Decarbonizing Heat: Are Air-Source Heat Pumps the Solution for Canada?
According to the IEA, heat accounts for almost half of final global energy consumption, with approximately two-thirds currently sourced from hydrocarbons. Net zero energy scenarios anticipate that heating can be predominantly electrified.
In pursuit of lower-carbon buildings, high-efficiency air-source heat pumps offer a promising decarbonization and energy reduction solution. Further, the Canadian federal government and some provinces support the transition to air-source heat pumps by subsidizing their purchases.
In this episode, Jackie and Peter review the ARC Energy Research Institute’s analysis of heat pumps for northern climates like Canada. Danielle Vitoff, Director of Energy Transition, Sustainability, and Infrastructure at Guidehouse, a global consulting firm, joins the discussion.
Key questions covered in this podcast include: How do air-source heat pumps operate, and what makes them so efficient? Why does the efficiency of a heat pump decline in colder temperatures? How do heat pumps’ upfront capital and operating costs compare to alternatives like natural gas or fuel oil furnaces? How could broad-scale switching to electric heat pumps affect the electricity grid? Considering the cold climate, are air-source heat pumps a good fit for Canada?
Content referenced in this podcast:
- CAPP Data Centre
- US residential heat pumps: the private economic potential and its emissions, health, and grid impacts (Source: US Department of Energy)
- Pathways for British Columbia to Achieve its GHG Reduction Goals (Source: Guidehouse, prepared for Fortis BC)
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Episode 244 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. We’ve got a whole laundry list of things to talk about here, Jackie, and then I’m excited that we have a special guest, but we’ll come to her in a few minutes. I think the topic du jour anyway, in Calgary, is the water outage or the water main break.
Jackie Forrest:
Yeah, the shortage. So, it’s not an outage yet, but I’m working my hardest. I’ve stocked up my dry shampoo. I set my timer for my one-minute shower today.
Peter Tertzakian:
Well, good for you.
Jackie Forrest:
Yeah. All the camping is really, I know what to do. Just save water.
Peter Tertzakian:
You brought out your camping gear. Okay.
Jackie Forrest:
No, in camping, you learn all these techniques to save water, but I have to say not all the members of my family are quite as dedicated as I am. So it’s creating a bit of friction.
Peter Tertzakian:
Right Well, I think that’s somewhat representative of the broader population which, depending on who you ask, are rather lukewarm or keen to help out with the issue, which has still, as we record this, looks like it’s at least a week away from resolution.
Jackie Forrest:
Yeah. You’re going to see how dry shampoo really works when tested.
Peter Tertzakian:
Yeah. It’s interesting, I mean, we talk energy, we’ve talked a little bit of water on the podcast, but it does relate to the whole idea of vital infrastructure that is necessary for ongoing living in modern society. When that vital infrastructure breaks down, we really notice it.
Jackie Forrest:
Yeah, for sure. It’s kind of crazy, right?
Peter Tertzakian:
Mm-hmm.
Jackie Forrest:
What is it, a six-foot diameter pipe that we’ve lost?
Peter Tertzakian:
Yeah. For me, I’m out in the country, so I’m on a water well.
Jackie Forrest:
I’m going to have to come visit later this week.
Peter Tertzakian:
Come and have a shower at my place.
Jackie Forrest:
Can I bring my laundry?
Peter Tertzakian:
Yeah.
Jackie Forrest:
It’s piling up, I have to tell you.
Peter Tertzakian:
Mm-hmm. So, in the information space, switching to that, there’s some new data out that I know you wanted to talk about, Jackie.
Jackie Forrest:
Yeah, we talked about the CAPP Data Centre earlier. That’s the industry association for the oil and gas, the Canadian Association of Petroleum Producers. We are going to put a link to it, but they have recently introduced much more data than when we talked about it before. They had like five slide decks, and now they have 10. And there’s really great data. Actually, I used it the other day because someone asked me when we’re talking about this oil and gas emissions cap in Western Canada, if it results in a production loss, what would be the impacts to Eastern Canada? And I use the data there to show how much natural gas and oil they take from Canada and the potential implications. So, there’s just a lot of great info around the flows of energy as it relates to oil and gas in Canada. So, I’m going to put a link, and I just wanted people to be aware of that resource, public data. You can use it in all your presentations. So, we’ll put a link there.
