CHAPTER 10: NATIONAL IMPACT ANALYSIS

TABLE OF CONTENTS

10.1 INTRODUCTION

......................................................................................................... 10-1

10.2 TRIAL STANDARD LEVELS

..................................................................................... 10-1

10.3 FORECASTED ENERGY EFFICIENCIES

................................................................. 10-5

10.3.1 Water Heaters

................................................................................................................. 10-6

10.3.2 Direct Heating Equipment

............................................................................................. 10-7

10.3.3 Pool Heaters

................................................................................................................... 10-9

10.4 NATIONAL ENERGY SAVINGS

............................................................................. 10-10

10.4.1 Definition of National Energy Savings

........................................................................ 10-10

10.4.2 Inputs to National Energy Savings

.............................................................................. 10-11

10.4.2.1 Annual Energy Consumption per Unit

...................................................... 10-11

10.4.2.2 Shipments and Equipment Stock

............................................................... 10-15

10.4.2.3 National Annual Energy Consumption

...................................................... 10-16

10.4.2.4 Site-to-Source Energy Conversion Factors

................................................ 10-16

10.5 CONSUMER NET PRESENT VALUE

...................................................................... 10-17

10.5.1 Definition of Net Present Value

................................................................................... 10-17

10.5.2 Inputs to Calculation of Net Present Value

.................................................................. 10-18

10.5.2.1 Total Installed Cost per Unit

...................................................................... 10-19

10.5.2.2 Annual Operating Cost Savings per Unit

................................................... 10-20

10.5.2.3 Total Increases in Annual Installed Cost

................................................... 10-20

10.5.2.4 Total Savings in Annual Operating Cost

................................................... 10-21

10.5.2.5 Discount Factor

.......................................................................................... 10-21

10.5.2.6 Present Value of Costs

............................................................................... 10-22

10.5.2.7 Present Value of Savings

........................................................................... 10-22

10.6 RESULTS

.................................................................................................................... 10-22

10.6.2 National Energy Savings Results

................................................................................. 10-23

10.6.2.1 Water Heaters

............................................................................................. 10-23

10.6.2.2 Direct Heating Equipment

......................................................................... 10-24

10.6.2.3 Pool Heaters

............................................................................................... 10-25

10.6.3 Annual Costs and Savings

........................................................................................... 10-25

10.6.4 Consumer Net Present Value Results

.......................................................................... 10-26

10.6.4.1 Water Heaters

............................................................................................. 10-27

10.6.4.2 Direct Heating Equipment

......................................................................... 10-28

10.6.4.3 Pool Heaters

............................................................................................... 10-28

10.7 IMPACT OF STANDARDS ON NATURAL GAS PRICES AND

ASSOCIATED NATIONAL BENEFITS

................................................................... 10-29

10.7.2 Impact on Natural Gas Prices

...................................................................................... 10-30

10.7.3 Impact of Changes in Natural Gas Price on Gas Users

............................................... 10-32

10.7.4 Components of the Benefit

.......................................................................................... 10-33

10-iLIST OF TABLES

Table 10.2.1 Trial Standard Levels for Residential Water Heaters (Energy Factor)

.............. 10-2 Table 10.2.2 Trial Standard Levels for Direct Heating Equipment*

...................................... 10-4

Table 10.2.3 Trial Standard Levels for Pool Heaters*

............................................................ 10-4

Table 10.3.1 Gas-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015

.... 10-6 Table 10.3.2 Electric Storage Water Heaters: Energy Efficiency Distributions in 2015

........ 10-6 Table 10.3.3 Oil-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015

..... 10-7 Table 10.3.4 Gas-Fired Instantaneous Water Heaters: Energy Efficiency Distributions

in 2015

............................................................................................................... 10-7 Table 10.3.5 Gas Wall Fan Direct Heating Equipment: Energy Efficiency Distributions

in 2013

............................................................................................................... 10-8 Table 10.3.6 Gas Wall Gravity Direct Heating Equipment: Energy Efficiency

Distributions in 2013

.......................................................................................... 10-8 Table 10.3.7 Gas Floor Direct Heating Equipment: Energy Efficiency Distributions in

2013

.................................................................................................................... 10-8 Table 10.3.8 Gas Room Direct Heating Equipment: Energy Efficiency Distributions in

2013

.................................................................................................................... 10-9 Table 10.3.9 Gas Hearth Direct Heating Equipment: Energy Efficiency Distributions in

2013

.................................................................................................................... 10-9 Table 10.3.10 Pool Heaters: Energy Efficiency Distributions in 2013

................................... 10-10 Table 10.4.1 Water Heaters: Shipments-Weighted Average Annual Energy Consumption in 2015

....................................................................................... 10-12 Table 10.4.2 Direct Heating Equipment: Shipments-Weighted Average Annual Energy Consumption (MMBtu/yr)

............................................................................... 10-15 Table 10.4.3 Pool Heaters: Shipments-Weighted Average Annual Energy Consumption

... 10-15 Table 10.5.1 Water Heaters: Shipments-Weighted Average Total Installed Cost in 2015 (2008$)

............................................................................................................. 10-19 Table 10.5.2 Direct Heating Equipment: Shipments-Weighted Average Total Installed Costs (2008$)

................................................................................................... 10-20 Table 10.5.3 Pool Heaters: Shipments-Weighted Average Total Installed Costs

................ 10-20 Table 10.6.1 Inputs to National Energy Savings and Net Present Value

.............................. 10-23 Table 10.6.2 Water Heaters: Cumulative National Energy Savings in Quads

..................... 10-24 Table 10.6.3 Water Heaters: Cumulative National Energy Savings in Quads,

