Why Are Heat Pump Sales Decreasing?
At this rate it is not going to be easy to meet decarbonization goals.
Decarbonization experts say you can’t do it without heat pumps. One prominent study has 75 million heat pumps deployed in the U.S. by 2040. Another prominent study has heat pumps meeting 60 to 80% of U.S. residential heating needs by 2040.
Instead heat pump adoption is going in the wrong direction. In 2023 total U.S. shipments of heat pumps decreased 16%. The slump has continued thus far in 2024, with shipments down still further in the first months of the year. And it isn’t just the U.S. – the European Union is experiencing the same thing with heat pump sales falling last year in 14 countries.
Why are heat pump sales decreasing? For today’s post, I want to discuss several potential explanations. In the end, I think a couple of the usual suspects probably go a long way to explaining the current slump.
Slumping Shipments
Before getting to explanations, let’s look at the data. The figure below plots annual U.S. shipments of air-source heat pumps. These data come from the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), a trade association representing more than 90% of the U.S. heating and air-conditioning equipment market.
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U.S. shipments decreased 16% from 4.3 million in 2022 to 3.6 million in 2023.
Moreover, shipments have continued to fall in 2024. Only two months of data are available from 2024, but heat pump shipments thus far in the year are down 12% relative to 2023.
The decrease is all the more jarring because it is happening at the same time that federal subsidies have never been more generous. Starting January 1, 2023, U.S. households can take a 30% tax credit up to $2,000 for purchasing a heat pump. Previously this same tax credit had a maximum of only $300.
#1 High Electricity Prices
In looking for explanations you have to start with high electricity prices. Average U.S. residential electricity prices increased 6% last year according to EIA, from 15.0 cents per kWh in 2022 to 16.0 cents per kWh in 2023. Inflation in 2023 was 3.4%, so this was well in excess of inflation, and has received considerable media attention.
California is leading the charge. As my colleagues have recently emphasized (here and here), residential electricity rates in California are already about twice as high as the national average and still increasing. These high electricity rates make heat pumps and other forms of building electrification much more expensive.
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Not surprisingly, California ranks near the bottom for heat pump adoption. Instead, it is states like Florida, Texas, North Carolina, and Georgia that lead the nation in heat pump adoption. In part, this reflects the lower electricity prices in those states.
#2 Low Natural Gas Prices
Another likely explanation is low natural gas prices. U.S. natural gas benchmarks spent most of 2022 above $7/MMBtu before crashing to below $3/MMBtu for most of 2023, and to record lows below $2/MMBtu thus far in 2024.
This is bad news for heat pumps because natural gas is the dominant form of space heating in the United States. In many parts of the country, natural gas is the primary rival to heat pumps, so cost-conscious consumers do price comparisons before installing new heating systems.
Just to be clear, residential natural gas prices are not down nearly as much as wholesale prices. For example, December 2023 average residential prices were $12.94 per thousand cubic feet, compared to $14.68 the previous year, down 12%. The retail rates include the fixed costs of the natural gas distribution system, so don’t change as much as wholesale rates. But the point remains that cheap natural gas is bad for heat pumps.
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#3 High Interest Rates
Lastly, I want to give a nod to high Interest rates. The federal funds rate, for example, averaged only 1.7% in 2022 but then increased sharply, averaging 5.0% in 2023, and standing today at 5.3%. Interest rates for consumer loans are even higher.
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These high interest rates make all capital-intensive projects less attractive, including heat pumps. At some point, it just becomes too expensive to borrow, so households invest less in everything, and instead repair existing equipment. The AHRI data show declines not only for heat pumps, but also natural gas furnaces, oil furnaces, and air conditioners. Some observers have pointed out that the heat pump share has not fallen relative to natural gas furnaces, which makes the decrease less worrisome.
Relatedly, there has also been less new housing construction. U.S. housing starts fell 8% in 2023. There are only about 1.5 million new homes built in the U.S. each year, compared to over 145 million existing units, so most new heat pumps are retrofits – not new builds – but reduced new housing construction nonetheless helps explain the decrease in heat pump sales.
Get Prices Right
There are likely other explanations as well. One hypothesis is that households are confused about federal government incentives. Another hypothesis is the lack of electricians. I suspect both of these matter, but I don’t know why either would be more of a factor in 2023 than they were in 2022.
So in the end, it seems like economic factors are playing a big role in explaining the recent decrease. In particular, both electricity and natural gas prices are going in the wrong direction for heat pumps. This underscores the importance of pricing energy efficiently, a major theme in recent Energy Institute research (here, here, and here).
These studies make the important point that rate reform can meaningfully improve the prospects for decarbonization. Electricity prices are higher than social marginal cost in many states, so economic efficiency would be improved by rate reform that would lower the price per kilowatt hour. And what would that really mean? More heat pumps.
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Suggested citation: Davis, Lucas. “Why Are Heat Pump Sales Decreasing?” Energy Institute Blog, April 29, 2024, https://energyathaas.wordpress.com/2024/04/29/why-are-heat-pump-sales-decreasing/
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Lucas Davis View All
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.
Energy Institute Blog 
Inexpensive district heating is covered in New Nuclear is HOT.
China built and operates four Westinghouse-designed AP1000 nuclear power plants, each generating 1150 MW of electric power. China added co-generation and district heating to two of the nuclear power plants at Haiyang City, so the rejected heat now heats 30 million square meters of buildings instead of being wasted.
