Nate 'the House Whisperer' and the Realities of Home Electrification
*This episode is part of our Skilled Labor Series hosted by MCJ partner, Yin Lu. This series is focused on amplifying the voices of folks from the skilled labor workforce, including electricians, farmers, ranchers, HVAC installers, and others who are on the front lines of rewiring our infrastructure.
Today, we're taking a slightly different spin. Instead of focusing on what it'll take to electrify homes, as we've heard in past episodes, we're talking about why it's currently not working as well as it should and the key barriers preventing us from moving faster on the home decarb adoption curve.
Many of you know our guest as Nate "the House Whisperer”. Nate Adams is a longtime HVAC insulation and sealing contractor who lives in West Virginia and describes himself as "a bit unusual in the climate community," coming from the right side of the political spectrum. And he is one of home electrification's fiercest and most consistent advocates.
Yin and Nate cover a lot of ground in this episode, including the dangers of positioning policy rebates and savings to consumers at the beginning of their purchase journey. We uncover that OEMs can convert most air conditioners in factories and warehouses into heat pumps, addressing the current market supply shortage, along with exploring the reasons behind the hesitation to do so. Finally, we discuss how going all-electric is not the solution that gets us to scale and that hybrid systems are the actual silver bullet. There are some controversial and counterintuitive bits coming up and if you want to ask Nate more questions after you listen, stay tuned for an upcoming AMA session with him on the MCJ Slack.
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Episode recorded on Sep 13, 2023 (Published on Nov 15, 2023)
In this episode, we cover:
[04:01]: Nate's background and how he became "the House Whisperer"
[06:58]: Issues with oversized furnace design and sizing
[10:55]: The concept of definite optimism and indefinite optimism in relation to the future of electrification
[13:12]: Friction between conservative contractors and climate-focused homeowners
[16:32]: The importance of positioning policy rebates and savings to consumers
[24:46] How IRA performance requirements disqualify 80-85% of equipment models
[29:18]: Overview of the biggest barriers to electrifying homes
[32:06]: Upstream vs. midstream and potential of converting all ACs to heat pumps
[34:36]: Mandated heat pumps in Vancouver, BC
[38:31]: Psychology as a barrier to electrification
[41:02]: How hybrid systems can reduce fear of heat pumps for both contractors and homeowners
[47:26]: Nate's HVAC 2.0 business model improves contractor and homeowner experience
[49:57]: The launch of Nate's air sealing course and Home Comfort Book
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Yin Lu (00:00):
Electrification will help enable the United States to reach net-zero emissions by 2050. That's the vision set out by the current administration. A big part of that is home electrification. Ensuring that in a future state, each home in the United States is running fully on electricity to power its cooling, heating, lighting system needs. Today we're taking a slightly different spin than normal and focusing not on what it'll take to electrify homes, as we've heard in past episodes, but instead focus on why it's currently not working as well as should be, and the key barriers preventing us from moving faster on the home de-carb adoption curve. Coming in hot is Nate Adams to give us his take. Many of you know him as Nate the House Whisperer. He is a longtime HVAC insulation and ceiling contractor who lives in West Virginia and describes himself as "a bit unusual in the climate community", coming from the right side of the political spectrum. And Nate is one of home electrification's fiercest and most consistent advocates.
(01:01):
A few carrots to dangle out there to listen for. One, why positioning policy rebates and savings to consumers at the beginning of their purchase journey is a dangerous game. Two, that OEMs can turn most air conditioners currently in factories and in warehouses into heat pumps to solve the supply shortage on the market today. And why people aren't doing so. And yes, you heard right. Turning air conditioners into heat pumps. Three, how going all electric is not the solution that gets us to scale and that hybrid systems is actually the silver bullet. There's some controversial and counterintuitive bits coming up and if you want to ask Nate more questions after you listen, tune in for an upcoming ask me anything with him on the MCJ Slack. All right, let's get to it.
Cody Simms (01:48):
I'm Cody Simms.
Yin Lu (01:50):
I'm Yin Lu.
Jason Jacobs (01:51):
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu (01:57):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (02:03):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Yin Lu (02:16):
Last time we chatted, you had reminded me of this framework that I've forgotten about that Peter Thiel wrote in Zero to One about how different people think about the future and on one axis you have definite and indefinite and on the other axis you have optimism and pessimism. And let's just take the optimism column. Definite optimism. Indefinite optimism. And I want to get your perspective on that vis-a-vis the road to electrifying every home in America. So for those who aren't familiar with the framework, definite optimism is a future where we believe it'll be better than the present, and if you make plans for it, it will be better. So examples of this is building the interstate highway system in the '50s. Indefinite optimism is the future will be better, but we're not sure exactly how and there aren't systematic plans in place to make it happen.
(03:04):
So we expect positive outcomes and there's a lack of coordinated effort to get there. Electrification of all the 100 million single family homes in the states that need to be electrified, I think maybe like 20-ish percent are already on their way if not there, but the other 80%, how are we going to get there? On the one hand, you can argue that at a macro level, the IRA is the plan and a micro level, you see a lot of companies, small, medium businesses tackling these problems from various angles. But on the other hand, shit, that's a lot of homes to do in the next what, 25 years? 2050 is the vision.
Nate Adams (03:39):
Yeah. Ideally. We really need to get going. Five years ago would've been good.
Yin Lu (03:45):
I wanted to spend time with you today as you deem yourself a rabble-rouser and a person very well acquainted with the HVAC space. What you think where we are on the spectrum and what are the fundamental barriers if we are in your estimation, closer to the indefinite optimism side. Want to hear that. But maybe before we go down that path, Nate the House Whisperer, Nate Adams of HVAC 2.0, can you give our listeners a bit of background about you and how you got to this place in your career?
Nate Adams (04:14):
I am definitely a misfit in the space. I'm generally a misfit wherever I am. I've never really fit in anywhere. I also call myself a boundary spanner and actually did a podcast with my buddy Obi, who's in Winnipeg, Canada, who's also a fellow boundary spanner because I'm comfortable on left and right of the spectrum. I'm comfortable with low-income people. I'm comfortable with high-end people. I can play anywhere, but it makes me feel like I don't belong anywhere. But backing up to how did I land here, of course like most stories, it starts with I needed a job. My wife actually found an ad for an inside sales position for a distribution company that did fiberglass. Sold fiberglass to contractors that insulated new homes. This was back in '05.
