J.P. Morgan Private Bank CIO Michael Cembalest on the Energy Transition | Part 3

Represent a large share of how commercial building and homes are heated in new construction in the U.S. and Europe

• Europe has recommended uptake in electrification of home heating as one way to reduce reliance on Russian energy
• Some places have banned combustion of fossil fuels in new residences starting in some future year (Ex. San Francisco, San Jose, Denver, Seattle, NYC)
  • NYC: last December city council banned gas powered heat and stove appliances in newly constructed buildings
    • takes effect in 2023 for buildings 6 stories & below, and by 2027 for all new construction
• Baseboard heating is incredibly inefficient

Many different heat pumps, air to air is most commonly used

• How it works:
  • There is some heat in the air, even when it’s very cold
  • Refrigerant flows through a coil outside the house that can extract heat from the air
  • Refrigerant absorbs heat and it gets turned into vapor
  • Warm refrigerant then gets circulated with a compressor that increases pressure and temperature
  • Heats interior of house
• Compressor is main electricity using component – only using electricity for heat transfer, which is less energy than resistance heating

Heat pumps can have coefficients of performance of 2,3 as high as 4

• Coefficient of performance – amount of heat you get per unit of electricity

Downsides

• Electricity is much more expensive than natural gas
• Heat pump coefficients of performance need to be very high in order to have both climate benefit and economic benefits for people to adopt
• Last 3 winters –> avgerage residential electricity prices in largest states ranged from 2x to 5x higher per unit of energy than nat gas
• Main issue for heat pump adoption: incremental cost of electricity vs. direct combustion of fuel

What happens to peak loads if everyone uses heat pumps for winter heating and gets rid of backup thermal systems?

• For example – get rid of natural gas system, or new construction w/ no backup thermal power
• Most days would be fine
• On very, very cold days could have spike in electricity demand that overwhelms existing grids
• Peak loads could double in large parts of US if everyone used electric heat pumps
• Need to build grid to handle the peak load
• Allowing natural gas as backup, which could be used only on coldest days, would solve peak load problem but cause another:
  • Likely it would not be economically viable for natural gas, fuel oil, propane industries to maintain infrastructure required for backup systems if they’re only being used a fraction of the time