Incentives for Installing Cold Climate Air Source Heat Pumps - Building Decarbonization Programs
New Jersey Building Electrification Series 1 Volume 1, Updated 2/22/2025
This series is brought to you by the NJ 50x30 Building Electrification Committee and the New Jersey Electrification Coaching Network (NJ-ECN).
Many thanks to Michael Winka and Betsy Longendorfer, NJ-ECN members, for sharing their expertise on these complex issues. Michael is a retired Director of the BPU Clean Energy Program. He and Betsy are members of the Sierra Club’s NJ Chapter Building Electrification Committee.
Introduction
In this series, we will describe New Jersey’s Clean Energy Program (NJCEP). There is an article (NJ Energy Efficiency Incentives Explained) on this site that describes how to find the various incentives that are available in NJ. We recommend that you read that first, as there are references and modifications to those incentives here. In the article below we highlight the names of utility programs (as such) that you can find details on in the “NJ EE Incentives Explained” article.
This issue focuses on one part of the utilities’ overall second 3-year Energy Efficiency (EE) and Peak Demand Reduction (PDR) Programs, specifically for the installation of heat pumps.
In future issues we will present and discuss other New Jersey Clean Energy Programs that will assist in building electrification, including electric vehicles (EV), EV charging, distributed energy resources (DER) including solar and storage (both batteries and thermal energy), PDR, and grid-interactive efficient buildings (GEB). We will discuss how you can develop and connect these programs to help the state achieve 100% clean energy.
Utility Energy Efficiency (EE) and Peak Demand Reduction (PDR) Approved Programs
At its Special Agenda meeting on October 30, 2024, the New Jersey Board of Public Utilities (BPU) approved the EE and PDR programs and budgets for all 7 New Jersey electric and natural gas utilities. They were approved to begin on January 1, 2025, but utilities are still in the process of rolling them out, as of the date of publication (January 27). It is anticipated that the rollout for the new programs with the new applications will be available the beginning of March 2025. In the meantime the existing utility EE and PDR programs are continued.
The law that established the utility EE and PDR programs requires each electric utility to achieve a 2% total electricity use reduction across its territory, and the natural gas utilities to each achieve a 0.75% reduction in natural gas use across their territories. The law requires the utilities to achieve their annual savings goal averaged over 3 years in the fifth year of implementing their EE and PDR program. This allows each utility to develop their full programs over 5 years. The first utility EE and PDR program year (PY) started on July 1, 2021, so the utilities’ electric and natural gas reduction goals must be met in PY 5 in 2025.
The BPU approves the utility EE and PDR programs in 3-year increments called the Triennium (T). At the Special Agenda meeting mentioned above, the BPU approved the second Triennium (or T2) EE and PDR programs.
The seven electric and natural gas utilities develop and implement their own EE and PDR programs in their territory. A customer seeking to reduce their electric or natural gas usage and improve their efficiency has to reach out to their individual electric or natural gas utility for the specific EE and PDR incentives and rebates that are available. In some cases, a customer may work with one electric utility for electric measures and a separate natural gas utility for natural gas measures.
Working with multiple utilities can make the EE and PDR programs confusing, presenting a barrier to customers attempting to use the programs. The BPU also has other clean energy programs that support electrification that are managed separately, sometimes by different state agencies. This series will bring these separate programs together in a holistic and integrated manner, to help break down the barriers to electrification.
In the T2 utility EE and PDR programs, the BPU is taking steps to reduce this confusion. Most of the seven individual electric and natural gas EE and PDR programs approved by BPU are very similar. These are called “Core Programs”. In addition, the electric and natural gas utilities cooperate in developing and implementing their separate EE and PDR programs through a statewide coordinator. This means that a customer can reach out to their electric utility or natural gas utility and have all of their electric and natural gas measures performed at one time, through the statewide coordinator. The accounting for which utility gets credit for the energy saved and budget allocation happens essentially behind the curtain. The customer sees just one EE and PDR program through their electric or natural gas utility.
