Renovating Energy Policy to Encourage Beneficial Electrification


RAP’s recent papers on the beneficial electrification of space heating and water heating draw a picture of great potential. Electrification of these fossil-fueled end uses could cut carbon emissions significantly while saving consumers money and providing power system operators with a useful resource.

Several pieces of effective frameworks that states can use to navigate the transition to electrified end uses have already been developed:

  • Building energy codes set minimum standards for new construction and major renovations, which make buildings cheaper, healthier, and safer to live in;
  • Federal standards for furnaces, water heaters, and other home appliances ensure higher levels of energy efficiency; and
  • Incentive programs offer consumers a rebate or other financial reward to update their space and water heating.

But much like a house with an old furnace and a leaky water heater, these policies need attention. In some cases, existing regulations and standards don’t account for technological advances, such as the ability to integrate appliances with the grid. They also don’t do enough to elevate far cleaner fuel sources above fossil fuel counterparts. And some policies actually discourage electrification even though it can provide significant benefits.

To successfully “renovate” policies affecting electrification, state regulators and policymakers must first review their existing policy structure and ask how current standards and programs work—or don’t. Let’s consider several policy levers and barriers related to the three framework pieces listed above.

Building Energy Codes

Building energy codes help lower energy bills and reduce greenhouse gas and other air emissions, and they can accommodate or even promote electrification. New construction is an ideal opportunity to deploy new technology, because the entire costs of space conditioning and water heating systems are incremental. Older codes can serve as barriers to innovation, however, and should be updated.

First, codes should require high thermal efficiency for building envelopes. This maximizes the ability of efficient space heating and cooling technologies—cold climate heat pumps being prime examples—to work cost-effectively and well. Second, in most climate zones, codes can be improved to require high-efficiency electric space heating and cooling and water heating in new construction. As an intermediate step, codes can mandate that new homes be “all-electric ready,” meaning that the electrical panel is sized to safely handle all-electric space conditioning, appliances, and electric vehicle charging.

Appliance Standards

The U.S. Department of Energy and the Environmental Protection Agency (EPA) periodically update appliance standards for furnaces and water heaters, enabling purchasers to capture significant energy savings. The Energy Department’s standards require appliances to meet certain efficiency levels, while the EPA’s Energy Star program encourages even greater efficiency. Both these programs can also encourage, or hinder, beneficial electrification.

As technology improves and the grid management benefits of flexible load become ever more apparent, standards could require appliances like water heaters to be grid-controlled. Adding Wi-Fi or another way to connect to the internet would enable water heaters to provide demand response, load shifting, and ancillary services to the grid. States and utilities could also deploy “plug and play” communication devices that allow grid operators to remotely monitor and control the water temperature—in effect, the state of charge—in the water heater.

Additionally, the Energy Department and EPA programs compare the performance of appliances to other models that use the same fuel type. This approach masks the economic, environmental, and grid benefits of switching from a fossil-fueled appliance to an electric one. States that follow federal standards in their own programs should be aware that the current same-fuel-only comparison can reduce their ability to electrify, similarly reducing the benefits available to their residents. One solution is for standards to compare appliances across all fuel types.

Incentives and Other Programs

Incentive programs are widely used around the country to encourage consumers to adopt various end-use technologies. The structure of these programs can foster or obstruct beneficial electrification. Incentives may be an important driver during the early stages of electrification, when incremental costs are declining but have not yet reached parity with fossil-fueled technologies.

Programs can be run by utilities, third-party energy efficiency providers, or governments (through rebates, loans, or tax incentives). Steele-Waseca Cooperative Electric in Minnesota, for example, offers a program that combines community solar with controlled water heating. The incentive: Participating members can subscribe to solar power at a substantial discount and receive a new grid-integrated water heater for free. In the supply chain, midstream and upstream programs can also encourage greater penetration by helping to ensure that efficient appliances are readily available.

Most incentive programs are either agnostic about the fuel being replaced or they target replacing an electric heating unit with a more efficient one (e.g., a heat pump). Fuel-specific energy efficiency incentive programs that don’t allow or include switching from fossil fuels to cleaner electricity may be a barrier to electrification. States can address this by taking a holistic approach to policy renovation and adopting fuel-neutral incentive programs.

Getting Started

State policy and regulation affects the prospects for beneficial electrification of buildings in various ways. And major policy renovations, like home renovations, require time and materials. In a future post, we will discuss how various state energy policies and rate designs play a crucial role. But for now, we hope this discussion gives states some ideas for how and where to “break ground” on projects to make way for these innovations, ensuring that electrification is beneficial to consumers, the environment, and the grid.