by Brian Greenfield, Eversource
Pursuit of decarbonization goals is catalyzing an evolution of energy efficiency programs, which traditionally incentivize high-efficiency equipment and weatherization. As states and corporations pursue greenhouse gas (GHG) emissions reduction targets, growing opportunities emerge to engage with utility customers and discuss cost-efficient clean energy options.
In the 2019 Halfway There report, the American Council for an Energy-Efficient Economy (ACEEE) identifies electrification as a key pathway for decarbonizing U.S. energy use. The report emphasizes that “near-term efforts should focus on market niches where electrification may be more [financially] attractive.”
This article provides an overview of the cost tradeoffs in electrifying new homes and explores the process of designing an all-electric new homes incentive to drive consumer behavior.
In pursuit of decarbonization
To limit carbon emissions from new homes in Massachusetts, Eversource Energy and the Program Administrators of Mass Save (collectively, the PAs) are launching enhanced incentives to promote the selection of all-electric equipment for new residential buildings. The new “All-Electric Homes Incentive” offer reflects a fundamental shift in the value energy efficiency programs provide to customers. Where past programs provide value via incentives, reduced energy consumption and system-wide avoided energy costs, the “All-Electric Homes” offer expands on that objective. In selecting electric heating equipment, new homes meet traditional energy efficiency objectives by reducing customers’ energy bills, while cost-efficiently aligning with climate policy pathways.
This shift in objectives raises critical questions. In switching fuels and technologies, are there really energy savings and reduced customer costs? Simple calculations can estimate bill impacts using energy rates and equipment efficiencies, but there is more to strategic electrification than efficiencies and rates. Comparing across fuels and technologies requires a holistic consideration of capital and maintenance costs, electrical upgrades, and cooling impacts.
To root this analysis in data-driven research, the PAs commissioned the Residential New Construction Energy Optimization Cost Study from the NMR Group to explore the financial impacts of electrification on new homeowners. The analysis combines primary research on local equipment installation costs with building energy optimization modeling. The modeling identifies least-cost upgrades for new homes in Massachusetts.
Weatherization provides greatest benefits
The results on weatherization and cost tradeoffs are strikingly clear. First, the most cost-efficient energy and carbon reducing measure in new homes is weatherization. Properly insulating and air-sealing new homes avoids the opportunity cost of retrofits and reduces capital costs of mechanical equipment by decreasing heating and cooling loads. Second, the lifetime cost of heat pumps can achieve cost parity with gas furnaces paired with central air conditioners. While energy costs are higher for electric heat than gas heat in Massachusetts, the total costs of ownership are comparable over the 30-year study period when capital and maintenance costs are included. Program incentives for electrification further tip that balance, making electric options less costly. For other states, results will depend on climate zone, energy rates, and construction costs.
All-electric homes incentive
Leveraging these findings, the PAs and their implementation vendor, ICF International, designed the “All-Electric Homes” offer to enhance incentives for all-electric homes while prioritizing weatherization and technical support. To ensure sufficient weatherization, the offer requires participating projects meet minimum insulation levels and achieve whole building efficiencies 30% better than code. Establishing incentive levels required review of energy system benefits to ensure net value to ratepayers. Simultaneously, NMR’s review of capital costs elucidated the incremental cost burden to builders and developers pursuing electric homes, further refining incentive levels to maximize impact on decision-making without overpaying for energy savings.
Citing similar principles, the Massachusetts Department of Public Utilities (DPU) approved the “All-Electric Homes” offer within their recent three-year energy efficiency plan order. The DPU emphasized the importance of weatherization before electrification throughout its order, citing cost efficiencies resulting from right-sizing heat pump systems and alleviation of winter grid reliability concerns. The ACEEE Halfway There study similarly found, “Applying efficiency measures first reduces the cost of electrification … and also improves the ability of heat pumps to serve [winter peak] loads.”
A holistic view
The DPU ruling and ACEEE report exemplify a broader trend in climate policy. As decarbonization efforts accelerate and complexify, there is increasing need to ensure programs holistically serve customers. Tactful implementation of decarbonization policies – with consideration for cost efficiency, equitability, and risk management – will enable a more sustainable and achievable long-term decarbonization effort. Rooting program design in customer-centric and data-driven analysis yields more robust programs derived from a clear picture of the energy transition.
While this article focused on using data to design electrification programs, there are also challenges associated with identifying which customers are good targets for electrification programs. In the next article in this series, my colleague Kara Marshall will explore the opportunity utilities have to use their wealth of customer data to scale up electrification programs and ensure that all communities benefit.
About the Author
Brian Greenfield is a Senior Analyst on the Energy Efficiency team at Eversource Energy, the largest energy delivery company in New England. He specializes in the economic valuation of decarbonization policies, and the strategic design and evaluation of residential new construction programs.