2

- i CHAPTER 2. ANALYTICAL FRAMEWORK

, COMMENTS FROM INTERESTED PARTIES, AND D EPARTMENT O F E NERGY RESPONSES

TABLE OF CONTENTS

2.1 INTRODUCTION

................................ ................................ ............................... 2

- 1

2.2 BACKGROUND

................................ ................................ ................................ . 2

- 2

2.3 MARKET AND T ECHNOLOGY ASSESSMENT

................................ ............ 2

- 2

2.3.1 Scope of Coverage

................................ ................................ ............................... 2

- 3

2.3.2 Product Classes

................................ ................................ ................................ .... 2

- 6

2.3.3 Mark et Assessment

................................ ................................ .............................. 2

- 7

2.3.4 Technology Assessment

................................ ................................ ....................... 2

- 8

2.4 SCREENING ANALYSIS

................................ ................................ .................. 2

- 9

2.5 ENGINEERING ANALYSIS

................................ ................................ ............ 2

- 10

2.5.1 Baseline Models

................................ ................................ ................................ . 2

- 13

2.5.2 Max

- Tech Model

................................ ................................ ............................... 2

- 13

2.5.3 Manufacturing Cost Analysis

................................ ................................ ............ 2

- 14

2.6 MARKUPS ANALYSIS

................................ ................................ ................... 2

- 14

2.7 ENERGY USE ANALYSIS

................................ ................................ .............. 2

- 15

2.7.1 Samples of Residential Boiler Users

................................ ................................ .. 2

- 15

2.7.2 Energy Use Determination

................................ ................................ ................. 2

- 16

2.8 LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSIS

....................... 2

- 18

2.8.1 Inputs to Installed Cost

................................ ................................ ...................... 2

- 19

2.8.2 Inputs to Operating Cost

................................ ................................ .................... 2

- 20

2.8.3 Other Inputs

................................ ................................ ................................ ....... 2

- 22

2.9 SHIPMENTS ANALYSIS

................................ ................................ ................ 2

- 22

2.10 NAT IONAL IMPACT ANALYSI S

................................ ................................ .. 2

- 23

2.10.1 National Energy Savings Analysis

................................ ................................ ..... 2

- 24

2.10.2 Net Present Value Analysis

................................ ................................ ............... 2

- 25

LIST OF TABLES

Table 2.3.1 Product Classes

................................ ................................ ........................ 2

- 7

Table 2.5.1 AHRI Recommendations for Residential Boiler Efficiency Levels

...... 2

- 12

Table 2.5.2 HTP Recommendations for Residential Boiler Efficiency Levels

........ 2

- 122

- 1 CHAPTER 2. ANALYTICAL FRAMEWORK

, COMMENTS FROM INTERESTED PARTIES, AND D EPARTMENT O F E NERGY RESPONSES

2.1 INTRODUCTION

T he Energy Policy and Conservation Act (EPCA) , as amended ( 42 USC 6291 et. seq. )

, requires that when prescribing new or amended energy conservation standards for covered products, the U.S. Department of Energy (DOE) must promulgate standards that achieve the maximum improvements in energy efficiency that are technologically feasible and economically justified

. (42 U.S.C. 6295(o)(2)(A)) This chapter provides a description of the analytical framework that DOE is using to evaluate amended energy conservation standards for residential

boilers

. Th is chapter sets forth the methodology, analytical tools, and relationships among the various analyses that are part of this rulemaking.

The analyses performed are listed below

.

• A market and technology assessment to characterize the relevant products, their markets

, and technology options for improving their energy efficiency, including prototype designs.

• A screening analysis to review each technology option and determine if it is technologically feasible; is practica b l e to manufacture, install, and service; would adversely affect product utility or product availability; or would have adverse impacts on health and safety.

• An engineering analysis to develop relationships that show the manufacturer’s cost of achieving increased efficiency.

• A markups analysis to develop distribution channel markups that relate the manufacturer production cost (MPC) to the cost to the consumer.

• An energy use analysis to determine the annual energy use of the considered products in a representative set of users

.

• A life

- cycle cost ( LCC ) and payback period (PBP) analysi s to calculate the savings in operating costs at the consumer level throughout the life of the covered products compared with any increase in the installed cost for the products likely to result directly from imposition of a standard.

• A shipments analysis to forecast product shipments, which are then used to calculate the national impacts of standards on energy, net present value (NPV), and future

manufacturer cash flows.

• A national impact analysis (NIA) to assess the ag gregate impacts at the national level of potential energy conservation standards for the considered products, as measured by the NPV of total consumer economic impacts and the national energy savings (NES).2

- 2 2.2 BACKGROUND

Amendments to title III of EPCA have given DOE the authority to regulate the energy efficiency of several products, including residential boilers

— the products that are the focus of

this document. (42 U.S.C. 6292(a)(5) ; 42 U.S.C. 6295(f)(4)(C) )

DOE developed this analytical framework and documented its findings in the Rulemaking Framework Document for Residential Boilers ( February 1 1, 2013 )

. On that same day (February 11, 2013 )

, DOE published the Notice of Public Meeting and Availability of the

Framework Document for residential boilers in the Federal Register

. 7 8 FR 9631

. In conjunction

, DOE posted the F ramework D ocument to the DOE website. 1 DOE pr esented the analytical approach to interested parties during a public meeting held on March 13 , 201 3

.

In response to the publication of the F ramework D ocument and the F ramework public meeting, DOE received comments from interested parties regarding DOE’s analytical approach

. This chapter (chapter 2) summarizes the key comments DOE received from interested parties

and presents DOE’s responses to those comments

. In addition, in subsequent sections of this chapter

, DOE has summarized any significant change s in analytical approach made since publishing the F ramework D ocument that DOE used in its analyses

. Lastly, in the Notice of Data Availability ( NODA ) , DOE identified a number of issues on which it seeks public

comment

. DOE has explained each of those is sues in the relevant analy tical sections below

.

2.3 MARKET AND TECHNOLOG Y ASSESSMENT

When DOE begins an energy conservation standards rulemaking, it develops information that provides an overall picture of the market for the products considered, including the nature of the products, market characteristics, and industry structure

. This activity consists of both quantitative and qualitative efforts based primarily on publicly

- available information

. The

market assessment examined manufacturers

, trade association s , and the quantities and types of products offered for sale.

DOE recognizes that there may be limited public information on national shipments, manufacturing costs, channels of distribution, and manufacturer market shares of residential

boilers

. This typ e of data is an important input for analyses that determine if energy

conservation standards are economically justified and will result in significant energy savings

. Therefore, DOE encourages interested parties to submit data that will improve DOE’s understanding of the residential boilers market

. These data may be provided under a confidentiality agreement with DOE’s contractor responsible for this part of the rulema king analysis, Navigant Consulting, Inc. (NCI)

. In other rulemakings, NCI works with confidential data provided by manufacturers and other organizations in preparing aggregated results for DOE’s analysis

. These aggregated results do not divulge the sensi tive, individual raw data, but enable other interested parties to comment on the aggregated dataset.

1 The February 11, 2013 residential boilers F ramework D ocument is available at the following link: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=62

.2

- 3 Alternatively, interested parties may submit confidential data to DOE, indicating in writing which data should remain confidential

. Interested parties mus t submit confidential information to DOE according to the procedures outlined in 10 CFR 1004.11

. Pursuant to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submi t two copies

. One copy of the document shall include all the information believed to be confidential, and the other copy shall have the

information believed to be confidential deleted

. DOE will make its own determination about the

confidential status of the information and treat it accordingly. 2

DOE reviewed relevant literature and interviewed manufacturers to develop an overall picture of the residential boiler industry in the United States

. Industry publications and trade journals, governmen t agencies , and trade organizations provided the bulk of the information, including : (1) manufacturers and their approximate market shares ; (2) shipments by product type ( e.g. , gas

- fired hot water , oil

- fired hot water ) ; (3) product information ; and (4) industry tren ds

.

Subsequent sections of this chapter describe the comments DOE received in response to

its review of the market for the F ramework D ocument. The analyse s developed as part of the market and technology assessment are described in chapter 3

.

2.3.1 Scope of Coverage

In the Framework Document, DOE sought comment on the scope of coverage for this rulemaking and on whether any additional types of residential boilers should be added to the existing scope of coverage outlined in the Energy Independence and Securit y Act of 2007 ( EISA

2007 )

. Specifically DOE requested comment on whether other products such as combination appliances ( i

. e

. , appliances used for both space heating and domestic hot water ) and electric boilers should be included in the scope of coverage o f this rulemaking. Stakeholders also provided comment on the analysis of standby mode and off mode standards , as well as the possibility of DOE imposing prescriptive design requirements on residential boilers.

