Air source heat pumps were once predominately found in the warmer southern regions of the U.S. where temperatures infrequently drop below freezing. These units did a good job of removing heat from a house in the summer and a fairly good job of extracting heat from the outside air in the winter, as long as temperatures did not drop much below freezing. Recent technological improvements have changed these limitations, making heat pumps a viable option, even in some of the coldest northern states.

Certain units can maintain the same heating efficiency down to 5° F, and even continue to provide heat down to -13° F at 85% efficiency . Costs range between $3,000 and $10,000, depending on the size of the house. In addition to federal tax credits, many states offer incentives that offset the upfront costs by as much as $1,000. With the increased operational temperature range, lower energy costs, and incentives, heat pumps are becoming increasingly popular.

These newer heat pumps are significantly more efficient and cost effective, especially in areas without access to natural gas. The Energy Information Administration constructs a Heating Fuel Comparison Calculator which compares heating costs based on fuel type and heating source. The actual cost will vary based on local energy prices and the efficiency of each home’s heating system. Using standard assumptions on price and efficiency, the calculator shows that an oil furnace costs about $33 to produce one million BTUs, electric baseboard heating $38, and a propane furnace $42. An electric powered air source heat pump can produce the same output for $15.

The chart below shows the total U.S. shipments of heat pumps and traditional warm air furnaces. Heat pumps are clearly gaining ground. Over the last twenty years, the average annual growth in heat pump shipments was 4.1%, while furnaces have actually experienced an average annual decline of 0.2% .


What does this mean for electric utilities? The impact on utilities will vary based on whether these new adopters of heat pumps were previously using oil, propane, or electric baseboard heating. If your service area has a high saturation of oil or propane furnaces, the increased adoptions of heat pumps will likely increase energy and demand, especially in the winter months. On the other hand, if customers are switching from electric baseboard heating to heat pumps, this will have a negative impact on energy and demand. What are you seeing in you service area?


  1. Mitsubishi Electric,  
  2. Energy Information Administration, 
  3. Air-Conditioning, Heating, & Refrigeration Institute, Historical Data, 
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Michael Russo
Senior Forecast Consultant - Itron
Michael Russo is an energy analyst with Itron’s Forecasting Division. Russo is responsible for statistical modeling, data analysis, implementing forecasting software systems and providing client support. Russo has worked with clients to develop forecast models for both short-term and long-term sales, energy and demand forecasts for the electric utility industry as well as the natural gas industry. Russo received his B.A. in Economics from the University of Massachusetts and a M.S. in International Economics from Suffolk University.