NewEnergyNews: TODAY’S STUDY: Getting Emissions Out Of Buildings

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    Tuesday, May 07, 2019

    TODAY’S STUDY: Getting Emissions Out Of Buildings

    Residential Building Electrification in California Consumer economics, greenhouse gases and grid impacts

    April 2019 (Energy+Environmental Economics)

    Key Findings

    GREENHOUSE GAS SAVINGS

    Electrification of buildings — switching from fossil fuels to electricity use for space heating, water heating, cooking, and clothes drying — represents an important strategy to reduce greenhouse gas emissions. In California, the electricity mix is already relatively clean and renewable, and by 2045, 100% of the state’s retail electricity sales will be met with zero-carbon resources (per SB 100) 4 . This means that using electricity to power our homes already reduces carbon emissions relative to direct-use of natural gas, and these carbon savings will increase over time as the grid become cleaner.

    Electrification is found to reduce total greenhouse gas emissions in single family homes by ~30% – 60% in 2020, relative to a natural gas-fueled home. As the carbon intensity of the grid decreases over time, these savings are estimated to increase to ~80% – 90% by 2050, including the impacts of upstream methane leakage and refrigerant gas leakage from air conditioners and heat pumps. If the state succeeds in achieving a completely decarbonized grid by 2045, the GHG savings would be even larger in 2050. The absolute level of greenhouse gas savings in buildings depends on the size of the home, the quality of the building shell (which is generally better in newer homes), and the climate zone where the home is located.

    Figure 1-1 illustrates the expected greenhouse gas emissions savings from an all-electric single family home in Sacramento in 2020, 2030 and 2050, compared to a mixed fuel home, assuming no change in the efficiency of today’s commonly available electric and natural gas end uses. The largest source of greenhouse gas savings comes from eliminating on-site combustion of natural gas. Emissions from electricity decrease over time due to the state’s zero-carbon generation goals. The increase in GHG emissions from refrigerant leakage associated with heat pumps in the all-electric home is relatively small, since the mixed-fuel home uses a conventional air conditioner, which also results in GHG emissions from leaked refrigerant gases. Natural gas leakage is also assumed to decrease over time as well.

    GRID IMPACTS

    In California today, the grid is a summer peaking system, with peak electricity demand driven by residential and commercial air conditioning. This means that the summer peak load is used to plan systemwide capacity additions and investments. Residential building electrification (as well as commercial electrification, though not studied here), will lead to an increase in winter electricity demand across all climate zones. This study suggests that even in a relatively high residential building electrification future, buildings’ contribution to statewide winter electricity demand is likely to remain lower than the residential summer peak demand levels, at least under typical weather year conditions.

    In general, building electrification will contribute to a better utilization (higher load factor) of the bulk power grid. The regional and distribution-level grid impacts may have more localized impacts. For example, in regions without large air conditioning loads, such as San Francisco, the addition of electric heating loads could trigger a new winter-peak demand period, necessitating local distribution grid upgrades. Grid planners will need to monitor these local trends.

    BUILDING ELECTRIFICATION CONSUMER COSTS AND SAVINGS

    Near-term low-rise residential building electrification opportunities

    All-electric new construction is one of the most promising near-term applications for building electrification efforts. All-electric new construction is expected to be lower cost than gas-fueled new construction homes in homes that have air conditioning, resulting in lifecycle savings of $130 - $540/year. These findings are based on commonly available technology, without incentives or intervening policies.

    Retrofits to electric air source heat pumps for space heating and cooling represent another near-term savings opportunity in existing homes that have air conditioning. High capital costs of electric heat pump retrofits in existing homes are often perceived as a barrier to electrification, but this assumption was not borne out for homes that are otherwise already upgrading the air conditioning system. While HVAC systems are highly capital-intensive in general, in most cases we found capital cost savings when replacing the combination of an air conditioner and a gas furnace with a standalone heat pump HVAC unit. Further, 87% of the simulated single family retrofit homes (all of which are assumed to have air conditioning)see lifecycle savings from switching from a gas furnace and air conditioner to an electric heat pump HVAC system.

