Pain Point #2: Decarbonizing Our Homes
Buildings cannot achieve zero emissions through solar panels alone
It is easy to spark discussion about the Cybertruck at any dinner party, but the room falls silent if I try to bring up my favorite DER: the electric water heater. Despite our collective progress on the clean energy transition and transportation electrification, building decarbonization lags behind.
To my family members who diligently switch off the lights in the name of climate, I love you for that. In reality, heating up the whole home with a gas furnace is the main culprit for the average home’s GHG emissions. The majority of household energy consumption stems from space heating, air conditioning, and water heating, collectively making up 70% of energy usages in US homes on average. Most homes in the United States still use natural gas, heating oil, propane, kerosene or other fossil based fuel sources for space and water heating.
Building electrification is an incredibly important, incredibly challenging problem that we need to dedicate way more effort to.
How do we address this?
Fuel switching - from fossil fuels to electricity - is the name of the game, mirroring the shift seen in electric vehicles. The goal is to switch from gas-based heating devices to electric alternatives, including Heat Pumps, electric water heaters, heat pump water heaters, induction stoves, and/or electric resistance clothes dryers. Home upgrades involve less glamorous tasks such as enhancing insulation and upgrading windows. Improving insulation can often result in the quickest payback period and is usually the first thing I recommend to those seeking consult for large energy bills (Ahem, Andrew). If you live in a blue or very sunny state, I’d argue that switching from gas to a heat pump will make a larger impact on your GHG footprint than installing rooftop solar. And you don’t have to be Captain Planet – it’ll save you money on your energy bills as well. The exact amount varies based off of your retail tariff, where you live, and your current consumption habits. However, according to Rewiring America, electrifying homes, and leveraging IRA incentives can lead to approximately $1,800 in savings per year for the average family's energy bills. The IRA will deploy a total of $858 billion for residential electrification benefits.
Similar to Zero Emission Vehicle (ZEV) mandates across the States, there are a number of policies mandating Zero Emission Buildings. Some were passed, such as Denver’s Net Zero Emission Buildings Plan and Local Law 97 which requires most buildings in New York to meet aggressive GHG emission reduction targets by 2024. In contrast, Berkeley was the first city in the US to ban natural gas in new homes and buildings - until the court of appeals overturned the decision earlier this year. We will need a combination of federal, state, and local policy action - hand in hand with innovative solutions from the private sector.
Great, so why aren’t we further along on the process?
First, there is a lack of customer awareness. People don’t want to think about their furnace or water heater until these systems fail. When faced with a malfunction, the immediate need for a functional replacement takes precedence. The consumer journey in shopping for a vehicle significantly differs from the process of replacing a furnace.
Even if you are a climate nerd living in the Bay Area, there is a lot of friction along the customer journey. There is an information asymmetry between homeowners and the contractors regarding key details: the necessity for electric panel upgrades or home rewiring, the product options and consumer economics, and the duration and installation cost of each option. The entire process is less straightforward and less digestible than car shopping. For example, certain assets may be noisy - and homeowners might only realize this after the installation is complete.
Heat pumps often lack endorsement from the majority of contractors. Given that contractors have been installing the same equipment for decades, there's a reluctance to shift towards heat pumps or other electric alternatives instead of gas. Just as VPPs/DERMs require collaboration with utilities and energy providers, the success of the building electrification community hinges on securing the buy-in of the contractor network.
The heat pump industry is experiencing the same supply chain delays as other clean energy devices.
There is considerable diversity among buildings - across the installed electrical appliances, building vintage, customer preferences, etc - which means a rinse-wash-repeat, or SaaS, approach will be inadequate.
34% of houses in the US are rented, and there are misaligned incentives between renters and landlords.1 Personally, I’ve postponed this specific blogpost because I wanted my own firsthand experience in navigating the process and getting price quotes for retrofits, which was impossible because I rent my apartment in SF.
These upgrades require high upfront costs – how do we implement an equitable approach for building electrification and home retrofits?
If we spoke a few years ago, you would know that I wanted to start my own company in the home retrofitting space. The vision was to streamline the building electrification experience for the average homeowner by facilitating connections with innovative financing options, building a network of skilled contractors for seamless upgrades, and actively managing assets to create a “Virtual Power Plant,” which would accelerate the payback period for the appliances. Looking ahead to 2024, we must make it as easy as possible so all homeowners have a solution on hand as soon as a device malfunctions - and also work towards a personalized long-term strategy. Thankfully, there are many companies offering those exact solutions to homeowners across the US. The heat pump market size was estimated around $88.7 B in 2023, which is expected to grow to ~$166 B by 2030. Some of these ventures and their competitive edge are displayed in the table below.
I’ve hosted building electrification happy hours, dinners, Q&As, and met some amazing founders in the space. The list of companies aiming to create personalized home electrification plans has been growing over the last few years. If I were an investor, my focus would be on companies offering distinctive hardware, whether it's a stylish heat pump, convenient ductless units that fit seamlessly into a window, or aesthetically pleasing induction stoves. The table below lists companies that are revolutionizing the home retrofitting space with innovative hardware.
Home Electrification While Maintaining Reliability
We recently had an unexpected power outage in San Francisco, where the power was out until 1 am. Even though I’ve spent the last year thinking about building electrification, I must confess that I was thankful for the gas stove and gas water heater, which allowed me to cook dinner and have a hot shower before sleeping. With the growing resiliency issues we are facing – how do we persuade the average homeowner to go fully electric? And for the economists who argue that utility-scale solar and storage is sufficient, how can we ask homeowners to go fully electric without some type of backup power system at home? I’ve been using the argument that the Ford F-150 can get you to work and also serve as backup power, but a V2G Pick-up truck is not practical for all customer segments. We need to keep the lights on in order for this to scale!
Ultimately, we need to accelerate the transition for buildings AND we need to maintain resiliency on the grid. I recently spoke to a friend in Vermont who fully electrified his house and had to cook Christmas Dinner at his neighbor’s house during the winter freeze of 2022. How can we convince others to electrify their home after experiencing rolling blackouts? Let’s collectively work towards improving reliability of the grid while improving the customer journey of home electrification in 2024. Wishing all of my readers a safe, healthy, and warm holiday season - free from power outages!
Note: Some companies, such as QuitCarbon, are trying to address retrofits for rental properties.