^£-Rth/S TD

- qS `-y /V

m



### Central Air Conditioning For Presentation at the Arthur D. Little, Inc. Public Workshop 12/9/99 955 L'Enfant Plaza, S.W. 

## Rulemaking Suite 8600 Washington, DC 

## EngineeringAnalysis 2W0 24-2119 U.S.A. Internet: www.arthurdlittle.com 

## 0l , .. ...... E£-Rtk/S7D
- ql(-ifL/l>



### Central Air Conditioning Rulemaking 

### EngineeringAnalysis For Presentation atthe Public Workshop 12/9/99 

# 1'-/

# >1££

Arthur D. Little, Inc. 955 L'Enfant Plaza, S.W. Suite 8600 Washington, DC 20024-2119 U.S.A. Internet: www.arthurdlittle.comEE-RM/STD-98-440 /

### YE Engineering Analysis Introduction 

## The Engineering Analysisexplores the impact ofa new efficiencystandard on equipment cost, design, and availability. The Engineering Analysis asks
... * How will equipment cost and price change with efficiency? * What is thetechnological limit on efficiency level? * What technologies will be available to improve efficiency or reduce the cost of achieving higher efficiency? * Are there any products with unique utility that could be impacted by anew standard? * Are there any other technical considerations that could affect whether a standard level is "technologically feasible and economicallyjustified".

WAS CAC EngAnalysis ANOPR wkshp 1 , .. . ....... EE-RM/STO-9S-440 lyEE Engineering Analysis Introduction 

### The Engineering Analysis explores the impact ofa newefficiency standard on equipmentcost, design, and availability.
The EngineeringAnalysis asks
. .. • Howwill equipment cost and price change with efficiency? • What is the technological limit on efficiency level? • What technologies will be available to improve efficiency or reduce the cost of achieving higher efficiency? • Are there any products with unique utility that could be impacted by a new standard? • Are there any othertechnical considerations that could affect whether a standard level is "technologically feasible and economicallyjustified".

WAS CAC EngAnalysis ANOPR wkshp 1EE-RM/STD-98-440 Engineering Analysis Reverse Engineering Introduction 

## We used Reverse Engineeringtechniques to estimate the relationship between manufacturing costand efficiency under potential new standards. Whydid the Department selectthis method? * Results give the costfor each efficiency level (Efficiency Level approach), and also provide design detail. * There is an ample selection of equipment on the market at efficiency levels well above the current standard level (10 SEER). * Designs are fairly uniform across manufacturers. * Residential central air conditioners and heat pumps have a manageable set of components that impact efficiency.

WAS CAC EngAnalysis ANOPR wkshp 2 ... :" . EE-RM/STD-98-440 Ic.fCC Engineering Analysis Reverse Engineering Introduction 

### We used Reverse Engineeringtechniques to estimate the relationship between manufacturing cost and efficiency under potential newstandards. Why did the Departmentse/ec(this method? 

### • Results give the costfor each efficiency level (Efficiency Level approach), and also provide design detail. • There is an ample selection ofequipment on the market at efficiency levels well above the current standard level (10 SEER). • Designs are fairly uniform across manufacturers. • Residential central airconditioners and heat pumps have a manageable set of components that impact efficiency.

WAS CAC EngAnalysis ANOPR wkshp 2EE-RM/STD-98-440 qEE Engineering Analysis Reverse Engineering Relation to Uncertainty 

## Reverse Engineering begins where uncertainty is lowest (today's equipment) and moves to equipment where costs are more uncertain. Costtoday (lowest

. uncertainty) s Cost under new standard level (if 

## l"lustrationOnly effective 

### today) (higheruncertainty) o · Fewer features



### )a
· Cost-optimized, high 'r~L ~., volume production -3doi~pl T L~tB~IIII~ · Conversion costs
cg~p- _~~lO Cost undera new standardlevel (if effective in 2006) (highestuncertainty; required forrulemaking) * New technologies * Increased productivity * New material and labor costs Efficiency

WAS CAC EngAnalysis ANOPRwkshp 3 

# -**~** 

### o C) c: EE-RM/STD-98-440 Engineering Analysis Reverse Engineering Relation to Uncertainty 

### Reverse Engineering begins where uncertainty is lowest (today's equipment) and movesto equipmentwhere costs are more uncertain.



