Kalamazoo's Affordable All-Electric New Homes Pilot

Co-authored by Shan Wofford

Imagine if all new homes were built to be super efficient, all-electric, solar panel–ready, electric vehicle (EV)–ready, and affordable. It might sound futuristic, but for some residents in Kalamazoo, Michigan, this is their new reality. In Kalamazoo, homes like this were recently built as part of Consumers Energy’s super-efficient, all-electric new construction pilot. This pilot was paired with retrofit pilots to help Consumers Energy’s customers get off heating appliances powered by fossil fuels in their homes. These pilots were some of the many energy efficiency advances negotiated by environmental and housing advocates in settlement agreements with Consumers Energy on its mandated 2020–2023 and 2022–2025 Energy Waste Reduction (EWR) plans. The filing of these four-year EWR plans is required by the Michigan Clean and Renewable Energy and Energy Waste Reduction Act passed by the Michigan legislature in 2008 and updated in 2016, which requires electricity and gas providers in the state to implement customer programs that lower energy usage and reduce the cost of service to consumers in a utility’s service territory.

While the bulk of spending commitments in these plans go toward continuing or expanding funding for critical energy efficiency programs already in place, a portion is allocated to pilots to test innovative and high-impact measures that can build the foundation for future energy efficiency programs. The purpose of this all-electric new homes pilot is to partner with builders, developers, and organizations skilled in new construction to demonstrate scalable production of super-efficient, all-electric homes in Michigan, and to showcase how high-quality, sustainable housing can be built to be made accessible to low- and and moderate-income consumers—defined by this pilot as consumers at 80 percent or below the area median income (approximately $63,000 for a family of four).

Both phases of the pilot will produce data on energy bill impacts, heat pump performance, customer comfort, builder barriers, carbon emissions reductions, and cost-effectiveness of the homes, which will help to inform the performance of all-electric homes in cold climates and the potential for an eventual full-scale offering in Consumers Energy’s service territory. While the pilot is still ongoing, the findings will be critical to informing how best to construct affordable, all-electric new homes in the state and the Midwest at large, while also helping to transition Michigan’s future building stock away from a reliance on polluting fossil fuels.

Why all-electric new homes?

Michigan residential and commercial buildings account for approximately 18 percent of the state’s total carbon emissions. In cities such as Ann Arbor and Detroit, building emissions account for more than 50 percent of total energy-related emissions. The majority are the result of burning fossil gas—which has been marketed for decades as “natural” gas—for space heating, water heating, cooking, and other uses. More than three-quarters of Michigan homes currently rely on fossil gas for heating and other home end uses. Switching from fossil fuel appliances in buildings to efficient electric appliances that can run on 100 percent clean energy is essential to reducing greenhouse gas emissions in homes. Analysis from the Rocky Mountain Institute finds that even today, switching from a gas furnace to an all-electric heat pump is effective at reducing carbon emissions. The potential for emissions reductions will only continue to improve as the grid gets cleaner and the state builds up to its 2030 goal of generating 60 percent of its electricity from renewable energy sources. In the meantime, substantial emissions reductions can be achieved through efficiency savings from switching to highly efficient cold-climate heat pumps.

After all, the cleanest and cheapest watt of energy is one that is never used. And while it used to be that the form of electric heat most used in homes was inefficient electric resistance heat, a new generation of highly efficient cold-climate heat pumps has entered the market in the last 5 to 10 years and added substantial efficiency gains. This new generation of heat pumps is three to five times more efficient than a gas furnace and capable of meeting a home’s heating needs at temperatures of 5 degrees Fahrenheit or lower—meaning backup heat is needed only rarely, if ever, in new homes designed to be energy efficient. Advanced heat pumps also have a cooling function and can cool homes far more efficiently than traditional central air conditioners. When homes outfitted with energy-efficient appliances are coupled with efficient windows, walls, and attics, or with solar photovoltaic (PV) systems, total energy bills can be dramatically reduced. All-electric homes also eliminate the need to pay for consuming gas and paying fixed monthly charges, thereby eliminating gas bills altogether. These multiple savings opportunities make all-electric homes particularly attractive for consumers looking to save on long-term energy costs compared to homes built to use fossil fuels.

In addition to climate and energy bill reductions, all-electric homes also eliminate toxic indoor air pollutants generated by burning fossil fuels in buildings, such as particular matter (PM) 2.5, carbon monoxide, and nitrogen compounds. These toxic air pollutants can worsen respiratory health conditions like asthma, particularly among children and in pollution-burdened homes, which tend to be Black, Latino, and Asian households. They also amount to substantial health costs for communities and the state. In 2017, Michigan placed fifth in the top 10 states with the most premature deaths resulting from gas being burned in buildings—leading to 841 early deaths and $9.419 billion in associated costs. Building future homes in Michigan to be clean, efficient, and all-electric is beneficial not only for combating climate change but also for consumer’s pocketbooks and long-term health outcomes.

Pilot overview: What does a Kalamazoo all-electric new home look like?