China will build four units of its more powerful nuclear power plant, the CAP1400, to provide all 658,000 Haiyang residents with heat, and to generate electric power for a third of Shandong province, population 102 million.
Special, low temperature, nuclear reactors can make hot water instead of steam, specifically for district heating. The underground water-filled silo of China’s DHR-300 contains fissioning uranium that heats water just to 98°C at low, 3 bar, pressure. Heat exchangers bring district heating water up to 90°C for circulation through 200,000 three-bedroom apartments. The heating plant reactor site is the size of a city block.
from Page 111 et seq of https://www.amazon.com/New-Nuclear-HOT-Robert-Hargraves/dp/B0CWZTXXVV/ref=sr_1_1
This is one of many technologies that will work AFTER we get reliable cheap safe nuclear power.
Left off the practical pragmatic reasons.
Installed heat pumps in the UK get turned off because they make too much noise.
Warrentees are shorter than gas equipment, and lifespan is shorter.
And there is concern that the “freon” like compounds will get banned, or expensive and the units need to be thrown out in the landfill.
We need better choicess, but the methane-as-coolant units are not available, same with the CO2 as refrigerant units… too high pressure.
Also you don’t need just need an electrician, you need a heat pump certified installer who knows how to recycle/recover/install the specialized HVAC plumbing.
Main issue is hostile building inspector protection rackets with different rules in EVERY COUNTY in the USA
Left off the practical pragmatic reasons.
Installed heat pumps in the UK get turned off because they make too much noise.
Warrentees are shorter than gas equipment, and lifespan is shorter.
And there is concern that the “freon” like compounds will get banned, or expensive and the units need to be thrown out in the landfill.
We need better choicess, but the methane-as-coolant units are not available, same with the CO2 as refrigerant units… too high pressure.
Also you don’t need just need an electrician, you need a heat pump certified installer who knows how to recycle/recover/install the specialized HVAC plumbing.
Main issue is hostile building inspector protection rackets with different rules in EVERY COUNTY in the USA. There is no national standard that can be installed everywhere without the dealing with the local mafia. The local officials are often working to protect the real estate empires of the city supervisor slumlords.
I bought a Heat Pump with Natural Gas backup. I live in the NE. Until the current energy rates change, there is no situation where it costs less to use the Heat Pump. It is ALWAYS cheaper to use NG. When that changes, I will happily switch and use my Heat Pump.
you ignore the wide cross California range in temps. Bay Area- pumps are fine. High Sierra not so much. Sub-20’s is not great for pumps. Backup heating kicks in driving extreme prices- for all of winter.
Birds Eye view is insufficient to gauge pump adoption broadly. Thus, a regional solution that captures BOTH cost and efficiency is paramount. Then there’s the ‘we got’m’ and t here’s rationing,..
Pretty simple ..
Devaluing the resilience, grid stability that widespread rooftop solar would provide by making draconian rules and regulations while attempting to lock ratepayers into an ‘electric only’ paradigm won’t work.
ie: Rooftop solar is a critical part of so-called ‘electrification’. If the real goal here was de-carbonization the mantra of a partnership between electricity users and providers would be: “SOLAR FOR ALL!”
The utility industry would truly be in pursuit of an effective suite of tools to address our climate crisis if they can just be open to the change that a more distributed, more fine grained grid structure represents.
Jeff Gould
I can understand why it might be good for the author to have someone cite a blog post. What I don’t get is why a responsible person would want to cite a blog post which, by definition, is not peer reviewed, and expresses an opinion rather than academic findings?
Here’s another explanation, one not mentioned in the article: the cost of heat pumps.
As the owner of a 30-year-old gas furnace, I was in the market for a heat pump during all of 2023. As a low-income retiree, I also looked forward to an $8,000 subsidy from the Inflation Reduction Act passed in November of 2022. Well, as readers of this blog probably know already, the IRA subsidies did not take effect in 2023 (and are now projected to be available in California no sooner than late summer 2024). I had gotten a bid in the summer of 2022 of $25,000 for a heat pump, but I was waiting for the IRA subsidy to take effect. Then I discovered that the bidder had failed to mention that installing a heat pump would also require new ductwork because the existing ducts were too small to handle the larger air volumes required by a heat pump. Two subsequent bids in mid- and late-2023 ranged from $30K to $40K when ductwork was included. So when the furnace failed in December 2023 at age 31, I had to make a quick choice: a replacement gas furnace (costing $12K with an 18-month 0% loan, and a 2-day wait for installation), or $30K+ for a heat pump with a couple month wait for installation. The estimated fuel savings from the heat pump worked out to under $1000 per year, not even close to enough to outweigh the $18K capital cost differential. The fact that the estimated life for the heat pump was 15 years, versus 30 years for the gas furnace, didn’t help at all.
So there’s my anecdotal story: it wasn’t interest rates, it wasn’t tax law, it largely wasn’t fuel prices, it was mostly capital costs. Had the original bid of $25K been legit, and had the $8K subsidy been available by mid-2023, I would have chosen the $17K heat pump over the $12K furnace based on environmental concerns. But at $30K versus $12K, I didn’t.
Thank you. I also got a pricing for a 6 head mini-split heat exchange system that would be mounted in each room, and it came to $26,000.00 for the two pumps and 6 heads wired, installed and tested. Pricing is important.
I wonder if uncertainty about the future of net energy metering tariffs played a role.