Home Energy Rebates Now Exclude Gas-to-Electric Heat Pump Swaps

What changed

The federal Home Energy Rebate programs are moving again after more than a year of uncertainty, but under new rules. The Department of Energy issued two program notices dated May 29 and announced them on June 1. Program Notice 26-1 covers the Home Owner Managing Energy Savings (HOMES) program, and Program Notice 26-2 covers the High-Efficiency Electric Home Rebate (HEEHR) program.1516 Together the two programs hold $8.8 billion that the 2022 Inflation Reduction Act set aside: $4.3 billion for HOMES and $4.5 billion for HEEHR.2

The biggest change is in HEEHR. The department removed the program's allowance for fuel switching. Rebates now pay only for upgrades from existing electric equipment to more efficient electric equipment, plus electric equipment in new construction.114 A second change matters just as much for household budgets: heating and cooling upgrades must now come after insulation and air sealing, unless the home already meets a state-set standard that DOE has approved.14

DOE called the notices common-sense revisions. It said they bring the programs closer to the statute, support affordability, protect taxpayer money and let states fit programs to local needs.20 The notices also remove Justice40 and other diversity, equity and inclusion requirements. They replace the consumer protection plan with a plan aimed at fraud, waste and abuse, and they drop requirements for a consumer satisfaction survey and for dispute resolution procedures beyond existing state law.18

Money unfrozen, with fewer ways to use it

The funding history explains why some groups welcomed the guidance even while criticizing parts of it. A January 2025 executive order froze climate and clean energy funds, including these rebates, and many states paused their rollouts.13 A coalition of states sued and won an injunction in March 2025. States then waited for DOE to formally reopen funding, and this guidance starts that process.16

The Building Performance Association, which represents home performance contractors, said the notices open a path for releasing billions in state funds that had largely been on hold during the federal review. The group tied the rebates to housing affordability and energy bills.11 Environmental groups saw the same document very differently. The Sierra Club said DOE was changing the rules partway through, in a way that would leave families with higher bills and polluting equipment.12 Evergreen Action called it "flatly illegal" to remove electrification funding through guidance instead of new legislation.16

Industry support is also clear. The American Supply Association said it had worked with groups including the American Public Gas Association and the National Propane Gas Association. In a February 2025 letter to Energy Secretary Chris Wright, that coalition asked for a review of federal building electrification programs.17 The final guidance largely matches what the coalition asked for.

The heating-bill mismatch

This winter's fuel price outlook shows who loses the most. The Energy Information Administration's 2026–27 Winter Fuels Outlook expects homes that heat with oil to spend about 21% more than last winter. Heating oil prices are forecast to rise about 34%, partly offset by milder weather in the Northeast.23 Average spending for oil-heated homes is projected at $2,115 for November through March. That compares with $640 for natural gas, $1,196 for electricity and $1,246 for propane.24 Natural gas homes are expected to spend about 9% less and propane homes about 3% less. Homes with electric heat are expected to pay about 4% more.23

This is where the policy cuts against the price trend. Atlas Public Policy's Buildings Hub cites a 2024 study finding that 95% to 100% of homes using fuel oil or propane would save money by switching to a heat pump, with median savings of $300 to $650 a year.13 Those are the households facing the sharpest price increase this winter, and HEEHR no longer pays them to replace their furnaces or boilers. Roughly 4.1 million US homes heat mainly with oil and 6.4 million with propane.24 Atlas puts the total of gas-, oil- and propane-heated homes that lose HEEHR eligibility at 73 million.13

Electric heat has its own cost pressure. EIA forecasts residential electricity at about 18.23 cents per kilowatt-hour this winter, up 3%.24 It expects wholesale power prices to average $52 per megawatt-hour in 2026, 11% above 2025, with the PJM region up 41%.21 For the more than 40% of homes that already heat with electricity, which are the households HEEHR now targets, efficiency upgrades are worth more as rates rise.23 On that point, DOE's approach has some logic. But the biggest savings come from replacing the most expensive fuels, and the new rules no longer pay for that.

A nuance the coverage doesn't agree on

Reporting on the guidance does not match on one practical point. Inside Climate News and Canary Media described heat pump rebates as limited to new construction or homes that already use electric heat.216 More detailed accounts from trade groups and appliance coverage describe a hybrid option. A home with a fossil-fuel heating system can add a rebated heat pump if it keeps the old system in place, even if the heat pump does not become the main heat source.1517 The Building Performance Association likewise says DOE explicitly allows heat pump upgrades in homes with non-electric HVAC as long as the old fossil system is not replaced.19

This reading treats the hybrid route as real, but it is a weaker substitute. A household that keeps its oil boiler and adds a heat pump can reduce oil use. It still pays to maintain two systems, and it does not get the full fuel savings that a complete switch would bring.

Coverage also differs on whether the restriction reaches HOMES. The American Supply Association said the change affects all three programs, including HOMES.17 Atlas, by contrast, describes the HOMES changes as mostly procedural and says gas-, oil- and propane-heated homes could still make improvements through HOMES.13 The notice text itself states the fuel-switching removal under HEEHR.1 Homeowners should confirm HOMES details with their state program before signing a contract.

What it means for remodeling budgets

The weatherization-first rule changes how projects are priced. A heat pump swap can become a multi-step job: insulation and air sealing first, then equipment.15 DOE says the order is meant to keep upgrades from raising energy costs.14 That reasoning holds up from a building-science standpoint. In practice, it also adds steps, cost and paperwork to projects that contractors now have to document before they can count a rebate in a quote.15

Some changes lower costs. HOMES funds can now cover warranties and accessories needed for installation, state and local taxes, and shipping and contractor travel in the territories, Alaska and Hawaii. ENERGY STAR certification becomes optional.9 DOE also encourages point-of-sale rebates through retail stores, e-commerce and direct-to-consumer channels. It supports DIY installation where codes allow, except for HVAC, and adds combination washer-dryers to the eligible heat pump dryer category.15 Critics see the optional ENERGY STAR rule and the reduced oversight as weaker consumer protections.12

The broader tax picture makes the rebates more important. The 2025 tax law signed July 4, 2025 ended the 25C home improvement credit and the 25D residential clean energy credit for property placed in service after December 31, 2025. The HOMES and HEEHR rebates were not affected.4 For 2026 projects, the state-run rebates are now the main federal source of help with efficiency upgrades.8

A patchwork rollout

Timing depends heavily on where a household lives. States already running programs had three months to comply. Reservations under the old rules were accepted through August 31, and new reservations after that date must follow the new notices.15 As of the National Association of State Energy Officials' September 30 update, eight states and DC had HOMES programs running and 13 states and DC had HEEHR programs.3

The states that are running show how much money is involved. Georgia reported more than $50 million in rebates to more than 3,500 households, averaging $12,104.15 Some programs have already run out of money. California's single-family HEEHR rebates have been fully reserved since February 24, and Colorado's single-family program closed in both regions in August with nothing left.7 Many other states, including Pennsylvania, Virginia, Oregon and Maryland, were still waiting on DOE approvals or revising applications to match the May notices.5 South Dakota declined to participate, and Idaho's legislature moved to withdraw.16

The bottom line

The guidance gets stalled money moving, which matters for contractors and for households with electric heat. But it aims the largest federal efficiency program away from the homes facing the steepest heating cost increases. The likely result is a smaller, slower program than Congress designed, and the households with the highest heating bills get the least help. Lawsuits challenging the guidance as inconsistent with the statute seem likely.