🥵 Heat pumps are heatin up #008
an incredible device with a pretty mid name
Why heat pumps?
Electrifying your home is a two-step process that involves switching to renewably-generated electricity and replacing fossil-fuel-devouring devices with electric equivalents. Making the move to 100% renewable energy is a great first step, but is only half the battle since not every appliance runs off electricity. In fact, between 60-70% of your home’s energy consumption is from air conditioning and heating (air and water). Fully electrifying your home requires not just sourcing renewably-generated electricity, but also ensuring energy consumption transitions to a suite of fully electric devices, with the heat pump as the most impactful upgrade.
When the climate-friendly product or service also happens to be more affordable, aesthetic, or functional, that’s a telltale sign of our society changing the way it weighs environmental impact. Switching to an electric vehicle and going solar have received the most attention due to their literal visibility on the streets, but also head-start in reaching their respective tipping point - when people make the purchase for cost savings or superior product regardless of their opinion on climate change. The Tesla Model S Plaid is one of the most sought after luxury cars. It also happens to be an EV. Going solar is a guaranteed way to save money in most places. It also happens to be a better way of getting electricity than the fossil-fuel powered utility. The heat pump is on a similar trajectory:
According to our analysis, 93% of single family homes in the US would save money with a heat pump compared to their existing equipment. If all homes switched to heat pumps, US homeowners would save $24 billion dollars per year on utility bills. - Heat Pumps Hooray
A study found that installing a heat pump increases a home’s value (on average by $10,400–17,000) such that the “price premium gained through installation is still larger than even the cost of that installation.” In Europe, the payback period is between two to seven years depending on what hardware is being replaced and qualified subsidies. Over the coming years, boosted by policy like the IRA, increased societal awareness, and the influx of talent working on climate solutions, we will see further convergence of products and services that are good for the planet and our wallets.
How does it work?
The heat pump is this nifty device that replaces your home’s fossil-fueled furnace, air conditioner, and water heater. For such an amazing invention that will soon become ubiquitous, the name is quite misleading because it’s able to both heat and cool. It functions like a refrigerator in reverse, extracting heat from the environment and transferring it to the desired destination. Rather than generate heat, heat pumps leverage refrigerants and basic thermodynamics to transfer heat from one place to another, resulting in 3x efficiency compared to gas-powered furnaces.
So how do you actually get a heat pump?
The first step is to understand the impact and cost savings of switching to a heat pump. Heat Pumps Hooray provides a simple calculator that uses zip code and square footage to estimate heating and cooling demand and your current heating and cooling equipment to provide the incremental cost savings. Under the hood, they use a similar approach as what HVAC technicians rely on - the Manual J calculation.
Once you have the green light to proceed, the next step would be to research specific heat pump models and find an installation provider. The installer will send an expert to inspect the home, take measurements, and design the entire system. After the contract is signed, there will be some site work needed in preparation which can range from constructing the concrete basis all the way to excavation in the case of a ground-source heat pump. The actual installation typically takes around eight hours and includes preparing the area and testing the refrigerant by running it through the heat pump. For the full heat pump installation sequence, check out CTVC’s interview with Woltair, an EU-based clean energy startup.
Obstacles to heat pump proliferation
Permitting: Like solar installation, heat pump companies face hurdles when it comes to regulation. The silver lining is that investing in technology to streamline the permitting process can actually become a competitive moat:
Local requirements add complexity to the business, and we would love it if permits and licenses were uniform everywhere we operate. … It would be hard for another company to come in and deal with all the local variations we have gotten used to. - CEO of Dandelion Energy
Skilled labor shortage: Across the board, there’s a shortage of skilled workers in clean energy. In the US, there are over 80,000 unfilled HVAC technician jobs and on top of that, there’s a net loss of 8% or 20,000 technicians per year. In the UK, the Energy and Utilities Alliance trade body estimates we need double the number of HVAC engineers.
Overall cost due to the labor shortage: The heat pump itself ranges from $3-5K and $6-8K for higher efficiency ones, but the final bill can end up much more than that. According to Calvin from Heat Pumps Hooray: “In certain geos with a more competitive labor market (SF, Seattle), we've even seen labor account for 70-90% of the bill.”
Soft costs in heat pump installation: The path to solve this bottleneck will require a significant increase in the volume of electricians, HVAC technicians, etc. but also tools that increase the effectiveness of each individual worker. “40% of phone calls to European technicians go unanswered because they’re too busy to pick up.”
