Extremely Comfortable Home Makeovers — Episode 180 of Local Energy Rules

Nate Adams:

The critical thing to understand is somewhere between 80 and 90% of HVAC systems, meaning furnaces, air conditioners, heat pumps, boilers, whatever, they are replaced on an emergency basis. So just like your neighbor, it’s cold outside. We finally stress the furnace beyond what it’s capable of and it’s stopped working. Fundamentally, if we can’t solve for that problem of 80 to 90% of HVAC replacements being emergencies, we fail. But if you make it so that only the heat pump is on the shelf, there’s your efficient product.

John Farrell:

Did you know you can heat your home without burning gas in your basement? With heat pumps providing a viable alternative to gas furnaces, there’s a lot of excitement to deploy this cleaner technology across the country, especially in cold climates. The recent Federal Inflation Reduction Act created many financial incentives to encourage electrification of heating, ventilation, and air conditioning or HVAC systems. But the federal programs and many climate activists may have forgotten two keys to unlocking this opportunity. One, the role of HVAC contractors as crucial intermediaries between Americans and this new safer, low carbon technology. And two, the fact that most furnace replacements are done on an emergency basis. Nate Adams, CEO of HVAC 2.0 joined me in January, 2023 to talk through these challenges, how we need to talk about climate less and comfort more, and how to make better policy to support more efficient low carbon homes. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Nate Adams, welcome to Local Energy Rules.

Nate Adams:

Thanks for having me, John.

John Farrell:

I have so many different ways in which I was interested in having this conversation with you. So I am a person with a 25 year old gas furnace and an aging gas water heater in a cold climate in Minnesota. And so I am like personally thinking through this process of how am I going to make my home comfortable in the winter in the future when I switch out those appliances? I am professionally very interested cuz I also have rooftop solar and I know that it produces tons of electricity in the summer and it just snowed a bunch of Minnesota and I’m getting like a kilowatt hour a day. So I’m very aware that people need to be thoughtful about how is this gonna work with renewable energy.

And then I’ve come across you on Twitter, you’re one of the few contractors I see really engaging in policy conversations on Twitter about this. I’m so grateful for it because I feel like it’s a really important grounding for those of us who live so much in the policy environment and our experience with contractors is really anecdotal and personal and not professional in terms of knowing folks who have worked in this space. So I guess maybe if you could just start by talking a little bit about how did you get into the work of doing home contracting and energy efficiency, but also really how did you <laugh> What motivated you to join the like energy Twitter sphere and to like talk with policy wonks on social media? It just doesn’t seem like many contractors wanna make that leap from the work they do every day until like engaging with people in 280 characters or less.

Nate Adams:

Two answers. The first one is I needed a job and the second was, I’m probably stupid <laugh>. It’s really, beginning to figure out the building science thing came from, it was, I needed a job and I started in inside sales for an insulation distributor back in like ’05 and quickly got put on the road. So I became outside sales guy for fiberglass insulation selling to contractors who do that in new homes. And I’m naturally a product knowledge guy. Like whenever I get into something, I wanna understand the why and the what and the how. Like I, I need to know those things or drives me bonkers and I’ve always been that way. So I started digging into the building science side of things, but if you work for a fiberglass manufacturer, the stuff that you get, we’ll just say is a bit biased <laugh>, so it’s fiberglass good, cellulose bad, that sort of thing that I just kept digging.

But then my job disappeared with the housing crisis in ‘09 and I became an installation contractor. I’d actually, I was unhappy where I was, we’d been bought by a manufacturer and it felt like office space. I had five bosses. But I became an insulation contractor and then started digging in more, met an energy auditor and dug in more, got Building Performance Institute certified. And basically I learned how to do work that was better than I knew how to sell. And I went out of business because my margins did that. They went from decent margins to nothing. Doing bad work is profitable. That’s actually probably like a really key thing.

So what I, what I went searching for, my now business partner, he was telling me that his average job, well my average job as an insulation contractor was 2,500 bucks in HVAC with insulation. His average job was 16,800. And I’m like, what are you doing? Something’s going on there. Like there’s a major step change that I’m missing here. So he started teaching me how to do that. So I should say I’ve never truly been a contractor in this space and I’m not an HVAC contractor. I was a consultant and still am a little bit for building performance work. So it’s been this, there’s all of this learning that goes through all of this. And what we have been trying to do the whole time is can we reach mainstream homeowners and mainstream contractors with building shell stuff, which is what you need the insulation and air sealing to make homes truly comfortable and healthy and efficient. You have to deal with both the building shell on the outside and the HVAC on the inside. It’s like diet and exercise as far as getting healthy. Like you can do it with one or the other, but it’s kind of imperfect. If you use them both, that’s where the magic happens.

So that’s what we’ve been trying to figure out for a long time. And we keep trying and failing and trying and failing. And we’re, we’re getting very, very close with one last piece that we’re working on within the HVAC 2.0 program, which is, it’s basically, it’s a sales processor, a business model for contractors that happens to be very electrification friendly. So we don’t sell it on electrification because the first rule of heat pump fight club is never talk about heat pumps. Like you really shouldn’t. You talk about how they like, the best way to make houses more comfortable is to match the output of the HVAC to what the house needs at any moment. And that requires being able to step down to a very low output. Heat pumps are just, they have lower outputs than furnaces, so heat pumps are naturally the better solution, which was a big chunk of how I learned how to use them. And the second one that I sold, that’s how I sold it.