Many stakeholders stated that they support t he inclusion of combination appliances in this rulemaking, as they believe that combination appliances are a growing trend that would benefit from a rating method and efficiency standards. (HTP, No. 7 at p. 3; Joint Efficiency Commenters, No. 8 at p. 8; N EEP, No.10 at p. 2; Lochinvar, Public Meeting Transcript, No. 5 at p. 27) However, several commenters also argued that the current F ederal test method does not have a means to accurately measure the energy use and efficiency of combination products. (NEEP, No. 10 at p. 2, HTP, Public Meeting Transcript, No. 5 at p. 3) The Air

- Conditioning, Heating, and Refrigeration Institute (AHRI) stated that a clearer definition of “ combination

2 Factors that DOE considers when evaluating requests to treat submitted in formation as confidential include: (1) a description of the items; (2) whether and why such items are customarily treated as confidential within the industry; (3) whether the information is generally known by or available from other public sources; (4) whe ther the information has previously been made available to others without obligation concerning its confidentiality; (5) an explanation of the competitive injury to the submitting person which would result from public disclosure; (6) a date

after which suc h information might lose its confidential character; and (7) why disclosure of the information would be contrary to the public interest.2

- 4 appliance ” is needed before further discussion on the test procedure a nd associated regulations can take place. AHRI urg ed that the finalized test procedure rulemaking should provide definitive information on the status of DOE’s deliberations regarding combination appliances, including a clear definition covering such produ cts. AHRI stated that it support s DOE’s

tentative plan to maintain the current scope of coverage for residential boilers and does not recommend the creation of any new product classes for this rulemaking. (AHRI, No. 9 at p. 2

- 3)

DOE a cknowledges that t he current F ederal test procedure for boilers does not have a means to accurately measure the energy use and energy efficiency of combination appliances.

O n January 4

, 2013

, DOE published a Request for Information (RFI) (78 FR 675) that initiated a

rulema king to update the test procedure for determining the efficiency of residential furnaces and boilers as required by EISA 2007

. (42 U.S.C 6293(b)(1)(A)) As part of that rulemaking, DOE is considering whether to adopt a separate test method specifically fo r determining the efficiency of combination appliances; however, currently no test procedure has been proposed or adopted for this equipment. Therefore, until the test procedure issue is resolved

, DOE has decided not to create a separate product class for combination space

- heating and water

- heating appliances as a type of boiler, and did not separately analyze these products in this analysis. Manufacturers currently certify combination appliances by rating the efficiency of the unit when performing

their primary function ( i.e.

, space heating for boiler / tankless coil combination units and boiler/indirect water heater units, or water heating for water heater / fan

- coil units).

EPCA, as amended by EISA 2007, requires that any final rule for a new or amended energy conservation standard adopted after July 1, 2010 must address standby mode and off mode energy use pursuant to 42 U.S.C. 6295(o). (42 U.S.C. 6295(gg)(3)) EISA 2007 also requires that such energy consumption be integrated into the overall energy ef ficiency, energy consumption, or other energy descriptor, unless the current test procedure already accounts for standby mode and off mode energy use. If an integrated metric is technically infeasible, DOE must prescribe a separate standby mode and off mo de metric for the covered product , if technically feasible

. (42 U.S.C. 6295(gg)(2)(A)) )). In 2010, DOE published a final rule that amended the test procedure for residential furnaces and boiler s to include standby and off mode

energy use

. 75 FR 64621. T his final rule found that an integrated test procedure is technically infeasible for furnaces and boilers. Specifically, DOE found that due to the relatively small magnitude of the standby mode and off mode electrical energy consumption in comparison to th e active mode energy consumption and the rounding practices associated with rating the efficiency of residential furnaces and boilers, changes to reduce standby mode and off mode energy consumption would not result in any material change to the efficiency rating

. Because the standby mode and off mode energy consumption would for all practical purposes be lost in such an approach, DOE determined and integrated metric is infeasible and prescribed a separate standby and off mode energy use test procedure for residential furnaces and boilers.

Several stakeholders stated that DOE should not regulat e standby mode and off mode electrical power consumption on the basis that such consumption i n boilers is insignificantly small and that any regulation of standby mo de consumption will not result in significant energy savings. (AHRI, No. 9 at p. 2, Lochinvar, Public Meeting Transcript, No. 5 at p. 37) Lochinvar stated that electrical power consumption i s approximately 0 .15 percent of total boiler energy consumption. (Lochinvar, Public Meeting Transcript, No. 5 at p. 37) AHRI added that the2

- 5 current DOE test method does not consider heat loss through the jacket as an energy loss (for indoor units) since that heat is transmitted int o the residence and any heat given off by the electronic controls in standby mode provides heat to the space where the unit is installed

, so standby mode consumption should not be considered an energy loss. (AHRI, No. 9 at p. 2) US

Boiler noted that the electrical standby loss tests are extremely burdensome

, as they require more precision than the rest of the test method for a very small percentage of the actual energy consumption. (US Boiler, Public Meeting Transcript, No. 5 at p. 43) ACEEE asked if DO E would consider default values that are representative as acceptable in lieu of testing

, given the relatively small amount of energy use as asserted by the manufacturers. ACEEE added that they would be willing to work with industry in supporting a defaul t value if a rational program would prove less burdensome than testing each product. (ACEEE, Public Meeting Transcript, No. 5 at p. 42)

The Northeast Energy Efficiency Partnerships (NEEP) stated that while standby mode and off mode energy use may make up a very small fraction of a boiler’s total energy use, this should not lead the Department to forego further analysis of savings potential

, as the savings opportunities associated with standby mode /off mode requirements are not well document and

should be investigated while maintaining sensitivity to any testing burden that these standards may exact on manufacturers. (NEEP, No. 10 at p. 2)

Even given the concerns with regulating standby mode and off mode energy consumption noted above, AHRI

, Lochinvar , an d HTP agreed that an analysis of off mode consumption

should be conducted. (AHRI, No. 9 at p. 2; Lochinvar, Public Meeting Transcript, No. 5 at p.

37 ; HTP, No. 7 at p. 4 )

After carefully considering these comments, DOE did analyze the standby mode and o ff mode energy consumption of residential boilers , because this analysis is required under the

statute at 42 U.S.C. 6295(gg)(3)

. The analysis of standby mode and off mode energy consumption is described further in chapter 5.

Lastly, several commenters su ggested that DOE consider whether additional prescriptive design requirements are justified. The existing DOE residential furnace and boiler test procedure uses the AFUE metric to measure the efficiency of residential boilers. The on

- going residential boiler (active mode) test procedure rulemaking does not consider an alternative metric, because EPCA requires that DOE use AFUE as the metric for boilers. (42 U.S.C. 6291(20)(C) and (22)(A) ) However, there are energy efficiency improvement opportunities that are not captured by the current AFUE test method. Some such improvements were captured by the prescriptive requirements for residential boilers that were added to EPCA by EISA 2007 ( see 42 U.S.C. 6295(f)(3))

.

ACEEE and NEEP encouraged the D epartmen t to explore the adoption of additional prescriptive requirements for boilers, especially for efficiency opportunities that the AFUE metric does not capture. (ACEEE, Public Meeting Transcript, No. 5 at p. 16; NEEP, No. 1 0 at p. 3) NEEP further specified that circulation pumps, along with other components

, may be good candidates for new prescriptive requirements

. (NEEP, No. 10 at p. 3) In contrast, AHRI

commented that EISA 2007 did not alter any of the provisions of EPCA addressing DOE’s2

- 6 authority to dev elop or revise standards for residential covered products

, and therefore, this rulemaking should be limited to address ing revised minimum efficiency standards only. (AHRI, No. 6 at p.1

- 2)

DOE has tentatively determined that it lacks the legal authority t o prescribe design requirements for residential boilers. Accordingly, this analysis only includes the consideration of amended efficiency (AFUE) standards.

2.3.2 Product Classes

When evaluating and establishing energy conservation standards, DOE generally divi des covered products into product classes by the type of energy used, capacity, or other performance

related features that affect efficiency

. Different energy conservation standards may apply to different product classes

. (42 U.S.C. 6295(q)) DOE then conducts its analysis for each product

class and considers establishing standards t hat provide separate standard levels for each product

class considered

.

