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- [00:03]
A
Latitude Media, covering the new frontiers of the energy transition.
- [00:08]
B
Let's see, Nate, you've got the Steampunk House, the Escape room, the Magic house. What else?
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A
Yeah, we started with the board game house, just called the Game House. And then we did the Wizard House, and then the Mothman house, which is a monster that's from West Virginia. And then the 80s house, which will seriously make you feel like you're a kid again. Like, it's really kind of wild. It's got the paneled living room and everything and the console tv. And then we're just finishing the Steampunk house. The open house is today and tomorrow.
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C
So when are we pitching you guys for, like, the home network?
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A
You are not the first one to suggest it. And I actually did a series on the Steampunk house that's meant to feel like hgtv, so maybe we can post the links.
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B
And by the way, you are crushing it with your Airbnb reviews. You're consistently getting the most loved houses on Airbnb, so good job.
- [00:59]
A
Thanks. We try, but there are always dings. It's amazing, man. Like, everything, it's like it all looks good on the outside. And then you see under the hood, you're like, good God, what's wrong with this?
- [01:09]
C
Oh, my goodness.
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B
As I found when you post your content on YouTube, everyone's got an opinion. From Latitude Media. This is open circuit. It's been almost a decade since the electrify everything movement kicked off, and guess what? We aren't electrifying everything. Sure, we're seeing strong growth in electric vehicles, heat pumps, induction cooktops. But we're still trapped inside a system that can make the electric choice, which is often the superior choice, harder to make. And nowhere is that more obvious than with heat pumps. Every eight seconds in the US An H Vac contractor installs an air conditioner that has only one mode cooling, rather than a heat pump that can do both. This not only decreases customer choice, it locks in more fossil fuel heating for 15 or 20 years. And this is where electrification advocates might argue that we need more incentives, more money for homeowners. But our guest this week argues a fix is way simpler and way less expensive than that. This week, we're joined by the one and only House Whisperer to tackle the emergency replacement trap, how to avoid making heat pumps a culture war casualty, and the simple policy fix that could bring more consumer choice at a far lower cost. That's all coming right up. OpenCircuit is supported by Fishtank PR, an award winning PR firm focused on climate and energy, tech, renewables and sustainability, Fishtank is known for providing smart relations that connect brands to journalists on both today and tomorrow's most important energy stories. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like, Fish Tank PR. To learn more about Fish Tank's approach, visit fishtankpr.com that's F I S C H fishtankpr.com. Welcome to the show. I'm Stephen Lacy, the executive editor at Latitude Media. Jigar Shah is my co host. He's a clean energy investor, entrepreneur and commentator. How are you?
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C
I'm great. I'm just like my, my head is buzzing with Buy one, get heat free.
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B
Have you ever panic bought an appliance, a household appliance?
- [03:25]
C
I haven't. I'm part of the lucky group that exchanges their appliances early because some entrepreneurs come up with some newfangled appliance that I need to try first.
- [03:39]
B
Yes, I'm trying to stay ahead of my water heater breaking. So I'm in the market for a heat pump, water heater reservoir, reservoir from Massachusetts. Our CEO take care of it. Our CEO Scott Clivena just got a reservoir. He, he really likes it. So you need to do it.
- [03:55]
C
They've got contractors in Massachusetts serving you right now.
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B
And sitting in the third co host chair this week is friend of the pod, Nate Adams. Nate is one of the leading voices and practitioners in the electrification movement here in the US and he is lovingly known as the house Whisperer. Nate, welcome back. How's it going?
- [04:15]
A
Doing great. It's nice to be back. It's good to see you guys.
- [04:19]
B
Great to see you too. And what I Nate and I have known each other for about 12 years now and what I what drew me to you was you often think critically about residential efficiency and home electrification. You know, what are we getting wrong? How can we improve program design? This comes from years of experience and the answers to those questions can often be at odds with how we historically implement programs. And I think that's an important perspective for today's conversation because there's often this huge gap between how advocacy groups, which tend to be progressive leaning environmental groups and actual contractors experience the market. And so you know, Nate, you've worked in homes, you're a political conservative who sees the market differently than many of the advocates who are working at these policy shops. And you wrote this great three part series for us at Latitude Media on what you believe is holding home electrification back. Specifically what's holding heat pump adoption back. And so the story is not all bad, right? Heat pump adoption in the US has doubled in the last decade or so. And we're getting very close to heat pumps outselling air conditioners. But as you point out, we're still installing a lot of one way air conditioners. One every eight seconds, as you say, locking out electrification through heat pumps that can both cool and heat. So let's just get your take on the market and what caused you to write this piece. Heat pump sales have continued to climb. Why do you think the market is still behind schedule in your view?
