“I think financing is absolutely critical, particularly in areas like the southeast or others that have low electricity rates, where you can look to use the savings from installing a heat pump compared to other technology to be able to then pay back the financing that you took out in order to be able to make that purchase,” Bartholomy said.

Money Talks

The greatest heating and cooling technology in the world isn’t going to go far if it’s unaffordable to the average homeowner.

“Although the upfront costs of installing an all-electric heat pump might be higher, the heat pump’s energy efficiency can lower net costs in the long run when switching from conventional HVAC,” said Patty Gillette, senior director of marketing at METUS. “Plus, the IRA rebates offer up to $14,000 for low- and moderate-income households to purchase qualifying heat pumps for space and water heating. More financing options can help. Our survey found that 78% of homeowners who don’t own a heat pump would be inclined to install one if their contractor offered financing. Additionally, to facilitate consumer financing, METUS also has a longstanding relationship with Synchrony, which makes applying for financing seamless for both consumers and contractors.”

Within the IRA and Greenhouse Gas Reduction Fund through the EPA, Bartholomy said there’s about $30 billion going to support financing, and he bets a lot of that money is going to focus on buildings.

Then there’s the life-cycle cost — while it may be cheaper to run an electric heat pump in Georgia versus California just because of utility costs, customers are going to be saving every month, showing that upfront cost does dissipate when viewed over the long run.

While they are a little more upfront to purchase and install, Rames said, it is an investment, in both the long-term energy efficiency of the home and also comfort.

“It's incredible that most people don't really know what comfort is — they’ll say, ‘this room has always been 7° warmer than that room over there.’ And it doesn't have to be that way,” Rames said. “It's a pay me now or pay me later, a little more upfront, but we've got incentives, both locally and nationally, that will offset that increased cost for heat pumps. But you've got to be more comfortable the entire time you live in that home. And there's a great chance, not in all situations, but there's a great chance your utility bill will decrease as well. So it is an investment in your home and for your overall comfort.”

There are also opportunities to double-dip in some areas.

“If you've got a local utility provider that offers a rebate, and your state also qualifies for the IRA 25C, double dip, right?” said David Rames, senior product manager at Midea. “So that $2,000 could now be $2,500, $3,000 — whatever it is locally. And so double-dip, but educate yourself to be able to talk about that. And, you want to talk about closing a deal, show them your price, and then turn around and show what the possible incentives are, whether that's an IRA 25C or local, and next thing you know, their overall price of that system has dropped drastically.”

Showing that math will also enforce that a contractor is an expert on that product, which could aid in upsells.

When Midea went out and interviewed homeowners about how and why they choose their equipment, Rames said the most common response was “I did what my guy told me to do.”

The fact is that homeowners have confidence in their contractors, and contractors need to remind themselves that they are the experts here.

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HOT TOPIC: Virtually every contractor (98%), say they are fielding questions about heat pumps from homeowners. (Courtesy of myCLEARopinion Insights Hub)

“As long as you do what's best for them, they will listen to you, because you're the experts,” Rames said. Going a step further, Rames said most homeowners didn’t even know what brand of equipment was installed, they just placed their trust in the contractors.

“So (contractors) have a lot of power,” Rames said. “Do the research, understand the product, offer options, because you just never quite know what they're going to do.”

Rames said at this point, most of their contractors are heat-pump-only, because it’s just gotten to that point and the incentives are on their side.

But there’s still a way to work with the “you can pry my gas furnace out of my cold, dead hands” crowd.

“We can do our heat pump, our coil, and if you've replaced your gas furnace two or three years ago because of a cracked heat exchanger, and you're still under warranty and you don't want to get rid of it, that's okay,” Rames said. “That's the one great thing about Midea equipment — we can work as a communicating system or 24 volt. So if you love your gas furnace, you don't want to get rid of it, you love your ecobee, you love your Nest, you love your Honeywell, that's okay. We can do it with 24 volts as well.”

Trends

In the last 10 years, heat pump sales have continued to climb and, for the last two years, eclipsed gas furnace sales for the first time ever. The United States is one of the few major economies in the world where this is happening, despite high inflation, high interest rates, and more factors pointing toward the industry being in a repair-over-replace scenario.

Most contractors surveyed by ACHR NEWS said they are seeing the frequency of heat pump installations up versus three years ago: increased greatly 18% (10% in last year’s survey), increased slightly 40% (36% last year), stayed about the same 38% (54% last year), decreased slightly 3% (1% last time), and decreased greatly 1% (0%).

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POSITIVE SIGN: Not only are heat pump installs on the rise, contractors are anticipating that number to continue to climb over the next three years. (Courtesy of myCLEARopinion Insights Hub)

“What I've seen is that heat pumps were still the best-performing technology in the class — they had less of a loss of sales than gas furnaces, fossil boilers, or even air conditioners when you saw less of a decline in sales of heat pump than those other three technologies,” Bartholomy said. “That tells me these are sticky trends. And as we see increased investment from governments, increased interest from consumers, and increased buy-in from contractors, we're only going to see a continued higher trend of installations.”

This is also an inflection point for contractors, who can capitalize and differentiate themselves by marketing that they are the go-to heat pump company.

“We are on the front side of this transition to more efficient, more comfortable HVAC technology. So I think differentiation and focusing on the benefits to create that differentiation is a real opportunity,” Bartholomy said. “There's no downside to that — even if someone says, ‘I’m not interested in your heat pumps,’ you're still in there talking to them, but you open yourself up to that extra swath of customers by differentiating yourself.”

Bartholomy also noted he was very encouraged by the contractor perception data — the contractors themselves are expecting a significant increase: 28% expect installations to increase greatly over the next three years, 43% answered increase slightly, 26% expect to stay about the same (a significant decrease from last year’s survey, where 38% chose this answer), and then 3% said decrease slightly.

“Those are the guys that get it the most — those are the guys that are, like, really hearing it from customers, checking out demand, taking the phone calls, seeing where the sales go — so the fact that they're that confident … they think they'll be demand, that's really, really encouraging to me.”

Heat pumps are sitting at around 33% of total HVAC installs, and accounting for a staggering 55% of all heating system installs, which means the industry is at an incredible place right now, Bartholomy said, especially considering that this data was collected before IRA money and other tax credits and incentives have hit the ground.

“This has all been happening without any real involvement from the federal government,” Bartholomy said. “This has all been the market, and state and local governments really driving this.”

When it comes to incentives, Gillette said METUS’ recent heat pump survey showed 59% of homeowners have received an IRA tax credit or rebate, and 72% of those have received one for installing a heat pump.

“Many heat pump solutions qualify for both Energy Star and Consortium for Energy Efficiency standards, which are relevant to the IRA’s Home Energy Rebates and the 25C tax credit available to many homeowners,” Gillette added.

While heat pumps aren’t in every home yet, 82% of the homeowners in METUS’ survey said they would consider installing one.

“To fulfill this growing interest in heat pumps, contractors should become educated on the many benefits of heat pumps and even consider specializing in heat pump systems to drive this innovation forward,” Gillette said. “One Maine contractor, who is part of the Mitsubishi Electric Elite Diamond Contractor program, started a heat pump-only business in 2013. Today, he enjoys year-over-year growth at about 20% annually.”