The Building Electrification Myth: A Cost Case for Residential Consumers

Natural gas, propane and other fossil fuels used in buildings for space heating, hot water heating, cooking, clothes dryers, and the like account for about 25% of all greenhouse gas (GHG) emissions in the United States. It’s a huge impact—and offers huge potential. With more than half of all U.S. homes (58%) using natural gas for heating or cooking, the residential market presents a strong opportunity for reducing the country’s carbon footprint through building electrification.

Building electrification is becoming an increasingly attractive fuel substitution option for helping utilities and their customers reduce damaging greenhouse gas (GHG) emissions. Electric generation is becoming cleaner, thanks to growing investments in clean energy sources such as solar, wind, and other non-emission sources such as hydro-electric. In fact, the U.S. Energy Information Administration projects that the share of renewables in the U.S. electricity generation mix will grow from 21% in 2020 to 42% by 2050. In addition, it’s become clear that containing emissions through strategies such as carbon sequestration are much easier at the generation source than at end use.

The challenge, however, is the myth that electrification will drive up homeowners’ energy costs. In truth, this market is ready, with many technologies ready to drive building electrification forward. Several integrated assessments, conducted at the national and state levels, have also concluded that electrifying gas-consuming appliances can be a low-cost and low-risk strategy to achieve decarbonization.

Does electrification increase homeowner energy bills?

Appliances such as heat pump water heaters and heat pump space heaters that are commonly used to support building electrification are about three times more efficient than their gas counterparts. Yet in most parts of the country, the electricity needed to power these appliances remains more expensive than gas. As a result, it has been difficult to drive homeowners to broader building electrification.

This is beginning to change. Several cost effectiveness studies have identified that homeowner bills will not be impacted when existing appliances are retrofitted with electric alternatives. Further, homeowners can reduce their energy bills by incorporating energy efficiency measures such as tightening the home to reduce leakages before installing heat pump air-conditioners.

As electric utilities roll in time-of-use (TOU) rate plans for residential customers, homeowners are finding they can operate electric appliances during non-peak hours—with energy generated from clean sources—and reduce energy bills while also reducing the environmental impact of their energy usage. More electric appliances are coming available with grid-enabled controls that automate operations based on the TOU rate plans. The CTA-2045 enabled heat pump water heater is one example. This ability to operate appliances while reducing a home’s energy bills and carbon footprint is simply not possible when using natural gas appliances.

Homes that have installed solar photovoltaics also have a powerful cost-savings case for making the switch to all-electric utilities. Many state and local jurisdictions are beginning to require the installation of solar PV. Given that solar energy export rates are significantly lower, it makes financial sense for homeowners to use as much as solar energy they have generated. Electric appliances coupled with grid-interactive controls provide the opportunity to manage this on-site solar energy.

A recipe for savings

Despite the fact that there is a strong cost case to be made, few homeowners are aware of the financial benefits of supporting building electrification. Educating homeowners on the cost benefits is critical in removing this last major barrier to broader electrification. Parties involved in promoting building electrification should consider the following key financial metrics when making the cost case:

  • Energy costs: Are annualized utility bills, using TOU rates, lower for all-electric homes as compared to mixed-fuel homes?
  • Incremental first cost: This is the additional cost of switching equipment relative to maintaining a standard all-electric or mixed-fuel appliance, whichever is less expensive.
  • Annualized energy-related costs: This is the life cycle costs amortized over 30 years, including replacement costs of appliances and energy costs.

To support this financial message, Southern California Edison published its Zero Net Energy (ZNE) Cookbook, a set of easy-to-use factsheets that present building feature packages for homes to meet the code and achieve ZNE at a lower annualized cost. This publication compared these three financial metrics for all-electric and mixed-fuel single family prototypical homes across 16 climate zones.

The comparison results for a code-compliant single-family home are plotted below for cold, moderate, and hot climate zones, determined based on cooling degree days. These plots indicate that energy costs and annualized energy-related costs are lower for all-electric compared to a mixed-fuel scenario.

Utilities’ role in driving building electrification

As demonstrated by the ZNE Cookbook and several other studies, converting gas appliances to electric will not increase energy bills for all homes. In instances where the conversion is integrated with energy-efficient measures, and equipment is operated during non-peak hours through grid-interactive appliances, the conversion can even drive down energy costs.

Utilities can do more to make this switch palatable to a broader number of homeowners. Education around these financial metrics is a critical first step. Utilities may find it helpful to work with energy partners who can make these broad cost analyses more site-specific to determine scenarios where customers would not see any increase in energy bills.  There is also the possibility of adjusting rate structures for customers or buying down some of the upfront equipment costs through incentives that further promote building electrification measures.

In addition, it’s important to support messaging that go beyond the cost savings and GHG emission reductions of building electrification. These measures also improve indoor air quality by eliminating on-site gas emissions and make buildings more resilient because electricity is typically more easily restored than gas.

Fortunately, utilities don’t have to do this work alone. Energy consultants like Lincus Inc. can help utilities navigate these hurdles to broader adoption, as well as the impact of the evolving load shape driven by increasing building electrification.

If you’re ready to take this next step in meeting decarbonization goals, contact Lincus today.