I talked to my client Paul, and I said, Paul, you’re gonna think I’m crazy. He has this little 1300 square foot house in Cleveland that was leaky as a sieve. But I remember this conversation, I was like, Paul, this is gonna sound crazy so just don’t tell me no now. You can tell me no tomorrow, but I don’t want you to tell me no now. There is no equipment that is sized right. There’s no furnace we can buy that’s sized right for your house as it stands. We need to be looking at a two ton heat pump to have something that’s sized right. And I had actually insulated his previous house and done the whole thing top to bottom and it, it changed how his house felt. So he had a lot of trust and it was like, okay Nate, if that’s what you think we should do, that’s what we’re gonna do. And he kept doing that. So like I got to do anything I wanted on that house, which was fun. So I didn’t charge enough for my services frankly, but I got to learn, it’s a great case study, but I sold that heat pump. Like he didn’t care about climate, he didn’t care about electrification. This is also 2015, like nobody even knew what electrification was, we’re the weirdos out there doing it. So he bought a heat pump and was just thrilled with the comfort because he wanted a comfortable home that didn’t cost too much to operate. That’s what he got. And we just happened to use a heat pump.

John Farrell:

You kind of alluded to this already in your own experience with your heat pump and then the backup resistance, but what was it like the first few times that you were installing heat pumps? I mean, is there anything that can help a contractor get over the anxiety of new tech or like deal with the anecdotes they’ve heard? I’ve asked, I’ve now made it routine when I have a HVAC contractor in my home for various things to ask them like, Hey, do you, have you heard anything about heat pumps? Like what’s your experience been? And I almost always get a bad story out of that question. And so I’m just kind of curious like how do you help people who have heard the bad story or experienced the bad story come back around and say, Hey, I should give this another look.

Nate Adams:

So it’s hard. There’s a bunch of people we just aren’t gonna change period. Um, like they need to be changed outta the industry or forced to change. But for those that are open, one of the best paths is to install an Ecobee thermostat or an Ecobee thermostat. I, I never remember which way it’s pronounced an I say Ecobee. So, toe-may-toe, toe-mah-toe, I’m right <laugh> <laugh>, it doesn’t matter. But uh, the Ecobee thermostats, what they do is they do runtime tracking. So you could do this on your house now. So you look on the coldest day and you see how long it shuts off. So if on a cold day it shuts off 30 minutes, that means it’s twice as large as it needs to be.

John Farrell:

This is so fun. I’m already excited about what I’m learning on this call, so thank you.

Nate Adams:

<laugh>. Good, good. Well I just cost you 250 bucks for an Ecobee <laugh>. They’re actually, they’ve got less expensive ones now, but you, you can DIY that if you watch some YouTubes, it’s up to you and I would have someone available just in case you screwed up because you might freeze your house right now <laugh>

John Farrell:

I already have a contractor coming tomorrow to fix some other issue which we shouldn’t spend time talking about. So let’s just say I’m not, this is not the year for me to mess with that.

Nate Adams:

But uh, a number of contractors that have had their minds changed. So one of my favorite examples is Adam Muffich known as A-Team Adam, he’s one of the hosts on the HVAC overtime show and he’s one of the 2.0 guys. He was nervous. So just put a couple in the first year so that if it’s a problem, it’s only two houses you’re looking at, you didn’t do 50. Or if you run hybrids, you know you’re okay because you have the furnace for backup, which is why the hybrids are a good first step. But if you watch a hybrid system with an Ecobee and you watch the heat pump carry the house down to 10, 15 degrees, which is pretty common, you’re gonna be much less afraid of them moving forward.

Now you live in the hardest large city in the US. Minneapolis and Winnipeg, just north of you in Canada, those are the two hardest large cities because you spend a lot of time below zero Fahrenheit, which is where things get hard with heat pumps. Not impossible, but hard and where building shells starts to come in to be more important to be aware of. If nothing else, where I live now in southern West Virginia, this is not a difficult climate to electrify because we don’t spend a whole lot of time below zero. That’s where things get interesting. If you can get contractors to put a couple of Ecobee on some of their systems and then watch what’s going on and understand that the load calculations they’ve been doing are flat out freaking wrong. So this is one of the, the key things, and I didn’t put this into notes, but if we don’t solve HVAC load calculations which determine what size equipment you need, we’re in real trouble because it’s typically twice what you need.

So we can discount manual j, backup manual j, it’s air conditioning contractors association manual J load calculation. We can discount it between 30 and 60% for almost every house and still meet loads. Meaning when it’s design temperature where you, that’s the temperature that you spend 99% of the year above or below, if you can keep the house warm or cool at that temperature, you have the right piece of equipment. But we’re doubling the size that you usually need.

So like if, if you look at a heat pump like a R, the standard two sizes are two ton and three ton, which is 24,030 6,000 BTUs. Not that the numbers matter that much, but two and three ton. The smallest normally available furnace is 60,000 or five ton. That’s also the largest normally available heat pump. Most houses uh, heat pumps need a lot more airflow to get their work done because they don’t heat the air quite as much as a furnace does. So you need more cubic feet of air to move the same amount of heat. And most homes don’t have five tons of air of duct work. They have two or three. So we have just all of these multiple challenges going on. But if you have a load calc that comes in at 60 or 70 or 80,000 BTUs, are they gonna put in a 36,000 BTU heat pump? No, cuz the load says 60, 70, 80, but the actual load probably is somewhere between 20 and 45,000 BTUs. That’s a problem.

