It’s been almost a decade since the “Electrify Everything” movement kicked off. And guess what? We aren’t electrifying everything.
We’re seeing strong growth in electric vehicles, heat pumps, and induction cooktops. But we’re still trapped inside a system that makes the electric choice harder to make. And nowhere is that more obvious than with heat pumps.
Every eight seconds in the US, an HVAC contractor installs an air conditioner that has only one mode: cooling. That one decision locks in fossil fuel heating for the next 15 to 20 years.
This week, we’re joined by Nate Adams, known as the House Whisperer, to unpack the three-part series he wrote for Latitude Media on what’s actually holding heat pump adoption back. Nate argues the fix isn’t more rebates or bigger subsidies for homeowners. Rather, it’s making it easier for upstream players to make and stock two-way ACs.
We dig into the emergency replacement trap, the importance of hybrid systems, how heat pumps got politically coded, and why leading with comfort — not climate — is the winning pitch. We also talk about Nate’s immersive, fully electrified Airbnbs.
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and special guest Nate Adams. Produced and edited by Stephen Lacey, Sean Marquand, and Anne Bailey.
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Transcript
Stephen Lacey: From Latitude Media, this is Open Circuit. It’s been almost a decade since the Electrify Everything movement kicked off. And guess what? We aren’t electrifying everything. Sure, we’re seeing strong growth in electric vehicles, heat pumps, induction cooktops, but we’re still trapped inside a system that can make the electric choice, which is often the superior choice, harder to make.
And nowhere is that more obvious than with heat pumps. Every eight seconds in the US, an HVAC contractor installs an air conditioner that has only one mode, cooling, rather than a heat pump that can do both. This not only decreases customer choice, it locks in more fossil fuel heating for 15 or 20 years. And this is where electrification advocates might argue that we need more incentives, more money for homeowners. But our guest this week argues a fix is way simpler and way less expensive than that.
This week, we’re joined by the one and only House Whisperer to tackle the emergency replacement trap, how to avoid making heat pumps a culture war casualty, and the simple policy fix that could bring more consumer choice at a far lower cost. That’s all coming right up.
Welcome to the show. I’m Stephen Lacey, the executive editor at Latitude Media. Jigar Shah is my co-host. He’s a clean energy investor, entrepreneur and commentator. How are you?
Jigar Shah: I’m great. I’m just like, my head is buzzing with buy one, get heat free.
Stephen Lacey: Have you ever panic bought an appliance, a household appliance?
Jigar Shah: I haven’t. I am part of the lucky group that exchanges their appliances early because some entrepreneurs come up with some newfangled appliance that I need to try first.
Stephen Lacey: Yes. I’m trying to stay ahead of my water heater breaking. So I’m in the market for a heat pump water heater.
Jigar Shah: Reservoir. Reservoir. From Massachusetts.
Stephen Lacey: Our CEO, Scott Clavenna, just got a reservoir. He really likes it. So we’ll see.
Jigar Shah: They’ve got contractors in Massachusetts serving you right now.
Stephen Lacey: And sitting in the third co-host chair this week is friend of the pod, Nate Adams. Nate is one of the leading voices and practitioners in the electrification movement here in the US. And he is lovingly known as the House Whisperer. Nate, welcome back. How’s it going?
Nate Adams: Doing great. It’s nice to be back. It’s good to see you guys.
Stephen Lacey: Great to see you too. And Nate and I have known each other for about 12 years now. And what drew me to you was you often think critically about residential efficiency and home electrification. What are we getting wrong? How can we improve program design? This comes from years of experience. And the answers to those questions can often be at odds with how we historically implement programs. And I think that’s an important perspective for today’s conversation because there’s often this huge gap between how advocacy groups, which tend to be progressive leading environmental groups and actual contractors experience the market. And so Nate, you’ve worked in homes. You’re a political conservative who sees the market differently than many of the advocates who are working at these policy shops. And you wrote this great three-part series for us at Latitude Media on what you believe is holding home electrification back, specifically what’s holding heat pump adoption back.
And so the story is not all bad, right? Heat pump adoption in the US has doubled in the last decade or so, and we’re getting very close to heat pumps outselling air conditioners. But as you point out, we’re still installing a lot of one-way air conditioners, one every eight seconds, as you say, locking out electrification through heat pumps that can both cool and heat. So let’s just get your take on the market and what caused you to write this piece. Heat pump sales have continued to climb. Why do you think the market is still behind schedule in your view?