Yin Lu (04:57):
So this is beginning of your career.
Nate Adams (04:59):
Very beginning. Well even before that was working for my father who had two manufacturing companies. So that's really my roots. Family business, we'll just say it's challenging and leave it at that. It wasn't pretty. The next piece of the transition. It would've been easier if I'd just gone to work for a company out of college. But anyway, started in inside sales, moved to outside sales, started learning about building science and how houses work. I've always liked houses, I've liked people, I like physics. So when you put those together, I'm in a really good spot because I deal with housing, people and physics. So that job sadly evaporated with the housing downturn. So early '09, I lost my job. Two weeks later my wife lost hers in a completely different industry. She was a web designer then. Now she does user experience. And so I started an insulation company just doing retrofits because we needed to make money now and there were no jobs.
(05:52):
That was when all the headlines were like 500 resumes for a job. And I'm like, yeah, I don't even want to go through that. It's going to take me months and months to maybe find something that I probably won't like in the end. That's the likely path. Started doing the insulation and got kind of frustrated with it because fairly often I would not solve problems for clients and I didn't understand why and met the guy who's now my business partner, Ted Kidd, and he showed me the other side, which is HVAC, heating and cooling. So when you're trying to make a house comfortable, which is fundamentally what we've gotten good at, I mean that's why my nickname is the House Whisperer, insulation and air sealing are on one side, HVAC is on the other. It's like human health, you have diet and exercise. Those are your two main pillars and you have to figure out what are you putting into your body and are you expending it correctly and taking care of your body. Houses are the same way. So I was dealing with one side of things but not the other. And so sometimes it would work and sometimes it wouldn't. And once that became clear, I understood what was going on, we could begin to predict what it would take to do things.
Yin Lu (06:58):
So a customer would talk to you and say, "I need better insulation. My house is not comfortable." And you'd go and you install it, but they're like, "I'm still not happy."
Nate Adams (07:06):
Yeah. Or we'd make it worse.
Yin Lu (07:07):
And then the HVAC side was missing.
Nate Adams (07:09):
One bad part is because HVAC tends to be drastically oversized. The typical furnace is about three times as large as it actually needs to be on average, which is good because heat pumps are about a third the size of the typical furnace.
Yin Lu (07:22):
Why have furnaces been designed in such a way that feels inefficient? Is it a function of design and houses getting smaller? But that's not right because houses have gotten bigger over time.
Nate Adams (07:32):
They've gotten bigger, so they've gotten a little bit tighter. Part of it is the old furnaces that were put in were like 60% efficient and now they're 95% efficient. So where 100,000 BTU furnace used to put out 65, now it puts out 95,000 BTUs. Standard heat pump, your most common size is a three ton, which is 36,000. So roughly a third of a 100,000 BTU furnace, which is one of your most common ones. 80s and 100s are usually the two most commons that I see in the field. Sometimes you'll see a 60. It's messed up that they go in that big, but people are chicken and fundamentally what a contractor doesn't want is a callback on that cold day that the client's house won't heat because that's a no money call while they should be out making money. Because the vast majority of HVAC is replaced in an emergency situation. So it gets really cold, the furnace starts running a whole lot and that's when it conks out because you're pushing it near its limits. So the contractors don't want a callback on that and so they're afraid of it.
Yin Lu (08:30):
So you overcompensate with the size and the potential output.
Nate Adams (08:34):
Yeah. One example I use is it's like going to a dealership to look for something to pull a trailer, but you don't tell the sales person what your requirements are and you're only going to pull a 3,000 pound trailer. You can buy almost anything and do that, but it's like if it doesn't tow it, I will come back and I'm going to kill you if it doesn't work. Or you're going to have to buy it back and it's going to be really expensive, whatever it is. So you're going to walk out of there with a diesel dually that can tow 20,000 pounds. You only need 3,000. It's not a big deal. But HVAC contractors act the same way because so few actually know how to size things and then the industry standard load calc tool, which is called Manual J, is very consistently twice as large as it needs to be. Very consistently.
(09:19):
You can almost always cut it in half and still be okay. But how do you get an HVAC contractor comfortable with that? Because they go and they plug a few numbers into a calculator and it spits out a number that says 70,000 when reality's 35, which is a pretty consistent sort of thing that you see. And so that's really problematic. So anyway, I was learning all of that and the beginning of the heat pump actually went back to my partner who loved hybrids. So he was always selling hybrids when he was selling HVAC and doing home performance work. And he'd gotten my attention by saying my average job was $16,800, which at the time a typical HVAC job was like five or six. This is '08, 2010, something like that. So I'm like, "What are you doing?" And in insulation, my average ticket was 2,500 bucks, which is almost nothing really.
(10:06):
And it was so much work to do that I was working 80 hours a week to keep a crew of three working 30 and it just burned me out. When I knew that I really needed to shift, my wife looked at me one day and she said, "Nate, can I have one evening alone with you a week?" And I told her no. Because I was just at wit's end trying to keep up with everything. Just toast. And that is a very common contractor life. And that ties into electrification as well. That is the life of the typical HVAC contractor. They're just doing everything they can trying to hold things together and then we're layering on these pretty strong difficulties and also very high uncertainties. So that's really problematic. And pulling it back to where we were beginning with the indefinite optimism, the electrification movement, at least for homes ...
(10:55):
For other things, I think we're moving to definite optimism. We're getting lots more manufacturing here, which I'm generally very happy with, aside from what may make things even trickier with China. Right now, that concerns me. All of the onshoring. But it's good to bring some of the manufacturing back. It looks like we're going to get a huge boost for generation, for batteries, for solar. All those sorts of things look like they're going to go well. But on the home side, I wish we could launch those programs into the sun. They make our lives significantly more difficult on the ground, which is another thing that makes things hard. So in homes, I view most of what we're seeing on energy Twitter or X or whatever we're going to look at-
Yin Lu (11:35):
Energy X. Yep.