John Farrell:

I remember when we first did some looking at heat pumps and I was, I looked at my own furnace, which is I think like an 80,000 btu, 80% efficient gas burn and I’m, I’m like right out of the book of like here’s that customer that you can get, you know, get a more efficient setup when you go into like replace their furnace And I remember first looking at heat pumps and like I don’t get it. Why are they all so much lower BTU output? How is this ever gonna work? Like if I have a furnace that’s 80,000 and a heat pump that’s 30, well the math just doesn’t work there. So it’s been fascinating to like talk to people and actually understand how these work that you’re extracting the heat out of the air so you know that there’s the whole fuel side of things but then your output just isn’t as much.

But the whole idea is that you just run it all the time and keep pushing warm air into the home as opposed to the furnace which is basically set up, as I understand it, for that period where like I got my house down to 50 and I want it to get it back up to 70 in like a couple hours. And so it’s sized to like burn the living crap out of the house if it can to catch it up on that very coldest day. And you know, it does that very nicely. I do have a setback with my furnace that’s like 10 degrees less than our daytime temperature and it does have to work pretty hard that first hour or two in the morning and then it doesn’t do a whole lot all day. So it’s just fascinating to sort of see that play out then in practice.

Nate Adams:

And that’ll be a behavior to change too cuz if you do that, you’ll kick it in to resistance. Most heat pumps, if you ask it for more than two or three degrees difference, it uses resistance to make up the difference, which uses three times the energy – well give or take, at lower temperatures, more like one and a half or two. That’s the other curse is like heat pumps are complicated cuz it may say three tons of output, 36,000 BTUs of output, but at zero most heat pumps are gonna be putting out like 18 or 15, like half of what their rated capacity is. That’s actually one of the reasons I chose, we have Daikin fits here, which I’m sure we’ll come back to, yet they have full output down to five degrees Fahrenheit. Design here is 11 degrees Fahrenheit. So that’s fine. And ironically I didn’t run load calcs on these houses. I’m like, they’re small, I need the smallest one I can get. There’s a one and a half ton fit, that’s what I’m doing. <laugh> like you shouldn’t do it that way. Like it was a totally  ‘do as I say, not as I do.’ We did end up running a load and this one came in at 11,000 BTUs and a ton and a half is 18. That was too aggressive of a load ironically cuz it, it did need the 18, but anyway, there’s how much does it put out at the cold temperatures as well?

So there’s, there’s all of these different pieces, parts, and now we’re getting probably too far into the weeds on the actual technical side of things. It is at least somewhat important to have some understanding of this because if, if you’re technical understanding is wrong, it’s like basing policy on the world is flat so all the policy you do is wrong. Like please keep the cats away from the edge so that they don’t fall off and they don’t push things off. Like no, that’s not what, we don’t need policy of cats at the edge of the earth, <laugh>, the earth is a sphere. So that’s one of our big frustrations. So my main reason for being on Twitter, which frankly I have failed now because I don’t like the program design of what’s in the IRA, was to keep policy makers from screwing us. Those of us in the field.

John Farrell:

Let’s come back to that in a minute. I wanna at first, since you’ve already, you and I have already gotten into the weeds here, which has been really fun, but I’m just thinking about like this technical talk that we’ve had about load calculations, about BTU output, about all this kind of stuff. The kitchen table conversation that you have with the average customer is gonna be totally different. You’re not gonna get into that kind of stuff. You’re not gonna try to train them on when does the resistance heater kick in? Cuz that’s, you’re gonna program under the thermostat hopefully you’ve done everything right when you’ve commissioned the project and you leave and their job is just to adjust the thermostat like they’ve always had and maybe learn a couple behavioral things like don’t do a 10 degree setback if you want your house to be warm on a really cold day. Right?

But let’s talk a little bit about like how HVAC replacements happen because I think one of the things that is fascinates me about this whole conversation about electrification is that, and this, I’m just speaking from experience with my neighbor, right? Like when they replaced their furnace, it’s cuz it had just died and it was cold out. And so talk to me a little bit about how do the most of these HVAC conversations happen, what does that mean then for the nature of like planning a good system? What does that mean for talking about heat pumps versus furnaces? What does that situation look like?

Nate Adams:

So yeah, the critical thing to understand is somewhere between 80 and 90% of HVAC systems, meaning furnaces, air conditioners, heat pumps, boilers, whatever, they are replaced on an emergency basis. So just like your neighbor, it’s cold outside. We finally stress the furnace beyond what it’s capable of and it’s stopped working. And oftentimes you can make repairs but sometimes you can’t. If it’s a cracked heat exchanger, you don’t want carbon monoxide risk. Fundamentally, if we can’t solve for that problem of 80 to 90% of HVAC replacements being emergencies, we fail. Cuz the problem is at most supply houses, they don’t really carry heat pumps. Not in northern climates. Down south, sure, because they’re normal, cuz their loads are easy enough that people aren’t afraid of them. But if your air conditioner breaks this summer and there is no heat pump on the shelf and you want that air conditioner fixed that day or the next day, what are you getting? An air conditioner, and fundamentally an air conditioner and a heat pump, they’re the same piece of equipment, they’re almost identical.