Nate Adams: That’s a really good question. And I think just where I live really affects that because the Midwest is where a furnace and a one-way air conditioner are just the norm. And you pair that. So there’s between four and five million air conditioners sold every year in the US. And when you pair that with the fact that somewhere between 80 and 90% of replacements are emergencies, if it isn’t what’s on the shelf, it doesn’t get installed. When you’re freaked out and your hair is on fire and it’s 90 degrees, like we’re hitting another heat wave right now. And so you’re like, who can I get here? Who’s the first person that will pick up the phone? Who’s the first person who will show up and what piece of equipment can they get in? And how do I minimize that cost? Because now I’ve got a $10,000, $15,000 unexpected expense hitting me.
And a heat pump is just marginally more expensive. It’s $500 to $1,000 more expensive at a wholesale level than an air conditioner. And when you’re trying to minimize the price, that just gets minimized right out. So what I fear is, well, yes, we are seeing heat pump sales skyrocket. And what I don’t understand is I’d really like to see HARDI numbers, like industry numbers on where that’s happening and why, because I really don’t understand why. No one seems to. But what I’m really worried is we’re going to hit an asymptote. So we’re going to get a little bit further and it’s just going to flatline and we’re never going to get to zero. And the basic numbers are the units last somewhere between 10 and 20 years. So if we don’t run 100% heat pumps for 10 to 20 years, we don’t decarbonize. So we’ve got to get to zero one-way air conditioners as quickly as possible to be able to actually finish in our lifetimes.
Stephen Lacey: Jigar, what’s your read on the market? Are you a half glass full, half glass empty when you look at the market? As we said, heat pump sales are booming, but we are very far away from zero or small amounts of air conditioners being sold and installed. What’s your read?
Jigar Shah: I think that the original sin was really around the notion that you have to rip out your gas connection. I think that in general, the report that stuck with me is that CLASP report back from 2021, which really basically said you put in the two-way air conditioner and then you leave your furnace in place. So that if temperatures go below 30 degrees, your furnace kicks in, but anything down to 30 degrees, you’re in the range of a much more efficient way of heating your home. And my sense is that that’s what worked in Maine, who has had this huge success story in moving folks to heat pumps. And I think that if we could get the culture to think about replacing your air conditioner with this two-way air conditioner heat pump, but leaving your furnace in place, I think that psychologically allows you to get past all of the sort of issues that you have with a polar vortex.
I mean, but also all of the smart asses who say, “Oh, if you go to heat pumps, then you have an electric peak when it’s super cold out or when it’s super hot out or whatever.” And so my sense is that –
Stephen Lacey: They’re not wrong.
Jigar Shah: Well, they’re never wrong. They’re just never relevant or interesting to listen to or helpful in moving the ball forward. They just like to hear themselves talk about how smart they are. Whereas Nate and I are actually trying to get shit installed or contractors trained or high school students who don’t have a job right now, a trade to go into as opposed to sounding smart on Twitter.
Stephen Lacey: Jigar sort of jumped ahead to one of the key arguments in your three-part series, which is the furnace is not the enemy. And by thinking that we have to go all electric with our heating, you’re missing a big opportunity. So what is the conversation around getting rid of the furnace or keeping it in place?
Nate Adams: Well, to some extent, you can blame me going back to that 2018 piece of the practical guide to removing your gas meter. Because the engineer in me, when you truly understand what it takes to heat a house, you often don’t need the furnace. It’s like using a sledgehammer to drive a trim nail. It’s the wrong tool. But what I’ve really come to see is full electrification is a human problem much more so than a technical one. So most contractors, particularly in northern climates, there’s been dual fuel pushes in the past and then heat pump pushes and old school single stage heat pumps on their own in a cold climate. It’s not really a good piece of equipment for it. So it leads to lousy experiences for homeowners and contractors. So contractors often just kind of hate the heat pumps. And I mean, memories are long when you get burned by a technology.
So this is a human problem, not a technical one. So I do not see a way around about a decade of serious hybrid deployment in gas dominated markets, which is basically the Midwest. And running the numbers, it was 47% of residential gas usage is in 11 states. And it basically looks like Midwest. Plus Pennsylvania and Kansas or sorry, and Missouri, depending on how you classify those, whether they’re Midwest or not. But because gas is so cheap, the math isn’t that great. So let’s just not fight it and run hybrids. And even then, like my friend Steve of the Energy Conservatory, he’s in Minneapolis, has a 1950s ranch, has a basic single stage heat pump, and he reduced his gas use 62%. So the coldest major city in the US with the worst heat pump that you can buy effectively is still dropping gas use almost two thirds. So would you like two thirds or zero? Those are your options basically.
