Mainstreaming Electric Homes — Episode 178 of Local Energy Rules

And so when you get a third party arbiter like Rewiring America, and it definitely could have been delineated better, but there was a cost estimate for Cleveland, Ohio with 1300 square foot house for a heat pump at $7,500 installed. Now I have a heat pump sitting in the shed at our house in Ohio where the equipment alone was $7,000. And it’s not a top of the line piece of equipment, it’s pushing it, top of the line’s closter to 10 grand now wholesale cost for the equipment. But it’s also funny that it was set as a 1300 square foot house in Cleveland because I did an electrification on a 1300 square foot house <laugh> in Cleveland. And back in 2015 when we did that, it was $15,000 installed then. And that included a duct system, which probably would be more like 25, 28 thousand today, something like that. So when you get these really low cost estimates from a third party, you come in and you destroy any trust that might have been there to begin with. And then you’re also focusing the conversation on price and product selection before you get around to figuring out what do they wanna fix and building value.

So the curse is like everybody’s trying to figure out how do we reduce the costs of installed heat pumps? And the answer is basically we don’t. Like we can remove the fear factor from it. If installers are afraid of heat pumps, they’re just gonna pump the price up some we can, we can remove that. And with HVAC 2.0 that’s a lot of what we do is if you understand what the house really needs, you can remove the fear of sizing aggressively and make it easier. But the rest of it, the equipment’s more expensive, it’s far more finicky on install. Particularly when you get to the cold climate stuff.

Like I’m sitting in the game house here, which is an Airbnb that we electrified, I proposed an electrification standard for Airbnb and I did this house to that standard, but I screwed up the commissioning on this so I didn’t set it up right. And at Christmas Eve we’re up in Ohio and I noticed that this thing’s hammering resistance. The heat pump it shut off cuz I hadn’t found the setting that made it so when it went below 15 degrees, it didn’t shut the heat pump off. So now I’ve learned and figured out it’s the first time I’ve used the equipment. So first time you use something, there’s always a learning curve and that’s what it was. But you can really screw up a furnace install, put it in badly, not commission it right, you know, really botch it and it’ll still heat the house where heat pumps are super finicky.

So if you’re talking a full electrification scenario, hybrids aren’t that finicky, but full electrification is. So it’s really challenging. Like there’s no good way to get the cost out. It takes longer to install, which costs money. The equipment’s more expensive, which costs money. It’s riskier, which makes it more expensive. There’s all of these things. So fundamentally we have a value building problem to solve. If price is a problem, you can either reduce price, which puts you outta business in this case, or you can increase value. And so when we get third party arbiter putting out numbers that are too low, but not like a small margin, I mean half on the low end and a quarter on the high end of what reality is, it makes our lives in the field extremely difficult, frankly impossible. Like you can’t recover that relationship is the problem. So yeah, it’s a, to call me frustrated would be, uh, a British understatement <laugh>.

But here we are having a conversation, and just as a quick way of introduction, Steve and I have worked together. So the hybrid heat homes policy proposal and then the HEATR act through Senator Klobuchar. So Steve project managed hybrid heat homes did a fantastic job. So we’re friends and that’s part of why I’m apologizing because I don’t like that I dinged that relationship, but that was a policy idea that can actually be helpful here. So I’m glad to at least know some people – and then I’ve also talked to Sage at Rewiring as well, who’s the new federal policy manager if I’m saying her title right. So, we’re turning the ship. So if it required me totally losing my temper in the middle of the night to turn the ship, that’s good <laugh>

Going back to that particular data point, I mean the fact is that up until recently and even now data on actual equipment and install costs is pretty hard to come by. There’s a lot of disparity around the country in terms of both equipment and installation costs and how those are quoted through to consumers by contractors who may or may not be familiar with different ways of optimizing installations and the like. It has a lot to do with the specifics of somebody’s home, whether there’s duct work that needs to be changed, et cetera. Whether or not someone’s choosing topical line equipment or looking for a more cost effective path, the capability of the installer overall and where they live labor costs also change around the country. So, you know, at the time that low end estimate was produced — it was in the context of a guidebook that had low, medium and high end estimates — Just happened to be that we pulled data the best that we had at the time from consumer websites and our, you know, we thought our low end estimate was representative. Nate pointed out that it’s probably too low for that particular circumstance in Cleveland and we’re taking steps to change that.