In the F ramework D ocument, DOE indicated that it plans to maintain the existing product

cla sses for residential bo ilers , which are currently denominated in EPCA at 42 U.S.C. 6295(f)(3)(A) and the Code of Federal Regulations (CFR) at 10 CFR 430.32(e)(2)(ii)

. 3 For

residential boilers

, the existing product classes are based on fuel type and heat t ransfer medium. The type of energy used is explicitly identified as a criterion for creating a separate product class

in EPCA

. (42 U.S.C. 6295(q)) Further, DOE has tentatively determined that heat transfer

medium is a performance

- related characteristic that merits a separate product class due to the significantly different efficiency and performance characteristics of hot water and steam boilers

. In this analysis , DOE maintained the product c lasses established by EISA 2007 and analyzed six product classes for this rulemaking, which are shown in Table 2.3.1. For gas

- fired and oil

- fired boilers, enough public data were readily available to conduct robust analyses

, and DOE analyzed

amended AFUE standards

. The electric boiler product class es represent significantly fewer shipments and significantly less energy use. Further, according to DOE’s test procedure, electric boilers are assigned an AFUE rating of 100 percent, and

, therefore

, there are no design options available for improving the AFU E of these products. DOE analyzed only standby mode and off

mode electrical use for the electric boilers product class es

.

3 EPCA includes a total of six product classes, which includes a product class for electric steam boilers. EPCA specifi es the minimum AFUE and the design requirements as “none.” (42 U.S.C. 6295 (f)(3)(A)) Because there are no standards for electric steam boilers, this product class is not listed at 10 CFR 430.32(e)(2)(ii). However, DOE plans to maintain the electric steam boiler product class as specified by EPCA and to consider standby mode and off mode energy conservation standards.2

- 7 Table 2.3

. 1 Product Classes
Fuel Type Heat Transfer Medium

Gas Steam

Hot Water

Oil Steam

Hot Water

Electric Steam

Hot Water

In the Framework Document

, DOE sought comment on its proposed product classes

, including whether capacity or any performance

- related features warrant the creation of additional product class es for residential boilers in accordance with the requirements of 42 U.S.C. 6295(q)

. DOE also sought comment to determine if it should undertake analysis and upgrade the

efficien cy standards for product classes with such low volum es of annual shipments

.

AH RI recommended that DOE not create any new product class es for this rulemaking

. (AHRI, No. 9 at p.3) In opposition to AHRI’s position on product classes, ACEEE stated its

belie f that there is a regulatory gap for two emerging products , namely air

- source and ground

source heat pumps whose functions are analogous to those of boilers. ACEEE suggested that the

D OE should start thinking about how to develop standards to provide consumers with information to compare expected energy use of these new products wi th the energy use of

traditional boilers

. (ACEEE, Public Meeting Transcript, No. 5 at p. 22)

Additionally, ACEEE stressed the status of heat pump boilers as an emerging product.

ACEEE differentiated between inherently limited niche products and emerging technologies. ACEEE stated that although shipments for emerging technologies may be small, it is worth considering rating methods that will not handicap their acceptance. HTP supports the conceptualization of a new product class of “Emerging Mar ket Products

. ” (ACEEE, Public Meeting Transcript, No. 5 at p. 22; HTP, No. 7 at p. 4)

DOE notes that w hile these air

- to

- water heat pumps for space heating are currently available to consumers, these technologies are not compatible with the current AFUE metric

. As a result, DOE did not create a separate product class to analyze them for this analysis, but will consider them further in the ongoing test procedure rulemaking. Consequently , DOE maintained the product classes as proposed in the Framework Doc ument.

2.3.3 Market Assessment

As part of the market and technology assessment, DOE developed information that provides an overall picture of the market for the products considered, including the nature of the products, market characteristics, and industry struc ture. DOE collected quantitative and qualitative information, primarily from publicly

- available sources. The market assessment examined manufacturers, trade associations, and the quantities and types of products sold and

offered for sale. DOE reviewed r elevant literature and interviewed manufacturers to develop an overall picture of the residential boiler industry in the United States. Industry publications and trade journals, government agencies, and trade organizations provided the bulk of the2

- 8 informa tion, including: (1) manufacturers and their market shares; (2) shipments by product type; (3) product information; and (4) industry trends. The analyses developed as part of the market assessment are described in chapter 3.

In the Framework Document, D OE sought comment on estimates of market shares, products, features, and trends related to energy efficiency of residential boilers covered in this rulemaking. DOE did not receive any public comments relating to these topics.

2.3.4 Technology Assessment

DOE typ ically uses information relating to existing and past technology options and prototype designs as inputs to determine what technologies manufacturers use to attain higher performance levels. In consultation with stakeholders, DOE develops a list of techno logies for

consideration. Initially, these technologies encompass all those DOE believes are technologica lly feasible.

DOE developed its list of technologically feasible design options for the considered products through consultation with manufacturers of components and systems, and from trade publications and technical papers. Since many options for improving product efficiency are available in existing units, product literature and direct examination provided additional

information. The technologies examined in the technology assessment are described in detail in chapter 3 of the attached data

.

In the Framework Document, DOE sought comment on the technologies identified

, as well as additional technology options which had not been identified. The Joint Efficiency

Commenters suggested that DOE should further explore technology options that would increase the efficiency of electric boilers, including heat pump boilers. The Joint Efficiency Commenters also suggested that DOE should consider technolog ies used internationally in the technology assessment, including absorption heat pumps. (Joint Efficiency Commenters, No. 8 at p. 2)

Again, DOE notes that the current test method assigns an AFUE value of 100 percent to
electric boilers. Therefore, the test procedure currently does not give credit for any efficiency improvements for electric boilers, so DOE did not explore heat pump boilers as a technology option. DOE did consider any and all technologies that could possibly be used to improve the

AFUE rating, and these technologies are described further in chapter 3 of the attached data

.2

- 9 2.4 SCREENING ANALYSIS

The purpose of the screening analysis is to evaluate the technologies identified in the technology assessment to determine which technologies to cons ider further and which technologies to screen out

. DOE consulted with industry, technical experts, and other interested parties in developing a list of energy

- saving technologies for the technology assessment

. DOE then applied the screening criteria to d etermine which technologies were unsuitable for further consideration in this rulemaking

. Chapter 4 , the screening analysis, contains details about DOE’s screening criteria.

As presented in further detail below, t he screening analysis examines whether various technologies : (1) are technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on product utility or availability; and (4) have adverse impacts on health and safety

. In consultation with intere sted parties, DOE reviewed the list of

residential boiler technologies according to these criteria

. In the engineering analysis, DOE further considers the efficiency

- enhancement technologies that it did not eliminate in the screening analysis.

1. Technologic al feasibility. DOE screen s out technologies that are not incorporated in commercially

- available products or working prototypes.

2. Practicability to manufacture, install, and service

. If DOE determines that mass production of a technology in commercial produ cts and reliable installation and servicing of the technology c an not be achieved on the scale necessary to serve the relevant market by the time of the compliance date of the standard, it will not consider that technology further.

3. Adverse impacts on produc t or equipment utility or availability. If DOE determines a technology has a significant adverse impact on the utility of the product for significant consumer subgroups or results in the unavailability of any covered product type with performance character istics (including reliability), features, size, capacities, and volumes that are substantially the same as products generally available in the United States at the time, it will not consider that technology further.

4. Adverse impacts on health or safety. If DOE determines that a technology will have significant adverse impacts on health or safety, it will not consider that technology

further.

In the F ramework D ocument

, DOE included a list of energy efficiency improvement technologies and sought comment on whe ther any should be screened out based on the four screening criteria. In addition, DOE sought comment from interested parties on how the four screening criteria might apply to any additional technology option(s) that an interested party

recommends to DOE. DOE eliminated from further consideration the pulse combustion

, ECM control relay , and modulation for steam boilers as technology options based on the third criteria

, advers e impacts on product utility

. Chapter 4 includes a detailed discussion regarding these

screened

- out technology options.2

- 10 Several comments suggested that DOE remove pulse combustion as a technology option

, as it has reliability issues

, and there are superior pathways to reach a condensing appliance. (AHRI, No. 9 at p.3; U.S. Boiler, Public Meeting Transcript, No. 5 at p. 47) As noted, DOE agrees with these comments and has screened out this technology option.

HTP and AHRI recommended that electronic ignition be removed as a technology options

, as the current DOE regulations have banned the use of continuous pilot lights. (AHRI, No. 9 at p. 3; HTP, No. 7 at p. 5) Again, DOE agrees with these and reflected this in the engineering analysis, as the baseline equipment was assumed to have electronic ignition.

Several stakeholders recommende d that DOE remove control relays for BPM motors as a technology option , because it has the potential to increase product price and maintenance cost and would have adverse impacts on product utility

. (AHRI, No. 9 at p. 3; Lochinvar, Public Meeting Transcri pt, No. 5 at p. 46; HTP. No. 7 at p.5 ) As noted above, DOE agrees that this technology would have adverse impacts on product utility and has screened out control relays for

BPM motors.

