9-i

CHAPTER 9. SHIPMENTS

TABLE OF CONTENTS

9.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1

9.2 REPLACEMENTS AND CONVERSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-2

9.2.1 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-3

9.2.2 Replacement and Conversion Estimates for 2000 . . . . . . . . . . . . . . . . . 9-4

9.3 SHIPMENTS TO NEW HOUSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-4

9.3.1 Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-5

9.3.2 New Housing Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-5

9.3.3 Heating Equipment Market Share in New Housing . . . . . . . . . . . . . . . 9-5

9.4 PROJECTED TOTAL SHIPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10

LIST OF TABLES

Table 9.2.1 Expected Equipment Lifetime (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-2

Table 9.2.2 Conversions to Natural Gas From Oil and Electric Heating . . . . . . . . . . . . . . . 9-3

Table 9.2.3 Replacement and Conversion Estimates for 2000 . . . . . . . . . . . . . . . . . . . . . . . 9-4

Table 9.3.1 Change in Energy and Equipment Price Indices and Gas Furnace 

Market Share in New Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-7

Table 9.3.2 Estimated Elasticity of Gas Furnace Market Share in New Housing in 

Response to Change in Fuel and Equipment Price Indices . . . . . . . . . . . . . . . . 9-8

Table 9.3.3 Shipments of Non-Weatherized and Weatherized Gas Furnaces to 

New Housing for Different Efficiency Levels . . . . . . . . . . . . . . . . . . . . . . . . . . 9-9

Table 9.3.4 Shipments of Mobile Home Gas Furnaces for Different Efficiency Levels . . . 9-9

Table 9.3.5 Projected Shipments to New Housing in Other Product Classes (million) . . . 9-10

Table 9.4.1 Total Shipments of Non-Weatherized Gas Furnaces for Different 

Efficiency Levels (million per year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10

Table 9.4.2 Total Shipments in Other Product Classes (million per year) . . . . . . . . . . . . . 9-11
9-1

CHAPTER 9: SHIPMENTS

9.1 INTRODUCTION

Estimates of future energy consumption of furnaces and boilers rely on an accurate

estimate of the future shipments of heating equipment for each product class. To provide such

estimates, the Department constructed a shipments forecasting model that accounts for

equipment shipped to new homes, equipment used to replace existing units, and equipment

installed during the process of converting to a different heating fuel. This chapter describes the

shipments model and presents the forecasts of future shipments in each product class.

Chapter 3: Market and Technology Assessment, shows past trends in shipments of each

product class. Shipments are increasing in general because the number of houses is increasing,

more equipment is reaching retirement age, and the saturation of central heating in new homes is

increasing. The short-term peaks and dips in shipments arise from variations in housing

construction.

Furnace and boiler shipments are in response to: (1) replacements of retired units with the

same type (“in-kind replacements”), (2) conversions at retirement to another fuel type, and (3)

installations in new homes. Almost all new construction has central heating equipment, and

nearly all equipment is replaced upon retirement. 

Shipmentsy class y class Conversions , ,, , y class y class = ++ ReplacementsIn - Kind NewHousing

where:

Shipmentsy,class = total shipment per product class,

ReplacementsIn = replacements of retired equipment with the same type equipment (“inkind replacements”)

Conversionsy,class = equipment conversions at retirement to another fuel type

NewHousingy,class = equipment installations in new homes.

The Department estimated the number of replacements based on past shipments and

expected retirement rates. Forecasting future replacements requires estimates of shipments to

new housing, since replacements 20–30 years from now will replace equipment shipped in the

next few years. Consumers most commonly replace equipment with equipment in the same

product class. Some fraction of households switch fuels, retiring an oil or electric unit and

replacing it with a gas system (conversion from natural gas to other fuels is rare). The

Department estimated future conversions based on historical data.

