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Enhancements to the Oil to Heat Pump Affordability Program

Making the shift from an oil furnace to an electric heat pump significantly reduces Canadians’ energy bills and Canada’s emissions. The Government of Canada has been helping Canadians make this switch through a range of programs, including through NRCan’s Oil to Heat Pump Affordability (OHPA) program.

The OHPA program was first announced in November 2022 and launched in March 2023. On October 26, 2023, the Government of Canada announced enhancements to the OHPA program to help make the switch from heating oil to electric heat pumps even easier and more affordable for more low-to-median-income households.

Information on the strengthened OHPA program and other federal supports to accelerate the transition to heat pumps across Canada can be found below.

Making the shift from home heating oil

The cost of oil home heating in Canada, like in other countries, is significantly influenced by global commodity markets and the global price of oil and gas. This cost has increased over the years, largely due to geopolitical events. Oil-heated households in Canada face the highest and most volatile heating bills on a relative basis, which are becoming increasingly difficult to manage in the context of high global inflation rates.

Home heating oil prices in Canada in 2022–2023 were approximately 30 percent higher than in 2020–2021. Nova Scotia saw a 70 percent increase in the cost of home heating oil last year, when compared with 2020. The cost of home heating oil for households in Canada in 2023 was between 40 and 70 percent higher than it was in 2020 depending on the province or territory— while the cost of residential natural gas increased by 15 to 30 percent over the same period depending on the province.

In 2023, the average Canadian home that is fully heated on oil and using between 1,000 and 3,500 litres per year of oil would spend approximately $2,000 to $5,500 per year, depending on the province or territory, the climate, the efficiency of the equipment and heating load — making it the most expensive heating option. The average Canadian home that uses natural gas would spend between approximately $500 and $2,000 per year on home heating. Homeowners who are fully heating on oil and switch from an oil furnace to an eligible heat pump system could save approximately $1,500 to $4,500 per year on their home energy bills. Homeowners who switch from a gas furnace to an eligible heat pump system, could also save money depending on the region, climate, efficiency of the equipment and heating load.

There are approximately 610,000 oil-only-heated households across Canada, approximately 580,000 of which are in the provinces. More than half of oil-heated households fall below median income. In addition, there are approximately 555,000 homes that partially heat with oil (for example with oil/electricity and oil/wood). [Source: Comprehensive Energy Use Database, for year 2020]

Most homes that heat with oil are in Quebec (465,000), Ontario (267,000) and the Atlantic provinces (287,000).

Approximately 25 percent of households in Atlantic Canada currently heat with oil, compared to approximately six percent across the rest of Canada. Of those households in Atlantic Canada that heat their homes with oil, nearly two-thirds fall at or below the median income level. It is important to note, however, that Ontario and Quebec have the largest number of households that heat with oil and that 64 percent of homes in the territories are also heated with oil.

NRCan’s Comprehensive Energy Use Database (CEUD) is derived from multiple inputs, including StatsCan Survey on Household Spending and Survey of Household Energy Use. NRCan regards this as the most accurate estimation of household equipment stock. The latest data, which can be found below, is from 2020. It is expected that updated data for 2021 will be available in early 2024.

Homes that Heat with Oil in Canada
Number of homes that heat space with oil** 1,165,000 84,000 12,000 12,800 8,200 266,700 465,200 48,800 167,600 36,000 34,500 29,500
Proportion of P/T households that heat space with oil** 7.3% 3.9% 0.7% 2.6% 1.5% 4.6% 11.7% 13.7% 37.0% 52.8% 13.7% 64.1%

*These numbers include homes that heat with oil only (totalling ~610,000) and homes that heat with oil as part of a dual system, e.g., oil as well as electric, or oil as well as wood (totalling ~555,000).
**Latest CEUD data is from 2020, i.e., does not incorporate homes that have switched off oil since 2020.
***CEUD calculates stock based on surveys of <20,000 households. These estimates are extrapolations, and should be treated as approximations, not exact representations of reality.

Emissions from Canada’s building sector are the third-largest source of emissions. Oil space heating in homes represents eight percent of total direct emissions from the residential buildings sector. Oil is the highest emitting fuel per unit energy, followed by propane and natural gas.

Specifically, oil furnaces and boilers in Canada’s homes generate around three million tonnes of CO2 every year — the equivalent of pollution from approximately 920,000 cars. On top of CO2 emissions, oil combustion in heating systems also generates nitrogen oxide, sulphur dioxide and fine particles that can be harmful to the environment and human health.

The benefits of adopting an electric heat pump system

Making the switch from a costly oil-fired heating appliance to an efficient heat pump system saves households money on their annual and monthly energy bills, helps shield households from volatile global price shocks — leading to further cost savings — and their adoption is a crucial tool in the fight against climate change.

Electric heat pumps are a proven technology that heat and cool homes and buildings by using electricity to move heat from one space to another. In the winter, they draw heat from the outside air and pump it into indoor spaces. In warmer weather, they remove heat from an indoor space, thereby cooling it. Major technological improvements have meant that cold climate heat pumps, which have become more prevalent over the last 5–10 years, can perform well in lower temperatures, as far down as –30°C. In addition, heat pumps provide cooling for occupants in the summer.