Discounted at 3 Percent

................................................................................... 10-24 Table 10.6.4 Water Heaters: Cumulative National Energy Savings in Quads,

Discounted at 7 Percent

................................................................................... 10-24 Table 10.6.5 Direct Heating Equipment: Cumulative National Energy Savings in Quads

.. 10-25 Table 10.6.6 Direct Heating Equipment: Cumulative National Energy Savings in Quads, Discounted at 3 Percent

....................................................................... 10-25 Table 10.6.7 Direct Heating Equipment: Cumulative National Energy Savings in Quads, Discounted at 7 Percent

....................................................................... 10-25

Table 10.6.8 Pool Heaters: Cumulative National Energy Savings in Quads

........................ 10-25 Table 10.6.9 Water Heaters: Cumulative Consumer Net Present Value, Discounted at 3

Percent

.............................................................................................................. 10-27

10-iiTable 10.6.10 Water Heaters: Cumulative Consumer Net Present Value, Discounted at 7

Percent.............................................................................................................. 10-27 Table 10.6.11 Direct Heating Equipment: Cumulative Consumer Net Present Value,

Discounted at 3 Percent ................................................................................... 10-28 Table 10.6.12 Direct Heating Equipment: Cumulative Consumer Net Present Value,

Discounted at 7 Percent ................................................................................... 10-28

Table 10.6.13 Pool Heaters: Cumulative Consumer Net Present Value Results.................... 10-28

Table 10.7.1 Natural Gas Inverse Price Elasticity from Seven Energy Models ................... 10-30

Table 10.7.2 Cumulative NPV of the Economy-Wide Savings in Natural Gas Expenditures Due to the Projected Decline in Natural Gas Prices Resulting

from Amended Standards for Water Heaters*................................................. 10-33

LIST OF FIGURES

Figure 10.4.1 Gas-Fired Storage Water Heaters: Forecasted Trends in Average Annual Energy Use....................................................................................................... 10-13 Figure 10.4.2 Electric Storage Water Heaters: Forecasted Trends in Average Annual Energy Use....................................................................................................... 10-14 Figure 10.4.3 Site-to-Source Conversion Factors for Electricity........................................... 10-17 Figure 10.6.1 Non-Discounted Increases in Annual Installed Cost and Savings in Operating Cost for Gas-Fired Storage Water Heaters: TSL 4 ......................... 10-26 Figure 10.7.1 Change in U.S. Natural Gas Consumption Associated with Considered Water Heater Energy Conservation Standards ................................................ 10-31 Figure 10.7.2 Effects of Considered Water Heater Energy Conservation Standards on Average U.S. Wellhead Natural Gas Prices..................................................... 10-32

10-iiiCHAPTER 10. NATIONAL IMPACT ANALYSIS

10.1 INTRODUCTION

This chapter describes the U.S. Department of Energy’s (DOE’s) estimation of certain national impacts that may result from potential energy conservation standards for heating products. Results described here include: (1) national energy savings (NES) from considered standard levels, (2) the monetary value of those energy savings, (3) increased total installed costs and maintenance and repair costs that are attributable to energy conservation standards, and (4) the net present value (NPV) of the difference between the value of energy savings and the total costs. The chapter also describes the benefits to gas users from reduced natural gas prices resulting from standards.

DOE determined the NES and NPV for all the standard levels considered for the three heating products under consideration: residential water heaters, direct heating equipment (DHE), and pool heaters. All calculations for each of the considered products were performed using a Microsoft Excel spreadsheet model, which is accessible on the Internet ( www.eere.energy.gov/buildings/appliance_standards / ). Each product’s spreadsheet model, referred to as a national impact analysis (NIA) model, incorporates the calculations for determining the NES and NPV as well as inputs from the associated shipments model. Details and instructions for using the NIA models are provided in appendix 9-A, User Instructions for Shipments and National Energy Savings Spreadsheet Model. Chapter 9, Shipments Analysis, describes the shipments models that DOE used to forecast future purchases of the considered products.

10.2 TRIAL STANDARD LEVELS

DOE generated NES and NPV results for specific trial standard levels (TSLs). The TSL for each heating product consists of a set of efficiency levels for each product class for water heaters and direct heating equipment, and a single efficiency level for pool heaters.

For water heaters, since amended water heater standards will apply to the full range of storage volumes, DOE is showing the TSLs for water heaters in terms of the energy efficiency equations, rather than only showing the efficiency at the representative capacities. DOE is using the alternative energy-efficiency equations developed in the engineering analysis for the NOPR.

For TSL 1, 2, 3, 4, 6, and 7 (i.e., all TSLs except TSL 5), DOE is using the rated storage volume divisions and the energy efficiency equations developed in the engineering analysis, which specify a two-slope approach. TSL 1 consists of the efficiency levels for each product class that are approximately equal to the current shipment-weighted average efficiency. TSL2 and TSL 3 consist of efficiency levels with slightly higher efficiencies compared to TSL 1 for most of the product classes. TSL 4 represents the maximum electric resistance water heater efficiency across the entire range of storage volumes that DOE analyzed for electric storage water heaters, and the maximum atmospherically-vented efficiency across the entire range of storage volumes that DOE analyzed for gas-fired storage water heaters. TSL 6 is identical to TSL

10-14 except DOE is considering a heat pump water heater level for electric storage water heaters across the entire range of storage volumes, which is compatible with ENERGY STAR criteria for electric storage water heaters at the representative rated storage volume. TSL 7 consists of the max-tech efficiency levels for each of the water heater product classes at the time the analysis was developed.