    Near-term electrification barriers and market transformation needs

    While electrification can be lower cost in many cases, the incremental upfront capital costs can be higher for electrification when retrofitting the HVAC system in older homes that lack air conditioning. This is because air source heat pumps provide both air conditioning and space heating; when compared to just a gas furnace the cost of the heat pump is often higher. In general, Californians could benefit from having access to a broader range of high-efficiency, lower-cost heat pump options, including those available in international markets such as Japan and Europe, but which lack a UL listing in the United States.

    Another retrofit challenge is that older homes can require an electrical panel upgrade to support new electric loads. Electrical panel upgrades can add $2,000 - $4,000 in capital costsfor some older homesthat lack 200- amp electrical panels, although these are not expected to be required for the majority of existing homes. Furthermore, older homes that require electrical panel upgrades will represent a decreasing proportion of the housing stock over time as buildings are renovated or as panels are upgraded for other purposes, such as to add electric vehicle charging, rooftop solar or to add rooms or auxiliary dwelling units to an existing home. The development of low-amperage “retrofit ready” heat pump options, and lower cost solutions to the standard electrical panel upgrade package represent important areas for market transformation.

    > This study also evaluates the consumer economics of heat pump water heaters, electric stoves and electric clothes dryers. Heat pump water heaters are currently more expensive than conventional gas storage water heaters found in many existing homes but are comparable in cost to tankless gas water heaters which have become the norm in new construction and in home renovations. Heat pump water heaters have mixed results for lifecycle costs but can generate lifecycle savings when water heater retrofits are combined with heat pump HVAC retrofits. Electric stoves and clothes dryers are not found to generate lifecycle savings for customers under today’s ratesin most cases and represent end-uses that may benefit from different electric rate designs, or from a longer-term market transformation effort…

    Recommendations

    California policymakers are already starting to evaluate policy options around building decarbonization. The Final 2018 Integrated Energy Policy Report (IEPR) Update Volume II, released by the CEC in January 2019, dedicates the first chapter of the report to building decarbonization and includes an important set of policy recommendations.5 Likewise, the California Public Utilities Commission has recently opened a new rulemaking proceeding on Building Decarbonization. Without presupposing the outcome of these ongoing policy dialogues, we suggest a few broad policies to encourage higher levels of building electrification in California.

    Overall, building electrification represents an important strategy for reducing greenhouse gas emissions in California. Additional strategies will need to be pursued in parallel if California is to meet its climate goals, including continued improvements in electric and natural gas energy efficiency in buildings, the development of sustainable renewable natural gas for remaining natural gas consumption in nonconverted buildings and in industry, and mitigation of methane leaks and high global warming potential gases. However, given the long lifetimes of buildings and building equipment, California cannot afford to miss windows of opportunity to electrify building end uses where possible. Near-term policies are needed to encourage higher rates of building electrification, when benefits can be created for customers and for society.

    Electrification can support sustainability and equity policy goals. For example, heat pump HVAC systems provide a climate adaptation advantage, because they provide both air conditioning and heating. Air conditioning, along with better building design and more resilient communities, can help protect public health in low-income and vulnerable communities as heat waves become more severe under climate change. Likewise, California is currently facing a historic housing affordability crisis driven largely by a housing supply shortage. In this study we found that all-electric new homes can reduce building costs. By prioritizing the construction of new and affordable housing, and ensuring that these homes are designed to be highly efficient, California has a greater chance of meeting its climate policy goals while protecting its most vulnerable residents.

    Despite the positive economic results for many homes, current heat pump market penetrations are much lower than the economic potential. The following recommendations suggest ways to address the market barriers to heat pumps, accelerating adoption so that building electrification may occur quickly enough to play a role in meeting the state’s climate goals.

