Sales Skill: The Inflation Reduction Act – Considerations for the Commercial HVAC Market

On August 16, the Inflation Reduction Act (IRA) was signed into law. One goal within the $737 billion Act is to reduce carbon emissions by replacing gas-fired residential mechanical systems (HVAC and water heating) with qualifying heat-pump-based systems. Expectations are that the new rebate program—known as the High Efficiency Electric Home Rebate Act (HEEHRA)—will receive roughly $4.3 billion dollars for distribution to participating state energy offices.

Why is Trade Ally Network NW talking about a residential-specific offering when our focus is the commercial sector? HEEHRA is relevant because the HVAC industry and its range of market sectors are connected to one another. This is especially true with residential and light commercial equipment because they’re often produced in the same factories.

Historically, federal rebate programs have driven up demand for equipment, which then triggers increases in equipment prices and scarcity. HEEHRA is likely to do the same at a time when the industry is already in flux to accommodate the new SEER2 and HSPF2 equipment efficiency standards.

Further compounding the situation is a lack of skilled labor. Since the COVID-19 pandemic began in early 2020, it has been harder than ever for trade allies to find and retain talent. When that shortage is combined with increased demand to install heat pump systems—which can be more involved to install than their gas fired counterparts—and the industry will likely see increased labor and equipment costs.

Fortunately, those implementing the IRA are planning to account for both increased demand and the labor shortage. A $500 million appropriation from the Defense Production Act (DPA) will help with the demand part by boosting heat pump manufacturing. Find more information about additional funding programs/sources expected to target manufacturers on the IRA’s RewiringAmerica.org website and factsheet here. Further funding, in the form of $200 million in grants divided between participating states, will promote contractor training. Contractors will also be able to tap into incentives for completing qualifying heat pump projects; more information on the RewiringAmerica.org factsheet here.

It is possible that not all states will participate in the IRA. The Act promotes what the efficiency industry calls fuel switching, which some states discourage, so they may opt out of HEEHRA (find a list of states and their respective policies from ACEEE here). Furthermore, since the IRA and the HEEHRA are new and just rolling out, no one knows their full impact on the industry yet, so some states may be more cautious about coming on board.

As always, Trade Ally Network NW is here to support you. If you have questions about this article, please reach out to us on our website or through your local field specialist.