So one thing I’ll say is, fortunately we have in the time since that document was published, the tech program in California has published much more comprehensive data set of actual equipment and installation costs. There’s more than 9,000 data points in there about HVAC installs in the state of California. And we’re in the middle of a pretty comprehensive statistical analysis of that to try to pull out the differences and give a true like confidence interval around pricing that’s representative of what people might see in the market based on home size and system capacity and also accounting for different labor costs in different parts of the country. We plan to publish that first benchmark report in the coming weeks and then update it every six months or 12 months as the market continues to develop. And as we come across more data, we’ve been coming up with ways for people to share their quotes with us. So we have some of our own ways of getting input directly from the market.

And then another thing we’re doing is working, now that the Inflation reduction Act has been passed, the Treasury department for the tax credits and the Department of Energy on the rebates side has requests for information out asking for public input into these processes. And we’re using that opportunity along with a bunch of others in the market to push for greater data transparency, better reporting from the federal and state agencies so that over time we have more of this information and we can be much more transparent about it.

So I mean, look, point taken, right? The estimate probably wasn’t the most representative and that’s obviously going to cause problems in terms of trust and that’s not something – that doesn’t serve anybody’s purpose in the market. So we’re, we’re doing with what we can and we have much better information now to come start putting together better estimates and, and really do it over time, right? Because the market will evolve and the more the better as far as this goes.

One is that if we want to be successful with decarbonizing heat by 2050, we actually have to get there by 2030 because the nature of this equipment is that it lasts a long time and people are not gonna replace a three year old furnace. They’re gonna replace it as they usually do when it dies. And that’s the second thing is almost all of these replacements are emergencies that people are replacing a furnace cuz it’s not working anymore. So they don’t have a lot of time to do a lot of thinking about the decision. So I guess one, I’d love maybe Nate, for you to just start by talking a little bit about kind of how you think about this problem given those, those two issues.

And I’ll throw in a third thing is like how do we address issues of equity and access at the same time knowing that these decisions, like we’re trying to move fast and that replacements are made on an emergency basis and then a lot of the people who probably like pay the most for energy or suffer the most from indoor air pollution probably don’t have a lot of money or even aren’t even involved in the decision making process about their HVAC equipment, right? They’re renters. So maybe that’s a third thing to kind of throw in the mix, Nate, you just wanna give a little bit more context in terms of how you think about that. And then we’ve talked a little bit over email here about sort of the, maybe a laundry list is the appropriate term, of things that we’ve, you know, potential barriers to our success here. And we can talk about some of those specifically maybe back to the, the pricing but also about HVAC contractors and workforce and all those other kinds of things.

And so as far as equity goes, there’s still a lot of central A/Cs for lower income folks and they would get at least a single stage heat pump. It’s not amazing, but it can easily offset on the very low end 30% of fossil fuel usage and on the high end a hundred depending on your climate in your house and where things are. But like, 50% is gonna be easy in most houses. So if we can change all those outs, that solves the problem. There’s, there’s a whole bunch of things in the IRA program design, like I’ll just, people, I hate it, it makes my life harder in the field, period. And I also don’t think it’s going to move things enough to actually shift things. So like, is it better than nothing? I don’t know. So that’s the challenge. Like if we don’t play it right, it will hurt things. That’s the challenge for all of this. But the goal is how can we have all air conditioners actually be heat pumps? Like without doing that, I don’t see another viable path.

We obviously wish there was far more money invested in the IRA so it would go far enough. I will take a strong stance that it is far better than nothing. I mean there’s tremendous track tax credits in there for everyone and really incentives that are targeted at low and moderate income consumers that need the most. Right. So you mentioned John, you mentioned equity and access upfront. Really those incentives are aiming to the people who otherwise wouldn’t be able to participate in this market primarily because of the cash flow requirements required around moving to electrical equipment and some of the work around rewiring your homes that needs to happen alongside that if you’re moving from a gas stove to electric or a gas water heater to a heat pump water heater. So we all wish, I think, that there was an unlimited amount of money available to make this transition happen. That’s not the case, but I think we can do a lot with as a country, with what is there and continue to build upon that, right?

