Homes with propane heating could be low-hanging fruit for ASHP retrofits

According to U.S. EIA statistics, space heating accounts for 65% of residential propane consumption in the U.S., with over 2 million homes relying on propane to keep their house warm in cold climates.

Because propane is typically more expensive than natural gas, it's also easier to make the case that switching from a furnace to an efficient air-source heat pump (ASHP) is cost-effective for the customer. The potential customer benefits also create an excellent opportunity for utility energy efficiency programs to decarbonize this sector.

It's a small market, but it could be an effective one—a situation in which propane heating could be low-hanging fruit for energy efficiency electrification programs targeting ASHP retrofits.

In a study prepared for ComEd Customer Innovation, Slipstream conducted market research to learn more about how propane customers might benefit from electrification opportunities such as ASHPs and determine ways in which energy efficiency programs can design measures to serve these customers.

What we found

To better understand the propane market for residential customers and the associated ASHP retrofit opportunities, we gathered data through three primary methods:

Interviews: We sought insight and feedback from three groups:

1. An electric cooperative that provides both electricity and propane service for their customers, to understand propane pricing and distribution.
2. Potential program partners, including community organizations, to gain insights into rural customers' needs and identify ways to engage local contractors and encourage ASHP adoption.
3. Administrators of successful electrification programs in the northeast U.S., including Maine, Vermont, and Massachusetts, to study approaches in similar climates and markets.

Data analysis: Using data from ComEd's 2022 Baseline Study, as well as reliable survey data, we conducted a data analysis to characterize the types of homes with propane heat within ComEd's service territory.

Archetype modeling: The team determined a set of the most common retrofit archetypes through discussions with HVAC experts and with information from ComEd's Home Heating and Cooling Midstream program.

The unexpected costs of propane

Like natural gas, propane offers a cheaper source of space heating than electric resistance, especially in the cold climate of the Midwest. Most customers in ComEd's service territory use natural gas to heat their homes, while customers who rely on propane tend to live in older, owner-occupied, single-family homes in rural areas. These rural propane customers also tend to reside in "clusters," with many propane customers confined to a single geographic area compared to the surrounding territory. Similarly, the team found that propane customers have similar rates of income eligibility as ComEd's broader customer base—about 37% of the population.

Using propane to heat your home invites a few unique costs:

• Unpredictable rates: Propane rates change throughout the year from macroeconomic conditions. Rates also vary between households based largely on the home's expected propane usage. Homes with high usage, for instance, often experience moderately lower propane rates than homes with low usage.
• Fixed fees: Our fixed fee estimates include delivery fees for propane tank refills and tank rental, both of which are common for propane customers.
• Punitive "low usage fees": Each propane provider surveyed had "low usage fees" for customers with low propane usage. These low usage fees may have a disproportionate impact on customers that offset large portions of their propane use with an ASHP but still use some propane throughout the year, although more research may be needed to understand the criteria for when these charges apply.

These factors add some complexity to designing an electrification program for propane customers. Programs should do their best to account for these unique costs—and any other tricky or unexpected factors that propane customers might be dealing with compared to natural gas customers.

The archetypes of propane-to-ASHP retrofits

The team modeled common propane-to-heat pump intervention archetypes to assess the simple payback that a customer might expect from an ASHP retrofit:

• Full electrification: Replaces propane with an ASHP and supplemental electric resistance heat
• New construction: Forgoing a propane furnace for an ASHP and supplemental electric resistance heat
• New dual-fuel heat pump: Retrofit where the customer installs a new dual-fuel ASHP, including both a propane furnace for back up and a new, variable-speed heat pump that is sized to offset a large portion of the heating load
• A/C replacement (variable-speed heat pump): Integrates an existing propane furnace with a new ASHP sized for heating load
• A/C replacement (single-stage heat pump): Integrates an existing propane furnace with a new ASHP sized for cooling load

We calculated the cost-effectiveness for each archetype with a modified algorithm based on the Illinois Technical Reference Manual (TRM) specifications. In our modeling, we found that all the modeled archetypes will deliver a payback within the equipment's useful lifetime.

Both full and partial electrification are cost-effective; however, feedback from interviews (including in the northeast) suggests that there is a balance to how customers perceive the benefits. Homes with heating as their final gas end-use or planning to fully electrify may want to do full electrification (which will mean using electric resistance heating as a backup). Others may want to limit the changes to a heat pump to offset a good chunk of their propane load and reduce annoying propane fill-ups. It would be useful for programs to support both options.

Note that the single-stage A/C replacement archetype is notably less cost-effective than the others. This may be the result of smaller energy savings from the single-stage heat pump. Still, we recommend promoting single-stage heat pump retrofits over new central air conditioners, because they provide additional energy savings at a low incremental cost for customers.

Interviews with community organizations caution utility programs to be intentional about messaging to rural propane customers. Resiliency and economics-focused messaging may be more effective than environmental messaging. Programs would be wise to understand the attitudes of their propane customers.

Commercial and industrial applications

Propane is also used in commercial, industrial, and agricultural sectors for similar purposes, but at a different scale. For instance, commercial buildings might use propane for space and water heating, restaurants might roll out propane heaters for outdoor dining, and commercial-grade lawn mowers might use propane as an alternative fuel.

While this study focused on residential propane use, programs could consider targeting small commercial businesses using propane for space heating with many of the same strategies.

Recommendations:

• Target propane customers for both full and partial electrification. A heat pump retrofit is likely cost-effective for any residential home or small commercial businesses using propane for space heating.
• Tap into local outreach networks. Identify income-eligible propane customers to target through community organizations and LIHEAP providers. Local organizations can also help with behavior change; for instance, repair services can update their replacement specs to include heat pumps instead of always recommending efficient furnaces.
• Develop an HVAC contractor network. Programs may need to expand ASHP training to increase the availability of qualified contractors, especially in rural areas.
• Understand the attitudes and reservations of your propane customers. Design outreach messaging for rural areas that aligns with other successful marketing campaigns for those customers.
• Design around propane's unique and/or unexpected costs. Survey customers who use propane and gather data on their fixed costs, such as low usage fees and tank removal.
• Embrace a balanced approach to electrification. Different customers have different needs, and full electrification might not make sense for all of them. Single stage heat-pump retrofits are less cost-effective than the other archetypes we modeled, but they should still be promoted over central air conditioners.

More resources:

Find the executive summary of our report on the ComEd Customer Innovation website.