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8 minute read
HVAC pros will lead another wave of home electrification, and the business-building opportunities are huge
Introduction
"Electrification" is a hot topic today, with strong feelings on both sides.
It’s odd that it is a buzzword today because electrification is anything but new. For example, “Total Electric Home” was a marketing initiative co-sponsored by General Electric and Westinghouse, not in 2024, but in the mid-1950s. 
Figure 1: Two images from Westinghouse’s mid-1950’s infomercial “Total Electric Home”
Electrification has been happening in the U.S. in waves for well over 100 years – big, infrastructure-shifting, way-of-life-transforming waves. This 100+ year trend is driven by something simple and durable: Americans' desire for reliable comfort in their homes at a reasonable cost.
Electrification has been happening in the U.S. in waves for well over 100 years – big, infrastructure-shifting, way-of-life-transforming waves. This 100+ year trend is driven by something simple and durable: Americans' desire for reliable comfort in their homes at a reasonable cost.
First it was about access to electricity itself, electric lighting, and food refrigeration. The second wave placed HVAC at the center of the electrification trend in the 1950s, when air conditioning became the anchor of comfort in the home; and a technical service industry – HVAC – was transformed to deliver that technology to homeowners across the country.
Today, we are entering the third wave of good, old-fashioned, American electrification. There is a new set of technologies in today’s home electrification, but HVAC remains the core with heat pumps and the electrification of both heating and cooling.
The fact that this is more of the same matters for HVAC pros. Contractors who view this latest wave as the next step of a century-long American electrification journey (vs. "new" and on the sidelines) will also recognize this as something the industry has seen before – and profited from. By orienting their businesses to ride (and lead!) the electrification wave, they will be poised to capture huge business-building opportunities, yet again.
Let’s unpack a bit of the history and why we’re so bullish on the business opportunity for heat pump pros.
Electrification is as American as apple pie
The story of American dynamism in the last 120 years is also the story of electrification. America’s ability to generate, transmit, and distribute electricity was a key factor in becoming the industrial and innovation titan it is. Americans’ favorite type of energy – by far – is electricity. Other forms of energy consumption have increased 410% in the last 100 years, which is a big increase. But electricity usage is up 10,600% (yes, that is ten thousand percent or 106 fold). 
Figure 2: Electricity consumption growth vs. other energy consumption growth
So it’s not even close.1
Americans' love affair with electricity has come in three distinct waves.
Electrification 1.0 (aka “Let there be light”)
From roughly 1900-1950, through initiatives like the Rural Electrification Act, America built out its power grids and brought electricity to every home in the country. This wave focused primarily on bringing light to American households, offering a safer and more reliable alternative to traditional sources of illumination.2 It was successful, with nearly 100% of U.S. households having electrical service by 1955. 
Figure 3: Percentage of US homes with electrical service
Fueling this transition was the rapid rise of a heroic and skilled workforce: electricians. We don’t use the term “hero” lightly. This work was dangerous, with literally life-or-death outcomes as standards, protocols, and codes were being developed in parallel. Though we take it for granted today, those heroes drove an extraordinary change in the lives of Americans.
With that groundwork laid, it opened the door to Electrification 2.0 and an explosion of innovations for home comfort and convenience.
Electrification 2.0 (aka “Let there be AC”)
After World War II, American living standards rose continuously. As that happened, a wide array of appliances – most of them electric – were bought and installed. 
Figure 4: Technology adoption in US households
Though you can see in the chart above that air conditioning (AC) was on the later end of adoption compared to, say, refrigerators, AC was the most significant appliance in the second wave of home electrification for two main reasons.3 First, AC is the single largest end-use of electricity in American homes, using 20-25% of total energy. 
Figure 5: Residential electricity consumption by end use4
Second, AC is the hardest and most complicated install. A refrigerator just needs to be plugged in. A dryer circuit is only slightly more complicated because it’s 220 volts, not 110. In contrast, central air requires a tailored solution to be appropriately designed (e.g., load calculations performed, equipment selected), and a team of experts to manage a complicated installation (which could require expertise in refrigeration, electrical, plumbing, sheet metal, and even carpentry).