For TSL 5, DOE further modified the two-slope approach developed in the engineering analysis. DOE wanted to consider a pairing of efficiency levels that will promote the penetration of advanced technologies into the electric and gas-fired storage water heater markets and potentially save additional energy. Consequently, DOE is pairing an efficiency level requiring heat pump technology for large-volume electric storage water heaters with an efficiency level achievable using electric resistance technology for small-volume electric storage water heaters. In addition, DOE is pairing an efficiency level requiring condensing technology for large-volume gas storage water heaters with an efficiency level that can be achieved in atmospherically-vented gas-fired storage water heaters with increased insulation thickness for small storage volumes.

In addition to pairing different technologies for small and large volume products for TSL 5, DOE also modified the division point between small-volume and large-volume gas-fired and electric storage water heaters. DOE used an analysis of market data to determine the initial division points, which were 60 gallons for gas-fired storage water heaters and 80 gallons for electric storage water heaters. These division points are used to modify the two-slope equations for TSLs 1, 2, 3, 4, 6, and 7. Because DOE is pairing two different technologies for consideration as an amended standard in TSL 5, DOE is concerned that manufacturers may attempt to circumvent the increased standards for large-volume water heaters by producing water heaters at volumes just below the division points. DOE has chosen to modify the division points for TSL 5 to 56 gallons for gas-fired and electric storage water heaters to attempt to mitigate the potential loophole. TSL 5 includes efficiency levels that require heat pump technology for electric storage water heaters with rated storage volumes at and above 56 gallons, and efficiency levels that require condensing technology for gas-fired storage water heaters with rated storage volumes at and above 56 gallons. Based on its market assessment, DOE estimated approximately 4 percent of gas-fired storage water heater shipments and 11 percent of models would be subject to the large-volume water heater requirements using the TSL 5 division. Similarly, DOE estimated approximately 9 percent of electric storage water heater shipments and 27 percent of models would be subject to the large volume water heater requirements using the TSL 5 division.

Table 10.2.1 shows the energy-efficiency equations and associated two-slope divisions for TSLs 1 through 7.

Table 10.2.1 Trial Standard Levels for Residential Water Heaters (Energy Factor)

Trial Standard Level Energy Efficiency Equation

TSL 1 For GSWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.675 – (0.0015 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 60 gallons: EF = 0.699 – (0.0019 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume at or below 80 gallons: For ESWHs with a Rated Storage Volume above 80 gallons:

10-2EF = 0.967 – (0.00095 x Rated Storage Volume in gallons) EF = 1.013 – (0.00153 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.64 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

TSL 2 For GSWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.675 – (0.0012 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 60 gallons: EF = 0.717 – (0.0019 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume at or below 80 gallons: EF = 0.966 – (0.0008 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume above 80 gallons: EF = 1.026 – (0.00155 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.66 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

TSL 3 For GSWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.675 – (0.0012 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 60 gallons: EF = 0.717 – (0.0019 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume at or below 80 gallons: EF = 0.965 – (0.0006 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume above 80 gallons: EF = 1.051 – (0.00168 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.66 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

TSL 4 For GSWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.675 – (0.0012 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 60 gallons: EF = 0.717 – (0.0019 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.960 – (0.0003 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume above 60 gallons: EF = 1.088 – (0.0019 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

TSL 5 For GSWHs with a Rated Storage Volume at or below 55 gallons: EF = 0.675 – (0.0012 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 55 gallons: EF = 0.831 – (0.00078 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume at or below 55 gallons: EF = 0.960 – (0.0003 x Rated Storage Volume in gallons) For ESWHs with a Rated Storage Volume above 55 gallons: EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

10-3TSL 6 For GSWHs with a Rated Storage Volume at or below 60 gallons: EF = 0.675 – (0.0012 x Rated Storage Volume in gallons) For GSWHs with a Rated Storage Volume above 60 gallons: EF = 0.717 – (0.0019 x Rated Storage Volume in gallons) For ESWHs (over the Entire Rated Storage Volume range): EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.82 – (0.0019 x Rated Storage Volume in gallons)

TSL 7 For GSWHs (over the Entire Rated Storage Volume range): EF = 0.831 – (0.00078 x Rated Storage Volume in gallons) For ESWHs (over the Entire Rated Storage Volume range): EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) For OSWHs (over the Entire Rated Storage Volume range): EF = 0.74 – (0.0019 x Rated Storage Volume in gallons) For GIWHs (over the Entire Rated Storage Volume range): EF = 0.95 – (0.0019 x Rated Storage Volume in gallons)

Table 10.2.2 shows the TSLs DOE analyzed for direct heating equipment. TSL 1 consists of the efficiency levels that are close to the current shipment-weighted average efficiency. TSL 2, TSL 3 and TSL 4 consist of efficiency levels that have gradually higher efficiency than TSL 1. TSL 5 consists of the efficiency levels with electronic ignition and fan-assist (where applicable), and TSL 6 consists of the max-tech efficiency levels.

Table 10.2.2 Trial Standard Levels for Direct Heating Equipment*

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 Gas Wall Fan (over 42,000 Btu/h) 75% 76% 77% 80% 75% 80% Gas Wall Gravity (over 27,000 and up to 46,000 Btu/h) 66% 68% 71% 71% 72% 72% Gas Floor (over 37,000 Btu/h) 58% 58% 58% 58% 58% 58% Gas Room (over 27,000 and up to 46,000 Btu/h) 66% 67% 68% 68% 83% 83% Gas Hearth (over 27,000 and up to 46,000 Btu/h) 67% 67% 67% 72% 72% 93%

* Expressed in AFUE.

