Illinois has recently made significant progress toward its clean energy and affordability goals. Following the Clean and Equitable Jobs Act’s (CEJA) commitment to a 100 percent clean energy economy, the Illinois Commerce Commission (ICC) launched the Future of Gas proceeding to evaluate how state decarbonization will impact the natural gas system. This includes identifying the least-cost pathway to reduce building emissions, including strategic electrification and limiting escalating gas infrastructure investments. This article addresses those questions by examining the cost of electrification at the household level and identifying solutions to improve affordability.

Illinois must accelerate heat pump adoption to meet its climate goals

The opportunity to decarbonize Illinois’ buildings is substantial. As shown in exhibit 1, the state has nearly 3.7 million single-family homes, with 86% heated by natural gas and another 11% using propane or electric resistance heat.

Air-source heat pumps (ASHPs) and heat pump water heaters (HPWHs) have great potential to cut carbon pollution from these homes. Space and water heating account for more than 95% of direct residential emissions in Illinois, and heat pumps installed today can cut lifetime operational emissions by over 50% compared to a gas furnace in Illinois. Electrifying all single-family households would reduce statewide emissions by approximately 6.5% by 2050 when paired with the statutorily mandated 100% clean energy under the Clean and Equitable Jobs Act.

Heat pump affordability in Illinois today

Given rising energy bills, it is critical that heat pump upgrades improve energy affordability. This is especially true for low-income households who spend 13% of their income on energy in Illinois. To ensure this transition remains affordable, RMI conducted a detailed techno-economic analysis using the Green Upgrade Calculator to determine heat pump affordability across the state today and the most effective strategies for enhancing it.

Key findings include:

• Heat pumps can reduce energy bills for most Illinois single-family households when including both all-electric and hybrid systems.

• Households heated with propane and electric resistance see the largest annual bill savings ($930 and $1,110, respectively) with all-electric heat pumps. For gas-heated homes, the bill savings vary by heat pump design and utility territory.

• While heat pumps can lower energy bills, they typically have an up-front cost premium relative to traditional system replacements, underscoring the need for additional incentives and accessible financing.

Five policy recommendations for Illinois lawmakers and regulators to enhance heat pump affordability and support upgrades

These strategic policies, increasingly adopted by states and cities nationwide, can help Illinois residents access heat pumps that reduce their energy bills.

1. Increase heat pump and weatherization incentives and phase out gas equipment incentives.

2. Provide 0% financing to make heat pumps affordable from day one.

3. Establish effective rate design and proactive customer enrollment strategies to maximize energy bill savings.

4. Implement an AC-to-heat pump policy to scale deployment while preserving customer choice.

5. Adopt electric-friendly standards for new construction when electrification is most affordable.

The following five policies outline practical, near-term actions to improve heat pump affordability and accelerate adoption across Illinois. These policies are mutually reinforcing — when implemented together, they deliver significantly greater affordability and adoption impacts than any single policy alone.

Policy #1. Increase heat pump and weatherization incentives and phase out those for gas equipment

High up-front costs remain one of the most significant barriers to heat pump adoption in Illinois, particularly for older homes and low-income homeowners. While Illinois utilities have expanded energy efficiency and electrification programs under the Future Energy Jobs Act (FEJA), Climate and Equitable Jobs Act (CEJA), and Clean and Reliable Grid Affordability Act (CRGAA), current incentives — typically $500 to $2,000 for an ASHP and up to $1,150 for a HPWH — are insufficient to overcome electrification cost premiums.

To improve affordability, heat pump incentives should be increased and better aligned with real-world installation costs, and weatherization incentives should be expanded to improve affordability in older housing stock.

All-electric full-load ASHPs

Full-load heat pumps that replace both an AC and a furnace or boiler face the highest up-front costs. An $8,000 incentive would remove most of the cost premium relative to replacing a single AC or furnace — most common decision point for homeowners — and would likely make a heat pump less expensive than installing a new AC and furnace. These incentives should be available to all customers, with targeted outreach for low-income propane- and electric resistance-heated homes, where annual energy bill savings are significant ($930 and $1,110, respectively), and will have the largest affordability benefits today.