The Department estimated the total number of shipments to new housing based on

projections of new housing construction. Market shares of heating equipment in newly

constructed homes reflect a choice that is influenced by fuel costs and equipment prices. For
9-2

non-weatherized gas furnaces and mobile home furnaces, the Department modeled this choice

using equipment price and fuel price as independent variables.

The Department estimated annual shipments from 2003 through 2035, which is the end

year used in the current rulemaking.

9.2 REPLACEMENTS AND CONVERSIONS

Historical shipments influence the number of replacement units of each product class

entering the housing stock in each year. The replacements model estimates what fraction of the

historically shipped units are still in service, and how many will be replaced each year. The

replacement model uses estimates of how long each type of equipment is expected to operate

before it is replaced. Depending on the age (vintage) of a piece of heating equipment, there is a

certain probability of its being replaced. The model uses a replacement probability distribution

based on minimum, mean, and maximum expected equipment lifetimes (Table 9.2.1). For all

products except boilers, the lifetimes are from Appliance Magazine.

1

 For boilers, the lifetimes

are from a Gas Research Institute (GRI) report.2

Table 9.2.1 Expected Equipment Lifetime (years)

Gas

Furnace

Oil-Fired

Furnace

Gas Boiler Oil-Fired

Boiler

Heat

Pump

Electric

Furnace

Min 10 10 13 12 6 11

Mean 20 15 17 15 14 17

Max 30 20 22 19 21 23

Two basic assumptions influence the probability distribution. First, the Department

expects equipment to have a maximum probability of being replaced at the mean lifetime. 

Second, replacement probability goes to zero in the minimum and maximum lifetime years. 

Assuming a linear slope in probability produces a triangular distribution. 

Given the probability of replacement as a function of equipment vintage, the calculation

of expected replacements in any given year follows directly from past shipments. In a given

year, the number of replacements is equal to the portion of the previous year’s shipments

expected to retire, plus the number of shipments from other past years expected to retire. 

The above calculation yields total replacements in a given year. The majority are

replacements in kind—consumers replace existing equipment with equipment of the same

product class. 
9-3

9.2.1 Conversions

To estimate future conversions, DOE uses data from the annual house heating survey

conducted by the American Gas Association (AGA).3 On average, about 100,000 oil-heating

households and 75,000 electricity-heating households annually converted to natural gas in that

period. The number of conversions from gas to oil or electricity is negligible. 

The conversion rate is the fraction of oil or electric equipment retirements in which the

consumer decides to change to gas heating. In the 1990-1995 period, nearly a third of oilheating customers and more than a quarter of electric-heating customers decided to convert to

natural gas instead of replacing their old system with the same fuel type. 

Conversion from electric and oil heat to gas heating is driven primarily by consumers’

perception of operating cost advantages. Given that DOE expects gas heating to continue to

have advantages in this regard, it assumed that the conversion rates estimated from the AGA

data—33 percent for oil equipment (furnaces and boilers) and 26 percent for electric heating

equipment—will continue in the future. Changes in equipment cost of gas furnaces due to

possible standards are not likely to have a significant impact on the conversion rates. Since the

oil-fired furnace and boiler markets are mostly replacements, oil-to-gas conversions will have a

significant negative impact on shipments of these product classes in the future. 

Table 9.2.2 Conversions to Natural Gas From Oil and Electric Heating

Conversions to Natural

Gas from (Thousands):

Estimated Replacements

(Thousands):

Fraction of

Replacements

Oil Electricity Oil Electricity Oil Electricity

1990 118 57 360 256 32.8 22.3

1991 122 68 345 281 35.3 24.2

1992 125 96 324 289 38.6 33.2

1993 95 107 294 293 32.4 36.5

1994 73 58 254 289 28.7 20.1

1995 52 57 217 282 24.0 20.2

Total 585 443 1793 1690 32.6 26.2

Source: AGA House Heating Survey3
9-4

9.2.2 Replacement and Conversion Estimates for 2000

Using historical shipments data and the conversion rates mentioned above, DOE

estimated shipments for replacements and conversions in year 2000 (Table 9.2.3).

