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All-Electric New Homes: A Win for the Climate and the Economy

Buildings are quickly becoming a cornerstone of ambitious climate policy, as policymakers recognize they can’t achieve the necessary science-based emissions reductions without tackling this stubborn sector. This means states and cities across the country won’t meet their climate goals if new buildings in their jurisdiction include fossil fuel systems that lock in carbon emissions over the 50 to 100-year building lifetime.

The cost of such an ambitious transition is often the first consideration. Thus, to help inform these crucial decisions, Rocky Mountain Institute updated and expanded our 2018 analysis, The Economics of Electrifying Buildings. We examined the economics and carbon emissions impacts of electrifying residential space and water heating, now with seven new cities and additional methodology changes. Today, we are releasing the first set of our findings examining newly constructed single-family homes.

In every city we analyzed, a new all-electric, single-family home is less expensive than a new mixed-fuel home that relies on gas for cooking, space heating, and water heating. Net present cost savings over the 15-year period of study are as high as $6,800 in New York City, where the all-electric home also results in 81 percent lower carbon emissions over the mixed-fuel home.

Key Findings

The new all-electric, single-family home has a lower net present cost than the new mixed-fuel home in every city we studied: Austin, TX; Boston, MA; Columbus, OH; Denver, CO; Minneapolis, MN; New York City, NY; and Seattle, WA.

  • In most cities, the mixed-fuel home (with gas furnace, water heater, air conditioning, and new gas connection costs) has a higher up-front cost than the all-electric home, which uses a heat pump system for both heating and cooling. This is true in Austin, Boston, Columbus, Denver, New York, and Seattle. The Minneapolis climate requires a higher capacity heat pump than other cities in the study. This comes at a higher cost, outweighing the equipment and labor cost savings seen with heat pump systems in milder climates.
  • There are significant energy savings with the heat pump space and water heater over corresponding gas appliances, resulting in a lower annual utility cost for the all-electric home in most cities—up to 9 percent lower in Minneapolis. The two modeled scenarios have nearly equivalent utility bills in Boston and Seattle.
  • The all-electric home results in substantial carbon emissions savings over the mixed-fuel home in all cities. The greatest savings are found in Seattle (93 percent) and New York City (81 percent). Minneapolis, Columbus, Boston, and Austin all save more than 50 percent over the lifetime of the equipment compared with the mixed-fuel home.

 

Context and Methodology

Cities in California, Washington, New York, and Massachusetts have all passed laws or adopted codes mandating or encouraging all-electric new building construction. Regional coalitions across the country are forming to extend lessons learned from these first movers to other states, including in New England and the Midwest.

Thus, we extended our Economics of Electrifying Buildings research to assess the economic case for electrification in a variety of climate zones. Several of these states are actively considering new policies or incentives to spur the transition to all-electric buildings.

In partnership with Group 14, we have updated our methodology from the 2018 report to be more readily replicable in support of building decarbonization policy decisions across the United States, incorporating the following:

  • A thorough energy use calibration for each scenario to end-use breakdown, energy use intensity, and gas/electricity fuel split with the latest available Energy Information Administration Residential Energy Consumption Survey data by climate region
  • A 15-year greenhouse gas emissions comparison that incorporates data from both the US EPA and NREL’s Regional Energy Deployment System model to project changes in carbon intensity for electricity consumed in each state through 2036
  • RSMeans construction costing factors to account for location-specific variability in up-front cost
  • Building industry performance standards from ASHRAE for HVAC systems, EnergyStar for household appliances, and WaterSense for potable water fixtures

 

Policy Implications

Our analysis shows that all-electric new construction is more economical to build than a home with gas appliances, regardless of location. Given these findings, policymakers should embrace policies that incentivize or mandate all-electric residential new construction. In addition, they should prioritize complementary policies that address several obstacles that are impeding widespread adoption of all-electric homes. We suggest the following actions:

  • Educate contractors. Our research finds that there is low contractor comfort with heat pump systems for year-round heating in cities with severe winter climates, a notion that persists from an era of older technology. Today, there are cold-climate heat pumps designed to address concerns of low capacity and efficiency in cold temperatures, best practice design guidelines, and case studies proving the efficacy of cold-climate heat pumps.To promote contractor readiness as all-electric building codes come online, policymakers and regulatory agencies should establish contractor trainings on heat pump technologies (see for example, NYSERDA’s Clean Energy Workforce Development program and San Jose’s Educational Program). For high rates of participation, ensure attendees have a reason to attend. Some jurisdictions have considered paying participants for their time. Others have allowed trained participants to be added to a qualified contractors list.
  • Educate consumers and developers. Consumers and developers are increasingly knowledgeable about modern, efficient heating and cooking technology like heat pumps and induction stoves. But their comfort with the technologies must be fostered to realize the unprecedented market expansion that is needed in the next 10 years to align the buildings sector with our global climate goals.Policymakers and regulatory agencies should establish education campaigns for residents and building developers about the health, economic, and climate benefits of all-electric homes. Familiarizing consumers with induction cooking is a particularly important issue with a variety of novel solutions (see for example, San Jose’s Induction Cooktop Checkout Program).
  • Update gas line extension allowances. Typically, gas utilities offer an allowance to compensate a portion of the cost of a new customer gas service extension, with the remainder paid by the customer or developer of the new property. Our research finds that the allowance is highly variable: it could be as low as $1,000 or higher than $5,000, in some states covering the total cost to connect the gas pipeline to a new home. Gas utility customers bear the cost of this allowance over time, therefore socializing the cost of unnecessary, uneconomic infrastructure that is not aligned with air quality, health, or climate goals. Regulatory agencies should reassess these allowances as a part of their transition planning and management of stranded asset risk.
  • Address the split incentive challenge through creative financing. In Boston and Seattle, the all-electric home has a lower cost to build, but a slightly higher cost to operate. To ensure that all consumers benefit from the up-front cost savings for all-electric homes, home mortgages could be amortized in a manner to reduce the monthly payments to compensate for higher bills. Additionally, utility regulators and policymakers should work to make the cost of gas reflect the societal cost of greenhouse gas emissions or health impacts. This can be done through a greenhouse gas emissions tax, an air quality/health impacts adder, or an increase in permitting costs for extraction and transport of fossil fuel.

This is the first release of in the new Economics of Electrifying Buildings series. Later this year, we will release findings for single-family retrofits. In early 2021, we plan to provide a detailed technoeconomic analysis for multifamily buildings, examining the case for all-electric new construction and retrofits in all seven cities.

Download the new Economics of Electrifying Buildings