The fact that electric heat pumps simply move heat, rather than generate it, is a large part of why they are more efficient and less costly to operate than alternatives such as oil boilers and furnaces. Relative to oil furnaces, heat pumps are two-to-four times more efficient, meaning their adoption significantly reduces household energy use and energy bills.

Because heat pumps are connected to Canada’s domestic electricity grids, which are regulated by provincial/territorial utilities and regulators in Canada, households that use heat pumps are significantly shielded from global market forces and fluctuations in the price of oil. Thus, the adoption of clean technologies such as heat pumps also helps protect households from expensive and volatile fossil fuel price spikes outside of Canada’s control.

Providing Canadians with financial support to make the shift

The benefits of switching from an oil furnace to a heat pump are clear, and households around the world and in Canada are rapidly moving in this direction.

According to the International Energy Agency (IEA’s) World Energy Outlook 2023, released in October 2023, heat pumps saw a record year in 2022, with sales almost double the level of what they were five years ago.

While these trends are likely to continue as the technology improves and the market expands, and even though heat pumps generate significant energy bill savings over their lifetime, higher upfront costs remain a barrier to accelerated uptake.

In Canada right now, the average upfront cost to purchase and install a heat pump, including additional electrical panel work and in some cases oil tank removal, is $18,400. For this reason, the Government of Canada is making it easier and more affordable for low-to-median-income households that heat with oil to purchase and install a heat pump through the OHPA program.

The Oil to Heat Pump Affordability program

In November 2022, the Government of Canada announced the OHPA program.

Since early 2023, through OHPA, the Government of Canada has been providing an upfront, advance payment of up to $10,000 to low-to-median-income Canadian households that use home heating oil to help them cover the cost of purchasing and installing an eligible heat pump system.

The OHPA program specifically covers the following costs:

  • the purchase and installation of an eligible heat pump system (air source, cold climate air source, or ground source)
  • necessary electrical upgrades and mechanical upgrades for a new heat pump
  • installation of a backup electric heating system (as required)
  • switching over other oil-using household systems, such as a water heater (where necessary)
  • the safe removal of an oil tank

The OHPA program focuses on households that need it the most and is therefore accessible to low-to-median-income Canadian households. Canadian households may be eligible for the OHPA program if:

  • their household has an after-tax income at or below the median household after-tax income threshold. Note that this threshold will soon be increased to reflect the rise in the inflation rate
  • their home was oil-heated as of January 2023 (this must be demonstrated with copies of their oil fuel bills from the 12 months preceding their application)
  • the home is an eligible residential property type
  • the applicant has not already received a grant for a heat pump under the Canada Greener Homes Grant or loan and is able to complete the work within six months
  • the home is connected to a North American electricity grid (off-grid homes are not eligible)
  • they are the primary resident and owner of their home

OHPA applicants must have an after-tax income at or below the median household after-tax income. The federal direct delivery stream defines this as Statistics Canada’s Median Income Measure Threshold, which takes into consideration the number of residents in a home. In the case of co-delivery, provinces and territories are granted the ability to define a reasonably equivalent measure for median income.

On average, a family of four that makes at or below $121,000 per year in Canada is likely to be considered at or below the median income level, in a given province or territory, and therefore meets the income eligibility to receive an OHPA grant.

Additional federal supports

The federal government (and other provincial/ territorial/ municipal levels of government) are also helping to make the switch from oil heating to a heat pump system more affordable for Canadians who are not eligible for OHPA through a range of other programs. Households of all income levels that heat their homes through other means (such as natural gas) or are above median income and want to make the switch to a heat pump may also apply for financial support through the Canada Greener Homes Grant and/or CMHC’s Canada Greener Homes Loan.

Provincial partnerships through OHPA to date

Multiple jurisdictions and organizations across Canada have significant initiatives aimed at supporting the off-fossil-fuel transition in homes and buildings. These initiatives are administered directly by provincial, territorial and municipal governments, as well as by utilities and efficiency organizations. In addition to general funding for energy retrofits, several heat-pump-specific incentives (rebates or full cost coverage) exist, including in British Columbia, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador.

Prior to the formal launch of OHPA in March 2023 and following the Government of Canada’s announcement of its intent to deliver OHPA in November 2022, the Government of Canada offered to every province and territory the opportunity to co-deliver the up to $10,000 federal grants under OHPA, alongside existing/new provincial/ territorial/utility heat pump funding programs. The Governments of Nova Scotia, Prince Edward Island and Newfoundland and Labrador, which are also providing provincial funding to help lower-income households make the switch to heat pumps, have entered into co-delivery arrangements with the federal government since then.

There are significant benefits to co-delivery. A one-stop-shop approach, through a provincial or territorial program, reduces the time and resources households need to invest in the process of adopting a heat pump, and it makes it easier for applicants to receive support from both federal and provincial or territorial governments.

