IRA Community Opportunity & Household Savings Calculations Methodology
Last updated: September 13, 2022
IRA Benefits Analysis
Rewiring America’s IRA Benefits analysis evaluates the potential value of average-household and community-wide financial benefits from residential electrification programs across the U.S. in the next 10 years. We model ongoing redemption of upfront discounts, tax credits, and performance rebates over a 10-year period according to an ‘adoption curve’ that assumes 40 percent year-over-year growth in household participation in relevant programs culminating in 100 percent participation in 2032. In other words, we do not constrain the analysis in terms of the funding for each program that was authorized by Congress as of 2022. Rather, we assume that demand for electrification will continue to accelerate due to increasing consumer and installer awareness, reduced equipment costs due to technological learning, rising fossil fuel prices, and other factors. We also assume that ongoing federal funding (in the form of future appropriations, government-enabled financing through the Greenhouse Gas Reduction Fund, the Department of Energy’s Loan Programs Office, and other sources) can and will be made available to meet this demand.
UPFRONT DISCOUNT PROGRAMS
HEEHRA: The High-Efficiency Electric Home Rebate Act (HEEHRA) provides point-of-sale rebates to replace fossil-fuel powered appliances for households below certain income thresholds. We use American Community Survey (ACS) data on household income and Department of Housing & Urban Development (HUD) data on area median income thresholds to identify the number of households within each census tract eligible for HEEHRA rebates. We then estimate the total amount of HEEHRA rebates per household based on typical equipment lifetimes and predicted replacement rates for all appliances covered by HEEHRA, and apply the total to the number of households to calculate an aggregate HEEHRA rebate by census tract and county.
30D and 25E: 30D and 25E provide transferable tax credits for purchasing a new or used electric vehicle. We use Internal Revenue Service (IRS) data to estimate the average tax liability by county eligible for the tax credits based on income, and we use ACS data to estimate the average number of vehicles per household by county. We assume vehicles are replaced with new (one-third) and used (two-thirds) alternatives in line with national averages, and we estimate the tax credit amount per household over the duration of the program.
Aggregation: To calculate potential community benefits, we sum total benefits across these three programs. To calculate average household benefits, we assume that two thirds of eligible households participate.
TAX CREDIT PROGRAMS
25C: 25C provides non-refundable tax credits to offset the cost of replacing heat pumps for space and water heating, as well as for replacing or upgrading a breaker box and home insulation. Using equipment lifetimes and predicted replacement rates, we estimate the expected amount of the non-refundable tax credit under 25C.
25D: 25D provides non-refundable tax credits for households to install solar and battery storage systems. For each state, we use US Energy Information Administration (EIA) data on electricity usage and prices, and NREL’s PVWatts Solar Resource calculator to calculate the average solar system size that meets one third of a household’s electricity needs for a typical household in each state – a conservate sizing assumption that accounts for the lack of net metering in some states. We use MarketWatch data on 2022 state-by-state solar costs to calculate upfront cost of a solar system and the expected tax credit amount. We further apply a 50 percent adoption rate to this tax credit due to solar-specific adoption factors (e.g. roof replacement, shading, existing solar systems). We use ACS housing unit data to estimate the proportion of single-family homes in each county and income group.
30C: 30C provides non-refundable tax credits to offset the cost of installing an electric vehicle (EV) charging station. Households are eligible for the 30C tax credit if they live in rural census tracts, census tracts with poverty rates greater than 20 percent, or census tracts with median family income less than 80 percent of the state median family income (or, in the case of metro areas, median family income less than 80 percent of the higher of the state median family income or the metro area median family income). Because rural/urban areas are defined by the census on the block level, we label an entire census tract as rural if the majority of households in that area are rural households. We use HUD, census, and ACS data to determine eligibility on the basis of income.
Aggregation: To calculate potential community benefits, we sum the tax credits calculated for the three programs above and use IRS data to ensure that the total tax credits do not exceed the tax liability for an average household within a county and specific income level. If the credits exceed liabilities, we set the claimed tax credits to the tax liability. To calculate average household benefits, we assume that two thirds of eligible households participate.
PERFORMANCE REBATE PROGRAMS
HOMES: The Home Energy Performance-based Whole-house Rebates (HOMES) Program provides performance-based incentives for home energy improvements. HEEHRA and HOMES cannot be stacked together, and HEEHRA rebates will generally be more advantageous for fuel switching from fossil fuels to heat pumps. Therefore, we assume that HOMES is primarily used to help households transition from electric resistance heating to electric heat pumps. We do not model broader energy efficiency measures (e.g. envelope upgrades), as this is out of the scope of this analysis. We assume that a household transitioning from electric resistance to a heat pump achieves 20 percent to 35 percent efficiency savings, yielding a $4000 rebate for low-income households and a $2000 rebate for all other households. We calculate the number of eligible households with electric resistance heating in each income category using income data from HUD and ACS and space heating information from ACS and the EIA’s 2020 Residential Energy Consumption Survey (RECS). To calculate average household benefits, we assume that two thirds of eligible households participate.
Household Savings Analysis
Rewiring America’s Household Savings analysis evaluates the ongoing energy bill savings potential that will result from electrification of space and water heating.
The costs of running a residential heat pump are dominated by its coefficient of performance (COP), that is, the amount of electricity required to deliver a unit of heat (no matter whether in the form of a heated space, hot shower, or a dry shirt). The COP is a function of ambient dry-bulb temperature, often reaching above 5.0 at 50°F and down to 1.5 at -20°F. Because of this temperature dependence, to calculate annual electricity bills we must look at every hour of the year individually, at every location in the U.S.
To do this, we obtain hourly temperature profiles on a 0.5 x 0.625 degree latitude-longitude grid from the NASA MERRA2 data set and correlate these hourly temperature profiles with hourly demand profiles to capture when households run their heating equipment. These hourly load profiles are available for every location in the typical meteorological year dataset (TMY3) in the U.S. from NREL. These two hourly series are used together with manufacturer-published performance curves to determine how much electricity is required to run the heat pump at every hour of the year. Critically, these performance curves must include parasitic effects, like the heat exchanger defrost cycle and other system losses.
For a given location, space heating heat pump models and sizes are selected by evaluating the number of hours with any unmet heating demand. (This is analogous to how heat pumps are sized during installation.) The small remaining unmet heating capacity is assumed to be supplied by backup electric resistance heat with COP=1.0. We then add up each of these hourly contributions to calculate total electricity use. Consumption for other fuels is obtained from the 2015 RECS. These fuel consumptions are converted to expenditures using local residential energy price data as of August 2021, obtained from the EIA's application programming interface (API).
For water heating heat pumps, we use the published uniform efficiency factor (UEF) rating to calculate baseline performance and add an interaction factor to account for the added load placed on the space heating system when a water heater is run inside a conditioned space.
We classify a household as "in the money" if it has at least one electrification project that saves money compared to current bills. In many cases, this electrification project is water heating. Savings are evaluated against an estimation of existing appliance stock. Savings due to improved air-conditioning efficiency of a new heat pump are not yet included, which will add to the amount of households saving money. Dehumidification and air-conditioning effects of heat pump water heaters are not included, which can also add to the savings.