Table 10.2.3 shows the TSLs DOE analyzed for pool heaters. TSL 1 consists of the efficiency level that is closest to the current shipment-weighted average efficiency. TSL 2 and TSL 3 consist of the efficiency level that has gradually higher efficiency than TSL 1. TSL 4 is the highest efficiency level with positive NPV. TSL 5 is the highest analyzed non-condensing efficiency level, and TSL 6 consists of the max-tech efficiency level.

Table 10.2.3 Trial Standard Levels for Pool Heaters*

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Gas 81% 82% 83% 84% 86% 95%

* Expressed in thermal efficiency.

10-410.3 FORECASTED ENERGY EFFICIENCIES

A key component of DOE’s estimates of NES and NPV for each of the three heating products is the energy efficiencies forecasted for the base case (without new energy conservation standards) and each of the standards cases (with new energy conservation standards). The forecasted energy efficiency represents the annual shipments-weighted energy efficiency of the product under consideration during the forecast period (that is, from the assumed effective date of a new standard to 30 years after that date).

For calculating the NES, per-unit average annual energy consumption is a direct function of product energy efficiency. Chapter 7, Energy Use Characterization, describes how each product’s per-unit energy consumption changes as a function of energy efficiency. For the NPV, the per-unit total installed cost is a direct function of energy efficiency; the per-unit annual operating cost, because it is a function of per-unit annual energy consumption, is indirectly dependent on product energy efficiency. Chapter 8, Life-Cycle Cost and Payback Period Analyses, describes how per-unit total installed costs change as a function of energy efficiency for each of the considered products. The above NES and NPV inputs, as well as all other inputs to the calculation of NES and NPV, are discussed further in sections 10.3 and 10.4.

To forecast base-case energy efficiencies for each product class, DOE used the shipments-weighted energy efficiency for 2013 for pool heaters and direct heating equipment and 2015 for water heaters as a starting point. To represent the distribution of product energyefficiencies in 2013 or 2015, DOE used the same market shares as in the base case for the lifecycle cost (LCC) analysis (chapter 8).

To project trends until the end of the forecast period (2043 for direct heating equipment and pool heaters, and 2045 for water heaters), DOE examined the projected trend between the present and 2013 or 2015. For gas-fired storage water heaters and electric storage water heaters, DOE estimated the distribution of product energy efficiencies (EFs) in 2015 by accounting for the estimated market impact of the newly established ENERGY STAR efficiency levels for water heaters. As described in chapter 8, the result is that the market share of 0.80 EF gas-fired storage water heaters increases from zero at present to 1 percent in 2015, and the market share of heat pump electric storage water heaters increases from zero at present to 5 percent in 2015. DOE applied the projected rate of growth in efficiency between the present and 2015 to estimate the increase in average energy efficiency in each year until the end of the forecast period.

Because DOE found no quantifiable indications of change in energy efficiency in recent years for oil-fired storage and gas-fired instantaneous water heaters, direct heating equipment, and pool heaters, DOE estimated that the shipment-weighted energy efficiencies remain at the 2015 or 2013 level until the end of the forecast period in 2043 or 2045.

For its forecast of standards-case energy efficiencies, DOE used a “roll-up” scenario to establish the shipments-weighted average energy efficiency for the year that energy conservation standards are assumed to become effective (2013 and 2015). In this approach, product energy

efficiencies in the base case that do not meet the standards level under consideration would “roll

10-5up” to meet the new standards level. Product energy efficiencies in the base case that exceeded

the standard level under consideration would not be affected.

The following sections detail the forecasted energy efficiencies that DOE developed for each of the three types of heating products.

10.3.1 Water Heaters

Chapter 8 describes how DOE derived the market shares of various energy efficiencies in the base case for water heaters. Tables 10.3.1 through 10.3.4 show the base- and standards-case product energy efficiency distributions in 2015 that DOE used in its NIA for water heaters, as well as the shipments-weighted energy factor (SWEF) for the base case and each considered

TSL.

Table 10.3.1 Gas-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015
Energy Efficiency

Level Market Shares

EF* Base Case TSL

1 2 3 4 5 6 7

Baseline 0.59 78%

1 0.61 4% 83%

2 0.63 6% 6% 89% 89% 89% 87% 89%

3 0.64 3% 3% 3% 3% 3% 3% 3%

4 0.65 2% 2% 2% 2% 2% 2% 2%

5 0.67 4% 4% 4% 4% 4% 4% 4%

6 0.80 1% 1% 1% 1% 1% 4% 4% 100% SWEF (EF) 0.60 0.62 0.63 0.63 0.63 0.64 0.65 0.80

*Average efficiency weighted by the market share in shipments of the considered storage volume categories

Table 10.3.2 Electric Storage Water Heaters: Energy Efficiency Distributions in 2015
Energy Efficiency

Level Market Shares

EF* Base

Case TSL

1 2 3 4 5 6 7

Baseline 0.91 37%

1 0.92 31%

2 0.92 3% 71%

3 0.93 15% 15% 86%

4 0.94 4% 4% 4% 90%

5 0.95 5% 5% 5% 5% 95% 91%

6 2.00 4% 4% 4% 4% 4% 8% 99%

7 2.20 1% 1% 1% 1% 1% 1% 1% 100% SWEF (EF) 0.97 0.98 0.98 0.99 1.00 1.04 2.01 2.20

*Average efficiency weighted by the market share in shipments of the considered storage volume categories

10-6Table 10.3.3 Oil-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015
Energy Efficiency

