Building for Efficiency: Geography, Infrastructure, and Your Bank Account
What the energy system of the future will look like is the (multi) trillion-dollar question. A new report from AGA examines existing trends in home heating and electrification – and makes recommendations for vital steps regulators, builders, and homeowners can take to maximize energy efficiency in future new homes while keeping costs, and emissions, low. The following blog is the first in a four-part series on Building for Efficiency: Natural Gas Solutions for New Homes. This groundbreaking report is the first to examine the unique regional, geographic, infrastructure, and market dynamics driving customer choice in home heating – and the implications for effective decarbonization policy.
Previous analysis on this topic has frequently shared a fatal flaw. Fifty three percent of Americans use natural gas for home heating. Analysis done previously rested on the assumption that these homes were randomly distributed across the country. Unfortunately, this is false. Statistically, you heat your home the same way your neighbor does, because the same costs and opportunities that made you decide natural gas was your best option are just as true for your neighbor. Home heating isn’t randomly distributed at all!
If you heat with natural gas, it’s a safe bet that most of your neighbors do as well. Eighty-four percent of Americans who are physically able to connect to the natural gas system elect to use it for one or more appliances. One major reason is because natural gas infrastructure is mostly located in places where using natural gas makes sense….keep reading for more on this.
If you live in Miami Beach, you probably haven’t put a lot of thought into your winter heating costs. While you likely still own a furnace for the odd 60-degree day, you don’t run it often enough for a small difference in efficiency to noticeably impact your energy bill. A more expensive but more efficient heating system is unlikely to pencil out for you.
What if instead of Miami Beach, you live in Milwaukee, where temperatures can dip below negative 20 degrees Fahrenheit? A small difference in energy costs or fuel efficiency could have a significant impact on how much you pay each month. Because of that, the payback period for a higher efficiency furnace is going to be far, far shorter than in warmer climates – and with electricity projected to cost 3.4 times as much as natural gas through at least 2050, this is likely to remain true for the foreseeable future.
The result of these regional differences is that 83% of all the electric heat pumps or electric resistance furnaces installed in new homes in the United States today are installed in the south. Outside of the south, people will choose natural gas over electricity for their new homes at a rate of five to one. In the coldest places, more than 90% of customers will opt for the most efficient natural gas heating options – which on average save their owners $1,403 per year compared to a baseline all-electric home.
In cold climates where natural gas offers the greatest benefit, bills aren’t just lower – they’re also more consistent. Monthly bills are typically up to $300 higher for all-electric homes during the winter – even with the most efficient all-electric models.
On top of the ongoing cost benefits, natural gas remains the most affordable option in terms of upfront installation costs, even after accounting for tax incentives. While appliance installation for a baseline all-electric home costs marginally less than a baseline 80% AFUE natural gas home, the ongoing costs will cancel this out almost immediately. On more efficient appliances, natural gas quickly takes the lead on upfront affordability. To summarize our takeaways for today:
- Market forces and geography drive how people choose to heat their homes, and most houses that can use natural gas do.
- The colder parts of the country are heavily reliant on natural gas for heating.
- The overwhelming majority of electric heating is installed in warm southern climates.
- The physical realities of installed energy infrastructure and local weather impact the most cost-effective decarbonization options for home heating.
Join us next week for an inside look at the modeling and economic considerations influencing the future of the energy system. To dig into the data yourself, check out the full Building for Efficiency study here.