This story was republished from Planet Detroit.
To move away from dirty and expensive home heating oil, Maine has decided to go big on one solution: heat pumps. These devices use electricity to pull heat from the surrounding air, and they’re working well – even in a very cold state.
The Maine State Housing Authority estimates a heat pump would save the average Mainer using heating oil $913 a year (or $2,128 in the case of propane). In 2020, the state set a goal of installing 245,000 heat pumps as part of its Climate Action Plan, which would reach 48% of Maine’s housing stock by 2030.
Climate experts say that electrification of household appliances is key to making progress on climate because homes account for roughly 20% of U.S. greenhouse gas emissions. If this housing was its own country, it would be the world’s sixth largest emitter.
While the greenhouse gas benefits of heat pumps are tied to the type of fuel used to generate the electricity that powers them, as the grid incorporates more renewables into the fuel mix, reduced carbon emissions will follow.
But rather than moving residents away from burning fossil fuels for home energy, DTE Energy is looking to transition rural Michigan homes and businesses from propane to fossil gas, or “natural gas”, and use a state “low carbon” grant program to do so.
The company requested a total of $26.19 million in taxpayer dollars through a state grant program to expand gas service into counties in west and northwest Michigan, as well as Delta County in the Upper Peninsula.
Some northern Michigan officials, businesses, and governments, like the Crystal Mountain ski resort in Benzie County, support the funding requests, arguing it would lower prices for propane users. In October, the U.S. Energy Information Administration predicted the one year cost of propane would be $1,668 for the average user compared to $931 for gas.
But DTE’s request for money from the state’s Low Carbon Energy Infrastructure Grant Program has drawn criticism from environmental groups, who argue that these projects blatantly contradict the “low carbon” aspect of the program and could leave low-income residents paying more for energy in the long run.
Subsidizing gas amid the climate crisis
Advocates say DTE’s proposals ignore the benefits of building electrification, which could protect customers from volatile gas prices, reduce indoor air pollution associated with asthma and other health problems, and help the state meet the goals laid out in the MI Healthy Climate Plan, which looks to reduce emissions from buildings by 17% by 2030.
Consumers Energy came in for similar criticism for proposals to use $28.29 million in grant money for biogas or “renewable natural gas” projects. These would build four biogas facilities at large dairy and beef farms.
A Michigan Public Service Commission report found that biogas (also known as “renewable natural gas”) could replace only a fraction of Michigan’s fossil gas use and cut just up to 5% of carbon pollution statewide.
And achieving these levels could require significant outside support to compete with fossil gas. The report found that biogas would cost between $10 MMBtu and $50MMBtu, while fossil gas was recently priced at $2.38 MMBtu. Under its proposal, Consumers would also run new gas lines to some homes, which would be served by both biogas and fossil gas, presenting similar issues as DTE’s proposals.
Critics say that although biogas may have limited value for industrial uses, it can also help utilities keep demand for fossil gas strong as environmental and health concerns mount.
“We know RNG can provide an excuse for fossil fuel gas companies to continue investing in gas infrastructure, and they can make a lot of money that way,” Karlee Weinmann, research and communications manager at the nonprofit Energy and Policy Institute, previously told Planet Detroit.
Building new gas pipelines commits the state to infrastructure for a carbon-emitting fuel that would be in place for decades – even as scientists issue increasingly dire warnings about the need to rapidly decarbonize to avert climate disasters like heatwaves and famines that could claim millions of lives by the end of the century.
“At the end of the day, you’re asking for grant money to reduce carbon to expand natural gas. We shouldn’t have to explain why it doesn’t make any sense,” said Jackson Koeppel, an energy consultant who collaborated on comments filed with the MPSC opposing DTE and Consumers’ grant proposals.
These companies’ funding requests could potentially consume all of the $50 million currently offered by the program. Competing proposals from small businesses and municipalities would do things like help cities reduce building emissions and energy burdens or install solar panels at a wastewater treatment plant.
The Michigan Public Service commission said it will award the grants in July.
Affordability at issue
DTE’s proposals cite emissions reductions and cost savings to ratepayers to justify its gas expansion program. U.S. government data shows fossil gas provides only a slight emissions benefit, producing 84% as much carbon pollution as propane, whereas electrification offers emissions reductions that will grow steadily as the grid incorporates more renewables.
Fossil gas is also composed mostly of methane, a greenhouse gas that is 80 times more powerful than CO2 over a 20-year period, making the extensive leaks from these systems a major concern. Biogas is also primarily methane. The Environmental Protection Agency website says “Methane leakage across the entire renewable natural gas (RNG) production and supply chain are an important source of greenhouse gas (GHG) emissions.”
DTE’s cost-saving estimates do not consider heat pumps and building electrification. In a statement to Planet Detroit, DTE said the projects “extend the availability of affordable natural gas to several communities where median incomes are well below state averages.”
But advocates say electrification is a better long-term hedge against future natural gas price spikes.