Peter Tertzakian:
Okay, good. So, you’ve got the link coming up. The next item of discussion I think that’s relevant, certainly it is to energy as well, is the interest rate cut because so much of big infrastructure projects rely upon leverage and debt. So, all the way from the retail individual homeowner to industry, the interest rate cut down to 4.75% in Canada here was welcome news.
Jackie Forrest:
It was, but some concerns too because we are moving at a faster rate than our American neighbors. What does that mean for things like the exchange rate? But yes, I think for a lot of homeowners, it’s a helpful sign.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Of course, that small change doesn’t really change the economics, but I think it’s just signaling that we’re moving in that direction now.
Peter Tertzakian:
Right. Yeah, it does have an impact on the exchange rate, the Canadian dollar, which has weakened relative to the US dollar, though most currencies in the world have weakened against US dollar. But we have now weakened also against the euro and the British pound. So those of us who vacation in Europe this summer are going to probably notice a little higher prices, notwithstanding any potential interest rate cuts over there, which may serve to equalize things. But speaking of Europe, big elections there.
Jackie Forrest:
Yeah. So, over the weekends, there were elections in Europe, and I don’t know if the numbers are completely final, like the articles I was reading this morning, still, I don’t think were final numbers, but generally concluding that far-right parties did make some gains. Apparently, they were about one-fifth of the Parliament in 2019 in the European Union and growing to about a quarter. So, the Centre Party still do have control. It’s not that these far-right parties that are more anti-immigration and anti-green policy have control, but they definitely have maybe a bigger voice than they did prior.
Peter Tertzakian:
Mm-hmm. Yeah, I don’t know to what extent it’s a shift to the right rather than a shift away from the status quo. In other words, the sentiment that as a regular voter, as a citizen of the EU or even here for that matter, that I’m sick and tired of the existing establishment government, inflation is biting. There’s all sorts of issues, and therefore I just want to toss the government. Because if you look in the UK, they have an election coming up here in a few weeks, and the conservatives, which are further right than the established Labour Party, look like they’re going to get tossed out. So, the polls don’t necessarily show a shift to the right; it’s more a shift away from the status quo.
Jackie Forrest:
Right. And then France just announced overnight that there’s going to be an election there too. That’s happening in short order, so we’ll watch. Well, when it comes to the EU, I think though, whatever the shift to something different, with a greater voice for these right-wing members, I think we’re just going to see more of a moderate discussion on climate. I don’t think because they don’t have majority, we’re going to see any big changes in the overall goals, but maybe climate will be one of many issues. Like for instance, if you look at their five-year strategic plan, you can already see some elements of that where they’re talking about industrial policy to support the economic growth, but supporting clean energy growth is a subset of that. So, it’s not that climate has disappeared altogether, but it’s other sorts of priorities are being weaved in. So, you could see maybe some moderation of some of the near-term goals as they make room for some other priorities like energy security and the economy.
Peter Tertzakian:
Yeah, I think that’s really something that was going to happen anyway. And I’ll tell you why, because I think already, even independent of the election and the expectation by many pundits, that the shift to the right is going to be detrimental to things like climate policy. But I think that we had already reached what I would call peak policy for forcing energy transition and decarbonization. There was already signs of easing of the policies across Europe, even in the UK, that the goals were too aggressive in too short a time period, that’s going to cost too much and that there was a shift away. It was already coming. I would posit that this is something we really need to follow as we go into 2025 because 2025 is the 10th anniversary of the Paris Agreement. If you look at the numbers internationally, globally, there really has been no improvement in carbon emissions. In fact, by my calculations, carbon emissions have actually gone up about 10%.
Now, in the EU, we’ve seen carbon emissions since 2015 drop roughly, I’m just going to use ballpark numbers 10%. But I would also argue that 10% was the low-hanging fruit. It was the easy 10%, and 10% is woefully inadequate to meet any goal, whether it’s one and a half degrees, two degrees, net zero, we’re nowhere near on track. So, I think that there was a reckoning, and there still is a reckoning to happen with all these policies. I think the onset of the right-leaning parties in Europe is going to be the catalyst to say, “You know what? Okay, it’s not working. There needs to be a plan B.” But next year is a key year because these sorts of psychological markers, like a decade, 10 years, I think we are going to see some head scratching and calls for, “Okay, 10 years on, it’s not working. We need a plan B.”
Jackie Forrest:
Right. And influenced by some of these elections as well. And of course, we’re going to have the US election prior to the next climate meeting too, which I think is going to be quite influential.
