Commercial Heat Pump HVAC Program Update
September 16, 2025
Current Enrollment
As of September 16, 2025, a total of 14 customers applied for the Commercial Heat Pump HVAC Pilot program. Applicants have primarily learned about the pilot through the Business Electrification Technical Assistance Program, the Business Customer Rebate Program website, and the Commercial and Industrial Energy Efficiency Program.
Customers become eligible for rebate approval only after submitting all required documentation and securing an approved permit. Of the 14 applicants, seven have initiated the permitting process with the City, and six have received their permits. One customer has received their permit but has not submitted project cost estimates, resulting in only five customers being officially approved at this stage.
To date, three customers have completed installations and received program rebates. Detailed project information for these installations is provided in a subsequent section of this report. Two participants have unenrolled from the program. In one case, a customer required an emergency replacement and proceeded with equipment available through their contractor, which did not meet the program’s efficiency requirements. In the second case, permitting requirements significantly increased project costs, approximately doubling the original estimate, leading the customer to withdraw. Table 1 provides a summary of the status and progression of all pilot participants.
Table 1. Current Program Participation for the Commercial Heat Pump HVAC Program
Cost Analysis
The tables below address the current cost comparisons between project estimates, project costs, and rebate amounts. Table 2 compares heat pump HVAC quotes and gas quotes received from 10 customers against project cost estimates developed by Peninsula Clean Energy (PCE) in its 2021 commercial electrification analysis. PCE’s estimates were based on average equipment and labor costs at the time, calculated per ton across three equipment size categories: less than 5 tons, 5–10 tons, and 15–20 tons.
On average, heat pump HVAC project estimates were 21.8% higher than gas quotes.
Table 2. Heat Pump HVAC Project Estimate Comparison Between Gas, Electric Heat Pump, and Peninsula Clean Energy Predicted Costs
Project 2 High Quotes Explained:
• $6,980 out of the total cost is related to a heat pump water heater, meaning part of the total project estimate was associated with another project this customer plans to do simultaneously. • The address has a split system (one condenser and four heating units spread through the building) serving the downstairs and it requires more ducting and equipment. o The upstairs units use existing ducting, which is lower cost, because they are replacing a gas rooftop unit (RTU) with a heat pump packaged unit
Project 5 Quotes Explained:
This customer’s total project cost is significantly higher than usual for a project like this. This is because this customer redid their ducting and piping, which also resulted in added carpentry and painting costs.
They also had additional electrical work done.
• This is the percentage split cost breakdown of the $541,000 project total. o Carpentry, painting and electrical 21%
o Equipment (condensers outdoor units and fan coils with new stats) 13%
o Piping (drain pans, condensate piping and hard copper piping for long runs) Labor and material 28%
o HVAC & Refrigerant (line sets, refrigerant and duct connections, including new plenums) Labor and material 37%
Project 8 Low Gas Quote Explained:
This participant did not address the cost differential in his documentation. The contractor who provided him with these quotes has been unresponsive, so he is now going to reach out to a new potential contractor to receive new quotes.
Project 10 Quotes Explained:
This participant’s higher heat pump HVAC quote reflects several factors: higher equipment and material costs compared to the gas alternative, additional work such as line setting, conduit, and breaker installation, and higher anticipated permitting expenses. In contrast, the gas quote did not account for replacement of the AC units. If those costs had been included, the “like-for-like” comparison would have been closer.
Completed Project Details
As of September 16, 2025, three customers have fully completed their projects. Table 3-5 highlights the cost comparison between these customer’s initial quote, final project cost, and rebate paid.
Table 3. Dollar Comparison Between Project #1’s Quote, Project Cost, and Rebate
Please note that this customer’s total project cost is less than the original price estimate received in the quote because the customer negotiated a lower cost when hiring the contractor to work on multiple projects at once. The City’s rebate covered 96% of this customer’s project cost.
Table 4. Dollar Comparison Between Project #5’s Quote, Project Cost, and Rebate
This customer’s costs increased from the original quote due to added work by the contractor and permitting costs, which were $1,268.90. The City’s rebate covered 17% of this customer’s project cost.
Table 5. Dollar Comparison Between Project #7’s Quote, Project Cost, and Rebate
This customer’s total project cost was higher due to the addition of a phase 2 to their project and the $1,437.84 permit fee. This addition came after the quotes were processed and phase 1 was completed.
The reason for their decision to replace another unit was due to the increased rebates offered by CPAU and the ease of completing phase 1. Due to the added unit on this project, their rebate came out to be $43,750, which covered 67% of their total project cost.
Installation Location for HP HVAC Equipment
At this time, we do not have complete data on the installation locations of the heat pump HVAC equipment for all applicants. Among those who have submitted site plans or permit information, four projects consist of rooftop HVAC units. Due to the structure of the rooftop, three projects are ground- level installations. The installation location for the remaining 6 active participants is currently unknown.
It is also possible that some customers may install equipment in both rooftop and ground locations, but this has not been confirmed. Table 6 below summarizes the number of customers in each category.
Table 6. Locations of Installed Heat Pump HVAC Equipment
Summary of Permitting Comments
As of September 15, 2025, 7 customers have applied for the commercial heat pump HVAC permit through the City’s Planning and Development Services (PDS) Department. Here is a consolidated list of corrective comments provided to the customers and their contractors from the City’s PDS Department.
Many customers who participated in the pilot program received similar feedback on their permit submissions. Learning about these recurring comments help us understand where there are gaps in permitting instructions and opportunities on where we can smooth out the process for customers.
When submitting plans, PDS wants all details to be accurate and documentation to be complete, including manufacturer’s specs that match the project plan details, showing where equipment and electrical panels will be located, and clearly labeling the mechanical and electrical scope. Plans must show property lines and setbacks. For rooftop equipment, engineers need to confirm the roof can
handle the added weight, show how it will be anchored, and provide details on ductwork, drains, and demolition. Wood blocks (sleepers) aren’t allowed unless fully roofed over.
The City also checks for noise and safety. Equipment must meet local noise limits, and an acoustical engineer’s report or post-installation testing is required. Fire safety permits are needed for both refrigerant removal and installation, and the Fire Department requires notes on the plans and how the HVAC system connects with the fire system in the building. A special inspection form must also be submitted, listing contractors, agencies, and required safety checks. Overall, the City’s goal is to make sure projects are well-documented, safe, and considerate of the community.
Based on the permitting requirements outlined above, some customers were able to provide details on the additional costs some of these requirements added to their projects. For the structural analysis, one customer’s initial cost for this study was around $25,000. There is a possibility there will be an added cost of $12,000-$15,000 if the City’s PDS requires additional analysis for the curbs. For the HazMat permitting, one customer was quoted $5,000. This is not confirmed though, since the customer hasn’t completed this portion of the permit yet. There has been mixed feedback on the added cost for the sound engineering analysis. One customer was told the cost would be “insignificant.” On the other hand, another customer was quoted $10,000-$12,000. It has been challenging to pinpoint the exact cost of each study because most engineers group the costs in the final invoice. We are waiting for more feedback on these items as projects move forward.