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Big Changes Afoot for Heat Pumps

image credit: Jay Stein
Jay Stein's picture
Senior Fellow Emeritus, E Source

Jay Stein, a Senior Fellow Emeritus affiliated with E Source, is one of America's leading energy technologists. Over the course of his over 40-year career he has played numerous roles, including...

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  • Feb 6, 2023

There’s a perfect storm going on in the heat pump market. Policymakers and environmental advocates are touting this equipment as a solution to both climate change, and European dependence on Russian natural gas. Simultaneously, a plethora of legislation and regulations are emerging that are roiling the industry. These include new efficiency metrics, efficiency standards, federal tax credits, and refrigerant rules. Combined, they will make heat pumps more efficient, less expensive, and more climate friendly. They are also causing quite a bit of confusion for nearly everyone.

If you are a consumer in the heat pump market, an environmental advocate who wants to speak knowledgeably about building electrification, or just someone who wants to impress friends at cocktail parties, never fear. Read on to learn how the heat pump market is changing and why those changes will help mitigate climate change.

What you need to know about heat pump efficiency ratings

Whether you are planning to replace your air conditioner with a heat pump, or you are looking to influence public policy, you need to have a working understanding of two efficiency ratings: Heating Seasonal Performance Factor (HSPF) and Seasonal Energy Efficiency Ratio (SEER). The US Department of Energy requires that all heat pumps sold in the country be labeled with these ratings, and they are the basis for determining eligibility for virtually all government and utility efficiency programs.

They’re similar to the Environmental Protection Agency’s “miles per gallon” ratings for cars, and are determined by laboratory tests under standardized conditions. Two ratings are needed because heat pumps both heat and cool. HSPF expresses heating season efficiency and SEER expresses cooling season efficiency. The higher the ratings, the more efficient the equipment.

Manufacturers do a lot of research and development to boost their ratings, and charge more for higher rated products. Also, they’re used by designers, contractors, policymakers, and building code officials. The Air-Conditioning, Heating, and Refrigeration Institute, an industry trade group, provides an online directory that compiles the ratings. AHRI also governs how the ratings are determined, and continually upgrades them to be more representative of actual in-field performance.

Heat pump ratings V2.0

Now that you’ve got a working understanding of HSPF and SEER, I’m going to pull the rug out from under you. As of New Year’s Day 2023, they were superseded by new ratings named HSPF2 and SEER2. You might think of them as version 2.0.

The new ratings are similar to their predecessors in most ways, with one notable exception: they were modified to more accurately reflect the amount of work heat pump indoor fans do to push air through ducts. The SEER2 and HSPF2 ratings include five times more indoor fan power than the old ratings. That change results in lower, but likely more realistic, ratings.

There’s no simple formula to take a piece of equipment rated under the old system and calculate its new ratings. Instead, manufacturers redesigned and tested their products based on the new ratings. That said, we do have an approximation of how much lower they are.

According to AHRI, if you had a group of ducted heat pumps, and you calculated their average HSPF, the average HSPF2 of that sample would probably be about 15 percent lower. The average SEER2 would probably be about 5 percent lower than the average SEER. Again, these ratios wouldn’t be precise for any individual unit, but for a group average, they’d probably be close. Also, this exercise is theoretical and you couldn’t actually do these calculations yourself. As new equipment comes out, it’s only being labeled with the new ratings, and not the old.

How much more representative of actual in-field performance are the new ratings? We don’t know yet. Researchers working for a coalition of utilties and other associations are currently collecting data to answer this question. Their final report is expected to be released later this year.

For heat pump buyers, the most important thing to know is to not directly compare the old ratings to the new ratings. Just because a new heat pump’s HSPF2 is lower than the HSPF of an older heat pump, doesn’t mean that the new heat pump is less efficient. Instead, just ignore the old equipment with the old ratings, and focus on equipment with the version 2.0 ratings.

Heat pumps get more efficient

Another change that took effect on January 1, 2023, was that new heat pump minimum efficiency standards kicked in. Just as the the US DOE sets minimum efficiency standards for light bulbs and washing machines, it also sets standards for heat pumps. Starting this year, the kinds of heat pumps most commonly used in US homes, manufactured after January 1 and sold in the US, must be rated at least 14.3 SEER2 and 7.5 HSPF2.