- [05:52]
A
That's a really good question. And I think just where I live really affects that because the Midwest is where a furnace and a one way air conditioner are just the norm. And you pair that so there's about 4 million, between 4 and 5 million air conditioners sold every year in the U.S. and when you pair that with the fact that somewhere between 80 and 90% of replacements are emergencies, if it isn't what's on the shelf, it doesn't get installed when you're freaked out and your hair is on fire and it's 90 degrees, like we're hitting another heat wave right now. And so you're like, who can I get here? Who's the first person that will pick up the phone? Who's the first person who will show up and what piece of equipment can they get in? And how do I minimize that cost? Because now I've got a $10,000 or $15,000 unexpected expense hitting me and a heat pump is just marginally more expensive. Like it's 500 to $1,000 more expensive at a wholesale level than an air conditioner. And when you're trying to minimize the price, that just gets minimized right out. So what I fear is while yes, we are seeing heat pump sales like skyrocket. And what I don't understand is I'd really like to see hardy numbers, like industry numbers on where that's happening and why, because I really don't understand why and no one seems to. But what I'm really worried is we're going to hit an asymptote. So like we're going to get a little bit further and it's just going to flatline and we're never going to get to zero. And the basic numbers are the units last somewhere between 10 and 20 years. So if we don't run 100% heat pumps for 10 to 20 years, we don't decarbonize. So we've got to get to Zero one way air conditioners as quickly as possible to be able to actually finish in our lifetimes.
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B
Jager, what's your read on the market? Are you a half glass full, half glass empty? When you look at the market like as we said, heat pump sales are booming, but we are very far away from zero or small amounts of air conditioners being sold and installed. What's your read?
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C
I think that the original sin was really around the notion that you have to rip out your gas connection. That I think that in general, the report that stuck with me is that clasp report back from 2021, which really basically said you put in the two way air conditioner and then you leave your furnace in place so that if temperatures go below 30 degrees, like your furnace kicks in, but anything down to 30 degrees, you're in the range of a much more efficient way of heating your home. My sense is that that's what worked in Maine. Who has had this huge success story in moving folks to heat P and I think that like, if we could get the culture to think about replacing your air conditioner with this two way, you know, air conditioner heat pump, but leaving your furnace in place, I think that psychologically allows you to get past all of the, you know, sort of issues that you have with a polar vortex or I mean, but also like, you know, like all of the smart asses who say, oh, if you go to heat pumps, then you have an electric peak when it's super, you know, cold out or when it's super hot out or whatever. And so like my sense sense is is that like they're not wrong. That was the original. Well, they're never wrong. They're just never relevant or interesting to listen to or like helpful in moving the ball forward. They just like to like hear themselves talk about how smart they are. Right. Whereas like Nate and I are actually trying to get shit installed or like, or like contractors trained or high school students who don't have a job right now, like a trade to go into. Right. As opposed to, you know, sounding smart on Twitter.
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B
Well, this is like what Jigger sort of jumped ahead to one of the key arguments in your three part series, which is the furnace is not the enemy.
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C
Right?
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B
And by thinking that we have to go all electric with our heating, you're missing a big opportunity. So what is the conversation around getting rid of the furnace or keeping it in place?
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A
Well, to some extent you can blame me going back to that 2018 piece of the practical guide to removing your gas meter, because the engineer in me when you truly understand what it takes to heat a house, you often don't need the furnace. It's like using a sledgehammer to drive a trim nail. It's the wrong tool. But what I've really come to see is full electrification is a human problem, much more so than a technical one. So most contractors, particularly in northern climates, there's been dual fuel pushes in the past and then heat pump pushes and old school single stage heat pumps on their own. In a cold climate, it's not really a, a good piece of equipment for it. So it leads to lousy experiences for homeowners and contractors. So contractors often just kind of hate the heat pumps. And I mean, memories are long when you get burned by a technology. So this is a human problem, not a technical one. So I do not see a way around about a decade of serious hybrid deployment in gas dominated markets, which is basically the Midwest. And running the numbers, it was 47% of residential gas usage is in 11 states. And it basically looks like the Midwest. That's like Pennsylvania and Kansas or sorry, and Missouri, depending on how you classify those, whether they're Midwest or not. But because gas is so cheap, the math isn't that great. So let's just not fight it and run hybrids. And even then, like my friend Steve of the Energy Conservatory, he's in Minneapolis, has a 1950s ranch, has a basic single stage heat pump, and he reduced his gas use 62%. So the coldest major city in the US with the worst heat pump that you can buy, effectively is still dropping gas use almost 2/3. So would you like 2/3 or 0? Those are your options, basically.