Level Market Shares

EF Base

Case TSL

1 2 3 4 5 6 7

Baseline 0.53 15%

1 0.54 17%

2 0.56 0%

3 0.58 16% 48%

4 0.6 7% 7% 55%

5 0.62 12% 12% 12% 67% 67% 67% 67%

6 0.66 27% 27% 27% 27% 27% 27% 27%

7 0.68 7% 7% 7% 7% 7% 7% 7% 100% SWEF (EF) 0.60 0.61 0.62 0.63 0.63 0.63 0.63 0.68

Table 10.3.4 Gas-Fired Instantaneous Water Heaters: Energy Efficiency Distributions in

2015
Energy Efficiency

Level Market Shares

EF Base

Case TSL

1 2 3 4 5 6 7

Baseline 0.62 0%

1 0.69 2%

2 0.78 1%

3 0.8 13%

4 0.82 64% 79% 79% 79% 79% 79% 79%

5 0.84 3% 3% 3% 3% 3% 3% 3%

6 0.85 3% 3% 3% 3% 3% 3% 3%

7 0.92 9% 9% 9% 9% 9% 9% 9%

8 0.95 5% 5% 5% 5% 5% 5% 5% 100% SWEF (EF) 0.83 0.84 0.84 0.84 0.84 0.84 0.84 0.95

10.3.2 Direct Heating Equipment

Chapter 8 describes how DOE derived the market shares of various energy efficiencies in the base case for direct heating equipment. Tables 10.3.5 through 10.3.9 show the distributions for base- and standards-case product energy efficiency that DOE used in its NIA for direct heating equipment. Also included in the tables are the shipments-weighted energy efficiencies

associated with the base case and each considered TSL.

10-7Table 10.3.5 Gas Wall Fan Direct Heating Equipment: Energy Efficiency Distributions in

2013
Energy efficiency

Level Market Shares

AFUE*

(%) Base

Case TSL

1 2 3 4 5 6

Baseline 74 41%

1 75 5% 45% 45%

2 76 41% 41% 86% 41%

3 77 9% 9% 9% 95% 9%

4 80 5% 5% 5% 5% 100% 5% 100% SWAFUE (AFUE) 75.4 75.8 76.3 77.1 80.0 75.8 80.0

* Annual fuel utilization efficiency

Table 10.3.6	 Gas Wall Gravity Direct Heating Equipment: Energy Efficiency

Distributions in 2013
Energy efficiency

Level Market Shares

AFUE

(%) Base

Case TSL

1 2 3 4 5 6

Baseline 64 30%

1 66 30% 60%

2 68 40% 40% 100%

3 71 0% 0% 0% 100% 100%

4 72 0% 0% 0% 0% 0% 100% 100% SWAFUE (AFUE) 66.2 66.8 68.0 71.0 71.0 72.0 72.0

Table 10.3.7 Gas Floor Direct Heating Equipment: Energy Efficiency Distributions in

2013

Energy efficiency Market Shares

AFUE Base TSL

Level (%) Case 1 2 3 4 5 6

Baseline 57 43%

1 58 57% 100% 100% 100% 100% 100% 100%

SWAFUE (AFUE) 57.6 58.0 58.0 58.0 58.0 58.0 58.0

10-8Table 10.3.8 Gas Room Direct Heating Equipment: Energy Efficiency Distributions in

2013

Energy efficiency

Level Market Shares

AFUE

(%) Base

Case TSL

1 2 3 4 5 6

Baseline 64 25%

1 65 25%

2 66 25% 75%

3 67 0% 0% 75%

4 68 0% 0% 0% 75% 75%

5 83 25% 25% 25% 25% 25% 100% 100%

SWAFUE (AFUE) 69.5 70.3 71.0 71.8 71.8 83.0 83.0

Table 10.3.9 Gas Hearth Direct Heating Equipment: Energy Efficiency Distributions in

2013

Energy efficiency

Level Market Shares

AFUE

(%) Base

Case TSL

1 2 3 4 5 6

Baseline 64 49%

1 67 38% 87% 87% 87%

2 72 13% 13% 13% 13% 100% 100%

3 93 0% 0% 0% 0% 0% 0% 100%

SWAFUE (AFUE) 66.2 67.7 67.7 67.7 72.0 72.0 93.0

10.3.3 Pool Heaters

Chapter 8 describes how DOE derived the market shares of various energy efficiencies inthe base case for pool heaters. Table 10.3.10 shows the distributions for the base- and standardscase product energy efficiency that DOE used in its NIA for pool heaters. Also included in the table is the shipments-weighted energy efficiency (SWEE) associated with the base case and each considered standard efficiency level.

10-9Table 10.3.10 Pool Heaters: Energy Efficiency Distributions in 2013

Energy Efficiency

Level Thermal Efficiency Market Shares

Base

Case TSL

1 2 3 4 5 6

Baseline 78% 0%

1 79% 36%

2 81% 18% 54%

3 82% 22% 22% 76%

4 83% 3% 3% 3% 78%

5 84% 16% 16% 16% 16% 95%

6 86% 5% 5% 5% 5% 5% 99%

7 90% 0% 0% 0% 0% 0% 0%

8 95% 1% 1% 1% 1% 1% 1% 100%

Sales-Weighted Thermal Efficiency 0.81 0.82 0.83 0.83 0.84 0.86 0.95

10.4 NATIONAL ENERGY SAVINGS

The following sections discuss the definition of NES and the inputs to calculations of

NES.

10.4.1 Definition of National Energy Savings

DOE calculates NES for each year as the difference between energy consumption of the product stock using the average unit energy consumption (UEC) of the stock in the base case (without new standards) or in a case given new standards.

