**Energy Efficiency**

**Bonneville Power Administration**

**Heat Pumps in Energy Efficiency Initiatives**

BPA has a history of supporting heat pump measures with incentives. Heat
pumps provide multiple benefits to homeowners and utilities across the
Region. Utilities are very interested in encouraging efficient heat pump
installations in their service territories.

Under the Conservation and Renewable Discount (C&RD) program, credits
for heat pump installations were much higher than they are now under the
Conservation Rate Credit (CRC) and Conservation Acquisition Agreement
(CAA) initiatives. It was not uncommon for a heat pump installation to
be worth \$3,000 in credits under the C&RD program. Under the CRC and
CAA, the incentives for heat pumps have been reduced substantially,
consequently, the credits now range from \$0 to \$1,790 for heat pump
installations.

This paper addresses the impacts of the credit reduction mentioned above
and describes the benefits and shortfalls of heat pumps as efficiency
providers. It also expresses BPA's goals and decisions regarding the
existing program requirements and the future of heat pumps.

[A Popular Measure]{.underline}

Homeowners choose heat pumps for many reasons, some of which may
include:

-   Electricity may be the only available heat source, and the heat pump
    is more efficient than resistance heating;

-   Homeowners may want air-conditioning, and a heat pump may be more
    economical than both a gas furnace and an air-conditioner; and/or

-   Some may feel that by using electricity, they're somewhat sheltered
    from a more volatile gas market.

Utilities may be interested in heat pumps for many reasons, some of
which may include:

-   They provide quality customer service by helping customers to lower
    their electricity bill and use energy more efficiently;

-   They maintain a steady stream of revenue, which electric heating and
    cooling systems help provide; and/or

-   They meet a significant portion of regional or utility savings goals
    through the residential sector with heat pumps.

BPA is interested in heat pump efficiency improvements because the
potential energy savings, although small, can help BPA meet its savings
goals. BPA's energy savings goal for the residential sector is 21
average megawatts (aMW) for fiscal year 2007. Heat pump improvements,
weatherization and appliances have the potential to contribute to the
savings goals at 6 percent, 4 percent and 2 percent, respectively.
Lighting measures have the highest share of the savings goal at 50
percent. Market transformation, which mostly consists of lighting
savings, makes up 38 percent of the goal.

BPA recognizes that energy savings from heat pump improvements are
difficult to achieve because they require a high level of quality
control (QC) and quality assurance (QA) in order to ensure reliable
savings. However, BPA continues to support heat pumps because of the
substantial interest from homeowners and utilities.

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[BPA's Overarching Principle for Conservation:]{.underline}

**BPA plans to acquire all cost-effective energy savings at the least
possible cost.**

*Acquisition*

Under the C&RD program, BPA's primary goal was to "encourage
conservation" to help rebuild the energy efficiency infrastructure that
had been lost following previous cut-backs. In the Post-2006 world,
BPA's intent is to "acquire" energy savings.

The "acquisition" of 1 kilowatt-hour (kWh) of energy savings can be
considered identical to the acquisition of 1 kWh of new generation.
Acquisition of energy savings reduces the BPA Administrator's obligation
to serve loads.

*Cost Effective*

An overarching principle of BPA's Post-2006 programs is that measures
supported by BPA funds are to be cost effective, as determined by the
Northwest Power and Conservation Council (Council). The Council put
together a background paper describing why it uses a total resource
cost-effectiveness test rather than a utility cost or end-user
cost-effectiveness test. The paper, titled "Cost-Effectiveness --
Implication for Bonneville and Utility Programs," is available at the
following link: <http://www.nwcouncil.org/news/2005_05/pw_ceissues.pdf>.

*Least Possible Cost*

Under the C&RD program, BPA generally provided credits based on the full
value of the energy savings to the regional bulk power system, as
forecast by the Council, regardless of whether the savings were cost
effective. Under the Post-2006 programs, BPA seeks to acquire all
cost-effective savings available, at the least possible cost.