Nate Adams (11:36):
I view it very much as indefinite optimism. It's going to be great. We're going to get this done. It's way too much indefinite optimism in my mind. One thing that I also personally really don't like about indefinite optimism is to me, it's just anxiety causing because we don't have anything firm to shoot at. I think that's a lot of why ... I don't know if you feel it, but I just feel malaise in society.
Yin Lu (12:02):
If I'm thinking about the goals that we could shoot at, it's electrification by 2050. Does that feel amorphous to you and it needs to be something closer to the ground? And so what is a good target for us to shoot at?
Nate Adams (12:12):
So we need to back it up to do that. 2050 would be a nice goal, but one of my favorite lines is from Dumb and Dumber. What are the odds of a girl like you and a guy like me getting together? And the rich girl tells Jim Carrey about one in a million and he gets all excited. He's like, "You're telling me there's a chance." Just a silly little scene that ... I only saw that movie once. Never really liked it, but that one just stuck in my mind from when I was 17 years old. I can still think of the intonation and everything. But I don't think we're even at Dumb and Dumber odds for 2050 as it stands for homes. Just no prayer. If you just do quick first principles, HVAC is a 15 to 20 year lifespan piece of equipment, which means if we aren't at 100% heat pumps by 2030 or 2035 at the latest, we miss 2050. And that's really hard.
Yin Lu (13:03):
What do you think are the key levers that we could pull to get there? Or do you think actually we've already missed the boat so 2050 is out of the question?
Nate Adams (13:12):
I do think 2050 is out of the question. I think right now we're on about a 2070, maybe 2060 if we're really lucky. I'm firmly convinced the heat pumps programs in the IRA added five years to that timeframe. They did not take it away.
Yin Lu (13:25):
Say more on that because that feels counterintuitive.
Nate Adams (13:27):
I know. I'll ask you a question back. Do we have a significant marketing budget for home electrification?
Yin Lu (13:34):
I don't know the answer to that.
Nate Adams (13:36):
Unlikely.
Yin Lu (13:36):
By me saying no, is probably indication that I have not heard of any.
Nate Adams (13:40):
I think no is the right answer. Maybe that'll begin to turn a little bit as we move forward. But if you want to see exponential growth without marketing, you need killer word of mouth. It's doable. Tesla did it. I mean, they're only just now starting to look at advertising and they're selling a couple million cars a year at this point. But they're at very, very high volumes that very few other manufacturers have made it to and they're only 15 years old, 20 years old. So we don't have a marketing budget, so we need to provide great experiences. But heat pumps applied wrong create very negative experiences for both sides. Homeowners and contractors. So contractors get callbacks and they get frustrated and they don't want to sell them anymore. And homeowners get bad experiences of how it performs. And the old marketing numbers were a happy client tells about three other people and an unhappy client tells about a dozen.
(14:35):
That was from college 20 years ago before the internet was a big thing and reviews were a big thing. Negative reviews get read thousands of times oftentimes. So a few negative reviews will utterly stop progress. Now, on the IRA side of things, there's a couple of different things going on. One is Rewiring America drives me up the wall with their calculator because they are pushing the money upfront, the incentives upfront. So the state stuff, who knows what it's even going to be because it's going to be different rules for every state, but that lets you say there's $14,000 or up to $14,000 worth of incentives. The truth is it's probably going to be two grand. So that ends up sending climate focused clients who tend to be difficult to work with. About 75% of the time, I don't like dealing with climate focused clients. They usually don't have other things they want to fix. If you're just trying to buy HVAC for climate reasons and you don't have other things that you want to fix, your budget's low, but your expectation's high.
Yin Lu (15:33):
And arguably, those are the same people that probably have the most amount of disposable income to spend because they're proactively thinking about it. Interesting.
Nate Adams (15:41):
Oftentimes. I have to say, not always. A lot of people that I've met through Sierra Club, very nice people, typically not super high income. They're the people that I've met. So I mean they're stretching to be fair. But if we send these climate focused clients to contractors who are predominantly conservative, if you say climate change, you just shut them off. They don't even want to work with you. You get fake news coming next from that sort of thing. So now the contractor's guard is up, they don't want to install the equipment, they're nervous about the whole thing and their client is difficult. Is that going to lead to a good experience for both sides? No. So every time the Rewiring calculator gets pushed, I picture another one of those experiences happening and a negative review coming out which is actually stopping progress. That is the marketing that we have. And I'm like, I won't point anyone to Rewiring, which is frustrating, because I'd like to. I really would.
Yin Lu (16:32):
But out of the Rewiring point, you're saying the upfront incentives is a suboptimal positioning of economic savings. So 14K of an upfront incentives translates down to ... Did you say it was 2K?
Nate Adams (16:47):
Yeah, it's usually going to be two, which is the federal incentive. So that has no limit in how much money there is, but you have to have income to do that. It's a tax credit, so it's not two grand off when you buy the equipment. It's two grand off the following April or whenever you run your taxes.
Yin Lu (17:02):
I'm feeling very dense in this moment. How do we get from 14K to 2K again? Can you maybe just explain it? Explain it to me like a five-year-old.
Nate Adams (17:11):
So there's two other programs which are aimed at states. There are three different heat pump programs that the IRA did. The one is the federal, which can be useful to a degree. I'll talk about where it has a real strong negative. Might be okay over time, but it's the near term I'm really concerned about because we have a bunch of bad press coming out in near term that makes things much harder. But the other two programs are state-based. One is called HEEHRA. So high efficiency electric homes. I believe that is very large incentive amounts if your income is on the low side. So it's been long enough since I've read it, I forget exactly where it is. I want to say 80% of median, something like that. Whatever it is, it's not for high income. And the people that the contractors want to work with the most are the high income individuals.