While most of the electric and natural gas utility EE and PDR programs ARE the same, there are some specific differences. One that is NOT a Core Program is the new Building Decarbonization Startup Program. The new Building Decarbonization (BD) Startup Program incentivizes both residential and commercial customers.
Utility Building Decarbonization Startup Programs
Residential Program
The new residential portion of the BD Program is for residential customers to switch to efficient electric equipment that will fully or partially replace fossil fuel-based equipment. The partial installation is also called a hybrid, or dual fuel, system in which a heat pump is installed alongside an existing natural gas furnace. The BD program measures could also include induction cooktops and stoves, heat pump heating systems, heat pump water heaters, heat pump dryers, electric lawn equipment, and could include measures to upgrade the electric panel and/or wiring. The measures may be provided individually through the existing Energy Efficient Products (EEP) Programs, or altogether through the Whole Homes (WH) Programs, previously known as the Home Performance with Energy Star Program (please see the previous article in this series on the outline for all the clean energy incentives in New Jersey for a description of these subprograms). The energy assessments in the Whole Homes Programs will help to identify good candidates for building decarbonization, so that heat pump equipment is promoted at the same time as envelope improvements.
The only natural gas BD approved by the BPU was the New Jersey Natural Gas (NJNG) program. The NJNG program encourages customers to install high efficiency heat pumps that would “partially” displace the usage of natural gas fired equipment.
To obtain a heat pump incentive under the BD program, the project must have performed a load calculation of the building using the Air Conditioning Contractors of America (ACCA) Manual J procedure. Further, the contractor must select the new heat pump equipment based on the ACCA Manual S equipment selection process. In addition, all cold climate air source heat pump (ccASHP) equipment must have their specifications listed through the Northeast Energy Efficiency Partnership (NEEP) Product list, the Consortium for Energy Efficiency (CEE) Product list, or the USEPA Energy Star version 6.15 specification. If you do not do a Whole Homes energy audit, the Manual J calculations can provide some degree of improvement needs for your building insulation and weatherization.
The following tables contain the standard and cold climate heat pump equipment incentives as approved by the BPU under the Utility Residential EEP Program. The EEP program heat pump incentives are for adding a new or modifying or replacing an existing heat pump equipment without switching from fossil fuel of electric resistance heating.
Energy Efficient Products (EEP) Programs - Residential
All incentives are approved as “up to” amounts so the actual incentives may be lower.
New Building Decarbonization Program - Heat Pumps - Residential
The heat pump incentives in the table below are for customers to switch from fossil fuel or electric resistance heating to heat pumps. This can be a Full Displacement or Partial Displacement with a cold climate air source heat pump, an air source heat pump or a ground source (geothermal) heat pump. The BD program includes contractor bonuses for full load and conversion from a “delivered fuel” system such as oil or propane.
All incentives are approved as “up to” amounts so the actual incentives may be lower. Partial Displacement is also called a Hybrid System.
The BPU policy to encourage the installation of cold climate air source heat pumps (ccASHP) versus standard air source heat pumps and mini-splits, as noted in the above tables. Standard air source heat pumps are often installed with a full backup (fossil-fuel or electric resistance strip) heating system that lowers the overall efficiency of the system and costs more to install.
In a properly insulated and weatherized home that meets the current building energy codes, a ccASHP systems should not need a backup heating system in NJ. BPU policy chose to reward the installation of ccASHP systems, and thereby discourage backup natural gas heating, or dual-fuel systems, but also still allows for partial displacement of the fossil fuel system with a ccASHP. New Jersey HVAC contractors recommend a supplementary electric backup heating strip as a factor of safety.
Incentives for Electric Panel Upgrades for the BD Program and other Building Electrification
There are also incentives to upgrade electrical panels while installing a heat pump. The electrical upgrade includes enough capacity to support the needed Building Decarbonization program upgrades and a Level 2 EV charger, where possible. Customers can receive up to $300 per circuit for each Building Decarbonization measure that requires a 240V circuit, up to four circuits, or $300 for a panel upgrade when installing Building Decarbonization measures. The panel and wiring upgrade also includes a 0% interest loan for financing for up to $2,000. The panel and wiring incentives under the Building Decarbonization program are supplementary to the federal tax credit but may not be in addition to the electric utility Make Ready EV panel and wiring incentives. For Income Qualified customers, the incentive is the full cost for upgrading the circuits up to $2,500 up and for upgrading the panel up to $4,000 when installing Building Decarbonization measures.