- [11:49]
B
Let's talk about how to tap the mass market. As you said, around 80% of installs for heating and cooling equipment happen when there's an emergency. There's no time to really think about it. You just take whatever equipment is available. Why is this such a problem? When we think about the way policy programs are designed, that's an easy answer.
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A
If there's a rebate, there needs to be a little bit of forethought in general. So emergency installs tend to not be well covered by downstream incentives. So I'm not going to say they don't at all. But it's not well covered. And so you are effectively excluding 80% or more of the replacement market.
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C
I think there's actually a lot of data to suggest that rebates have just been bad policy broadly.
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B
Well, Jigar, you've been through this in the solar industry. I mean, you've seen these cycles boom and bust. And yeah, say more about that.
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C
I just think that in general there is a paperwork bias. There are certain people who want to do paperwork and a lot of people who don't want to do paperwork. And there's also an information bias. A lot of poor people don't actually, actually know that the rebates exist and so then they don't actually use them. Right. And so my sense is, is that whether it's, you know, NYSERDA's rebate programs or other people's rebates programs across the country with $8 billion worth of utility rebate programs, there is a consistent theme where there's like a certain percentage of the population who know the rebates exist and they get like five bites at that apple for different things that they do. Then everyone else has never heard of a rebate program. And so like, you know, I think that this whole concept of end user rebates I think should be retired completely for everything. Right. And then the question becomes where do you insert cash into the process where it actually could be more meaningful.
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B
Nate's got some thoughts on that. Where do you do that? Where's the intervention point, Nate?
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A
Well, first off, I want to say that Jigger and I's love language is arguing and actually we're fully in agreement there. So yeah, downstream incentives that affect that go to either the consumer or the contractor. I think we should totally get rid of those because you show me any program and I will show you some at least small way that it adds friction to the process and oftentimes where it adds a great deal of friction to the process. So yeah, those are problematic. So what we need to look at instead is midstream, which is usually at the distributor level, the supply house level, or upstream, which is the manufacturer level. And to me, one of the points that I argued in the series was design programs so they can last a decade. And when you do that, the toolbox gets way smaller because the incentives just quick aside on it. Essentially my understanding is when you get beyond about 1% penetration, consumer incentives get too expensive, both politically and financially. And so you don't end up moving the market in general with downstream. So you need to find a different way to lever it. So if you think about 10 year programs, the dollar amounts need to be small and consumer education and contractor training or education are like some of the best levers. Or you can incentivize the manufacturers to stop making one way air conditioners, which is what the heater act did or the Cooler act is aimed at distributors instead. And like we were talking in the green room about Vancouver, Vancouver has basically made it so that you need to install a two way heat pump. But they were smart about how they did it and they went through the distributors. And because the air conditioners take up so much space in the warehouse, the distributors were tickled to death to not stock them anymore.
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C
And the other thing about using the midstream and the upstream is you can actually move away from cash. So for a lot of those areas you can use debt. Right? Because the cost of holding that inventory can easily be 15% cost of capital for the midstream. Where if you use a government program like the loan programs office and you said here's debt at U.S. treasuries plus 3/8 to hold your inventory, they save so much money on that spread that they're willing to make a change and you know, the money gets paid back. So it's actually never spent spent, it's, you know, obligated. And so, you know, I think that that's the big thing that I've learned out of like my 20 plus years of, you know, thinking through all this stuff is that when you think about the rural electricity, you know, like effort back in the 1930s, et cetera, when you use debt, there's like a certain level of rigor and you know, governance and all that stuff that occurs when you use grants or rebates or whatever, it ends up like that. It just ends up not being a great experience for everybody. In the After Action Report and you
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B
mentioned Vancouver, So they mandated two way units starting in 2023. You know, as a, as a conservative, Nate, like does that, do you think of that as a ban? Right. Like a lot of conservatives would look at that and say like, well you're actually limiting consumer choice. So how do you sort of navigate that?
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A
Here's where my lack of media training will probably come in. But it's to some degree, that's one way to look at it I would say. But they did go to the distributors first and have a conversation rather than say this is what we're going to do. But my understanding too is that Vancouver has a very unique governance structure that allows them to do a lot of things that other cities just can't. So they basically have power over everything, which is very unusual for a city within a province. So they can try stuff that other people can't. But I think they were pretty intelligent about how they went about it. And in talking to Chris, the fellow at the city that put all that in. He's like, it's been super smooth. Like you'd expect there'd be some issues. There's been like minor issues with some boilers, but as far as air conditioners and heat pumps getting swapped out, just not a problem.