BPA sets its "willingness to pay" based on the value of the energy
savings, the incremental cost of the measure, what it would take to
"move the market," and any other perceived value of the measure (i.e.,
highly cost effective or important to utilities). BPA will not pay the
full incremental cost. Some cost share either from the local utility or
end-use consumer is required. In addition, BPA's willingness to pay is
usually far less than the full value of the energy savings. In theory,
this allows BPA to spread its conservation dollars among more projects,
achieving more energy savings.

[Heat Pump Energy Savings]{.underline}

The Regional Technical Forum (RTF) assumes energy savings for heat pump
upgrades come from three primary areas: *equipment efficiency*, *duct
sealing* and *commissioning*. Annual energy savings range from about
1,000 kWh to about 6,000 kWh, depending primarily on heating zone and
whether ducts are sealed. Higher energy savings occur in colder areas
and where leaky ducts in unheated spaces are sealed.

*Equipment Efficiency*

The RTF recommends BPA require that heat pumps installed in its programs
have a Heating Seasonal Performance Factor (HSPF) of at least 8.5 and a
Seasonal Energy Efficiency Ratio (SEER) of at least 14.0. The federal
minimum standard is HSPF 7.7, SEER 13.0. The savings calculation assumes
a baseline of 7.7/13 upgraded to 8.5/14, in all cases. The efficiency
upgrade accounts for about one-fifth of the energy savings in homes with
ducts outside, and half of the energy savings in homes with ducts
inside. BPA also provides a higher reimbursement for systems with an
HSPF of at least 9.5 due to higher savings.

*Duct Sealing*

Heat pumps with leaky ductwork perform very poorly. In houses with a
significant amount of ductwork outside the conditioned space, the RTF
recommends duct sealing be required in conjunction with the heat pump
upgrade. Duct sealing accounts for about three-fifths of the energy
savings from a heat pump upgrade measure in homes with ducts outside.

*Commissioning*

A recent study of heat pumps in the Pacific Northwest commissioned by
the RTF noted that improper airflow across the indoor coil and excessive
use of resistance elements were the two primary areas for potential
improvement in efficiency. BPA requires commissioning of every heat
pump, which involves testing and documentation of proper airflow and
resistance element controls. Commissioning accounts for about one-fifth
of the energy savings of the heat pump upgrade measures in homes with
ducts outside, and about half of the energy savings in homes with ducts
inside.

[Cost Effectiveness Example]{.underline}

Cost effectiveness is calculated as economic benefits divided by the
cost of the measure. The following example shows how the benefit-to-cost
ratio is calculated, assuming a heat pump upgrade in a particular
situation is calculated to achieve 1,500 kWh/year in energy savings.

*Economic Benefits*

The Council's analysis takes into account all quantifiable benefits of
the energy savings over the life of a measure, including:

-   Market value of the energy over the life of the measure;

-   The seasonal and time-of-day differences in value;

-   Value of reduced transmission and distribution losses;

-   Value of deferred transmission and distribution system improvements;
    and

-   Quantifiable environmental benefits.

The present value of energy savings from heat pumps is about \$0.73 per
first year kWh savings. In the example, the present value of the total
societal benefit amounts to \$1,095 (\$0.73/kWh x 1,500 kWh/year). In
other words, the region would avoid spending \$1,095 on the power system
by installing this measure.

*Costs*

The Council assumes average incremental costs come from three areas:

-   The incremental cost of an 8.5 HSPF/ SEER 14 heat pump versus a 7.7
    HSPF/ SEER 13 heat pump is \$388;

-   The cost of sealing ducts on a single family house is \$425; and

-   The incremental cost of commissioning the heat pump is \$225.

The average total incremental cost of the measure is \$1,038.

*Benefit-to-Cost Ratio*

The cost effectiveness is calculated as:

In this example, the benefit/cost ratio is greater than 1.0, which meets
BPA's overarching principle. Measures with high benefit/cost ratios are
the most valuable to the region. Therefore, BPA provides support for
these "best buy" measures to ensure they get installed.

