The Big Risk Reduction Program: Canada's Low-Income Oil Heat to Heat Pump Program

The Big Risk Reduction Program: Canada's Low-Income Oil Heat to Heat Pump Program

Shawna HendersonNovember 02, 20232 comments

REVISED 6 NOV: I apologize for the brain fart that had me calling this a pilot and then getting the discussion conflated around a national lower income energy strategy. It's a fully-funded 4 year project specific to changing out oil heating equipment for heat pumps, and it's not a pilot for a national lower income energy strategy. This is what happens when you misread an article and then don't fact-check your own writing. Thank you to all who pointed out the way I confused things.


The federal government announced and has implemented a program where low income households can actually get the full cost of the heat pump and removing the oil furnace/tank covered. It’s been launched in Atlantic Canada.

I’m a building science nerd living and working in Atlantic Canada for +30 years, so I know a lot about the region when it comes to the housing stock and energy issues. I’m not involved in promoting or delivering this program, and you can be assured that I'll be looking for (and reporting) all of its warts. My #1 concern right off the bat is two-fold: right sized equipment and quality of installation.

Some people are concerned about the regionality of this program.

Why Atlantic Canada? For a program getting household off oil heat? Where better?

Let me sing you my song about Atlantic Canada's perfect storm of housing issues:

  • We have some of the oldest housing stock in the country
  • We have some of the highest energy prices in the country
  • We have the lowest median income
  • We have the highest median income tax
  • We have a large population of households on fixed income
  • We have no access to cheap natural gas
  • We have a higher than average rate of energy poverty

In Canada as a whole, oil accounts for 3% of home heating systems. In Atlantic Canada, the 2021 ratios are:

  • NS - 32% to 50% depending on the data source
  • PEI - 40%
  • NL - 18%
  • NB is more in line with the national average, at 7%.

By contrast, in each of MB, SK, AB, less than 1% of houses are serviced by oil.

In Atlantic Canada, like much of Northern Canada, there is no cheap natural gas option. There is oil or electricity. (Wood and propane are not scalable)

So. Regional distribution of energy sources plays a big part in this, dontcha think?

Why only fund low-income households that use oil heat? What about low-income households heated by natural gas or electricity?

Oil heat is expensive. I'm not sure that folks who live and work in gas- or electricity-dominated markets really get exactly how expensive.

A gigajoule (GJ) of natural gas has the same amount of energy as 27 litres of fuel oil.

In BC, 1 GJ of gas (not including the base fee) about $9.

In NS, 1 GJ of fuel oil currently costs $36.72.

The cost of oil delivered to the site is high, and there are 3 additional key issues that make it more prohibitive to operate and/or change out an oil furnace or boiler.

  1. Site based oil tank and insurance premiums
  2. Cost of removing the tank (or replacing it)
  3. Upgrade of electrical panel

Risk Management 101: What Are the Drivers?

Let’s start out with insurance premiums, because that’s a hidden driver that nobody is discussing in the articles and posts that I've been reading. They're focussed on  carbon reduction, energy poverty, and a national energy reduction strategy (and they're right).

On-site storage of any liquid petroleum product is a major risk. According to a recent NL government news release, nearly 20% of spills that are of environmental concern annually in Newfoundland and Labrador are associated with domestic oil tanks.

Home oil tank leaks can cause environmental hazards like groundwater contamination and spoiled soil quality. As 70% of Nova Scotia relies on wells for domestic water and healthy soils to keep septic systems running, this is a Very Big Deal. The rest of Atlantic Canada has a similarly high ratio of unserviced lots. You cannot live in, or sell at market value, a house that doesn't have a functioning water supply and septic system.

There are significant financial risks to an on-site oil tank that a base home insurance policy does not include:

  1. If you have an oil tank leak on your property, it’s going to require an environmental assessment and clean up - the cost is covered by you if you don’t have insurance that specifically covers oil tank leakage.
  2. If you have an oil tank leak on your property and it damages your neighbour’s property, without third-party liability coverage, you’re hooped, financially.
  3. If you have an oil leak and you can’t scratch up the $30,000 to $900,000 to clean it up, your property value is decimated. Your investment in the house is essentially void.