Peter Tertzakian:
Right. Where is that? That’s in-
Jackie Forrest:
November, right?
Peter Tertzakian:
That’s in Azerbaijan this year.
Jackie Forrest:
Oh, yeah, yeah.
Peter Tertzakian:
And then, I don’t know, where is it next year? I don’t even know.
Jackie Forrest:
I’ll have to get back to you.
Peter Tertzakian:
I think it’s in South America, maybe somewhere. Anyway, we were talking about Europe, we were talking about climate policy, we were talking about its impact on infrastructure, infrastructure interest rates, so on and so forth. So why don’t we talk about infrastructure? Let’s talk heat pumps.
Jackie Forrest:
Yeah. So, this week, we want to get into depth on heat pumps and we’re very excited to have a guest to help us through that discussion. So, we’d like to welcome Danielle Vitoff, the director, Energy Transition, Energy Sustainability, and Infrastructure at Guidehouse, a consultancy. Welcome.
Danielle Vitoff:
Yeah, great to be here today. Looking forward to joining you all.
Peter Tertzakian:
You’re coming to us from just across the border, not a Canadian border, the American border in Montana.
Danielle Vitoff:
Yeah, absolutely. My joke that we get all our weather from Canada, so definitely have some experience working with heat pumps in these cold climates. So really looking forward to this discussion.
Jackie Forrest:
Right. Maybe before we get into it, maybe you could explain a bit around Guidehouse and your role and the type of work you’ve done on heat pumps in general and what Guidehouse does.
Danielle Vitoff:
Yeah, absolutely. Guidehouse is a relatively new brand in the markets, so I think important to just level set and understand where we came from. Currently, we are about 17,000 consultants, working in both the public and private sector. About 2,500 of those worldwide are focused on energy, sustainability, and infrastructure. I, myself, the Director of Energy Transition, I work a lot around the topic of how much electrification is the right amount of electrification and how do you meet carbon targets. So, when we’re talking about the building sector, heat pumps are a key component of that. Additionally, my background is actually in net-zero energy building design, and I worked in the Northeast US helping to design net-zero energy buildings, which many of them were using air source and ground source heat pumps as the primary heating system. So, I’ve worked on multiple issues around this, specifically for Guidehouse to work across heat pumps in many ways, including designing government programs for incentives, building public policy around heat pumps, and completing market research on how the market is evolving. So quite a few topics we can lean into.
Jackie Forrest:
Okay, so we’ve done our own research on this. So, we’re going to introduce some of the concepts and then we’re going to get you to chime in on if you think we’ve got it right, but just to give our audience a little bit of a background. Now, heat is 50% of final energy consumption. I think a lot of people would be surprised to hear that. They think it’s all for transportation, but heat is a big deal, and two-thirds of heat comes from fossil fuels. So, there is this drive in the decarbonization to move to electricity. Traditionally, we used a lot of resistance heaters for making heat from electricity, but now there’s a move towards these heat pumps, which we’ll get into it. But one of the benefits under the ideal conditions is they’re quite a bit more efficient than using resistance heaters.
Now, heat pumps are becoming a kitchen table conversation. People ask me about heat pumps. People are like, “Should we get a heat pump?” So, we thought maybe some of you have been considering adding a heat pump and this would be an interesting conversation for you to be involved in, and investors may be interested in this space as well because heat pump companies, HVAC companies have actually done very well over the last couple of years.
Peter Tertzakian:
Yeah, you look at the HVAC type companies that are up three times to five times over the course of the last four years, unlike a lot of the other clean energy stocks which have done a round trip or they’re actually back to 2017 levels.
Jackie Forrest:
Okay. So, first of all, how does the heat pump work? Well, it’s the same principle that’s used for fridges and air conditioners, where a refrigerant is compressed and expanded and that enables it to absorb and release heat. For all the engineers in the room like me, it uses the ideal gas law. We won’t go too far on that, but just to know it’s not a new technology. It’s actually been around since the late 1800s. But what’s unique about it is in the ideal conditions, they’re very efficient, about 300% efficient. So, the energy that is used to move this refrigerant around and change the pressure is only about one-third of all of the energy that you’re able to get in terms of the heat. And it’s because moving heat is much more efficient than converting heat. So, when we combust, we’re actually using a chemical reaction and we take hydrocarbons and turn them into water and CO2. And so, we don’t get all of the energy as heat. Where here, you’re just moving the heat.