[Potential for Improvements]{.underline}

BPA has heard many of the difficulties utilities and technicians are
having running heat pump programs under the new requirements. In some
cases, BPA has made changes based on the recommendations of utilities;
in other cases, BPA is bound by its program guidelines. BPA staff
strives to listen to and understand technician and utility difficulties
and recommendations. Together, the RTF, BPA, utilities and technicians
can continue to improve the technical and program aspects of achieving
energy savings from heat pumps. The following are responses to a few of
the common potential improvements utilities have recommended BPA look
into.

*Training and Certification*

BPA and its contractor, Ecos Consulting, have learned a lot from
technician and utility comments and concerns about the difficulty of
meeting the numerous program requirements. BPA will continually work on
better ways to provide training and implement the quality assurance and
quality control aspects of the Performance Tested Comfort System™ (PTCS)
standards in an effort to make the jobs of the certified technician and
utility simpler, while still maintaining the integrity of the program.
Despite budget and other constraints, BPA has been able to provide
technician training to most of the region in a fairly short amount of
time.

*Testing Equipment Costs*

The TrueFlow plate and manometer which are required to implement the
airflow test portion of heat pump commissioning cost about \$750 and
\$800, respectively. The Duct Blaster and Blower Door, which are
required for duct testing, cost about \$1,100 and \$1700, respectively.

This has proven to be a significant barrier for some HVAC technicians.
One utility came up with a unique way to help the technician without
just giving equipment away, and to help get measures installed. Under
this approach, the technician purchases the equipment and "recoups" the
cost of the equipment by receiving an extra incentive from the utility
(for instance, \$50) for each measure installed until the extra
incentives accrued equal the cost of the equipment. Utilities have two
options through BPA's initiatives to pay for this extra incentive to the
installer; utilities can claim the incentive as an expenditure of
administrative funds or use BPA credits or reimbursements from this or
other measures to fund the extra incentive. Utilities decide how the
credits or reimbursements are distributed and who receives the credits
or reimbursements from BPA. Under BPA guidelines, the utility has the
option and flexibility to give the heat pump credit as an incentive to
the HVAC technician, or divide the incentive between the homeowner and
the technician, for example.

*"RTF" Level Heat Pump*

PTCS was originally established to train and certify duct technicians to
certify that duct systems meet the PTCS specifications for duct leakage.
BPA requires PTCS Duct System Certification from a trained and certified
technician on any heat pump installations where a substantial amount of
the ductwork is located in unconditioned space. PTCS was expanded to
train and certify heat pump installation technicians to certify heat
pump systems as meeting the PTCS standards. These standards focus on
testing and ensuring proper airflow and proper resistance element
controls. Utilities are reporting lack of installer participation due to
the complexity and confusion of the program caused by the training and
certification requirements, the documentation requirements, and/or the
cost of the required testing equipment associated with the PTCS
standards.

In an effort to improve the ease of implementation, utilities have
suggested BPA add another heat pump measure that only provides
incentives based on the equipment efficiency upgrade. This would be
similar to the "RTF" level heat pump that was available for installation
under the C&RD program. Although it would be a lower incentive,
utilities say it would keep technician participation up, and allow
utilities to get their foot in the door to more homes to educate the
customer on more efficiency measures.

BPA's analysis shows the cost effectiveness of improving the heat pump's
nominal efficiency as a stand-alone measure is sometimes only marginally
greater than 1.0. Depending on the specifics of the site, the cost
effectiveness many times falls below 1.0. Using the example above, the
total energy savings are about 1,500 kWh/year, so the energy savings
from the heat pump efficiency improvement are 300 kWh/year (assuming
about one-fifth of the energy savings come from the heat pump efficiency
improvement). Using the equation above, this theoretical measure has a
B/C ratio of only 0.56, well below 1.0. The commissioning would have a
B/C ratio of 0.97, and the duct sealing passes the test with a B/C ratio
of 1.5. In general, duct sealing is the most cost-effective measure,
followed by commissioning, and then the equipment efficiency upgrade.
Since the equipment efficiency upgrade is often not cost effective by
itself, BPA does not plan to offer it as a stand-alone measure.