Have a look at the fact sheet from the NS government that outlines the responsibilities of homeowners and occupants when it comes to dealing with domestic oil spills.

Let me say it again: 

A basic household insurance policy does not cover oil leak damage. That requires two other layers of coverage: oil leak damage and third party liability.

How many low-income homeowners and tenants who use oil heat do you think can afford adequate coverage for this set of risks on top of a basic policy?

How many low-income homeowners do you think have to defer replacing their old oil tank for as long as they possibly can? How many close-to-leaking tanks do you think are out there?

High Insurance Costs for Oil Heated Homes

Recall that at least 32% of all houses in Nova Scotia, 40% in PEI, use oil as a primary heating source. There’s a good reason this program is happening here in Atlantic Canada. To my mind, this is a good way to mitigate the risk to low-income households: get people off oil so they're not on the hook for a potential clean up.

A costing exercise I did for a research project in 2019 for Part 9 MURBs in Nova Scotia brought to light this tidbit of information: Nearly 50% of low-rise MURBs in NS were built prior to 1970, most run on oil boilers. What’s that got to do with homeowner insurance? Well, we were doing a Total Cost of Building Ownership (TCBO) analysis that compared ‘business as usual’ repair and maintenance versus a net zero energy retrofit.

That meant we included the cost of ‘externalities’ like insurance and property tax. When we spoke with insurance carriers, they indicated that MURB owners will get better coverage (or any coverage) with better rates if they:
  • Did a gut rehab of any building from pre-1940
  • Had proof of updates to plumbing, wiring, and roof carried out within the last 25 years

The carriers mentioned that they would consider not covering buildings with oil heat in coming years because of the risk associated with on-site tanks.

What happens when you can’t get insurance?

You can’t get a mortgage.

2 Scenarios for Low Income Oil Heat Home Owners

I can’t find any definitive information on how much of a premium oil heat puts on the insurance coverage without actually getting a quote. For this exercise, I’m assuming the premium for oil leakage protection and third party liability is going to be double the 10% premium I pay for my woodstove. So that would be roughly an additional $200/annually to a basic household policy. It could be much higher. Happy to edit and revise if someone has those numbers at hand.

Cost of removing oil tank, anywhere from $450 to $1500. For this exercise, I’m assuming $1000.

Replacing an oil tank: On average an outdoor tank is required to be replaced after 13 to 15 years. Indoor tanks, not exposed to the elements, get replaced after 18 to 20 years. The cost to replace an oil tank depends on if it’s above ground outdoor or above ground indoor, or if it’s underground. Cheapest to replace is above ground indoor, most costly is underground. Costs range dramatically as you can see from this table. For this exercise, I’m going to go with $2000, which is encompassed in the cost range of all three types.

Cost to Replace an Oil Tank by Type

Tank Type Cost
Above Ground Outdoor $1,200 – $2,500
Underground $1,600 – $4,600
Above Ground Indoor $550 – $3,000

Upgrade of electrical panel: so much depends on what’s already there, and in some cases it may not be required, but I’m going to go with $5000, which is what NS Power uses as an average.

I’ve got a house archetype set up in HOT2000 for comparison work. It’s an 1100 square foot 1 storey house on a full basement, built in 1960 in Climate Zone 6. It's a stand in for nearly 50% of the housing stock in Atlantic Canada that was built between 1940 and 1980.

There are 2 typical configurations of oil heating systems to look at in Atlantic Canada

  1. Oil boiler with an indirect tank for DHW
  2. Oil furnace, electric DHW tank

To compare that to other fuel types, I modelled the same house with the following:

  1. Electric baseboard and electric DHW tank
  2. Gas furnace, gas DHW tank
  3. Gas furnace, electric DHW tank

Assume the same high-efficiency cold climate air source heat pump is right sized and installed effectively (a girl can dream). Assume that cost the same for each scenario (free!), so we can ignore it.

Energy costs from Efficiency NS (effective 11 April 2023): Electricity: $0.1622/kWh, Oil: $1.36/L.

Calculating regional gas and non-Atlantic electricity prices are too complex for this blog post. BCHydro says the average is $730/yr to operate a gas furnace, another site indicates that Ontario’s average is $650/yr. For many households in Atlantic Canada, a $650 - $730 oil bill in a 1 month period is on the low side in the depths of winter.

