A diagram of a typical air- source heat pump. Source: Massachusetts Clean Energy Center
This testimony was originally presented to the Massachusetts House and Senate Committees on Telecommunications and Utilities.
About half of all Massachusetts households use piped gas to heat their homes. That’s 1.4 million homes that—without strong leadership from our legislature—will continue to emit greenhouse gases just to keep families warm and, in doing so, will slow the Commonwealth’s progress towards decarbonization. Massachusetts has policies in place to decarbonize its electric sector, but not—as of yet—to achieve decarbonization through electrification in the buildings and transportation sectors. For most families, switching from gas, oil, or electric-baseboard heating to heat pumps is either unaffordable or—for the 38 percent of households who rent their homes—not under their control. Those who can transition to air-source heat pumps pay a higher electric bill together with a much lower or zero dollar gas bill. At present, total utility bills for heating an average home are lower for gas heating, but they won’t be for long.
Our analysis performed at the Applied Economics Clinic in March 2021—in a report called “Inflection Point: When Heating with Gas Costs More”—showed that operating costs for air-source heat pumps become less expensive than gas sometime between 2026 and 2030. After that inflection point occurs, total utility bills for heating with air-source heat pumps will be lower than heating with gas. Home heating costs for ground-source heat pumps and networked geothermal heating are already far lower than the utility bill costs for gas heating. Of course, that result will differ somewhat for specific homes and specific utilities within Massachusetts; I’ll also note that these calculations are only for operating costs (not equipment) and are only for heating (not for cooling).
There have been a lot of changes to forecasted gas and electric prices since March 2021, and our team at the Applied Economics Clinic is currently at work on an updated version of the Inflection Point report that we expect to release in early Fall of this year. In the original 2021 report, we discuss the need for targeted subsidies for low- and moderate-income households as well as renter households for both heating equipment purchases and weatherproofing. Policies to incentivize the electrification of home heating need to be grounded in realistic considerations of customer affordability and ability to pay both upfront costs and ongoing utility bills.
When equipment age or failure necessitates the purchase of new heating equipment, it is utility- and state-provided incentives that make the difference in whether or not the purchase of electric heat pumps is affordable in comparison to a new gas furnace. Electrifying home heating by replacing gas furnaces or oil boilers that have not yet reached the end of their economic life requires substantially higher incentives and other assistance from utilities and state programs. Appropriate incentives paid towards heat pump purchase and installation, along with zero-interest loans or on-bill financing, have the potential to shift the heating system choices of families who own their homes.
As air-source heat pump operating costs fall, more and more households will flee the gas distribution system. When the inflection point occurs, making air-source heat pumps less expensive to run than gas furnaces, the steady trickle of households fleeing the gas distribution system can be expected to accelerate. Families that can afford the upfront costs of a new heating system—or who have access to credit to finance those costs—will choose electric heating on the basis of its lower monthly costs. Families who cannot afford upfront costs or who rent their homes, however, will remain on a gas system plagued by skyrocketing fixed costs. The more households that electrify, the higher those fixed costs become for the families that remain on the gas system. Investment in networked geothermal heating provides a zero-carbon alternative with lower monthly utility bills than gas heating, starting immediately.
The electrification of home heating is a financially complex option for customer households, both in terms of upfront costs and ongoing utility bills. Electrification incentive policies need to realistically account for this. Today, switching to heat pumps causes a temporary increase in home heating bills. That means that until air-source heat pumps are less expensive to run than gas furnaces, which we project will occur in the next 3 to 7 years, air-source heat pumps can only be affordable for most Massachusetts households if there is financial assistance provided, not just for heating equipment purchases, but also for ongoing utility bills. In contrast, investment in networked geothermal heating provides a zero-carbon alternative with lower monthly utility bills than gas heating, a cost advantage that will start immediately and last indefinitely.
