How do we transform the market for air-source heat pumps?

October 27, 2023 by Zack Mast

Heat Pumps, Market Characterization, Energy Policy

Partners throughout the Midwest are working together to transform the market for air-source heat pumps in this cold-climate region. This series explores what successful market transformation looks like as we follow a discussion with key players who helped achieve a major shift in Wisconsin's residential HVAC market.

In Part I of Transforming a Market, we dove into the history of how a coalition of distributors, program implementers, and manufacturers helped successfully transform the market for high-efficiency furnaces. By 1994, the market saturation of high-efficiency furnaces purchased in Wisconsin reached 90%.

In Part II, we discussed several factors that utilities can consider when designing programs to encourage market transformation.

In Part III, we focus on the effort at hand: how to transform the market for air-source heat pumps.

In this conversation:

Bob Kihslinger – (Retired) Head of HR, Advisor to Sustainability initiative (2020-current) Auer Steel & Heating Supply Company. A longtime employee at Auer Steel, Bob advanced the market transformation from the front lines.
Jeff Curtes – Vice President and Sustainability champion, Auer Steel & Heating Supply Company. Jeff follows in the footsteps of his father, Don Curtes, who envisioned the opportunity to push high-efficiency furnaces in Wisconsin.
Kathy Kuntz – Director, Dane County Office of Energy & Climate Change. Kathy has directed many statewide energy programs throughout her career, amassing decades of experience in energy efficiency and market direction in Wisconsin.

Part III: How do we move the needle for air-source heat pumps?

The market transformation of high-efficiency furnaces raises a clear parallel: we need to transform the market for air-source heat pumps if we are to decarbonize residential buildings.

How can the story of high-efficiency furnaces inform our efforts to put a heat pump in as many homes as possible—especially in cold climates such as the Midwest?

BOB: This is a profoundly different story in some respects than the furnace opportunity, because back then nobody was resistant to buying a furnace. The contractors understood how gas furnaces work. Sure, you had a second heat exchanger and some new controls—they could deal with that. But there's history with heat pumps. Many contractors have a sour taste in their mouth for these things if they've worked long enough to remember what the first ones were like.;

You do have some progressive contractors who understand that the new heat pumps do work in a cold climate, but a lot of the memory is that heat pumps don't provide any benefit under 35 or 40 degrees.

The last thing that contractor wants is to put something in that doesn't work. That is the one thing they can't abide.

So part of transforming this market is trying to make contractors feel comfortable and experienced enough with heat pumps.

KATHY: Maybe the idea of replacing a central air conditioner with a heat pump that handles the cooling and shoulder-month heating is a less scary transition for an HVAC contractor. We don't have to worry about heat pumps not providing enough cooling for homes—typically it's the heating end of it that makes folks nervous.

BOB: Yeah, I agree, Kathy. When you replace the unit, a contractor can say, Yeah, if we put in a heat pump, it's going to cool the house. But guess what? You'll get a benefit on the heating side, too. That's a pretty comfortable way to sell it, I think.

Leaning on federal funding

Promoting dual-fuel heat pumps is one strategy to accelerate electrification, especially if we're to meet urgent goals to decarbonize residential buildings by 2030. Here in 2023, we also find ourselves in a watershed moment thanks to the influx of federal funds from the Inflation Reduction Act (IRA) and other legislation.

KATHY: I want everything to happen yesterday, of course, because that's who I am. But I appreciate that that there may—particularly with the incentives from the IRA—be an opportunity to just get a lot of heat pumps out there in dual-fuel situations. Maybe that's an okay transitional place to be in, and it's more about what will work in the market versus a perfect transition.

BOB: I'm optimistic based on what we saw happen in 2009, when the American Recovery and Reinvestment Act really transformed the market to high-efficiency air conditioners and other high-efficiency products. And I think the IRA really has the potential to do the same.

I don't know if you can offer a blanket program to all contractors and expect the same results that we got with the high-efficiency gas furnace. But I think you could target some contractors to really make this happen, because I'm not sure that consumers who are aware of this are getting good feedback from contractors when they ask for a heat pump.

So I think you have to get a couple of distributors to really push it, but they're going to have to target and select their contractors, rather than hope a program will bowl them over.

