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Electrification Can Be a Smart Investment

Making the switch from propane or oil to electric heat often saves money

Switching from an oil or propane furnace to a high-efficiency electric heat pump has a typical payback period of one to two years.
Image Credit: Peter Stevens / Flickr

To achieve the common and ambitious worldwide goal of reducing greenhouse gas emissions 80% or more by 2050, analyses find that consumers and businesses will need to use a combination of energy efficiency and carbon-free electricity (e.g., electricity from renewable resources or nuclear) or low-carbon electricity (efficient fossil fuel use with carbon capture and storage) for transportation, space heating, and water heating (see here and here).

But does electrification save money for homeowners considering making the switch? Our new study, “Energy Savings, Consumer Economics, and Greenhouse Gas Emissions Reductions from Replacing Oil and Propane Furnaces, Boilers, and Water Heaters with Air-Source Heat Pumps,” looks at that particular question.

The report finds that replacing oil and propane furnaces, boilers, and water heaters with high-efficiency electric heat pumps can often reduce total energy use and energy bills and will also reduce emissions in many cases.

Electrification can be a smart investment

When it is time to replace heating or cooling equipment, high-efficiency electric heat pumps or water heaters can often provide an attractive alternative to homeowners looking for a cost-effective solution. In fact, the energy and money saved by installing electric equipment instead of propane- or oil-powered equipment can often make up for the upfront cost in relatively short order, as shown in the following table:

* Payback periods are generally longer in the upper Midwest, where oil and propane prices are below the national average and heat pumps operate less efficiently due to lower average temperatures. Note: furnaces provide warm air that is circulated through a house via a system of ducts; boilers provide hot water that is circulated through a house via pipes and radiators.

These results are for fully replacing an oil or propane system with heat pumps; partial replacements that leave the existing oil or propane system in place to provide supplementary heat are less financially attractive because the backup system will eventually need to be replaced.

This study complements a prior ACEEE study that found that switching from electric furnaces to heat pumps is often financially attractive to consumers, as is converting from electric baseboard heat to heat pumps in homes with ducts or homes with above-average space heating energy use. On the other hand, another ACEEE study found that the economics of converting gas furnaces to heat pumps are often not compelling to homeowners (e.g., simple payback periods commonly over 10 years, although lower in the deep South). And work by others has identified efficient new homes as another attractive market for heat pumps.

Heat pumps are becoming more popular

Studies generally find that consumers are receptive to heat pumps, but some issues do remain, including comfort at cold temperatures, operating costs, aesthetics, noise, and reliability.

Some early programs to promote heat pumps have met substantial success and others less so. Programs in Maine, Massachusetts, Vermont, and the Northwest have incentivized the purchase of thousands of heat pumps, primarily ductless heat pumps, with the market share of ductless heat pumps now at 13% in the Northwest. The most successful programs tend to provide substantial upstream incentives (to wholesalers) or midstream incentives (to contractors). They also include contractor training and certification so that systems are installed properly.

Recommendations

States interested in pursuing heat pump programs as a way to support energy savings and emissions reduction goals can take the following steps:

  • Offering programs to promote high-efficiency heat pumps to replace less-efficient oil and electric systems, and sometimes propane systems as well. Such efforts can build on successful programs in the Northeast and Northwest. In addition, programs to promote heat pumps in new construction deserve attention.
  • Training and education for contractors on proper installation and for homeowners on good applications for use of heat pumps.
  • More field monitoring on actual heat pump performance and refining of performance metrics based on this monitoring.
  • Additional research on supplemental heat for heat pump replacements in colder climates that could avoid the need to retain a fossil fuel system for supplemental heat during the coldest days.
  • Continued work to develop improved cold-climate electric ducted air-source heat pumps and gas-fired heat pumps.

These efforts can increase the market share of high-efficiency heat pumps in attractive applications while better learning what does and doesn’t work in terms of both technologies and programs.

Steven Nadel is the executive director of the American Council for an Energy-Efficient Economy. This post was originally published at ACEEE’s website

15 Comments

  1. J M | | #1

    Unique hybrid option - viable and payback?
    I've heard of people using the HTP Versa Hydro Solar Propane Boiler system but instead of feeding a solar water system into it you feed hot water into it via a heat pump water heater which gets electricity from a PV array (simplifying the solar array required, reducing installation costs, and improving reliability). Depending on the season you use them both or as it get warmer just the heat pump water heater. How would this compare to a traditional household that uses a propane water heater and propane boiler? The location is central VT and the solar rating for the the site is high (65 or 70 out of 100 if I remember correctly).