Whole Homes Program (aka Home Performance with Energy Star) Additional Measures
A customer can replace their existing heat pump equipment or install a new heat pump with the incentives noted above, as individual equipment installation. The other option is to install heat pump equipment as part of the whole home program that addresses upgrading the building shell with insulation and weatherization, as well as upgrading the energy equipment.
In the Whole Homes program, PSE&G provides customers that install weatherization measures (Wx) up to 75% of costs for the weatherization measures covered. All of the other six natural gas and electric utilities provide residential customers with an incentive of $2,000 for homes that can achieve a minimum whole building energy savings of 5%, based on modeled reduction of energy use, with $200 for each percentage point of savings above 5%.
The total Whole Home incentive is capped at $7,500. All the natural gas and electric utilities provide incentives for other EE measures installed under the Whole Homes program, based on the list of measures in the EE Products program, with a cap of $7,500. Under the Building Decarbonization program, if customers go through Whole Homes first to upgrade the home’s weatherization, they can receive an additional $2,000 under the Whole Homes incentives. Installers in the Whole Homes program must be Building Performance Institute (BPI) certified. BPI is the source for certified contractors working on home energy efficiency, comfort, durability, health and safety.
The Whole Home approach is the most cost-effective option for a customer to maximize their heating and AC system efficiency while minimizing the size and thereby the cost of the system. This approach can minimize the size of the heat pump by improving the building efficiency with enhanced weatherization and insulation to minimize air leaks, and to keep the maximum amount of thermal energy within the building shell. This ultimately lowers your energy costs.
The residential whole-house EE option to enhance weatherization adds cost to the heat pump project. But improving building shell measures and weatherization can reduce the size of the heat pump system. This reduces the overall capital cost of the weatherized home’s heat pump when compared to a heat pump installation project without the upgrades. It also reduces the annual operating cost and can lower the payback time if the customer uses a 0% loan as noted below.
The Whole Building EE programs start with an energy audit or assessment. The building shell measures and HVAC system are assessed to determine if either can be improved. The BPU approved these programs for each of the 7 electric and natural gas utilities.
Income Qualified Program: low- and moderate-income (LMI) customers
Remember to look this up on the NJ Clean Energy site, as described in the separate article cited above. Eligibility for these enhanced incentives may be determined based on
screening an individual customer’s income,
or by categorical eligibility for moderate income customers,
or by special screening if the physical location is within the boundaries of a Low- or Moderate-Income census tract, or an Overburdened Community (“OBC”), or any other agreed upon designation by the BPU.
The income qualified customers may receive no-cost energy efficiency measures and upgrade within program guideline for up to $14,000. The customer’s no cost upgrades could include an additional $1,000 with approval. The no-cost EE upgrades include health and safety (H&S) measures, such as CO detection, replacing broken windows, repair of leaks in walls and roofs, mold remediation and gutter repairs. The H&S measures upgrades can be up to $2,500 or higher with approval.
Under the Moderate Income (MI) EE Weatherization Program there is no up-front cost to customer for a BPI certified energy audit. The incentives include directly installed EE measures and weatherization for up to $6,000 and for H&S measures for up to $1,500.
The Low Income (LI) EE Program, called the Comfort Partners Program, is managed directly by BPU in partnership with the utilities. The Comfort Partners Program is designed to provide a greater level of benefits for LI customers on a more holistic basis.
More details on the Income Qualified, MI, and Comfort Partners programs will be provided in upcoming articles.
Don’t Forget other Building Decarbonization Incentives!
You can view the incentives for other Building Electrification equipment and appliances, which may include induction stoves, heat pump dryers, and battery electric lawn equipment, on the four electric and NJNG websites or you can search the BPU Clean Energy Program Find a Program tool here.