The easiest way to think of it is two identical cars. So picture a Toyota Camry, four cylinder and a Toyota Camry four cylinder. One has reverse, the other does not. Not having reverse is stupid. So, and I, a funny little story on this, a friend of mine in high school, his dad had a Volkswagen with a stick shift, which you had to push down and move over to get it to go into reverse. It was a unique thing, he couldn’t figure it out. So he was out with buddies and he put it in neutral and his buddies pushed him out of the parking space. To me, that’s what an air conditioner is – great, you just bought an air conditioner or that you have to push it out of the parking space. It’s like having a Ferrari with no reverse and having to push it out, like this is dumb, why wouldn’t you get that? It’s like 150 bucks in parts at the manufacturing level between an air conditioner and a heat pump. And most air conditioner models have a heat pump version. So they’re fundamentally the same piece of equipment. So it’s, it’s important to understand that.

I couldn’t believe it made it into his book, but my friend Justin Gillis, formerly New York Times Climate Desk and then Hall Harvey, he put in there – So I, I joked that heat pumps are like bisexual air conditioners. They go both ways. And I’m like, seriously? That made it in there. Like I said it as a joke, I didn’t know if that would be too far out there, but hey it’s in a policy book <laugh>, you can go look it up. But humor’s always nice because it breaks through people’s barriers. Their walls come down temporarily while you tell a joke and then they go back up again. So if you can sneak that Trojan horse in, you’re good. And that was one way that we describe it. Not usually the customers, though frankly, but it’s nice to have a sense of humor.

So anyway, it’s a really hot or a really cold day and your system breaks and now it’s a very expensive expense that you weren’t planning on that is second only to buying a car or a house. Cuz I mean you’re looking at, and actually we should talk about general pricing. So it used to be something like 4 or $5,000 each for a furnace and an air conditioner and it’s best to buy them together. So you’re not looking at 4 or 5,000, you’re looking at 8 to 10. That’s where we were pre pandemic. Now we’re seeing 10, 12, sometimes 14 for basic systems.

And it’s best to look at it changing them both out at the same time, particularly if you’re looking at higher end systems because they talk to each other. So it’s like you aren’t gonna put a Ford transmission in a Chevrolet like you’re just not gonna do that. You’re not gonna mix and match the parts like that. And that’s kind of what buying just one piece of equipment is if you are looking at replacing equipment, it’s best to do both at the same time and it’s a surprise expense. So you’re going to try and minimize that expense, not maximize that expense. Which makes it challenging because air conditioners are slightly cheaper than heat pumps with the same model. Not a lot, it’s 3 or 600 bucks. It’s not, not a massive difference, but it’s still 3 or 600 bucks. It’s not nothing. And so people tend to go for the air conditioner plus it’s a little bit more complicated to set them up when you install them. Not a lot like should be it. Our estimate is it’s no more than a half an hour extra to do a hybrid than it is to do a furnace and an air conditioner. So we’re not talking the huge difference here, but it’s a challenge because people are suddenly in a bad position with a big expense and what are they gonna do? They’re, they’re gonna buy the cheapest thing they can get from the first person that shows up to the house and has availability to install it and he’s gonna buy whatever’s on the shelf at the supply house at that moment.

John Farrell:

We’re going to take a short break. When we come back, I ask how Nate thinks we can address customer price sensitivity when buying new HVAC equipment, how we can address that furnace replacements are almost always emergencies, and whether new federal incentives will get to customers or be captured by middlemen. You’re listening to a Local Energy Rules podcast with Nate Adams, the CEO of HVAC 2.0.

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John Farrell:

So what’s fascinating to me about the way that you just described this issue about choosing the heat pump, we’ve worked with this woman Marti Frank, who have had on the podcast who did energy efficiency program evaluation out California and one of the things that she’s really been focused on is appliances. So this is not the HVAC stuff, this is like washers, dryers, refrigerators. And she said that basically half of all customers, when their appliance breaks, go out and buy the item with the lowest upfront cost. That is because they can’t afford anything better. And so her argument is that if we want to design energy efficiency policies that work from an appliance standpoint, when you go to the supply house or when you go to the Best Buy or the store that sells it, the cheapest item has to be the energy efficient one, otherwise half of the customers aren’t gonna buy it. It seems like there’s a strong connection between that and this problem right here with heat pumps or whatever’s in the supply house, you alluded to that as well. So we’ve got two problems: as a northern climate person, right? Number one, they might not even have a heat pump in stock, but if they did it would be priced higher. And I’m cost conscious cuz I’m now spending a bunch of thousands of dollars I didn’t anticipate doing. How do you solve that?

Nate Adams:

The hybrid heat homes program that we proposed and made it into the HEATR Act from Senator Klobuchar. So it’s, it’s pretty simple. You pay the manufacturers to stop making air conditioners and while part of it does kill me cuz it’s like, it’s a corporate handout, well maybe, but they do need to buy the parts and particularly early on they’re gonna have all kinds of warranty failures and other things. But if you make it so that only the heat pump is on the shelf, there’s your efficient product which has reverse, you’re not pushing the car out of the parking spot. To me it’s dumb not to do a heat pump. It’s just dumb. Did you just watch Glass Onion? It’s worth watching. It’s very funny – Daniel Craig with a southern accent. It’s kind of funny, but somebody kills another character with pineapple juice because he’s allergic to it and he’s like, somebody’s like, that’s brilliant. He’s like, no, it’s dumb, it’s just dumb <laugh>

John Farrell:

Oh, I’ve seen this meme already, maybe I saw it on your feed actually. So that’s funny.