    I know someone with an 11 year boiler and water heater and was wondering if this setup would be ideal for replacement. They currently spend about $3000/year on propane (winter 2016 - 1750 gallons) but that also includes the cooking and fireplace use too but I imagine that heat and water heating are the primary drivers.

  2. User avater GBA Editor
    Martin Holladay | | #2

    Response to J.M.
    J.M.,
    I have no direct experience of a system like the one you describe. But it sounds like whoever came up with that solution is spending a lot of money on expensive equipment to solve a simple problem that isn't that complicated or hard to solve.

    The aim is to provide space heating and domestic hot water with electricity -- right? That's the goal.

    The simplest solution is to provide space heating with minisplits and to provide domestic hot water with either (a) a heat-pump water heater or (b) a conventional electric-resistance water heater. Then, if site conditions and your local electric utility permit, you install a PV system to lower your electricity bill. That's the simple solution to avoiding the purchase of expensive propane.

    I don't think you will ever see enough electricity savings to justify purchasing a solar thermal system and a large enough air-to-water heat pump to allow the air-to-water heat pump to provide space heating. Remember, in central Vermont, a solar thermal system provides almost no useful heat during the space heating season.

  3. J M | | #3

    Martin, the idea wasn't to
    Martin, the idea wasn't to use a solar thermal system, it was to use a PV array instead and use it to reduce the propane use for the Versa Hydro Solar via a HPWH. This isn't my home and I don't know the exact details of their domestic water and radiant system but I do know they use propane and if they have a stand alone system 11 year old is getting near the end of life.

  4. User avater GBA Editor
    Martin Holladay | | #4

    Response to J.M.
    J.M.,
    The base price for the Versa Hydro Solar -- internet price without installation -- is $12,012. It's unclear to me how the use of this $12,000 device would improve the efficiency of a heat-pump water hearer.

    Note as well that you can't use a heat-pump water heater for space heating in Vermont, because the water heater has to be located indoors, so it would be removing heat from the conditioned space to make hot water, as it simultaneously struggles to heat the space using the hot water it just created by cooling the space where the heater is located.

  5. J M | | #5

    Still not getting it
    Martin, if you have a PV array the heat pump water heater (COP over 3) would be indirectly heating your home via the sun for free so you'd still be saving money over using propane alone. You also need hot water year round and as the weather gets warmer the 4000 BTU/hr maximum would be a small amount of free AC/free dehumidifier in the basement plus it would eliminate the propane use then since you don't need to use as heat loads drop off with the seasonal changes.

    Also you can get the largest unit for less than $9K shipped and a 80 gallon heat pump water heater would bring the price after EVT rebate to 10-11K. But it might not be cost effective given that boilers last 15-20 years and this boiler is about 10 years old.

    http://www.radiantheatproducts.com/store/cart.php?m=product_list&c=128

  6. User avater GBA Editor
    Martin Holladay | | #6

    Response to J.M.
    J.M.,
    You've provided good arguments in favor of a PV system and a heat-pump water heater -- and you don't need to convince me on those points, since I suggested these items in Comment #2.

    The heat-pump water heater won't help with space heating, no matter how much electricity is produced by the PV array.

    You haven't provided any evidence (unless I'm being particularly dense) in favor of the Versa Hydro Solar -- which doesn't seem necessary, even if it costs $9,000 rather than $12,000.

  7. J M | | #7

    As long as the hot water
    As long as the hot water loads in the home aren't from a large family or consistently high demands, some of the capacity of the HPHW can be used in the solar heated water port in the Versa Hydro for radiant heating via the solar coil in the bottom of the Versa tank for heat transfer. Since heated water wouldn't be sitting in the water heater tank as long you would be operating more efficient. There's less than a 1K premium for the solar model vs conventional Versa Hydro - the payback for $1000 premium shouldn't be too long.

    Heat rises and most people don't keep their basements as warm as the rest of the house anyways too.

    I agree that this isn't the most economical solution but still seems like it has merit if one doesn't want to consider the limited and less attractive air to water heat pump available in the US which are also expensive and have more limited BTU capacity especially as the temperature drops. Also one might want to keep using the radiant/baseboard system already installed and paid for.

  8. Lance Peters | | #8

    Ummm...
    A HPWH located indoors cannot be used for space heating any more than a refrigerator can be used for space cooling. It doesn't matter what you do with the hot water coming out of it, the energy used to heat the water comes from the room it's in, not the electricity supplied to it.

    To be clear, using a PV array to power a HPWH for use in wintertime space heating would be no more efficient (and maybe less effective) than using a PV array to power an electric resistance heater. It would just cost a lot more.

