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A Vermont natural gas utility is expanding into a new and unexpected line of business: helping customers switch to electric appliances.
Vermont Gas Systems (VGS) announced in December that it would begin selling, leasing, installing and servicing electric heat pump water heaters for customers in and around its service territory in the northwest part of the state.
The move comes as Vermont’s 2020 climate law raises existential questions about the future of fossil fuels in the state. Achieving a mandatory 80% reduction (from 1990 levels) in greenhouse gas emissions by 2050 will all but require a reduction in natural gas sales.
“By offering this, VGS is helping Vermont achieve the climate action goals established by the Global Warming Solutions Act,” said Ashley Wainer, the company’s vice president of customer and energy innovation.
The company’s motivations aren’t entirely altruistic either. In a filing to state regulators in November, VGS explained that its “behind-the-meter” installation and maintenance services are an important source of revenue, expected to bring in about $1,175,000 in net revenue for the 2022 fiscal year.
“These services are a profitable part of VGS’s overall business, and the associated revenue reduces our [cost of service] and therefore reduces customers’ rates,” the company wrote.
VGS is Vermont’s only natural gas utility, serving around 55,000 customers in the northwestern part of the state. Its electric heat pump pilot program will also be offered to Vermonters within 5 miles of its territory, adding an estimated 36,000 homes.
The company doesn’t expect the fuel-switching trial to noticeably reduce revenue. It told regulators that it intends to spend $20,000 on the program in its initial year while charging customers an hourly rate for labor plus a 35% mark-up on materials. If the company were to install 500 units under the program in the 2022 fiscal year, it would add another $68,000 in expected net revenue, according to VGS’ filing with regulators. For any customers not currently served by its pipelines, the business would be new revenue.
The purpose is to better assess demand, its capacity to meet that demand, and how to market the program. “As insight is gained through assessing the best way to promote greater adoption of this technology, VGS will have a clearer understanding of how many HPWHs [heat pump water heaters] can be installed each year, which will also depend on our field service team’s capacity,” it wrote to regulators.
Offering heat pump water heaters will help jumpstart progress on the state’s climate goals, the company said, and is also “allowing us to position ourselves a little more broadly as a thermal solutions provider that isn’t focused solely on fossil fuel gas,” said Richard Donnelly, director of energy innovation for VGS.
VGS’ service crew of about 25 technicians, which until now has been installing natural gas water heaters, will be trained to install the new equipment. As Vermont deals with hiring challenges in the clean energy sector, VGS said this crew will help increase the state’s clean energy workforce.
Vermont, like other states, has a legally binding decarbonization plan that includes reducing greenhouse gas emissions by 26% from 2005 levels by 2025 and 40% from 1990 levels by 2030. State-led policies and advocacy efforts often focus on electrification of the heating sector rather than shifting to fossil fuel alternatives like renewable natural gas to heat homes and businesses.
VGS has its own goal to be carbon neutral by 2050. The company also offers weatherization services and was among the first natural gas utilities in the country to start mixing renewable natural gas into its fuel supply.
The state relies mostly on oil and propane for heating. Customers who purchase or lease heat pump water heaters from VGS will be able to access rebates for them, which total as much as $800 depending on customers’ income and are offered through Vermont’s electric utilities and the efficiency utility Efficiency Vermont. That can bring the upfront price down closer to natural gas water heaters, which range from about $2,000 to $3,500, according to VGS.
Donnelly added that offering heat pump water heater installation should make VGS a more valuable partner to Efficiency Vermont and the state’s electric utilities. Those utilities, such as Green Mountain Power and Burlington Electric, are required by state law to invest in programs that incentivize customers to adopt electric devices like heat pumps and heat pump water heaters. VGS’ new offering should complement those programs, he said.
It could also show a potential path for growth even if natural gas declines as a heating fuel. The company charges between $60 and $250 per year for its heating and water heater service plans. Other natural gas utilities have similar offerings with premium tiers that cover non-gas appliances.
Rick Murphy, a managing director at the American Gas Association, said he was not aware of any other members offering similar programs that help customers switch to an electric appliance. A colleague said the program would likely draw interest from across the country.
“A lot of our members, I think, will be watching to see how this program works as they design decarbonization programs that work for their service territories,” said Emily O’Connell, the gas association’s senior director of policy and analysis.
In Vermont, clean energy advocates are encouraged by the utility’s heat pump water heater program and not surprised based on its other climate efforts.
“I think this program is clear evidence that VGS is looking to the future, recognizing that we need to reduce reliance on imported fossil fuels including natural gas, and they’re embracing a business model that will serve them well, likely into the future,” said Johanna Miller, energy and climate program director at the Vermont Natural Resources Council.
Vermont’s recently adopted Climate Action Plan and the recently updated Comprehensive Energy Plan recommend the implementation or consideration of a clean heat standard, which would require fuel suppliers to decarbonize their building heating fuels.
Matt Rusteika, senior policy analyst at Acadia Center, said the move makes sense given Vermont’s emission reduction goals. An Acadia Center analysis, based on natural gas industry research, estimated that renewable natural gas could potentially satisfy only about 7% of current fossil gas consumption by 2040. “Decarbonization in buildings requires electrification,” he said.
The VGS program is a yearlong pilot, but the utility said it plans to continue after the first year while officials assess how the pilot went.