NES 

## ( y 

## )

= AffStock 

## ( y 

## ) × 

# ( UEC ( y )

− UEC ( y ) 

# )

class class base

, class std

, class

Where:

AffStock(y) class = the stock of equipment sold after the year of the standard that is still in operation in year y (affected stock), UEC(y) base class = the unit energy consumption in the base case in year y , and UEC(y) std. class = the unit energy consumption in the standard case in year y.

The affected stock in year y is given by:

y 

## ( )

= 

## ( ) × Surv 

## ( y

− i 

## ) AffStock y S i class 

# ∑

class class

i = stdyr

10-10The quantity of stock in year y is dependent on the number of shipments S(y) class in past years, multiplied by the survival function Surv(v) , which is the fraction of shipments that survive until age v (vintage). Only those shipments made after the year standards are enacted ( stdyr ) are considered in calculating NES, because shipments before that date are unaffected by the standard, and thus will produce no savings. The variables UEC base,class and UEC std,class are the average unit energy consumption of products sold in either the base or standards case. In the case of gas-fired and electric storage water heaters, the average unit energy consumption changes over time. For all other product classes, unit energy consumption remains constant.

Cumulative energy savings are the sum of annual NES during a defined period, which for water heaters is 2015–2045 and for the other products considered is 2013–2043:

2043 NES

cum = 

# ∑ NES 

## ( ) y

y = stdyr

The stock of products is dependent on annual shipments and the lifetime of the products.

10.4.2 Inputs to National Energy Savings

The inputs for determining NES are:

• annual energy consumption per unit ( UEC)

• shipments

• equipment stock ( STOCK V )

• national annual energy consumption (AEC)

• site-to-source conversion factor ( src_conv)

10.4.2.1 Annual Energy Consumption per Unit

DOE developed per-unit annual energy consumption as a function of product energy efficiency for each of the considered products (see chapter 7). Because per-unit annual energy consumption is directly dependent on energy efficiency, DOE used the shipments-weighted energy efficiencies for the base and standards cases (presented in section 10.2), along with the annual energy use data presented in chapter 8, to estimate the shipments-weighted average annual per-unit energy consumption under the base and standards cases.

Water Heaters. Using the relationship between water heater EF and annual energy consumption described in chapter 8, DOE calculated the per-unit annual energy consumption based on the average energy efficiencies that correspond to the base case and each considered standard case for each water heater product class (Table 10.4.1).

10-11Table 10.4.1 Water Heaters: Shipments-Weighted Average Annual Energy Consumption

in 2015

Product Base TSL

Class Case 1 2 3 4 5 6 7

GSWH Annual Energy Use (MMBtu/yr) 16.2 15.6 15.2 15.2 15.2 15.1 15.2 12

ESWH Annual Energy Use

(kWh/yr) 2528 2495 2483 2445 2416 2318 1524 1416

OSWH Annual Energy Use (MMBtu/yr) 19.1 18.5 18.1 17.7 17.7 17.7 17.7 16.6

GIWH Annual Energy Use (MMBtu/yr) 11.6 11.5 11.5 11.5 11.5 11.5 11.5 10.3

When calculating energy consumption at each considered efficiency level for each water heater, DOE applied a rebound effect of 10 percent. When the rebound effect is incorporated, calculated energy savings are lower than if no rebound effect were considered.

As noted in section 10.2, DOE projected trends in average energy efficiency of water heaters in the base case and standards cases. Because it is a function of energy efficiency, the per-unit annual energy consumption mirrors the trends in energy efficiency (Figures 10.4.1 through 10.4.2).

10-128.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0

2015 2020 2025 2030 2035 2040 2045UEC (MMBtu)

Base Case

TSL 1

TSL 2. TSL 3, TSL 4,

TSL6 TSL 5

TSL 7

Figure 10.4.1 Gas-Fired Storage Water Heaters: Forecasted Trends in Average Annual Energy Use

10-13800 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800

2015 2020 2025 2030 2035 2040 2045UEC (kWh)

Base Case TSL 1

TSL 2 TSL 3

TSL 4 TSL 5

TSL 6 TSL 7

Figure 10.4.2	 Electric Storage Water Heaters: Forecasted Trends in Average Annual Energy Use

Direct Heating Equipment. Using the relationship between the AFUE of each direct heating equipment product and the annual energy consumption described in chapter 8, DOE calculated the average annual energy consumption of direct heating equipment products at each considered efficiency level (Table 10.4.2). The calculation was based on the shipments-weighted energy efficiencies that correspond to the base case and each standards case for the four product classes of direct heating equipment.

10-14Table 10.4.2 Direct Heating Equipment: Shipments-Weighted Average Annual Energy Consumption (MMBtu/yr)

Product Class Base

Case TSL

1 2 3 4 5 6

Gas Wall Fan DHE 28.7 28.2 28.1 27.8 27 28.2 27 Gas Wall Gravity DHE 28.9 28.7 28.3 27.4 27.4 26.4 26.4

Gas Floor DHE 20.8 20.5 20.3 20.1 19 19 19

Gas Room DHE 30.5 30.4 30.4 30.4 30.4 30.4 30.4

Gas Hearth DHE 14.6 14 14 14 13.3 13.3 10.9

When calculating energy consumption at each considered efficiency level for each direct heating equipment product, DOE applied a rebound effect of 15 percent.

As noted in section 10.2, DOE assumed that forecasted energy efficiencies in the base and standards cases remain frozen at 2013 levels. Because per-unit annual energy consumption is a function of energy efficiency, DOE held the values shown in Table 10.4.2 constant throughout the forecast period.