Hybrid part-load ASHPs

Part-load heat pumps (sized to replace an AC while retaining an existing furnace) offer a lower-cost entry point than full-load systems but still carry a premium over AC-only replacements. A $2,000 incentive would likely eliminate this premium, enabling an AC-to-heat pump policy where heat pumps are the least-cost choice at the point of AC failure (see recommendation #4). To ensure meaningful energy and carbon benefits, programs could require a maximum switchover temperature, so the heat pump provides the majority of annual heating.

Heat Pump Water Heaters

Despite delivering a three- to four-fold efficiency improvement over conventional water heaters, higher up-front costs limit HPWH adoption. A $2,000 incentive would eliminate the full cost premium relative to electric resistance units and cover most of the premium compared to gas or propane equipment, significantly expanding deployment. Incentives could also prioritize demand-response-enabled models to capture additional peak demand savings.

Weatherization

Weatherization can play a critical role in improving heat pump affordability — particularly in older and low-income homes — by enabling smaller and less expensive heat pump installations and lowering ongoing energy bills. This is especially relevant in Illinois, where nearly two-thirds of homes were built before 1980 and often lack sufficient insulation or air sealing.

Weatherization supports affordability in two primary ways:

• Reducing installation costs: Air sealing and insulation reduce peak heating demand, allowing smaller heat pumps to be installed. This both reduces up-front equipment costs and enables higher heat pump adoption before additional grid capacity is needed, helping keep electricity rates lower for all customers. For example, RMI’s Green Upgrade Calculator estimates that downsizing an ASHP from four tons to three tons due to weatherization can reduce ASHP up-front costs by around $1,100.

• Lowering energy bills: RMI analysis shows that reducing air leakage by a standard 25% can lower annual energy bills for all-electric ASHP homes by an average of $110. For low-income households, deeper weatherization costs are covered up to $8,000 by the Weatherization Assistance Program (WAP). Pairing air sealing with attic (R-40) and wall (R-13) insulation can reduce annual bills by an average of $400. These savings can enable many Nicor gas-heated homes — where hybrid part-load systems are currently most affordable — to also achieve bill savings from all-electric full-load ASHP systems.

Despite these benefits, existing weatherization programs reach only a small share of eligible households. The WAP currently serves only about 3,000 low-income homes per year, while utility insulation and air-sealing rebates are similarly limited in scale. To better scale weatherization, Illinois could inject the WAP program with state funds or expand utility efficiency programs by requiring higher energy savings targets and raising the program spending cap. Better coordination between weatherization and heat pump programs would also ensure households can capture the full cost and performance benefits of both upgrades.

Gas equipment

Roughly $5 million annually is spent on customer-funded residential gas equipment incentives by Illinois’ four largest gas utilities. With changing market conditions for appliance purchases and competing priorities with heat pumps, the value of gas incentive measures is shrinking. In light of these trends, a redesign of gas utility efficiency customer programs is timely.

Customers are increasingly purchasing higher efficiency furnaces as their default choice with and without incentives, as evidenced by program evaluations in Maine and Maryland. Because of this, the incremental value of these programs is diminishing. Electric heat pumps for space and water heating are also emerging as alternatives to gas equipment that align with state climate goals and lower energy bills. Continuing to subsidize gas heating risks creating competing incentives and weakening heating electrification programs.

Redirecting these funds to weatherization would deliver more durable savings — often for 20 to 100 years — and provide energy system benefits whether households continue heating with gas or transition to electric heating.

Illinois has an opportunity to redirect its efficiency funding toward electrification and weatherization. Recognizing the climate and affordability benefits of heat pumps, other states are already moving in this direction. For example, Duke Energy recently received approval to nearly double its ratepayer-funded heat pump incentives, and Colorado created refundable heat pump tax credits through a state budget appropriation.

Policy #2. Provide 0% financing to make heat pumps affordable from day one

Up-front costs remain one of the primary barriers to heat pump adoption, even when lifetime energy bill savings exceed the initial cost premium. Zero-interest financing can address this barrier by eliminating up-front expenses and enabling households to still save on their monthly energy bill.

For homes currently heated with electric resistance or propane systems, zero-interest financing can make it possible to install a heat pump with no up-front payment while lowering total monthly bills (i.e., energy bills and loan payments). In many cases, the combined energy bill and loan payment for a heat pump is lower than that of a business-as-usual replacement system. This approach effectively converts long-term cost advantages into near-term affordability.