- [18:05]
B
Are you tired of overpaying for big name PR firms but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and you are not? Fishtank PR is an award winning climate and energy tech, renewables and sustainability focused PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, Fishtank can help. Check out fishtankpr.com fish is spelled f I s c h fishtankpr.com or follow the link in the show notes on October 14th and 15th, Latitude Media is offering the chance to hear from experts defining the next era of distributed capacity. Flex Summit 2026 is a two day in person conference in Austin, Texas, tackling how to scale flexibility as an essential grid resource, and the programming includes a live recording of Open Circuit plus a stacked agenda with presentations, panels and networking with people at the forefront of the market. Our podcast listeners get a 10% discount. Use the code PODS10P O D S PODS10 when you check out and you can see the full agenda and register today for Flex Summit 2026 at latitudemedia.com events or just click the link in the show notes. So if we focus on manufacturers or distributors, I think there's a crucial piece to this which we haven't fully broken down, which is that there's actually not that much of a difference between a one way or a two way. You know, traditional AC versus a heat pump. What is the actual component that allows you to create a two way heat pump and how much does that cost?
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A
That's a great question. And there's one primary component that is required which is called a reversing valve, which is like reverse gear in a car. There's a couple of other components that need to be in there too, but without the reversing valve it's just not possible. And I have one on my desk. I didn't pull it out for this, but it's about 100 bucks I can buy one of those at the supply house for. So total cost difference is somewhere in, like, the 100 to maybe $250 range, from a same model air conditioner to a same model heat pump. So it's very small, and the install difference is very small as well, like maybe a half an hour. But the biggest thing being sometimes there are not enough wires going to the outdoor unit, so you have to run a new thermostat wire. But that is really the only potentially substantial difference between them.
- [20:48]
B
So, Jigger, what do you think? Does. Does sort of creating some sort of upstream mandate work seem viable to you?
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C
I just think mandates broadly are the thing that people revolt against. And so my sense is, is that the better approach is to provide someone with an incentive that they just can't say no to. Right. The vast majority of distributors like their cost of capital, their cost of holding inventory is so high that if you gave them subsidized financing for the inventory, which is also low risk. Right. Because you have the inventory as collateral, then, you know, like, they're going to do it just because it's good business for them. And so my sense is that that's how you do it and, you know, like it in general. This is where Nate and I would talk all the time while I was serving the Biden administration, where like. Like, you know, this is money that the greenhouse gas reduction fund could have been used for this purpose, but in general, like, it got, you know, overwhelmed with people who are like, no, just give subsidized money to individual homeowners. Right. And, you know, the leverage of that money would have been way higher to execute a program like this than, you know, what they thought it was for. And, you know, I don't know that I, like. I don't know that I actually sort of subscribe to the left and right coding stuff just because I feel like, you know, in general, like, it feels entirely manufactured. But I do think the money would have gone farther in the midstream, Nate.
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B
And to be clear, you're not calling for a mandate. You're calling for a financial incentive to make this switch at the distributor manufacturer level more viable. Right?
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A
Yes. A tax credit in particular, because that's one of the easier levers to play with. But I really like what you're talking about, Jigger, so I think there'd be potential there, too.
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C
Yeah. Don't tag Nate with a mandate. He will be disinvited from all of this, you know, like, you know, barbecues and in his local town.
- [22:53]
A
Yeah. And I mean, on the political coding, I have watched that happen quite a bit in the last few years watching the H VAC groups, and it's like, they want us to have these, and it's a liberal conspiracy and this and that. I'm just like, it's reverse gear, guys. Like, come on. This is not some major shift. It's one extra part, essentially.
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B
Well, let's talk about why that has happened. You know, a lot of groups have latched on to heat pumps. Rewiring America is probably the biggest organization that's crafting big picture policy ideas around how to push this market forward. What role do you think some of these organizations have played in maybe coding, coating heat pumps in particular?
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A
I think it's a pretty substantial one, unfortunately, which is extremely frustrating to watch. But I don't have a whole bunch of great examples to point to around that, aside from not that long ago heat pumps got pushed against. When I first got into Facebook h vac groups in 2017 and I was talking about heat pumps, I was called an idiot and a whole lot of other things, but there was no political coding at all. It was all technical stuff, fundamentally. And it's become much more political since then. I felt it enough, enough that I coined the phrase two way AC back in. Was it 24? I think no, 23. It was a bike ride in 23. And for a long time, there's been all kinds of arguments over should we rebrand what heat pumps are? And like, no, it's actually what they do. Like, let's just lean in. Like, Kleenex is a terrible name, but if you say Kleenex, we all know what you mean. Same with Xerox. Let's just lean into it and market it and it can be okay. But now I'm afraid it's been coded. So it's not that we can't use heat pump, but we need a secondary name and we need to show that you are getting more, not less. You're getting double the heating fuel choice. It's not just, I'm telling you, it's
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C
buy one, get heat free.