Nate Adams:

<laugh>, you, you might have, it’s just, it, it’s a really funny little moment. But that is how I view air conditioners. Air conditioners are actually unintelligent because for such a small extra bit more you can make your house more comfortable in all your shoulder seasons and you also have the opportunity to fuel arbitrage. So if natural gas prices are crazy high but electricity isn’t too bad, you can move your balance point around and lean on one or the other more than the other. So like why wouldn’t you do that? And the reason is about 500 bucks, that’s really the reason.

So why don’t we make it so that there are only heat pumps on the shelves. And so now that’s probably over from a national policy perspective, not that it’s off the table, but with, with IRA sucking most of  the oxygen outta the room on that, I don’t know that we’re gonna get another 10 or 12 billion, 10 or 12 billion by the way in the paper is enough to convert every air conditioner to a heat pump for five to seven years in the United States. So we’re not talking a lot of money at a federal level because what’s the two state policies in IRA are about 9 billion. So that’s almost right there. And what that will do is if we don’t get to where we have 100% heat pump penetration by 2030, we miss a 2050 completion date period because it’s a 15 or 20 year replacement cycle. So that’s the challenge. So if we can get only heat pumps on the shelves, we have a prayer at finishing by 2050. If we don’t, we don’t.

John Farrell:

I don’t know if people like to hear personal anecdotes from me, but I have an air conditioner that is relatively young because we were building a deck and we had to move the old one and it was so we needed to swap it out. We were not doing the furnace at the same time. And I still remember seeing the sheet for the Goodman brand things and there was like the less efficient and the more efficient and the heat pump. And I remember the contractor to his credit actually suggested the heat pump as the option.

Dustin Denison, he has done a lot of great policy work in Minnesota as well as being a contractor and he’s one of those sort of visionary folks who had been looking at this of like, hey, here’s the opportunity. And I did not take the heat pump because I was very cost conscious at the time. So like perfect example. And I still to this day like grind my teeth thinking like, oh my gosh, like the opportunity that I missed there to have that thing. Even if I had not bothered to use the heat pump function for heating, it would’ve just, the equipment would’ve been there. And now of course the only way for me to get one is to buy an entirely new system and I’m probably gonna do that at the time I replaced my furnace. So it’s gonna be a lot out of pocket at the time. But anyway, it still makes me bitter to this day that I made the wrong choice there.

Nate Adams:

Well thank you for owning up to it, but also you didn’t know. So that, that’s one thing that we talk about a lot with our contractors, what we do professionally as a practice. I mean six weeks outta med school you call a doctor ‘doctor,’ but I’d much rather have that same person 20 years later because they’ve learned. So we’re going to learn. And the key thing is don’t beat yourself up for decisions you made in the past with what you knew at the time. If you continue making mistakes now that you know something, all right, then there’s a reason to be upset. But it’s a practice we’re gonna continually get better. That’s okay. So, and you know it for the next time, but you could have probably reduced your natural gas use of your home between 40 and 60% if you had made that choice.

John Farrell:

Hmm, thanks for the reminder Nate.

Nate Adams:

Just let me just move that knife around in you <laugh> but what you did though, like that’s, that is perfectly illustrative of what happens. And so instead of it being 500 bucks extra parts, so it realistically you’re looking at somewhere between 1,000, 2,000 extra. Usually that’s just what it ends up being. There is a little more labor. You have to buy a better thermostat. You know, there’s the stuff because reasons as the kids say, instead of it being a thousand or $2,000 more, it’s minimum five if you just replace the outdoor unit and it’s probably,  like if you just change the air conditioner, you’re probably looking more like six or seven and if you do the whole thing, it’s gonna start around 15.

John Farrell:

So well let’s talk about that. So 15 is the HVAC system, but of course as we talked about earlier, the building shell really matters a lot when you talk about heat pumps because now you don’t have this oversized furnace in a cold climate to help you out if you’re leak. You’ve got a leaky building when you’re down in those very cold days. And a lot of policy folks of course dream about combining energy efficiency with electrification that hey, when we’re in the house this is the time to get to it. But how does that work in practice? I mean, as you alluded to, right? People are price sensitive that HVAC replacement is probably coming at a shocking moment of crap, this thing just failed. Do you really get to do building shell improvements at the moment when people are replacing hvac? And if not, then what are the things that we actually need to be thinking about how that kind of process happens? How do we get to the, how do we connect the dots between building shell and HVAC replacement knowing that one of them helps us correctly size the other?

Nate Adams:

It’s funny you should ask that. You’re gonna be shocked when I tell you that the HVAC 2.0 system is very good at dealing with that risk <laugh>. Um, there’s a couple different ways you can do it. You can put in a hybrid that’s basically the same size as what you have now, not perfect. And a hybrid is a furnace plus a heat pump instead of a furnace and an air conditioner. So you can do that, but if you fix shell issues later, that may end up being the wrong piece of equipment and now it’s too large and the comfort isn’t as good. So we try to size HVAC to where the house is going, not where it is. So I guess picture it like, the biggest loser like you have your your goal outfit. We wanna buy the goal outfit first, <laugh> we’re not gonna buy the fat guy suit, we’re gonna buy the skinny guy suit.

