Full Title: Heat Pump–Friendly Cost-Based Rate Designs
Author(s): Sanem Sergici, Akhilesh Ramakrishnan, Goksin Kavlak, Adam Bigelow, and Megan Diehl, The Brattle Group
Publisher(s): Energy Systems Integrations Group
Publication Date: January 26, 2023
Full Text: Download Resource
Description (excerpt):
The economics of heat pumps relative to natural gas heating will be an important driver of customer adoption of these technologies and will determine the extent to which ambitious building electrification goals can be met in a timely manner. If the operating costs for heat pumps turn out to be favorable compared to the operating costs for natural gas equipment, it is possible to see a significant uptake of the heat pumps even before the technology cost declines. In this white paper, we examine the role of alternative “cost-based” and “cost-reflective” electricity rate designs in improving the economics of heat pumps by reducing their operating costs. We use a proprietary dataset of gas and electricity usage for 80 single-family residential customers of a large investor-owned utility for modeling customers’ electric and gas heating bills before and after electrification. We find that the operating cost gap is positive for all 80 customers under the default electricity rate (energy costs for operating the heating equipment are higher post-electrification). However, moving to one of the three alternative rates flips all 80 customers from a positive cost gap to a negative cost gap, in which energy costs for operating the heating equipment are lower post-electrification.