AHRI commented that using burner modulation is not a practical techno logy to increase AFUE for either oil or gas steam boilers because most residential steam systems are not zoned. Reducing the burner input will

, therefore

, result in heat distribution problems in the system and would reduce produce utility

. (AHRI, No. 9 at p. 4) DOE once again agrees with this comment, and has not considered this technology for product classes where it is not practical due to reduced utility

.

Chapter 4 contains additional details about the screening analysis and the justification for

sc reening out certain technologies. In addition, chapter 5 contains a description of the technologies considered at each efficiency level.

2.5 ENGINEERING ANALYSIS

The engineering analysis (chapter 5) establishes the relationship between manufacturing production cost and efficiency for each residential boiler

. This relationship serves as the basis

for cost

- benefit calculations in terms of individual consumers, manufacturers, and the Nation. Chapter 5 discusses the product classes analyzed, representati ve baseline units, incremental efficiency levels, methodology used to develop manufacturing production costs, cost

- efficiency curves, impact of efficiency improvements on the considered products, and methodology used to extend the analysis to low

- shipment

- volume product classes. To determine the cost to

consumers of residential boilers at various efficiency levels, DOE estimated manufacturing costs, markups in the distribution chain, installation costs, and maintenance costs. Efficiency levels for product s included in this rulemaking were calculated according to the current DOE test procedure.

In the engineering analysis pertaining to residential boilers , DOE evaluated a range of product efficiency levels and associated manufacturing costs. The purpose of the analysis is to estimate the incremental increase to selling prices that would result from increasing efficiency levels above the baseline model in each product class. The engineering analysis considers2

- 11 technologies not eliminated in the screening analysis , although certain technologies were not analyzed due to other reasons, such as negligible incremental efficiency improvements , lack of information on efficiency improvement, or the inability of the existing DOE test procedures to measure any reduc tion in energy use. DOE considers the remaining technologies , as appropriate, in developing the cost

- efficiency curves, which are subsequently used for the LCC and PBP analyses.

DOE typically structures its engineering analysis around one of three method ologies: (1) the design

- option approach, which calculates the incremental costs of adding specific design options to a baseline model; (2) the efficiency

- level approach, which calculates the relative costs of achieving increases in energy efficiency levels without regard to the particular design options used to achieve such increases; and/or (3) the reverse

- engineering or cost

- assessment approach,

which involves a “bottom

- up” manufacturing cost assessment based on a detailed bill of

materials derived from t ear

- downs of the equipment being analyzed.

For this analysis, DOE conducted the engineering analysis for residential boilers using a combination of the efficiency level and cost

- assessment approaches for analysis of various energy efficiency levels. More specifically, DOE identified the efficiency levels for analysis and

then used the cost

- assessment approach to determine the manufacturing costs at those levels. This approach involved physically disassembling commercially

- available products, consulti ng with outside experts, reviewing publicly

- available cost and performance information, and modeling equipment cost. Chapter 5 describes the methodology and results of the efficiency level analysis used to derive the cost

- efficiency relationships.

In the Framework Document, DOE presented plans for its engineering analysis and sought comment on its approach to calculating the cost

- efficiency relationship for residential boilers by incrementally increasing efficiency from the baseline model to max

- tech for characterizing the

efficiencies of boilers currently offered for sale. In response to the approach outlined in the

F ramework D ocument, DOE received comments regarding the following issues: (1) the baseline products for residential boilers of various produ ct classes; (2) the maximum technolog icall y feasible efficiency levels; and (3) the efficiency levels analyzed in the engineering analysis.

DOE sought input regarding the range of efficiency levels and any key efficiency levels

that should be examined as part of its analysis. In the engineering analysis, DOE established energy efficiency levels for each product class to reflect the current residential boiler s market. See Chapter 5 for details on the efficiency levels and the associated technologies. AHRI and

HTP suggested that DOE should review and keep in mind the condensation concerns raised in the previous residential furnace s and boiler s rule when selecting efficiency levels. (AHRI, No. 9 at p. 1 ; HTP, No. 7 at p. 1 )

AHRI suggested that DOE gro up products according to the following product classes and efficiency ranges shown in Table 2.5

. 1

. (AHRI, No. 9 at p. 4)2

- 12 Table 2.5

. 1 A HRI R ecommendations for Residential Boiler Efficiency Levels

Product

Class Additional Description (Category Venting * ) General Efficiency Range

Gas

- Fired Hot

Water Category I or III 82

- 83.5% Category II or IV: Require metal venting but unlikely to condense in the heat exchanger. 83.6

- 87%

Category IV Require metal venting 87.1%

- 89.9% Category IV Condensing products may be vented with non

- metallic

materials 90

- 95.2%

Oil

- Fired Hot

Water 84

- 87%

87.1

- 91.2%

Gas

- Fired

Steam Category I or III 80

- 83.5%

Oil

- Fired

Steam 82

- 86%

* According to the National Fuel Gas Code ( NFPA 54/ANSI 2223.1 )

.

HTP suggested that DOE examine slightly different efficiency level ranges for gas

- fired

hot water boiler s as shown in Table 2.5

. 2 (HTP, No. 7 at p. 5)

.

Table 2.5

. 2 HTP R ecommendations for Residential Boiler Efficiency Levels

Product

Class Additional Description General Efficiency Range

Gas

- Fired Hot

Water Includes products meeting minimum standard and not likely to condense in either product or vent system 82

- 85 %

Includes products which may experience condensation in the heat exchanger or venting system. 85.1

- 89.9%

Includes condensing products 90+%

Additionally , DOE sought input on characteristics which may require multiple representative products within a single product class. AHRI and HTP both stated that DOE should consider the following characteristics that require multiple representative products within a single product class: heat exchanger material (stainless steel , copper, aluminum, cast iron), heat exchanger construction (single piece, sectional, water tube, fire tube), burner type ( atmospheric, induced, premix), and venting system. (AHRI, No. 9 at p.5; HTP, No. 7 at p.6)

DOE considered the above comments when choosing efficiency levels and identifying representative equipment in each category. As described in detail chapter 5, the analysis encompasses many of the efficiency levels and product characteristics recommended by

stakeholders.2

- 13 2.5.1 Baseline Models

In order to analyze technology options for energy efficiency improvements, DOE defined

a baseline model unit for each residential boiler product class. A baseline model is a model with an efficiency that meets, but does not exceed, the existing energy conservation standard. In the

F ramework D ocument, DOE sought comment on the selection, appropriate features, and performance characte ristics of baseline models for each product class. In response, AHRI

recommend ed that DOE should review the baseline models that were used in the analysis

conducted in 2004

- 2006 for DOE’s 2007 furnaces and boilers rulemaking and then determine whether any modifications to those baseline models are required. (AHRI, No. 9 at p.4

- 5) Chapter 5 includes details on the baseline products for each product class.

2.5.2 Max

- Tech Model

In the Framework Document, DOE sought input from stakeholders regarding the appropriat e max

- tech level for residential boilers. In response, AHRI recommended that for hot

water boilers

, DOE should only consider commercially

- available boilers for which there is significant field experience in North America as the “ max

- tech

. ” AHRI reasoned that market forces are already driving manufacturers to develop higher

- efficiency products in this class

, and

, therefore

, it is unlikely that DOE will identify a technology not already in commercial use that is safe, reliable, and cost

- effective

. (AHRI, No. 9 at p.4) HTP stated that the Department should also consider existing technologies available in other countries in the max

- tech evaluation. (HTP, No.7 at p.6)

AHRI stated that the practical “max

- tech” level for a gas steam boiler should be limited to an efficiency appropriate for Category I venting

, because the existing installations of gas steam boilers are more likely than hot water boilers to present the situation where there are no practical alternatives to natural draft venting using a masonry chimney, particularly in urban

areas. Similarly, AHRI added that the “max

- tech” for oil

- fired boilers should also be limited to that for natural draft venting in a masonry chimney. (AHRI, No. 9 at p. 4)

DOE considered the stakeholders ’ comments and has tentatively determined the maximum improvement in energy efficiency that is technologically feasible (“max

- tech”) for residential boilers, as required by 42 U.S.C. 6295(o) (2)(A )

. DOE identified the max

- tech levels as part of the engineering analysis. Cha pter 5 includes additional details on the max

- tech levels DOE determined for this stage , including the reasoning for the selection of the max

- tech level for each product class

. In summary, the max

- tech efficiency levels identified in the engineering analys is were the highest levels attainable with either a commercially

- available product or a working prototype . For gas

- fired hot water boilers, the level corresponded to the highest efficiency product available in the North American market at the time of the analysis. For oil

fired boilers, DOE did not limit the max

- tech level to only products that can utilize Category I venting as suggested by commenters, because DOE believes that such venting changes could be accommodated, although DOE recognizes that the i nstallation costs would increase substantially. DOE has accounted for situations which would require additional installation costs in the installation cost portion of the LCC cha pter, located in Chapter 8

.2

- 14 2.5.3 Manufacturing Cost Analysis

There are several wa ys to develop the relationship between cost and performance. As noted previously, DOE conducted this engineering analysis for residential boilers using a combination of the efficiency level and cost

- assessment approaches for this analysis of the AFUE efficiency levels. More specifically, DOE identified the efficiency levels for analysis

and then used the cost

- assessment approach to determine the manufacturing costs at those

levels.