The table below shows the space heating and water heating energy loads only. You can see that if you applied cheap gas prices to my example house in Climate Zone 6, it makes little sense to carry out this specific initiative for low-income households in areas with cheap gas. What would be the point?

Current System, annual Heat Pump + Electric DHW, annual Change
Configuration Energy (GJ) Energy Cost Energy (GJ) Energy Cost Energy (GJ) Energy $
Oil boiler + Indirect DHW 904 $3,207 439 $2,035 51.4% $1,172
Oil furnace + Electric DHW 691 $2575 439 $2,035 36.5% $540
Electric baseboard + DHW 590 $2,659 439 $2,035 25.6% $624
Gas Furnace + Gas DHW 763 $850 (guestimate) 439 $1,505
($0.12/kWh BC ave)
42.5% This doesn’t make sense
Gas Furnace + Electric DHW 700 $730 (guestimate) 439 $1,505
($0.12/kWh BC ave)
37.3% This doesn’t make sense

Here’s a chart showing the costs that are associated with each system and scenario:

Upgrade from Panel Upgrade Tank Removal Tank Replace Change DHW Insurance Prem
Oil boiler + Indirect DHW $5000 $1000 $2000 $1,500 $200
Oil furnace + Electric DHW $5000 $1000 $2000 $200
Electric baseboard + DHW $1000
Gas Furnace + Gas DHW $5000 $1,500
Gas Furnace + Electric DHW $5000

Scenario 1 BAU: We don’t have an incentive and our oil-heated houses continue on as is, and there’s likely a new tank required. If there’s a new oil-fired furnace or boiler installed in the next few years (because homeowners are going with what they know in an emergency situation), then there’s definitely another tank in the future.

Scenario 2 HP Upgrade: Oil-heat is replaced with heat pump. Need a panel upgrade and tank removed. No new tanks required and a drop in insurance premiums. In the boiler scenario, there’s a switch to the DHW as well.

Let’s look at how this pans out after 5 years. Keep in mind that this does not include any increase in oil or electricity prices, nor does it include any increase to premiums for house insurance to include oil leak protection and third party liability. It does, however, assume that there will be ongoing access to that insurance coverage.

Scenario 1: Business As Usual (Includes extra $200/yr for insurance on oil heat)

Capital Outlay Yr1 Yr2 Yr 3 Yr 4 Yr 5 Total Expenditure
Oil boiler $2000 $3,407 $3,407 $3,407 $3,407 $3,407 $19,035
Oil Furnace $2000 $2775 $2775 $2775 $2775 $2775 $15,875
All elect 0 $2,659 $2,659 $2,659 $2,659 $2,659 $13,295

Scenario 2: Heat Pump + Electric DHW

Capital Outlay Yr1 Yr2 Yr 3 Yr 4 Yr 5 Total Expenditure
Oil boiler $7500 $2,035 $2,035 $2,035 $2,035 $2,035 $17,675
Oil Furnace $6000 $2,035 $2,035 $2,035 $2,035 $2,035 $16,175
All elect $1000 $2,035 $2,035 $2,035 $2,035 $2,035 $10,175

So, the low-income program offers the heat pump, tank removal and panel upgrade. That means, with zero other weatherization work, the operating costs (heat and insurance) over 5 year for this example house would drop by: $8860 for the boiler to heat pump (more if there’s already an electric DHW tank in place) $5700 for the furnace to heat pump. That’s significant coin if you’re trying to feed, clothe, and shelter some human beings on ±$50,000.

It also means that the households that benefit from this program are now at less risk because there’s no oil tank on site and less need for equipment repair and maintenance. Yes, it does put households at risk in power outages, but guess what? So does an oil- or gas-fired system.

Comments (2)

Ken Ruest on November 06, 2023

Excellent description of the situation Shawna! In addition to your building science and energy retrofit experience, you also have real life experience in dealing with homeowners. You have covered many issues that are often overlooked by those who criticize assistance being offered to low income households and to encourage the switch from oil heat to electric heating.

Michael Chandler on November 06, 2023

Just a wow! Well done!
I hope this finds the right people to get it funded!

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