Customer awareness: Most homeowners aren’t well-versed on how their home is heated or cooled. The typical home improvement journey is: something breaks → you find someone to fix it which adds a layer of complexity in terms of intent and purchasing flow. Also, unlike rooftop solar panels or an EV, heat pumps are inconspicuous, easily making them an afterthought without conscious action.
Reluctance among HVAC technicians to promote heat pumps: Unlike solar installers that typically only deal with pro-climate offerings (solar + storage), HVAC technicians are climate agnostic and deal with the entire range of home heating and cooling solutions, including traditional fossil-fuel furnaces. Since heat pumps are more complex to install for a first-time installation, “HVAC installers don't recommend them because it's easier to replace what's already there.” Contractors are paid for their labor, not the hardware, so they’re incentivized to get in, get out. “The easiest way to do this is to replace the existing equipment. It minimizes risk, and additional labor hours. You don't have to worry about running into issues which might lead to a drastically higher quote (duct sizing or panel upgrades).”
The heat pump tech landscape
There are a variety of different approaches to accelerating heat pump adoption that range from B2B SaaS to DIY installation for consumers:
Software for HVAC technicians: Companies like Arch, CoolCalc, and Conduit Tech aim to improve workflow efficiency and reduce soft costs for HVAC technicians by making it easier to measure, design, and quote with software.
New heat pumps: The different buildings, mediums, and use cases for heating and cooling have accordingly resulted in a variety of new heat pump products. Gradient makes a windowsill heat pump that can be installed by yourself. Perfect for an individual apartment. Dandelion Energy is tapping into geothermal energy, starting with an initial focus in the northeast US with its hot summers and frigid winters. Stow Energy offers a bundle that includes thermal storage and a smart control panel which enables optimization of time-of-use rates by drawing electricity when it’s most affordable. Equium is utilizing sound-waves to power their thermo-acoustic heat pump (without any refrigerants) which is compelling because the refrigerants that enable the heat transfer contribute to global warming. Even Tesla looks like it might get into the heat pump game.
General home-electrification: Most homeowners will undergo clean energy home improvements one-at-a-time, but some companies such as Elephant Energy and Helio Home offer entire home electrification in one process.
Customer-facing facilitator: There are a few companies serving as the conduit between the consumer and contractor. Companies like Woltair, Quilt, and BlocPower focus on reaching customers while opting for a partnership model with contractors which is compelling because it allows software to do what it does best (estimation, measurement, design proposal) while leaving the building for the builders.
So far, I’ve referred to heat pump installation through the lens of the homeowner, but virtually all buildings need heating and cooling. BlocPower’s unique strategy of selling to cities and corporations has resulted in the “signing [of] city-scale decarbonization projects in Ithaca, NY and Menlo Park, CA.” They’re also cleverly solving their own skilled labor shortage with the Civilian Climate Corps, a green workforce development program that won a “$108 million contract from New York City Mayor Eric Adams to train 3,000 city residents for clean energy jobs”. BlocPower is a prime example of climate companies giving policy a seat at the table and understanding both the strengths and the limitations of pure software.
Open Questions
Will there be an Aurora Solar of heat pumps? What are the manual, in-person operational tasks that software can streamline?
HVAC technicians do the actual job of installing the heat pump, but they’re also poised to be the best heat pump salesperson. They’re not currently incentivized to promote heat pumps over traditional furnaces, so how can we close that gap? Is it going to take heat pump only HVAC firms?
Unlike EVs, solar panels, and induction stoves, heat pumps are out-of-sight and out-of-mind. Is there a legitimate luxury heat pump angle? I don’t think it’ll be a significant part of the heat pump market, but Gradient’s windowsill approach or other ductless heat pumps could become a subtle flex.
Currently home improvement is siloed in different trades; electrical, HVAC, roofing, plumbing are all done separately by separate contractors, each with their own specialty. Is there opportunity for two or more trades to form synergies such as roofing and electrical working towards solar, storage, and EV charging in one bundle? This is different than home electrification startups which is a top-down aggregation of services. This is more like a bottoms-up approach where the contractors themselves initiates on extending into adjacent services.
Resources
For further reading, check out some of these amazing resources:
Check out Kapacity.io for a for a software-only solution to connect to heat pumps and control them automatically! https://kapacity.io
Great article! QuitCarbon also helps folks get their homes electrified - and our expert-level optimization, planning, and handholding (all the way through working with contractors) is free :) https://www.QuitCarbon.com