Energy Policies May Hide Hidden Costs for Consumers

Building electrification is seen as a key part of the transition from fossil fuels. But a new study from a team at the University of Michigan warns that one-size-fits-all approach could create an “energy poverty trap” that raises utility rates for those least likely to afford them. 
 
The work follows on an earlier 2020 study from a team at Carnegie Mellon that showed “the environmental consequences of such a fuel switch depend on location and time.” 
 
These circumstances are key to understanding the true costs to consumers when transitioning to electrical energy sources, according to Claire McKenna, the study’s lead author and doctoral candidate at the School for Environment and Sustainability at the University of Michigan in Ann Arbor. 
 
“A lot of the work that has been done in this space, specifically in heating electrification, even for cold climates, it looks at average energy costs,” McKenna said, adding it’s a common practice in academia and across organizations aiming to shape climate policy.  She said it’s important to switch from burning fossil fuels and ready our homes for decarbonization, and while the studies and research using average energy costs have helped advance electrification efforts on a broad scale, they fall short when it comes to real-life implementation. Average energy costs don’t account for income diversity and other conditions within a localized climate, McKenna said. The cost of energy provided by gas and electricity can differ greatly, especially in colder climates.  “This starts to raise equity issues right off the bat,” McKenna said.  
 
The study, funded by the Graham Institute for Sustainability at the University of Michigan and the U.S. Department of Energy, gathered and analyzed data from 51 participating households in southeast Michigan. The team looked at each home’s overall efficiency as well as how heating and cooling was used in each home. Observed data used in the analysis included hourly metered electricity usage for each house along with major gas use.  All were single-family, owner-occupied homes.
 
“We actually break down across income, what the different impacts are going to be,” McKenna said, adding the primary level data on impacts to households is a key contribution of the study.

Infographic: How Heat Pumps Work 
 
“The big thing that gets missed in this space, when we look at residential heat and electrification is the observed cost versus average cost over the year,” McKenna said.  
 
The results showed that without concurrent improvements in the building envelope, such as adding insulation and sealing gaps around doors and windows, the average homeowner could expect to pay $1,100 more every year to switch to heat pumps. 
 
Many homes in the Midwest and the Northeast face what McKenna called a “triple threat” of cold climates, predominantly natural gas heating in residential and older building stock, and a low cost of natural gas. When those conditions occur together, “you’re going to see the worst kind of economic impacts to households switching to heat pump to gas,” McKenna said. 
 
Understanding this is key to developing solutions that help people make the switch to electricity, McKenna said. “There's this idea that we can actually help people,” she said.

Listen to the Podcast: Engineering Geothermal Heat Pumps 
 
“Nobody wants to pay more for the same service. And a lot of people, frankly, they can't,” McKenna said, adding, when it comes to climate change policy, “it should not create greater inequities in our society.”
 
“The study also looks at what can help mitigate costs for the quarter of Americans struggle with energy insecurity,” McKenna said.
 
There are specific decisions made during the mechanical design of any heating system, especially when switching from gas or propane-fired systems, that can affect the cost delta between a unit of energy powered by gas vs. electricity, she said.
 
“Engineers working on this, policy makers that are interested in residential heating electrification, they need to know that pairing them with envelope retrofits is absolutely critical,” McKenna said.

Energy Blog: Heat Pumps Ahead? 
 
The study showed that a comprehensive energy retrofit based on an audit of the conditions in each home, brought heating costs back down to parity with natural gas. Of course, energy audits and any subsequent envelope retrofits carry their own up-front costs. 
 
“We went back to the homes about a year later, after folks received energy audits and did interviews,” McKenna said, adding that qualitative round helped the team understand potential barriers to implementation, a topic she’s currently working on in follow-up paper. 
 
“[It] breaks down what those barriers are and how to make residential energy efficiency retrofits more accessible so that they can be more easily paired with heating electrification through heat pumps,” she said. 
 
In the meantime, home energy rebates that are part of the Inflation Reduction Act can help consumers, though they’re just beginning to roll out on a state-by-state basis. McKenna said more debate in the engineering space about what the proper design is for different kinds of homes and different kinds of climates is needed. A common reference document or set of standards can also help designers and contractors better design and install the systems. 
 
“Happily, there's much more momentum in this direction,” McKenna said. 
 
Nancy Kristof is a technology writer in Denver, Colo.