Case Study

California Public Utilities Commission (CPUC): Statewide Heat Pump Market Baseline and Characterization Study

Background

California has one of the most ambitious timelines in the country for transitioning to clean energy. The landmark policy, Senate Bill 1001, commits California to retrieving 100% of its electricity from clean energy sources by 2045.

While the state has made significant progress toward clean electricity generation, most buildings in California still rely on fossil fuels, particularly for space and water heating. Currently, direct emissions from residential and commercial buildings comprise 12 percent of California’s GHG emissions and stem mostly from natural gas-powered appliances such as furnaces and water heaters. When accounting for electricity use, water use, and wastewater treatment, the amount of GHG emissions produced by buildings, including those within the industrial sector, are second only to California’s transportation sector. To set California on the path to carbon-free buildings, state legislators are turning to new and existing heat pump technologies, which offer a low- to zero-carbon alternative to GHG-emitting appliances.

Study Overview

In 2021, the California Legislature passed Senate Bill 1477, which calls on the California Public Utilities Commission (CPUC), in consultation with the California Energy Commission (CEC), to develop two programs focused on reducing direct GHG emissions from buildings. The Technology and Equipment for Clean Heating (TECH) Initiative focuses on accelerating the adoption of new heat-pump based technologies for space and water heating, while the Building Initiative for Low-Emissions Development (BUILD) Program is designed to promote the design and construction of low-emission, energy-efficient buildings that, at the same time, reduce energy utility bills for low-income occupants and improve indoor air quality. Given the potential of heat-pump based technologies to reduce GHG emissions, the CPUC and CEC view this emerging market as a key element to meeting its decarbonization goals.

To support the success of initiatives like the BUILD and TECH, Opinion Dynamics conducted a comprehensive statewide market baseline and characterization of the California heat pump market, with emphasis on air source heat pumps (ASHP), ground source heat pumps (GSHP), heat pump water heaters (HPWH), heat pump clothes dryers (HPCD), and heat pump pool heaters (HPPH). We also conducted two Delphi studies, or a systematic research methodology intended to stimulate expert insight around a complex issue, with installers to understand the installation and incremental costs of heat pumps, specifically HPWHs and ASHPs. The market information gathered through this study will be leveraged to understand the potential for and barriers to heat pump adoption across different residential buildings in California.

All about the tech

Learn more about the technology behind the study and how it can be leveraged for beneficial electrification efforts.

Methods

Literature Reviews. To gauge whether each heat pump technology could achieve targeted market effects and longer-term market transformation, we had to first determine the baseline measure of market size, market saturation, cost data, and other key market metrics. The Opinion Dynamics team completed a brief literature review of each heat pump technology market, along with an analysis of the 2019 California Residential Appliance Saturation Study for Appliance Saturation and Baseline Market and a review of the HVACR Unitary Market Report: California Data for ASHPs.

In-Depth Interviews with Heat Pump Trade Allies. Since trade allies help customers understand and select new equipment, they offer an intimate understanding of the barriers and successes associated with heat pump sales, installation, service, and maintenance. Trade allies can also speak to why homeowners might choose or forgo a specific technology and provide firsthand data on equipment availability and system sizing. With this in mind, we conducted a total of 47 interviews with trade allies across five heat pump technologies.

In-Depth Interviews with California Market-Rate and Low-Income New Construction Builders. California’s decarbonization and affordable housing goals will likely create a challenging intersection between a builder’s bottom line, affordable services, and California’s increasingly stringent codes and standards. Before we could give builders and other stakeholders the tools to balance these priorities, we needed to understand what barriers or opportunities exist when introducing technologies like heat pumps into affordable housing new construction, as well as new construction at large. Our interviews centered on new construction trade allies’ awareness, knowledge, and perceptions of heat pumps; their decision-making criteria when selecting technologies; their perception of customer interest in heat pumps; and new construction market trends in California.

In-Depth Interviews with Heat Pump Program Staff in other U.S. Jurisdictions. Since several jurisdictions have successfully deployed heat pump programs—some for five or more years—, we identified six utilities or energy efficiency organizations with mature heat pump programs and, from that list, interviewed staff. In the planning stage, we determined the Key Performance Indicators (KPIs), functions, and areas to explore in the benchmarking research (i.e., program designs, products targeted, drivers and barriers experienced, customer concerns and motivations, etc.). After interviewing heat pump program staff, we synthesized the data into best practices and placed those findings in the context of California’s landscape.

Delphi Study with ASHP and HPWH Contractors. Given that the current state of research could benefit from primary data collection around heat pump costs, Opinion Dynamics conducted two modified Delphi studies with installers focused on ASHP costs and HPWH costs. These studies focused on understanding upfront equipment costs, installation costs, design costs, incremental operation, and maintenance costs. Knowing the full costs of heat pump installations allowed us to inform program theories of change, bolster program designs, and refine theoretical consumer economic models.

Key Challenges

This study involved gathering a large amount of qualitative data. Our research faced a few important challenges and limitations consistent with qualitative research:

Generalizability. A common limitation often cited in relationship to qualitative research is the lack of generalizability, or the extent to which findings from a study apply to a wider population. While this study involved research with over 100 market actors, these findings should be regarded as directional in nature.

Recruitment. With California wildfires in 2020 and COVID-19, recruiting proved more challenging than usual, resulting in a smaller number of participants than initially targeted. At the outset, we aimed to complete ten interviews with trade allies in each of the five heat pump technology markets and 20 participants for the ASHP and HPWH Delphi studies.

Social Desirability Bias. Given the nature of interviews, participants may respond more favorably to questions, thus misrepresenting their true feelings.

Volume of Data. The volume of data generated through numerous interviews and secondary data review was significant. To ensure all data were tracked, coded, and synthesized, we utilized NVIVO, a powerful software for qualitative data analysis. Even with this tool, however, trends may have been missed during analysis.

Actionable Deliverables

To reach California’s aggressive clean energy goals, the deployment of heat pumps, as well as building envelope improvement retrofits, across residential building stock must rapidly scale. In June 2022, the White House named heat pumps, among other clean energy technologies, a key component of climate mitigation. In a spate of executive actions, President Biden authorized the Department of Energy to use the Defense Production Act to ramp up the production of heat pumps. This order was declared a “break glass” moment in the clean energy industry and underscores the importance of this emerging market in decarbonization efforts now and in years to come.

While California’s climate is ideal for using heat pumps, especially for both space and water heating, transitioning the building sector strategically and cost-effectively poses challenges. Early adoption program designs have had moderate success, but the greatest potential for change out lies at the end of each appliance’s effective use cycle. The relatively long-life of space heating equipment, often estimated between 20 and 30 years, means that equipment installed today could still be in service in 2051. Although HPWHs, HPCDs, and HPPHs have shorter life cycles, it remains critical to take advantage of the point at which homeowners naturally replace these systems to accelerate California’s transition to a decarbonized economy.

Based on the methods and research activities detailed above, Opinion Dynamics identified key considerations for developing strategies to accelerate the adoption of heat pump technologies. These findings inform every aspect of the market, from foregoing natural gas infrastructure to designing new construction buildings to purchasing heat pumps from suppliers to installing heat pumps in retrofit scenarios, maintaining heat pumps after installation, and more. In placing a spotlight on California’s nascent heat pump market, state utilities are better equipped to gauge the efficacy of this technology now, project its success into the future, and understand both the obstacles and opportunities surrounding heat pump adoption, market rates, and low-income new construction. Our findings lend insight into real-world concerns such as the technical limitations of heat pumps, contractor misperceptions, customer concerns, and, perhaps most importantly, how mature heat pump markets across the country have handled these common barriers.