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A
Yes, great, let's run it.
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B
Jaeger.
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A
I'm totally on board with that. And that's how it has to be framed. Because what we have to avoid is they're trying to take my air conditioner away, which is absolutely false. Like, no, you still have the ac. It just heats too.
- [25:01]
B
Yeah. Jigger, you said you were skeptical about the coding. Or how do you see the politics start to play into how people perceive heat pumps and ultimately feed into contractor willingness?
- [25:11]
C
So I think the bigger problem that we face is not the coding stuff. I think the bigger problem that we face is, is that sometimes both the left and the right go too far right. And so whether it's on the left where they're saying, you know, just by doing all of this, you know, putting a battery in every garage, you can, you know, unlock all the data center load, or on the right, where suddenly they're anti free market rules in ERCOT's territory because, you know, it's supporting too much solar and battery storage. They're like, we need heavy regulation in ERCOT so we can get, you know, like nuclear and natural gas done at an expensive rate. Right. And, you know, like, I just think that there's a lot of forces that get paid to push their coding, right? And then they just make stuff up. And, you know, folks like Nate or myself or others, you know, sometimes are susceptible to thinking that it was groups on the left or groups on the right that sort of caused that. And my point is there are people whose job it is to make that happen. Right. And to code things in ways that allow their tribe to, like, reject it. Right. And I just think that we have to figure out what TRU is and what is in the best interest of affordability and comfort and reliability and resiliency and all that stuff, and then really push policies, I think, that help get those technologies, most of which were invented here in the United States, into the hands of homeowners.
- [26:43]
B
So, Nate, I've heard you talk about how calculators generally over promise savings for heat pumps. If it's not save the planet with this heat pump, if it's not save thousands a year, what is the message that will resonate with people?
- [27:02]
A
I mean, for years I've worked on making houses more comfortable. One of my best friends in the H vac industry was just here. He stayed in the steampunk house. They were the first guests there. And Jim, he reminds me of, shoot, what was it? Everyone's favorite grumpy uncle. I'm trying to think, what was Regis Philbin? He reminds me a little bit of Regis. Mocking you is his love language. You can make fun of him up one side, down the other, and then he'll just fire back. And he looked at me and said, nate, this is the most comfortable house I've ever been in. And it's a heat pump only house. So he has become a believer in that, which is really interesting to watch him turn around by actually experiencing it and the comfort just being better. And then obviously the Canadians were kind enough to gift us their wildfire smoke the last couple of weeks and a good filter and a well installed system knocks that out of the air. So like there's other ways we can get there that do the same thing. But fundamentally all of this is really, it's an emergency replacement problem where if it's not on the shelf it doesn't get installed. And so if we don't change that, we do not finish, period.
- [28:13]
B
Where are there other friction points in the market right now that you're seeing?
- [28:18]
A
Install quality, which Jim opened my eyes to my grumpy uncle friend. So there's a rather terrifying study, a meta study that the DOE did, I think it was 18, so it's been a minute, but it's still totally true that 90% of residential H vac systems have a significant detectable fault. So they're not installed well. And heat pumps are unfortunately much more sensitive to insole quality. Like as an example, like I live in what's called a hollow here, that's a one way valley. So you think of Sleepy Hollow, this is hauler and so my neighbors don't make a bunch of money and one of them got a low income heat pump system installed last year and it's broken on him multiple times at this point and he's paying significantly more for heating than he was before. And it's because the install was bad, not because the equipment's bad. And so we really have to keep an eye on that. And I'm working. My next project is called Common Sense H Vac where I'm trying to educate homeowners on what a good install looks like and then what different systems are capable of and not capable of. And hopefully by them asking for the right stuff it will begin to move the market. But that is a, it's a real challenge and there is no clean solution. Although midstream contractor training is definitely one big piece.
- [29:33]
C
One question I had on that is how much effort does it take to train someone to install H vac and heat pumps specifically? Like if you had a 16 year old who's like I'm not going to college, like, like what does it take to train that person to start working in the industry?
- [29:53]
A
It varies on the individual to some degree and also kids just often aren't as mechanically savvy as they have been in the past because things don't break as much or you just throw them out and replace them. But I'd say in general three months to a year of fairly intensive training and then a year or two riding along in a truck with a Journeyman can get most people up to some kind of speed. But one of the biggest challenges of the H Vac industry is it's so Balkanized. There's 100,000 individual contractors and there's no way to reach all of them simultaneously. It doesn't exist. So it's really difficult to push change through the industry. So I've never seen an industry that is so resistant to change, frankly. So that's part of why long been anti policy. I mean, Stephen, you and I's whole relationship's kind of predicated on that. Like this is all stupid, the stuff that we're doing. And I don't see a path forward without federal action that actually gets us to a completion date. And that drives me nuts. I hate that conclusion. But I can't find another way there. And if somebody else has a viable option, by all means, let's propose it and see what we can do.