    Our recommendations can be summarized into the following five points, which are elaborated on below:

    1. Incentivize all-electric new construction and update the building code

    2. Incentivize high-efficiency heat pump HVAC, particularly in areas with high air conditioning loads

    3. Ensure efficient price signals are conveyed in electric and natural gas rates

    4. Develop a building electrification market transformation initiative

    5. Align energy efficiency goals and savings with GHG savings opportunities

    1. INCENTIVIZE ALL-ELECTRIC NEW CONSTRUCTION AND UPDATE THE BUILDING CODE

    + All-electric new construction in residential low-rise homes appears to be among the most promising near-term ways to save consumers money and reduce GHG emissions and could be incentivized in the near term to help transform the market. It avoids the costs and hassle associated with retrofits, and in most cases, we found that all-electric new construction offered lifecycle cost savings for residents. Savings could be larger if capital costs were reduced, if higher efficiency electric technologies were available, or if the costs of gas distribution interconnection were more directly reflected in the cost of new construction.

    + Align building standards with GHG savings opportunities. In California’s building code, the current approach to assessing cost effectiveness (Time Dependent Valuation [TDV]) does not fully measure or fully value GHG emissions savings. The CEC is working to update the TDV metric in the next code cycle to allow the emissions benefits of building electrification to be appropriately valued and considered in new construction design decisions. In addition, the building code could include a GHG emissions performance standard for new buildings. The estimated GHG emissions from a building would be calculated based on the efficiency and simulated performance of the building, combined with a long-term forecast of emissions from electricity and pipeline gas, using policy goals or verifiable commitments from utilities. The GHG performance standard could become stricter in each code cycle, as the state’s climate goals become more stringent. A GHG emissions performance standard is a technology-neutral way to encourage the decarbonization of buildings.

    + New construction homes should be designed to be “electrification-ready”, with sufficient electrical amperage and circuitry in the right places for future electric HVAC, water heating, cooking, and clothes drying equipment, as well as for electric vehicles (EVs) where possible. Given the long lifetime of buildings and heating equipment and the cost of upgrading electrical infrastructure in existing buildings, new construction is the ideal time to design buildings to be prepared for an all-electric future. In retrofit homes, electrical panel upgrades to accommodate room additions, electric vehicles, and rooftop solar panels can be specified to ensure that there is sufficient electric panel capacity for electric HVAC, water heating, cooking and clothes drying.

    + Factor fugitive emissions from high-GWP refrigerants and natural gas leakage into GHG metrics. Future building standards metrics should incorporate the emissions from high-GWP refrigerant leakage as well as methane leakage in the gas distribution system and within houses. This will yield a balanced and comprehensive perspective on emissions from gas and electric technologies and encourage best practices for using lower-GWP refrigerants and reducing methane leakage.

    2. INCENTIVIZE HIGH-EFFICIENCY HEAT PUMP HVAC, PARTICULARLY IN AREAS WITH HIGH AIR CONDITIONING LOADS

    California should consider developing programs to incentivize:

    + Heat pump HVAC systems in residential low-rise retrofit homes, where central air conditioning is needed/wanted. Higher efficiency heat pumps should be encouraged above existing code minimums. Heat pumps provide both space heating and space cooling and are found to be costeffective in homes where they can serve both these purposes. While the 2015 federal code minimum for heat pump HVAC systems encourages high efficiency heat pump installations, higher efficiency heat pump HVAC products are readily available in the market and provide customer benefits. Heat pump HVAC systems with higher efficiencies (Heating Seasonal Performance Factor [HSPF] of 10 or higher) create lifecycle savings for residential customers in homes that require air conditioning.

    + HVAC heat pumps to replace space heating currently provided by propane, distillate, or electric resistance heat. The economic benefits of replacing high cost fuels with electric HVAC heat pumps have been demonstrated in other studies. Replacing high cost heating fuels, including propane, distillate, and electric resistance heat with high efficiency HVAC heat pumps represents “lowhanging fruit” when it comes to savings customers money and reducing GHG emissions.

    + Encourage the installation of high efficiency HVAC heat pumps rather than standalone central AC units whenever possible. The capital cost analysis found that HVAC heat pumps are generally cheaper than the combined cost of a new gas furnace and standalone central air conditioner, and bill savings are seen in most home types as well. Incentives could take advantage of these cost savings to encourage consumers to install an HVAC heat pump when replacing an air conditioner whenever it makes sense for that building. This will give the home the option to use gas heating or electric heating (with the option to not replace the gas furnace upon failure), while providing high efficiency air conditioning during the summer.