RMI’s analysis finds that with zero-interest financing for ASHPs, the average annual combined equipment and energy costs for a full-load ASHP in Illinois would be approximately $2,940 — about $800 less than the combined costs of installing a new propane or electric resistance furnace and AC, financed at market rates. These combined ASHP costs are also comparable to replacing a furnace alone, while avoiding the need for a future AC replacement, which typically costs around $8,000.

Illinois does not currently offer a statewide low-interest financing program for residential energy upgrades. While some utilities, including ComEd and Ameren, participate in the Illinois Energy Efficiency Loan Program, these loans are offered at market rates (currently around 7.7 percent), which limits their effectiveness for many households. Although CEJA authorized an Energy Efficiency Upgrade Program — similar to Ameren Missouri’s tariffed on-bill financing model — this program has not yet been implemented.

To address this gap, Illinois could establish a statewide zero-interest financing program for heat pumps and weatherization. Other states offer proven models: Massachusetts’ HEAT Loan uses green bank capital to buy down interest rates, while NYSERDA has deployed their On-Bill Repayment program. Various approaches can be effective, but success depends on delivering financing that is low-interest, easy to access, and designed for broad household eligibility.

Policy #3. Establish effective rate design and proactive customer enrollment strategies to maximize energy bill saving

Rate design is a critical lever for affordable building decarbonization. To ensure heat pumps deliver real bill savings, electric and gas rates must align with the cost of service and state affordability and emissions goals, supported by effective customer enrollment.

Electric rate design

Illinois’ two electric investor-owned utilities (IOUs) have already taken meaningful steps to align rates with seasonal grid costs and different customer types. Ameren, for example, incorporates seasonal pricing into its standard electric rate, allowing all customers to benefit from lower winter electricity prices that more accurately align with the cost of service. ComEd also offers an electric heating rate tailored for homes using electricity (including heat pumps) for space heating, recognizing that the cost to serve electric customers is typically lower in colder months when electric heating use is highest.

Rate design only supports heat pump adoption if customers are enrolled in the rates that best match their equipment and usage. When utilities offer multiple residential rates and one is significantly more favorable for electric heating, such as ComEd’s electric heating rate, proactive enrollment becomes essential. To ensure customers benefit, Illinois should pursue two complementary strategies:

1. Customer rate optimization and enrollment
   Utilities can support effective enrollment by providing rate optimization tools for installers and customers or by automatically enrolling customers in electric heating rates when a heat pump incentive is issued. Massachusetts’ IOUs, for example, auto-enroll customers into their heat pump rate class when their heat pump incentive is issued.

2. Ensure part-load ASHPs qualify for electric heating rates
   If part-load heat pumps have a switchover temperature low enough to provide most of a home’s heating needs, these users should be eligible for electric heating rates. As an initial step, the ICC could work with ComEd to allow customers with part-load ASHPs to access its electric heating rate, which is not currently available to them, with confirmation of sufficiently low switchover temperature settings.

   Access to this rate is important for energy affordability. RMI analysis finds that allowing hybrid part-load heat pump users with a 25°F switchover temperature (low enough to provide most of the homes heating) to enroll in ComEd’s electric heating rate would increase average energy bill savings by roughly $140 to $150 per year for Nicor and North Shore gas customers, and even more for Peoples gas customers. A lower switchover temperature would also increase HVAC carbon savings with a hybrid heat pump. Carbon savings would increase from 24% reduction with a 35°F switchover to 52% with a 25°F switchover, when accounting for Illinois’ commitment to 100% clean energy.

Gas rate design

Gas rate design also plays a significant role in building decarbonization outcomes. Illinois utilities have the tenth-highest average residential gas fixed charges in the country. These high fixed gas charges result in lower volumetric charges (i.e., cost per gas used), limiting customers’ ability to lower gas bills through efficiency improvements or partial electrification.

To better align gas costs with usage, Illinois should reform gas rate design to reduce fixed charges, ensuring that customers who reduce gas consumption can realize meaningful savings. These changes will also support affordability and emissions reduction goals for customers who invest in energy efficiency improvements like heat pumps.

In addition, Nicor and Ameren could include separate gas heating and non-gas heating rates to better reflect their cost of service and better enable ASHP bill savings. For example, Peoples and North Shore offer a non-gas heating rate for customers not using gas equipment as their primary heating source (including customers with hybrid heat pumps where the heat pump serves most of the heating load). These rates include roughly $130 and $90 lower gas fixed charges per year, respectively, than their gas-heating rate, reducing energy bills for ASHP customers with limited remaining gas use.