Table 9.2.3 Replacement and Conversion Estimates for 2000

Gas

Furnaces

Oil-Fired

Furnaces

Gas

Boilers

Oil-Fired

Boilers

Estimated Replacements (thousands) 1,452 160 179 103

Estimated Conversions (thousands) 132 -52 34 -34

Replacement plus Conversion (thousands) 1,584 108 213 69

Shipments (thousands) 3,100 121 212 162

9.3 SHIPMENTS TO NEW HOUSING

Approximately 95 percent of new housing units built today have central heating using a

furnace, boiler, or heat pump. A small and declining number of new housing units rely on other

forms of heating, such as wall units or space heaters. The Department assumed an annual

growth rate of the central heating market share (including furnaces, boilers, and heat pumps) of

0.47 percent, calculated from the trend in 1994-1999. The projected share of central heating

approaches 100 percent of new housing units by 2012.

Gas furnaces were installed in nearly 60 percent of homes built between 1995 and 1999,

according to the U.S. Census Bureau’s American Housing Survey.

4

 Electric central heating

systems (including heat pumps) accounted for about 30 percent of the systems installed. Oilfired furnaces and gas- or oil-fired boiler systems, combined, appeared in only about 5 percent of

new homes. 

The new housing market for furnaces is the component of the forecasted shipments DOE

expects to be most sensitive to economic factors, for two reasons. First, housing construction is

closely tied to economic growth—dips and peaks in historical shipments of heating equipment

tend to follow national economic trends. Second, DOE expects changes in equipment cost or

operating expense associated with a particular product class to affect relative market shares in

new construction much more significantly than in the replacement market. Market share data

(presented below) suggest that changes in first cost and operating cost have had an effect in the

past on the choice of installing either a gas furnace or an electric central heating system in a new

home.
a

 DOE believes that there would be little if any market shift away from gas for weatherized gas furnaces. There are very

few packaged units with electric resistance heating, and there is no data to suggest any trend change. Thus, it is unlikely

that their fraction would increase in connection with efficiency standards for weatherized gas furnaces.

b

 DOE used 1999 as the base year in order to avoid the fluctuation in natural gas prices in 2000-2001.

9-5

9.3.1 Approach

In the Department’s method, the number of annual shipments of each product class going

to new housing units is equal to housing completions for that year, multiplied by the market

share held by each product class. For non-weatherized gas furnaces and mobile home gas

furnaces, the shipments model takes into account possible market-shift effects from changes in

equipment prices related to efficiency standards.a

 The Department estimated future market

shares using historical relationships between gas and electricity prices, gas and electric heating

equipment prices, and gas furnace market shares, combined with estimated increases in installed

equipment cost associated with higher efficiency. For the other product classes, DOE assumed

that current market shares remain constant in the future.

9.3.2 New Housing Projections

New housing includes single- and multi-family units, referred to as “new housing

completions,” and mobile home placements. For new housing completions and mobile home

placements, DOE used actual data through 2001, and adopted the projections from EIA’s Annual

Energy Outlook 2002 (AEO2002) for the 2002–2020 period.5

 This forecast shows some increase

in housing completions to about 1.6 million by 2012, and to 1.7 million by 2020. The

Department assumed that completions grow at 0.5 percent per year (the projected average annual

growth rate in the 2000–2020 period) for the 2021-2035 period. For mobile homes, DOE

extrapolated the trend of constant placements flat growth in 2010–2020 out to 2035.

9.3.3 Heating Equipment Market Share in New Housing

The Department modeled market shifts between gas furnaces and electric central heating

in new housing. For a given heating load, gas furnaces are less expensive to operate than electric

heating equipment, and forecasts of fuel prices predict that this will continue to be the case. 

Therefore, the Department does not expect a large shift from gas to electric heating due to

increased costs of gas-fired equipment. 

