Palo Alto’s bold proposal to jumpstart home electrification | A New Shade of Green | Sherry Listgarten

Six years ago Palo Alto set a goal to reduce city emissions to 80% below 1990 levels by 2030. At the time, emissions were already 35% below 1990 due to cleaner electricity. But since then, progress has been slow.

In 2019 our emissions were 38% below 1990 levels. They were much lower in 2020, but most of that effect was due to temporary pandemic-related changes. The city estimates that emissions would have been about 42% below 1990 levels if not for the pandemic. Source: Palo Alto’s 2020 Greenhouse Gas Emissions Inventory
In particular, we have been slow to electrify our homes. For six years, the city has offered us rebates to install heat pump water heaters, and for six years we have largely ignored that offer. But making this change remains one of the simplest and most cost-effective actions we can take to reduce our building emissions.

This gulf between climate ambition and results has been frustrating for City Council and environmental advocates alike. With a new analysis in hand confirming that we should be electrifying about 1000 water heaters every year to hit our emissions target, our sustainability staff worked with community advisors to grab the reins and draft a proposal that goes well beyond rebates, with the aim to make this switch as easy and affordable as possible.

The proposal includes:
– Turn-key installation by a city-supervised contractor.
– $1500 up front cost (similar to a gas water heater) (1)
– $1200 additional cost, either paid up front or via $20/month on the utility bill (0% interest for five years). This cost will be partially or even fully offset by tax credits and bill savings. (2)

Interested residents need only place a call to Palo Alto’s Home Efficiency Genie, who will visit the home, determine the best options, and provide a written report. Customers who want to move forward can then sign an agreement and schedule the installation. Equipment has a 12-year warranty and labor a 1-year warranty, though the city is looking at a 5-year option for labor.

Homeowners who want to use their own contractor can do so, and will receive a rebate of $2300, up from $1200 today. Renters are encouraged to participate as well. About 20% of homes in Palo Alto are rented out. Tenants will get materials from the city to help them talk with their landlords about making the switch to a HPWH.

This robust plan aims to make it as easy, affordable, and satisfactory as possible for residents to make the switch. But the proposal’s authors are setting their sights well beyond 1000 water heaters in that first year.

A year of rapid HPWH adoption will enable the city to gain experience with building electrification, develop promising on-bill financing options, attract contractors to the area, and raise awareness among residents of the need and feasibility of electrifying their homes. This, along with cost improvements due to increased competition and scale, will hopefully allow an extension of the program at lower cost, along with a similar pilot tackling space heating. The 1000 heat pump water heater installations will also provide the city with the information and experience needed to draft a requirement that water heaters be replaced with HPWHs when they fail.

Two aspects of the plan that the report focuses on are grid capacity and cost. Grid capacity is not anticipated to be a problem with this rollout. Because HPWHs have a relatively low power draw of 300-400 watts most of the time, similar to that of a desktop computer, they are expected to have minimal impact on the electric distribution system. By promoting this water heater switch first, the city is able to make headway on its grid modernization effort while still making good progress on emissions. Yes, the city can walk and chew gum at the same time!

The costs for this program are higher than the city was hoping, but staff has identified relevant sources of funding to cover the expected $7.4M in expenses, which include cost and materials, electrical work, and evaluation and necessary follow up visits. (3) Residents will pay about $1.7M in upfront payments (the $1500). Another $1.2M will come from revenue the City has already received from the sale of cap-and-trade allowances that are issued to our gas utility for energy efficiency and electrification. The final $4.5M will come from the utility’s Electric Special Projects reserve, which today has a balance of $29.6M. (4) This fund will be paid back over time (with interest) from the $20 monthly payments from residents, the revenues from the additional electricity that is sold, and income from a Public Benefits charge that the utility collects for energy efficiency and other purposes. (5)

I find this proposal to be comprehensive and compelling, offering a big assist to Palo Altans who are interested in reducing their home’s emissions. I have spoken with many who would jump at this offer. The city is taking its climate goals seriously, acting on the cost-impact analysis they have done, and applying what they have learned from the programs that they and other cities have offered to date. Acknowledging their experience that rebates are not enough to drive rapid adoption of these appliances, the proposal offers turn-key installation from a vetted contractor at a fixed price, with low upfront cost and zero percent on-bill financing. It allocates substantial funding from relevant sources to drive rapid electrification of water heating and, eventually, space heating in residential buildings. It doesn’t get much better than that. I think the City can legitimately say “We gave it our best shot” with this program, if Council approves it.

On Tuesday, September 27 at 7:30 pm, City Council will be discussing this proposal. I hope many of you will listen in and speak up, or send a note to City Council with your thoughts. This is an ambitious proposal and a great opportunity for us to begin to drive down our building emissions.

Notes and References
1. Income-qualified households will be able to get one at no cost.

2. Heat pump water heaters consume much less energy than gas tank water heaters, and the total energy bill will be lower once they are installed. Total savings are greater for households that use more hot water. A home that burns about one therm of gas in a gas tank water heater each day could save more than $20/month at Palo Alto’s low $0.20/kWh electricity rate. (One therm of gas costs about $2. One therm is about 30 kWh. If the heat pump water heater is 5x more efficient than the gas version, then it will use only about 6 kWh, which would cost only $1.20/day. Many heat pump water heaters emit about 3.7x more energy than they use, while many gas tank water heaters waste energy, emitting about 0.7x more energy than they use. So the heat pump is 3.7 / 0.7 = 5.3x more efficient.)

3. Uncommon expenses like panel upgrades or water heater relocations will be additional costs for the customer.

4. The staff report explains: “The Electric Special Projects Reserve was created in 2015 from the Calaveras Reserve, a reserve fund created in the late 1990s to offset potential stranded costs from California’s transition to a competitive market for electricity. These stranded costs did not materialize and the Council changed the name to the Electric Special Projects Reserve, which was intended to fund innovative utility projects.”

5. The staff report explains: “Public benefits funds come from a charge that Public Utilities Code 385 requires local publicly owned electric utilities to collect from customers, which can be used to fund cost-effective demand-side management services to promote energy efficiency, low-income programs, research and development, and renewable energy. Due to Palo Alto’s low electric rates and the efficiency of heat pump water heaters compared to their gas counterpart.”

Current Climate Data (August 2022)
Global impacts, US impacts, CO2 metric, Climate dashboard

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