(17:58):
So they're automatically getting clients that aren't necessarily their target. And the other one is called the Homes Act. Don't ask me what it stands for. I don't remember right now. That gives a $2,000 or $4,000 generally incentive for modeled energy savings. Or it could be actual energy savings. That one's interesting. Something might come of that. But those two programs both have about four and a half billion, which sounds like a lot, but against 100 million homes, it's not much. And there's a lot of other requirements and hoops to jump through and whatnot. And I'm not actually a contractor right now, but I look at it from a contractor perspective and I'm like, this is more trouble than it's worth. I'm just not even going to talk about it.
Yin Lu (18:43):
And so it's like the calculator or various calculators out there will give you the all up maximum amount of savings. Then it sets your expectations as a person trying to electrify your home, whatever your rationale might be to think, well, this is the amount that I am due back. But when you travel down that choose your adventure and whichever programs apply to you, that amount actually starts shrinking. And at the end of the day, you might get only a fraction of that back and yeah, adds up to a bad user experience.
Nate Adams (19:10):
And you won't get it upfront. That two grand, again, that's a tax credit. That's not an incentive that's upfront, where the other two are upfront incentives, but they're both income based. You break the bar having to break bad news. That's not the way to begin a relationship. And it's already a relationship with a client that you probably don't want and is likely going to have a bad outcome and is probably not going to be profitable. These are the people we are aiming at HVAC contractors right now. And again, we need good experiences and we are not setting up good experiences.
Yin Lu (19:42):
We have the climate focused clients, they're one end of the bell curve. And then on the other end, you have people that aren't thinking about climate at all and their furnace just broke and winter's coming. What's the experience like for those people?
Nate Adams (19:54):
Well, that always sucks. It's a hair on fire moment. It's very frustrating. You're worried about your pipes freezing. You're very anxious. So that is something that the IRA doesn't do a good job of dealing with. So it's funny, everybody's like, where's your source? I can't say where the source was, but it was a meeting of a bunch of OEMs that a friend of mine was at that told me about it that I'm not supposed to know about. But it's about 85% of new installs are emergencies. And so if we aren't dealing with that, we're missing 85%. It's the vast majority of the market. We have to deal with that and we have to deal with 100% heat pump installs by 2030. Now, whatever's underneath can be different. So we can have a propane furnace, a gas furnace, it can be electric resistance, whatever it is. The backup, I don't care about that much. But on top, what is the air conditioner needs to be a heat pump. So you have heating and cooling capability.
Yin Lu (20:46):
And that's what you mean by hybrid system, right?
Nate Adams (20:48):
Yeah, it's a furnace plus a heat pump, whatever that might be, where a full electric is a heat pump, usually with resistance backup. So my preference is a heat pump with resistance backup. But realistically, at scale, the hybrids are our only way forward. To actually have a prayer at 2050, we have to be at 100% heat pumps. Which I put out a thread on Twitter, it was January of '21. It became a bill. It became a paper and then became a bill called the Heater Act from Senator Klobuchar's office, which went in the mix with what ended up going to the IRA. But we were just too late. The idea was too close. And the OEMs tend to waffle on that sort of thing, and they were hoping to hear something good from the OEMs, so they just did what they did. There were a bunch of programs that had been in the hopper for years and they're just like, okay, you get a little bit of money, you get a little money and we'll do this incentive.
(21:38):
And that's basically how it happened from my understanding. And I'm thankful for a bunch of the IRA, just not the parts that affect my life. I want to cover one more thing on the IRA front as well. The federal side of it has a bunch of performance requirements, and I largely agree with them, but they create cliffs where if you don't hit the certain number, you don't qualify. And they're fairly difficult. So the good thing is over time, the OEMs are going to create more equipment that can match it. So that part's good longterm and it is a 10 year program. But short-term, again for the marketing and the good outcomes, you're very limited on what makes it. There's a newer product out called the Daikin Fit. It uses a mini split heat pump outdoor unit, but it's actually communicating on the inside, which means the indoor unit, the thermostat and the outdoor unit all talk to each other and they can vary everything that they're capable of back and forth with the key thing being dehumidification.
(22:37):
But the metrics of that unit make it so that only the two ton unit qualifies for the IRA. So not the one and a half, not the two and a half, not the three, not the four, not the five. And three is your most common size, so it doesn't qualify, which is a bummer. And then my personal favorite piece of equipment, which is also mid-range, is the Carrier Infinity VNA 8. Not that it matters. Sorry, I'm being a little extra nerdy. I have a man crush on that thermostat in particular. It's the best control that I've seen. It runs the equipment like a fiddle. It's just beautiful what it does. Because I watch equipment run and learn how the controls run the equipment. It's just part of how I'm built for better or for worse. And I absolutely love how that runs, but its cold temperature output is mediocre, so it doesn't make the cut. And the next piece of equipment up is about 2,500 bucks more, which is kind of a bummer because that prices people out. Even with the two grand, it still prices people out.
Yin Lu (23:32):
Hey everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change.
(23:58):
Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or are just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
(24:32):
The performance standards set forth in the IRA, how are those determined and why is there such a mismatch? Maybe not such a mismatch, but why are there mismatches between what OEMs are producing and what qualifies above the bar for rebates?
Nate Adams (24:46):
It's a really good reason actually, and it changed for the better to an extent actually. So it's based on CEE, the Consortium for Energy Efficiency, which very closely mirrors Energy Star 6.1 standards for HVAC. So they're not exactly the same, but they're really, really close. I couldn't even tell you the difference offhand. But what the bill specifies is that the equipment has to meet whatever the highest tier of CEE standards are. And when that came out, they had three tiers and it was really hard to meet that tier, but they moved to where there's only one tier now. And sorry, this is nerdy and geeky, but you asked, and it's important to understand some of the context and the nuance here. So now it's not quite as hard to hit, but it still cuts out 80, 85% of equipment that's on the market. And the other 15%, what oftentimes isn't talked about is yes, there might be one of those units that qualifies, but the other ones have slightly lower efficiencies and so they don't quite meet the bar.