The forecast of gas and electric market shares in new housing follows an econometric

approach. For the years 2000–2011, the model predicts changes in market share relative to 1999

produced by proportional changes in gas and electricity prices.b

 The 1999 shares are taken from

U.S. Census construction data.6

 For 2012 and after, the model predicts changes in market share

produced by shifts in equipment prices due to standards, as well as shifts in energy prices. 
9-6

To estimate the degree to which an increase in gas furnace equipment cost will induce a

shift in the market toward electric heating, the market share model uses historical trends in

national-average gas and electricity prices7 and heating equipment prices.8, 9 It also uses data on

the gas furnace market share in each group.10 These data indicate consumer/builder equipment

preference and its dependence on first cost and operating expense. 

In colder regions, electric heating is prohibitively expensive. In the Southern census

region and in mobile homes, however, operating cost is less of a factor relative to the first cost of

equipment. Purchasers of mobile housing often have lower incomes and therefore may be more

sensitive to first costs than other households. For these reasons, DOE independently estimated

market shifts for three groups: single-family and multi-family (SF+MF) homes in regions other

than the Southern census region, SF+MF homes within the Southern census region, and mobile

homes in all census regions. 

In new homes that are not mobile homes, heat pumps are the main competitor to gas

furnaces, and the increasing market share of heat pumps has been influenced by declining

equipment costs. The Department used retail price data on residential central air conditioners11, 12

as a proxy for retail heat pump prices. While the cost of gas furnaces has declined over the

years, the price of air-conditioning equipment has dropped more dramatically. 

The market share of gas furnaces in each group is given by:

MS MS

F

F

E

E y F

y

E

y

= ×+

⎛

⎝

⎜ ⎞

⎠

⎟ +

⎛

⎝

⎜ ⎞

⎠

⎟

⎡

⎣

⎢

⎢

⎤

⎦

⎥

⎥ 0

0 0

1 ε ε

∆ ∆

where:

MS0 = market share in the reference year, 

F = an index (ratio) of gas-to-electricity price, 

E = an index of gas-to-electric equipment price, and 

εF and εE = “elasticities” that measure the change in market share that occured in response to

changes in the gas-to-electric price ratio and the gas-to-electric installed

equipment price ratio. 

The terms )F/F0 and )E/E0 are percentage increases in prices in a given year relative to the

reference period, which is 1960–1969. Table 9.3.1 summarizes the data for the regions.
9-7

Table 9.3.1 Change in Energy and Equipment Price Indices and Gas Furnace Market

Share in New Housing

Year Change in

Gas/electric

Energy Price

Ratio, Relative to

1960-69 Average

Change in

Gas/electric

Equipment Price

Ratio, Relative to

1960-69 Average 

Gas Furnace Market Share

SF + MF -

Outside South

SF + MF -

South Only

Mobile Homes -

All Regions

1960-1969 91.4% 61.5% 59.7%

1970-1974 0.025 0.086 85.1% 47.2% 49.8%

1975-1978 0.129 0.123 74.0% 37.0% 36.7%

1979 0.388 0.087 74.2% 29.1% 35.7%

1980 0.432 0.089 74.4% 26.6% 35.6%

1981 0.419 0.195 73.1% 31.8% 23.0%

1982 0.548 0.262 76.2% 28.0% 34.5%

1983 0.749 0.305 74.3% 27.0% 27.7%

1984 0.655 0.323 67.1% 28.7% 30.5%

1985 0.590 0.354 71.1% 25.8% 27.4%

1986 0.492 0.389 75.9% 36.6% 56.0%

1987 0.428 0.378 74.6% 29.2% 44.7%

1988 0.400 0.378 78.4% 26.5% 75.0%

1989 0.398 0.371 80.3% 33.4% 33.6%

1990 0.369 0.450 80.7% 28.2% 36.7%

1991 0.336 0.466 76.4% 31.1% 36.8%

1992 0.334 0.545 79.5% 33.3% 56.7%

1993 0.389 0.574 78.6% 33.3% 70.9%

1994 0.412 0.585 83.0% 39.1% 24.6%

1995 0.312 0.551 81.2% 38.1% 83.4%

For each group, the data allow a statistical determination of the elasticities. The

elasticities are negative (see Table 9.3.2), since an increase in costs associated with gas furnaces

tends to lower their market share by a small amount. As expected, Southern households yield a

more negative response to change in the equipment price index than non-Southern households. 

