At a recent panel discussion during New York Climate Week, executives from some of the most well-known real estate firms, banks, and investment firms were asked to name the thing that excited them the most on the sustainability front. The answer was unanimous: heat pumps. These heating/cooling systems have been touted as one of the key ways to help transition millions of buildings across the country away from fossil fuels and slash carbon footprints.
The growing pressures to decarbonize have pushed heat pumps into the mainstream and made them top of mind for many property owners. It also hasn’t hurt that a flood of incentives has been rolled out to help building owners afford upgrading to heat pumps. But despite all of the hype and all of the financial aid, the rate of adoption has remained slow, leading some to wonder whether heat pumps will really be the silver bullet many think they could be.
The promise of heat pumps
Heat pumps might be a hot topic at the moment, but they are by no means new. Air conditioning systems date back to the beginning of the 19th century. Heat pumps are effectively AC systems that can also reverse the process to create heat as well. It’s a popular system in other countries. More than half of buildings in Norway are heated with heat pumps, and around 40 percent in Sweden and Finland use the technology.
Now heat pumps are making it mainstream here in the States. Last year, for the first time, heat pumps outsold gas furnaces in the U.S. The emerging popularity of these electric systems even led the MIT Technology Review to declare earlier this year that we are entering the era of the heat pump. “Heat pumps will be the central technology used to cut heating’s climate impact,” said Yannick Monschauer, an energy analyst with the International Energy Agency.
So what makes heat pumps so great? According to experts on the tech, it’s the cost savings, the reduction in energy consumption, and the replacement of fossil fuel systems. “It’s a way to electrify heating, which is largely not electrified across the country,” said Liam McCabe, a senior researcher at SageEnergy, an online marketplace for clean energy shopping.
Switching from gas-powered boilers or furnaces to heat pumps is, for many, the most obvious way to lower the carbon emissions of our buildings. Recent improvements in the main components of the tech have helped boost both efficiency and performance. Today’s heat pumps are able to reach 300 percent to 400 percent efficiency, and in some cases, even higher. That means they’re putting out three to four times as much energy in the form of heat as they’re using in electricity. For comparison, a typical space heater has a maximum efficiency, theoretically at least 100 percent. Today’s top models only hit about 95 percent efficiency.
Heat pumps are able to be more efficient because of the technology behind them. While space heaters transform energy from electricity into heat, heat pumps use electricity to gather heat and move it around. It may not sound that different, but it means that a heat pump can create significantly more heat using the same amount of electricity. For property owners, especially those with renewable energy sources like rooftop solar, switching to heat pumps could help them reduce or even eliminate their use of dirty energy.
For property owners and developers in the growing number of states and cities with stricter emissions laws and lofty decarbonization goals, heat pumps offer an attractive solution to meeting climate goals. Though they can be more expensive upfront, especially if an owner is retrofitting an existing building, The Inflation Reduction Act (IRA), which was signed into law last year by President Biden, included a slew of incentives for installing heat pumps in residential and commercial buildings. “If the building is a new multifamily property, especially in California, the way you can stack incentives is remarkable,” McCabe said. “All of a sudden, the economics begin to make sense for those.”
In California, through the IRA, homeowners can claim a $2,000 federal tax credit or 30 percent of the price, whichever is less, against the cost required to install a heat pump that meets a moderate level of energy efficiency. Many utility companies in California offer rebates to residents who switch to heat pumps ranging from $100 to $3,000, and beginning in the summer of 2024, Californians will be eligible for income-based rebates of up to $8,000. Residents of New York State can get the same federal tax credits and add to them NYS Clean Heat incentives that run between $100 to $400, on average, for partial home solutions and between $2,000 and $3,000 for full home solutions. The sale of heat pumps, while hitting a record last year, is not taking off as much as some believe it could. But that’s being attributed to the continued high-interest rate environment, which has led to fewer people moving, and the macroeconomic trends that are impacting most industries at the moment.
For owners of larger buildings looking to do a retrofit, it can get complicated to install heat pumps. The switch may require more ductwork or adding mini splits. But with new construction, heat pumps are being widely adopted. “The cost difference is less than 10 percent,” said Alexander Shermansong, Director of Digital Equity Partners at Culture Cascade. “From a builder’s perspective, there’s very little incentive not to do it.”
Some of the real estate’s largest developers are including heat pumps in their latest projects. In New York City, Hudson Square Properties and Hines are nearing completion of the new office building 555 Greenwich in Hudson Square. The office tower will have cutting-edge sustainable elements like geothermal energy and heat pumps. Commercial real estate firm Omni New York is upgrading a 195-unit affordable multifamily property in New York that was built in the 1970s. The energy retrofits will include adding an extra layer to the buildings’ exterior that will help seal in energy and adding heat pumps. The companies partnered with Bright Power two years ago as part of the $50 million Empire Building Challenge initiative to make the residential building carbon neutral. “This work is necessary to increase the energy efficiencies of large, existing multifamily buildings while also working to curb climate change,” said Omni New York Managing Director Eugene Schneur at the time.
