# NATIONAL ENERGY SAVINGS James E.McMahon, LBNL DOE Workshop November 9-10, 1998 1 >

# Discussion Topics * Water heater shipments * Fuel switching * Consumer marginal energy rates * Energy price trends * Primary energy conversion factors * Economic factors: elasticities 2

## HistoricalWater Heater Shipments

9 8 Total Elec. & Gas 7 , .._ Gas Water Heaters Elec. Water Heaters 3 U,^^< ' " t' (^ y'V)., '* ^- : ' ' ' * 16 'i .

I S s( !" ,' _ /, /. / .o_ O

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Year 3 3/11-12/98

## New housing construction * 1.3-2.1 million housing units are added peryear * >90-95% have residential storage water heaters ofthe type and size under consideration for new standards * New housing accounts for 1-2 million residential storage water heaters per year * 16-20% ofannualresidentialwaterheater shipments are to newhousing, depending on theyear

## Life expectancy ofwater heaters * Electric water heaters have lifetimes ranging from 4 to 19 years (12 year average) * Gas water heaters have lifetimes ranging from 3 to 15 years (9 year average) * Using lifetime distributions and historical shipments, the replacement marketis estimated to accountfor72-88% oftotal shipments, depending on theyear 5

## Actual and Estimated Shipments Residential Water Heaters
10 Total Shipments (Actual) 8

4~ - ;- . v

. 2

S ' ^ ^ : i
-- F X t*i* ° New Housing (est.) I . . 2 - a - Replacement (est.) |p; . |.. : 61981 1984 1987 99 19931996 1981 19;90 1993 199,

## Estimates are within 10% ofActual
Total Shipments (100%) 110% 100%
- - - 90% 80% 70% 60% 50% ' 40%

___ a NewHousing (est.) 30% " '' ,20% 

### 1;" ".:, ,:: :: ;I .i:' :' ':"' Replacements (est.) ' ..- : ; 20% . , ;. 10% . ;' , ' . , ,. ' ' .' : ', ..- , ' ' ' ', 0%1981 1984 1987 1990 1993 1996 7

## Water heater shipments: fuel shares * Gas has highest share 53-56% (1986-1996)(includes LPG) * Electric is second 44-47% (1986-1996) * Oil shares are low <1% (1969-1986)
100% g 80% o Gas .E D Electric '¢"5~~~~~~~ ·~ ~Oil m 60% C C 0 40%

. 20% 0%, ,.. .,,,,,,- I . .. .. , , ........ 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 8 8

# Regional fuel shares * Inexisting homes, % with gas water heater:

- U.S. 52% (unchanged from 1987-1995)

- Northeast Increased 3%

- South Decreased 3% 

### * Gas availability, utility company programs, and conversionsfrom/to other fuels are likely contributing factors to regional changes.

9

# Fuel switching * Reasons: fuel availability, changes inrelative energy costs, utility programs, otherfactors * Inthe period 1986-1996, American Gas Association reports between 148,000 and 311,000 housing units annually converted from anotherfuel to natural gas househeating. * Ifthe trend inwater heating is similar, this represents 2-4% oftotal water heater shipments, or 3-7% ofgas water heater shipments. 10

## Consumer Economic Factors * Operating expense: typically$100-300 peryear, depending upon fuel type, energy prices, and hot water usage

· Purchase expenses: typically about $320-370, including water heater retail price plus installation

11

# Elasticitiesforwater heaters * An elasticity isthe percent change ina quantity (such as shipments or market share) associated with apercent change in adriving factor * Driving factors may include:

- Operating expense

- Purchase expense 

### * Previous research indicated that market shares byfuel typeswere related tooperating expenses:

- Own-elasticities: elec, oil -1; gas-0.7; LPG, -0.5

- Cross-elasticities (share ofonefuel as afunction of operating expense ofadifferentfuel): 0to 0.55 12

# Equipment price elasticities * Historicaldata onwater heater prices islacking * Derive equipment price elasticityfrom operating expense elasiticity * Eq =Eo (Equipment price) / (Operating expense xPWF)

- Eq =equipment price elasticity

- Eo =operating expense elasticity

- PWF = presentworth factor

- = (/r) (1-(1 +r) -n)
- r= discount rate

- n=life expectancy 

### * Resultdependson assumedequipmentpriceand discount rate 13

# Discount rates and elasticities * Previous research assumed discount rates of 12- 15% real, and obtained equipment price (own) elasticities of-0.1 to -0.7 * Ifconsumer discount rates are much higher, equipment price (own) elasticities are higher, -0.5 to -2.4. * This is a significantarea requiring further research.

· Interim results use sensitivityanalysisto characterize arangefrom lowto high discount rates. 4

# Interim results: Projected shipments Projections are within 10% of historical total shipments ofwater heaters, based on:

- replacement (historical shipments and lifeexpectancy ofexisting water heaters)

- new housing construction 

### * Fuel shares are expected to depend on:

- fuel availability

- operating expenses

- installed costs

- utility programs 

### * New factors may include:

- costfor mitigation ofgas vapor ignition

- future energy prices

- new energy efficiency standards

## Projected electric water heater shipments

9 8 History Projected

~7 Historical (1951-1996) A Calculated (1981-2030) 6 .. .. Calculated without elasticities 0, 34 3 I2' /' I . ... , . (.. * O
-- r-i -r-' [-T- -rl-'-'-[ [ X r T I r i X r II' 'I I r r [ i l | r I T- s-I- Tl T r I vT I I ' I ' l ''I' 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 16

## Comparison of projections: electric water heater shipments

6

4= . 3 j * Actual 2 * GAMA

- Appl. Mag. o- Accounting 0 i T x , - T - 1 - ' T r v' - T ~' " I I , T X -- ~

- --------r T - I 1990 1995 2000 2005 2010 2015 2020 2025 Year 17

## Projected gas water heater shipments

9 8 D History Projected Historical (1951-1996) A-Calculated (1981-2030) .. -.. Calculated without elasticities 5

2 '
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 18 18

## Comparison of projections: gas water heater shipments
8 7 6 4 3 * Actual * GAMA

- Appl. Mag. ~1 - ~~~~~~o Accounting 0 I - I-- ----- - f r- - r- I r r 1990 1995 2000 2005 2010 2015 2020 2025 Year 19

## PRELIMINARY BASE CASE RESULTS National Energy Savings Spreadsheet for Residential Water Heaters

20

## Projected water heater shipments
15

10 IO

21

## Projected water heater saturations by fuel type
1.0 0.9 0.8 0.7 Electric 0.6 _- ...... Gas 0.5 0.4 a 0.3 1995 2000 2005 2010 2015 2020 2025 2030 Year 22

## Projected Primary Energy Consumption: Residential Water Heaters, Base Case 4.0 3.5 3.0 2.5 2.0 1.5 -A-Ar o o..... ...o C-( ^(-. -(-... ) v Total 0.5 Electric Water Heaters 0.5 A-o-_ Gas Water Heaters 0.0 1I I - I I I I ' I '- - f -'I -1- r - 1 ', I- I 1995 2000 2005 2010 2015 2020 2025 2030 Year 23

## Projected Consumer Expenditures: Residential Electric Water Heaters, Base Case

18 16 12 10 4- Operating Cost

8 6P -· Equipment Expenditure 6

1995 2000 2005 2010 2015 2020 2025 2030 Year 24

## Projected Consumer Expenditures: Residential Gas Water Heaters, Base Case

18 16 14 -*-Operating Cost 12 -A- Equipment Expenditure o2 10

Year

6 4
1995 2000 2005 2010 2015 2020 2025 2030 Year 25