    + Consider early replacement programs for older gas furnaces and gas water heaters. These programs would be designed to avoid the practical challenges around “emergency” replacement of equipment upon failure, when there is less time to retrofit a home to electric technologies. Early replacement programs could also target the oldest, least efficient equipment, thereby maximizing bill savings and GHG savings.

    + Target incentives and low-cost financing to landlords and low-income consumers to overcome capital cost barriers and ensure that clean energy benefits are enjoyed by all communities. Upfront capital cost barriers will prevent many consumers from investing in new equipment unless they absolutely have to when their existing equipment fails. This is particularly true for lowincome customers. The CPUC could call for proposals or pilots for innovative business models, such as ConEdison’s proposal for financing small to medium commercial HVAC heat pumps and developing a utility-owned ground-source heat pump program6 . Other financing options to explore include on-bill financing programs like the “Pay As You Save (PAYS®)” programs. Furthermore, incentives targeting landlords would allow renters to take advantage of bill savings from efficient heat pumps.

    3. ENSURE EFFICIENT PRICE SIGNALS ARE CONVEYED IN ELECTRIC AND NATURAL GAS RATES

    + Design more efficient electricity rates. Today’s electricity rates are largely designed based on volumetric charges (i.e. $/kWh of use). However, many costs on the electric grid do not vary with the quantity of electricity used, but are rather based on system-wide, and distribution level costs. More efficient, cost-based electric rates would remove disincentives for electrification and could better align customer choices with socially beneficial outcomes. While electric rates do not need to be designed to preferentially encourage building electrification, they should at least be evaluated to ensure that they do not discourage electrification. For example, electric rates could collect more of the “fixed costs” via fixed charges rather than volumetric rates, which tend to penalize electrification. In addition, in regions with time-of-use (TOU) rates, the TOU periods should be aligned with system costs as well as GHG emissions on the grid.

    + Higher carbon prices, or complementary policies aimed at reducing the GHG emissions from natural gas, would better align customer’s economic incentives with the state’s climate goals. This study finds that electrification of water heating and HVAC results in substantial GHG savings in all cases at today’s emission rates. Moreover, the electricity system is required by SB 100 to reduce emissions to near zero by 2045. No comparable policy exists for the natural gas system to reduce GHG emissions. Yet, carbon prices in California, ranging between $12 and $22/tonne as of early 2019, have been too small to effectively signal to customers the GHG benefits associated with fuel-switching to electricity. In 2016 the US Environmental Protection Agency (EPA) calculated a mid-range “social cost of carbon” representing the global harms of incremental CO2 emissions of $42/tonne for emissions occurring in 2020, with a more recent study estimating an order of magnitude larger value represented a mid-range estimate (Ricke et al. 2018).

    + Consider requiring builders, rather than ratepayers, to pay for the full cost of new gas distribution hookups. Currently, utilities cover a portion of the cost of new gas hookups to buildings, anticipating that these costs will be recovered from ratepayers through future revenues. These discounts can be up to 50% of the total estimated installed costs to complete a distribution main extension. 7 However, continued natural gas distribution revenue growth is not guaranteed in a carbon-constrained future, and these gas distribution fixed costs may become shared among a shrinking base of natural gas customers. Ensuring that new gas hook-ups are paid for by the builder at the point of construction could mitigate future cost increases for existing gas customers.