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B
Figure. What's your theory of the heat pump and the overall decarbonization picture? It's been held up by some leading groups as like the tip of the spear for home decarbonization. I think that's. I mean, that's largely true, but what's your theory of its role in overall electrification and decarbonization?
- [31:21]
C
I think in general there has to be something other than climate that's animating people towards these goals. Right. And so I think, you know, Nate talked about comfort. Our friends in Europe obviously are talking about energy security and national security because they got cut off of Russian gas and now they're bringing in LNG that's way more expensive. And now they've got the Strait of Hormuz and they got a lot of their LNG from Qatar. And so for them it's a national security, energy security issue. I think in general there's plan A, which is basically you replace stuff that breaks with stuff that's better. You replace a one way AC with a two way ac. Right. If you want to accelerate things farther, there has to be an animating reason for doing that. And that can't be climate. Right. I think it has to be national security or energy security. I also think that one of the big things that I've been thinking about is just how unprofitable residential customers are for everybody, whether it's contractors or whether it's like the natural gas utility makes no money off of residential customers. They make all their money off of, you know, industrial users of gas. Even the electric utility company makes no money off of electric customers that are residential. They make Their money off of, like, CNI customers and, you know, data centers and others. And so, like, part of what I'm trying to understand is we like, fiercely hold on to residential customers as if they are profit centers for these utilities. When in fact, I think helping these folks go to micro grids and actually like, helping them sort of like, use less of the product of the utilities, I think is better for everybody. It's better for their resiliency and independent streak. And it's also better for, you know, the profitability of the electric utility and the gas utility. And so, I don't know, I feel like. Like it's gotta be wrapped up into a different narrative than the climate narrative, which I think is where it's been stuck.
- [33:32]
B
Yeah, and that's certainly your thesis in the series that you just wrote, Nate. So what role does the climate narrative play in this? Do you think it's a de minimis role?
- [33:44]
A
I mean, in my experience, if someone puts climate forward as a major thing that they want, very seldom is it worth that much money. So it's a value problem at the end of the day. And that's why I mentioned comfort. Like, is little Johnny's room too hot and too cold? Like, can we deal with that? And part of that, if you put in right size, variable speed equipment that runs all the time and matches what the house needs, it blunts those issues. I'm not saying it makes them go away. I know how to make them go away with other things. But we just have to ask people individually what to do. And Jagger, I'll push back lightly because I think we're talking in different subjects. So the contracting side of H Vac is highly profitable, which has actually caused a big problem. I just spent years trying to figure out a new business model for H Vac Contractors, only to realize that the best size was three to $10 million companies, and they're basically gone in the last five years, bought by private equity. And so that's a significant challenge. So you have the little guys, which are really hard to reach, and then you have private equity. And oftentimes, I mean, the private equity companies are usually buying them with the intent of combining them, improving processes, and then reselling for a much higher multiple. Again, so quality is just usually not on the table for private equity. It just isn't like it's turn and burn. How do we get things moving as quickly as possible? And again, the quality is a significant challenge. I'm not quite sure how to solve all of these things. It's a really Genuinely sticky problem. So what do we do? I don't know.
- [35:08]
C
But part of the way to solve it, I think, is what you're saying is that the entry cost to getting into the H vac industry is very low. There's no real barriers to entry. Right. So that's why you have 100,000 businesses. The three to $10 million businesses that private equity is buying are the ones who've proven that they're good business people, I think, is what you're really saying. And, you know, so, like, my sense is, is that, you know, you've got a increase in unemployment of college graduates and high school graduates this year. My sense is that's gonna continue for the next 10 years. And so we need to figure out a way to help a lot of folks who are mechanically inclined get into the industry and teach them how to do things right the first time.
- [35:52]
A
We're in full agreement on that. I mean, I have a whole lot of trainers as good friends, Jim being one of them.
- [35:56]
C
Yeah.
- [35:57]
B
So let's talk a little bit more about solutions. You mentioned that the Midwest is a really key market. Are there any examples of success stories there?
- [36:06]
A
There is, although success might be too strong, but they're definitely moving in the right direction, which is good to see.
- [36:14]
C
Glass half full, Nate?
- [36:15]
B
Glass half full.
