency, clarifies Adams. The bill also introduced additional rebates for low- and moderate-income households, but these will be managed by individual states who have up to two years to implement the program.

"There's still a risk that despite the generous subsidies, there could still be a gap between the money a low-income family gets and the cost of a new, high-efficiency heat pump," said Gard-Murray.

Adams also warned that new refrigerants and higher efficiency requirements are expected next year, which would make heat pumps more expensive and likely offset the incentives.

Instead of focusing on consumers alone, Adams and Gard-Murray, together with CLASP, last year published a proposal for Hybrid Heat Homes (3H), an incentive program that would target manufacturers and distributors. An incentive of $400 to $500 would be offered to those who make a complete switch from producing and selling one-way ACs to two-way heat pumps.

According to Adams, since the manufacturing and installation process for ACs and heat pumps are almost the same, upgrading from an AC to a heat pump of the same model would only cost an extra $300-600 in terms of wholesale costs.

"Fundamentally ACs and heat pumps are identical, think of two identical cars but one has a reverse gear and the other does not," Adams said.

The authors estimate that for around $10 billion in incentives, the program would save consumers $27 billion in utility bills over a 10-year period, in addition to $80 billion or more in additional societal benefits thanks to reduced air pollution and improved health.

Parts of the 3H proposal have since been included in the Heating Efficiency and Affordability Tax Relief (HEATR) Act, although it also proposes subsidies that are not conditional on the switch from ACs to heat pumps. HEATR has been introduced in the Senate but is yet to be passed.

Similarly, the UK is preparing a quota that would require manufacturers to sell an increasing share of heat pumps over time.

Heat pumps can also be applied in a number of industrial processes, such as drying, boiling, distillation, preheating or pasteurization in the food, paper or chemical industries, from refining sugar to repurposing waste heat into useful energy.

Although the solution is still in the early stages, heat pumps could likewise help address the intermittency issues associated with wind and solar by storing energy and effectively turning houses into giant batteries.

"Heat pumps have a load profile that matches well with wind generation as previous research shows. Combining onsite solar with heat pumps can lower the running costs of heat pumps and reduce the amount of grid-imported electricity," said Rosenow.

According to the IEA, heat pumps together with energy storage could enable 40 percent of electricity to be produced by solar PV and wind power by 2030. 

Most heat pump installations are concentrated in developed countries and China, while the rest of developing nations account for only 4.3 percent of total heat pump adoption globally. Driving greater adoption of heat pumps in developing countries, which continue to rely heavily on fossil fuels for their energy needs, will be equally critical to global decarbonization efforts.

As demand for air conditioning increases, introducing policy that would ensure that new AC units are two-way heat pumps could be one way to increase deployment, advises Adams.

Improving labeling standards to educate consumers on how much they can save with a heat pump and helping developing countries build more clean energy infrastructure through aid and technology transfer will also be key to making sure that electricity is cheap enough to power the heat pump transition, adds Gard-Murray.

As Rosenow said, "not all buildings will have a heat pump and other technologies such as district heating and solar thermal will also play an important role. However, most analyses identify heat pumps as the most important heating technology in order to meet the climate goals."

Trang Chu Minh previously wrote about tiger conservation.

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