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Proposal for Promoting Heat Pumps in Seward:
A Declining Block Rate Strategy
Introduction
This proposal advocates for the adoption of cold climate heat pumps in Seward through
the implementation of a declining block rate structure. This approach aims to transform
the local energy landscape by increasing electric utility revenue, reducing heating costs
for residents, and lowering carbon emissions. By addressing existing barriers to heat
pump adoption and utilizing available incentives, the proposal seeks to create a more
sustainable and economically advantageous environment for Seward's residents and
the City -owned electric utility.
Objectives
The proposal aims to achieve the following objectives:
1. Increase Electric Sales:
- By displacing heating oil with electric heat pumps, the proposal seeks to boost
electric consumption and, consequently, the revenue for the City -owned electric utility.
2. Enhance Utility Revenue:
- Increased electric sales will directly contribute to higher revenue, improving the
financial stability and asset value of the electric utility, especially considering future
potential sales.
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3. Lower Energy Costs:
- The proposed rate structure will help lower space heating costs for year-round
residents, particularly benefiting lower to moderate -income households. This will
stabilize heating costs amidst fluctuating oil prices.
4. Reduce Carbon Emissions:
- Cold climate heat pumps can cut carbon emissions by over 50%. With additional
renewable energy integration, further reductions are anticipated, benefiting the
environment and contributing to climate goals.
5. Address Barriers to Adoption:
- The proposal outlines strategies to overcome the primary obstacles to heat pump
installation, including high upfront costs, long payback periods, and the need for
technology education.
Environmental and Economic Benefits
1. Reduction in Carbon Emissions:
- Heat pumps represent a significant step forward in reducing greenhouse gas
emissions. By replacing heating oil with electricity, the carbon footprint associated with
space heating can be substantially decreased. As the Railbelt grid incorporates more
renewable energy sources, the environmental benefits will be further amplified.
2. Economic Impact:
- The adoption of heat pumps will stabilize heating costs for Seward's residents by
reducing reliance on oil, whose prices can be volatile. This predictability in energy costs
is particularly beneficial for lower to moderate -income households, making it easier for
them to manage their budgets.
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Barriers to Heat Pump Installation
1. Upfront Installation Costs:
- The cost of installing a heat pump ranges from $5,000 to $15,000+, which can be
prohibitive for many households, especially those with lower incomes.
2. Operating Costs:
- While heat pumps can be more efficient than traditional heating methods, their
operating costs relative to heating oil is a concern.
3. Long Payback Periods:
- The time required to recoup the initial investment in a heat pump can be lengthy,
particularly for lower -income households that may not have the financial flexibility to
wait.
4. Technology Education:
- There is a need for increased education and awareness about the benefits and
operation of heat pump technology to ensure informed decision -making by potential
users.
Incentive Programs
1. Rebates:
- To address the financial barrier of installation costs, rebates offer a practical solution.
They are easier to administer compared to complex rate changes and have the potential
to significantly reduce upfront costs for consumers.
- Upcoming government -funded rebate programs include:
• Inflation Reduction Act - Heat Pump Rebate Program: Administered by
AHFC, this program is designed to provide substantial financial assistance for
heat pump installations.
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• Accelerating Clean Energy Savings in Alaska's Coastal Communities
Program: Managed by the Southeast Conference and AK Heat Smart, this
program will offer support for heat pump installations from Ketchikan to Kodiak,
including Seward.
2. Tax Credits:
- A 30% tax credit, up to $2,000, is available for all income levels, further reducing the
financial burden of installing a heat pump.
3. Impact of Incentives:
- The effectiveness of these rebates and credits will depend on the operating costs of
heat pumps in Seward. Currently, the electric cost to displace a gallon of heating oil with
a heat pump ranges from $3.36 to $3.92, which may not yield significant savings at
current oil prices.
Proposed Declining Block Rate
1. Structure:
- Current Rate for Initial Usage:
- The first 600 kWh of electricity used per month will be billed at the current rate,
ensuring that all households with heat pumps contribute to the average utility charge.
- Reduced Rate for Excess Usage:
- Households with a heat pump that exceed 600 kWh per month will be eligible for a
reduced rate of $0.08/kWh for the additional usage. This rate incentivizes higher
electricity consumption for heating purposes only.
2. Utility Benefits:
- The electric utility will benefit from a margin of $0.10/kWh on additional sales from
heat pump users, generating additional revenue. This increased revenue will help lower
overall costs for all ratepayers, creating a win -win scenario.
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3. Impact Analysis:
- An average heat pump in the Seward area is estimated to displace 400 gallons of
heating oil annually. With a heat pump consuming 12 kWh to displace a gallon of oil,
this equates to 4,800 kWh of additional annual sales. At a margin of $0.10/kWh, this
results in a profit of $480 per heat pump installed. The overall financial impact will be
positive for the utility and beneficial for all ratepayers.
- Seward Cost of Service/Rate Study May 10, 2021. Recommendations: Page 195 -
7. Investigate setting up an incentive or special rate for heat pumps and electric
vehicles...
Considerations for Other Ratepayers
1. Commercial Ratepayers:
- Similar declining block rates should be considered for commercial ratepayers, both
small and large. However, prioritizing residential rates is recommended initially to
maximize the impact on households.
2. Electric Vehicle (EV) Owners:
- It is also advisable to evaluate the feasibility of applying declining block rates to EV
owners, potentially creating additional incentives for clean energy adoption.
Conclusion
The proposed declining block rate strategy offers a comprehensive approach to
promoting heat pump adoption in Seward. By increasing electric sales, enhancing utility
revenue, and reducing heating costs for residents, this proposal addresses critical
barriers to heat pump installation while contributing to environmental sustainability. The
strategic use of rebates and tax credits, combined with a well -structured declining block
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rate, will support Seward's transition to a more sustainable and economically stable
energy future. The success of this initiative will hinge on effective implementation and
community engagement, ensuring that all residents can benefit from the advantages of
heat pump technology.
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