- [36:17]
A
You know, I'm sorry, gents, I suck at that. On this front switch, I mean, Panama Bartolome of building decarb Coalitions, a good friend of mine, and we lock horns on this all the time, so you can have him on as the optimist, and then I'm going to be the pessimist on this one. But in any case, Minnesota has been working really hard at moving from air conditioners to heat pumps for about five years. And at first it was pretty slow. They went from about 4% to 6% penetration. So 6% heat pump, 94% air conditioners, and they've pulled a bunch of policy levers in the past couple of years, and they've moved to 17%, which is. That's a big jump. But again, we have to be at a hundred percent, 100% for 15 to 20 years to actually get this job done. And they are aiming for a 2035 changeover on that. But that shows you how difficult it is to move things in the Midwest because that's a state that's really trying hard. Now, my home state of Ohio,
- [37:19]
C
they
- [37:19]
A
have the Rhett Butler response in my mind, which is, frankly, my dear, I don't give a damn. They just don't Care. It's not going to move. So I've studied this from all different sides, and this actually requires federal movement. And why do I have to have an idea that requires a literal act of Congress? I'm not kidding. I was like, But I don't know how else to get there. I just don't. So we can try other things like what Minnesota's doing, and that's important to learn and what Vancouver's doing, but at the end of the day, to finish this job, it's got to be faster, federal.
- [37:50]
C
So why don't we talk about that a little bit? Because I do think there's increasingly a lot of people who are starting to talk about the change in the mix of the House and the Senate out of the midterm elections. And people are saying, well, you know, if it. If one of the House or the Senate flips or both, then, you know, what should the legislative agenda be? You know, I'm curious. You mentioned two acts that you had been involved in, the Heater act and Cooler Act. Do you want to talk a little bit about, you know, how they work and, you know, what's in them?
- [38:21]
A
Sure. So the Heater act was done in partnership with acee, and I was a little more involved on that one. And that was aimed at manufacturers, but the manufacturers pushed back some. And it was funny. It was one of my concerns with it, too, that it almost looks like a handout to these big companies. And so they were concerned about the optics on that. It's the cheapest way to get it done at the end of the day, which is why I did it. That's just a fiscal conservative in me, like, well, where can we do this? Where it's the longest lever, but the second longest lever is looking at distributors, and I don't know exactly how many there are, but it's in the thousands for number of distributors out there. And so if we can find some way to incentivize them to stop stocking air conditioners and only stock heat pumps, that would be lovely. And Alexander Guard Murray, and you had he and I on a couple years back, Stephen, he talked to a number of distributors, and somewhere in the ballpark of like 500 bucks was enough to have them do that on a tax credit. So that is what the Cooler act is, and it's honest. It's super clean and super short. I think it's 10 pages, which in legislative text is like nothing. It's like a tweet.
- [39:39]
C
It's too short, Nate. Too short. I can't Hide my favorite project in there for the new bridge in Pennsylvania.
- [39:47]
B
Not a big enough Christmas tree to hang things on.
- [39:50]
A
Yeah, that was part of the whole idea that I like is it's tougher to pin pork to. So that's the fiscal conservative in me coming out again. But that whole idea costs ballpark about the same as what we ended up doing in the IRA for heat pumps. So it's about 10 billion each way. It was like 9 billion for the low income programs in the heater or sorry, in the ira. And that's going to affect maybe a half a million homes. And for the same money, we can touch like 50 million because it'll be four to seven years of replacements that it will touch.
- [40:26]
C
I mean, the thing that I'm trying to figure out is those pieces of legislation seem a little too direct for me. Like, I'm curious, like, whether you would do something like the Defense Production Act. Right. And just say we're going to give more money to DPA and just have them provide loans to all of these people, or grants for that matter. And, you know, that way it doesn't pass Congress as a heat pump bill, it passes Congress as Defense Production act money. Right. Which seems in vogue these days. Or you just change the way that the instruction set goes to the loan programs office and say, you know, they can actually provide that loan through the VPP work that I had put together while I was there. Right. It just feels like something more indirect, I feel like might be more likely to pass than something direct.
- [41:18]
A
I'm open to other ways to get there. So, yeah, let's work together and see if we can find a path. I'm totally game for that. Maybe I'm too direct in what I want to do. I'm like, look, this is cheap, simple, easy, fast and good.
- [41:31]
B
You like it.
- [41:32]
A
But that might not be the way to get it because we need a Republican co sponsor to do this at the end of the day, because if it isn't bipartisan, once the tables flip again, it's going away.
- [41:42]
B
Well, what are you doing down in West Virginia? Renovating Airbnbs. Get up to dc, Put your suit on. Somehow I don't think that that's where you'd like to spend your time.
- [41:54]
A
Not that much, but I'll at least help some. But I mean, it's to be frank too, I don't have a super long time left in this world because my wife and I are planning on a really significant multimillion dollar project that we want to do that's going to completely consume it. So I've got about two or three years and I'm pulling the ripcord on being in the H Vac and policy space.
