State-Driven Hybrid Heating Wins in the United States

Explore the case studies below, highlighting how policymakers in Utah, Minnesota, and Massachusetts have leveraged these tactics to promote hybrid heating in their states.

Utility Collaboration and Fuel Switching

Summary: In 2020, Utah adopted a simple legislative amendment clarifying that heat pumps qualify as eligible DSM measures. This change enabled regulated utilities to actively promote heat pumps and hybrid heating systems through revenue decoupling mechanisms and coordinated utility incentive programs. The result has been growing heat pump adoption, greenhouse gas emissions reductions, and a replicable model for accelerating electrification through utility collaboration.

Context: A key barrier to hybrid heat pump adoption in historically gas-heating dominant states, like Utah, is whether regulated electric utilities are legally permitted to promote “fuel switching.” In states that do not permit fuel switching, electric utilities may be prohibited from offering specific rebates or more favorable rebates and incentives for heat pumps relative to conventional air conditioning and gas furnace systems.

The potential loss of utility revenue associated with reduced gas sales poses another barrier in the state. Without mechanisms to address this issue, gas utilities may have limited incentives to support heat pumps and hybrid heating technologies.

Solution: In Utah, a simple one-sentence legislative amendment in 2020 clarified that heat pumps qualify as eligible demand-side management measures.⁴ This change allowed the state’s regulated electric utility, Rocky Mountain Power (RMP), to include residential heat pumps in its DSM plans and actively promote them as part of the utility’s energy efficiency and emissions reduction efforts. Utah is a strong example of how a relatively straightforward, narrow legislative amendment can permit utility promotion of hybrid heating without overhauling a broader regulatory framework.

A supportive mechanism called revenue decoupling was also essential for the gas utility to develop rebates for heat pumps without a net loss of revenue from selling less gas. Revenue decoupling separates utility revenue recovery from volumetric energy sales, protecting utilities from the lost revenue associated with increased energy efficiency and fuel switching. This enables gas utilities to promote heat pumps and hybrid heating while still meeting financial obligations and regulatory requirements. For electric utilities, revenue decoupling can also help promote energy efficiency without losing revenue from selling less electricity.

Both the electric and gas utilities claim energy savings from the dual-fuel heat pump programs, helping them achieve their respective energy-saving goals. Electric savings (kWh) and gas savings (therm reductions) are both captured and credited toward utility performance goals. Both utilities estimate reduced gas usage through energy modeling of installed heat pump systems. Dominion claims the therms of energy savings directly, while RMP converts therm savings to kWh, with a slight adjustment that subtracts 15% to partially account for increased electricity consumption associated with heat pump operation.

As part of their efforts to promote hybrid heating and heat pumps, both RMP and Dominion Energy offer significant incentive programs.⁵ Customers installing qualifying air-source heat pumps can combine rebates from both utilities, with total rebates of up to $2,400, significantly reducing upfront cost barriers. Incentive levels have evolved over time, with periodic adjustments reflecting budget constraints, performance targets, and market response.

Contractors can apply for rebates on behalf of customers, reducing administrative burden and improving program uptake. In an early phase of the program, contractors received $100 per heat pump installation incentive.⁶ While these contractor bonuses were later reduced to $50, installation rates continued to grow, suggesting that once market familiarity increases, programs may require reduced spending to sustain participation. In addition to incentives, RMP’s program implementer, Evergreen, provides ongoing support through regular “lunch-and-learn” trainings that offer updates on program requirements, technical best practices, and incentive changes.⁷ Participating contractors also have the option to be listed in a preferred contractor network.

Impact: RMP and Dominion Energy’s dual-fuel heat pump incentive programs resulted in nearly 5,900 heat pumps being installed between 2021 and 2023.⁸ The associated greenhouse gas emission reductions are estimated at approximately 14,700 tons of carbon dioxide equivalent annually, equivalent to removing about 2,900 vehicles from the road annually.

By enabling fuel switching through targeted legislative reform and pairing that authority with coordinated rebates and contractor engagement, Utah has created a replicable model for increasing hybrid heating and heat pump uptake. Where utilities are permitted and financially structured to promote electrification, coordinated dual-fuel programs can scale without requiring entirely new funding streams or large infrastructure investments.