## "Iu-t.._·:o- 0-'" II ." 

### a"" '"Y , Costtoday (lowest

# ~-~ " uncertainty)

Efficiency Cost under new standard level (if effective today) (higher uncertainty)
• Fewerfeatures • Cost-optimized, high volume production • Conversion costs Cost undera new

### ~ standard level (if effective in 2006)**(highes~** uncerlaonffy; required forrulemakirng) • Newtechnologies • Increased productivity • New material and laborcosts

WAS CAC EngAnalysis ANOPR wkshp 3EE-RM/STD-98-440 q Engineering Analysis Reverse Engineering Costs Considered 

## We consider all the costs of producingthe productwhen developing the cost-efficiency relationship.
Reverse Direct Direct Overhead Engineering Labor Material
DOE estimates Tooling R&D Investment Marketing Representative cost Top-down industry breakdown for nonbaseline equipment Selling eneral & R anaysis Admin.

Full Cost 

### of Product (dollars)
WAS CAC EngAnalysis ANOPR wkshp 4 EE-RM/STD-98-440 Engineering Analysis Reverse Engineering Costs Considered 

### We consider all the costs of producing the product when developing the cost-efficiency relationship.

Representative cost breakdown for nonbaseline equipment Full Production Cost L..-0_ire_c_t----l '---_o_ire_c_t----l

# IOvemead 

# I

_ Labor .. Material

----.- - --- - -_._-------- ---**~==_~_=__~~onversio~ eost-("01'!!-~!"~**  

### ___ - _ 

# ITooling 

# II R&D 

# I Investment 

# IMarketing 

# I**,_\~©[jij**0,:**:O:li7@G]li:)~!1j@[7i! (~:Q@il**  

# I Selling 

# I 

# c::JIInterest 

# I General &

Admin.

Full Cost of Product (dollars) Reverse Engineering I
DOEestimates
Top-down industry analysis

WAS CAC EngAnalysis ANOPR wkshp 4EE-RM/STD-98440 1 EE Engineering Analysis Reverse Engineering Approach 

## The Reverse Engineering approach used data from actual 3-ton equipment... 

## Reverse Engineering Approach
Collect data from Collect data from continued .Tear down 3 samples EMs on 62 samples product literature on OEMs on 62 samples 6 samples 6 * Disassemble and identifyall OEM's selected representative Used to fill-in sample-set

parts equipment ateach efficiency * Deduce the fabrication and level andprovidedmodel

assembly processes used numbers andphysical data for keyefficiency-related attributes Equipment torn down: andparts, including: * 10 SEER split airconditioner

with fancoil * size * 10 SEER packaged heat pump * weight * 12 SEER split heat pump * compressor type

condenser * tube and fin type, size, and 

### spacing * controls * motortype * fan type, no. ofblades, and

diameter

WAS CAC EngAnalysis ANOPR wkshp 5 EE_RM/STO-98-440 Engineering Analysis Reverse Engineering Approach

_....... _.. • - - _I _I ... II1II
.... II1II



### I ne KeVerSe t:nglneenng approacn usea aata Trom actual**~-ton** 

### equipment ...

_

Tear down 3 samples

• Disassemble andidentifyall

parts • Deduce the fabrication and

assemblyprocesses used Equipment torn down: • 10 SEER split air conditioner

with fancoil • 10 SEER packaged heat pump • 12 SEER split heat pump

condenser 

## Reverse Engineering Approach
Collect data from OEMs on 62 samples
OEM's selectedrepresentative equipmentateach efficiency level andprovidedmodel numbers andphysical data for key efficiency-relatedattributes andparts, including:

• size • weight • compressortype • tube andfin type, size, and

spacing • controls • motortype • fan type, no. ofblades, and

diameter Collect data from continued product literature on 6 samples Used to fill-in sample-set

WAS CAC EngAnalysis ANOPR wkshp 5EE-RM/STD-98-440 / E Engineering Analysis Reverse Engineering Approach (continued)



