Transforming a Market, Part I: How Wisconsin was first to get high-efficiency furnaces in (almost) every home
Photo: u/Naxter64 on Reddit. Series illustration by Melanie Cannon.
Slipstream is one of several organizations working to transform the market for air-source heat pumps in the Midwest. Utility partners in Michigan have come together to found the Michigan Heat Pump Collaborative to engage manufacturers, distributors, contractors, and customers. The Center for Energy and Environment, Elevate, and Slipstream huddled to design a playbook on planning for the market transformation of ASHPs in Wisconsin by 2030 — and in partnership with MEEA, the Midwest Air-Source Heat Pump Collaborative website will launch later this summer as the region seeks to align activate actions to transform the market further and faster.
No doubt, transforming an entire market for residential HVAC is a huge task. But it’s not unprecedented. Wisconsin’s seen it before.
In the early '90s, stakeholders in Wisconsin — including Auer Steel & Heating Supply Company, a Milwaukee-based distributor, and Slipstream — helped successfully transform the market for high-efficiency furnaces. By 1994, the market saturation of high-efficiency furnaces purchased in Wisconsin reached 90%, which dwarfed the market in neighboring states like Michigan, where only 37% of furnaces sold were high-efficiency.
In this four-part series, we'll explore what this successful market transformation can tell us about the nationwide effort to transform the market for air-source heat pumps and accelerate the electrification of every home.
In Part I, we delve into the history of how a coalition of distributors, program implementers, and manufacturers pulled off a market transformation effort to save energy and shift the mindset of contractors and customers alike.
In this conversation:
- Bob Kihslinger – (Retired) Head of HR, Advisor to Sustainability initiative (2020-current) Auer Steel & Heating Supply Company. A longtime employee at Auer Steel, Bob advanced the market transformation from the front lines.
- Jeff Curtes – Vice President and Sustainability champion, Auer Steel & Heating Supply Company. Jeff follows in the footsteps of his father, Don Curtes, who envisioned the opportunity to push high-efficiency furnaces in Wisconsin.
- Kathy Kuntz – Director, Dane County Office of Energy & Climate Change. Kathy has directed many statewide energy programs throughout her career, amassing decades of experience in energy efficiency and market direction in Wisconsin.
- Justin Margolies – Senior Product Developer, Slipstream. Justin's work at Slipstream is heavily focused on the collaborative effort to transform the market for air-source heat pumps in the Midwest.
Part I: How Wisconsin was first to transform the market for high-efficiency furnaces
In the early 1980s, energy efficiency programs could only do so much to make home heating more efficient. Then a new piece of technology came along: a furnace with an annual fuel utilization efficiency (AFUE) rating of 90% or greater.
BOB: I'm gonna search my memory a little bit here. The industry was very much interested in increasing efficiencies and had been over a number of years. We had flue dampers and things of that nature. But when Lennox came out with the pulse furnace [in 1982], that kind of changed things. It was the first 90% efficient furnace.
KATHY: In the 1980s, Wisconsin's low-income weatherization program started specifying that they would only buy 90% or better efficient furnaces. Now, that's a big contract and it's led by local community action agencies all over the state. It's not selling one furnace at a time — it's selling 50 or 75 furnaces for the season. So I think that probably made some folks sit up and take notice of this new technology.
BOB: However, at that time the manufacturer really wasn't forcing any distributors to sell a high volume of the 90% furnaces that had come out. They were more expensive, for one, and many contractors, of course, bend to the wishes of consumers who want to buy the least costly product, something that works — that they can rely on.
Seeing an opportunity
By the mid-1990s, almost every home in Wisconsin would rely on a high-efficiency furnace. Wisconsin wasn't the only state to see customers embrace these "90-percenters," but it was one of the only states to see such widespread adoption. What happened in Wisconsin that didn't happen in similar states?
BOB: At Auer Steel in Milwaukee at that time, the Curtes family — especially Don Curtes — saw that, you know what? Here's an opportunity. So they took the approach that we're gonna make this our number-one furnace. Rather than offering it as a step up for consumers, they wanted consumers to buy this product first.