Lastly, Illinois could initiate a broader gas and electric rate investigation to identify where current rate structures stray from cost causation principles or hinder electrification, and to align with long-term decarbonization goals.

Policy #4. Implement an AC-to-heat pump policy to scale deployment while preserving customer choice

Because a central ASHP is essentially a two-way central AC — providing both heating and cooling through the same ducts and outdoor unit as a central AC — replacing a failing central AC represents one of the easiest and lowest-cost opportunities to scale ASHP adoption. The most affordable ASHP design varies by existing heating fuel and utility provider, so this natural replacement moment also allows homeowners to size an ASHP to cooling (part-load) or heating (full-load), preserving customer choice.

An AC-to-heat pump policy leverages this opportunity by encouraging households to swap a one-way central cooling system (an AC) for a two-way heating and cooling system (an ASHP) at the point of AC replacement. This approach brings ASHP benefits to Illinois households with minimal additional costs or disruption, while retaining the freedom to choose an ASHP and the design that best aligns with their priorities. This strategy also applies to the vast majority of Illinois homes, as nearly 90% of single-family houses in the state already have central ACs and can scale ASHP deployment quickly.

A well-designed AC-to-heat pump policy typically includes the following:

1. Updates to the residential energy code that encourage — not mandate — the installation of a two-way central AC that provides heating and cooling (an ASHP) when replacing a one-way central AC. Alternatively, residents can install a traditional AC system with additional energy conservation measures, like air sealing or insulation to lower energy use and bills.

2. Coordination with ASHP incentives to remove or reduce the marginal up-front cost premium of ASHPs relative to ACs (see Policy #1).

3. Flexibility in design — allowing homeowners to choose between ASHPs sized similarly to their AC while keeping their furnace or sized to the full heating load, depending on household priorities.

Policy #5. Adopt electric-friendly standards for new construction when electrification is most affordable

The most affordable time to electrify a home or building is during construction. Installing electric infrastructure up-front is far less expensive than retrofitting later, and all-electric buildings avoid the up-front cost of gas service entirely. Options like 1) electric-ready construction, 2) fuel-debiasing energy codes, and 3) all-electric construction are proven tools to accelerate electrification in new homes and buildings.

Electric-ready construction

Electric-ready construction ensures new buildings have sufficient electrical capacity and wiring or raceways to support all-electric appliances, saving roughly $1,200 per Illinois home compared to post-construction upgrades. These standards also enhance consumer choice, allowing owners to install either electric or combustion equipment at replacement without costly retrofits. Provisions like these are already included in the Chicago Energy Transformation Code and the Illinois Stretch Energy Code, but are not yet included in the Illinois Base Energy Code which is needed to impact the vast majority of new construction.

Fuel-debiasing measures

Fuel-debiasing measures correct a structural imbalance in the 2024 IECC, which continues to favor combustion systems even though electric heat pumps are nearly three times more efficient than ENERGY STAR gas furnaces in Illinois. Homes equipped with heat pumps use less energy than comparable mixed-fuel buildings, but combustion-based homes are not required to account for their higher energy use. Fuel-debiasing provisions resolve this disparity by requiring all homes to meet the same level of overall energy performance, regardless of whether they include heat pumps.

All-electric construction

All-electric construction goes a step further by eliminating the need for gas infrastructure entirely, saving an estimated $1,800 to $10,000 per household on up-front gas service costs to connect a building to the gas system. By lowering housing costs and supporting building electrification, it aligns new home construction with Illinois’ decarbonization objectives.

These approaches reduce up-front costs, preserve customer choice, and align new construction with Illinois’ climate goals.

The Illinois Future of Gas proceeding presents a pivotal opportunity to align state goals in building decarbonization and energy affordability. By implementing five key policies — 1) robust incentives, 2) low-cost financing, 3) smart rate design, 4) an AC-to-heat pump policy, and 5) electric-friendly new construction — the state can improve energy affordability by accelerating heat pump adoption while preserving consumer choice.

Together, these strategies offer practical, proven, and scalable pathways for policymakers to make building electrification a cost-effective, convenient, and beneficial option for households across Illinois.

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Further detail on the analysis assumptions can be found here.