    4. DEVELOP A RESIDENTIAL BUILDING ELECTRIFICATION MARKET TRANSFORMATION INITIATIVE

    Market transformation can mean many things to many people. In this context, we mean that the residential building electrification market would benefit from having access to a wider range of high efficiency and “retrofit” ready products, including some that are already available in international markets, as well as a better trained workforce to ensure experienced installers and service providers are readily available and operating competitively across the state, and more information available to consumers about electrification options, costs and benefits. A few recommendations describing what such a market transformation initiative could include are described below:

    + Encourage the development of retrofit-ready electrification technology options for older homes. In general, 200-amp electrical service is needed to serve a home with both a heat pump HVAC system and heat pump water heater. While most newer homes have 200-amp service, many older homes in California do not (data is not readily available on the share of homes in each category). In this study, the electrical panel upgrade costs triggered by the adoption of heat pump HVAC and heat pump water heating units together were large enough to create net costs instead of net savings for some of the low-rise multifamily homes that were modeled (the panel upgrade costs were applied to pre-1978 vintage single family homes in this situation). An area for on-going market transformation is in developing more “retrofit-ready” heat pump options, that are small enough to fit in existing spaces and require lower current, to avoid the need for an electrical panel upgrade in these older, retrofit homes.

    + Educate consumers about building electrification options. Consumers may have preconceptions about electric technologies, based on earlier generations of electric heat pumps and electric resistance stoves. Some consumers are entirely unfamiliar with heat pump technologies; others are unaware of newer options like ductless heat pumps and induction stoves. Many consumers are not aware of the non-economic advantages of new electric technologies, such as the option for multi-zone temperature control with ductless heat pumps, or the health, safety and performance advantages of induction stoves over conventional gas stove. Customers should also be aware of other differences between electric and gas options, such as the potential for noise or vibrations from an electric heat pump condenser/compressor. Consumers generally want to know about real-world experiences from a trusted source before they make important decisions a new electric technology in their home. Ideally, they should have this information before their existing equipment fails.

    + Workforce training and certification for electrification in buildings. Currently, few building contractors and HVAC professionals are well-versed in building electrification technologies. Poorly installed heat pumps could create a customer backlash against the technology. Workforce training, combined with a voluntary certification program for building electrification, could provide quality assurance to customers interested in making the switch to electric HVAC or water heating. Similarly, with CPUC guidance, utilities could consider direct utility install programs to ensure electrification technologies are readily available on the truck, and that high-quality installations can be ensured. Quality control is needed for proper sizing and installation of the right heat pump equipment for each customer’s needs.

    + Coordinate with manufacturers to bring emerging technologies to the US market, including very efficient heat pumps, ultra-low global warming potential refrigerants, and retrofit-ready or lowvoltage options. Many high efficiency heat pump products available in other countries are not available in the U.S., and manufacturers may be reluctant to invest in market expansion on their own given the relatively small size of the U.S market today. State and local governments and utilities could commit to purchasing initial tranches of equipment for use in buildings they own and operate to help bring new heat pump technologies to the U.S. market.

    + Encourage lower global warming potential gases to be used in heat pumps and encourage heat pump innovation over time. Higher incentives could be made available for appliances featuring low-Global Warming Potential (GWP) refrigerants.

    5. ALIGN ENERGY EFFICIENCY GOALS AND PROGRAMS WITH GHG SAVINGS OPPORTUNITIES

    + Energy efficiency incentives should be aligned with GHG savings opportunities. Historically, energy efficiency programs have been designed with separate goals for reducing natural gas and electricity consumption. These programs focus on cost-effective kWh and therm energy savings rather than cost-effective carbon savings. Energy efficiency programs for fuel substitution, (e.g. switching from natural gas to electric end uses), have been effectively prohibited by the current interpretation of the CPUC’s “three-prong test”.8 The CPUC should update the three-prong test to directly consider carbon savings and allow incentive programs for electrification where costeffective energy and carbon savings can be achieved. Furthermore, California should pursue a combined, all-fuels approach to cost-effectively reduce carbon emissions from buildings, reducing silos between natural gas and electrical efficiency programs.

    In summary, many low-rise residential building owners and residents could already see cost and GHG savings from electrifying space heating and water heating, even in the absence of incentives or programs. However, in order to increase adoption rates of low-rise residential building electrification options in California, the state will need to develop new policies and programs such as those described above, educate and train both contractors and consumers about building electrification technologies, and encourage market transformation for building electrification technologies…

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