Stephen Lacey: Let’s talk about how to tap the mass market. As you said, around 80% of installs for heating and cooling equipment happen when there’s an emergency. There’s no time to really think about it. You just take whatever equipment is available. Why is this such a problem when we think about the way policy programs are designed?
Nate Adams: Well, that’s an easy answer. If there’s a rebate, there needs to be a little bit of forethought in general. So emergency installs tend to not be well covered by downstream incentives. So I’m not going to say they don’t at all, but it’s not well covered. And so you are effectively excluding 80% or more of the replacement market. And also –
Jigar Shah: I think there’s actually a lot of data to suggest that rebates have just been bad policy broadly.
Stephen Lacey: Well, Jigar, you’ve been through this in the solar industry. I mean, you’ve seen these cycles boom and bust. Yeah, say more about that.
Jigar Shah: I just think that in general, there is a paperwork bias. There are certain people who want to do paperwork and a lot of people who don’t want to do paperwork. And there’s also an information bias. A lot of poor people don’t actually know that the rebates exist, and so then they don’t actually use them. And so my sense is that whether it’s NYSERDA’s rebate programs or other people’s rebates programs across the country with $8 billion worth of utility rebate programs, there is a consistent theme where there’s a certain percentage of the population who know the rebates exist and they get five bites at that apple for different things that they do. Then everyone else has never heard of a rebate program. And so I think that this whole concept of end user rebates I think should be retired completely for everything. And then the question becomes, where do you insert cash into the process where it actually could be more meaningful?
Stephen Lacey: Nate’s got some thoughts on that. Where do you do that? Where’s the intervention point, Nate?
Nate Adams: Well, first off, I want to say that Jigar and I’s love language is arguing. And actually we’re fully in agreement there. So yeah, downstream incentives that go to either the consumer or the contractor, I think we should totally get rid of those because you show me any program and I will show you some at least small way that it adds friction to the process and oftentimes where it adds a great deal of friction to the process. So yeah, those are problematic. So what we need to look at instead is midstream, which is usually at the distributor level or the supply house level or upstream, which is the manufacturer level. And to me, one of the points that I argued in the series was design programs so they can last a decade. And when you do that, the toolbox gets way smaller because the incentives, just a quick aside on it, essentially my understanding is when you get beyond about 1% penetration, consumer incentives get too expensive both politically and financially.
And so you don’t end up moving the market in general with downstream. So you need to find a different way to lever it. So if you think about 10 year programs, the dollar amounts need to be small and consumer education and contractor training or education are some of the best levers. Or you can incentivize the manufacturers to stop making one-way air conditioners, which is what the HEATER Act did or the COOLER Act is aimed at distributors instead. And like we were talking in the green room about Vancouver. Vancouver has basically made it so that you need to install a two-way heat pump, but they were smart about how they did it and they went through the distributors. And because the air conditioners take up so much space in the warehouse, the distributors were tickled to death to not stock them anymore.
Jigar Shah: And the other thing about using the midstream and the upstream is you can actually move away from cash. So for a lot of those areas, you can use debt. Because the cost of holding that inventory can easily be 15% cost of capital for the midstream. Where if you use a government program like the loan programs office and you said, “Here’s debt at US Treasuries plus three eighths to hold your inventory,” they save so much money on that spread that they’re willing to make a change and the money gets paid back. So it’s actually never spent spent. It’s obligated. And so I think that that’s the big thing that I’ve learned out of my 20 plus years of thinking through all this stuff is that when you think about the rural electricity effort back in the 1930s, et cetera, when you use debt, there’s a certain level of rigor and governance and all that stuff that occurs. When you use grants or rebates or whatever, it just ends up not being a great experience for everybody in the after action report.
Stephen Lacey: And you mentioned Vancouver, so they mandated two-way units starting in 2023. As a conservative Nate, do you think of that as a ban? A lot of conservatives would look at that and say like, “Well, you’re actually limiting consumer choice.” So how do you sort of navigate that?
Nate Adams: Here’s where my lack of media training will probably come in, but to some degree, that’s one way to look at it, I would say. But they did go to the distributors first and have a conversation rather than say, “This is what we’re going to do.” But my understanding too is that Vancouver has a very unique governance structure that allows them to do a lot of things that other cities just can’t. So they basically have power over everything, which is very unusual for a city within a province. So they can try stuff that other people can’t. But I think they were pretty intelligent about how they went about it. And in talking to Chris, the fellow at the city that put all that in, he’s like, “It’s been super smooth. You’d expect there’d be some issues. There’s been minor issues with some boilers, but as far as air conditioners and heat pumps getting swapped out, just not a problem.”
