Study says more heat pumps could cut Michigan home electricity bills by as much as 27%

Michigan has room for 3.6 million residential heat pumps, and a new analysis says that widespread adoption could reduce home electricity rates by as much as 27%. The potential savings would not depend on every household switching to electric heating and cooling.

Key takeaways

According to Canary Media, clean energy think tank RMI looked at 24 states and Washington, D.C., where winter grid capacity is largely underused. The research suggests that major heat pump adoption and expensive grid expansion do not necessarily have to occur together.

Beyond their climate and air-quality advantages, heat pumps can make use of electricity capacity that sits idle in winter. In warmer months, they mainly replace less efficient air conditioners, and summer afternoons are often when power demand peaks in much of the country.

Across the regions studied, RMI estimated that installing as many heat pumps as the existing grid could support would lower residential electricity prices by an average of 13% compared with their inflation-driven path. That works out to roughly $200 a year per customer, with Michigan showing much larger possible reductions.

Additional context

Electricity rates include more than the energy households consume. They also help pay for poles, wires, transformers, power plants, and utility profits. Using more electricity in winter could spread those fixed costs across more kilowatt-hours without requiring new grid capacity.

Even so, the projections describe possible outcomes rather than guaranteed results. The researchers did not have utility-level data to sharpen the estimates, and lower electricity rates do not automatically translate into smaller bills for households that replace their heating systems.

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Parth Vaishnav, an assistant professor of sustainable systems at the University of Michigan, co-authored a 2024 study that found that replacing gas with a heat pump could raise some households' annual bills by more than $1,000 at the fuel prices used in that analysis, according to Canary Media.

RMI did not estimate how bills would change for households that make the switch. Those costs depend on insulation, equipment efficiency, the heating system being replaced, and the relative prices of different fuels.

What could help?

One option would be to let existing oil and gas heaters handle the coldest periods instead of forcing heat pumps to do all the work. RMI found that this hybrid setup would allow more heat pumps to fit within current grid limits.

In Illinois, the modeled mix that best used existing grid capacity while reducing rates was 79% hybrid systems and 21% heat-pump-only systems, Canary Media reported.

That strategy could cut pollution more than installing fewer heat pumps, because some systems depend on electricity-hungry resistance backup heat, which limits how many can be added without expanding the grid.

Vaishnav has suggested requiring replacement central air conditioners to be heat pumps while leaving existing furnaces in place. Another possibility would be encouraging manufacturers to build two-way heat pumps instead of cooling-only units.

Regulators could also encourage adoption by lowering winter electricity rates for heat-pump users. Canary Media reported that this approach produced at least $37 million in savings for Massachusetts customers who use heat pumps in winter, and RMI found that similar incentives could help other customers as well.

Still, the longer-term aim is to heat homes without non-renewable energy.

“Our hope is that over the coming years, the economic case to go for an all-electric heat pump starts to be more affordable over time,” Ryan Shea, a co-author of the study and a manager with RMI's carbon-free buildings team, said, according to the report.

Where can I learn more?

These stories provide more background on how winter electricity discounts and heat pump efficiency can affect household energy costs.

• Two Massachusetts utilities cut winter rates for heat pumps, drawing interest in Connecticut.

• A heat pump owner considered the electricity savings from modern equipment before sizing a solar installation.

• U.S. heat pump sales doubled over 15 years and now outpace gas furnaces.