In Part 3 of our conversation with Pierre Delforge, we look into the future of heat pump water heaters. How will their costs compare to gas? And what will grid flexibility mean to the homeowner with thermal storage in their tank? Pierre explains the economics of the electric grid why thermal storage gives consumers the biggest bang for their buck. If you missed it, you can read our primer on heat pump water heaters here, and our conversation about available incentives, here.
David Tuft: There are ambitious goals [for heat pump deployment] in California and 25 Governors have pledged to ramp up heat pumps. Where would you say the field is going? What will be different in 2028? Particularly with heat pump water heaters and air-to-water heat pumps?
Pierre Delforge: Yeah. So looking at my crystal ball, we're going to see the economics of home electrification continue to improve over time. Gas rates [methane gas, a.k.a so-called “natural” gas] will continue to go up at a faster clip than electric rates. This is because as more people stop using gas or use less of it, there are fewer therms to pay for the fixed cost of the gas infrastructure [like pipe maintenance and safety investments]. So the fixed cost becomes a higher share of each therm [unit of energy]. So you're going to see a continuing increase in methane gas costs.
Conversely, we should see a slowdown in the increase in electric rates because as people use more electricity, the fixed costs of the electric grid are spread over more kilowatt-hours, which reduces the share of fixed costs for each kilowatt-hour. It's basically a divergent trend in terms of rates that electricity rates are going to become relatively more affordable. I'm not saying they're going to go down, they may not but they're not going to increase as fast as gas rates.
DT: As electric use increases there are more kilowatt-hours generated to pay the system costs, so the cost will go down even though that's the reverse of supply and demand.
PD: Yeah, but this is not a supply and demand. Most of what we pay for -- 60% of what we pay for in California gas rates is fixed costs that need to be allocated to everybody. So if more people use a fixed asset, it costs less per unit of energy. It’s just a better utilization of the system.
DT: Right and plus all electricity will come from the sun and the wind and other sources where the fuel is free.
PD: Exactly but it still takes fixed grid costs which are the biggest cost of the grid, right?
DT: Yeah. So with more electric demand, the cost of running heat pumps are going to come down.
PD: Yes, so if you think of buying a heat pump today or even in 2028, that heat pump is going to operate for 15 to 20 years – well until the 2040s. If you look at the trajectory of gas and electric costs over the next 20 years, gas is going to become increasingly expensive, and electricity is going to become increasingly affordable. It might not make a huge difference now, but you're not buying just for this year, you're buying for 15 to 20 years. So, think about where that cost trend is going and how much your water heater is going to cost you over its life.
Energy cost trends are one thing, the second thing is efficiency. Efficiency is continuing to increase so heat pump water heaters will continue to be more efficient. By 2028, I expect that we're going to continue to see improvements and efficiency. And I also anticipate that the ability to be grid responsive and shift load to times of day when the grid is less constrained and when there's more renewable energy available, will become increasingly valued and you'll be able to have access to electric rates that will have really low cost off-peak and higher cost on peak.
If you have appliances that are able to operate primarily or exclusively off-peak it will decrease their cost even more. The benefits of grid responsiveness or grid flexibility are going to become increasingly valuable and will help the economics of electrification. Solar has grown in the market very rapidly because its economics are very good, it saves you a lot of money on your energy bills. You have a payback. You can finance it. You can lease it. That's because it saves people money on their bills. I can see increasingly that heat pumps are going to be doing this more and more and the market share is going to increase exponentially as these economic benefits grow and enable those leasing and financing business models.
DT: Okay. Well, this was fun to do. I appreciate you making the time.
That’s a wrap folks. We hope you enjoyed reading this series and learned a little more about why heat pump water heaters are the future of our home heating and hot water systems. Give us a thumbs up on your social media platform of choice or send us an email at firstname.lastname@example.org if you have any questions or comments. And as we like to say to our customers, Happy Harvesting!