In both cases, however, gas market shares are more affected by operating cost—i.e., the dramatic

increase in natural gas prices during the 1970s and 1980s.
9-8

Table 9.3.2 Estimated Elasticity of Gas Furnace Market Share in New Housing in

Response to Change in Fuel and Equipment Price Indices

South Region Regions Outside South Mobile Homes

Fuel Equipment Fuel Equipment Fuel Equipment

-0.83 -0.37 -0.38 -0.02 -0.95 -0.53

Given the historic relationship between gas furnace market share and change in the gasto-electric price, the Department expects gas furnace shares to fall slightly by 2012 due to an

increase in the ratio of natural gas to electricity price. The Department expects the relationship

between gas and electricity prices to be relatively stable in the period after implementation of the

standard. Therefore, the Department expects no market share shifts due to changes in these

prices.

The Department uses the above elasticities to estimate market share shifts due to

equipment price increases associated with higher efficiency. In the South, for example, an

efficiency level that raises the gas furnace installed cost by 10 percent causes a projected gas

furnace market share change, in relative terms, of 10 percent x -0.37 = -3.7 percent.

The Department based the estimate of future market share shifts on the equipment and

installation costs estimated in the engineering analysis (Chapter 6). The Department assumed

that all shipments will incur the equipment price increase after the date of the standards

implementation, but that prices will not further rise or decline over time in real terms. 

The model estimates the combined market share of non-weatherized and weatherized gas

furnaces in new housing completions in the South and non-South regions based on the historical

parameters and their projected values. The Department estimated the shipments of nonweatherized gas furnaces alone by applying their estimated current share (88 percent) of the

combined shipments. Table 9.3.3 shows that the higher equipment prices associated with higher

efficiency have very little effect on the share of gas furnaces in total new housing completions at

81 percent AFUE, but have more effect at 90 percent and 92 percent AFUE.
9-9

Table 9.3.3 Shipments of Non-Weatherized and Weatherized Gas Furnaces to New

Housing for Different Efficiency Levels

Year Total Completions

(million)

Gas Furnace Share

(%)

Gas Furnace

Shipments (million)

2010 1.62 54.6 0.88

2020 1.72

Base 54.9 0.94

80% 54.9 0.94

81% 54.7 0.94

90% 54.4 0.92

92% 53.0 0.91

For mobile home gas furnaces, DOE used an approach similar to that used for nonweatherized gas furnaces. In this case, however, the impact of higher equipment cost associated

with higher efficiency is greater than the effect on non-weatherized gas furnaces (Table 9.3.4). 

The reason is that the estimated equipment price elasticity is higher (see Table 9.3.2).

Table 9.3.4 Shipments of Mobile Home Gas Furnaces for Different Efficiency Levels

Year Total Placements

(million)

Gas Furnace

Share (%)

Gas Shipments

(million)

2010 0.300 28.5 0.086

2020 0.280

Base 28.6 0.080

80% 28.3 0.079

81% 27.9 0.078

82% 27.3 0.076

90% 17.6 0.049
9-10

The Department estimated the future market shares of oil-fired furnaces and gas and oilfired boilers in total new housing completions based on the average shares in homes built in

1997–1999 (Table 9.3.5). For new homes using oil equipment, gas is generally not available, so

the Department assumed that the market shares are independent of changes in equipment price

due to standards implementation. Gas boilers in new homes are associated with specific types of

heating systems, such as hydronic radiators or radiant floors, and substitution of alternative

equipment is unlikely.