Pool Heaters. DOE used the relationship between pool heater energy efficiency and annual energy consumption described in chapter 8 to calculate average annual gas consumption for pool heaters at each considered efficiency level (Table 10.4.3). The calculations were based on the shipments-weighted energy efficiencies that correspond to the base case and each considered efficiency.

Table 10.4.3 Pool Heaters: Shipments-Weighted Average Annual Energy Consumption

Base Case TSL

1 2 3 4 5 6

Annual Energy Use (MMBtu/yr) 36.6 36.3 36.3 36.1 35.0 34.8 34.1

When calculating energy consumption at each considered efficiency level for each pool heater, DOE applied a rebound effect of 10 percent. When the rebound effect is incorporated, calculated energy use is higher than if no rebound effect were considered.

As noted in section 10.2, DOE assumed that forecasted energy efficiencies in the base and standards cases remain at 2013 levels. Because per-unit annual energy consumption is a function of energy efficiency, DOE held the values shown in Table 10.4.3 constant throughout the forecast period.

10.4.2.2 Shipments and Equipment Stock

The methodology for conducting and generating shipments forecasts for each considered product is described in detail in chapter 9. The product stock in a given year is the number of products shipped from earlier years that survive in the given year. The NIA models keep track of the number of units shipped each year. DOE assumes that the products have an increasing

10-15probability of retiring as they age. The survival function represents the probability of survival as a function of years since purchase. The sections in chapter 9 that concern with specific products present further details on the survival functions that DOE used in its analyses.

10.4.2.3 National Annual Energy Consumption

The national annual energy consumption (AEC), which is calculated for the base case only, is the product of the annual energy consumption per unit and the number of units of each vintage.

AEC 

## ( y 

## )

class = UEC base

, class × Stock 

## ( y 

## )

class

Where:

UEC base class = the unit energy consumption in the base case, and Stock(y) class = the stock of equipment in year y.

10.4.2.4 Site-to-Source Energy Conversion Factors

In determining annual NES, DOE initially considered the annual energy consumption at a residence site. DOE then calculated primary (source) energy savings from site energy consumption by applying a conversion factor to account for losses associated with the generation, transmission, and distribution of electricity and natural gas. The site-to-source conversion factor is a multiplicative factor used for converting site energy consumption into primary or source energy consumption, expressed in quadrillion Btu (quads).

DOE used annual site-to-source conversion factors based on the version of the National Energy Modeling System (NEMS) a that corresponds to the DOE Energy Information
Administration’s (EIA’s) Annual Energy Outlook 2009 (AEO 2009). 1 The factors that DOE developed are marginal values, which represent the response of the system to an incremental decrease in consumption. Natural gas losses include pipeline leakage, pumping energy, and transportation fuel. For electricity, the conversion factors change over time in response to projected changes in generation sources ( i.e ., the types of power plant projected to provide electricity).

Figure 10.4.3 shows the site-to-source conversion factors for electricity between 2005 and 2030. NEMS outputs stop in 2030; DOE assumed that conversion factors remain constant at 2030 values throughout the rest of the forecast. The conversion factor for natural gas increases slightly from 1.083 Btu in 2005 to 1.097 Btu in 2030.

a Chapter 13, Utility Impact Analysis, provides more detail on NEMS.

10-160 2000 4000 6000 8000 10000 12000 14000

2005 2010 2015 2020 2025 2030Btu/kWh

Figure 10.4.3 Site-to-Source Conversion Factors for Electricity

10.5 CONSUMER NET PRESENT VALUE

The following sections provide the definition of the consumer NPV and inputs to the

calculation of NPV.

10.5.1 Definition of Net Present Value

The consumer NPV is the value in the present of the costs and savings experienced by consumers of the considered products. The NPV is described by the equation:

NPV = 

# ∑ ( S ( y )

− C ( y ) 

## ) × DF ( y )

y

Where:

S(y) = value of operating cost savings (including energy, repair, and maintenance costs) in year y , C(y) = value of increased total installed costs (including products and installation), and DF(y) = discount factor in each year.

DOE calculated the total annual savings in operating costs by multiplying the number or stock of a given product (by vintage) by its per-unit savings on operating costs (also by vintage). DOE calculated the total annual increases in installed costs by multiplying the number or stock

10-17of the given product (by vintage) by its per-unit total increase in installed costs (also by vintage). The calculation of the annual savings in operating costs and total annual increases in installed cost is represented by the following equations.

OCS ( y ) = 

# ∑ UOCS ( y ) × AffStock ( y )

TIC ( y ) = 

# ∑ UTIC ( y ) xS ( y )

Where:

OCS = total annual savings in operating costs each year summed over vintages of the product stock considered, AffStock(y)

, TIC = total annual increase in installed cost each year summed over vintages of the product stock considered, AffStock(y)

, S(y) = stock of product (millions of units) of vintage V that survive in the year for which DOE calculated annual energy consumption, UOCS(y) = annual savings in operating cost per unit in year y , UTIC(y) = annual increase in total installed cost per unit in year y , and

y = year in forecast.

DOE calculated a discount factor from the discount rate and the number of years between the present ( i.e ., the year to which the sum is being discounted) and the year in which the costs and savings occur. The NPV is the sum over time of the discounted net savings.

10.5.2 Inputs to Calculation of Net Present Value

The inputs to calculations of the consumer NPV are:

• total installed cost per unit,

• annual savings in operating cost per unit,

• total annual increases in installed cost,

• total annual operating costs,

• discount factor,

• present value of costs, and

• present value of savings.