Since March 2023, oil-heated households in all parts of Canada have been able to apply for OHPA funding through NRCan’s national portal or through their provincial co-delivered program. More specifically, oil-heated households in P.E.I. and Nova Scotia have been able to apply for OHPA funding since March 2023 through their respective provincial portals. Households in Newfoundland and Labrador have been able to do so since June 2023.

In cases of co-delivery, where provincial or territorial programming already exists, OHPA funds flow from the Government of Canada to provincial partners via contribution agreements. The provinces and territories continue to use their program delivery structures while incorporating the OHPA funding. In many cases, provincial programming includes increased coordination support for lower-income households for the purchase and installation of eligible heat pumps and the eligible measures associated with its installation. With a view to maximizing financial benefits and accessibility to households, NRCan is working with potential co-delivery provinces to align key program design features while allowing flexibility where provincial or territorial program design is reasonably comparable.

The installation of heat pumps to date

As of the end of November 2023, over 13,000 low-to-median-income households have applied for OHPA funding, with the majority currently undergoing eligibility assessments. Of those 13,000 low-to-median-income households, over two-thirds are in Atlantic Canada, in which thousands of homeowners have completed their transition from heating oil to an eligible heat pump system with OHPA program support. Within the national portal (and outside of co-delivery jurisdictions), over 830 grants to low-to-median-income households have been issued to date, totalling $7.6 million.

Under the Canada Greener Homes Grant program, many households across Canada that are not eligible for OHPA funding have been approved for and/or received thousands of dollars in federal grant funding to support their heat pump purchase and installation. On September 27, 2023, the Greener Homes Grant program made its 100,000th grant payment. As of the end of November 2023, the average number of total payments completed per day under the program was 335. The average grant for retrofits was $3,655, and the top retrofits were heat pumps (54,823), followed by windows and doors (43,958).

Under CMHC’s Canada Greener Homes Loan program, 17,814 loans have been issued, of which 7,909 (45 percent) included funding for a heat pump.

Strengthened OHPA — next steps

The OHPA program is designed to be simple and fast, with applicants receiving a funding decision as quickly as within 48 hours on average in NRCan’s national portal, which is where the federal government delivers the program directly to homeowners.

From the time a homeowner reviews and accepts their grant, it takes approximately 10 to 15 business days for the cheque to be issued and received. However, it could still take weeks or more for the heat pump to be installed and therefore for the cost-savings benefits to be realized. In Prince Edward Island, for example, under the OHPA program — which is being co-delivered by the province — the wait to install a heat pump is approximately three to six weeks.

For this reason, and in recognition of the approaching winter season for 2023, the Government of Canada announced the enhancements to the OHPA program on October 26, 2023, to provide additional support for low-to-median-income households to help them move off home heating oil to heat pumps.

To deploy as many heat pumps as possible and to expedite their delivery, the government is increasing from up to $10,000 to up to $15,000 the amount of federal funding that low-to-median-income homeowners can receive to purchase and install an eligible heat pump system, with the goal of making the average heat pump more affordable for these households.

This up-to-$5,000 in additional federal funding will be available to households in jurisdictions that have a co-delivery arrangement with the Government of Canada, whereby the provincial or territorial partner delivers the program within their jurisdiction and either currently matches or agrees to match the additional federal contribution.

By working with provinces and territories to effectively eliminate the upfront costs associated with this purchase for lower-income households — making heat pumps for the average household more affordable — we will get more people off home heating oil and onto cheaper and cleaner technologies to heat homes more quickly.

For the strengthened OHPA program, grants of up to $15,000 will be available to households in jurisdictions that have stepped up or intend to with matching provincial/territorial funding to further help lower-income, oil-heated households make the switch to a heat pump and where the federal government has a co-delivery arrangement in place that includes provincial or territorial contributions.

The federal government currently has co-delivery arrangements with the provinces of Nova Scotia, P.E.I., and Newfoundland and Labrador, the three provinces that stepped up earlier this year with provincial funding that is stackable with the existing up-to-$10,000 grants from the federal government and agreed to administer the OHPA program through their provincial energy efficiency infrastructure.

The federal government is eager to enter into co-delivery arrangements with all interested provinces and territories to ensure coverage of Canadians for “no cost” average heat pump conversion across Canada.

To further incentivize and support low-to-median-income households in making the shift from an oil furnace to a heat pump and to provide immediate relief to households this winter, the federal government will also be providing a one-time payment of $250 to low-to-median-income households in co-delivery jurisdictions when they are pre-approved to transition to a heat pump.

To qualify, homeowners must meet eligibility criteria as set out by the national program or the co-delivery province/territory. The one time payment is intended to help defray the higher cost of heating oil while homeowners wait for the installation of their new heat pump.

Meanwhile, households that switch from an oil furnace to a cold-climate heat pump could save $1,500 to $4,500 per year in home heating bills.

It is the Government of Canada’s intent to begin to provide the $250 incentive payments to households in co-delivery jurisdictions in the coming weeks.

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