## ... to estimate the costs ofthe same equipment under new efficiency standards. 

## Reverse Engineering Approach (continued)
Collect material, Detailedproductioncosts 

### continued Develop production aoera (in$ for71 samples in models costs four product classes, 10 SEER through 17SEER * Modeled fourgreenfield * Obtained the costs ofevery

facilities -- one foreach costelement in theproduction productclass model (plantoverhead and * Facilities consistedofactual labor) andequipment samples

production equipment used (parts andmaterials) in a modern facility * Sources includedquotations, * Production processes estimates, andtop-down

basedon information reports deducedduring the tear * Used multiple sources when downs andplant visits possible * Costs assume fullproduction

volume * Costs are present-day

WAS CAC EngAnalysis ANOPR wkshp " , EE-RM/STD-98-440 /'1 E£ Engineering Analysis Reverse Engineering Approach (continued)

. ... .... oil....
..... ... • III. ..... •



### .. . to estimate tne COStS OT tne same equipment unaer newenlclency standards. 

## Reverse Engineering Approach (continued)

continued Develop production models

• Modeledfourgreenfield

facilities -- one foreach productclass • Facilities consistedofactual

production equipment used in 

### a modern facility • Production processes

basedon information deducedduring the tear downs andplant visits Collect material, labor, and overhead costs

• Obtained the costs ofevery

cost elementin the production model (plant overheadand labor) andequipmentsamples (parts andmaterials) • Sources includedquotations,

estimates, and top-down reports • Usedmultiple sources when

possible • Costs assume fullproduction volume
o Costs are present-day Detailedproduction costs (in $) for71 samples in fourproductclasses, 10**SEER~rough17SEER**

WAS CAC EngAnalysis ANOPR wkshp 6EE-RM/STD-98-440 I cE E Engineering Analysis Reverse Engineering Production Cost Results 

### The results are detailed production cost estimates for each equipment sample, aggregated across eight efficiency levels and four product classes. Reverse Engineering Results (7/11/99) -- Unitary 3-ton $1,300 $1,200 Split Air Conditioner: $1,100 -- -- Cased coil § $1,000 -A

- -- Fancoil O $900 o $900 - .. ^ Split Heat Pump ' $800 "__/ 

### -4e- Packaged Air Conditioner $700 --- 2 ~$ -- Packaged Heat Pump

. $600
. $500 $400 $300 - l l. 9 10 11 12 13 14 15 16 17 18 Efficiency Level (SEER) 

### Cost results by subassembly are available in the TSD and on the BTS website.
WAS CAC EngAnalysis ANOPR wkshp 7 • I EE_RM/STD-98-440 IL/E. E: Engineering Analysis Reverse Engineering Production Cost Results 

### The results are detailed production cost estimatesfor each equipment. sample, aggregated across eightefficiency levels and four product classes.

$1,300 $1,200 $1,100



# - $1,000 U) 0 () $900 c 0 $800 ;u :::s $700 

# " 0**~** 0.. $600 $500 $400 $300 Reverse Engineering Results (7/11/99) -- Unitary3-ton



# ..
..**~**:7

".." ,,/ 

# ?*,,/**~/** )K 

# / 

# • /

## ~**~**

## ~ 

# ...- 9 10 11 12 13 14 15 16 17 18 Efficiency Level (SEER) Split Air Conditioner: 

### -+- -- Cased coil

-.- -- Fancoil Split Heat Pump

--- Packaged Air Conditioner**~** Packaged Heat Pump



### Cost results by subassembly are available in the TSD and on the BTS website.
WAS CAC EngAnalysis ANOPR wkshp 7EE-RM/STD-98-440 l(E Engineering Analysis Markups Introduction 

## We used the Markupapproach to estimate the relationship between manufacturing costand the retail price paid by consumers. Why did we selectthis method? * There is no national, equipment-only retail price information available for residential central air conditioners. * Contractors rarely break out equipment prices from the rest ofthe installation price. * Equipment prices varyas afunction of brand, location, weather, and level of local competition.

WAS CAC EngAnalysis ANOPR wkshp 8 ) EE-RM/STD-98-440 (tf.ETC Engineering Analysis Markups Introduction 

### We used the 

### Markup approach to estimate the relationship between manufacturing cost and the retail price paid by consumers. Why did we select this pethod? -' • There is no national,

## ~quipment-only retail price information availablefor residential central air conditioners. • Contractors rarely break out equipment prices from the rest ofthe installation price. • Equipment prices vary as a function of brand, location, weather, and level of local competition.