Just as in Electrification 1.0, there were real challenges to rolling out this new technology: unprepared homes (e.g., most electrical panels were 50A service or less), workforce shortages, skill gaps, grid capacity issues, and more. Installers were competing with limited main panel space as homeowners were adopting refrigerators, electric ovens, clothes dryers, and other appliances for the first time. The HVAC industry transformed itself to overcome these barriers. It grew, it ramped up training, and it implemented new business models and practices. The demand for AC led to the birth of the modern HVAC industry.
The HVAC industry transformed itself to overcome these barriers. It grew, it ramped up training, and it implemented new business models and practices. The demand for AC led to the birth of the modern HVAC industry.
While the industry grew to meet the demands of designing, selling, and installing this new technology, it also catalyzed a change in the electrical grid. As the single largest consumer of residential electricity, AC was a significant driver of new electrical demand that risked straining the grid. But the grid kept up, adding 5% capacity year over year from 1950-2000.5
Bringing central air conditioning from 0 homes to 83 million American homes created enormous challenges for the HVAC industry, and the HVAC industry rose to meet those challenges. In doing so, they were the front-line leaders transforming American homes, helping to upgrade electrical service, installing ductwork, and pushing the grid to be bigger and more reliable. We take our indoor conditioned spaces for granted today, but this shift was a herculean effort across the countless businesses and people who make up the HVAC industry. HVAC was the face of a new definition of comfort in American homes made possible by electrification. They did the hard work and built the businesses which led to a generational shift in infrastructure.
That’s why we call the HVAC industry the leaders of Electrification 2.0.
Electrification 3.0 (aka “Let there be heat pumps”)
Electrification 3.0 is the wave we are currently in. Just like 1.0 and 2.0, it is being fueled by the benefits to homeowners, which today (as in the past) are comfort, convenience, cost, and resilience. Electrification 3.0 includes many things (see image below). It’s not hard to recognize the size of the business opportunities here. 
Figure 6: Electrification 3.0 components
Just like in Electrification 2.0, multiple trades will be involved in this transition. Just like in Electrification 2.0, HVAC contractors will be competing for electrical panel capacity.
And just like in Electrification 2.0, we believe HVAC is the central trade involved in Electrification 3.0 and the one with the most to gain. Here’s why.
And just like in Electrification 2.0, we believe HVAC is the central trade involved in Electrification 3.0 and the one with the most to gain.
At Amply, we started out with boots on the ground, in the field working for homeowners to help them electrify their homes. We did everything in the graphic above plus weatherization. For every project we ran, HVAC was #1 in every category that matters:
- #1 in complexity: the trickiest transition is moving to heat pumps for heating given they work in fundamentally different ways than furnaces and boilers
- #1 in cost: HVAC is usually the most expensive retrofit
- #1 in energy: HVAC, particularly heating in the northern half of the country, uses more energy than anything else in the home (and therefore the highest emissions too)
- #1 in savings: HVAC is often the most significant source of utility bill savings, particularly in areas that rely on delivered fuels like propane and oil
- #1 in comfort: HVAC is the only system that impacts a homeowner’s quality of life every second of every day6
It was clear to us that the HVAC pros who make it their mission to excel at heat pump retrofits will win big. This third wave, like the waves before, feels unstoppable. Heat pump installs have already surpassed furnaces in 2022 and stayed there even in the downturn in 2023.7
Figure 7: ACHR news, heat pump sales compared to gas furnace sales
Now, for all that exciting growth, as they lead the next home electrification wave, HVAC businesses will face a host of big challenges:
- New tech: modern inverter-driven, variable-speed heat pumps will be new for lots of companies, and the learning curve is steep
- New fuel/chemicals: instead of oil and gas, HVAC contractors now have to learn about managing higher electrical loads and handling a new generation of refrigerants (i.e. A2L refrigerants8)
- Unprepared homes: some homes won’t have the right ductwork, a good building envelope, panel space or electrical service to be compatible with heat pumps
- Customer education: New equipment types, understanding how insulation and air sealing interplay with heat pumps, new rebate programs, new controls and new behavior best practices (“set it and forget it” to maximize efficiency and comfort instead of “schedule nightly setbacks”)
- Workforce: HVAC contractors need to hire more people and train them on this new technology; experts in design and sales (accurate load calcs and equipment selection will be crucial) and electricians will be critical additions to many crews, especially in heating-dominated markets
But this is nothing that the HVAC industry hasn’t seen before. Broadly speaking, all five of those challenges were present in Electrification 2.0, and all five of them were met by HVAC pros who made it their business to tackle them – and made thriving businesses in the process. We did it once, we can do it again.