So part of the hope here is that there’s a lot of uptake of those incentives and that there’s a lot of consumer demand and sort of public attention on the benefits as we go and that we can do everything else well at the same time, including building the workforce and training contractors so that people have good experiences with electrification. Nate can probably give you 150 examples of people who are more comfortable and happier in their homes after switching from furnace to heat pump. There’s no reason everyone shouldn’t be able to participate in that provided there’s, you know, sort of enough funding and attention on this issue as broadly as possible. You know, there’s billions of dollars today being reaped in profits by oil and gas companies. There’s billions of dollars being invested in gas infrastructure. There is money in the world going in the opposite direction, right? So I think IRA is a great first step, but we need some of that tide to shift more broadly in the economy, more people to pay attention to this issue, states and utilities to step up and put more money on the table to help people make this electrification transition. And I think, you know, it’s, it’s putting us on a path and there’s still huge amounts of work ahead of us to make this successful.

And we’ve thought for years, how can we do a good downstream program? And I honestly don’t think it exists, that there is any kind of downstream program that doesn’t add friction to the sales transaction. And so that’s the hard part of all of this. Another piece that I haven’t talked about that much yet is I’m extremely concerned about dehumidification, extremely concerned. So 80% of Americans live in humid climates, all three of us do. And when we size towards heating, the bigger the equipment you put in, the less dehumidification it does. And then also, like  I’ve been watching the Energy Star 6.1 products, which is basically what CCE tier one is based on. They’re not identical, but they’re close. And right now it’s all mini-split based equipment that is effectively two stage. So the, like, this is technical, but they can’t vary the refrigerant temperature in there and run the coil colder and make it dehumidify well, and so the odds of us making people and houses sick are very, very high.

And I actually have a personal example. So I have one of these products or something similar, it’s a Bosch heat pump at our house here. I have a 20 seer heat pump, but my dehumidifier uses exactly as much power as my air conditioner <laugh> So it’s a good thing I have an efficient air conditioner because if I don’t run the dehumidifier, my relative humidity floats in the 70 to 80% range, which is deep into danger zone for mold and all sorts of issues. So I’m really concerned about that side of things.

Hopefully manufacturers will field things, but like my favorite product or one of my favorite products for this, the one that I’m gonna put in our house in Ohio, I don’t think it’s gonna qualify. And so yes, we’re gonna see changes coming, but like I’m just thinking about the people over the next couple of years that put these in and have problems like, we kind of own part of that. And so that’s the frustration of like performance cliffs and whatnot, that come from all of the, like, there’s so many issues with downstream that pushes everybody’s greed button, it creates cliffs. It’s hard on process there. There’s all of these things and I’m like, I honestly don’t know that there’s a good downstream program. We’ve thought about it for a decade. I have nothing.

So if we set incorrect expectations and then we send those people to contractors, we’re risking a really bad fire and ice. And if enough of those happen, we can totally stop electrification in its tracks.

So a lot of people probably have like the home alone perspective of their furnace as like the scary thing in the basement that you wanna run away from and you keep hidden away and you never think about it, right? It’s, compared to an electric vehicle, there’s no prestige associated with getting a heat pump. Your neighbors can’t see it. It’s not like solar panels on your roof. You can’t show it off to anyone. You don’t typically invite people down into your basement to see your air handler, right? It’s just not something that people do. So as a result, everyone ends up ignoring their heating system until it breaks. Similarly, their water heater. Stoves are a little bit different. Stoves are obviously a little more accessible. So I think to get to that place of trust where there’s sort of a better conversation can happen between homeowner, contractor, Rewiring America, whomever is participating in this market, we need better understanding of what this process is. And a lot of what we’re doing and planning to do over the coming year is to provide people with accessible information that hopefully helps them get really well educated on the benefits.

Well beyond climate, climate’s one important piece, but comfort, health, et cetera, you name it, there’s a lot of benefits here. We want people to understand so that when they come to the conversation, they come in, wherever they’re coming from, they’re coming into the conversation, they can really understand what it is that has to happen. So we want, for example, people to understand that if they have a gas water heater and they want to move to a heat pump so that they’re not stuck in an emergency replacement situation, they probably need to have that wiring and their panel upgrade if they need one or whatever set of solutions in place before their water heater fails. So maybe the next time they have an electrician come to the house to do some other job like install their EV charger, they can also have the wiring run over to where their water heater is so that they’re not one of that 85% of people who has no choice but to stick with gas the next time around. Right?

