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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 heat pumps even easier and more affordable for more low-to-median income households.

Information on the 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 — while the cost of residential natural gas increased by 15 to 30 percent over the same period depending on the province.

The average Canadian home that uses heating oil spends up to $2,800/year on heating oil — making it the most expensive heating option. The average Canadian home that uses natural gas spends around $1,000/year on home heating — nearly three times less than the cost per year for an average Canadian oil-heated home. Meanwhile, homeowners who switch from an oil furnace to a cold-climate heat pump could save up to an average of $2,500 per year on their home energy bills.

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

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

While 1–12 percent of homes in other provinces heat with oil, nearly 30 percent of households in Atlantic Canada currently do so, compared to just eight percent in 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.

Fossil fuel home heating and, in particular, home heating oil furnaces are also significant contributors to climate change. Emissions from Canada’s building sector are the third-largest source of emissions.

Oil-heating in homes represents seven percent of total emissions from the buildings sector. Oil is the highest emitting fuel per unit energy (0.07 tonnes of CO2e per GJ), followed by propane (0.06 tonnes of CO2e per GJ), followed by natural gas (0.05 tonnes of C02e per GJ).

Specifically, oil furnaces generate around a million tonnes of CO2 every year — the equivalent of pollution from 300,000 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 a heat pump

Making the switch from a costly oil-fired heating appliance to an efficient heat pump 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.

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 also meant that cold climate heat pumps, which have become more prevalent over the last 5–10 years, can perform well in lower temperatures and down to –30°C temperatures.

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

In providing both heating and cooling in one single appliance, heat pumps can significantly reduce energy demand and bills in the summer months too. Unlike the limited reach of expensive and inefficient window and portable air conditioning units, which often need to be installed in multiple rooms in one house, heat pumps can provide cooling throughout an entire home by moving heat from indoor spaces to the outside.

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.

For these reasons, homeowners who switch from an oil furnace to a cold-climate heat pump to heat and cool their homes could save – up to an average of $2,500 per year on their home energy bills. A recent study by Clean Energy Canada found that a family in St. John’s, Newfoundland, that switched from oil to a cold-climate air-source heat pump could save $160 per month off their bill.

Making the switch from oil furnaces to electric heat pumps also has significant emissions reductions benefits and is an important part of Canada’s climate plan. This is the case in regions where heat pumps are hooked up to clean electrical grids, which now cover more than 80 percent of the country, and even so in the case where heat pumps are powered by relatively emissions‐intensive grids because of their high efficiency.

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.

In New Brunswick, Nova Scotia and P.E.I., heat pumps are already the primary heating source in more than 20 percent of households, and those shares are growing much faster than any other primary heating source in the region.

The costs of clean energy technologies — including heat pumps — are falling significantly as their adoption skyrockets. According to the IEA, the cost of heat pumps fell by close to 80 percent on a deployment weighted average basis between 2010 and 2022. The IEA also recently reported that 13 European countries have implemented or announced national bans or other national policies to limit the installation of oil-fired boilers and that several sub-national jurisdictions within Canada, including Quebec, have announced similar measures.

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 upfront and average cost to purchase and install a heat pump 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 Oil to Heat Pump Affordability (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 a new, electric, cold-climate air-source heat pump.

The OHPA program specifically covers the following costs: 

  • the purchase and installation of an eligible heat pump;
  • electrical upgrades required for the 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); and
  • 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;
  • 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); and
  • 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 is therefore eligible 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 to a heat pump more affordable for Canadians who are not eligible for OHPA through a range of other programs.

For example, oil-heated households that are above the median income level may apply for a grant of up to $5,000 through NRCan’s Greener Homes Grant Program or a loan of up to $40,000 through CMHC’s Greener Homes Loan Program.

Households of all income levels that heat their homes through other means (such as natural gas) 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 B.C., Quebec, New Brunswick, P.E.I., 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. Having one centralized organization serving as a single point of entry for households seeking information, support and funding from various different levels of government, as well as through other services, is a proven way to increase heat pump adoption around the world and in Canada. A one-stop-shop approach 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 multiple funding sources by ensuring “stackability” between programs.

Since March 2023, oil-heated households in all parts of Canada have been able to apply for OHPA funding via the national portal managed by NRCan or through their provincial 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 29, 2023. 

In cases of co-delivery, OHPA funds flow to provincial partners via contribution agreements (one agreement per co-delivery province). In cases where provincial programming already exists, provinces continue to use their program delivery structures to co-deliver OHPA. In many cases, provincial programming includes increased coordination support for lower-income households for the purchase and installation of eligible heat pumps and related upgrades/equipment (e.g., approved contractor networks, existing contracts with installers/distributors for direct payment and arranging EnerGuide assessments, where applicable). With a view to minimizing burden/complexity for homeowners and for maximizing financial benefits to households, NRCan also worked with potential co-delivery provinces to align key program design features while allowing flexibility where provincial program design is reasonably comparable.

The installation of heat pumps to date 

As of mid-October 2023, approximately 9,000 low-to-median-income homeowners have been approved for and/or received OHPA funding nationally since the program formally launched in March 2023.

Of the 9,000 low-to-median-income households that have been approved for and/or received OHPA funding to date and nearly 90 percent received the full $10,000 payment.

Of those 9,000 low-to-median-income households, two-thirds are in Atlantic Canada, in which thousands of homeowners have completed their transition from heating oil to an electric heat pump system with OHPA program support. Within the national portal (and outside of co-delivery jurisdictions), over 670 grants to low-to-median income households have been issued to-date, totalling $6.6 million.

Under the Canada Greener Homes Grant program, many households across Canada that are not eligible for OHPA fundinghave been approved for and/or received thousands of dollars in federal grant funding to support their heat pump purchase across Canada. On September 27, 2023, the Greener Homes Grant program made its 100,000th grant payment. As of the end of September 2023, the average number of total payments completed per day under the program was 343. The average grant was $3,364 and the top retrofits were heat pumps (47,260), followed by windows and doors (38,473).

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. This is currently the case both in provinces that have co-delivery arrangements and in those in which the federal government delivers the program directly.

Then, 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 and onto heat pumps for good.

To deploy as many heat pumps as possible and to expedite their delivery, the government is increasing from $10,000 to $15,000 the amount of federal funding that low-to-median-income homeowners can receive to purchase a heat pump with the goal of making the average heat pump free 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 $5,000 federal contribution.

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

The strengthened OHPA grants of up to $15,000 will be available to households in jurisdictions that have stepped up or intend to with P/T 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 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 to low-to-median income households of $250 in co-delivery jurisdictions when they commit to transitioning to a heat pump.

To qualify, homeowners must provide a receipt showing that they purchased heating oil and a quote for their heat pump installation. This payment would then be provided within days to these households.

The signing bonus is intended to help defray the significant 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 $3,500 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 and to begin to provide the enhanced heat pump grants to existing and prospective co-delivery partners as well as incentive payments to prospective co-delivery jurisdictions in the coming months.

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