Stephen Lacey: So if we focus on manufacturers or distributors, I think there’s a crucial piece to this, which we haven’t fully broken down, which is that there’s actually not that much of a difference between a one-way or a two-way traditional AC versus a heat pump. What is the actual component that allows you to create a two-way heat pump and how much does that cost?
Nate Adams: It’s a great question. And there’s one primary component that is required, which is called a reversing valve, which is like reverse gear in a car. There’s a couple of other components that need to be in there too, but without the reversing valve, it’s just not possible. And I have one on my desk. I didn’t pull it out for this, but it’s about a hundred bucks I can buy one of those at the supply house for. So total cost difference is somewhere in the hundred to maybe $250 range from a same model air conditioner to a same model heat pump. So it’s very small. And the install difference is very small as well, maybe a half an hour. But the biggest thing being sometimes there are not enough wires going to the outdoor unit, so you have to run a new thermostat wire. But that is really the only potentially substantial difference between them.
Stephen Lacey: So Jigar, what do you think? Does creating some sort of upstream mandate seem viable to you?
Jigar Shah: I just think mandates broadly are the thing that people revolt against. And so my sense is that the better approach is to provide someone with an incentive that they just can’t say no to. The vast majority of distributors, their cost of capital, their cost of holding inventory is so high that if you gave them subsidized financing for the inventory, which is also low risk because you have the inventory as collateral, then they’re going to do it just because it’s good business for them. And so my sense is that that’s how you do it. And in general, this is where Nate and I would talk all the time while I was serving the Biden Administration where this is money that the greenhouse gas reduction fund could have been used for this purpose. But in general, it got overwhelmed with people who are like, no, just give subsidized money to individual homeowners.
And the leverage of that money would’ve been way higher to execute a program like this than what they thought it was for. And I don’t know that I actually sort of subscribed to the left and right coding stuff just because I feel like in general it feels entirely manufactured, but I do think the money would’ve gone farther in the midstream.
Stephen Lacey: Nate, to be clear, you’re not calling for a mandate, you’re calling for a financial incentive to make this switch at the distributor manufacturer level more viable, right?
Nate Adams: Yes. A tax credit in particular, because that’s one of the easier levers to play with. But I really like what you’re talking about, Jigar. So I think there’d be potential there too.
Jigar Shah: Yeah. Don’t tag Nate with a mandate. He will be disinvited from all of this barbecues in his local town.
Nate Adams: Yeah. And I mean, on the political coding, I have watched that happen quite a bit in the last few years watching the HVAC groups. And it’s like, they want us to have these and it’s a liberal conspiracy and this and that. And I’m just like, it’s reverse gear guys. Come on. This is not some major shift. It’s one extra part, essentially.
Stephen Lacey: Well, let’s talk about why that has happened. A lot of groups have latched onto heat pumps. Rewiring America is probably the biggest organization that’s crafting big picture policy ideas around how to push this market forward. What role do you think some of these organizations have played in maybe coding heat pumps in particular?
Nate Adams: I think it’s a pretty substantial one, unfortunately, which is extremely frustrating to watch. But I don’t have a whole bunch of great examples to point to around that aside from not that long ago heat pumps got pushed against. When I first got into Facebook HVAC groups in 2017 and I was talking about heat pumps, I was called an idiot and a whole lot of other things, but there was no political coding at all. It was all technical stuff fundamentally. And it’s become much more political since then. I felt it enough that I coined the phrase two-way AC back in, was it 24, I think? No, 23. It was a bike ride in 23. And for a long time, there’s been all kinds of arguments over should we rebrand what heat pumps are? I’m like, no, it’s actually what they do. Let’s just lean in. Kleenex is a terrible name. But if you say Kleenex, we all know what you mean. Same with Xerox. Let’s just lean into it and market it and it can be okay. But now I’m afraid it’s been coded. So it’s not that we can’t use heat pump, but we need a secondary name. And we need to show that you are getting more, not less. You’re getting double the heating fuel choice. It’s not just gas.
Jigar Shah: I’m telling you, it’s buy one, get heat free.
Nate Adams: Yes. Let’s run it, Jigar. I’m totally on board with that. And that’s how it has to be framed because what we have to avoid is they’re trying to take my air conditioner away, which is absolutely false. No, you still have the AC, it just heats too.