Instilling contractors with confidence

This means of ensuring quality assurance through committed, qualified, supportive contractors can be a powerful lever to transform the market for air-source heat pumps. The Minnesota Air-Source Heat Pump Collaborative launched a Preferred Contractor Network to connect consumers with contractors who've completed required training and demonstrated a quality heat-pump installation. Other market transformation initiatives throughout the Midwest have rolled out similar concepts, such as the Michigan Heat Pump Collaborative's "Graduate Designation" for qualified contractors.

JEFF: Here in Minnesota, we're betting on a list of contractors that will not sell against the heat pump. And that list is growing. The training program is bigger this time around than what we did at Auer Steel!

BOB: You have to remember that for a lot of these smaller HVAC dealers, they're the owner, they're the salesperson. They install it and—guess what—they service it, too! So they're involved with all aspects of the sale and installation of the product.

KATHY: I mean, the reality is it's really hard for efficiency programs to get contractors to come to training because they're not making money. But contractors need to attend distributor training because it's how they get the product they want.

BOB: That training program at Auer Steel really made the technician comfortable with the product. Sometimes we forget that these technicians—installing technicians and servicing technicians—can make it happen or kill it at a dealer if they don't like a product. They're not quiet about it. But that training program really made it exciting, I think, especially when the variable-speed furnaces came in and we switched the 90s to variable speeds in the training center.

I think the same thing could happen in many respects by putting in similar systems with cold-weather heat pumps in there and training technicians. You know, heat pumps are not that much different.

I think that if you get the technicians in there and they get enthused about it and they say, Yeah, you know, this might work. Yeah, it looks like we can do this. I think that's a big part of this transformation.

Where do customers fall into market transformation?

Contractors aren't the only players we need to convince. The end users are the ones who will make the final decision, after all. Customers will ultimately write the end of this story. With the right strategies, we can change people's perceptions of air-source heat pumps the same way we once convinced Wisconsinites to adopt those new-fangled 90-percenters.

How we get there remains to be seen, but our panel has some ideas.

BOB: It seems to me when you talk about transforming this market, someone needs to drive the consumer more than just the advertising of a distributor or dealer. And I think utilities and state agencies have a lot of weight with contractors and consumers.

Maybe the role of state agencies is to get the message out there that this is the product of the future. Think about this for your house when you replace your air conditioner or build your house. They can help drive the consumers to the contractors and the distributor's role may be to help the contractor at the point of sale to offer the heat pump.

KATHY: You know, in the 1990s, Wisconsin utilities were saying "check out high efficiency furnaces." That made some customers ask about that, but that also meant contractors saw that advertising and knew there was a possibility that today in a basement someone might ask about a high-efficiency furnace.

What I've learned across all these years and energy efficiency is a whole lot more people will buy the efficient option if someone tells them it exists. And in a lot of cases no one tells them that it exists because we think they're buying on price and we just offer the lowest-cost thing.

But promoting high-efficiency options makes a contractor more likely to say to a customer, "There's also a high-efficiency unit that we have available."

If four out of five times the customer goes, "Tell me more," you create a little bit more confidence to think, Ohh, maybe I should lead with that. That's the core of market transformation.

Finding the fun

Market transformation doesn't have to be scary. It can be fun, too—especially when we connect the effort to the positive effects it can have on our daily lives. When everyone has access to an affordable heat pump, they'll be more comfortable, too! That's something to celebrate.

BOB: You know, we have a partner in talking about heat pumps to the consumer that we haven't talked about. The automotive industry right now is talking a lot about heat pumps. If you've looked at an electric vehicle lately, a lot of them are starting to use heat pumps for efficiency reasons.

So there's a lot of people bumping into heat pumps who are out there looking for new cars as well. I think the word will get out and I think the momentum is picking up in terms of people understanding that it's out there and it's good to get one of these things.

JEFF: Yeah, I mean, I went looking at a stove other day and the guy tried to sell me a heat pump clothes dryer, and it's like, yes! More heat pump normalization!

BOB: Believe me, we had a lot of good times when we could sense that this high-efficiency furnace thing was getting on a roll and you could feel it. And I'm looking forward to the day that we can feel that and see it happening with heat pumps. And I don't think it's going to be that long.

KATHY: And I just want to put an exclamation point on Bob's point. It was fun!

Market transformation is a lot more fun than just pushing widgets in programs. People feel good and see, like, "Wow! This contractor made those sales," and there's a lot of good feeling and momentum around the progress of this that you just don't see in other ways.

It's fun to help people live up to their potential in this.