The pilot consists of two phases. Phase 1, launched in 2020 and completed in 2021, was designed to showcase the performance of an all-electric new home with significant on-site solar panel capabilities for low- and moderate-income residents. Four affordable, all-electric, single-family homes were built as part of this first phase in collaboration with the Kalamazoo Attainable Homes Partnership (KAHP)—a partnership between the Home Builders Association of Western Michigan, the Kalamazoo Neighborhood Housing Services (KNHS), and Local Initiatives Support Corporation (LISC), whose mission is to build high-quality homes that are attainable in cost and provide homeowners with low-maintenance costs over time. Phase 2, kicked off in the summer of 2021 and currently ongoing, was designed to build off of Phase 1 to further explore scalability and market acceptance of an all-electric home and to expand the pilot to include market-rate homes, duplexes, and townhome units.

All homes participating in the pilot were required at minimum to utilize cold-climate heat pumps for heating and cooling, implement a highly efficient building envelope to achieve a Home Energy Rating System (HERS) Index score of 40 or less, and be solar PV–ready or have solar PV systems installed on-site. A combined builder's incentive of $40,000 was included in Phase 1 to encourage builders to install additional electric measures and envelope upgrades, including comprehensive air sealing, premium insulation, Energy Star appliances, Energy Star triple-pane windows, and a 240-volt outlet for level 2 electric vehicle charging. Similarly, Phase 2 included builder incentives of up to $13,000 for market-rate homes and up to $25,500 for affordable homes to install similar measures.

Consumers Energy’s modeled results of the Phase 1 homes estimated that these combined measures would lead to a 59 percent reduction in energy consumption and 78 percent reduction in energy costs for consumers, compared to homes using fossil gas. These lower operational and maintenance costs contribute to significant energy savings for homeowners, helping to keep the homes affordable not only at the time of purchase but also in the long term.

Why are these pilots focused on affordable new homes?

As Michigan paves the way toward a clean energy future, it is important to consider how new, all-electric homes will be made accessible to low-income and disadvantaged communities that stand to benefit the most from such homes. Low-income communities face disproportionate health burdens due to discriminatory policies and practices that have sited these communities near pollution-heavy industrial corridors and toxic waste sites. As a result, members of these communities, particularly children, are at a higher risk of developing respiratory health conditions, such as asthma, that are further exacerbated by the burning of fossil fuels inside homes. These communities are also more vulnerable to spikes in energy bills due to a significant portion of their income—defined by researchers as 6 percent or more—being spent on energy bills alone. In Michigan, low- and moderate-income families, defined as households earning 80 percent or less of area median income (AMI), on average spend between 6 percent to a whopping 21 percent of income on energy bills. 

Due to Michigan’s cold climate, a larger portion of Michiganders’ energy bills are spent on gas for heating and other end uses (2 to 8 percent of income) than the national average (1 to 4 percent of income). This is especially the case for extremely low-income households—defined as 30 percent of AMI or less—who spend double the percentage of income (8 percent) compared to the national average (4 percent) on gas bills. As a result, low- and moderate-income households have the most to gain from having access to efficient, healthy, all-electric homes, and should remain a priority in the transition to all-electric homes. These all-electric pilot homes serve as a model for how this can be done. Builders interested in participating in Phase 1 of the pilot, which focused exclusively on affordable homes, had to meet one of the following requirements:

1. Participate in an affordable federal, state, or local affordable housing program;
2. Locate the proposed home in an income-qualified census tract as defined by the United States Department of Housing and Urban Development (HUD);
3. Submit rent rolls documenting that the average rents being charged at a particular property met HUD’s definition of income-qualified—which is rent at or below 80 percent of fair market rent; or
4. Submit resident income information showing that at least 50 percent of apartment units were being rented to households at or below 200 percent of the federal poverty level or 80 percent of AMI.

Participating builders then worked with local homeownership service organizations such as KNHS and community development financial institutions such as LISC to determine an appropriate construction budget and bridge any funding gaps to ensure an attainable final price for the homes. As a result, all four Phase 1 homes were priced attainably around $150,000 for income-eligible home buyers, proving the partnership model to be successful, if not essential, to the construction of healthy, sustainable, and attainable homes. Prospective income-eligible homeowners were then identified through KNHS’s homeownership coaching program, where participants worked with coaches one-on-one to become mortgage-ready and learn to manage homeownership finances. KNHS coaches continue to follow up with participants after the purchase of the homes, ensuring home buyers remain supported from the time of purchase throughout their homeownership journey.

Where are we now?

Phase 1 homes have now been completed and have all been purchased by income-eligible homeowners. Phase 2 is currently ongoing and is projected to add 15 to 25 homes, although final numbers are subject to change as Phase 2 progresses. Out of the 15 to 25 homes, applications have been submitted to build at least 13 affordable homes and four market-rate homes. The success of these pilot homes has set a new standard for the construction of all-electric new homes in Michigan and the Midwest, particularly for the affordable housing sector. It has also demonstrated how a partnership model that leverages utility energy waste reduction programs and involves builders, affordable housing organizations, and funders can successfully achieve construction of affordable all-electric homes and prioritize low- and moderate-income consumers in accessing the benefits of these clean energy solutions.

This is the first in a three-part blog series on the Kalamazoo All-Electric New Homes Pilot. Part two will cover NRDC’s experience touring one of the Phase 2 homes.