Stephen Lacey: Yeah. Jigar, you said you were skeptical about the coding? Or how do you see the politics start to play into how people perceive heat pumps and ultimately feed into contractor willingness?
Jigar Shah: So I think the bigger problem that we face is not the coding stuff. I think the bigger problem that we face is that sometimes both the left and the right go too far. And so whether it’s on the left where they’re saying, just by doing all of this, putting a battery in every garage, you can unlock all the data center load. Or on the right where suddenly they’re anti-free market rules in ERCOT’s territory because it’s supporting too much solar and battery storage. They’re like, “We need heavy regulation in ERCOT so we can get nuclear and natural gas done at an expensive rate.” And I just think that there’s a lot of forces that get paid to push their coding. And then they just make stuff up. And folks like Nate or myself or others sometimes are susceptible to thinking that it was groups on the left or groups on the right that sort of caused that.
And my point is there are people whose job it is to make that happen and to code things in ways that allow their tribe to reject it. And I just think that we have to figure out what true is and what is in the best interest of affordability and comfort and reliability and resiliency and all that stuff. And then really push policies, I think, that help get those technologies, most of which were invented here in the United States, into the hands of homeowners.
Stephen Lacey: So Nate, I’ve heard you talk about how calculators generally over promise savings for heat pumps. If it’s not save the planet with this heat pump, if it’s not save thousands a year, what is the message that will resonate with people?
Nate Adams: I mean, for years I’ve worked on making houses more comfortable. One of my best friends in the HVAC industry was just here. He stayed in the steampunk house. They were the first guests there. And Jim, he reminds me of, shoot, what was it? Everyone’s favorite grumpy uncle. I’m trying to think what was Regis Philbin. He reminds me a little bit of Regis. Mocking you is his love language. You can make fun of him up one side, down the other, and then he’ll just fire back. And he looked at me and said, Nate, this is the most comfortable house I’ve ever been in. And it’s a heat pump only house. So he has become a believer in that, which is really interesting to watch him turn around by actually experiencing it and the comfort just being better. And then obviously the Canadians were kind enough to gift us their wildfire smoke the last couple of weeks. And a good filter and a well-installed system knocks that out of the air. So there’s other ways we can get there that do the same thing. But fundamentally, all of this is really, it’s an emergency replacement problem where if it’s not on the shelf, it doesn’t get installed. And so if we don’t change that, we do not finish, period.
Stephen Lacey: Where are there other friction points in the market right now that you’re seeing?
Nate Adams: Install quality, which Jim opened my eyes to. My grumpy uncle friend. So there’s a rather terrifying study, a meta study that the DOE did. I think it was 18. So it’s been a minute, but it’s still totally true, that 90% of residential HVAC systems have a significant detectable fault. So they’re not installed well and heat pumps are unfortunately much more sensitive to install quality. As an example, I live in what’s called a holler here. That’s a one way valley. So you think of sleepy hollow, this is holler. And so my neighbors don’t make a bunch of money. And one of them got a low income heat pump system installed last year and it’s broken on him multiple times at this point. And he’s paying significantly more for heating than he was before. And it’s because the install is bad, not because the equipment’s bad. And so we really have to keep an eye on that.
And I’m working, my next project is called Common Sense HVAC where I’m trying to educate homeowners on what a good install looks like and then what different systems are capable of and not capable of. And hopefully by them asking for the right stuff, it will begin to move the market. But it’s a real challenge and there is no clean solution. Although midstream contractor training is definitely one big piece.
Jigar Shah: One question I had on that is how much effort does it take to train someone to install HVAC and heat pumps specifically? If you had a 16 year old who’s like, “I’m not going to college,” like what does it take to train that person to start working in the industry?
Nate Adams: It varies on the individual to some degree. And also kids just often aren’t as mechanically savvy as they have been in the past because things don’t break as much where you just throw them out and replace them. But I’d say in general, three months to a year of fairly intensive training and then a year or two riding along in a truck with a journeyman can get most people up to some kind of speed. But one of the biggest challenges of the HVAC industry is it’s so bulkanized. There’s a hundred thousand individual contractors and there’s no way to reach all of them simultaneously. It doesn’t exist. So it’s really difficult to push change through the industry. So I’ve never seen an industry that is so resistant to change, frankly. So that’s part of why I’ve long been anti-policy. I mean, Stephen, you and I’s whole relationship’s kind of predicated on that. This is all stupid, the stuff that we’re doing.