WAS CAC EngAnalysis ANOPR wkshp 8EE-RM/STD-98-440 l E z Engineering Analysis Markups Approach and Results 

## In the Markup approach, retail price is derived from production cost by applying a series of markups along the distributionchain. Production Cost Source Markup Data Used Data Source 5 year average gross margin ('93- Manufacturer SEC 1-K Manufacturer 1.18 '97), less EBT, plus assumed 1percent profit margin filings (1993-1998) Median gross margin for ARW's 1998 Profit 0.) Distributor 1.37 wholesalers selling HVAC O |____| equipment Re



### . Combined gross margins from .a ontraor i*^ Residential/Light Commercial Q



# ;Contractor 1.55 Analysis forthe HVACR dealers engaging in retrofit (66%) Industry (1995) o and new (34%) installationsndustry (15) Federal Trade Sales Tax 107 State sales tax rates weighted by Administration (1998); unitary shipments in each state Sales Tax Institute (1999) Retail Price Total 2.68 Same markup appliedto all four product classes * Markup does not vary with efficiency standard level * Triangular distributions defined for each markup except Distributor (point value) WAS CAC EngAnalysis ANOPR wkshp 9 EE-RM/STD-98-440 It}**E~** EngineeringAnalysis Markups Approach andResults 

### In the Markup approach, retail price is derived from production cost by applying a series of markups along the distribution chain. Production Cost

c 

## .- ftS .c 

## o c 

### o +=i**~** 

### .a 'i: 

# ...

.!! 

### c

Retail Price Source Manufacturer

Distributor
Contractor
Sales Tax
Total Markup ,f 1.18

1.37
1.55
1.07
2.68 

### Unitary Equipment Markups Data Used Data Source

, 5 year average gross margin ('93- Manufacturer SEC 10-K '97), less EBT, plus assumed filings (1993-1998)

1 percent profit margin Median gross margin for ARW's 1998 Profit wholesalers selling HVAC Report equipment Combined gross margins from ACCA's Financial Residential/Light Commercial Analysis forthe HVACR dealers engaging in retrofit (66%) and new (340/0) installations Industry(1995) Federal Trade State sales tax rates weighted by Administration (1998); unitary shipments in each state Sales Tax Institute (1999)
• Same markup applied to all four product classes • Markup does not vary with efficiency standard level • Triangular distributions defined for each markup except Distributor (point value) WAS CAC EngAnalysis ANOPR wkshp 9EE-RM/STD-98-440 Engineering Analysis SEER-EER Relationship 

## We examined how compressor and fan modulation correspond to the relationship between SEER and EER in over 3,000 unitary systems.

14 

## - : Single Speed Compre 

## 13 Indoor fan Outdoor fa.n

^^^ Modulating Compressor speeds speeds '~: _: .

Minimum EER Available = 8.65 (includesdual compressors 

### tl~ 1 1-Models

-- --------- - -- ------ - ------------ ,-- 

### 10 11 12 13 14 15 16 17 18 19

L SEER not //(

_

Source: ARI Unitary Directory, Feb-Jul 1998 

### SEER WAS CAC EngAnalysis ANOPR wkshp 10 ILf8£ EE-RM/STD-98-440 Engineering Analysis SEER-EER Relationship 

### We examined howcompressor and fan modulation correspond tothe relationship between SEER and EER in over 3,000 unitary systems.



## 14

- -- ....... _..__ ...- -_.... "._--.--._+-

-- --...-------

.Single Speed 

## 13 Indoorfan Outdooffan 

## 12 D! 

## 11 

# w w speeds speeds

Models below 12 SEER not ,',



### 10 examined



## 9 Minimum EER Available =8.65 ,-.

Modulating Compressor (includes dualcompressors)



# ---------------------------------- 8 10 11 

## 12 

## 13 Source: ARI Unitary Directory, Feb-Ju11998 

## 14 SEER 

## 15 16 

## 17 18 19

WAS CAC EngAnalysis ANOPR wkshp 1 0EE-RM/STD-98- 44 0 Engineering Analysis SEER-HSPF Relationship 