 

Nate Adams:

But to do that you need to understand some things. You need to know how much does a house leak, which is really important particularly in cold climates cuz houses end up acting like a giant smoke stack. So when it’s really cold you get cold air sneaking into the leaks in the bottom, rushing up through the house and coming up at the top. It’s called the stack effect named after a smoke stack. In the summer it actually reverses and the hot air comes in from the up top and then pushes out and down through the house. But if you have a really leaky house, it’s load is not linear. When it gets colder it becomes exponential. I don’t think it’s heavily exponential. It’s like to a one and a half power. I don’t know that it’s even quite a square, but it’s definitely not linear anymore.

So if you have a leaky house, it’s gonna be a struggle, not that you can’t get around it. So you can do a hybrid, you can do a furnace, boom problem solved because of the same size furnace is doing the job now  it’ll do it when you replace the equipment. So you can use whatever backup heat you need. You’ve got up to 20 kw which is six, almost 70,000 BTUs of heat. If you have 20 kilowatts of backup resistance, which is the largest kit that you can buy traditionally. So you can do it with resistance, but the better way to do it is to run a blower door test on the house, see how much it leaks. Take a look at past energy bills where you can pretty closely estimate what the actual load of the house is. If you have that and blower or you can be pretty close, well then you need thermostat settings cause some people are weird.

I had one client that I was like, so where do you keep your thermostat in the winter? and he’s like 55 degrees, like oh that 800 therms is now really bad where I thought that that was an efficient house. And I put the blower door up and sure enough it leaked like a sieve. But looking at his energy bills, I wouldn’t have guessed it would be that bad. But if you have those couple of pieces of information you can size pretty accurately, which is also how the contractors reduce their risk and their fear.

Plus a bit of resistance heat can help on the bottom, but needs to be set up right where it’s just boosting, it’s coming up underneath. Picture resistance heat like an afterburner. So like a fighter jet’s mainly flying on its engines and the afterburner burns a crap ton of fuel, but it lets you get beyond mach one. So the resistance heat is the afterburner, you’re not running it all the time. It’s there as backup. So if you can understand where the house is now and you can make some pretty quick modeling assumptions to where it could be within reason. And then you can decide do we wanna size this HVAC to where the house is now or where it would be after some shell work. And that’s part of the HVAC 2.0 comfort consult, which is, it’s basically half of an energy audit is what it works out to be.

John Farrell:

That’s so interesting. Is it possible, so let’s just say you actually get somebody calling you who still has a furnace that’s working well maybe it’s not as old as mine, 25 years. Can you use an existing furnace as part of that hybrid system or do you really have to replace the equipment?

Nate Adams:

I mean you can, but a 25 year old furnace, I probably wouldn’t do that. It’s way at end of useful life. You’re well beyond. So that’s a good car with 275,000 miles on it, you know, like it’s doing pretty good if nothing’s breaking, but I mean it could break tomorrow or it could make it to 375. I don’t know. It’s anybody’s ballgame. So an older piece of equipment, yeah, I wouldn’t do that with but say you have a two-year-old furnace, there are a few products out there for that. I have one in our house here actually that’s called a Bosch heat pump Bosch brand, but it, it has an inverter outdoor unit that is trying to hold a certain temperature refrigerant lines. Now that’s a little bit nerdy but it’s using other things and trying to control based on that. So it doesn’t talk to anything inside. It doesn’t know what the thermostat or the air handler are doing, it’s just, it gets a signal for low heat or high heat or low cool or high cool. And it just does that and then it tries to hold a certain pressure temperature so you can use that and that’s actually not a half bad heat pump, got pretty good output. So there are products for that sort of thing and they should be offered if that is appropriate. So say instead of your air conditioner being new, your furnace was new, that would be something that I would present to you as an option if I were your sales guy. Doesn’t mean you do it, but I’d wanna put it on the table.

John Farrell:

So we’ve talked about like the challenge of the fact that HVAC replacements are emergencies. You have a tweet that you put out not too long ago with an excellent image from Black Panther attached to it. The fact that it is an emergency replacement was really only one of the five challenges that you talked about in terms of scaling electrification. Can you just go through the rest of those and talk a little bit about how do we solve some of those other barriers?

Nate Adams:

Absolutely. 85% emergency replacements, that’s the first and probably the biggest because if you don’t solve for that, you literally miss 85% of the problem <laugh>. And that is solved best by only having heat pumps on the shelves, which could be done at state and local levels since national level is probably out. The second one is you need to design a system that is capable of reaching mainstream contractors and homeowners. So if you were thinking about electrify everything, you are not mainstream. You are a nerd, you are an early adopter, you just are. I am, it’s okay, there’s nothing wrong with it, but our language is offensive to mainstream people. It just is. So I have to constantly watch my language when I’m talking to mainstream people.

So with homeowners, we solved that a lot by asking what comfort problems do you have in your home or what moisture problems or health issues do you have? Like do you have a lot of asthma and allergies or something like that. What problems are there to solve in your home that can be affected by HVAC? So that’s part of what we do with the HVAC 2.0 system, which is, it’s also software, it’s sales management software. So to reach mainstream, you basically sneak it in there. So it’s like if you want people to eat vegetables, you put ’em on pizza so you just sneak it in there <laugh>. But all of a sudden we’re putting peas in the mac and cheese, which works for our daughter pretty well. We have to find ways to do that. So the best way to deliver excellent comfort for homeowners is a variable speed, right size modulating heat pump. Period. It just is. With or without a furnace, that’s the best piece of equipment for doing that job.

