New HVAC equipment efficiency regulations will drive increased ticket prices as equipment manufacturers update offerings to meet new requirements. Incentives from the Inflation Reduction Act will provide tax credits to certain consumers, potentially offsetting the more expensive equipment. More efficient equipment will save homeowners money over the long term.
Raising the Bar: US Department of Energy Minimum Standard Efficiency Ratings Set to Increase
The US DoE is updating its HVAC appliance energy efficiency requirements in an effort to combat rising homeowner energy consumption. The average American household spends more than $1,850 a year on home energy bills. Air conditioning (17% of average household energy expenditure), space heating (15%), and water heating (14%) are the most energy-intensive appliances in the home. Almost 90% of US households use air conditioning, up from roughly 60% in 1980.
The minimum efficiency increases for 2023 will vary not only by product type but by geographic region, as well. The average effect will be a 7-8% increase in efficiency for new entry-level units, raising the floor on equipment manufacturers and decreasing total household energy consumption.
Average Ticket Sale Price to Increase, Eventually Falling to the Bottom Line
There will be an adjustment period – technicians will have to acclimate to new equipment and rebuild muscle memory to return to maximum capacity. However, once technicians are trained on the new equipment, the labor costs of installation will normalize and the additional revenue from higher-priced, energy-efficient units will drop to the bottom line.
Further, as the floor on entry-level units rises, consumer expectations and preferences will adjust to higher prices. In the good/better/best sales approach, each tier will jump up in efficiency, price, and ultimately profit to the business owner.
Climate Efficiency Incentives from the Inflation Reduction Act to Bolster New Spending
The largest ever federal legislation addressing climate change, the IRA invests $369 billion in clean energy sources and technologies that improve energy efficiency. Part of this includes offering significant rebates and tax incentives to homeowners who purchase efficient home appliances. The legislation includes up to $14,000 in direct consumer rebates for families to buy heat pumps or other energy-efficient home appliances.
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