And so, an ideal heat pump is 300% efficient, where things like natural gas furnaces are 97% efficient, and heating oil, which we’ll talk about because in Canada there’s some moves to replace heating oil with these heat pumps, is 89% efficient.
Peter Tertzakian:
So, when we talk about that efficiency, it’s a bit confusing to think about how you get 300% because the inviolable law of energy is you can’t create energy or destroy energy. So how are you creating three times as much? A heat pump really serves to, as the name implies, move heat from one space to another, from outside to inside, or vice versa. And as long as the heat in an environment is above absolute zero, there is heat. Now, you have to add some electricity to move the heat back and forth.
And as the differential between the space, you’re trying to heat or cool, and the outside temperature increases the more amount of electricity you need. So, you add a small amount of electricity, but you move three times as much, say one unit of electricity, but you must move three times as much heat, which is I think the way you get those efficiency numbers.
Danielle Vitoff:
Yeah, absolutely. And I think maybe one other way to describe it is that when you’re using a heat pump, you’re actually gaining that heat from the outside air and the electricity is just the movement, right? Conversely, when you look at a gas boiler, that fuel that’s combusted is the fuel that’s turning into heat. So that’s the way you can actually gain more efficiency out of the system. And I think important to note that in engineering terms, we talk about this as latent energy. There’s latent energy that it’s captured as you move from gaseous fuel basically to liquid, you’re releasing that latent energy and that’s what’s actually gaining your coefficient of performance.
Jackie Forrest:
So, it’s not only the change in pressure, but the change in state from vapor to liquid.
Danielle Vitoff:
Exactly.
Jackie Forrest:
Now, these heat pumps are efficient when it’s the right temperature range, but as it gets colder, they actually start to have a different efficiency, which is very different than a natural gas furnace where it’s always the same efficiency. It always is the same efficiency for combustion. The amount of energy you can get for the electricity you put in gets worse as the temperature is cold. And actually, the whole system has to just work faster and faster and faster as that temperature gets colder. And I really noticed that with my Tesla. I have a heat pump in my Tesla and in the cold weather, it is non-stop. You can just hear it humming like crazy because it’s circulating faster-
Peter Tertzakian:
Right.
Jackie Forrest:
Because the temperature’s colder, so there’s less heat for it to get, so it needs to circulate more and therefore more electricity is used to get that latent heat. So that’s the problem. And actually, some data from the Department of Energy shows that as you get into the -12 and below Celsius, it gets closer to 100% efficient. So more like what we get for a natural gas furnace.
Peter Tertzakian:
Yeah. And again, not to get into the physics equations, but the amount of energy you need to transfer increases. Actually, the rate at which need to transfer heat from one space to the other increases exponentially with the temperature difference. So, what that means is if the temperature you want inside your home is 20 degrees and the temperature outside is -10, that’s a 30-degree difference. But when you get down to -20, now you’ve got a 40-degree difference, and so on and so forth. But as the difference gets greater, the amount of energy required to transfer becomes greater and greater.
Danielle Vitoff:
One of the other things to think about is when we think about those cold climate heat pumps, we’re also integrating some additional technological improvements to make them more efficient at those colder temperatures. Things like variable speed injectors, advanced refrigerants and such that are going to make them more efficient as you move colder and colder, they get more expensive, but they are more able to work down into -20 degrees Celsius and such.
Peter Tertzakian:
Right. Let’s talk about the ideal operating range of a heat pump because below a certain temperature outside, it starts to become inefficient as the charts show. In other words, you’ve got to use more and more electricity, not only to move the heat, but also to generate the heat because it’s just insufficient. And then above a certain temperature, if you’re trying to cool your space, again, the temperature differential when it’s 45 degrees outside and you want 20, it’s again, you’ve got to really air condition in the space, and it takes a lot more energy. So, Danielle, what is the ideal operating range of a heat pump where we get these double, triple 200%, 300% efficiencies?
Danielle Vitoff:
Yeah, it really depends on the make and model. There are a lot of differences when we’re out there, but you’re really looking at those ranges that are sitting somewhere around just below zero, up until about 20 degrees above zero is like that ideal range.
Peter Tertzakian:
That’s Fahrenheit?
Danielle Vitoff:
No, Celsius. Yeah, Celsius.
Peter Tertzakian:
Celsius, okay.