## Suggested SEER-HSPF pairings for each standard level are based on the pairings in available heat pumps. 10 Each bandrepresents 20percent ofavailable models 9.5 - 10Q ARI "most likely"combination

6.5 9 80%

6 - I I I 10 11 12 13 SEER 14 15 16 17 Source: ARI UnitaryDirectory, Feb-Jul 1998 WAS CAC EngAnalysis ANOPR wkshp 11 14EE EE_RM/STO-9S-440 Engineering Analysis SEER-HSPF Relationship**~** 

### Suggested SEER-HSPF 

### pairings for each standard level are based on-the pairings in available heat pumps. 10**~--------------------------------------------------------** Each bandrepresents 20percentofavailable models 9.5**+-----------------------------~~~----------------------** ARI "mostlikely"combination
. 9**+-----------------------~** 8.5 -I-------------;r"

7 6.5**r-------------------------------------------------------~** 6**T-------~------~------~------~------~--------._----~** 10 11 12 13 SEER 14 15 16 17 Source: ARI Unitary Directory, Feb-Jul 1998 WAS CAC EngAnalysis ANOPR wkshp 11EE-RM/STD-98-440 q EE 

### Engineering Analysis Potential Efficiency Improvements 

## By 2006, we estimate that residential air conditioners could attain efficiencies as high as 20 SEER. Carnot Efficiency (123 EER) 'er~O 

## 20 SEER * Efficiency limit with dehumidification Pote (41 EER) 

### IProt I 

### T ati 

### al Irreversibilitiesand eI 

### ent Today's Best parasitics (30 EER) (18 SEER, Losses due to residential 14.5 EER) operating constraints (16 EER, 20 SEER) * Compressor, coil, and fan improvements (16 EER, 20 SEER) 

## The costof a20 SEER system is unknown, butwould be atleast18 percent more costlythan the 17 SEER system (20/17 = 1.18).

WAS CAC EngAnalysis ANOPR wkshp 12 EE_RM/STO-98-440 ,l/EE Engineering Analysis Potential Efficiency Improvements 

### By 2006, we estimate that residential airconditioners could attain efficiencies as high as 20 SEER.
Carnot Efficiency (123 EER)

• Efficiency limitwith dehumidification (41 EER) \

• Irreversibilitiesand parasitics (30 EER) 

## 20 SEER

• Losses dueto residential operating constraints (16 EER, 20 SEER) 

### loday's Best (18 SEER,

14.5 EER)

• Compressor, coil, and fan improvements (16 EER, 20 SEER) 

### The cost ofa 20 SEER system is unknown, butwould be atleast 

### 18 percent more costlythan the 17 SEER 

### system (20/17 

## = 1.18).

WAS CAC EngAnalysis ANOPR wkshp 12EE.-R/STD-98440 r" Engineering Analysis Emerging Technologies Approach 

## We used the results ofthe Reverse Engineering analysis and additional manufacturer design and cost information to estimate the cost of systems utilizingemerging technologies. * Advanced compressors * Advanced fan motors * Microchannel heat * Advanced compressor 

### exchangers motors Substitute 

### Conventional System components and costs 

### Advanced System Cost Cost based on manufacturer projections and tests (from Reverse Engineering estimates) * Costimprovements due to technologicaladvance and scale economies * Changes in the cost of

othercomponents * Elimination oraddition of

othercomponents

WAS CAC EngAnalysis ANOPR wkshp 13 EE_RM/STD-98-440 Engineering Analysis Emerging Technologies Approach 

### We used the results ofthe Reverse Engineering analysis and additional manufacturerdesign and cost information to estimate the cost of systems utilizing emerging technologies.
• Advanced compressors • Advanced fan motors • Microchannel heat exchangers 

### Conventional System Cost (from Reverse Engineering estimates) 

### • Advanced compressor motors· Substitute components and costs based on manufacturer projections and tests

• Costimprovements due to

technologicaladvance and scale economies • Changes in the costof

othercomponents • Elimination oraddition of

othercomponents 

### Advanced System Cost

WAS CAe EngAnalysis ANOPR wkshp 13EE-RM/STD-98-440 I EE Engineering Analysis Emerging Technologies Results 