DOE purchased “off

- the

- shelf” units commercially available on the market and dismantled them component by component to determine what technologies and designs manufacturers currently employ to increase residential boiler energy efficiency. DOE then used independent costing methods, along with manufactu rer and component

- supplier data, to estimate the costs of the components. DOE also used catalog data to “virtually” disassemble several units that were similar to ones that were physically purchased and torn down. DOE input the data from physical and vir tual teardowns into a manufacturing cost model to estimate the manufacturing cost of the models that were analyzed, including the cost of the product components, labor, purchased parts and materials, and investment. DOE determined the efficiency levels co rresponding to various design options from commercially

- available information on products and data submitted by manufacturers. Additional detailed information on DOE’s manufacturing cost analysis is provided in Chapter 5. DOE did not receive any

comments related to its planned methodology for this analysis in response to the Framework

Document.

2.6 MARKUPS ANALYSIS

DOE uses manufacturer

- to

- customer markups to convert the manufacturer selling price estimates from the engineering analysis to customer prices, wh ich are then used in the LCC and PBP analysis and in the manufacturer impact analysis. Retail prices are necessary for the baseline efficiency level and all other efficiency levels under consideration.

Before developing markups, DOE defines key market pa rticipants and identifies

distribution channels. Generally, the boiler distribution chain includes five market participants: (1) manufacturer; (2) wholesaler; (3) mechanical contractors; (4) general contractors; and (5)

consumers. For the markups analysis, DOE used three types of distribution channels to describe how most residential boilers pass from the manufacturer to the consumer : ( 1) replacement market; ( 2) new construction, and ( 3) nationa l accounts

. The national account s cha nnel is an exception to the usual distribution channel that is only applicable to those residential boilers

installed in the small to mid

- size commercial buildings where the on

- site contractor staff purchase equipment directly from the wholesalers at much lower prices due to the large volume of equipment purchased

, and perform the installation themselves. These channels are explained in detail in Chapter 6.

A fter defining the participants and channels, DOE develops baseline and incremental markups to tra nsform the manufacturer selling price into a consumer product price. DOE uses the baseline markups, which cover all of a distributor’s or contractor’s costs, to determine the2

- 15 sales price of baseline models. Incremental markups are coefficients that DOE a pplies to the incremental cost of higher

- efficiency models. Because companies mark up the price at each point in the distribution channel, both baseline and incremental markups are dependent on the particular distribution channel.

DOE requested comment on its proposed approach to developing estimates of future residential boiler retail prices ; h owever, n o comments were received regarding its p lanned markups and methodology. Therefore , DOE chose to proceed with the proposed analysis as presented in the F ramework Document.

2.7 ENERGY USE ANALYSIS

The purpose of the energy use analysis is to determine the annual energy consumption of residential boilers used in representative U.S. single

- family homes, multi

- family residences

, and commercial buildings. Additionally, the energy use analysis assess es the energy savings potential of increased boiler efficiency. DOE estimated the annual energy consumption of residential boilers at specified energy efficiency levels across a range of climate zones. The

annu al energy consumption includes the natural gas, liquid petroleum gas (LPG), oil, and/or electricity use by the boiler. The annual energy consumption of residential boilers is used in subsequent analyses, including the LCC and PBP analysis and the national impact analysis.

2.7.1 Samples of Residential Boiler Users

For the residential sector, DOE consulted the Energy Information Administration’s (EIA)

2009 Residential Energy Consumption Survey (RECS 2009) to establish a sample of households using residential boil ers for each boiler product class. 1 The RECS data provide information on

the vintage of the home, as well as heating energy use in each hou sehold. The survey also

includes household information such as the physical characteristics of housing units, household demographics, information about other heating and coo ling products, fuel type s used, energy consumption and expenditures, a nd other relevant data. DOE used the household samples not only to determine boiler annual energy consumption, but also as the basis for conducting the LCC and PBP analysis.

DOE used d ata from the Am erican Housing Survey (AHS) 2011

, 2 the U.S. Census

Bureau ’s Characteristics of New Housing

, 3 and historical shipments by S tate 4 to project household weights and household characteristics in 20 20 − the expected compliance date of

amended energy conservation standard s for residential boilers

.

In the Fr amework Document, DOE requested comment on whether it should consider use

of residential boiler s in commercial and multi

- family applications. AHRI stated that they question the need to consider commercial applications in the analysis because if a residential boiler is being used in a commercial application it is because the boiler can meet the load of that application. In effect, AHRI arg u ed that the application is similar to a residential load

, so considering it as so mething unique is unnecessary. However , AHRI stated that if DOE is considering commercial applications where multiple residential boilers are installed, those applications have no commonality with residential applications. As such

, they should not be2

- 16 con sidered as a factor in establishing revised standards for residential products. The very nature

of these standards is to focus on residential products as used for their primary intended application ( i.e. , installation in consumer’s residences )

. (AHRI, No . 9 at p. 6)

ACEEE expressed familiar ity with a series of condensing residential boilers being used as a heating source for a multi

- family apartment complex

. (ACEEE, Public Meeting Transcript, No. 5 at p. 80) HTP also noted that they have witnessed a tr end of r esidential b oilers being packaged together to achieve the output of a c ommercial b oiler

. (HTP, No. 7 at p. 6)

DOE accounted for applications of residential boilers in multi

- family housing and commercial buildings because the intent of the analysis of consumer impacts is to capture the full range of us ag e conditions for these products. In response to AHRI ’s comment, DOE considered

that t he definition of “ residential boiler ” is limited only by its capacity and not by the application
type. D OE determined that these applications represent about 14 percent of the residential gas

fired boiler market and 11 percent of the residential oil

- fired boiler market

. DOE identified the
type s of multi

- family and commercial buildings most likely to employ the use of boiler(s) that would meet the capacity requirements of residential products.

For the commercial building sample, DOE used the EIA ’s 2003 Commercial Building Energy Consumption Survey 5 (CBECS 2003) to establish a sample of commercial buildings using residential boilers for each boiler product class. The CBECS 2003 data provide

inform ation on the vintage of the building, building square footage, fuels used, heating energy

use , a nd other relevant data. Criteria were developed to help size these boilers using several

variables

, including building square footage and estimated supply water temperature. For boilers

used in multi

- family housing, DOE used the RECS 2009 sample discussed above, account ing for situations where more than one residential boiler is used to heat a building

. Chapter 7 includes details of the methodology to estimate the energy use of residential boilers in these applications.

2.7.2 Energy Use Determination

To estimate the annual energy consumption of boilers meeting higher efficiency levels,

DOE first calculated t he heating load based on the RECS and CBECS estimates of the annual energy consumption of the boiler for each household. For each household with a boiler , RECS estimates the equipment’s annual energy consumption from the household’s energy bills using

con ditional demand analysis. DOE estimate d the house heating load by reference to the existing boiler’s characteristics, specifically its capacity and efficiency (AFUE), as well as by the heat generated from the electrical components. The AFUE of the existi ng boilers was determined using the boiler vintage 4 from RECS and historical data on the market share of boilers by

AFUE. 4 DOE then use d the house heating load to determine the burner operating hours, which

are needed to calculate the fossil fuel consumption and electricity consumption based on the

DOE residential furnace and boiler test procedure

. To calculate pump and other auxiliary components’ electricity consumption, DOE utilized data from manufacturer product literature. See Appendix 7

- B for details.

4 The term “vintage” refers to the year of installation of the equipment in question.2

- 17 Additionally, DOE adjust ed the energy use to normal ize for weather. This was accomplished by adjusting the RECS 2009 household energy consumption values based on 10

- year average heating degree

- day (HDD) data (2002

- 2011) for each geographical region. DOE also accounted for the change in buil ding shell characteristic s between 2005 and 2020 by applying the building shell efficiency index in the National Energy Modeling System (NEMS)

based on EIA’s Annual Energy Outlook 2013 ( AEO 2013 ). 6

In the Framework Document, DOE discussed consider ation of the “rebound effect” in its analysis. A rebound effect occurs when a more

- efficient piece of equipment is used more intensively, so that the expected energy savings from the efficiency improvement may not be fully realized

.