Danielle Vitoff:
I’m trying to convert to Celsius, it’s a little hard for us here, but I think maybe one of the things to think about is that we try to combat this in multiple ways. Efficiency is something that we play with and try to combat in multiple ways, and it’s important to recognize that not all heat pumps are made equal. There are air source heat pumps out there, which is often what we’re talking about. We also have ground source heat pumps, ground to air, air to ground. All of these are different ways in which to think about how can your system be more efficient determining the operating conditions that you’re working under?
Jackie Forrest:
Yeah. Well, that’s a good point where we’ve been talking about air source. Ground is a totally different thing, but also, totally different cost. We’re going to focus on the air source today. So yes, there are these cold climate heat pumps, but even then, would you say that their efficiency isn’t great below zero Celsius?
Danielle Vitoff:
Yeah, just for the fundamentals, as you get colder and colder, they get less and less efficient or less and less of an efficiency boost over other technologies that are out there. That said, we are using some new refrigerants that have boiling points that are very, very low and start to allow you to go further down, but they do get more and more expensive as you move towards those colder temperatures.
Jackie Forrest:
Right. So, it’s the CapEx cost versus the OpEx. Now, because of this, today’s market for heat pumps is fairly small. It’s about 13% of US homes have heat pumps and about 6% in Canada, but there are lots of regional differences. The Southern States of the US have about 40% of houses using heat pumps, but Northern States have like 5%, and I guess the temperature is part of what explains that. Interestingly enough, Quebec, Newfoundland and Labrador also have a high use of electricity for heating. Now, I’m not sure how much of that is heat pumps. Danielle, do you have any idea why these Canadian provinces, they’re quite cold, are using a lot of heat pumps or electricity?
Danielle Vitoff:
Yeah, it comes down to market fundamentals. Electricity prices are low in those provinces, really compared to other developed regions. And truthfully, when you look at the abundance of hydroelectric, that’s why those prices have been low and stayed low, which means that people are voting with their wallets again and choosing the thing that is going to be cheapest for them in their homes.
Peter Tertzakian:
Let’s explore that because my experience of looking at homes and buildings out in the east where there’s a lot of cheap hydroelectricity as you have, say those baseboard type heaters along the wall and then you have a straight air conditioner, but what we’re talking about here is replacing both of those potentially with one integrated unit called a heat pump.
Danielle Vitoff:
Yes, absolutely. And I think absolutely there are improvements to many of the existing heating systems that are run by electricity in homes that could be better used if heat pumps were integrated into the system.
Jackie Forrest:
And those resistance heaters are about a hundred percent efficient. They’re constant though, but so that’s one issue with them over a-
Peter Tertzakian:
But they’re hundred percent efficient, but they don’t take advantage of… you’re just creating new heat. They don’t take advantage of, as Danielle was saying, bringing in the latent heat that’s already in the outside atmosphere and bringing it in much more efficiently.
Jackie Forrest:
Yeah, exactly. And I think in the older buildings and things like that, that was maybe more common, but now more move to the more efficient heat pumps.
Peter Tertzakian:
Right.
Jackie Forrest:
Well, let’s get to the cost. So, we did some research looking at furnaceprices.ca and the Canadian Climate Institute, and we found in Canada, unsubsidized it was about $13,000 for heat pump. Now of course, this is just an average price, as Danielle pointed out. They all have different features and sizes, but we compared that to a natural gas furnace or a propane furnace or a heating oil furnace, and in general, the CapEx is two or three times more for a heat pump than to go with the fossil fuel burning option. Does that sound about right to you?
Danielle Vitoff:
Yeah, from a CapEx, that is definitely right. But remember many of these, you see some OpEx savings as you start operating, but CapEx is absolutely a couple times more expensive.
Jackie Forrest:
Yeah, so that’s a barrier. Now, the governments are trying to get rid of that barrier, and in some places in Canada, like apparently Prince Edward Island is basically offering them for free for people below a certain income level. Newfoundland and Labrador offers most of the cost covered. And we did hear with the announcement of the Maritime provinces getting a break on the fuel oil carbon tax, which everyone in Canada is pretty focused on. There was also some subsidies around getting a deal on the heat pumps, so the government’s trying to reduce that difference. Is that working, do those kind of subsidies result in people buying that choice more often?
Danielle Vitoff:
Absolutely. Though our research shows that the reason that most people are buying heat pumps is not just the cost and the subsidization of the cost, it’s the addition of cooling in the home, which though needed only a few days a year in these cold climates is really the additional functionality of the heat pump becomes one of the driving reasons why people are purchasing them. But the incentives are critically important, and similarly in the US we have incentives that are rolling out through the Inflation Reduction Act to incentivize the installation of heat pumps, and that will make a difference because that first cost is such a barrier to the installation.