“Electrification is a strategy that’s viable today and provides a much more durable investment,” Weinmann said, noting the price volatility of fossil gas, which reached record levels in 2022.
And if more customers move away from gas, either for climate reasons or to reduce exposure to the indoor air pollution created by appliances and gas leaks, it could saddle the remaining ratepayers with a larger share of the cost. The lower-income communities DTE says these projects will serve could get hit especially hard if they’re left paying for this legacy infrastructure.
“It’s very risky,” Weinmann said. “There are a lot of fixed costs associated with the gas system…it’s very expensive to put pipes in the ground and maintain them and expanding them builds onto those costs.”
But Mac McCabe, a contract manager with Michigan Saves, a nonprofit green bank that backs low-interest financing for home improvements, is concerned heat pumps could still be too expensive for low-income homes, at least in the short-term.
“Natural gas is really cheap right now. We have to be careful not to increase the energy burden of low-income neighborhoods,” McCabe previously told Planet Detroit.
It’s unclear how many homes and businesses will want to connect to DTE’s gas service, even if it’s cheaper than propane. DTE includes a $500 rebate per customer in its budget, but customers will need to either buy new appliances like hot water heaters, which can only run on one type of fuel, or pay to convert stoves and furnaces to run on gas.
If the MPSC approves the proposals, it would be making a long-term investment in gas as the state aims to generate 60 percent of Michigan’s energy with renewable sources by 2030. In 2021, renewables provided about 11% of the state’s power.
“When you build a new pipeline, it lasts 30, sometimes 40 years,” Samantha Williams, director of the National Resources Defense Council’s Midwest climate and clean energy program, told Planet Detroit. “These are lasting emissions, and these are lasting costs that Michiganders are going to be stuck with for decades to come.”
Boon to development or ‘missed opportunity’?
In its emailed statement, DTE defended its proposals, saying, “Officials and residents in these areas have long requested natural gas service for cost savings and convenience for both homeowners and businesses, and also to help spur economic development, as a modernized energy infrastructure could help lure new business.”
And Consumers also sent an emailed statement, referring to biogas as a “low carbon” energy source.
“Investing in natural gas infrastructure, especially in connection with RNG facilities, creates a distributed, local, low-carbon energy source to serve customers for years to come and helps us create a cleaner energy future,” Consumers said.
Many comments on the state website listing the various proposals question the use of low carbon grants for fossil gas or biogas, but others are in support. The Village Council of Mesick in Wexford County issued a statement saying that the village had lost investors on account of the lack of a gas connection and that homeowners and the village school were paying high prices for propane.
“The businesses in the Village have communicated to the Council their expressed need for natural gas,” the statement said.
Having state money to assist with the cost of connecting to gas may make the option attractive for Mesick residents, especially with this spring’s low fuel prices.
According to a 2022 report prepared by the consulting firm Guidehouse Inc. for utilities and the MPSC, the lifetime cost of running a gas furnace over 15 years in an older home was less than the lifecycle costs for two types of heat pumps. The study also found that operating costs for a central heat pump installed in 2021 would break even in 4-9 years if it replaced electric resistance, oil, and propane heating systems with air conditioning, based on prices at the time the study was conducted.
New incentives through the Inflation Reduction Act were not taken into account in the analyses. The study also showed that heat pumps may break even with gas if average gas prices climb considerably.
“At the time the study was conducted, it appears that when natural gas prices are low and electricity prices are high, cold climate heat pumps may not be the best financial option for customers,” MPSC Spokesperson Matt Helms told Planet Detroit in an email. “This would be especially impactful for low-income customers.”
Yet, much of the additional expense cited in the study was due to the difference in upfront costs between a central cold climate heat pump and a gas furnace and air conditioning system. That may be partially addressed by an $8,000 rebate the federal government is offering to moderate and low-income households as part of new Inflation Reduction Act incentives to cover the cost of a heat pump, with $4,000 also available to upgrade home electrical systems if necessary.
Michigan utilities like DTE and Consumers have also offered rebates and support for homeowners installing heat pumps.
And compared to propane, electrification would almost certainly be cheaper. A Minnesota group found that transitioning homes from propane or electric resistance heat to heat pumps saved residents 30% to 55%.
Douglas Jester, managing partner at the consulting firm 5 Lakes Energy, said that the current cost of running heat pumps may be higher than necessary because Michigan’s pricing structure fails to properly account for the respective costs of gas and electricity.
He said that if billing reflected the “marginal cost” of electricity, i.e. putting additional power on the grid with the current infrastructure, it would make heat pumps the more economical option.
Williams said that DTE and Consumers’ proposals ultimately represent a “missed opportunity”. Rather than giving these companies millions for gas pipelines, she said the state could use this money to buy heat pumps, upgrade electrical panels, and weatherize homes.
“You could do this all while avoiding locking customers into yet another planet-warming fossil fuel, ” she said. “Not to mention the health impacts of combusting gas inside homes.”