And I don’t see a path forward without federal action that actually gets us to a completion date. And that drives me nuts. I hate that conclusion, but I can’t find another way there. And if somebody else has a viable option, by all means, let’s propose it and see what we can do.
Stephen Lacey: Jigar, what’s your theory of the heat pump in the overall decarbonization picture? It’s been held up by some leading groups as the tip of the spear for home decarbonization. I think that’s largely true, but what’s your theory of its role in overall electrification and decarbonization?
Jigar Shah: I think in general, there has to be something other than climate that’s animating people towards these goals. And so I think Nate talked about comfort. Our friends in Europe obviously are talking about energy security and national security, right? Because they got cut off of Russian gas and now they’re bringing in LNG that’s way more expensive. And now they’ve got the straight of Hormeus and they got a lot of their LNG from Qatar. And so for them, it’s a national security energy security issue. I think in general, there’s plan A, right? Which is basically you replace stuff that breaks with stuff that’s better. You replace a one-way AC with a two-way AC. If you want to accelerate things farther, there has to be an animating reason for doing that. And that can’t be climate. I think it has to be national security 30 or energy security.
I also think that one of the big things that I’ve been thinking about is just how unprofitable residential customers are for everybody. Whether it’s contractors or whether it’s the natural gas utility makes no money off of residential customers, they make all their money off of industrial users of gas. Even the electric utility company makes no money off of electric customers that are residential. They make their money off of C&I customers and data centers and others. And so part of what I’m trying to understand is we fiercely hold on to residential customers as if they are profit centers for these utilities. When in fact, I think helping these folks go to microgrids and actually helping them sort of use less of the product of the utilities, I think is better for everybody. It’s better for their resiliency and independence streak. And it’s also better for the profitability of the electric utility and the gas utility. And so I don’t know, I feel like it’s got to be wrapped up into a different narrative than the climate narrative, which I think is where it’s been stuck.
Stephen Lacey: Yeah. And that’s certainly your thesis in the series that you just wrote, Nate. So what role does the climate narrative play in this? Do you think it’s a de minimis role?
Nate Adams: I mean, in my experience, if someone puts climate forward as a major thing that they want, very seldom is it worth that much money. So it’s a value problem at the end of the day. And that’s why I mentioned comfort. Is little Johnny’s room too hot and too cold? Can we deal with that? And part of that, if you put in right size variable speed equipment that runs all the time and matches what the house needs, it blunts those issues. I’m not saying it makes them go away. I know how to make them go away with other things. But we just have to ask people individually what to do. And Jigar, I’ll push back lightly because I think we’re talking in different subjects. So the contracting side of HVAC is highly profitable, which has actually caused a big problem. I just spent years trying to figure out a new business model for HVAC contractors only to realize that the best size was three to $10 million companies.
And they’re basically gone in the last five years bought by private equity. And so that’s a significant challenge. So you have the little guys, which are really hard to reach, and then you have private equity. And oftentimes, I mean, the private equity companies are usually buying them with the intent of combining them, improving processes, and then reselling for a much higher multiple again. So quality is just usually not on the table for private equity. It just isn’t. It’s turn and burn. How do we get things moving as quickly as possible? And again, the quality is a significant challenge. I’m not quite sure how to solve all of these things. It’s a really genuinely sticky problem. So what do we do?
Jigar Shah: But part of the way to solve it, I think, is what you’re saying is that the entry cost to getting into the HVAC industry is very low. There’s no real barriers to entry. So that’s why you have a hundred thousand businesses. The three to $10 million businesses that private equity’s buying are the ones who’ve proven that they’re good business people, I think is what you’re really saying. And so my sense is that you’ve got an increase in unemployment of college graduates and high school graduates this year. My sense is that’s going to continue for the next 10 years. And so we need to figure out a way to help a lot of folks who are mechanically inclined get into the industry and teach them how to do things right the first time.
Nate Adams: We’re in full agreement on that. I mean, I have a whole lot of trainers as good friends, Jim being one of them. Yeah.
Stephen Lacey: So let’s talk a little bit more about solutions. You mentioned that the Midwest is a really key market. Are there any examples of success stories there?
Nate Adams: There is. Although success might be too strong, but they’re definitely moving in the right direction, which is good to see.
Jigar Shah: Glass half full, Nate. Glass half full.