(25:46):
So that's the issue with the Daikin Fit because it's a really nice mid-price product that has really good dehumidification capabilities and really good cold temperature capabilities. It's a nice machine. I mentioned we were talking about the two Airbnbs that we have here in the New River Gorge area. I put two one and a half ton Daikin Fits in those. Buddy of mine, he's totally a Daikin fanboy. So he kept bugging me and I'm like, "All right, so Roman, will you be my tech support for whatever doesn't work?" And he's like, "100%, dude. I'm in." And so I snagged some, which I wasn't supposed to because they weren't even sold here. I drove to a friend of mine in Texas and bought them from him. Did some other things while I was over there and then came back with two heat pumps. They are really, really nice pieces of equipment, but most of those models don't qualify, which is a shame.
Yin Lu (26:32):
The ones that are already on the market-
Nate Adams (26:34):
Yeah. So it's tough.
Yin Lu (26:35):
Cannot qualify, and therefore you have a bunch of equipment that could be useful, but otherwise, if people want rebates, consumers will just not be incented to buy those.
Nate Adams (26:44):
Yeah. We have to take it off the table. My huge fear is that the structure of those requirements is going to lead us to a redux of sick building syndrome.
Yin Lu (26:55):
What does that mean? What is sick building syndrome?
Nate Adams (26:57):
In the '70s when we had the energy crises, we started insulating and air sealing houses better, and then oftentimes putting a bunch of plastic in the walls so the moisture couldn't get through them at all. And then we started noticing that people working in these buildings and living in these buildings started getting really substantially sick, lots of respiratory problems. And it turned out that there wasn't enough outdoor air coming in, so carbon dioxide levels and chemical levels were getting too high and the moisture wasn't able to move around. So things started to rot out, including bodies basically. People get some really bad stuff. I was just talking to Joe Hughes, actually. I'm on IAQ radio again for the 12th time. I've been on there so much. I love Joe and Cliff. They're awesome. A couple guys from Pittsburgh area. We were just talking about sick building syndrome.
(27:43):
I go to his conference and I meet indoor air quality researchers. I've done a bunch of indoor air quality monitoring and work myself. I'm really nervous about the lack of dehumidification that comes from the cheap systems that qualify. So the cheapest way to qualify is if you have a good high-end system, but it's not communicating where it can't talk back and forth, you can either have really good cold temperature performance or you can have good dehumidification. You cannot have both. Not unless it's communicating. You have to be able to vary the temperature of the coil inside, which sounds a little bit weird, but imagine having a beer outside on a summer day and you get condensation on the outside. That's basically how your air conditioner coil works. If the coil's cold, it sucks the moisture out of the air onto it and then it drips off and that's how it dehumidifies.
(28:30):
So every air conditioner is always doing both cooling and dehumidification at the same time, and it's called the sensible heat ratio. It's the split. So it can be as much as two thirds dehumidification and a third cooling. But these newer products and the cheapest products that meet the IRA, which means they're going to be the most likely to get bought because 85% of the market is basic equipment. That's what's sold. Single stage basic efficiency. These only do one to 10% dehumidification, and you need a minimum of 20 to 30 to actually keep up. So we're going to be making houses wet, and that leads to rot and that leads to sick people. So I think we're in for a redux of sick building syndrome, and I look at how it's structured and I have no idea how to change the rules to make it better. I just have no clue.
Yin Lu (29:18):
What are the two or three biggest barriers that we need to get across? I mean, I've heard you talk about IRA and communicating that to both consumers on what the actual savings might be to the OEMs on what the qualifications are for new equipment and knowing that there's a bunch of existing equipment that just does not meet the bar and therefore cannot be used or cannot be deployed quickly enough. And then there's this whole area of the user experience itself. And whether you are in an emergency situation and you have to trade out your existing furnace because it's broken and it's February and you're in Des Moines, or you're a climate warrior and you just want to electrify it the heck out of your house. Two different experiences and how those experiences could get better from the consumer's end. And then this whole topic around marketing. I was under the belief that to electrify everything, just get off your dependency on natural gas. Just rip everything out. Everything should be electrified. But you're saying actually if we just go purist and go all in, that's a lot harder than going hybrid. Maybe regurgitate that back to me. Did I get those right?
Nate Adams (30:21):
You did.
Yin Lu (30:22):
What are the key barriers if you had to put a succinct framework out there for people to think about?
Nate Adams (30:26):
Two things I'd say. First is avoid downstream, and second is get used to hybrids. Let's talk about the downstream first. Downstream incentives are where they affect the kitchen table transaction. So you're directly affecting the transaction between the homeowner and the contractor. So the IRA is all downstream. The heat pump pieces of it anyway. So that always adds friction to the transaction. It makes things a little more difficult. Just like I said, well, we can use a Daikin Fit, but it's got to be this one. So I actually went with one of the guys in our HVAC 2.0 network on a call, and they had a two and a half ton heat pump, which is kind of unusual. It was Indianapolis. They have a fair number of all electric homes already, which surprised me. Cleveland, there's none. It's a redheaded stepchild, man. There's just hardly any of them.
(31:10):
So I started asking them questions like, "Do you notice it shutting off when it's really hot or really cold?" And, "Yeah, it does." I'm like, "Okay. Well we can't tell you that you can downsize because we don't have the information we need to run the proper load calculation, but you can probably drop to a two." And that got them to where yes, they could actually use the IRA incentive. And I was like, oh, I'm going to have to eat some words. It was helpful. But a lot of these, the two is not correct. Or you could do the two, but that's only going to handle a portion of the heat load. So you don't want to be limited. So there's all these things where it's adding extra complexity and other things we have to think about in an already very complex transaction. And so we don't want to add any friction. And that's all downstream programs that I've seen. We've been watching them for over a decade. Every single one has something. Sometimes it's small, sometimes it's a total deal breaker. But instead focus on midstream and upstream. So midstream incentives are hitting distribution, so that's supply houses for HVAC or the OEMs, which is upstream.
Yin Lu (32:06):
Can you give a concrete example of midstream and upstream?
Nate Adams (32:09):
Well, there's the idea, frankly, which is air conditioners and heat pumps are fundamentally the exact same machine. The easiest way to think of it is it's like two Toyota Camrys, one that has a reverse gear and one that does not. Aside from that, they're identical. There's just a few parts that are different between them. Reversing valves and the defrost board. Not that it matters, but there you go. And there's one other that I can never remember the name of it.
