There is a plethora of different heat pump incentives provided to building owners.
Incentive programs in the form of rebates, tax credits, and grants are available to building owners to install equipment that is beyond the minimums required by energy codes. Financial rewards allow higher performing equipment to be comparable or less in cost than the less efficient counterparts. In some cases, loans with special terms are also available. These loans allow a building owner to make investments in efficiency they may not have otherwise been able to finance.
Incentive programs for heat pumps come in many forms and can be sponsored by different entities at the local, regional, or federal level. The two entities most likely to sponsor these incentives or loans are government entities or utility providers.
The U.S. government has made a commitment to reduce carbon emissions. Considering that most U.S. carbon generation comes from energy production, reducing the use of energy must be a focus. Reduced energy consumption has the immediate benefit of reducing energy costs for the consumer. Initial costs are offset by incentives and the barrier of investment in longer-term savings is removed by special loans. Beyond environmental conservation, government agencies recognize that the investment in incentives is a way to stimulate the economy through green sector jobs, address issues of energy security and independence, and reduce stress to the existing energy infrastructure.
At first glance it may seem counterintuitive for utilities to provide incentives to their customers because it encourages less energy use - the thing a utility company is selling. Concerns with demand and capacity limitations of today’s infrastructure drive the desire to reduce energy usage. The expense required to build additional energy production and distribution is significant. Utility companies recognize that reducing consumption demand in today’s new and existing buildings avoids the need to build additional capacity – a financial benefit to both the utility company and the consumer.
Many incentives have restrictions or are targeted in one way or another - such as by building location, occupancy type, age of the building (new or existing), the system being altered, type of equipment applied, the savings potential, etc.
The most common of the incentive types can be classified as:
- Grants - a monetary award typically applied prior to proceeding with the work. The funding is a gift that does not have to be paid back.
- Tax credits or deductions - a financial benefit that reduces the dollar amount of taxes owed.
- Rebates - a portion of the purchase price after the full amount is paid is returned to the customer.
- Special term loans – loans with favorable conditions such as extended loan repayment period, lower interest rates, etc.
Identifying relevant incentives is certainly a challenge considering they are sponsored and advertised by multiple entities; they are often restrictive to the application; and usually have defined start and end dates.
Exploring local entities, including utility providers, is an important place to start this search.
There are two national resources promoted by the Department of Energy (DOE).
- Database of State Incentives for Renewables & Efficiency® - DSIRE (dsireusa.org). This website allows the user to conduct searches filtering several criteria including location, type of incentive, technology, etc.
- Better Buildings Solution Center. A spreadsheet organized by the U.S. Department of Energy (Click here to view spreadsheet)
New federal tax deductions were also introduced with the adoption of the Inflation Reduction Act of 2022 - Commercial Building Deduction (179D). This act was first put into effect in 2006 but was made permanent in the Consolidated Appropriations Act of 2021. The most recent version increased the available deduction as of January 1, 2023. It applies to commercial and multifamily building at least 4-stories, as defined within ASHRAE Standard 90.1 scope.
The provisions apply to both new and existing buildings as defined below:
- New Buildings
- Energy reduction lowered from 50% to 25% compared to the most recent ASHRAE Standard 90.1 – model compared to base building conforming to ASHRAE 90.1
- Baseline is ASHRAE Standard 90.1-2007 or, if more recent, the ASHRAE Standard 90.1 from four years prior to when the building was placed in service
- Includes interior lighting (not exterior), heating, cooling, ventilation, hot water, and building envelop
- Existing Buildings (buildings 5+ years in age)
- Reduce energy use intensity (EUI) by 25% through modification to lighting, HVAC, hot water, and/or envelop
- Requires a qualified retrofit plan be certified by a licensed professional (AIA/PE)
- Reduction taken one year after brought on service to certify the performance savings