Energy is a system, not a project
Stop me if you’ve heard this one: “The problem is …”
I hear this a lot in conversations about electrification.
“The problem is, if the grid is dirty, electrification doesn’t help.”
“The problem is, if you add all this demand, the grid can’t cope.”
“The problem is, low-income households might not be able to shift loads to different times.”
“The problem is, the technology just isn’t there yet.”
“The problem is the duck curve.”
“The problem is, there are just so many problems.”
These challenges are real, and they’re hard to solve, but this “problem first” mindset in isn’t productive. It makes us feel and look clever, and it sometimes passes for critical thinking. But critical thinking involves analysis of ideas and evidence, not just fishing up obstacles. So, how do we think critically, while staying invested in solving problems? One way is to focus on the outcomes of a whole system, rather than the challenges of isolated pieces.
I’m going to dive into a specific part of the decarbonization landscape — heat pump hot water (HPHW) — and show how taking a policy approach that considers the whole system can make it more likely that we’ll solve problems, instead of just naming them.
Electrification is a System, not an Action
Fundamental to changing the way we think about solving climate challenges is reframing. When we think about electrification as an individual action, or a set of individual actions, we run into lots of problems of the kind I list above. The duck curve is real. Demand response is challenging. Most households really don’t want to think about energy management, and who can blame them?
Individual Action Perspective
If we think about heat pump hot water in this way, it might look something like this:
- I want to reduce the GHG emissions my household produces.
- My hot water uses the most energy right now, and it runs on gas.
- I could get a heat pump!
- Jeez, that’s expensive.
- I wonder if I’ll save any money on this. How can I figure that out?
- I guess I need to know my utility rate. Yikes.
- Wow, TOU makes it really expensive in the evening. I guess I should make sure I don’t use electricity to heat water then. I wonder if that’s hard?
- Maybe I need to get storage as well. Is that worth it? How does that work with my billing? Arbitrage what now?
Remember, unlike (probably) you, dear reader, this isn’t an energy nerd who finds the whole thing super fun and interesting. This is an ordinary homeowner who has to think about all this in between work and making school lunch and washing dishes with water that is reliably hot and didn’t previously require any thought at all. Now, multiply that by 1 billion machines and … well, you see the problem. 😉
The thing with all these “problems” is that they’re focused on individual solutions to systems-level challenges. In systems thinking terms these solutions are very low leverage, but we spend a lot of time in this zone, nitpicking.
Systems Perspective
What does it mean to think about heat pump hot water at the systems level?
Luckily for us, someone else has done a lot of this work. It was the US government (say what you will about bureaucracies, they do tend to understand a system).
The Inflation Reduction Act (IRA) includes incentives for household electrification, including significant incentives specifically for heat pump hot water. These HPHW incentives go live in California this month. The way it’s designed, the incentives program builds in solutions to common objections to electrification. That is, the program designers take a systems approach, so every individual doesn’t have to.
I like the way these incentives interact with the system on a few levels. I want to break them down to look at three parts:
- Leverage on climate
- Serving stakeholders
- Addressing objections
Heat Pumps as a Climate Lever
In the Net Zero by 2050 report, the International Energy Agency (IEA) outlines several milestones for achieving this goal and giving us a shot at limiting warming to 1.5°C. Heat pumps are specifically called out in the report, with milestones including 20% of all heating demand globally coming from heat pumps by 2030 (see below).
By providing specific incentives for heat pumps and heat pump hot water, the federal government is prioritizing areas that have already been identified as critical levers in the energy system.
Serving Stakeholders
The full name of this program is the Inflation Reduction Act Residential Energy Rebate Program. It’s squarely aimed at residents, with a tax incentive for everyone, and a point-of-sale rebate for low and medium income households.
However, the design of the incentive takes into consideration multiple stakeholders who operate within the system of electrification, specifically:
- residents
- installers/contractors
- grid operators/utilities
Let’s start with residents. These incentives are about helping people to electrify their homes. They reduce the cost of replacing gas-powered hot water systems with more efficient, cleaner, heat pump hot water. More people install HPHW, we get to the IEA milestone faster. Simple.
But it’s not that simple. Installing HPHW isn’t just about household decision-making. It’s also about what’s available and attractive. Even with incentives in place, people are less likely to choose HPHW if it’s difficult. That’s where our installer/contractor (tradies, in Australian terms) stakeholders come into play. If it’s hard to find a contractor who is willing and able to install your HPHW, it creates friction and makes it easier just to stick with gas. And if your hot water fails, you’re unlikely to wait around, taking cold showers, for a HPHW system when the installer already has a gas unit on hand. The energy rebate program tackles this in a couple of ways. First, the rebate is actually paid to the installer, and second, the program includes funding for education and training for contractors. And yes, they thought about the risk that installers will pocket the incentives; installed prices will be published so that consumers can see what they should be paying. Announcing these incentives ahead of time also nudges the behavior change. I’ve spoken to installers who are putting in orders for HPHW as early as possible, because they’re anticipating a squeeze on supply once the incentive program starts.
Our third stakeholder group is grid operators. They might seem the farthest from your individual hot water system, but scroll up and see how many of those problems I opened with are about energy management. Encouraging consumers to add a whole pile of energy-hungry assets into the system at once is a potential headache for anyone trying to keep the lights on. This is my favorite part of the program. In order to qualify for the incentive, households MUST:
- Switch to a time of use rate (if they’re not on one already)
- Enrol in a demand response program with their utility for a minimum of three years
In this way, rather than being a headache for grid operators, distributed HPHW can become a “sponge” to sop up that excess daytime supply. Because it was designed that way.
Addressing Objections
The designers of this program clearly thought through the objections that were likely to come up, and embedded solutions into the incentives.
Let’s take a look at how this will play out, and how it addresses concerns.
- Moving to TOU will make peak energy much more expensive for households. (Note that California customers with rooftop solar are already required to be on TOU rates.) Therefore, it makes sense for households to reduce costs by heating water in the middle of the day, when rates are low. That helps raise the belly of the duck. 🦆 ✅
- Hot water stays hot for ages (and HPHW is designed for it), so you’ll still have hot water to use in the afternoons and evenings, regardless of the demand response program mechanism. No need for households to manage around loads. hot 🚿 ✅
- Residents don’t want to think about when their hot water uses electrons, which is fine, because installers will be trained (on the government’s dime, remember?) to set up the system to consume power at off-peak times. Some HPHW systems have sophisticated software that will optimize for the cheapest rate; others may just be set to operate during off-peak times. 💵 ✅
- With better energy management, decarbonizing the whole grid is feasible. ⚡️ ✅
Is it foolproof? No, of course it isn’t. Humans are amazing at screwing up systems, so if that was the bar, we’d never do anything. It’s pretty elegant, though. And hopefully, it will prove effective.
Our energy system is large, complex, and critical. Changing something like that is daunting. But whatever we think about climate change, whether we like it or not, our energy system is changing. Solar is the cheapest form of energy in history, and we love a bargain. So the next time you hear “the problem is”, or say it yourself, I challenge you to take the next step, look at where the problem fits in the system, and think about how it could be solved. I promise you, not only is it more productive, it’s way more fun.
