Strategies to Increase the Adoption of High-Efficiency Direct Heating Equipment in California

Direct heating equipment (DHE) provides hot air directly to the space where it is installed. California was an early adopter of DHE appliances, which have been on the market for seven decades. We estimate that nearly 500,000 DHE units in the state will reach retirement age from 2026 to 2040. Most of these units are old and inefficient in their energy use. We evaluated the energy, economic, and emissions impacts of California households' decisions to replace their units across scenarios with varying DHE purchase prices, installation costs, heater usage, and natural gas rates. If households choose to keep their DHE units rather than replace them, they will spend 5% more on natural gas through 2070 than they would with a baseline model, and 20% more than with a high-efficiency model. But if households choose to replace existing units, they will incur equipment costs of $1.3 billion for baseline models and an extra $418 million for high-efficiency models. Purchasing these units would allow households to save $87 million in gas bills with the baseline model and $215 million more with the high-efficiency model. Even though these replacements would generally not be cost-effective for households (since the required investment usually exceeds potential savings), about a third of households (36%) would still benefit from a high-efficiency replacement. When this is the case, it is because the new unit is cheaper than average, or because the household uses the heater more often than average. Financial incentives to reduce upfront costs can stimulate households to replace existing units with high-efficiency models. If incentives covered all of the additional costs of purchasing a high-efficiency DHE unit relative to a baseline model, households in California would save approximately $200 million on their natural gas bills. These savings could increase to nearly $900 million if upfront costs are lower, natural gas rates are higher, and DHE use is more constant than expected. The incentives would cost around $280 million or less, depending on the fraction of the additional purchase price of a high-efficiency model, relative to a baseline model, covered by the program.