Coordinated Utility Programs and Fuel Switching

Summary: Through legislation enabling fuel switching, innovative utility electric rates, stacked financial incentives, and comprehensive contractor and consumer support provided by the Minnesota Air Source Heat Pump (ASHP) Collaborative, the state has successfully accelerated adoption of hybrid and cold-climate heat pumps.

Context: Minnesota has created a policy environment that supports hybrid heating. The passage of the Minnesota Energy Conservation and Optimization (ECO) Act of 2021 reformed the 2007 Next Generation Energy Act to allow utilities to promote fuel switching as part of their energy savings goals.⁹ Additionally, Minnesota’s Energy Efficiency Resource Standards (EERS) require utilities to achieve annual energy savings targets of approximately 1–1.75%, creating a compliance-driven incentive to adopt high-impact efficiency measures such as hybrid heat systems. The state allows utilities to count total savings for certain dual-fuel, efficient fuel-switching applications, creating an incentive to promote heat pumps, including in hybrid configurations. Because utilities are permitted to promote fuel switching through ECO programs, equipment incentives can be paired with innovative electric rate designs. Most Minnesota electric cooperatives and investor-owned utilities offer dual-fuel electric rates that significantly reduce per-kWh electricity charges for qualifying hybrid systems compared to standard rates.^10111213 These rate structures improve the operational cost-effectiveness of hybrid heating systems. In addition, the Minnesota ASHP Collaborative provides the Heating and Cooling Savings Estimator tool, allowing consumers to compare electricity, gas, and propane rates by utility and home type.¹⁴ Xcel Energy also offers a whole-home electric space-heating rate for both fully electric and dual-fuel systems when the heat pump serves as the primary heating source.

Solution: Minnesota complements its legislative framework with coordinated financial incentives, technical assistance, and workforce development. The ASHP Collaborative, led by the Minnesota Center for Energy and Environment,¹⁵ provides a centralized platform that enables homeowners to identify and stack city, utility, and federal incentives for hybrid and cold-climate heat pump installations. For low- and moderate-income households, up to 70–100% of installation costs may be covered, with additional grant funding available in some cities for rental properties. Many metropolitan-area communities also offer utility rebate matching programs.

Available rebates are organized in two clear tiers: one for air conditioning replacements (hybrid systems that retain a gas furnace) and a cold-climate heat pump tier (including systems paired with a gas system or electric resistance supplemental heat).¹⁶ The platform also includes tools to identify local rebate matches, special dual-fuel or whole home electric rates, financing options, and promotional programs. Helping homeowners locate qualified contractors is another important feature of the platform available via the “Find Contractor tool”.¹⁷ By centralizing these resources, the MN ASHP Collaborative reduces administrative burden and transaction costs for both homeowners and contractors, making participation significantly easier. Recently, the MN ASHP Collaborative compiled information and resources for homeowners in a comprehensive Step-By-Step Guide to help with navigating the sometimes-overwhelming process of acquiring a heat pump.¹⁸

In addition to consumer-facing tools, the MN ASHP Collaborative maintains a technical resource hub for contractors that includes guidance on incentive requirements, equipment selection, installation best practices, system controls, and homeowner education.¹⁹ Regular in-person and virtual training sessions further strengthen contractor familiarity with cold-climate heat pump applications and hybrid configurations, increasing installer confidence and the likelihood that these systems are recommended to customers.

Impact: Minnesota demonstrates how coordinated legislation, utility rate design, stacked incentives, and comprehensive consumer and contractor support can work together to accelerate hybrid heat pump adoption. Market transformation strategies deployed by the Minnesota ASHP Collaborative, together with innovative utility rates, fuel-switching rebates, and the 25C tax credit, have increased air-source heat pump market share from 4% of air conditioning sales in 2022 to 15% in 2025 (when comparing ASHP sales to AC sales).²⁰ Minnesota serves as an example of successfully combining statutory fuel-switching authority, innovative utility programs, and strong workforce support to facilitate hybrid heat adoption.