Yin Lu (32:32):
Always count on you to give a very technical analogy.
Nate Adams (32:35):
Sorry. I'm annoying. It's just a few parts that basically let the thing go into reverse and now it can heat and cool. That's always the challenge that we need to get to. Now you can pair a heat pump with a furnace, no problem. You need a slightly different control. You might need a $50 more expensive thermostat. It's basically no extra work with the exception of sometimes you need to run a new wire because an air conditioner may only have two wires and the heat pump needs four. So you may need to run a whole new wire. But it should be done as part of a good install anyway. So it's very minor changes. It's about 150, 200 bucks in parts according to DOE. So we're not talking a ton of money here. So if we can turn all air conditioners into heat pumps, we get hybrids, which is a furnace plus a heat pump in every instance, and that hits 85%. So if there's only heat pumps on the shelf, guess what gets installed? But right now, the heat pump is like 500 bucks more expensive than the same air conditioner model. It's between three and 700 is usually what I see. Although that spread has gotten bigger since the IRA hit. I'm seeing $2,000 spreads sometimes. I'm like ... And that's common. Downstream incentives-
Yin Lu (33:42):
When you drive up the incentives. Right.
Nate Adams (33:44):
The incentives almost always get grabbed by ... The majority of them gets grabbed by the supply chain. The OEMs or the distributors. That's just how it works. It's not very effective and it's expensive because you're paying retail rates instead of wholesale or manufacturing rates. So if we can convert all air conditioners to heat pumps, the OEMs generally like it because it halves how many products they have to make, and now they don't have to do nearly as many changeovers on the line to go from heat pump to air conditioner or whatever they're making that week. And the distributors love it because it about halves the amount of warehouse space they need.
Yin Lu (34:19):
That sounds so much more easily said than done. How do you do that? Why aren't we doing that already? Maybe we are and I don't know about it. What does it look like at the distributor level and at the OEM level? It feels like this is something that makes good economic sense and good speed sense.
Nate Adams (34:36):
It's cheap too. 10 billion will do the US. About that. Might be eight, might be 15. But we'll just say 10 billion, which is a rounding error in the federal budget. So first I'll say why not. There's a wonderful line from Groucho Marx, which is that government is the art of looking for problems, finding them everywhere, misdiagnosing them and applying the wrong solution.
Yin Lu (34:58):
Tell me how you really feel.
Nate Adams (35:02):
Well, in my space, that is all I have seen ever. How many programs have I ever seen that I actually like? Zero. And I've looked at hundreds. I mean to have a batting average of a thousand on things you dislike, that's pretty good. Or bad, whichever way you want to look at it. That's consistent. So there's that. Now on the other side, it has been tried in the city where you're sitting. Vancouver, Canada. The sustainability department just mandated ... Now this is a mandate, not an incentive. So in the US, good luck getting a mandate through. Welcome to our dumb political system. Vancouver has actually executed this and they mandated, which again is not very politically popular for the US but for Vancouver it's not a huge deal. If you install an air conditioner, it has to be a heat pump. And if you do a significant retrofit, I think it's a quarter million, something like that, you have to install a heat pump.
(35:58):
It can be with a furnace. It can still be a hybrid. And Chris Higgins, the sustainability manager, said that it's been very smooth, with the exception of doing boilers is hard, which it just is. We won't even go there. But boilers are hard. Air to water heat pumps are much more difficult application than changing an air conditioner to a heat pump. But it's been tried and it's looking very popular. The distributors love it, as I thought they would, because now they don't have nearly as many products to stock. And outdoor units for air conditioners are big. They're two foot by two foot by four foot.
Yin Lu (36:30):
Oh yeah, we just got our install. It's huge.
Nate Adams (36:32):
They're huge and the more efficient they are ... I joked with my clients when we put a heat pump in, this is the droid that you're looking for. The Greenspeeds are gigantic. They're like four feet by four feet by six feet. I mean they are huge, the outdoor unit for those things. And so if I made a joke of it, people laughed and then they just accepted the fact that it was a gigantic thing sitting in their yard. But they were also quiet, which was nice. One funny little anecdote. One of my clients was talking to his neighbor across the fence about 15 feet away from where he was standing, and his neighbor said, "That's a cool looking air conditioner. When are you going to turn it on?" And Paul said, "It's running." So in cooling mode, they're dead silent and in heating, they're oftentimes pretty quiet too.
Yin Lu (37:14):
So interesting. In Vancouver, BC, there's a mandate that any new installs must be a heat pump of whatever qualifies the definition of heat pump. And for OEMs, if they have a couple of tens of thousands of air conditioners in their warehouses, or maybe that's a distributor, or in their factories, they say, "Well, okay, how do we change these to abide by the definition of a heat pump? Because without this, we cannot enter into the Vancouver market."
Nate Adams (37:42):
Exactly. And that's ended up working. I thought it would be relatively easy, and it has been. At the distributor level, it will be challenging if you do it state by state in the US because we have a number of cities that border. Kansas City, Missouri is also Kansas City, Kansas. The city's literally split by the state line. So if Missouri does it, but Kansas does not, that could be really interesting. Because you may get contractors are like, "Ah, well I got to cross the state line to go get an air conditioner." So I don't know how that would work. So that could be challenging. It's just not actually that hard because all the manufacturers already make these products. It's merely shifting their mix. It would be tricky for their suppliers because all of a sudden their volume would double, but manufacturing can figure that out. That's a year or two to iron out. It doesn't have to be that big of a deal.
Yin Lu (38:31):
Okay, so you said the two things to focus on in terms of barriers to reduce. One is avoid downstream. Focus on what optimizations you can make at the midstream, at the distributor level or upstream at the OEM level vis-a-vis policy definitions. Okay. What's the other?
Nate Adams (38:49):
So for the second thing, fundamentally we have a psychology problem. You had mentioned someone named Jerry Butts. I don't know them.