AHRI stated that while they acknowledge that there is some rebound effect, there have

not been definitive studies to address that topic

. AHRI stated that at this point, whatever number DOE has used in the past for analysis is as good as any. (AHRI, Public Meeting Transcript, No. 5 at p. 81) The Joint Efficiency Commenters state d that DOE should not consider any reb ound

effect in its life

- cycle cost or payback period analyses , as a ny rebound associated with a more

efficient boiler is offset by an increase in the consumers’ utility. ( Joint Efficiency Commenters

, No. 8 at p. 4)

DOE conducted a review of information that included a 2009 study examin ing empirical

estimates of the rebound effect. 7 The authors of this study evaluated 12 studies of household heating that provide mea n estimates of temperature take

- back ( i.e. , the increase in indoor temperature in the period after improvement in efficiency) in the range from 0.14 ◦ C to 1.6 ◦ C. They also reviewed nine econometric studies of household heating, each of which includes

ela sticity estimates that may be used as a proxy for the direct rebound effect. The authors conclude that “the econometric evidence broadly supports the conclusions of the quasi

experimental studies, suggesting a mean value for the direct rebound effect for household heating

of around 20%.” 7 Based on the above review, DOE also concluded that the inclusion of a rebound effect of 20 percent for residential boilers was warranted for this analysis. However, DOE agrees with the point made by ACEEE, and for the purposes of the LCC and PBP analysis

it assumes that a ny rebound associated with a more

- efficient boiler is offset by an increase in the consumers’ utility.

Several commenters offered input on the issue of boilers used for space heating and domestic hot water applications. AHRI recommended that DOE distinguish between the different types of indirect water heating ( e.g. , boilers that supply water for indirect

- fired water heaters, low

- mass combin ation boilers, and high

- mass boilers with integral heat exchangers ) ; each type of combination product has unique characteristics that are likely to affect its annual energy consumption. (AHRI, No. 9 at p. 6)

Lochinvar stated that it is very important that DOE segregate the data it collect s on any boilers that provid e hot water heating based on the type of boiler that i s generating the hot water. Lochinvar added that the standby energy losses are very different from a boiler that is circulating water to an indirect fired hot water storage tank versus a low

- mass combination boiler with a2

- 18 small plate and frame heat exchanger installed in it versus a large high

- mass boiler that has a copper coil installed in a way that req uires the entire boiler to be maintained at higher
temperature s

. Lochinvar comment ed that there are very different standby loss characteristics for those three products. (Lochinvar, Public Meeting Transcript, No. 5 at p. 70)

DOE is aware that some resid ential boilers have the ability to provide both space heating and domestic water heating and that these products are widely available and may vary greatly in design. For these applications, DOE accounted for the boiler energy used for domestic water

heati ng , which is part of the total annual boiler energy use. To accomplish this, DOE used the

RECS 2009 and/or CBECS data to identify those boiler households or buildings that use the same fuel type for space and water heating and then assumed that a fraction of these identified

households /buildings used the boiler for both applications. The water heating loads used for the determination of total energy used is provided by RECS or CBECS. Chapter 7 describes the details of the applied methodology.

2.8 LIFE

- CYCLE C OST AND PAYBACK PERI OD ANALYSIS

In determining whether an energy efficiency standard is economically justified, DOE considers the economic impact of potential standards on consumers

. The effect of new or

amended standards on individual consumers usually i ncludes a reduction in operating cost and an increase in purchase cost. DOE use d the following two metrics to measure consumer impacts:

• LCC (life

- cycle cost) is the total c onsu mer cost of an appliance or product, generally over the life of the appliance or product, including purchase and operating costs. The latter consist of maintenance, repair, and energy costs. Future operating costs are discounted to the time of purchase a nd summed over the lifetime of the appliance or product.

• PBP (payback period) measures the amount of time it takes consumers to recover the assumed higher purchase price of a more energy

- efficient product through reduced operating costs.

DOE analyzed the net effect of potential amended boiler standards on consumers by calculating the LCC and PBP using the engineering performance data, the energy

- use data, and the markups. Inputs to the LCC calculation include the installed cost to the consumer (purchase

p rice plus installation cost), operating expenses (energy expenses, repair costs

, and maintenance costs), the lifetime of the product, and a discount rate. Inputs to the payback period calculation

include the installed cost to the consumer and first

- year o perating costs.

DOE performed the LCC and PBP analyses using a spreadsheet model combined with Crystal Ball (a commercially

- available software program used to conduct stochastic analysis using Monte Carlo simulation and probability distributions) to accou nt for uncertainty and variability among the input variables. Each Monte Carlo simulation consists of 10,000 LCC and

PBP calculations. The model performs each calculation using input values that are either sampled from probability distributions and househ old samples or characterized with single point

values. The analytical results include a distribution of 10,000 data points showing the range of LCC savings and PBPs for a given efficiency level relative to the base case efficiency forecast.2

- 19 In performing an iteration of the Monte Carlo simulation for a given consumer, product efficiency is chos en based on its probability. If the chosen product efficiency is greater than or equal to the efficiency of the standard level under consideration, the LCC and PBP calculation

reveals that a consumer is not impacted by the standard level. By accounting for consumers who already purchase more

- efficient products, DOE avoids overstating the potential benefits from increasing product efficiency.

DOE is also required to perform a PBP analysis to determine whether the rebuttable presumption of economic justification applies (where the higher installed cost of more energy

efficient equipment is less than three times the value of the lowered operating costs in the first

yea r of the energy conservation standard). (42 U.S.C. 6295(o)(2)(B)(iii)) T he results of this analysis serve as the basis for DOE to definitively evaluate the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification).

2.8.1 Inputs to Installed Cost

Installation Costs

DOE estimated all the installation costs associated with fitting a boiler in a new housing unit or as a replacement for an existing boiler. This include s any additional costs

, such as venting and piping modifications that would be required to install equipment at various efficiency levels.

AHRI comment ed that one aspect of the previous analysis that has changed relates to the

households that have lower

- efficiency natural draft units that would require extraordinary

installation costs ( significantly more than the standard drop

- in replacement ) if the minimum standard was set at a level that require s condensing boilers. (AHRI, No. 9 at p. 7) AHRI

s uggest ed that when DOE examines installation costs, especially in instances where a non

condensing boiler is replaced with a condensing boiler, DOE should consider the fact that many of the replacements which have been done have been the easy (inexpensive) replacements.

AHRI state d that it is important for DOE to realize that a percentage of the remaining population

of houses that have not made the switch to a condensing boiler may face a difficult installation

that would require rework of the site. (AHRI

, Public Meeting Transcript, No. 5 at p. 91) ACEEE responded to AHRI's statement that the easy installations had already been done by saying that in ACEEE's work with the American Gas Association regarding condensing furnaces

, they found that no one expected there to be a very high fraction of difficult installation s

. (ACEEE, Public Meeting Transcript, No. 5 at p. 92)

The Joint Efficiency Commenters state d that DOE should consider several factors in its analysis of installati on costs for condensing boilers, including: (1) the experience of the U nited

K ingdom , which mandated that all installations of gas

- fired and oil

- fired boilers be condensing products as of 2005 and 2007, respectively ; (2) the ability to use code

- approved fl exible polypropylene for condensing installations ; and (3) that v enting issues related to “orphaned” hot water heaters are likely to occur in fewer boiler installations than for furnaces. ( Joint Efficiency

Commenters , No. 8 at p. 3)2

- 20 HTP commen ted that in creasing minimum efficiency requirements may increase the

number of boilers in the near

- condensing range, leading to higher average installation and maintenance costs, and safety concerns. (HTP, No. 7 at p. 2 ) Lochinvar state d that it is important to con sider the costs associated with near

- condensing installation s

. Such products may require corrosion

- resistant metal venting material which is much more expensive compared

to installation of a condensing appliance , which typically use s polymer venting. ( Lochinvar, Public Meeting Transcript, No. 5 at p. 104)

In response to these comments, DOE conducted a detailed analysis of installation costs

when a non

- condensing gas boiler is replaced with a condensing gas boiler, with particular attention to venting issues in replacement cases. In these case s, DOE included a number of

add itional costs for a fraction of the sample households to account for proper flue and

combustion venting , concealing vent pipes, orphaned water heater s , and condensate removal

. DOE a lso considered the factors mentioned by the Joint Efficiency Commenters

. Chapter 8

describes in detail how DOE estimated the cost for installing condensing boilers in replacement

installations.

