Ontario launches new heat pump incentives to tackle rising electricity demand

Ontario has a new incentive encouraging homeowners to install heat pumps to reduce their energy use and lower planet-heating greenhouse gas emissions associated with home heating. 

The program is being offered by the Independent Electricity System Operator (IESO) and offers homeowners in some areas up to $5,000 to install an air source heat pump, and up to $10,000 for a ground source (geothermal) heat pump, which is more complex and difficult to install. It will roll out in areas experiencing higher-than-average electricity consumption growth, including major cities and regions such as Toronto, Mississauga, Ottawa, Barrie, Muskoka, Windsor, Kingston, York Region, and Niagara Region.

The Incentives do not depend on household income, making them more accessible to a wider range of Ontario residents.

Mary Bernard, supervisor of residential program performance at IESO told Canada’s National Observer that the program’s objective is to reduce strain on the electricity grid in specific regions where urbanization and population growth is increasing. By promoting energy-efficient upgrades like heat pumps, the IESO hopes to delay or avoid expensive infrastructure upgrades, she said.

“These are areas where demand growth is happening more quickly than the provincial average and where the electricity infrastructure may need reinforcement in the years to come,” Bernard said. 

Homeowners eligible for the incentives must live in one of the designated areas, own their home, and currently use electric heating. Eligible homes include single-family dwellings, semi-detached homes, duplexes, row/townhouses, and low-rise apartments or condos built before Feb. 26, 2024.

Bernard said the program covers about 30 per cent of installation costs; air source heat pumps typically cost around $15,000 and ground source systems average $30,000.

According to Bernard, air source heat pumps are the most popular. They work by transferring heat from outdoor air to heat homes in winter, and transferring heat from indoor air to cool homes in summer. Ground source heat pumps extract heat from the ground, which requires more complex excavation work but offers even greater efficiency. Air source heat pumps cut energy costs for heating by up to 50 per cent, depending on the home and system used.

Jack Gibbons, chair of the Ontario Clean Air Alliance, who recently installed a $14,000 cold climate air-source heat pump, said a heat pump can reduce heating bills by around $2,000 annually.

“Installing heat pumps in all of our electrically heated homes would also reduce the GHG pollution of our dirty gas plants by approximately 20 per cent,” Gibbons said.

While Gibbons praised the province for the new incentives, he questioned the decision to restrict them to certain communities. 

“Unfortunately, the IESO is only providing these incentives in transmission-constrained regions of Ontario,” Gibbons said. “This doesn’t make sense since heat pumps can lower the electricity bills of families in every region of Ontario.”

Gibbons explained that transmission-constrained regions are areas of the province with limited excess high-voltage transmission capacity from Hydro One. These regions will require upgrades to the transmission system unless there is a reduction in electricity demand through investments in energy efficiency options, like heat pumps. 

The Independent Electricity System Operator’s Pathways to Decarbonization Report predicts that Ontario might need to spend $400 billion to more than double its electricity generation capacity — from 42,000 megawatts today to 88,000 megawatts by 2050. And much of that electricity will be provided by additional polluting gas plants and high-cost nuclear reactors, Gibbons said.