Summary: In addition to permitting fuel switching, Massachusetts has pursued complementary programs for hybrid heat and heat pump deployment, including utility rate design, Inclusive Utility Investment (IUI) financing pilots, and incentive programs to drive new heat pump adoption.

Solution:

Rate Design

Massachusetts has implemented an innovative seasonal electricity rate structure for households with heat pumps, that is designed to lower winter heating costs and better align electricity pricing with grid use patterns.²¹ Starting November 1, 2025, all three of the state’s major investor-owned utilities (IOUs) (Eversource, National Grid, and Unitil) began offering lower electric rates during the winter heating season (November 1–April 30) for households that heat all or part of their homes with heat pumps, a categorization which includes hybrid heating. IOUs were mandated to investigate and implement rates as part of efforts to meet state climate targets through Climate Compliance Plans. Massachusetts law allows gas utilities to deliver thermal energy as ‘low-carbon’ energy (this means thermal energy may count toward the utility’s emissions obligations, which is classified as low carbon energy), facilitating hybrid heat adoption alongside planned decommissioning of old gas pipelines.

Originally recommended by the state’s Commission on Clean Heat, the Department of Public Utilities (DPU), the Massachusetts Clean Energy Center (MassCEC), the Department of Energy Resources (DOER), and the IOUs collaborated to rapidly design and implement the Massachusetts rate structures and incentive programs over a three-year period. Automatic enrollment for heat pump users was piloted, and while stakeholder engagement was minimal, utilities and program administrators experienced reduced administrative barriers and successfully coordinated the smooth implementation of rates and incentives. MassCEC commissioned a technical study to investigate and propose alternative rates for heat pump households, which formed the basis for the proposed heat pump rate.

The new rates reduce the delivery (distribution and, in some cases, transmission) charges on electricity bills during the winter months for heat pump users, while supply charges remain unchanged. Because heat pump households on average use significantly more electricity than those who heat with fossil fuels, the fixed costs of electricity delivery are distributed across a larger volume of electricity, lowering the effective delivery rate. By lowering these charges in winter when the grid is not capacity-constrained, heat pump users see a 40% reduction in heating cost relative to using the standard rate.²²

Under traditional rate structures, winter electric delivery charges often remained high despite the grid having unused winter capacity because utility pricing is based on summer peak loads. By offering lower winter delivery charges, Massachusetts is more accurately reflecting the lower cost of delivering electricity during periods of lower demand. This makes heat pump operation more financially competitive with natural gas heating, which continues to dominate in the state.²³

Massachusetts aims to install 500,000 heat pumps by 2030, a significant increase from just over 90,000 installed as of 2024.²⁴ State regulators and utilities estimate that these seasonal rate discounts for heat pump customers who switch to the new rate could reduce winter heating costs by an average of $540 per household during the heating season.²⁵ A report commissioned by environmental groups found that if regulators adopt deeper proposed rate changes, up to 82% of Massachusetts homes with heat pumps could see median annual winter savings of $687 because of fairer pricing that reflects actual seasonal grid costs.²⁶

Utility Financing

Massachusetts has piloted alternative financing mechanisms to address the upfront cost barrier associated with hybrid and fully electric heating systems. The Ipswich Electric Light Department (IELD), a municipal utility, launched an IUI pilot program using a tariffed on-bill (TOB) financing model to support electrification and weatherization upgrades.²⁷ The program was initiated with $100,000 in seed funding and focused on enabling comprehensive home energy retrofits aligned with the state’s goal of electrifying 500,000 homes by 2030.²⁸

Under the IUI structure, the utility invests directly in cost-effective home improvements (such as heat pump installations and building envelope upgrades) and recovers its investment through a monthly tariff attached to the electric meter, rather than to the individual customer. The tariff is structured so that monthly IUI payments do not exceed the estimated energy cost savings generated by the improvements, ensuring that participants experience net bill neutrality or savings from the outset. Because the tariff obligation is tied to the meter and transfers automatically to subsequent household occupants if the home is sold, the model avoids reliance on individual creditworthiness and eliminates the need for customers to take on personal debt. This design distinguishes IUI from traditional on-bill financing programs, which function as loans and may exclude households with limited access to capital.

