By: Justin Lindemann, Policy Analyst
Header image created by Justin Lindemann
Climate resiliency has been impaired due to frequent extreme temperature changes and storms, putting much of our infrastructure under pressure – heating and cooling especially. Cheaper and more efficient technologies are thus required to meet demand and keep communities safe. This is a dilemma that may be answered by a long-existing innovation, the heat pump.
An Introduction to Heat Pumps
While heat pumps have been around for decades, recent climate imbalances have made the technology an important alternative to more traditional fossil-fuel powered furnaces and heating/cooling systems. The idea for a heat pump can be traced back to the mid-18th century, with the first having been developed almost a century later.
There are a variety of heat pump types, each with the functionality to heat and – though the name might be a bit deceiving – cool communities and industries, reducing energy inefficiency while saving money. Water-, ground-, and air-source heat pumps are the three main types of systems. Water-source pumps extract and reject heat from water systems, with temperatures depending on the season. Ground-source pumps utilize earth’s constant temperature to heat and cool, extracting heat during the winter months and earth’s cooler temperatures during the summer, from several feet underground.
Then there are air-source (or air-to-air) pumps, which are the most commonly employed heat pumps today. Air source pumps come in either ductless or ducted versions, depending on whether the space in question has access to an existing duct system. As its name suggests, this type extracts ambient air temperature to heat/cool buildings.
Air-source pumps consist of an indoor and outdoor coil to help transfer heat. When heating, a refrigerant absorbs the ambient heat and evaporates it into a gas utilizing a compressor, shifting the heat through an inside coil and releasing the air into the space. After that, the vaporized heat returns as a liquid, and goes through an expansion device and back out – becoming different in pressure and temperature. The system’s reversing valve is responsible for switching between heating and cooling modes. The diagram below visualizes the process, and has similarities to water- and ground-source types.
Source: U.S. Department of Energy
Compared to the many furnace systems in the U.S. that run on fossil fuels, heat pumps run on small amounts of electricity (with more used during the winter) and can easily utilize distributed energy sources – like rooftop solar. Over the course of 15 years, switching to a heat pump can potentially save the average U.S. homeowner around $10,000 in upfront costs and energy bills.
Moreover, the absence of burning fossil fuels reduces emissions, which can help mitigate climate change and bear community health benefits. Low-income and BIPOC (Black, Indigenous, People of color) communities that face higher bouts of climate injustice would be impacted less by fossil fuel infrastructure and the resulting atmospheric pollution, if this and other cleaner tech were to be adopted. The recently passed Inflation Reduction Act (IRA) provides multiple incentives to help achieve these benefits.
The IRA and a Burgeoning Industry
The heat pump incentives stipulated in the IRA are spread out into various programs. Firstly, the extended Energy Investment Tax Credit (ITC) credits 30% for geothermal heat pump projects built before January 1, 2033, with the credit decreasing to 26% and 22% in 2033 and 2034 respectively. There is a 10% bonus if the project is located in energy communities, otherwise defined as brownfield sites and fossil fuel communities, and another 10% if the project meets domestic manufacturing requirements. The Energy ITC will be replaced by the new Clean Electricity Investment Tax Credit beginning in 2025. The tax credit maintains the 30% geothermal heat pump incentive (and all other provisions stipulated under the Energy ITC). In addition to the aforementioned bonuses, the improved incentive provides an additional 10% for projects in low-income communities or on Tribal lands, and 20% for those located in low-income residencies or connected to low-income economic benefit projects.
The IRA also includes amendments to the Residential Energy Efficiency Tax Credit, increasing the credit limit for heat pumps to $2,000 (or 30% of the cost, if lower) and extends it to the end of 2032. Likewise, the High Efficiency Electric Home Rebate Program in the landmark legislation provides up to $8,000 and $1,750 for heat pumps and heat pump water heaters, respectively. The nation’s heat pump production will also be supported through $500 million in Defense Production Act spending, available until September 30, 2024.
Besides the influx of federal support from the IRA, state incentives have existed to support clean technologies like heat pumps. Warmer-climate states have historically had a higher percentage of housing with heat pumps, due to the South being mostly electric-reliant for heating and cooling. States like South Carolina, North Carolina, and Alabama have the highest percentage of heat pumps, while Texas and Florida have the highest number installed. Considering the South has the highest number of low-income communities, continual adoption of heat pump technology could be particularly beneficial.