Conclusion
All this talk of “electrification” isn’t new. It’s the continuation of a 100+ year trend in America of providing better comfort and convenience to homeowners. And as it has been since ~1950 when AC took off, the HVAC industry will remain at the center of this trend.
Delivering (once again) the electric future of HVAC into American homes at speed, at scale, and at high quality will be no small or easy feat. We do not want to downplay that.
Though the challenges of Electrification 3.0 are real, they are nearly identical to the challenges the HVAC industry saw – and overcame – during Electrification 2.0. In challenge, there is opportunity. Opportunity to build large and profitable businesses, and opportunity to make homes more comfortable, resilient, affordable, and sustainable – something Americans can’t seem to get enough of, 100+ years and running
We are seeing a rise in a new kind of HVAC company, one that is focused primarily or even exclusively on heat pumps. They tell us focusing on heat pumps resonates with homeowners, simplifies their operations and inventory, lets them hire great people, and increases their profitability. If history is any indicator, these heat pump entrepreneurs will lead this 3rd wave of home electrification, and the business-building opportunities are huge.
Though the challenges of Electrification 3.0 are real, they are nearly identical to the challenges the HVAC industry saw – and overcame – during Electrification 2.0. In challenge, there is opportunity. Opportunity to build large and profitable businesses, and opportunity to make homes more comfortable, resilient, affordable, and sustainable – something Americans can’t seem to get enough of, 100+ years and running
Footnotes
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If you think it’s just because electricity started from a low base in 1920, the point is the same if you start the clock much later. For example, starting in 1950, electricity is up 12 fold while other energy use is only up 2.5 times.
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Fun fact: before 1936, many farms had off-grid wind turbines with 40V generators and lead-acid batteries for lighting, pumping and refrigeration. https://www.eia.gov/energyexplained/wind/history-of-wind-power.php
- Note that 67% of US homes have central air as of 2020; the remainder use window units; https://www.eia.gov/consumption/residential/data/2020/#ac
- Source for residential consumption by end use:
https://www.eia.gov/energyexplained/use-of-energy/electricity-use-in-homes.php; note we combined two separate bars for cooling and for the air handlers associated with cooling to show the total % for air conditioning
- Source for grid expansion: https://www.eia.gov/totalenergy/data/annual/showtext.php?t=ptb0802a
- This is why Alex Meaney often says, “HVAC is the only trade that is blamed for everyone else’s mistakes.” For example, if the insulation is done poorly or the house is leaky, these mistakes manifest as comfort problems, and the first call goes to the HVAC company.
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It’s worth noting that heat pumps have not yet overtaken standard air conditioning units, which is puzzling. Why buy something that only has half the capabilities and can only be used ~1/3 of the time when for $500-1500 more you can get a fully functional product you can use all year that provides better comfort?
- A2L refrigerant info: https://www.iccsafe.org/building-safety-journal/bsj-technical/epa-phasedown-of-hydrofluorocarbon-hfc-refrigerants-where-do-we-stand