Massachusetts utilities and other program administrators also implement comprehensive statewide incentives through the Mass Save heat pump incentive structure. Mass Save is a statewide energy efficiency and electrification initiative funded by a charge on customers’ utility bills and administered jointly by Massachusetts program administrators as an initiative focused on the state’s energy efficiency and greenhouse gas reduction objectives defined in the Massachusetts Clean Energy and Climate Plan.²⁹ The program’s purpose is to reduce energy consumption, lower costs for participants, and support clean energy goals by offering rebates, technical assistance, and coordinated services for efficiency upgrades, including heat pumps.³⁰

Designed to accelerate electrification while accommodating hybrid configurations, the program offers tiered rebates based on the degree to which a heat pump displaces existing fossil fuel or electric resistance heating.³¹ The program distinguishes among three rebate categories. Whole-home rebates, the largest rebates available, are for eligible customers who install heat pumps as the sole source of heating and cooling. In 2026, these rebates provide $2,650 of financing per ton of installed capacity, up to a maximum of $8,500. Partial-home rebates, intended for hybrid configurations where an existing boiler or furnace remains in place for supplemental heating, offer $1,125 per ton up to $8,500 (installation of “integrated controls” that connect the system to a legacy fossil fuel system is required, as well as set switchover temperature of 30F or less for oil and natural gas, and 5F or less for propane).³² Customers installing properly sized systems that can meet their total heating load needs are eligible for an additional $500 sizing bonus, and those completing recommended weatherization measures may receive a $500 weatherization bonus. Basic rebates, at $250 per ton up to $2,500, apply to installations that do not displace fossil fuel heating, such as cooling-only upgrades or installations in seasonal homes.

Importantly, the program incorporates enhanced incentives for income-qualified households. Low- and moderate-income customers may receive up to $16,000 for whole-home systems, or, in some cases, near-zero upfront cost through turnkey delivery services.³³ For context, average installation costs for whole-home air-source heat pump systems in 2022 were approximately $22,000. Under standard incentives, this reduces net customer cost to roughly $13,500; under enhanced incentives, net costs may fall to approximately $6,000 or lower.

Impact:

Early results from the Ipswich IUI pilot demonstrate that tariff-based financing mechanisms can effectively address upfront affordability barriers to heat pump adoption, particularly for households that may not qualify for traditional financing. Although the pilot relied on external seed funding and participation by a municipal utility, it provides a replicable model for expanding equitable access to hybrid and fully electric heating systems without requiring customers to make significant upfront investments.

While the IUI model delivered the greatest financial benefits when paired with complementary measures such as weatherization and solar installations, early results show that the program enabled HVAC electrification in all participating homes, eliminated approximately 84% of upfront costs for customers, and achieved average energy savings of roughly 20% compared with historic household energy expenditures.³⁴ By integrating electrification and weatherization into a streamlined offering, the pilot also reduced administrative barriers by minimizing the need for customers to independently identify contractors or navigate multiple incentive programs.

Massachusetts has also demonstrated the value of sustained statewide incentives through the Mass Save program. Since 2020, Mass Save has supported the installation of heat pumps in more than 90,000 Massachusetts households, roughly 7% of homes statewide, including both whole-home and hybrid heating systems.³⁵ This scale of deployment reflects both sustained funding and program stability.

The Mass Save program further illustrates how incentive design can support both hybrid and full electrification pathways. By combining tiered rebates based on system configuration, income-based enhancements, weatherization bonuses, and clear technical requirements for system sizing and hybrid controls, the program addresses multiple barriers to adoption, including upfront costs, system performance, and building efficiency. Together with seasonal electric rate reforms and innovative financing models such as IUI, Massachusetts provides an example of how complementary utility and state policies can reduce operating costs, lower upfront financial barriers, and accelerate deployment of hybrid and electric heat pump systems.

The case studies also illustrate how hybrid heating advances equity objectives. Layered incentives particularly in Minnesota and Massachusetts demonstrate that low- and moderate-income households and rental properties can be meaningfully included in electrification efforts when administrative barriers are reduced, and financing mechanisms are structured to avoid debt burdens.

Amid federal uncertainty, hybrid heating programs offer states a variety of sustainable, effective pathways to sustain electrification momentum and reduce carbon emissions.