With regards to near

- condensing installations, DOE interprets “near

- condensing” as meaning non

- condensing products in the efficiency range 86%

- 88% AFUE. DOE has appropriately accounted for the installation and maintenance costs of the “near

- condensing” products by considering additional cost to address the condensa te problems. Further detail regarding the installation developed for these product efficiency levels can be found in chapter 8.

2.8.2 Inputs to Operating Cost

Energy Prices

DOE derived average monthly natural gas, LPG, electricity, and fuel oil prices for the 30 geographic areas in RECS 2009 and the 9 Census Divisions in CBECS 2003 by using the latest data from EIA and monthly energy price factors. For natural gas and electricity, DOE also derived marginal price factors , as explained below

. DOE used average historical boiler shipments by S tate to derive energy prices for each region. DOE assigned an appropriate energy price to each household or commercial building in the sample, depending on its location. For future prices, DOE used the projected annual cha nges in average residential and commercial natural gas, LPG, electricity, and fuel oil prices in AEO 2013.

Maintenance and Repair Cost s

Typically, small incremental changes in product efficiency incur little or no change in repair and maintenance costs over baseline products. Products having efficiencies that are significantly higher than the baseline are more likely to incur increased repair and maintenance

costs, becaus e such products are more likely to incorporate technologies that are not widely

ava ilable.

AHRI recommend ed that DOE rely on the most recent data it can obtain and consider

p rojections based on trends regarding frequency and cost of maintenance and repair of various classes of product. (AHRI, No. 9 at pp. 6

- 7) HTP agree d with AHRI’s point that equating2

- 21 increased efficiency to increased cost of repair parts may not be accurate. It is expected that the cost of repair parts for baseline products has increased significantly (compared to DOE's last review), while repair parts for top tier products have remained fairly constant. (HTP, No. 7 at p. 7)

ACEEE state d that there is a difference in the maintenance practices for the oil boiler market and the gas boiler market. Specifically, the service providers for oil boilers will likely

cont inue to strongly recommend annual service to de

- soot and check the combustion efficiency,

at least until th ose manufacturers are comfortable with the ultra

- low sulfur regulations. (ACEEE, Public Meeting Transcript, No. 5 at p. 93)

In response, DOE estimated maintenance and repair costs for residential boilers at each considered efficiency level using a variety of sources, including 201 3 RS Means, 8 manufacturer literature, and information from expert consultants. DOE also accounted for regional differences

in labor costs by weighting the national price fact ors by city or town population size using 2012

C ensus data

. DOE estimated the frequency of annual maintenance using data from a proprietary

consumer survey

. DOE also accounted for the difference in the maintenance practices for the oil

boiler market and t he gas boiler market

. In particular, for oil

- fired boilers

, DOE applied the cost

associated with an annual maintenance contract and also accounted for the costs of more frequent cleaning of the heat exchanger necessitated by the high quantity of sulfur in the fuel. Further detail regarding the maintenance costs developed for all product efficiency levels can be found in chapter 8

.

Product Lifetime

P roduct lifetime is the age at which a n appliance is retired from service. In the past , DOE

use d informati on from various literature sources , such as Appliance Magazine , handbooks published by the American Society of Heating, Refrigerating, and Air

- Conditioning Engineers (ASHRAE)

, and input from manufacturers and other stakeholders to determine a range for the

lifetime of residential boilers

.

AHRI comment ed that lifetime estimates need to be segregated by product class (including separation of condensing and non

- condensing products) and that trends need to be considered to project shifts in life expectancy for each class. (AHRI, No. 9 at p. 7) AHRI and

HTP suggest ed that DOE should seek information on average life times of condensing boilers used in Europe, keeping in mind that the frequency of product maintenance is different in Europe. (AHRI, No. 9 at p . 7 ; HTP, No. 7 at p. 7) Lochinvar suggested that DOE should look at

more recent data related to boiler longevity , arguing that t here has been a change in products, a maturing of installation, and a maturing of water treatment chemicals that might provide longer lifetimes for condensing appliances. According to Lochinvar, t here have similarly been changes in water quality that have negatively affected some steam boilers

, which have historically had extremely long lifespans. (Lochinvar, Public Meeting Tra nscrip t

, No. 5 at p. 86)

DOE conducted an analysis of boiler lifetime s using a combination of shipments data, the

boiler stock, and RECS data on the age of the boilers in the homes. The data allow ed DOE to develop a survival function, which provides an average and a median appliance lifetime. In2

- 22 addition, DOE reviewed a number of sources to validate the derived boiler lifetime

, includ ing research studies ( from the U.S. and Europe ) and field data reports. 5 The sour ces included data

on lifetime s of condensing boilers used in Europe

. 9 Chapt er 8 and Appendix 8F include details

about the lifetime derivation.

2.8.3 Other Inputs

DOE used discount rate s to determine the present value of lifetime operating expenses. The discount rate used in the LCC analysis represents the rate from an individual cons umer’s perspective. 6 Much of the data used for determining consumer discount rates comes from the Federal Reserve Board’s triennial Survey of Consumer Finances. 7

To estimate the share of consumers affected by a standard at a particular efficiency level, DOE’s LCC and PBP analysis consider s the projected distribution ( i.e. , market shares) of product efficiencies that consumers will purchase in the first compliance year under the base case (the case without amended energy conservation standards).

AHRI com ment ed that the percentage of condensing residential gas boilers shipped annually has steadily increased since 2003 and that most of those shipments went into replacement installations. ( AHRI, Public Meeting Transcript, No. 5 at p. 91 ; AHRI, No. 9 at p.

7 ) Additionally, AHRI stated that the continued existence of programs that provide incentives

for the consumer to install more

- efficient products will continue to increase the percentage of higher

- efficiency boilers in the field. (AHRI, No. 9 at p. 8)

DO E accounted for the increasing market share of condensing residential gas boilers in

its base

- case projection. DOE acknowledges the existence and the impact of energy efficiency incentive programs. D OE’s projection used available data on recent market trends in boiler efficiency and takes into account the potential impacts of the ENERGY STAR program and other policies that may affect the demand for more

- efficient boilers

. The base

- case efficiency

distributions can be fo und in chapter 8

.

2.9 SHIPMENTS ANALYSIS

DOE used forecasts of product shipments to calculate the national impacts of standards on energy use, NPV, and future manuf acturer cash flows. DOE developed these shipment forecasts based on an analysis of key market d rivers for each product.

DOE estimated boiler shipments by projecting shipments in three market segments: (1) replacements; (2) new housing; and (3) new owners in buildings that did not previously have a

5 See Appendix 8F for specific references.

6 The consum er discount rate differs from the discount rates used in the national impact analysis, which are intended to represent the rate of return on capital in the U.S. economy, as well as the societal rate of return on private consumption.

7 Available at www.federalreserve.gov/econresdata/scf/scfindex.htm

.2

- 23 boiler. DOE also considered whether standards tha t require more

- efficient boilers would have an impact on boiler shipments.

To project boiler replacement shipments, DOE developed retirement functions for boiler s from the lifetime estimates and applied them to the existing products in the housing stock. The existing stock of products is tracked by vintage and developed from historical shipments data.

To project shipments to the new housing market, DOE utilized a forecast of new housing

construction and historic saturation rates of boiler product types in new housing. DOE used AEO

2013 for forecasts of new housing. Boiler saturation rates in new housing are provided by the

U.S. Census Bureau’s Characteristics of New Housing

. 8

To estimate future shipments to new owners , DOE determined tha t on average

, 3% of gas hot water boiler shipments are to new owners with no previous boiler

. DOE also accounted for potential switching between different boiler product classes (steam to hot water and oil to gas). See Chapter 7 for more details regarding the projection of boiler shipments.

B ecause the standards

- case projections take into account the increase in purchase price and the decrease in operating costs caused by amended standards, project ed shipments for a

standards case typically devia te from those for the base case. Because purchase price tends to have a larger impact than operating cost on appliance purchase decisions, standards

- case projection s typically show a d ecrease in product shipments relative to the base case.

AHRI stated th at unless a product class is eliminated, it is unlikely that th e proposed regulation w ould significantly affect the number of boilers sold. (AHRI, No. 9 at p. 8) DOE believes that, consistent with economic theory, it is reasonable to expect that standard s that result in higher boiler prices will have some dampening effect on sales. Some consumers might choose to repair their existing boiler rather than purchase a new one. To estimate the impact of the projected price increase for the considered efficien cy levels

, DOE used the relative price elasticity approach that was applied in the 2011 furnace standards rulemaking. ( 76 FR 37408 (June 27, 2011) ) This approach gives some weight to the operating cost savings from higher

efficiency products. The impact of higher boiler prices ( at higher efficiency levels ) is expressed as a percentage drop in market share for each year during the analysis period

.