Peter Tertzakian:
Yeah. And I know it varies from region to region depending upon electricity costs versus natural gas fired furnace costs, but $12,000, $13,000, the payback period has got to be quite long, so necessarily I think you need to have this kind of subsidy, otherwise nobody would buy these things.
Jackie Forrest:
Well, and that gets to my next point is that the operating cost benefits really vary depending on where you are if you’re using it for heat. And as Danielle points out, some people are kind of looking at it more as for cooling, but we did some work to look at how it compares to natural gas for a cold climate like Alberta, and our calculations would show that below zero C, it’s generally more expensive to heat with electricity than natural gas. Now, that’s assuming 25 cents per kilowatt-hour power price, which is actually a bit lower than what we’ve had on average over the last couple of years, although it’s come off recently here in Alberta. And that’s even when we put $170 carbon levy on the natural gas. So, in Alberta, I mean maybe that’s why there’s not a lot of them is I would argue that because of the efficiency losses, assuming the higher power prices that we’ve experienced, you don’t really get a payback.
Peter Tertzakian:
Yeah. Well, this is what I was talking about. What is the ideal operating range where you can get these high 300% type sufficiencies? Again, one unit of electricity, electrical energy yields moving three times as much heat energy back and forth. That type of stat only applies, I would say, like Florida to Tennessee. I’m just using rough geography right here. And then as you get above that, the temperatures in winter start dropping to the point where you lose that efficiency bump till you get to cold places like Montana and Alberta where it’s actually marginal the game, to be honest.
Jackie Forrest:
And I would just want to add one more geography important in Canada’s Atlantic Canada where we’re encouraging the adoption of them, that’s a milder climate in general. So, we found with typical winter temperatures and the current electricity prices, which are a little bit lower there than what we see here in Alberta, and the fact is they’re using heating oil, which is a more expensive fuel than natural gas. In that case, we found that the heat pump was the lower cost option on the OpEX side. So, it really varies by geography and what your temperatures are and how many very cold days you have, but hey, that’s today’s electricity price. If electricity prices go up, which could happen, we’ll get to that, what the impact of all these heat pumps and electrification will be, then that changes because the electricity, they’re very sensitive to electricity prices.
Peter Tertzakian:
They’re sensitive to electricity prices. But Danielle, can you also talk about what you found in research as the retrofits to your home heating cooling systems that you have to do. It is $13,000, that’s Canadian for in Canada. Is that just for the price of the unit and then on top of that, “Okay, I’ve got to change my configuration of my furnace and heating ducts and what have you?”
Danielle Vitoff:
Yeah, those prices you’re talking about, there are just the installation of the air source heat pump itself. And for many homes, there’s additional upgrades that are needed, redistribution of your heating and cooling and how it’s delivered into the home ducts and such. This is why those additional configurations, something like an air to water heat pump may be critically important for certain homes because if you already are moving energy through your home by water, it’s less of an upgrade to continue to move through water if you can transfer the energy from air to water, so those are considerations that are being made. We also find that in a lot of older homes, you need to make improvements to the home thermal envelope itself, particularly when moving from fossil fuels to air source heat pumps just because those cold temperatures are such a driver of the kind of decreased efficiency, and you don’t have as much of that degradation in a fossil fuel furnace. So making the home more efficient can dramatically improve how people experience how well that heat pump performs in those cold temperatures.
Jackie Forrest:
Now, I want to come back to my calculations here, Alberta and Atlantic Canada. Would you broadly agree, has your work found similar things around the fact that in some of those very cold climates, it’s hard to compete with natural gas?
Danielle Vitoff:
Absolutely. Natural gas continues to be a low-cost heating source, particularly in those cold climates, even when you put the carbon taxes on, it still is hard for electricity to win out over natural gas at this point.
Jackie Forrest:
Okay. Well, let’s talk about some of the barriers to adoption and the broader impacts of moving to more electrification when it comes to heat pumps. One significant issue that we’ve already talked about is these units are quite inefficient when it’s cold. And unlike electric cars where you can shift the demand for electricity to different parts of the day, if everybody puts in a heat pump in their home, they’re generally going to want to run them all at the same time when it’s very cold out. And we all experienced here in Alberta January of 2024 when we had near brownouts in the coldest weather. When we get the coldest weather, we already have a lot of strain on the system, and now we’re going to add inefficient heat pumps all coming on at the same time, and people don’t have the option to wait three hours to heat their home.
