Heat pump water heaters (HPWHs) are not a new technology – in fact, they’re widely recognized by energy professionals as a high-value technology that can bring energy savings, health, and comfort benefits to households across California. They are also a critical piece of helping the state meet its energy efficiency and decarbonization goals, which has led to significant investment in programs focused on increasing HPWH adoption.

Yet despite the technology’s maturity and ongoing efforts to build demand for HPWHs, the market share in California remains low – with HPWHs representing just 3-5% of water heaters sold annually. CalMTA is exploring how a market transformation initiative (MTI) focused on residential HPWHs could work with existing efforts to help remove persistent barriers and ultimately accelerate and sustain market adoption.

To determine the opportunities and viability of a market transformation initiative (MTI) CalMTA gathered roughly 40 industry leaders in late August for a Residential HPWH Market Acceleration Summit. Participants represented a wide range of roles including utilities, manufacturers, policymakers, workforce representatives, program implementers and evaluators, equity organizations, and others. Together they engaged in interactive discussions to identify and begin development of pathways that could help make HPWHs the preferred choice for California homes.

“The heat pump water heater can help begin the transition in the home to an all-electric operating system — taking that first step on a path that leads to our electrified, abundant future,” explained Ari Matusiak, CEO of Rewiring America, who opened the summit. He encouraged attendees to unlock innovative thinking on strategies that might create a HPWH market “tipping point,” with households – the kitchen tables where home energy decisions are made – at the center of the solution.

Group discussion and small-group working sessions surfaced insights and actionable next steps on key HPWH topics. Supported by a chart of key market conditions derived from market characterization and other research, participants examined mitigation strategies for identified market-level barriers.

Barriers discussed included complex HPWH product and installation requirements (e.g., connectivity and demand response participation), an overwhelming landscape of overlapping and differently structured incentive programs, low customer demand and resulting supply chain impacts, and market characteristics that can make switching to HPWHs less cost-effective (e.g., the perceived lower cost of gas fuel and landlord-tenant split incentive).

Synthesizing this material, teams worked to identify potential pathways to grow the HPWH market, including the most important actions to catalyze pathway success, and the relative ease and impact of implementing each pathway. Participants identified the following “top six” pathways, which CalMTA is exploring as components of our future MTI Plan.

Top Six Innovation Pathways to Accelerate HPWH Adoption

Aggregate Advanced Demand to Reduce Product Cost

This concept pools resources at the state level to: 1) identify multiple funding sources and/or opportunities to reduce equipment and installation costs below competitive system pricing and 2) build upfront customer demand to ensure a guaranteed pipeline of product sales and installations.

Streamlining Permitting

This concept tackles the issue of slow and expensive permitting by streamlining the permit requirements and process across California to create a more positive experience for installers, and consequently their customers. By streamlining the permitting process and making it more affordable, this is expected to increase the likelihood of installers recommending the product.

Statewide Upstream Incentive Program and Customer Application

This concept works upstream to provide a manufacturer incentive to bring down the overall product cost and ensure product stocking, coupled with a statewide effort to streamline the HPWH incentive application process for contractors and customers who are applying for downstream incentives through their local utility or energy program.

“Matchmaking” Technology to California Housing Stock

This concept is focused on making sure the right customers get the most ideal HPWH for their application (existing fuel type, unit location, capacity requirements, etc.). Prioritizing California housing stock that is already well-suited for HPWHs while driving installation of units with only the necessary features that are priced appropriately and function optimally would ensure effective and efficient use of funding.

Creating Market Momentum by Segments

This concept leans on data collection and analysis to find the most optimal market segments where HPWH installation is more affordable and practical. This upfront work would ensure funds are being used wisely to reach only those customers with a higher aptitude to select and install a HPWH.

Give Away 1 Million HPWHs

This concept eliminates the onerous task of convincing customers to install a premium product by pooling funds and resources to purchase and install 1 million units free of charge. Doing so could kickstart the supply chain for HPWHs in California by guaranteeing in-stock products and a network of trained and experienced installers.

The market insight and creative thinking shared by summit participants will be critical inputs as CalMTA develops a full MTI Plan focused on residential HPWH, including a distinct market transformation theory and logic model that reflects the important work being done by other entities across the state and nationwide. Through ongoing engagement with summit participants and other interested parties working in the HPWH market, CalMTA sees a unique opportunity to unite the collective horsepower of individual efforts to accelerate adoption for the benefit of California and its residents.

As the Residential HPWH MTI Plan moves forward, key components will be shared through our Idea to Initiative series at CalMTA’s Market Transformation Advisory Board (MTAB) meetings, which are open to the public and include a public comment opportunity. Upcoming MTAB agenda items are posted to CalMTA’s website; interested parties can also sign up to receive updates directly.