Utilities have also suggested BPA relax the third-party requirements of
PTCS certifications. The RTF has continually stated that without the
quality assurance and quality control of the PTCS program, the RTF would
not have confidence in the claimed energy savings. Therefore, BPA
believes it is necessary to continue to require a fairly high level of
third-party quality assurance and quality control achieved by
implementation of the PTCS specifications.

*"Upgrades" versus "Conversions"*

Under the C&RD, savings and credits were based on the difference between
the energy use of the existing system and the high efficiency heat pump.
"Conversions" from electric resistance heating systems such as
forced-air furnace (FAF) or zonal/baseboard were common and had high
savings and credits. The RTF assumes an incremental cost of \$4,962 for
converting a heat pump from a forced-air electric furnace. The duct
sealing and commissioning add another \$650 to the cost. For existing
zonal systems, the installation of a duct system adds \$2,080, \$4,400
or \$4,600 to the total cost, depending on whether the house was built
before 1980, between 1980 and 1992, or after 1992, respectively.

In order to be cost effective, the energy savings component from the
heat pump installation would have to be over 6,800 kWh/year
(\$4,962/\$0.73 per kWh = 6,800 kWh). According to RTF calculations,
most heat pump conversions from FAF are not cost effective. Conversions
from zonal systems have an even more difficult time passing the
cost-effectiveness test because of the high cost of adding a duct
system. While some conversions with specific combinations of house
vintage, duct location and existing heating system type do pencil out as
cost effective, there are no simple rules of thumb on which systems pass
the test. Because of this analysis, BPA has made a simplifying
assumption that all heat pump conversions, as a whole, are not cost
effective and, therefore, are not available as a deemed measure in its
current programs.

Except for basement homes in heating zone 1, nearly all heat pump
upgrades are cost effective. BPA decided to design its program offering
around heat pump upgrades. This has a few advantages in addition to
being cost effective. The heat pump upgrade measure assumes the
homeowner would have installed a standard efficiency air-source heat
pump. Therefore, savings are coming from upgrading that heat pump to a
more efficient one and going beyond standard installation practice to
ensure energy savings. This assumption allows utilities to offer their
program to any home, new or existing, independent of the existing
heating system type or fuel, and still be eligible for BPA
credit/reimbursement.

[Heat Pumps and the Future]{.underline}

BPA is committed to providing incentives for heat pump upgrades through
the end of the 2007-2009 rate period. Starting in Fiscal Year 2008, BPA
plans to implement a cost share for heat pump commissioning and duct
sealing training classes throughout the region. BPA expects most areas
will have an adequate saturation of trained technicians. By Fiscal Year
2009, BPA plans to stop subsidizing the training classes altogether.
Utilities and/or technicians will bear the cost of the required classes.
BPA will continue to help put utilities in touch with training
organizations.

Taking into account all of the factors involved in running a successful,
cost-effective heat pump program, BPA is continually working to improve
heat pump programs. For instance, since the most cost-effective savings
are actually from duct sealing, and because utilities have had some
difficulty finding local contractors interested in the duct sealing
business, BPA is investigating the possibility of achieving a large
share of the available duct sealing savings with a regionwide third
party contract approach. BPA is interested in continuing the discussion
with utilities on this idea as well as on other ways to improve the
program and maximize cost-effective savings.

While BPA cannot predict the future, it expects air-source heat pump
technologies will continue to improve over the next few years. These new
technologies will be specifically designed for high efficiency and
capacity in the heating mode and rely less on inefficient electric
resistance heaters for backup. As these systems are proven reliable and
efficient, BPA hopes to begin incorporating the new technology into its
program and, eventually, replace the standard air-source heat pumps of
today. The ideal heat pump, in BPA's view, is one that maintains a high
coefficient of performance and capacity at low temperatures, without
ever having to rely on electric resistance elements.