2.10 NATIONAL IMPACT ANAL YSIS

The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings expected to result from new or amended energy conservation standards at specific efficiency levels. DOE determined the NPV and NES for the standard levels considered for the boiler product classes analyzed. To make the analysis more accessible and transparent to all interested parties, DOE prepared a Microsoft Excel spreadsheet that uses typical values (as opposed to probability distributions) as inputs. To assess the effect of input uncertainty on NES

8 Available at: http://www.census.gov/const/www/charindex.html

.2

- 24 and NPV results, DOE has developed its spreadsheet model to conduct sensitivity analyses by running scenarios on specific input variables.

Analyzing impacts of potential energy conservation standards for residential boilers requires comparing projections of U.S. energy consumpti on with amended energy conservation standards against projections of energy consumption without amended standards. The forecasts include projections of annual appliance shipments, the annual energy consumption of new appliances, and the purchase price of new appliances.

A key component of DOE’s NIA is the energy efficiencies forecasted over time for the base case (without new standards) and each of the standards cases. The forecasted efficiencies represent the annual shipment

- weighted energy efficiency o f the products under consideration during the forecast period ( i.e. , from the assumed compliance date of a new standard to 30 years after compliance is required).

DOE developed a distribut ion of efficiencies in the base

- case for 2020 (the assumed complia nce date for new standa rds) for each residential boiler product class

. In each standards case, a “roll

- up” scenario approach was applied to establish the efficiency distribution for 2020

. Under the “roll

- up” scenario, DOE assume d : (1) product efficiencie s in the base case that do not

meet the standard level under consideration would “roll

- up” to meet the new standard level; and (2) product efficiencies above the standard level under consideration would not be affected.

AHRI commented that t he roll

- up scenario is appropriate up to a point , but there are limits to the efficiency of some product classes and gaps in the efficiency offerings of gas

- fired hot water boilers that may affect the roll

- up. In the case of steam boilers, f ew , if any

, condensin g

gas

- fired steam or condensing oil

- fired steam boilers exist. (AHRI, No. 9 at p. 8)

DOE reviewed the historical efficiency data for residential boilers from AHRI. The Department did not find any evidence to support a shift in the efficiency distributio n in the year of compliance with amended standards. Therefore, for this analysis , DOE decided to utilize the

roll

- up scenario for boilers in order to forecast the impact of standa rds for the year of compliance.

2.10.1 National Energy Savings Analysis

The inputs for determining the national energy savings for each product analyzed are: (1) annual energy consumption per unit; (2) shipments; (3) product or equipment stock; (4) national energy consumption; and (5) site

- to

- source conversion factors. DOE ca lculated the national energy consumption by multiplying the number of units (stock) of each product (by vintage or age) by the unit energy consumption (also by vintage). Vintage represents the age of the product. DOE calculated annual NES based on the di fference in national energy consumption for the base case (without new or amended efficiency standards) and for each higher efficiency

standard. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption an d savings to source (primary) energy using annual conversion factors derived from the most recent version of the National Energy Modeling System (NEMS). Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis.2

- 25 D OE has historically presented NES in terms of primary energy savings. DOE has recently published a Statement of Policy regarding its intent to incorporate full

- fuel

- cycle (FFC) metrics into its analyses, and outlining a proposed approach. DOE stated that it intends to calculate FFC energy and emission impacts by applying conversion factors generated by the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model to

the NEMS

- based results currently used by DOE. 76 FR 51281 (Au g. 18, 2011). Additionally, DOE will review alternative approaches to estimating these factors and may decide to use a model other than GREET to estimate the FFC energy and emission impacts in any particular future appliance efficiency standards rulemakin g. For this analysis, DOE calculated FFC energy savings using a NEMS

- based methodology described in appendix 10

- B. Chapter 10 presents both the primary NES and the FFC energy savings for the analyzed efficiency levels

.

The National Propane Gas Associati on ( NPGA ) strongly encourage d DOE to include a

f ull

- f uel

- c ycle analysis in its rulemaking for amended boiler energy conservation standards. NPGA states that the site measurement of energy consumption fails to provide a complete energy consumption and gree nhouse gas profile because it does not account for the upstream energy use and emissions associated with delivering the fuel to its point of use. According to NPGA, FFC analysis is the most accurate way to calculate energy use and environmental emissions. (NPGA, No. 6 at p. 1

- 2) As stated above, DOE is incorporat ing FFC metrics in its analysis of potential

amended standards for residential boilers

.

2.10.2 Net Present Value Analysis

The inputs for determining NPV are: (1) total annual installed cost; (2) total annual savings in operating costs; (3) a discount factor to calculate the present value of costs and savings; (4) present value of costs; and (5) present value of savings. DOE determined the net savings for each year as the difference between the base case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculated savings over the lifetime of products shipped i n the forecast period. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of total

installed costs. DOE used a discount factor based on real discount rates of 3 and 7 percent to

discount future costs and savings to present values.

For the NPV analysis, DOE calculates increases in total installed costs as the difference in total installed cost between the base case and standards case ( i.e. , once the standards take effect). Because the more

- effi cient products bought in the standards case usually cost more than products bought in the base case, cost increases appear as negative values in the NPV.

DOE expresses savings in operating costs as decreases associated with the lower energy consumption o f products bought in the standards case compared to the base case. Total savings in operating costs are the product of savings per unit and the number of units of each vintage that survive in a given year.

DOE used the most recent ly available edition of EIA’s Annual Energy Outlook ( AEO

2013 ) as the source of projections for future energy prices.

.2

- 26 DOE estimates the NPV of consumer benefits using both a 3

- percent and a 7

- percent real

discount rate. DOE uses these discount rates in accordance with guidance provided by the Office of Management and Budget (OMB) to Federal agencies on the development of regulatory analysis. (OMB Circular A

- 4 (Sept. 17, 2003), section E, “Identifying and Measuring Benefi ts and Costs”)2

- 27 REFERENCES

1. U.S. Department of Energy: Energy Information Administration, Residential Energy Consumption Survey: 2009 RECS Survey Data, 2013. (Last accessed March, 2013.)

< http://www.eia.gov/consumption/residential/data/2009/ >

2. U.S. Census Bureau: Housing and Household Economic Statistics Division, 2011 American Housing Survey, 2011. < http://www.census.gov/housing/ahs/ >

3. U. S. Department of Commerce

- Bureau of the Census, Characteristics of New Housing,

2013. U.S. Census. (Posted June 2, 2010) (Last accessed March 15, 2013.)

< http://www.census.gov/construction/chars/ >

4. Gas Appliance Manufacturers Association (GAMA), Updated Shipment Data for Residential Furnaces and Boilers, personal communication. April 25, 2001, 2005.

5. U.S. Department of Energy: Energy Information Administration, Commercial Buildings Energy Consumption Survey, 2003. (Last accessed September, 2013.)

< http://www.eia.doe.gov/emeu/cbecs/ >

6. Energy Informat ion Administration, Annual Energy Outlook 2013 with Projections to

2040 , 2013. Washington, DC. < http://www.eia.gov/forecasts/aeo/pdf/0383(2013).pdf >

7. S. Sorrell, J. D., and M. Sommerville , Empirical estimates of the direct rebound effect: a

review

. Energy Policy , 2009. 37: pp. 1356

– 71

8. RS Means Company Inc., RS Means Facilities Maintenance & Repair Cost Data . 2013. Kingston, MA.

9. Keman, R., M. v. Elburg, W. Li, and R. v. Holsteijn, Preparatory Study on Eco

- design of Boilers, Task 2 (Final) Market Analysis, September 30, 2007.

< http://www.ebpg.bam.de/de/ebpg_medien/001_studyf_07

- 11_part2.pdf >

10. Interagen cy Working Group on Social Cost of Carbon, Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866, Technical Model Update for the Social Cost of Carbon (SCC): Internal EPA Draft, February 13, 2013. United States

Government.

11. U.S. Office of Management and Budget (OMB), 2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal

Entities , 2006. Washington, DC.

< http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_c b_final_report.pdf >2

- 28 12. Roop, J. M., M. J. Scott, and R. W. Schultz, ImSET: Impact of Sector Energy Technologie s , 2005. Pacific Northwest National Laboratory. Richland, WA. Report No.

PNNL

- 15273.