The new standards are about 7% better than the ones they superseded, but it’s hard to say for sure, since the old minimums were based on the old rating system. Heat pumps manufactured before January 1, 2023, can continue to be sold indefinitely.

For heat pump buyers, there’s not much to do. If you’re looking for the cheapest system you can buy, just know that the least-efficient and least-expensive systems will be a bit more efficient and a bit more expensive than they were last year.

You might be able to get a screaming deal if you head over to the dealer’s showroom immediately and see if they have any of last year’s units still in stock. Not that I would recommend doing that. With the incentives available from both the federal government and other local programs, you may well find that high-efficiency heat pumps cost little or no more than their minimum-efficient counterparts, and cost less to operate.

New federal tax credits make heat pumps cheaper

Starting in 2023, and continuing for the next decade, the federal government is increasing the income tax credits available for heat pump installations. For most taxpayers, those credits are now worth 30% of the cost of their heat pump project, up to $2,000. Sounds simple, right? Turns out, there are a lot of complications: not all heat pumps are eligible for the credit, there are limits to how much money one can claim in a given year, and there are special programs for low-and-medium income folks.

Of all these complications the one that’s likely to lead to the most confusion and frustration is the slate of eligibility requirements. To ensure that the tax credits are only being spent on efficient heat pumps, the federal government outsourced to the Consortium for Energy Efficiency the job of setting the bar. CEE is a non-profit organization that has long worked with efficiency program administrators to coordinate with industry, trade associations, government agencies, and each other.

CEE regularly compiles minimum eligibility ratings for a wide variety of efficiency technologies, including heat pumps. If you’ve ever gotten a rebate from a utility energy efficiency program, there’s a good chance that CEE established the efficiency specifications.

Why is CEE specifying efficiencies when we already have the DOE doing that? They serve different purposes. The DOE specifies the minimum efficiency equipment that manufacturers can produce. CEE specifies which equipment qualifies for incentives from efficiency programs.

If you want to take a look at CEE’s 2023 specifications for heat pumps, you can do so here. Warning: It’s not set up for industry novices. Whether or not a heat pump qualifies depends on what kind of equipment it is (ducted, ductless, or single-packaged), where in the country it’s being installed (North or South), and whether it meets up to five different criteria.

If you’re interested in determining whether a given heat pump qualifies for the federal tax credit, you can collect the data you need from the AHRI directory, but it’s not easy. There’s a lot to collect and some calculations are required. To make things easier, CEE is joining forces with AHRI to develop a directory that lists qualifying products. You can find that directory here, only at the time of writing, it’s not been populated yet. Until it is, check with the manufacturers regarding their products’ eligibility.

A few more complications associated with the new tax credits

Once you’ve established that a given heat pump is eligible, there are a few more things to know. First, $2,000 is the maximum amount you can claim in federal tax credits in any one year for any combination of heat pumps, heat pump water heaters, and biomass stoves and boilers. If you’re planning on purchasing more than one of these products, do so in separate years.

Second, depending on the size of the heat pump, the tax credit may not cover the full cost difference between the more-efficient eligible product and a minimum efficient one. If that’s the case, you may be able to gain more incentives from either your local utility or government. You can find those incentives by consulting the Database of State Incentives for Renewables and Efficiency. When I consulted the DSIRE database I found that my city government would kick in $300 and my utility would add in another $2,000. Currently, there doesn’t seem to be any prohibition on combining the federal tax credit with local incentives, and they’re not included in the tax credit’s $2,000 annual maximum.

Lastly, the tax credit amounts listed above are for general taxpayers. For low-to-medium income folks (who earn less than 150% of their state’s median income), the federal government is going to fund state programs that pay far higher incentives for heat pumps and a wide variety of other home efficiency and electrification measures.  If you think you might qualify, check with your state energy office for details.

Out with the old refrigerants, in with the new

Heat pumps, just like air conditioners, refrigerators, and freezers, are filled with refrigerants, which by expanding and condensing, move energy from cold to hot. Should refrigerants leak out into the atmosphere, which they do with alarming frequency, they can contribute to a variety of environmental problems, including climate change.