We need people to be prepared, we need them to understand a process. And a lot of what we’re intending to do and what we’ll be rolling out over the coming year, like I said, is this, our planning tools and educational tools for consumers so they can be ready to participate in this process and not like running into all of these very common market barriers that tend to present themselves when it’s 12 degrees outside and your heat just went out or you’ve gotta get ready for a wedding and there’s no hot water for everyone to shower with, right? Those are not circumstances that are ever going to lead to people making better choices towards electrification. And I think overall over time as we continue to do this and we work with everybody in the market who’s got good ideas on how to do this, we’ll start to build that understanding and that trust and that dynamic will hopefully improve, right?

We’ve got, there’s, millions and millions of decisions that have to be made like this and we’ve gotta start somewhere. I think ultimately that’s the job here. I think it also exists equally as much on the contractor side. Nate’s obviously got a lot more insight into that world than we do, but we’re working towards that as well. And we hope to be engaging with contractor communities to understand what we can be doing or what industry associations or the like can be doing to help build that understanding and trust on the other side so that those conversations can happen on equal footing and people are prepared and people can make good choices and they’re well informed about what the benefits will be, what it’s gonna cost them to get there and exactly like what steps they need to take and when in order to make that happen.

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So that said, there is also work to be done on reform of the permitting process and streamlining and sort of making these things transparent and consistent around the country. There are probably as many local permitting rules as there are duct work configuration in homes that need to be addressed, but there are good solutions out there. So among other things, we’re working on state and local policy guides and playbooks to help people understand what barriers might exist, where they live, and how they can start pushing for policy reform around things like permitting. So that again, we start taking down some of these barriers. There’s a lot, I mean we’ve hit on in this conversation at least half a dozen, there’s probably at least a dozen more sort of logistical barriers to electrification and they all need to be addressed if we’re gonna do this well and cost effectively and hit some sort of 2030, 2035 target, to the point where everybody’s moving in this direction, right?

So it’s a lot of work, <laugh> and it, we’re not gonna do it ourselves. It’s gonna take everybody who’s interested in this, it’s gonna take everyone kind of pulling in the same direction and raising issues when they come up and bringing them to everyone’s attention so they can be addressed. So we’re a part of this as is everybody else working on these types of programs and we’ll try to prioritize and do our best to address these things as they arise.

Three of our electrifications in Cleveland, were on hundred amp panels. So I’ve done this <laugh> like it’s doable. The national energy code calculations could use some adjustments because they are really conservative, way more conservative than they need to be, especially if there’s some load management things. But I also, I want to turn this a bit too.

So the getting to 2030 thing, one of the big challenges that we see is if you know of the adoption curve, it’s just a bell curve. So your, your first couple of standard deviations are 16% of the market. That’s your early adopters. And then there’s a chasm where you have to have a whole product that’s good and better than what exists today and is also easy to buy. And those next two standard deviations are 68% of the market. Our challenge with electrification is we basically have to skip early adopters and go straight to mainstream if we wanna finish on time.

Like that’s, we’ve used the time for early adopters already. So a lot of the solutions we’re talking about are primarily early adopter and like that’s fine, but we have seven years, you know, <laugh> if we’re gonna finish by 2050 and realistically I think we are presently looking at 2060 to 2065 for home decarb completion. I think that’s where we are. I don’t know that 2050 is even on the table right now. I just don’t, I’m not gonna say it’s impossible, but it’s pretty low odds. So the, the challenge in all of this is how do we move to mainstream? Let me see, yesterday would be nice and that’s actually what we’ve been aiming to do with what we’ve been building in HVAC 2.0. Not to be self-serving but like that’s point blank what we’ve been trying to figure out, we know we can reach mainstream homeowners, not a problem.

The mainstream contractors has been incredibly difficult to figure out. Just incredibly difficult. Like we first played around with energy auditors, there’s not enough of them, it’s too specialized, there’s not enough money, it’s gotta be one man bands, there’s just not enough margin to have a good size company with that model. So we ended up at HVAC contractors, but a lot of them are afraid of heat pumps. So we have to find a way around that and then we need to give them a different business model so that they don’t get bit, we can lower their risk and also increase their margins because if it’s, if it’s not better than business as usual, they’re not going to move cuz there’s so much inertia in doing what they do today. So really a whole lot of my issues with what’s happening in electrification right now is everyone is having an early adopter discussion and it’s like we’ve, we’ve gotta get to mainstream and we have to get there now, which sucks, but that’s where we are.

