Starting Jan. 1, the Inflation Reduction Act (IRA) offers BIG tax credits for electrifying homes. But my experience electrifying my home makes me think that the market isn’t quite ready.

Five years ago, I hadn’t even heard of a heat pump, but read Justin Guay’s article about electrifying his home. Like Justin, we wanted fossil fuels out and to help bring down the cost curve. This fall, my family installed air-source mini-split heat pumps and a heat pump water heater (HPWH). These joined our solar panels, a battery and a Level 2 charger.

Our process went smoother than Justin’s. We worked with Elephant Energy, so we had someone experienced to design and install our system, utility rebates, and a newish electrical panel. But they had to bring in two HVAC technicians after the first said installation wasn’t possible (a common experience). And we waited months for our equipment (although the tide is turning on COVID-related shortages).

The average life of a furnace is 15 years, so for most people, it’s a one-shot deal. And outside of #EnergyTwitter, some people don’t know to ask for a heat pump if their furnace goes out. To entice customers, the focus should be on comfort.

For our 1925 house, mini splits allow us microcontrol of rooms that were previously freezing or boiling. Flair smart thermostats optimize temperatures across the mini-splits. Plus, our heat pumps haven’t missed a beat after big snowstorms. The right system works great in the cold.

One complaint, however. Our Mitsubishi mini-splits are ugly. Like hanging a giant printer on your wall. In a world of Instagram, it’s an opportunity for manufacturers.

If the US isn’t going to miss our shot for electrifying homes, we’ll need 80,000 new electricians every year in the next decade just to replace our current workforce. I think IRA rebates will need to be coupled with additional rebates from states and utilities. One friend was quoted $40K to switch to a heat pump system, and he opted for adding insulation instead.

 

Electrification Tech is Getting Better 

Carbon Switch (acquired by Electrify America) helps educate by serving as the Wirecutter for home electrification. Companies like Elephant Energy and Helio Home are the qualified experts helping consumers manage the technical challenges of electrification.

SPAN launched a smart home electrical panel. Pecan Street estimates 48 million homes could need new electrical panels to handle the demand of heat pumps. ConnectDER has a meter collar that can avoid a panel upgrade and install devices faster.

Impulse (AHG client) announced an elegant battery-enabled induction stove that customers can use with a standard 120-volt outlet. Channing Street Copper Company announced an induction oven with a battery. Legacy company Rheem launched a 120-volt plug heat pump water heater.

Mysa and Flair created smart thermostats that work with mini-splits amongst other things. Gradient is tackling bringing heat pumps to homes via window units. They are DIY install and have a much sleeker design than AC window units. Dandelion Energy installs geothermal heat source pumps that are particularly effective in colder climates.

 

What the IRA Gets Right and Doesn’t:

Here’s the rundown on the incentives:

Homeowners are eligible for up to $3,200 (Tax Credit 25C), including $2,000 for a heat pump or a heat pump water heater (HPWH) and up to $1,200 for additional upgrades. RMI’s analysis is that the credit will drive sales of an additional 7 million heat pumps.

For low-to-moderate income households, the High-Efficiency Electric Home Rebate Act (HEEHRA) includes a tax rebate up to $14K, covering 100% of costs for households under 80% of area median income and 50% of costs for families under 150% of area median income. Program spend can go up to $4.5 billion, and could lead to an additional 2.5 million electrification retrofits. HEEHRA rebates can also be stacked with 25C credits making electrification even more affordable. Other credits include $4,000 for an electric panel and $1,750 for a HPWH.

 

What We Need to Do Next: 

1. We Need More Electricians: States should build on the momentum of the $260 million in workforce development programs the Biden administration is putting toward supporting energy upgrades. One of the largest issues facing heat pumps is a lack of skilled, knowledgeable installers. States can provide grants to programs willing to help train and develop a new class of electricians and HVAC installers focused on home electrification. NYSERDA has spent more than $120 million to train clean energy workers. They even pay employers for up to 24 weeks for on the job training. Smart.

2. State Program Design Matters: The IRA is dependent on each state’s energy office to give out the HEERA rebates. States that already have a robust heat pump program will have an easier time deploying. Maine set an ambitious goal of installing 100,000 heat pumps and is a third of the way there. Rebates are part of the solution but Maine also offers loans, education, and maintains a network of certified installers. States will also need to figure out how to efficiently determine who is income eligible, which could be very challenging.

3. IRS Has Some Explaining to Do: As we noted in our Gist on industrial heat, the IRS is the tax credit oracle. Heat pumps won’t be as effective in a leaky house, but right now it’s uncertain whether the $2,000 heat pump tax credit can be stacked with the $1,200 energy efficiency tax credit. By requiring that heat pumps adhere to Seasonal Energy Efficiency Ratio (SEER) ratings, the IRA also inadvertently leaves out window unit heat pumps, which are measured by the Combined Energy Efficiency Ratio (CEER) rating. Fifty percent of households in the northeast use individual AC units so that’s a big miss.

Hit Elaine Reddy up with any questions about home electrification at elaine@theadhocgroup.com. Have you started the process of electrifying your home? Please let us know what your experience has been like so far.