The emergence of heat pumps as an attractive alternative in recent years has also coincided with advances in heat pump technology. Not unlike computers and other electronics, heat pumps have continued to get more efficient. Today’s heat pumps come in a wide array of sizes and configurations and use dual or variable-speed motors. The increased efficiency and wider range of options have boosted sales of the heating and cooling systems. In 2020, 4.8 million heat pumps were installed across the country, but lawmakers and the industry are eyeing much more. In September, a consortium made up of several US states and territories that collectively represent more than half of the US economy announced a commitment to a goal of installing 20 million residential electric heat pumps by 2030.
What’s holding back growth
Despite the growth, there are a number of issues that are holding back an even more widespread adoption of the technology. For one, data on heat pump performance is sparse, with the data that is available coming from just a few samples. And most of the data that is in the marketplace is based on expected performance. The New York State Energy Research & Development Authority (NYSERDA) was one of the organizations that took a big sample about 18 months ago, and other entities are looking to advance more standards and metrics for the industry. In addition to NYSERDA, the energy monitoring company BrightPower is one of the firms pushing for more data collection on residential energy use and has before and after data for tens of thousands of units.
Another big reason why heat pumps aren’t exploding the way some hope they would be is an ongoing issue that many other industries are dealing with as well: supply constraints. The availability and type of heat pump equipment can vary widely by region. The parts and equipment are slightly different in colder climates versus those that are more temperate. And even more importantly, the professionals who ultimately install the equipment are a crucial part of the process. At the moment, the skilled installer base tends to follow where there have been the most public sector efforts to build up heat pumps. Maine is one of the states that has been an early adopter of heat pumps and has seen an enormous increase in the number of skilled installers over just a few years. The state had originally set a goal of installing 100,000 new heat pumps in Main by 2025, but they hit the milestone two years early. So Maine Governor Janet Mills set a new goal of installing 175,000 new heat pumps by the end of 2026.
In New York, there is currently a big push to identify counties in the state that lack skilled installers and to incentivize firms that operate in those areas. There are a host of policy measures aimed at building up this important part of the industry, and they include partnerships with community colleges, unions, government-run training programs, and incentive programs for contractors to get loans for installing equipment. It’s an important area to address. Many people looking to have heat pumps installed have a hard time finding a local installer who knows how to do it. “There’s skepticism among contractors,” said SageEnergy’s McCabe, who has heard of instances where contractors attempted to talk people out of installing them despite knowing the success stories around heat pumps. “A lot of contractors haven’t gotten the memo.” Heat pump installations tend to be more similar to A/C installs than boiler or furnace installs, so it can be a fairly foreign technology to them. Even if they are familiar, the units that they were trained on are likely very different from the versions coming out today.
One of the most-cited concerns about heat pumps has been how they perform in the coldest climates. A frequent criticism is that heat pumps don’t work as well during some of the most frigid winter days, but that has been dispelled by many in the industry, who say more advances in the technology have meant that the vast majority of the time, they do work in colder climates—even on the coldest days of the year. However, it is true that heat pumps become less efficient when the temperature drops, and at a certain point, they become significantly more expensive. That said, there are workarounds that can offer an added level of assurance and cost savings. A property owner with a heat pump could also have a furnace as both a backup system and a way to keep electricity bills down at peak times. From a cost perspective, the often expensive upfront cost of heat pumps has been a barrier for a lot of property owners who are exploring the tech. A growing number of programs and incentives aimed at bringing those costs down has certainly helped, but it’s not always enough. “You can get a basic furnace and A/C generally for less than a single failsafe climate heat pump,” said SageEnergy’s McCabe.“That’s a barrier that seems to be true even after incentives.”
The benefits of heat pumps are clear, and the impetus for using them is being bolstered by the government on the local and federal level. Residential homeowners are a big focus for this technology, but commercial property owners also stand to gain cost savings and reduce carbon emissions by switching to heat pumps. Like a lot of green technologies building owners are exploring right now, heat pumps are an exciting prospect, but there are a lot of factors that have to be considered before making the leap. There’s still lingering skepticism about whether they will be reliable in the coldest climates, and the cost of heat pumps, while falling, is still an issue. Change is hard, and it may take some time for contractors and other players in the industry to get educated and come around to the idea. But given the current climate, both politically and meteorologically, it’s something the industry can no longer afford to ignore.