## The preliminary assessment suggests that emerging technologies can lower system cost beginning at the 12 SEER level.

wilsdu* A * * * i VS Compressor Advanced Microchannel Advanced Fan Motors Compressors HX Motors Combined Impact on Certainty of Commercial Viability by 2006 System Cost 10% 50% 20% 90% 10 + + + + + 11 + + + + + tt 12 + -1% + + -1% 13 + -4% -0% -3% -7% 14 + -10% -0% -6% -15%

. 15 + -12% + -5% -16% LU 16 -2% -7% -0% -4% -11% 17 -2% -5% + -4% -9%

WAS CAC EngAnalysis ANOPRwkshp 14 EE-RM/STO-9S-440 

### 14EE Engineering Analysis Emerging Technologies Results 

### The preliminary assessment suggests that emerging technologies can lowersystem cost beginning atthe 12 SEER level. Likely Impact of Emerging Technologies on the Production Cost of3-ton Unitary Split Air Conditioners by 2007

- VS Gompressor Advanced Microchannel Advanced Fan Motors Compressors 

### HX Motors Combined Impact on CertaintyofCommercial Viability by 2006 System Cost 10% 50% 20% 90% 10 + + + + + 11 + + + + + 

# - 0::: w 12 + -1% + + -1% w f/) 

# - Gi 13 + -4% -0% -3% -7% > CI) ..J >- 14 + -10% -0% -6% -15% u c CI) 

### 'u 15 + -12% + -5% -16% IE w 16 -2% -7% -0% -4% -11% 17 -2% -5% + -4% -9%

WAS CAC EngAnalysls ANOPR wkshp 14EE-RM/STD-98-440 Engineering Analysis Niche Products 

## There are at least four niche products that appear to face especially difficult constraintswhen moving to higher efficiency levels. * Ductless split * High-velocity, small duct * Vertical packaged, wall-mounted * Split, through-the-wall condenser Is this assessment correct? Shouldsome products be excluded orothers included? Whatphysicaldefinitions can the Department use to identify these products? At what efficiencylevels do these products cease to be viable as unique products? 

## These products may require separate classification ifthe Department determines that they possess unique utilityand may not be competitive at the standard levels that would be warranted forother products.

WAS CAC EngAnalysis ANOPR wkshp 15 • 

## . . .

. 

### . Engineering Analysis Niche Products 11.(£13 EE_RM/STO-9S-440


### There are at leastfour niche products that appeartoface especially difficult. constraints when moving to higherefficiency levels.

• Ductless**s~lit** 

### • High-velocrty, small duct • Vertical packaged, wall-mounted • Split, through-the-wall condenser .) )



### Is this assessmentcorrect? Shouldsome products be excludedorothers included? Whatphysicaldefinitions can the Department use to identify these products? At what efficiencylevels do these products cease to be viable 

### as unique products?


### These products may require separate classification ifthe Department determines thatthey possess unique utility and may not be competitive at the standard levels thatwould be warranted for other products.

WAS CAC EngAnalysis ANOPR wkshp 15EE-RM/STD-98-4401 q EC Engineering Analysis Next Steps 

## The Engineering Analysis is essentially complete, although the Department seeks comments regarding its methods and assumptions. * Comments should be submitted to the Department during the comment period following this workshop * The Department will review the comments and assess their implications on the Engineering Analysis conclusions. * Ifsignificant changes are warranted based on comments received during the comment period, the Department will adjust the Engineering Analysis and use it as the basisfor the remainder ofthe rulemaking.

WAS CAC EngAnalysis ANOPR wkshp 16 • c'''' ..... .... EE-RM/STD-98-440,LJ E£ Engineering Analysis Next Steps 

### The Engineering Analysis is essentially complete, although the Department seeks comments regarding its methods and assumptions.

• Comments should be submitted to the Department during the comment period following this workshop • The Departmentwill review the comments and assess their implications on the Engineering Analysis conclusions. • Ifsignificant changes are warranted based on comments received during the comment period, the Department will adjust the Engineering Analysis and use it as the basis for the remainder ofthe rulemaking.

WAS CAe EngAnalysis ANOPR wkshp 16