So that’s how we sneak that in on homeowners. For contractors, we cannot politicize stuff. So 80% of HVAC contractors, just contractors in general are either politically conservative or centrist. So it skews fairly hard right politically. So don’t say climate, they’re gonna shut down, they don’t care. But if there’s one thing that I know that is completely apolitical and bipartisan, it’s money and profitability <laugh>. So if you can give them a better business model to where they make more money and they enjoy their lives more, that just happens to sell heat pumps, now we’ve got a path forward. So for contractors it’s mainly about business model and making their lives easier. For homeowners, it’s more about solving problems that they have. So that’s the second one of reaching the mainstream.

And I touched on the third one, which is that 80% of contractors are conservatives. So don’t, don’t talk climate, you can, you can talk clean air and clean water. I mean conservative is based on conservation. Teddy Roosevelt’s, I mean the EPA was Nixon, which a lot of people don’t know, he was not a liberal <laugh>. We’re safe on safe ground there. So like, there’s ways that we can get there, but really business is the best because it’s just apolitical.

And then number four is it has to be more profitable than business as usual, which is hard because number five is that good installs cost more. They just do – you have to take more time to do a good install. Typically the duct work is constrained. So it’s like you’re asking the system to breathe through a straw. And with these new motors like I was mentioning earlier, they’re like primadonna soccer players. So if you present them too much pressure that they have to work against – we’re already seeing, so there was a mandate put through where all furnace motors starting in July of 19 had to be ECMs, the new kind of efficient motor. They’re really efficient if they don’t have much pressure to work against, they can actually use more energy than the old style if you put ’em against a lot of pressure. So there’s irony for you and we’re already seeing five and 10% failure within three years. Those fans, because they’re being put into duct systems that are too small, they’re trying to breathe through a straw and they’re dying. To fix that, you have to do a better install, you need to adjust the duct work. It’s not necessarily a huge deal, but that does take hours extra at an install, which routinely will push you into a second day. And as soon as you get into a second day, that job needs to get considerably more expensive.

So if you’re trying to solve for more profit but more expensive installs, we have a problem <laugh>, we just do. And the answer is really to build more value. So you need to find reasons for the better install to happen naturally. So you can put a better filter in which knocks a bunch more of the dirt out of the air and you get to dust less. It’s also really good from a covid perspective and a viral and a bacteria perspective in general because a huge number of the bugs float around in the small spit particles coming out of our mouths. And those particles are of a size that good filters will pick them up. So you can actually reduce risk there and when you put that big filter in the air has an easier time going through and now your pressure inside the ductwork falls off a cliff.

I got a really good data set from a friend of mine, Jim Bergman of Measure Quick. It was 800 houses nationally. Representative pressure inside ducts. Basically all systems say it has to be a half an inch of water column or less. So the unit doesn’t really matter but a half an inch, 70% of systems tested were above half an inch. So they’re technically outta spec, 47% were above seven tenths of an inch, which is where the risk of early failure begins. So almost half of systems are at risk of early fan failure. Those fans are at least a thousand dollars installed, usually more like two. And if you put it in the wrong system, you’re gonna be buying a new one every two years for the life of that system. That’s not good. So we have to build value to improve that install and to also be able to increase profit margins.

And the other way to deal with profit margins is the same problem that solar industry has, which is reducing soft costs. So if you can increase closing ratios so you sell more of the jobs you look at and then you increase the dollar value of that project, now you have naturally increased your bottom line. So you increase the top line and you increase the bottom line, but the same number of leads goes into the system. So that reduces soft costs. So all of these things need to be mixed together. And what am I talking about? These are all business processes for HVAC contractors. Guess what business we’re in.

John Farrell:

<laugh>. So I want to talk a little bit about policy because one of the things that’s been fun in the past couple weeks has been seeing your communication with some folks who are working on the cost issue. So you’re – one of the things here for the homeowner, right, you talk about it’s gonna cost more, you need to have a good value pitch. One of the things that a lot of climate and energy advocates have worked on is, well why don’t we just try to make it cost less? And so the IRA, the Inflation Reduction Act is chock full of ways to lower the cost of equipment, heat pumps and all that other kind of stuff. Is that helpful? Is that a helpful approach though? I mean I just, even as a middle class person who can wait for a tax credit to come through, it’s a little bit confusing. I am curious, like from an HVAC contractor standpoint, you already mentioned one thing that you think every we should absolutely do, right? Make sure we only sell in stock heat pumps instead of air conditioners. Are these other kinds of incentives that we direct at that cost that people are going to pay helpful or are there other things we should be thinking about?

Nate Adams:

Um, I really don’t like what’s in the IRA <laugh>, which stinks. So what we have found with absolutely 100% frequency is that downstream incentives end up screwing stuff up, which means it’s incentives that are applied at the kitchen table. So it’s at the transaction where the contractor or the homeowner are talking and transacting, shoot, my, his name escapes me, but he tweeted back at me yesterday and like what we’re seeing is pretty substantial price increases on equipment that qualifies for the IRA. So the manufacturers are gonna claw back a good chunk.