JEFF: Don [Curtes, Jeff's father and current CEO of Auer Steel] shares great stories of flying to Carrier's HQ in Indianapolis and saying, "We need these things, we need more of these things, and we need a better price," and they would send him home and say, "You don't know what you're talking about." So he would go back again. This is how change happens.
BOB: He was absolutely a key player in the furnace transformation, for sure. Agreed, he's still pushing us to be better.
KATHY: That was super helpful in that distributor recognized the opportunity because they're in the place to influence what's stocked in a whole region and the training that contractors get. That's an important piece there.
Transforming the HVAC market for a whole state would require an army of contractors. If these contractors were to fulfill their duty, they'd need extensive training — and plenty of rations.
BOB: Auer Steel put together some marketing programs for dealers. They put together advertising programs. They put together a very, very aggressive training program because these 90-percenters had things like more controls and two heat exchangers. And those were things contractors weren't used to.
BOB: We put in four furnace systems and we brought 16 technicians in every night four nights a week. We fed them as well. I can tell you that it takes three technicians to eat a large pizza.
KATHY: At the same time, [Slipstream] started doing furnace sales tracking where they were sharing market share information with distributors. So they could say, in southwest Wisconsin, 80% of furnaces sold were high-efficiency but in the northeast it was a different percentage. That market feedback meant that Auer Steel's competition could see just how much money Auer Steel was making on high-efficiency furnaces.
BOB: Over the course of about a year, I would say, this thing kind of caught fire, especially in the spring when we had extra incentives to stock these furnaces in the summer and early fall for the winter.
KATHY: Weatherization programs in Minnesota and Michigan were also spec'ing high efficiency — or trying to. Maybe there wasn't as much momentum. Our utilities were also incentivizing high-efficiency furnaces, especially as they became available. But again, that was happening in other states too.
Sharing market insights with the distributors, however, was not something happening in other states. That was only happening in Wisconsin.
Teamwork pays off
Market transformation is, in many ways, about collaboration. As our furnace story shows, one key is to keep stakeholders moving in the same direction. Even when others disagree, the market will speak for itself.
BOB: In a matter of just a few years, the other distributors were forced into doing it because, quite frankly, it became pretty lucrative for contractors to sell it, and consumers seemed to be receptive to it, and before long we had a market. We were selling vast quantities — except in the new construction market; that took a while to turn. But in the add-on replacement market, that's basically what we sold for years.
KATHY: I remember being on a panel with a manufacturer's rep — this is probably 2000 -- at the Wisconsin Public Utility Institute. We were on a panel talking about the HVAC market and the manufacturer on the panel said, "You know, as far as manufacturers are concerned, high efficiency furnaces are never going to have more than a 20% market share — except here in Wisconsin, where the share is above 80%. And we don't really understand that. It's just some weird Wisconsin thing."
Look, I'm from North Dakota. My family could not get a high-efficiency furnace when I was out there preaching that this was the thing. Because all the contractors they talked to told them that this was experimental. And I'm like, "It's 90% of the market in Wisconsin and we have a milder climate as you!" It is not experimental!
BOB: You're right, it was kind of an island because Chicago and north of us and south of us and practically everywhere else, they weren't selling 90s. They looked at it as a niche product. And it took a number of years before 90s in most areas caught on.
In the end, the market transformation for high-efficiency furnaces in Wisconsin wasn't just a fluke. It took a lot of effort by a lot of people, but it worked. And we can point to a few concrete steps that paved the way.
KATHY: So when you look at how it happened, I think you have to say it was aggressive marketing and aggressive training. And programs for contractors that that made it profitable for them to do it.
BOB: And incentive programs for salespeople. So it was a package.
We also had an enormous amount of sales training for contractor salespeople so that that they would feel comfortable going out and selling it.
KATHY: Maybe part of the story is Wisconsin got lucky. We got lucky that Auer Steel recognized the opportunity. But that's when I think forward it's like, well, okay, how do we leverage that luck?
For me what's so important about this story is that it happened in Wisconsin. We have muscle memory about contractors upgrading their skills and selling a product that is new and getting through this rough period of the first few installs and continuing to give their customer base this other option that has benefits that their customers might be interested in.
Stay tuned for Part II: The role of utility programs in market transformation.