- [42:16]
C
Don't leave us hanging.
- [42:17]
B
It's quite a tease.
- [42:19]
C
What is this multimillion dollar extravaganza? Are you guys, like, creating your own Nemicolon?
- [42:25]
A
Well, have you guys heard of Meow Wolf at all?
- [42:28]
B
No.
- [42:29]
A
It's an immersive art thing. So I joke. It's like a really beautiful, colorful art museum while you show up on, like, mushrooms or something along those lines. But my wife and I.
- [42:41]
B
You have my attention.
- [42:45]
A
So my wife took us to one in Columbus. It's called Otherworld. And I'm like, I feel like I'm 6 years old. And I mean, Steven, you saw me a couple years ago, I was a mess. Like, having to give up on H vac 2.0 and just watching all the policy stuff fail. 2024 was a lost year to me. I was just a depressed wreck the whole year. And so, so we went there and I'm like, this is amazing. And we've been creating small versions in these houses here where you walk in and you feel like you've changed worlds. And we want to do a 30, 40, 50,000 square foot exhibit that does that, that's themed on the monsters here. They're called Cryptids. So, like Mothman and Bigfoot, and there's a whole pile of them here. And that should be a really fun jumping off point because they're profitable if you can get them done. But if you can't get them done, you go bankrupt. So, like, this is going to take all of my focus.
- [43:37]
B
Wow.
- [43:37]
A
So I know that I have a limited time left.
- [43:40]
C
Are you going to have a CBD shop next door that also sells shrooms?
- [43:46]
B
Well, this is great. So, wow. We have you for a couple more years, people. Better tap Nate's expertise. If coming out of this, let's say, two years down the road, if you step back from your 15 years focusing on this space, what would you deem a success if in two years we've done what if the market looks like what? Or maybe even I'll be by 20, 30 or something, what do you hope the market looks like?
- [44:16]
A
So here's where the pessimist in me comes out. I'm not totally sure that there's a way to satisfy me short of federal legislation, which sucks. But as long as there is a focus on looking for what the political opportunity is there and using it when the moment arrives, because it Will you just have to have the right piece of legislation sitting on the shelf and then it has a chance if it can get in there. But just in general, if two way AC gets used a whole lot more, which has been well adopted, I've been surprised by how sticky that phrase has been. And if we can just have homeowners in general just talking about how much nicer their house is since they put a heat pump in, whether or not they have a furnace, I kind of don't care about the furnace anymore. If they do, great, if they don't, great. I'm fine either way.
- [45:05]
B
So Jigar, if in two, three years time this market has made headway, what would you want to see?
- [45:13]
C
I think in general, the whole purpose of these individual technologies is to stitch them together, in my opinion, into a more system wide thought process. Right. I think the only way to make electricity bills more affordable is to sell 3% more electricity every single year. Right. If we're not getting load growth, then you're not able to spread the cost of the refurbishment of aging infrastructure, all that stuff along a bigger base of kilowatt hour sales. And so to me, I think the electric utility company, the manufacturers, the hyperscalers, frankly, I think everyone should be aligned in what a heat pump represents within a system wide approach to electricity growth over time. And so that's why I'm far more optimistic around where this is going to go. Because I think that heat pumps, electric vehicles, you know, water heaters are going to be essential parts of getting to 20% demand flexibility across the entire electricity grid and selling more kilowatt hours. And to Nate's point, I think you're going to get a lot more comfort along the way.
- [46:35]
B
Yeah, I think the user experience is really key too. Like it's pretty cool to have on demand modular heating and cooling right there. You know, you can program it. A very different feel to it. And so I will get behind calling it a two way ac. I like it. I am sweating so much in my studio right now and it's about time I go turn on my two way ac. So Nate, thanks. Thanks for writing this piece. I know you've been thinking about this for a long time and really appreciate you putting a framework around this.
- [47:08]
A
Well, it's my pleasure. Thank you for publishing it.
- [47:10]
B
Absolutely. Jigar, good to see you.
- [47:12]
C
Always. I'm a sucker for Nate.
- [47:22]
B
Nate Adams is the house whisperer. If you want to check out his three part series, we'll link to it in the show notes. You can find it at Latitude Media. Jigar Shah is my regular co host. Open Circuit is produced by Latitude Media. The show is edited by me, Stephen Lacey, Sean Marquand and Anne Bailey. Of course. Just find the podcasts, the audio version, anywhere you get your shows. And all of our video versions are on YouTube. Just subscribe to Latitude Media's YouTube channel. And all of our transcripts are@latitudemedia.com with supplemental stories. Thank you so much for being here every week. It's good to see you. We'll catch you next week.