The EPA is planning to restrict the use of the refrigerant that currently dominates the heat pump market in favor of new refrigerants that contribute far less to climate change. The agency proposed such a rule in December, 2022. It’s expected this rule will be finalized later this year and will go into effect January 1, 2025. It will only affect newly manufactured equipment, and not the refrigerants contained within existing equipment.

There are currently two commercially available and EPA-approved refrigerants that can meet the proposed rule: R-32 and R-454B. Both are slightly more efficient than the current refrigerant and otherwise perform similarly in heat pumps. Even so, they represent an important departure from the refrigerants used in the US for the last century.

What enables refrigerants to have low climate impact is they readily react with oxygen in the atmosphere and break down. That capability also tends to make them flammable, and virtually all US building codes explicitly outlaw flammable refrigerants inside buildings. However, these new climate-friendly refrigerants are classified as "mildly flammable." They can be ignited, but not easily. For example, they’re about as flammable as ammonia, which you may be storing under your kitchen sink.

To enable mildly flammable refrigerants to be used safely, industry researchers developed new sensors, controls, and piping techniques, but there’s still a lot of work left to do to incorporate them into standard practice. Designers and installers are being trained, and the nation’s building codes are being amended to include rules for the new safety equipment and techniques.

As states and other jurisdictions get ready, manufacturers are developing products that can meet the new regulations. Daikin, the world’s largest air conditioner and heat pump manufacturer, is already shipping products charged with R-32 to a half-dozen states: Florida, Oregon, Washington, North Carolina, Maine, and Vermont. By late 2024, it’s likely that qualifying products from virtually all the major manufacturers will be widely available.

For heat pump buyers, be aware that over the course of 2025 and 2026, contractors and building code departments are going to be working with new techniques and regulations. Both buyers and policymakers will want to check to ensure that local building codes will be ready to accept equipment with mildly flammable refrigerants. Most building code departments will be ready, but a few won’t. Be prepared for some confusion and resistance as the industry gets used to working with these new refrigerants.

Final thoughts

Now you know why heat pump industry professionals are living on ibuprofen and antacid tablets. You also know many of the things you’ll need to successfully install or advocate for public policies for heat pumps.

One conclusion I urge you not to take away from this post is that you’d be better off waiting for the new more climate-friendly refrigerants to be in place. Yes, those future heat pumps will contribute less to climate change. But the benefits of replacing heat from burnt fossil fuels with heat pumping, far outweigh the benefits of more climate-friendly refrigerants. We’ll all be better off to have more heat pumps sooner rather than later.

Besides, if you want to wait for this market to settle down, you’re going to be waiting a long time. Heat pumps are benefitting from lots of research and development. There are sure to be more new standards, technologies, and refrigerants in the future. Don’t wait for them. The heat pumps we have now are more than good enough to drive down energy costs and mitigate climate change.


This post originally appeared on my blog site Energy Technology Revolution. Click here to subscribe to ETR.

Matt Chester's picture
Matt Chester on Feb 6, 2023

Heat pumps are definitely poised to be one of the big stories of 2023 in our sector (I wonder if we'll be hearing about them in the upcoming 2023 Special Issue on predictions & trends from our community)

Jay Stein's picture
Jay Stein on Feb 7, 2023

I agree, Matt. Heat pumps are a big story. I expect you will be hearing about them in your special issue.

Mark Silverstone's picture
Mark Silverstone on Feb 10, 2023

Man, you can say that again. ChatGPT and heat pumps seem to be dominating the news of the day, i.e. outside of the war and earthquakes. I´m on a 6-8 week waiting list to get a heat pump installed. (No, this comment was not written by AI. It would probably be better if it were.)

Jay Stein's picture
Jay Stein on Feb 10, 2023

Good luck with your heat pump. Make sure you get an eligible unit so you can get the tax credit. Also, I wonder when we'll start to see AIs that deny that they're an AI. Maybe, they're already here.

Jay Stein's picture
Thank Jay for the Post!
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