In Texas, about 38 financial incentives are currently available for heat pumps, with most being offered by utilities. One of these incentives is Southwestern Electric Power Company’s (SWEPCO) Residential Energy Efficiency program, which reduces the upfront cost for residential consumers by providing a rebate for selected contractors.
As for Northern, colder-climate states, they haven’t adopted heat pumps at the rate of others, primarily due to older variations of the technology underperforming under freezing temperatures. However, with innovations raising the resiliency and efficiency factor of the technology's heating mode – in addition to incentives and federal funding – more might be persuaded to invest. In fact, a study released this year by the American Council for an Energy-Efficient Economy (ACEEE) showed that heat pumps will be the cheapest clean option to heat most single-family homes in the U.S. Similarly, a Guidehouse Insights report details a projected heat pump market valuation of $3.31 billion in 2031 amongst North America’s colder regions.
In terms of colder-climate examples, Minnesota has the greatest number of incentives of any state. But, the North Star State’s percentage of households with heat pumps isn’t comparable to that of the South. Most of the state’s incentives are delivered through rebate programs from utilities (especially municipalities and cooperatives). The Minnesota Municipal Power Agency (MMPA), which covers a dozen member communities, offers a rebate through its Residential Energy Efficiency program. The program is for those looking to upgrade specific household equipment, and offers $200 off each Energy Star certified air-source unit.
Europe’s Energy Crisis and Global Developments
Across the Atlantic, the combination of the war in Ukraine and climate concerns has pressured Europe to act on multiple fronts. Before war broke out, Europe imported 45% of its gas from Russia for energy and heating purposes. Military operations between Ukraine and Russia have influenced Europeans to gradually wean off Russian fossil fuels, while putting the continent in a tough spot as winter temperatures approach. Fortunately, the International Energy Agency (IEA) has estimated that a European heat pump rollout could reduce Russian gas reliance by two billion cubic meters in one year. This is exactly what the continent is striving for as it is projected to install 45 million residential heat pumps by 2030, with multiple nations already on course.
In Poland – a nation that grew quite dependent on Russian gas, alongside its own domestic supply of coal – household fervor for home upgrades has increased amidst the energy crisis. With the nation suffering a coal shortage before the influx of winter, more and more have decided to pull the trigger and install a heat pump. In 2021, the Polish heat pump association reported a 60% increase, months before the war in Ukraine. The coal-reliant nation updated its incentives this year, offering up to €15,000 for households wanting to modernize their heating and insulation.
Italy, on the other hand, offers one of the biggest financial incentives in Europe. Their stimulant recovers 110% of building renovation costs for home energy efficiency projects, including heat pumps. The initiative was authorized in November 2020 to help with their pandemic recovery and to convert existing infrastructure into resilient and energy efficient spaces. This and other actions have helped the Mediterranean nation reduce Russian gas dependency from 40% to 25%.
Yet, it is the Scandinavian nations with the coldest climates that have a higher percentage of heat pumps. In Norway, Sweden, and Finland, the percentage of households with heat pumps is about 60%, 43%, and 41%, respectively. The fact that countries with average winter temperatures of negative degrees Celsius have had such success offers additional support for why colder regions in the U.S. may be able to take greater advantage of heat pump technology.
Image (above) of a ductless air-source heat pump (Source: U.S. Department of Energy)
Internationally, other nations have had a build-out years in the making. Japan, for example, has one of the highest energy efficiency rankings, thanks in part to the 90% of households that use heat pumps. As a result, the country’s electricity consumption has dropped 40% in the past decade. Meanwhile, in China, heat pumps for cooling are common in northern urban provinces. During the winter, large scale heat pump networks, otherwise known as district heating, cover 80% of the region’s population. The IEA estimates the current global number of installed heat pumps to be at about 1.5 million per month, and projects 5 million per month in 2030.
What does the future hold for heat pumps?
Heat pumps are a clean, affordable, and efficient substitute for traditional fossil fuel furnaces and other heating/cooling systems. The growing interest in the technology has influenced many nations to establish incentives and make it more affordable, as communities try to scale up their resilience. The clean technology has the mechanical quality of providing both heating and cooling, and has been successfully tested in numerous climates. The flexible application mixed with the different kinds of heat pumps available gives the technology an advantage over fossil fuel alternatives. All in all, heat pumps are gradually becoming a staple for heating and cooling.
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For more information on heat pump policies and incentives, visit the Database of State Incentives for Renewables and Efficiency (DSIRE), or contact us to learn about custom research offerings.