Commercial, Institutional, and Industrial Customers
There are significant EE and PDR programs for commercial, institutional and industrial (CI&I) customers They are also referred to as “non-residential customers” under BPU tariff definitions. These include EE Proscriptive Products, EE Customer Measures, Energy Management including Building Operator Training, Commissioning, Retro-Commissioning and HVAC Maintenance programs, Direct Install, and Multi-Family Building EE Programs. There is also a Building Decarbonization Program for non-residential customers similar to the residential Building Decarbonization program noted above. More details will be provided in upcoming articles.
Federal Tax Credits
The incentives above are supplementary to the federal energy efficiency tax credits. See Energy Star's list of federal tax credits and the IRS's guide to energy efficient home improvement credits . The incentives under the federal HOMES and HEERA have been approved by the USDOE and BPU is in the process of implementing these programs.
Financing
In addition to the incentives, the utility EE and PDR programs include a 0% financing option for EE projects that include building decarbonization projects. There are two types of utility EE project financing:
One is “on the bill repayment” (OBR) where the utility includes the monthly loan payment along with their monthly utility bill. The intent is that the reduction in energy use should cover the increase in monthly payments.
The second option is that the utility simply contracts out to a third-party lending (TPL) institute to provide this service, resulting in a separate loan repayment bill each month from that lender.
Since the repayment of the loan capital in either the OBR or the TPL program is repaid by the customer, it is not an amount that the ratepayers have to fund via a specific ratepayer charge, so it has less of an impact to the utility’s ratepayers. The ratepayer only has to pay the carrying costs.
The amount of the loan depends on the project size and program but ranges from $10,000 to $25,000, for a term ranging from 5 to 10 years, depending on the amount of the loan.
The following is an example of the benefit to the residential or small business customer in a 0% loan versus one at the current market rates, both in terms of a lower monthly payment, and a lower total cost.
A customer can essentially replace their existing heating and AC system without any initial capital outlay and acquire that system with a repayment to the utility at 0% interest, using the utility’s money.
For energy savings, the best scenario is to have your monthly operational energy savings cover your monthly payments. However, with large energy systems like heating systems, water heaters, stoves, energy storage, solar and EV with large initial capital costs, it is not usually possible to cover the entire capital expense in 5 years solely with energy savings. In most cases, you are looking for a reasonable return on your investment, with something a bit less than the life of your equipment.
For a typical ccASHP, the total installed cost could range from $6,000 to $25,000 and with a larger multi zone system, installed cost could be in the $40,000 range. The cost depends on the manufacturer, the size of the system, its efficiency, the type of existing system that is being replacing including availability of ducts and size of the ducts, the size and availability of the existing electrical service and the size and location of the home including existing insulation and weatherization.
Summary
We have explained one part of the utilities’ EE and PDR programs - heat pumps and how they can save energy, energy bill costs and reduce GHG emissions. But they are just one part of the overall New Jersey Clean Energy Program to advance building electrification to help us get to 100% clean energy. Future articles will feature other parts of New Jersey’s Clean Energy Program to advance electrification.
Last updated: 22 February 2025
Footnotes
See the seven electric and natural gas utility T2 EE programs BPU approved Orders
See NJSA 48:3-87.9 at Justia US Law or Find Law
The seven NJ electric and natural gas utilities are Atlantic City Electric (ACE -an Exelon company), Elizabethtown Gas (ETG), Jersey Central Power & Light (JCP&L, a First Energy company), New Jersey Natural Gas (NJNG), Public Service Electric & Gas (PSE&G), Rockland Electric Co. (RECo, a ConEd company) and South Jersey Gas (SJG). Both SJG and ETG are owned by the holding company South Jersey Industries (SJI) and PSE&G is owned by the holding company Public Service Electric and Gas (PSEG without the &).
See the electric utilities approved Orders date October 30, 2024
The following is from the NJNG filing as approved by the BPU
This would allow the electric heat pump to work in the summer and shoulder months, as well as milder periods during the winter but allow the natural gas equipment to meet the customers heating needs in the colder periods when the electric heat pump would not work as efficiently.
See the NJNG approved Order
See ACCA Manual J and ACCA Manual S