Nate Adams: I’m sorry, gents. I suck at that on this front. I mean, Panama Bartholomew of Building Decarb Coalition’s a good friend of mine. And we lock horns on this all the time. So you can have him on as the optimist and then I’m going to be the pessimist on this one. But in any case, Minnesota has been working really hard at moving from air conditioners to heat pumps for about five years. And at first it was pretty slow. They went from about 4% to 6% penetration. So the 6% heat pump, 94% air conditioners. And they’ve pulled a bunch of policy levers in the past couple years and they’ve moved to 17%, which that’s a big jump. But again, we have to be at 100% for 15 to 20 years to actually get this job done. And they’re aiming for a 2035 changeover on that. But that shows you how difficult it is to move things in the Midwest because that’s a state that’s really trying hard.
Now, my home state of Ohio, they have the Rhett Butler response in my mind, which is frankly my dear, I don’t give a damn. They just don’t care. It’s not going to move. So I’ve studied this from all different sides and this actually requires federal movement. And why do I have to have an idea that requires a literal act of Congress? I’m not kidding. But I don’t know how else to get there. I just don’t. So we can try other things like what Minnesota’s doing. And that’s important to learn and what Vancouver’s doing. But at the end of the day, to finish this job, it’s got to be federal. So
Jigar Shah: Why don’t we talk about that a little bit? Because I do think there’s increasingly a lot of people who are starting to talk about the change in the mix of the House and the Senate out of the midterm elections. And people are saying, well, if one of the House or the Senate flips or both, then what should the legislative agenda be? I’m curious, you mentioned two acts that you had been involved in, the HEATER Act and COOLER Act. Do you want to talk a little bit about how they work and what’s in them?
Nate Adams: Sure. So the HEATER Act was done in partnership with ACEE, and I was a little more involved on that one. And that was aimed at manufacturers, but the manufacturers pushed back some. And it was funny, it was one of my concerns with it too, that it almost looks like a handout to these big companies. And so they were concerned about the optics on that. It’s the cheapest way to get it done at the end of the day, which is why I did it. That’s just a fiscal conservative in me. Well, where can we do this where it’s the longest lever? But the second longest lever is looking at distributors. And I don’t know exactly how many there are, but it’s in the thousands for number of distributors out there. And so if we can find some way to incentivize them to stop stocking air conditioners and only stock heat pumps, that would be lovely.
And Alexander Gard-Murray, and you had he and I on a couple years back, Stephen, he talked to a number of distributors. And somewhere in the ballpark of like 500 bucks was enough to have them do that on a tax credit. So that is what the COOLER Act is. And it’s super clean and super short. I think it’s 10 pages, which in legislative text is like nothing. It’s like a tweet.
Jigar Shah: It’s too short, Nate. Too short. I can’t hide my favorite project in there for the new bridge in Pennsylvania.
Stephen Lacey: Not a big enough Christmas tree to hang things on.
Nate Adams: Yeah. Part of the whole idea that I like is it’s tougher to pin pork to. So that’s the fiscal conservative in me coming out again. But that whole idea costs ballpark about the same as what we ended up doing in the IRA for heat pumps. So it’s about 10 billion each way. It was like nine billion for the low income programs in the heater, or sorry, in the IRA. And that’s going to affect maybe a half a million homes. And for the same money, we can touch like 50 million because it’ll be four to seven years of replacements that it will touch.
Jigar Shah: I mean, the thing that I’m trying to figure out is those pieces of legislation seem a little too direct for me. I’m curious whether you would do something like the Defense Production Act and just say, we’re going to give more money to DPA and just have them provide loans to all of these people or grants for that matter. And that way it doesn’t pass Congress as a heat pump bill. It passes Congress as Defense Production Act money, which seems in vogue these days. Or you just change the way that the instruction set goes to the loan programs office and say they can actually provide that loan through the VPP work that I had put together while I was there. It just feels like something more indirect I feel like might be more likely to pass than something direct.
Nate Adams: I’m open to other ways to get there. So yeah, let’s work together and see if we can find a path. I’m totally game for that. Maybe I’m too direct in what I want to do. I’m like, look, this is cheap, simple, easy, fast and good. I like it. But that might not be the way to get it because we need a Republican co-sponsor to do this at the end of the day. Because if it isn’t bipartisan, once the tables flip again, it’s going away.
Stephen Lacey: Well, what are you doing down in West Virginia renovating Airbnbs? Get up to DC, put your suit on. Somehow I don’t think that that’s where you’d like to spend your time.
Nate Adams: Not that much, but I’ll at least help some. But I mean, to be frank too, I don’t have a super long time left in this world because my wife and I are planning on a really significant multimillion dollar project that we want to do that’s going to completely consume me. So I’ve got about two or three years and I’m pulling the ripcord on being in the HVAC and policy space.