Yin Lu (38:56):
Oh, Jerry Butts. Yeah. He's the former chief of staff, principal secretary for Justin Trudeau. And now he works for this organization called the Eurasia Group. Really focuses on energy policy.
Nate Adams (39:07):
So what is his framework for things that need to be in place for big change?
Yin Lu (39:12):
Jerry Butts in the most recent report that he sent out had said that there's three key factors in determining whether timing is right for a change, like a major shift or change in a system, whatever system that might be. And it's technology, policy, psychology. Technology is the availability of viable alternatives to the current incumbents, which we talked about for the past 15 minutes, that there are heat pumps, more efficient ones coming out. There's more efficient air conditioning units. There's more efficient boilers. There's a lot of more viable, more efficient, and some all electric alternatives to the incumbents. On the policy side, there has to be incentives required to implement them. And doing rebates is one, doing mandates is another. And so what are the key things that we can pull on? And I mean that has geopolitical implications. And then psychology and the readiness of the market to receive them. And I think where you were going is that psychology is a little bit topsy-turvy right now.
Nate Adams (40:06):
That is the really hard part. So technology, we have what we need, frankly, as long as we don't get in the way with policy, which is what we also just talked about. Stick to midstream and upstream, keep it as wide as possible. No cliffs. You don't want any performance requirements. Just like does it go backwards? Okay, you can have it. That's it. And by the way, in framing that, do not frame that as taking air conditioners away because it will get framed that way. Frame it as doubling consumer choice of heating fuels. Now you're increasing consumer choice. That's a very conservative friendly argument. And I come from the conservative side, so I like that kind of argument. That will help smooth feathers, which is good on the policy side. But on the psychology front, HVAC contractors are somewhere between nervous and utterly terrified of heat pumps and almost no one knows how to do a heat load calculation to understand what it actually takes to heat a house on a cold day.
(41:02):
I've watched enough systems that I'm just not scared anymore, and I'll slap some resistance in there. It'll make up for the bottom end. It'll be fine. We've undersized systems and totally got away with it. I've never had one client in all of our electrifications have their house slide temperature wise, like not meet the set point when they didn't want it to. They all did it. Some of them burned a bunch of resistance in the process, but everybody, their house stayed warm. And the one that I undersized the most, I asked that client like, "Hallie, what do you notice about the comfort?" And she's like, "It's the weirdest thing. I never know what the temperature is outside anymore until I step outside." Super comfortable. She loves that house. And it's a 3,000 square foot 1960s split-level that we insulated the snot out of. And that's not how you would expect to be at electrification, but it worked. It's just a normal house.
(41:55):
But it took a lot of work in the psychology for her. And actually, funny backstory on that, that was the second house that we did for her. Her first house, which became her mom's for a while when she moved her parents up, she was waffling back and forth between a hybrid and a full electrification. This must have been ... It was '17 because Trump pulled us out of the Paris Accords and I get a phone call from her, "Trump says we're out. That means I'm in. We're doing the heat pump." And that was what made her jump, and that was one of our first electrification. Because it's very hard to work through the fear. And I hadn't done enough of them to not have some fear myself, which my client sensed. Now I'm not afraid, but I still was at that point.
(42:33):
So on the psychology front, we have to reduce fear from both contractors and homeowners. And the best way to do that is really hybrids in the short term. There's a thermostat we like for basic systems called the Ecobee or the Ecobee. It was Canadian. It just got bought by Generac. That will let you watch runtime. And so you wait for a cold day and you look to see whether the equipment shuts off. If it shuts off, it's oversized. Very simple. It's go, no go gauge. And by how long it shuts off, you actually get a pretty accurate view of what the heat load of that house is. And so what we see is with the contractors we work with, the first year they sell hybrids, they watch the equipment run, they're like, "Crap. The furnace doesn't even kick in until there's like 10 or 15 degrees out." Told you. And then the furnace kicks in a little bit and then next year they start selling heat pumps and they're not afraid of it anymore. This is the key baby step is moving to hybrids. Even though it's not as satisfying. I grant you that. I'd rather go full electric.
Yin Lu (43:30):
It's the same way that we couldn't leapfrog from ice cars to completely electric cars. We had to have hybrids on the road for two decades.
Nate Adams (43:38):
Yeah, 20 years. Yeah.
Yin Lu (43:39):
I remember seeing ... What was GM's first electric car in mid-
Nate Adams (43:44):
The EV One?
Yin Lu (43:45):
The EV One. Yeah, my friend's dad who worked for Sun Edison back in Southern California had one and we're just like, "Oh my God, this is amazing, but no one's ever going to drive it. No infrastructure." And then Priuses came on the road and then Insights and every other company followed that playbook. And now we're finally have built that bridge. And so what you were saying is for home electrification, we have to build that bridge too. And it's not a purist zero or one, it's a hybrid. It's a 0.5 that has to be in there.
Nate Adams (44:11):
And I come from a purist view because for a while I'm just like, it's electrification or nothing. So we are just five or eight years ahead of everyone else. You're going to get there when you figure out that there's a hard wall that we can't get through. This gives us that baby step. By the way, this is not a long-term strategy. So don't think, oh, we need to do hybrids until 2050. No. This is a five or 10 year strategy because we need to get everyone used to the heat pump being there and particularly if we can get to where there are reasonably priced communicating systems, which we are beginning to see. The Daikin Fit is one of those. It's like a couple grand more than a basic system. It's not a lot of money. So it actually can come. In fact, that bid that I was on with Jeff in Indianapolis, the $2,000 incentive was enough to take it to where it was $400 more than the basic system. So that was nice, but it was only if they got the two ton. But that system is not particularly expensive. And the outdoor units for the mini splits, that's a really mature product that's inexpensive. And if we can match those with just some smarter systems inside, which isn't that difficult, and get the prices down to something reasonable, that can become the norm moving forward.
Yin Lu (45:22):
The psychology behind that is look at the comparable versus look at the savings.
Nate Adams (45:27):
Yeah. The savings. That's a super risky thing. We've come to hate talking about savings in the energy efficiency world.
Yin Lu (45:33):
Savings and rebates, I mean, do you think about them as twins of each other?