Table 9.3.5 Projected Shipments to New Housing in Other Product Classes (million)

Product Class Market Share (% of new housing) 2020 2030

Oil-fired furnaces 0.7 0.012 0.013

Gas boilers 2.5 0.044 0.046

Oil-fired boilers 1.8 0.031 0.032

9.4 PROJECTED TOTAL SHIPMENTS

The Department calculated total shipments in each class by adding new housing

shipments in each year to replacements-in-kind and conversions. Table 9.4.1 shows the

projections for non-weatherized gas furnaces for the base case and higher-efficiency cases. 

Since shipments to new housing comprise only around a quarter of total future shipments, the

impact of increased equipment costs due to higher efficiency on total shipments is small. Table

9.4.2 shows the projections for the other product classes.

Table 9.4.1 Total Shipments of Non-Weatherized Gas Furnaces for Different Efficiency

Levels (million per year)

Year New Housing Replacements-in-kind Conversions to Gas Total

2010 0.78 1.72 0.14 2.64

2020

Base

Case

0.83 2.30 0.16 3.28

80% 0.83 2.30 0.16 3.28

81%* 0.83 2.30 0.16 3.28

90% 0.80 2.30 0.16 3.26

92% 0.76 2.30 0.16 3.21

* The values refer to single-stage furnaces.
9-11

Table 9.4.2 Total Shipments in Other Product Classes (million per year)

Product Class 2012 2020 2030

Weatherized gas furnaces 0.369 0.429 0.469

Mobile home gas furnaces

Base Case Forecast 0.082 0.080 0.075

81% 0.080 0.078 0.073

Oil-fired furnaces 0.102 0.093 0.079

Gas boilers 0.290 0.345 0.380

Oil-fired boilers 0.135 0.113 0.118
9-12

REFERENCES

1. The Life Expectancy/Replacement Picture. Appliance Magazine, 2001. 58(9). 

2. Gas Research Institute, Replacement Market for Residential Energy Service Equipment,

1990, Gas Research Institute. Report No. Report Phase A-Residential. 

3. American Gas Association, Gas Housheating Survey: 1990-1995, 1990-1995, American Gas

Association. Arlington, VA. 

4. U.S. Department of Commerce-Bureau of the Census, American Housing Survey, 1999.

<http://www.census.gov/hhes/www/ahs.html>

5. U.S. Department of Energy - Energy Information Administration, Annual Energy Outlook

2002: With Projections Through 2020, December, 2001. Washington, DC. Report No.

DOE/EIA-0383(2002). <http://www.eia.doe.gov/oiaf/aeo>

6. U. S. Department of Commerce - Bureau of the Census, Characteristics of New HousingC25, 2001. U.S. Census. <http://www.census.gov/prod/1/constr/c25/>

7. U.S. Department of Labor-Bureau of Labor Statistics, Producer Price Index, 2002. (Last

accessed June 1, 2002). <ftp://ftp.bls.gov/pub/time.series/wp/wp,data.11b.Metals104-109>

8. U.S. Department of Labor-Bureau of Labor Statistics, Consumer Price Index, 2002. (Last

accessed June 1, 2002). <ftp://ftp.bls.gov/pub/time.series/wp/wp,data.11b.Metals104-109>

9. Newell, R. G., Environmental Policy and Technological Change: The Effects of Economic

Incentives and Direct Regulation on Energy-Saving Innovation, 1997, Harvard University.

Cambridge, MA. 

10. U.S. Department of Commerce-Bureau of the Census, American Housing Survey, 1995.

<http://www.census.gov/hhes/www/ahs.html>

11. Newell, R. G., Environmental Policy and Technology Change: The Effects of Economic

Incentives and Direct Regulation on Energy-Saving Innovation, May, 1997, Harvard

University. PhD Dissertation.

12. Newell, R. G., Jaffe, A., and Stavins, Robert N., The Induced Innovation Hypothesis and

Energy Savings Technological Change. Quarterly Journal of Economics, 1999. 114(458).