Jigar Shah: Don’t leave us hanging. It’s quite a tease. What is this multimillion dollar extravaganza? Are you guys creating your own nemacolin?
Nate Adams: Well, have you guys heard of Meow Wolf at all?
Stephen Lacey: No.
Nate Adams: It’s an immersive art thing. So I joke it’s like a really beautiful, colorful art museum while you show up on mushrooms or something along those lines. So my wife took us to one in Columbus. It’s called Other World. And I’m like, I feel like I’m six years old. And I mean, Stephen, you saw me a couple of years ago. I was a mess. Having to give up an HVAC 2.0 and just watching all the policy stuff fail. 2024 was a lost year to me. I was just a depressed wreck the whole year. And so we went there and I’m like, “This is amazing.” And we’ve been creating small versions in these houses here where you walk in and you feel like you’ve changed worlds. And we want to do a 30, 40, 50,000 square foot exhibit that does that, that’s themed on the monsters here. They’re called crypteds. So like Moth Man and Bigfoot and there’s a whole pile of them here. And that should be a really fun jumping off point because they’re profitable if you can get them done. But if you can’t get them done, you go bankrupt. So this is going to take all of my focus. Wow. And so I know that I have a limited time left.
Jigar Shah: Are you going to have a CBD shop next door that also sells shrooms?
Stephen Lacey: Well, this is great. So wow, we have you for a couple more years. People better tap Nate’s expertise. Coming out of this, let’s say two years down the road, if you step back from your 15 years focusing on this space, what would you deem a success if in two years we’ve done what? If the market looks like what? Or maybe even by 2030 or something. What do you hope the market looks like?
Nate Adams: So here’s where the pessimist in me comes out. I’m not totally sure that there’s a way to satisfy me short of federal legislation, which sucks. But as long as there is a focus on looking for what the political opportunity is there and using it when the moment arrives, because it will. You just have to have the right piece of legislation sitting on the shelf and then it has a chance if it can get in there. But just in general, if two-way AC gets used a whole lot more, which it’s been well adopted. I’ve been surprised by how sticky that phrase has been. And if we can just have homeowners in general just talking about how much nicer their house is since they put a heat pump in, whether or not they have a furnace. I kind of don’t care about the furnace anymore. If they do, great. If they don’t, great. I’m fine either way.
Stephen Lacey: So Jigar, if in two, three years time this market has made headway, what would you want to see?
Jigar Shah: I think in general, the whole purpose of these individual technologies is to stitch them together, in my opinion, into a more system-wide thought process. I think the only way to make electricity bills more affordable is to sell 3% more electricity every single year. If we’re not getting load growth, then you’re not able to spread the cost of the refurbishment of aging infrastructure, all that stuff along a bigger base of kilowatt hour sales. And so to me, I think the electric utility company, the manufacturers, the hyperscalers, frankly, I think everyone should be aligned in what a heat pump represents within a system-wide approach to electricity growth over time. And so that’s why I’m far more optimistic around where this is going to go because I think that heat pumps, electric vehicles, water heaters are going to be essential parts of getting to 20% demand flexibility across the entire electricity grid and selling more kilowatt hours. And to Nate’s point, I think you’re going to get a lot more comfort along the way.
Stephen Lacey: Yeah. I think the user experience is really key too. It’s pretty cool to have on-demand modular heating and cooling right there. You can program it. It has a very different feel to it. And so I will get behind calling it a two-way AC. I like it. I am sweating so much in my studio right now and it’s about time I go turn on my two-way AC. So Nate, thanks for writing this piece. I know you’ve been thinking about this for a long time and really appreciate you putting a framework around this. Well,
Nate Adams: It’s my pleasure. Thank you for publishing it.
Stephen Lacey: Absolutely. Jigar, good to see you.
Jigar Shah: Always. I’m a sucker for Nate.
Stephen Lacey: Nate Adams is the House Whisperer. If you want to check out his three-part series, we’ll link to it in the show notes. You can find it at Latitude Media. Jigar Shah is my regular co-host. Open Circuit is produced by Latitude Media. The show is edited by me, Stephen Lacey, Sean Marquand, and Anne Bailey. Of course, just find the podcast, the audio version anywhere you get your shows. And all of our video versions are on YouTube. Just subscribe to Latitude Media’s YouTube channel and all of our transcripts are at latitudemedia.com with supplemental stories. Thank you so much for being here every week. It’s good to see you. We’ll catch you next week.