So I think it’s important to look at the system effects, and we found a really… there’s been very little done we found on this, but we did find an interesting paper which we will put a link to in the show notes, but it was done by the US Department of Energy, and it looked at the impact to the grid of higher penetration of heat pumps in these colder regions. It actually looked at them in all regions of the US, and it found that in the southern regions, they’re actually beneficial because there’s a lot of resistance heating, and because they’re so efficient and you don’t get the extreme weather, actually they’re beneficial to the grid. But in the cold climates, it concluded that a 50% penetration of heat pumps would cause a hundred percent increase in the peak residential electricity demand.
Peter Tertzakian:
So, you need double the amount of electrical power capacity at peak to be able to handle the coldest days of the year.
Jackie Forrest:
Yes, because they all come on at the same time, and it may just be a handful of days, but people need heat for those days.
Peter Tertzakian:
Right. But I think this is such an important point because again, it relates to what I was saying before with the physics of it, the thermal power, the rate at which you deliver heat per unit of time goes up exponentially as you get colder and colder, or the difference between the outside temperature and the inside temperature that we desire. And so, combustion-based furnaces have this ability to surge and provide that thermal power very quickly, but these electrical systems, even if they can do it, they’re just pulling on the grid so hard during these coldest times that you need to expand the grid substantially.
Danielle Vitoff:
Yeah, and this is why in some of the colder climates, we’re hearing discussion of dual fuel systems in homes, things particularly when you’re retrofitting a home and it’s already using fossil fuel heating, leaving some of that fossil fuel heating in, even if you’re going to install a heat pump just to serve those few hours of the year where you are hitting that peak load issue. So, there’s a lot of considerations around. I will also note though, that the technologies around peak load capacity and load shifting continue to evolve, and some of the studies that we’ve looked at even five years ago are outdated as of now in terms of what are those cost impacts and how much can we actually shift the load or store energy to use in those peak capacities. So, I will say this will continue to evolve and the answer may change as we move forward and see the technologies change.
Jackie Forrest:
Is there a way that you could shift the heat pump load though on those coldest times?
Danielle Vitoff:
Not really. It’s more about saving energy at other times to be able to flatten that peak so that you can really bring it from other periods of time when other systems are not on. But as we add things like electric vehicles and bi-directional charging are coming on, if you could use some of your electric vehicle stored capacity and use that for those peak hours, those are things that everyone’s considering in terms of what it might look like for serving that peak load.
Peter Tertzakian:
Right. Although you would end up draining your car battery to heat your home, so you can’t go out to get groceries.
Jackie Forrest:
But in a couple hours you could fill it again. By the way, just a side note, smart policy side note is BC just announced that they’re going to go forward with time-of-day pricing so that it’s more expensive to use power during the peak and cheaper at different parts of the day. That’s where we need to go, because that will motivate people to get maybe battery storage and things like that that will allow them to reduce how much they’re drawing from the grid at those peak hours.
Peter Tertzakian:
But it’s still the upfront capital costs are the big issue with all these systems. There’s just such a monumental amount of upfront investment that’s required in new infrastructure, whether it’s in the individual home or the broader transmission and distribution networks and so on. So, to me, the idea of having hybrid heat pump solutions, some natural gas, electricity, you use the one that you need depending upon the shifts in the weather. To me, it just makes so much sense. And I think on that note, Danielle, what is the outlook for hybrid-based heat pumps? The ones that have the dual fuel natural gas and electricity?
Danielle Vitoff:
One of the challenges here is the CapEx costs are just significantly higher than even just the electric heat pumps.
Peter Tertzakian:
Well, what are we talking, if it was 13,000 for a regular one-
Jackie Forrest:
And then another five or six for your natural gas furnace, right?
Peter Tertzakian:
No, no, but you already have the natural gas pipe into your house.
Jackie Forrest:
I know, but you still need to buy the furnace. It’s fine if you have an existing home that has a natural gas, but if you have a green, brand-new house, you need to buy both systems now.
Danielle Vitoff:
Exactly. That’s where we’re seeing the challenge. New houses, or if you’re doing massive retrofit, if you don’t already have it, or you are in one of those provinces where electric heating is already the norm, you can move to a heat pump pretty easily, but adding a natural gas system, that’s additional cost that has to go into the home. So that CapEx cost is still high, and I think it’s important to recognize that. That said, when we look at the societal value, I would agree. Absolutely dual fuel. There are some places, especially as you get into the colder climates, it makes sense, but we have to figure out how to get over that first cost.
