A Closer Look: Strategy Details

Establishing an Incentive Level

The higher initial cost of ENERGY STAR certified HPWHs cannot be ignored. As of spring 2024, the per-unit cost of a unitary 50-gallon 240-volt electric heat pump water heater ranged from $1,500 to $2,000, whereas the cost of a standard electric storage water heater ranges from $400 to $900. A comparable gas storage water heater ranged in price from $400 to $1,000 (several hundred dollars more for power vent models). 

Average HPWH                                             $1,750 

Average Standard Electric model              $650 

Average Gas Storage WH (40 gallon)       $700

Several well-established efficiency programs continue to underscore the effectiveness of eliminating the first cost decision by raising incentive levels to minimize any difference in the “out-the-door” price. For example, Efficiency Maine aims to keep the out-the-door price at retail equal to the cost of an electric storage water heater, while for distributor sales, they’ve found that it’s been important to lower the cost around $100 below the cost of electric resistance models.  

Emergency Replacement vs. Proactive Replacement 

Installing HPWHs sometimes requires more planning than installing standard gas or electric water heaters. A contractor must consider the installation's electrical capacity, adequate air supply, drainage, noise, and other factors. Sometimes, these items may require upgrades to facilitate the operation of a HPWH, which can take multiple contractor trips or occur over several days. Because of this, making the case for a HPWH can become more challenging when the unit is being installed on an emergency basis due to the failure of an existing water heater.

Many customers do not think about the age of their water heater and may not know that their current unit is on the edge of failure. To successfully install HPWHs, it is best to promote the early replacement of existing water heaters. Waiting until failure can leave customers without hot water during essential times, incurring extra fees for weekend or overnight replacement and leaving out opportunities for budgeting and financing. Early replacement can save customers from these headaches and create a seamless transition from inefficient water heating to a new HPWH.

Utilities and distributors have found creative ways to promote early replacement. 

1) Cross-promote with utility incentive programs

Does your utility run a home energy checkup program? These face-to-face touchpoints with customers can be a great opportunity to explain the benefits of a HPWH, educate ratepayers on the age of their current unit, and encourage early replacement. Incentive programs can improve the economics for early replacement by offering an extra incentive or bonus when a customer replaces a preexisting water heater that is still in working condition. These incentives can help customers justify early replacement financially and create a sense of urgency. 

Utilities and contractors can also create engaging social media giveaways to encourage customers to learn more about their water heater's age and functionality. A popular example is to offer a free HPWH to the customer who submits a photograph of the oldest operating water heater. These contests can generate social media buzz while also allowing customers to look at their own water heater and consider replacement. 

When promoting efficient lighting in the early days of CFLs and LEDs, people were often hesitant to replace their still-operational light bulbs despite being informed that efficient lighting has short payback periods and longer lifespans. Efficiency programs can utilize lessons learned from lighting to help launch broad-scale deployment of heat pump water heaters. 

 2) Consumer Marketing

Educating customers is essential, as consumer demand has been a significant driver of successful HPWH programs. Consumer education can occur through advertising and resources like blogs, videos, demonstrations, and more. Consistently build awareness about available products, their benefits, and incentives. Ensure customers can easily access a list of trained plumbing contractors who can install and sell HPWHs. 
 

Update your website regularly to reflect all financial incentives, including utility rebates, state rebates, and federal tax credits. ENERGY STAR offers partners a free HPWH marketing toolkit with images, graphics, social media copy, and more.

Additionally, ENERGY STAR has worked with partners to develop videos highlighting the installation of HPWHs. These videos show customers and contractors the benefits of HPWHs and what to expect during the installation process. Check out the videos in the accompanying resource library.

Audience Snapshot: Consumers

Consider these messages in consumer-facing materials

3) Distributor Focused or “Midstream” Program Design 

The importance of a distributor focused, or “midstream” program design cannot be overemphasized because it has been shown that with the right incentives trade allies can move the market much more quickly than standard consumer rebate programs. “Midstream” refers to the place where incentives are provided in the supply chain. “Upstream” rebates target manufacturers, “Downstream” rebates are provided directly to the customer by the utility, and “Midstream” rebates are given to the distributor or contractor to pass the incentive, or a portion of it along to the customer upon installation of a product. 

In the distributor-focused midstream program approach, efficiency programs enter into a cooperative agreement with wholesale distributors to provide discounts on eligible efficient equipment. Distributors strongly influence product selection by offering expert advice and training on the latest products to HVAC contractors and plumbers. Most programs require the distributor to pass along the entire discount to the contractor and some put systems in place to assure the contractor passes the discount to the customer. By targeting distributors, programs increase the availability and selection of energy-efficient products to a broader contractor network, therefore increasing the likelihood customers purchase more efficient equipment.

Distributor-focused midstream programs provide benefits for all the market actors in the sale of a HPWH.

The program administrator:

• Realizes improved program delivery by eliminating rebate breakage, reducing market confusion, and improving customer, distributor and contractor understanding.
• Transforms market by increasing stock of efficient equipment available in distributor inventory. This leads to efficient equipment, available for same day delivery, installed during “emergency replacement” scenarios that heavily favored conventional units in the past.
• Focuses limited funds on a smaller audience – wholesale distributors in their service territory – to reach more contractors and customers, leading to higher energy savings at lower program costs.
• Benefits a more diverse socio-economic range of homeowners as price differentials are reduced and distributors/contractors make energy efficient units the default installation.

The manufacturer:

• Increases sales of higher margin energy-efficient products.
• Can focus energy efficiency outreach efforts (distributor relationships, manufacturer discounts, etc.) in service territories where midstream programs exist.

The distributor:

• Makes more profit per unit sold with energy-efficient equipment if the program.
• Earns a competitive advantage by becoming expert in energy efficient equipment and incentive processing as midstream incentive structures spread to other programs across the country.
• Can earn an administrative fee per transaction to ease incentive processing burden.

The plumber or HVAC contractor:

• Avoids paperwork and waiting for incentive checks for their small business because the rebate is “instant.”
• Receives training/education on energy efficient equipment from a familiar source – the distributor or manufacturer representatives – and delivers quality installs with fewer callbacks.
• Passes along the distributor discount to the customer and maintains competitive quotes and wins jobs.
• Meets customer demand for efficient equipment and is a trusted resource for energy saving options.
• Builds reputation by being a “green” or “energy-efficient” contractor or plumber.
• Program designs should include “midstream” incentives with market actors.
• Equip market actors with sales training and updated resources so contractors can sell and market product effectively.
• Recruit plumbing contractors for utility Trade Ally Networks.

The homeowner:

• Is no longer limited to only standard efficiency equipment available during emergency replacement.
• Saves money upfront when plumbers and HVAC contractors pass along the instant discount, avoiding the burden of downstream rebates (e.g., evaluating energy savings, determining eligibility, filling out paperwork, and waiting for an incentive check).
• Reaps impressive annual savings over the lifetime of the product.
• Is inclined to consider other energy efficient residential products like heat pump dryers or smart thermostats after purchase of an efficient water heater.

Midstream programs have shown great success in a number of markets. 

Efficiency Program	Measure	Increase in Participation Year of Year following Introduction of Midstream Program
	ENERGY STAR Certified HPWH3	423%4 (PYI) 5
	ENERGY STAR Certified HPWH6	750%7
	ENERGY STAR Certified HPWH8 and Natural Gas Water Heaters9	1000%10 (PY2)

Next:  Distributor Engagement  >