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The Economics of Electrifying Homes

Posted by Administrator (icsusa) on Jun 16 2018
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Seventy million American homes and businesses burn natural gas, oil, or propane on site to heat their space and water, generating 560 million tons of carbon dioxide each year—a tenth of total US emissions. Now, with an increasingly low-carbon electric grid comes the opportunity to meet nearly all our buildings’ energy needs with electricity, eliminating direct fossil fuel use in buildings and making the gas distribution system—along with its costs and safety challenges— obsolete. Further, electric space and water heating can be intelligently managed to shift energy consumption in time, aiding the cost-effective integration of large amounts of renewable energy onto the grid. And reaching “deep decarbonization” goals of 75% or greater reduction in greenhouse gas emissions will require eliminating most or all of the CO2 produced by furnaces and water heaters across the country, alongside other measures across the economy.

Achieving this vision will require massive market transformation, including discontinuing the expansion of the gas distribution system, widespread adoption of new appliances in homes and businesses across the country, and new markets for intelligent devices to provide flexible demand to the grid. Eleven million households burn oil or propane for heat—the most carbon intensive and costly fuels—and another 56 million burn natural gas. The most efficient electric devices—heat pumps for space and water heating— have small market share today; many homes need additional electrical work to accommodate them; and consumer awareness of this heating technology option is low.

In this paper, we analyze the economics and carbon impacts of the electrification of residential space and water heating both with and without demand flexibility— i the ability to shift energy consumption in time to support grid needs. We compare electric space and water heating to fossil fuels for both new construction and home retrofits under various electric rate structures in four locations: Oakland, California; Houston, Texas; Providence, Rhode Island; and Chicago, Illinois. We focus on the residential sector, which makes up the majority of carbon emissions from buildings’ fossil fuel use, but a similar market transformation will be needed in commercial buildings to meet deep decarbonization targets. Cooking, clothes drying, and other end uses are assumed to be electric in all cases.

In many scenarios, notably for most new home construction, we find electrification reduces costs over the lifetime of the appliances when compared with fossil fuels. However, for the many existing homes currently heated with natural gas, electrification will increase costs at today’s prices, compared to replacing gas furnaces and water heaters with new gas devices. We find electrification is cost-effective for customers switching away from propane or heating oil, for those gas customers who would otherwise need to replace both a furnace and air conditioner simultaneously, for customers who bundle rooftop solar with electrification, and for most new home construction, especially when considering the avoided cost of gas mains, services, and meters not needed in all-electric neighborhoods. Customers with existing gas service face higher up- front costs to retrofit to electric space and water heating compared with new gas devices, and either pay more for energy with electric devices—in the case of colder climates in Chicago and Providence—or save too little in energy costs to make up the additional capital cost—in the case of Houston and Oakland. 

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Last changed: Jun 16 2018 at 5:46 AM