Nate Adams (45:36):
Yeah, you just kind of get there. But if you can get them where they're close ... So on the psychology front, the things that people are willing to pay for if you ask them about it and you dig, and the HVAC 2.0 system is built specifically to ask a whole bunch of questions of people so they start thinking about things they'd never thought of before. And if you can improve the comfort of their home and the health of the indoor air, just the health of the home, those are usually worth something to clients. And the best way to do that is with a heat pump. Because they match what the house needs, heating cooling wise, better than a furnace can. So the heat pumps can run way more than the furnace. And so if you can build some premium in their mind where they're willing to spend three, five, eight, $10,000 more for an HVAC system that can do those things versus the basic system which can't, now you just sold the system, but you have to open up that value.
(46:28):
And that's one of the challenges with the psychology of climate focused clients is they're oftentimes closed-minded to those other benefits because they are seeing dollar signs. And so we have pushed their greed button. But it was on sale. How many things have you bought? I know I've come home with stuff, but it was a good deal. And it sits around in the attic for a couple years and either it gets thrown out or donated. Well, that was a dumb way to spend money. My agreed button got pushed. We all have a a greed button. So we don't want to begin a sales process by pushing greed buttons. We want to begin the sales process by asking, is there anything about your home as it stands that you would like to be better than it is today? And that opens up the value and that opens up mines on the psychology front and the contractors like it because they can get higher margin jobs. So everybody wins, and that's what we need. The biggest thing that we need is electrification needs to be significantly better business-wise than business as usual, or we're in trouble. And that is the system we've been building in HVAC 2.0.
Yin Lu (47:26):
You've mentioned HVAC 2.0 a few times. I know this is your current business with Ted. What is it? Who's it targeted at?
Nate Adams (47:33):
It's meant to be a two-sided marketplace like Airbnb is, but instead of guests and hosts on either side, you have HVAC contractors and homeowners on either side. But we're building out the contractor side first. And one way to look at it is it's a completely new business model because it leads to much higher tickets. You can have better margins. You have happier clients. Your techs like it better. Everybody's user experience gets better by using this system. And we call it a technical sales process. Because there's lots of sales processes out there that are very coercive, let's just say. The used car guy. So what are you looking to spend? That's so typical of sales processes and this is not that way at all. It's very consultative. What would you like to fix? Can I ask you some questions? Can we go through stuff? You get to know each other and you understand what the problems are, you help show solutions that might be able to deal with those things.
(48:23):
People typically tend to pick higher end stuff out of that. So where the market is generally about 85% single stage, 15% variable speed, we're reversed in what we're seeing. And almost everything involves a heat pump. Very, very few people choose an air conditioner once they understand a few things. So this is software as a service for HVAC contractors that it's pretty easy to learn. Not going to say it's extremely easy, but it's pretty easy. We designed it so newbies can succeed. And what we have recently just put out is a free quote process for it so that every single replacement lead can go through the software and then we can track a bunch of metrics and understand what's working and what's not. And we make sure that the homeowners are all educated in the same way and better things just come out of that on the other side, so you get happier clients and happier contractors.
Yin Lu (49:14):
Interesting. So it's like step one is mutual education on both ends. Contractors, homeowners. Make sure that psychology wise, they're on the same wavelength, speak the same language versus two different dialects, two different incentives.
Nate Adams (49:24):
Fingers crossed.
Yin Lu (49:27):
You and Ted are launching HVAC 2.0, which is quite exciting given you two are both old hands at this point in the industry, like software made for folks like you on the contractor side who've gone through, at this point, probably thousands of homes and homeowners and understands how to make the best flow for everyone in that electrification or hybridization process. And then you still have your Nate the House Whisperer hat on. What's going on there? What are the new things that you're working on?
Nate Adams (49:57):
The latest thing there is something that I wanted for years and years and years. It's called the air sealing course. Because is if you want to electrify, particularly if you have an older home, and particularly in colder climates, to get the heat load down to where a heat pump will carry it, you need to air seal the house. You need to reduce how much it leaks air through it. So I just launched a course two weeks ago and it's 12 and a half hours of video. It's significant. But while some people will be like, "Oh, that's so much." I'm like, it's an entire skill. You would normally spend a whole semester learning something like this, and there is no course on this. It doesn't exist. There's some things that are similar with weatherization assistance programs because I took some of that, but there's nothing that just walks you through every little piece of a house and how to deal with those things.
(50:40):
Because I come from the shell side much more than HVAC. I'm now known as HVAC, but I cut my teeth on the insulation and air sealing side. So this is me putting that out there. And that's aimed for both DIYers on the home fronts and then HVAC contractors when it comes to electrification, one of the things they're most scared about is how do I actually airs, seal and insulate this house if I do a blower door test on it. I have no idea what that looks like. This takes that fear away. So that's a key thing. And then the other piece, which is older at this point, for anyone who wants to begin to learn the science ... We were talking about earlier, I like people, I like physics, I like homes. So what I do fits me quite well. But I wrote a book called The Home Comfort Book, which is basically about the physics of how a house works, and that's at natethehousewhisperer.com.
(51:25):
The vast majority of it's free. There's four of six chapters that cost you an email, and I'm not a very good email marketer, so you won't hear much from me after that. I need to do something better with the 10,000 emails that I have in there. If any of this piques your curiosity, that's the place to begin because that's the 101 for building science. And once you get through that, you can read the more advanced stuff without being confused. So air sealing course and Home Comfort Book, those were two huge holes in education for my field that are now plugged.
Yin Lu (51:54):
I will give a testament to the latter as something that my family downloaded when we were thinking about how we go about electrifying our home. So it was very helpful for our journey. Nate Adams, thank you. Thank you for your time. Thank you for sharing your rabble-rousing perspectives on various topics today. This is highly educational for me, so really appreciate you being here.
Nate Adams (52:16):
Thank you for having me, Yin. I had fun too.
Jason Jacobs (52:19):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (52:23):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (52:33):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter, @mcjpod.
Yin Lu (52:46):
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Cody Simms (52:55):
Thanks and see you next episode.