Jackie Forrest:
Now, there’s been a number of studies, which some of them we’ve referenced on the podcast. I just want to quickly talk about them. We had Roger Dall’Antonia, the president and CEO of FortisBC. He talked about Kelowna, which is a fairly mild climate actually, but they felt that if they went all electric for heating it would more than triple the peak energy load on a cold winter day. We also had talked earlier about a study by FortisBC. It was commissioned by FortisBC and it was done by Navigant, which is now Guidehouse, and they concluded that electrification would impact the peak demand for electricity, and if you stayed with some gaseous fuels, it could save more than a hundred billion. We will put links to that Navigant research in the show notes. But I want to come back to, because some people are probably thinking, “Well, what about Newfoundland, Labrador and Quebec? They’re obviously doing this, so how can they accomplish this when they have these high costs for the electricity system?”
Danielle Vitoff:
Yeah, it really depends on how you look at how those costs are developed and how the policy is developed and why it’s being developed. When we’re thinking about why policies are being developed to encourage heat pump use, it’s usually around decarbonization of the energy system. Again, there’s a couple of different ways to look at total cost. It is going to be expensive regardless of what we do to decarbonize the energy system. If you look at an individual home, which is what we’ve been talking about in terms of cost, yes. It is often more costly in a cold climate to put a heat pump in and heat the home that way compared to the fossil fuel alternative. However, when we look from the top down and say, “What is the least costly way or the most beneficial way to society to decarbonize the energy system?” We get a different answer and that’s because, compared to other things that we could electrify such as industrial loads, large transportation loads and such, heating, home heating in particular is a less expensive electrification option than some of those other larger loads.
So when you’re doing that comparison, you still will overcome and say, “We are going to electrify those heat loads.” This is why we’re government incentives go into this place to encourage electrification there, because it’s going to be less intensive, both from an energy and from a cost perspective to electrify the home’s heating rather than the industrial plant down the street. And so that’s really the kind of comparison that’s going in and when you start to look at the holistic policy development space, you’re looking at the benefits of decarbonization, which include health costs, reduction in visits to hospital rooms and deaths and all of that and when you start to add up those costs, you can start to make the decarbonization policy around electrification work.
Jackie Forrest:
So, for example, we could go to hydrogen in our furnaces, but the cost of that is even more expensive than potentially building out the grid.
Danielle Vitoff:
Exactly.
Jackie Forrest:
And then what are the health benefits? Why are there health benefits?
Danielle Vitoff:
Well, health benefits in two ways. Just general decarbonization of the energy system and lower combustion reduces particulates in the air and such just in cities. It’s also health benefits in homes. There’s conflicting information around this truthfully, but in general, we see that less combustion in homes, removing those furnaces, those natural gas ranges and such, does decrease particulate matter in homes, make the air healthier to breathe. Anytime you’re reducing, combustion usually leans towards health benefits.
Peter Tertzakian:
Wow. Yeah. There’s so much to consider and there’s a lot more to consider, but I think just to wrap up, one of the things we can conclude about heat pumps is they are really an important technology that is improving over time. We’ve come a long way from simple air conditioners and furnaces and combined them into two, but that the capital expense is still relatively high, so it does need incentives up front for homeowners to adopt these things. It’s happening quickly. It’s happening especially quickly in geographies largely dependent upon the latitude. Lower latitudes, the adoption numbers are really quite impressive down in the Southern United States, just because the economic value-added proposition from an operating cost perspective is really quite compelling. But as you get further north, the economics diminish and so therefore the subsidizations need to be even greater.
The energy transition as usual is not easy. There are so many variables to consider when you think about trying to get an entire society to shift the status quo of the way homes are heated and cooled. And so, this is a fascinating discussion because we’ve spent a lot of time in past podcasts talking about things like electric vehicles and mobility, but now we move on to buildings, which really is much more complicated, in my opinion, in terms of retrofitting an entire civilization’s modern building and commercial building circumstance. So, thank you, Danielle Vitoff, Director, Energy Transition, Energy, Sustainability and Infrastructure at Guidehouse, all the way from Montana for helping us understand the nuances of heat pumps.
Danielle Vitoff:
Yeah, absolutely. Thank you.
Jackie Forrest:
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