Mission Accomplished? Heat pump adoption has a long way to go

A few weeks ago, my feed exploded in celebration – not only have heat pumps maintained their sales lead over gas furnaces, but the gap has continued to grow year-on-year.

Each year, I see a similar article and celebration. If I didn’t know any better, I’d think we’ve already won the war on fossil fuels.

It doesn’t pass the sniff test

While they’re exciting, these statistics don’t correspond with my anecdotal experience, nor with the submissions that we’ve collected to date in our HVAC quote database.

When I tried getting heat pump quotes for my parent’s home in the midwest, every contractor I spoke with recommended a gas furnace and 1-way AC, refusing to even quote a heat pump. These issues are common in the marketplace.

Plenty of 1-way air conditioners and furnaces continue to be installed in the US. It seems like there’s more to this data than what’s at the surface, and others are thinking the same thing.

Let’s dig deeper.

What’s the hubbub about?

The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) is an industry body that creates standards and tracks data across the whole HVAC industry. Each month, they release shipment data tracking sales of major HVAC equipment – heat pumps, furnaces, 1-way air conditioners, water heaters, among other things.

Over the past few years, the data has shown a cool trend. Heat pumps have continued to increase their market share, overtaking furnaces for the first time earlier this decade and maintaining their lead.

But this graph doesn’t tell the full story.

Comparing apples to oranges

To interpret this data, it’s important to understand how furnaces, heat pumps, and air conditioners are installed in homes and how they can work together to heat and cool a home.

To keep things simple, I’m going to focus on an example with a centrally ducted system.

In the olden days, homes were heated with gas furnaces. The concept is simple. Burn some sort of fuel to generate heat, and use a big fan to blow that heat all around your house through ducts.

In the 1960s, homes started getting central air conditioning. By putting a big heat exchanger outside of our homes (the box that we think of as an “AC unit”) and another heat exchanger above the furnace (called a “coil”), we were able to turn entire houses into giant refrigerators.

But the same technology that can move heat out of a building to cool it can also be used to move into a building to warm it. Voila – heat pumps! By adding a single valve to the outdoor 1-way AC unit, we were able to turn them into 2-way ACs that can both heat and cool.

Early heat pumps were pretty clunky and often still relied heavily on the furnace for heating the building.

As heat pump technology improved, we’ve gotten to a place where the heat pump alone can both heat and cool a home. No furnace required!

This is what most people think of when they’re changing out their gas furnace with a heat pump.

Heat Pumps and Furnaces can coexist!

While all-electric setups are great, there are still many reasons to choose a dual fuel system, combining a furnace with a heat pump. A well-configured hybrid system can still reduce a large portion of household emissions, and hedge against high electricity costs!

Because heat pumps and furnaces can be used together, it isn’t the best comparison to pit them against each other. If every single home in America had a new gas furnace installed paired with a well-configured heat pump, we could still make a massive positive impact on the climate.

The truly missed opportunities are when 1-way ACs are installed, as they can heat ONLY using fossil fuels.

What data should we be looking at?

The AHRI shipment data is a great source of information, but it doesn’t tell the whole story on its own. After all, it just tracks shipments, which are defined as “when a unit transfers ownership”.

Since most HVAC equipment in the US is sold through multiple layers of distributors, this reflects when the first distributor purchases equipment from a manufacturer. While this is a decent analog to the market’s demand signal, it can be affected by dynamics like distributors stockpiling equipment prior to refrigerant rules changes.

Additionally, the AHRI data only reflects “U.S. manufactured shipments of central air conditioning, air-source heat pumps systems, gas and oil furnaces, and gas and electric tank water heaters”! While we have seen a large increase in domestic manufacturing of HVAC equipment in recent years, much of it is still manufactured overseas.

To really understand how far into the energy transition we are, we need to understand what equipment people use to actually heat and cool their homes. Luckily, this information exists.

The Residential Energy Consumption Survey

Since 1978, the US Energy Information Administration has carried out the Residential Energy Consumption Survey (RECS) about every 5 years.

The goal of this survey is to “collect energy characteristics on the housing unit, usage patterns, and household demographics”. Among other things, it provides excellent data on the primary equipment that people use to heat and cool their homes.

The latest survey was completed in 2020, and the 2024 survey is currently underway.

Looking at the EIA data, we can see that heat pumps indeed are gaining market share as the primary heating source in US homes! Great news!

But take a look at the market share of furnaces. It’s stayed flat over the past decade, hovering around 60%. This tells a much different story than the shipment data. We actually added 4.3 million new furnaces as primary heat sources between 2015 and 2020, and only 3.8 million heat pumps.

The story this data seems to tell is that heat pumps are making an impact in new construction, and in homes with uncommon heating types (baseboards, oil boilers), but furnaces remain the primary way to heat homes in the US.

But heat pump shipments only overtook furnaces in 2022!

The most recent EIA data is from 2020, before heat pump sales overtook gas furnaces. Perhaps the 2024 EIA dataset will tell a different story when it’s released?

Luckily, we can make some informed guesses by combining the EIA and AHRI data!

Since 2009, roughly 1/3 of the the new heat pumps delivered per AHRI data translated into additional heat pumps used as the primary heating source for homes as seen in EIA data.

Where are the rest of those heat pumps going? Some might be replacing existing heat pumps like-for-like. Others may be used in commercial applications (we’re focusing on residential data here). Many may be installed in tandem with gas furnaces, but configured only to cool with the furnace providing heating.

How many heat pumps did we actually add in our homes?

Extrapolating that pattern forward, we could expect that roughly 5.9 million additional heat pumps serve as the primary heat source for homes since 2020.

Assuming that other types of heating systems continued to fall at the same rate that they did in the previous period, then the prediction for where we are today looks very similar to where we were 5 years ago. Surprise: furnaces still sit at around a 60% market share!

The data doesn’t show any strong evidence that the growth in heat pumps is meaningfully larger than this extrapolation. In fact, the overall growth rate in heat pump shipments over the past 5 years has slowed when compared to the prior period.

What does this all mean?

This data all seems to indicate that retrofits from furnaces to heat pumps aren’t happening at any real scale. Most of the new heat pump systems in homes are likely new construction, or retrofits of uncommon heating systems.

This aligns with my own anecdotal impressions, as well as conversations with leaders at home electrification companies devoted to installing heat pumps. Even the largest dedicated heat pump installers have only retrofitted on the order of 1,000s of systems - we need to be retrofitting at 100x this scale to make meaningful progress.

We shouldn’t delude ourselves

It’s exciting to see headlines like Heat pumps overtake gas furnaces and rising sales numbers, convincing us we’re moving in the right direction. But this optimism can be dangerous if it makes us overstate our progress. It creates a misleading narrative that the policies and incentives in place are working flawlessly, and that we can ease up on efforts to accelerate adoption.

The truth is that we’re just getting started.

Massive amounts of money have been poured into incentives, and many of those pools of money are already running dry. I fear that we’ll start seeing stories claiming that incentives have done their job and the market transformation is complete. But that won’t be true. The market is far from mature, and without continued effort, we risk stalling out before heat pumps become the default choice for homeowners.

I welcome any criticism or feedback in my interpretation of the data. The spreadsheet I used to generate these graphs lives here; you’re welcome to play with the data and draw your own conclusions.