How to Accelerate the Electrification of Buildings in the Midwest

Laura Sherman is president of the Michigan Energy Innovation Business Council.

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Building electrification is a potential game-changer for energy efficiency, demand management, distributed energy and other advanced energy industries, as well as for the broader task of reducing emissions.

The goal of electrifying heating and other systems in all buildings might seem very far off but, like many other developments in clean energy, a great deal of progress has been made only recently. Already, more than 40 percent of new U.S. homes are built with air-source heat pumps instead of fossil-fuel-burning systems.

The next hurdle is to start electrifying buildings in parts of the country where it’s been difficult to eliminate fossil-fuel-burning building systems. In regions with mild winters, the math has worked out in favor of going electric for some time. But in the Midwest, with the harshest winters in the lower 48, it has been cheaper to stick with natural gas as a heating source.

In Michigan, just over 10 percent of home heating is done using electric sources, compared to Florida, where over 90 percent is electric. But even in colder climates, the outlook is starting to change.

Net-zero energy in below-zero winters

There are already electrification successes racking up in our home state of Michigan.

The Detroit headquarters of the International Brotherhood of Electrical Workers Local 58 underwent a massive retrofit a few years ago to become the state’s first net-zero-energy building. The 33,000-square-foot building now sports solar panels that drive mechanical heat pumps, which work in tandem with a closed-loop ground heat exchange system to provide all-electric heating and cooling. Previously, natural gas accounted for about 65 percent of the building’s $65,000 annual energy costs. Those annual energy costs have now been cut to almost zero.

This project sends a message that building electrification can be achieved in places where it previously has not had much of a presence. While a cold climate is a challenge for electrification, the need to reduce the energy burden in economically disadvantaged communities across the Midwest creates momentum for a new approach to how buildings consume energy.

Walker-Miller Energy Services, a Detroit-based provider of energy waste reduction services (and a member of our organization, the Michigan Energy Innovation Business Council), has begun work on an ambitious project to convert their new headquarters to be zero net energy, including an all-electric heating system. The effort is part of the company’s larger goal to bring energy efficiency to Detroit, a city where high energy bills and high use of fossil fuels for heating is a significant challenge.

Efficiency retrofits, including those that promote electrification, are part of the difficult task of rebuilding neighborhoods and communities.

For example, the development partnership FEHAJ (For Every Home a Job) is looking into converting several rowhouses it owns in southwest Detroit to net-zero energy by installing solar panels, electric water heaters and passive geothermal cooling, among other systems. The project is designed to reduce the exorbitantly high utility bills that weigh on the tenants of the rowhouses.

Low-income households already tend to spend much more of their income on energy costs relative to higher-income households. Since electrification helps alleviate this energy burden, retrofitting can be a tool for economic development and poverty reduction.

What policymakers and regulators can do

Projects like these are becoming more feasible as the economics of electrification continue to improve.

A 2018 Rocky Mountain Institute study modeled the costs of electric space and water heating to those of natural-gas-fueled space and water heating, using assumptions based on four different cities, Houston, Oakland, Providence and Chicago, two of which are cold-winter cities. In all four, for new-construction homes, installing a standard heat pump was cheaper than going with natural gas and a new air conditioning system on a 15-year net present value basis.

Retrofitting existing buildings with electric systems is, of course, a much bigger challenge. But changes to regulations can help retrofit projects get over the initial capital cost outlay.

Here are four areas where regulations and policy could make a difference in Michigan. Other states can emulate these steps, as well.

The virtual power plant business model

Virtual power plant projects have been operating in places like California and New England for some time, but such projects have been scarce in many parts of the country, including the Midwest.

In Michigan, the Public Service Commission is currently deep into its MI Power Grid initiative, which is investigating new regulatory models that can help enable the growth of distributed energy like rooftop solar and battery storage.

While still in their early stages, those regulatory changes stand to boost the potential value of building electrification. Buildings with all-electric systems can be aggregated together to work as a massive demand response resource, which, especially when working in concert with rooftop solar and storage, can replace peaking power plants, enhance grid reliability and resiliency to avoid blackouts and provide other services for the electric grid.

These services represent potential revenue streams that can attract financing for electrification projects.

Energy-efficiency incentives

Next, regulators and lawmakers need to address policy roadblocks that could hold many consumers back from making the switch to electric systems.

For example, through their utilities, consumers frequently can get rebates to upgrade their gas-burning furnaces to more efficient models. But that assistance typically is not available for less conventional, but potentially more beneficial, upgrades like converting from a gas-burning furnace to an electric air-source heat pump.

Some of these hurdles are in place simply due to inertia from the way people have heated their homes for over a century.

Building codes

In 2021 Michigan has important decisions to make about residential building codes. State regulators must update the energy conservation code that applies to new buildings and sets standards for lighting, mechanical systems, the building envelope that separates conditioned air from the outside, and more.

There are different uniform codes to choose from, and some do more to ease the transition to electrification than others. The 2021 version of the International Energy Conservation Code, as voted on by members representing local governments, requires electric circuits to be present so appliances can be converted to electric equipment if desired.

This standard is a simple change that could pay off for many years to come. It would ensure that new residential building stock is not locked into less efficient ways to heat, cool space and run appliances, and removes a potential hurdle to the electrification transition. But the 2018 version of the IECC, which the state could also adopt as the updated residential code, lacks this standard and does not support a wide range of advanced energy technologies.

Michigan needs to choose wisely for the state’s next update.

Baby steps toward electrification

Finally, the Midwest can get a quick jolt toward electrification if it first deals with the type of home heating where the economics are unambiguously in favor of electrification: propane.

Propane is used for residential heating in Michigan, as well as the Midwest in general, more than in any other region of the U.S. At over 367 million gallons used annually, Michigan is the top state for propane use in the residential sector, followed by Minnesota and Wisconsin, according to the Michigan Propane Gas Association.

While replacing high-efficiency natural-gas furnaces with heat pumps in existing buildings may not always be economic right now, propane tends to be costlier than electric. The same goes for oil heating. The Rocky Mountain Institute has described propane and oil as the “low-hanging fruit” of the switch to electricity.

It is important for consumers to understand that heating bill savings can make the switch from propane to electrification worth the upfront costs for many Michigan households. Indeed, those savings can be a basis for financing such retrofits.

It doesn’t need to be all or nothing. A shift from fossil fuels to electricity for just one of a building’s systems or even just part of a system is a step closer to electrification.

None of this will be an overnight change — far from it — but gradually, with the right policies in place, electrified buildings will be an essential component of the movement toward efficient energy use, increasing renewable energy and the grid of the future, including here in the Midwest.