Let’s talk just basic wholesale equipment prices. So I’m gonna be very general here, but just basic. So a basic furnace, air conditioner, coil for the AC and thermostat are three grand, 3,500, something like that. They used to be closer to two before covid. Lots and lots of increased prices. A heat pump is like 500 bucks more on that same system, give or take, you know, plus another a hundred bucks for a thermostat. So not, not a whole lot going to good mid-level heat pumps, seven grand give or take a grand, something like that. Top of the line. This is just wholesale cost for the equipment. Indoor outdoor and thermostat is about 10. So the little Daikin fits that I put in at this house and it’s sister next door, they were about four grand wholesale, which the basic systems are three grand, 3,500. I was tickled when I found out what they were. Cause I didn’t really ask, I just, I had a friend who could get them and I’m like, get me two of them. Tell me what the price is, I’ll pay it. And it was like four grand. Like I feel like I’m stealing these things. This is amazing. I was ready to pay five, I had just paid 5,500 for a Bosch the year before and there’d been a bunch of price increases after that.

So I was tickled to get this. Well that piece of equipment is supposed to be getting a very large price increase because it qualifies for the $2,000 IRA. The CEO of Sagewell and he tweeted back that downstream incentives almost always end up getting captured by the supply chain, be it contractors or the OEMs. And we’re already seeing things move in that direction. So it’s what really frustrated with me is the, the three pieces that are for heat pumps in the IRA are all examples of policy that we already know don’t work. So let’s 100 x their budget and see what happens. And part of it I know was like political and what the, the art of the possible and all that stuff. But the programs that are in there are complicating the kitchen table transaction and they’ve sucked a huge amount of my time trying to figure out what the hell to do with them as well.

I’ve lost at least a month of work because of this and I think you’d probably rather me getting HVAC contractors on board selling heat pumps, but that I haven’t been able to do that. So, we’ll see where the $2,000 federal one will probably be at least somewhat useful. But the two state programs, the curse of them is they’re going through the states, there’s gonna be 50 different sets of rules. So it’s gonna be very difficult to navigate for contractors. And then they also have fairly tricky things to deal with. Either third party checks of installs or knowing how to do energy models, which almost no one does cuz you have to model to reduce energy use, which like with a hybrid you get 40% with your eyes closed on the house, like it’s just not that hard. So it’s doable, but I just don’t see a lot of uptake on them and it’s gonna be 50 different sets of rules.

So it complicates the kitchen table transaction. The better way to do things is either midstream, which is at the distributor level or upstream, which is at the manufacturers. So those are the better ways to do things cuz they can actually streamline things and make things better. So like one thing I think begin seeing for the manufacturers when we already have on the very high end heat pumps, you can’t buy an air conditioner version because they don’t sell enough of them to justify stocking two different units. They just make one and they’re already really expensive and they’ve got fat margins. So what’s, you know, another a hundred or 200 bucks in parts, whatever, just do it. And what we think will happen over time, but I don’t know how long it’s gonna happen or how long it will take to happen naturally, but hopefully we’ll get to where manufacturers are mainly just making heat pumps and it’s gonna march down in equipment levels.

So next up we’ll see mid-level stuff, which is what the $2,000 tax credit can go towards. It’s like 16 Sr give or take, which is middle of the road. It’s pretty good and there’s some cold temperature performance requirements, but it’s something like a third of equipment meets it where with the original thing from the consortium for energy efficiency, only 10% of equipment made it. So I think we’ll start seeing less and less air conditioner offerings in that range because they’re gonna be bought for heat pumps. But we need to get that all the way to the bottom and like the single stage stuff. So tell me if you think there might be causation and correlation here. 85% of installs are emergencies. Also 85% of equipment, give or take, is single stage basic stuff. Do you think those might be connected? Like you, you are at least one data point in that. Yeah, they’re connected to a degree. So the other thing that we need to figure out is how do we get people to think about replacement before the wolf is at their door?

John Farrell:

Right? And how exciting is that too, to be like, how would you like to spend $15,000 this year on something that’s still working?

Nate Adams:

Yeah, yeah. That isn’t sexy. It’s not a vacation, you’re not going to Europe or someplace warm.

John Farrell:

Oh this is just so fascinating. I think we’ve covered most of the questions that I had here. And it’s so interesting too to bring back, when you talk about getting it up to the midstream or the upstream, right? The conclusion of Marti Frank and the, and the conversation about appliances was get manufacturers to make an entry level energy efficient product, get distributors –the stores – to sell it at the same price as the cheapest non-efficient model. And then when people go in and say, give me the cheapest thing, they can say, well, I can give you the Toyota Camry with reverse or without reverse, but it’s the same price. What would you like? And everybody’s gonna say, I’ll take the one that’s got reverse, right? Everyone’s gonna say, I’ll take the energy efficient fridge or the energy efficient washer, and then everybody wins, right? Because that more efficient appliance has less of a demand on all of the socialized systems, the electricity system, the gas system, whatever, that the rest of us are paying for through our heating and cooling bills. So it makes a lot of sense to me that it would’ve been maybe the better way to deal with that. But Nate, thank you so much for taking the time to talk me through this.

Nate Adams:

Thank you for what you do too, John.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Nate Adams, the CEO of HVAC 2.0. On the show page, look for links to Nate’s very active Twitter feed and his HVAC 2.0 website, where he provides a deep dive on the most effective approaches to making low-carbon and comfortable homes, and how to better approach the policies to support them. On the Local Energy Rules podcast feed, you can find another excellent conversation about heat pumps and home electrification between Nate and Steve Pantano at Rewiring America, teed off by a discussion of the actual costs of home heat pumps. We’ll also have some links to ILSR’s work on networked heat pumps; a strategy to avoid unintended consequences and to potentially lower the costs of the clean energy transition in buildings. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Bach. Tune back in to Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.