  9. greenhouse437 | | #9

    Electric rates
    Given soaring electric rates in the New York area (about 25¢ kwh--supply, delivery, taxes, fees, etc. in Northern Westchester) not sure how heat pumps are yet viable.

  10. User avater GBA Editor
    Martin Holladay | | #10

    Response to Greenhouse437
    Greenhouse,
    It's true that electricity costs more in New York than many other regions of the U.S. One benefit of this fact: installing a PV system in New York saves more money on an annual basis than installing the same PV system somewhere where electricity is cheap.

    If your local electric utility provides a good net-metering contract, and if you own a home with an unshaded south-facing roof, investing in a PV system yields a much higher return than investing in stocks or bonds.

  11. User avater GBA Editor
    Martin Holladay | | #11

    Response to J.M.
    J.M.,
    You wrote, " You wouldn't want to use it in heat-pump-only mode in the winter."

    In fact, there is no hard-and-fast rule on this. If you are using a heat-pump water heater to make domestic hot water, many homeowners find that their unit works well all winter long in heat-pump-only mode -- saving energy compared to the hybrid mode or electric-resistance-only mode. Much depends on the size of the room where the heat-pump water heater is located, and whether or not this room contains other appliances that may be shedding waste heat.

    For domestic hot water, heat-pump water heaters make sense. For space heating, they never make sense -- unless it is a split-system water heater with an outdoor compressor.

    If you are suggesting that you can use electric resistance elements for space heating, you're right. (You're also right that a PV system will reduce the cost of this space heating method). But it's silly to use a water heater -- especially a heat-pump water heater -- for this purpose. If you want to heat your house using electric-resistance elements, buy some electric-resistance baseboard units. Or, if you want to reduce the amount of electricity used for space heating, buy one or two minisplits.

  12. J M | | #12

    I never suggested the HWHP as a standalone
    I never said it was standalone, it was used in combination with the Versa Hydro Solar which has a "solar coil" which will accept heat transfer to offset propane demand regardless of how that hot water is made for a minimal $1000 premium of over the model that lacks the solar coil feature. If you have to replace both your boiler and your water heater at the same time this small premium probably makes sense given the limited and costly options for air to water heat pumps for replacement of an existing radiant/baseboard system especially in the US. Something like the Sanden or even Sanden Combi would be even better but cost double or more compared to the indoor tank models and labor/installation costs are also significantly more too.

  13. User avater GBA Editor
    Martin Holladay | | #13

    We're going in circles, J.M.
    J.M.,
    I understand your suggestion to buy the Versa Hydro Solar with a coil to transfer heat. But this feature is useless unless you have a source of hot water to introduce into this coil.

    If you heat the water with an electric resistance element, you don't need the Versa Hydro Solar, and you don't need a water tank. You just need an electric resistance space heater.

    If you heat the water with a conventional HPWH, it won't work, because the HPWH steals heat from indoors to heat the water.

    We both agree that a Sanden air-to-water heat pump could be used (at great expense), but you never mentioned the Sanden idea until Comment #13.

    Finally, the minisplit solution I suggested in Comment #2 is many, many thousands of dollars cheaper than the Versa Hydro Solar plus Sanden air-to-water heat pump solution.

  14. J M | | #14

    Martin, what you say of new
    Martin, what you say of new construction is true but a house that has two floors of existing radiant and baseboard off an existing propane boiler it could prove difficult for people to given up at least the radiant for expectation of perceived and/or real comfort. Getting rid of baseboard would likely be an easier sell. I also don't know the number of BTU/hr involved, but I am guessing this would mean 3-4 heat pumps to replace a larger radiant/baseboard system I am talking about and then the proposed Versa Hydro Solar could be cheaper than buying lots of cold climate air to air heat pumps. A resistance only water heater provides no benefit in the non-heating season but would save money, run more quietly, and be more reliable.

  15. J M | | #15

    HPHW
    Lance, Most HPHW have several modes of operation which can be adjusted depending on the season and needs so yes they're still going to save propane use as they're not HP only water heaters. You wouldn't want to use it in HP only mode in the Winter.

    "Heat Pump
    This mode will heat with Heat Pump
    operation and will not use electric heat
    during typical heating and demand cycles.
    This mode has a low recovery, but minimizes
    power consumption.

    Energy Saver - Factory set mode for
    shipping.
    This mode optimizes Heat Pump and electric
    heat that results in low power consumption
    and High recovery.

    High Demand
    This mode provides the highest recovery
    while still providing good energy savings.
    Water heater operates Heat Pump and electric
    heat simultaneously.

    Electric
    This Mode will heat with the electric
    resistance elements."

    Just because it's not a simple solution doesn't make hybrids unworthy of consideration.

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