I wonder if there’s an opportunity there to talk about like health and comfort more directly in a way that gets consumers more interested in the HVAC stuff, like you said. I can’t, maybe I will get excited to give tours of my heat pump if we can make it exciting. I don’t know, like people will share weird things. I have been in people’s basements before for them to show me things and like I keep thinking about in Minnesota actually, like for a central heat pump, right? Some of the equipment is outside, I can see it and it looks different than the other stuff. Now it’s not flashy or whatever, right? I don’t think it’s supposed to be, but I don’t know. It seems like somewhere in here there’s an opportunity to tap the way that people think about things, which is, you know, they become emotionally attached to things or they make emotional decisions whether it’s about health and safety or whether it’s about something that’s cool. And I’m just kinda curious, Steve, how you’re thinking about that for the sort of thorny thing of something in your basement.

We’re trying to think about all of those regularly, Rewiring as I’m sure many others are, and figure out a way to bring people into that next level of the conversation where they then say, okay, like I’m here, I’ve figured out what electrify everything means. I’m kind of on board now. What do I need to know? And really the next thing people, like I firmly believe and we’re working towards this, is that people need a good education and a solid plan, right? And they need to know how their home works and they need to know what they can do about that, right? And how much it’ll cost and when and how that balances out with everything they would have to spend anyway if they were going to replace their furnace, how many incentives they qualify for, where those are coming from, how they can access them effectively and very importantly, which contractors they should call who are skilled at this stuff and can give them a quality installation that’s not gonna leave them with a bad result. Cuz that’s the last thing anybody needs right now on a personal level or kind of collectively as the electrification movement. We don’t want people having bad experiences.

So the sort of, the corresponding piece to that is we have to be, I think we have to be having a very big open national conversation about how it is that we get thousands and thousands more Nate Adams out there who know what they’re doing and can do it well and can also make a living doing it and provide good customer experiences, make a decent living off this, make a good profit, feel good about what they do, and help people meet their needs for comfort or climate or whatever it is that came to the store with in the first place, right? You gotta have this holistic perspective that runs from the start of the customer experience. Like whenever they first hear about this to the very end when the equipment’s installed and it needs to be maintained and they know what to do and they know how their home works, right? And they’re engaged in this in a way that they never were before.

So the framing is super important here. I’m still learning this too, but induction is just a really nice experience. It’s fast, it’s super controllable, it’s like gas as far as how controllable it is, but if you’ve ever made a mess on a gas stove and had to clean it up, when we sold that stove, I spent four hours cleaning it so that it was nice to sell it and I could get top dollar. Four hours. That was a long time. Where with induction, you just wipe the sucker down and you’re done. It’s a glass top. So talking about the experiences and like we, we joke that the first rule of heat pump fight club is you don’t talk about heat pumps. Heat pumps just happen to be the thing that gets installed, but mainstream, we actually don’t wanna talk about heat pumps that much oddly enough. Like that’s what we find with our HVAC clients. Just so how do you do that? Oh, it’s called the heat pump. And then oftentimes you just move on framing this in a positive manner and making it sexy is good.

I also think about a weird experience that I had. I put a deposit on a Tesla model 3 years ago, didn’t manage to do it because my business model doesn’t make enough money to be frank. It’s a challenge. But, I went to Aldi: German discount grocery store, and there’s a guy there with a model S and I said, hey, nice car, I’ve got a deposit on a three. And he’s like, oh, cool. Have you ever driven one? He, this guy I’ve never met, never seen since then forced me to drive his Tesla, $110,000 car. Can you imagine being like, Hey man, nice Ferrari.

But we also don’t wanna be pushy about it and obnoxious and like act as early adopters, which is off-putting to the mainstream. So, there’s this weird balance of we need to be working with early adopters right now, but we need to help them speak mainstream. And that’s a really weird mixture and I’ve been consistent on that. The electrify everything course, two years old now, if you look at a second video and there it says exactly that.