The increase in total annual installed cost is equal to the annual change in the per-unit total installed cost (difference between base case and standards cases) multiplied by the shipments forecasted for the standards case. As when calculating the NES, DOE did not use base case shipments to calculate total annual installed costs for all of the products.

The total annual savings in operating costs are equal to the change in annual operating costs (difference between base case and standards case) per unit multiplied by the shipments

10-18forecasted in the standards case. The annual operating cost includes energy, repair, and maintenance costs, as described in chapter 8, Life-Cycle Cost and Payback Period Analyses.

10.5.2.1 Total Installed Cost per Unit

The per-unit total installed cost of each considered product is described in chapter 8 as a function of product energy efficiency. Because the per-unit total annual installed cost is directly dependent on energy efficiency, DOE used the shipments-weighted energy efficiencies of the base and standards cases described in section 10.2, in combination with the total installed costs developed in chapter 8, to estimate the shipments-weighted average annual per-unit total installed cost under the base and standards cases. The changes over the forecast period that apply to the shipments-weighted efficiency also apply to the total installed costs.

Water Heaters. DOE based average water heater prices on average manufacturer costs plus average overall markup values. Using the relationship, presented in chapter 8, between water heater EF and total installed cost, DOE derived the per-unit total installed cost based on the shipments-weighted energy efficiencies that correspond to the base case and each standards case for the four water heater product classes being considered (Table 10.5.1). For gas and electric storage water heaters, EF increases over time in the base case, so per-unit total installed

cost increases as well.

Table 10.5.1	 Water Heaters: Shipments-Weighted Average Total Installed Cost in 2015 (2008$)

Product Class Base

Case TSL

1 2 3 4 5 6 7
Gas Storage $1,089 $1,118 $1,171 $1,171 $1,171 $1,191 $1,171 $1,763 Electric Storage $593 $617 $625 $661 $689 $753 $1,436 $1,517 Oil Storage $1,996 $2,009 $2,003 $2,017 $2,017 $2,017 $2,017 $2,098

GIWH $2,338 $2,362 $2,362 $2,362 $2,362 $2,362 $2,362 $2,941

Direct Heating Equipment. Total installed cost for direct heating equipment includes costs for both the product and the installation. DOE based average product prices on average manufacturer costs multiplied by average overall markup values. Using the relationship between the annual fuel utilization efficiency (AFUE) for direct heating equipment and total installed cost presented in chapter 8, DOE calculated the per-unit total installed cost for direct heating equipment products, based on the shipments-weighted energy efficiencies that correspond to the base case and each standards case (Table 10.5.2).

10-19Table 10.5.2 Direct Heating Equipment: Shipments-Weighted Average Total Installed Costs (2008$)

Product Class Base

Case TSL

1 2 3 4 5 6

Gas Wall Fan DHE $1,812 $1,834 $1,845 $1,882 $2,002 $1,834 $2,002
Gas Wall Gravity DHE $1,428 $1,445 $1,467 $1,543 $1,543 $1,831 $1,831

Gas Floor DHE $1,487 $1,525 $1,553 $1,584 $1,845 $1,845 $1,845

Gas Room DHE $2,138 $2,160 $2,160 $2,160 $2,160 $2,160 $2,160

Gas Hearth DHE $1,747 $1,776 $1,776 $1,776 $2,124 $2,124 $2,943

Pool Heaters

. The total installed cost of pool heaters includes the cost of both the product and the installation. DOE based average product prices on average manufacturer costs multiplied by average overall markup values. Using the relationship between pool heater efficiency and total installed cost presented in chapter 8, DOE calculated the per-unit total installed cost based on the shipments-weighted energy efficiencies that correspond to the base case and each standards case (Table 10.5.3).

Table 10.5.3 Pool Heaters: Shipments-Weighted Average Total Installed Costs

Base

Case TSL

1 2 3 4 5 6

Total

Installed Cost (2008$) 2,615 2,623 2,652 2,771 2,855 3,353 4,430

10.5.2.2 Annual Operating Cost Savings per Unit

Per-unit annual operating cost includes costs for energy, repair, and maintenance. DOE determined the savings in per-unit annual operating cost for each product by multiplying the savings in per-unit annual energy consumption by the appropriate energy price for each year of the forecast period.

Estimates of average annual energy consumption for the base case and each standards case were presented in section 10.3.2.1. The energy prices and price trends (based on AEO2009 Reference case) are described in chapter 8.

10.5.2.3 Total Increases in Annual Installed Cost

The increase in total annual installed cost for any given standards case is the product of the total installed cost increase per unit due to the standard and the number of units of each vintage. This approach accounts for differences in total installed cost from year to year. DOE used the following equation (also presented in section 10.4.1) to determine the increase in total annual installed cost for a given standards case.

TIC ( y ) = 

# ∑ UTIC ( y ) × S ( y )

10-2010.5.2.4 Total Savings in Annual Operating Cost

The total savings in annual operating cost for any given standards case is the product of the annual operating cost savings per unit due to the standard and the number of units of each vintage. This approach accounts for differences in savings in annual operating cost from year to year. DOE used the following equation (also presented in section 10.4.1) to determine the total savings in annual operating cost for a given standards case.

OCS ( y ) = 

# ∑ UOCS ( y ) × AffStock ( y )

As discussed in chapter 8, the take-back in energy consumption associated with the rebound effect provides increased value to consumers ( e.g ., more hot water use). The net impact is the sum of the change in the cost of owning the heating product (that is, national consumer expenditures for total installed and operating costs) and the increased value of the enhanced service from the product. DOE believes that, if the increased national value (to consumers) produced by the rebound effect could be monetized, it would be similar to the monetary value of the foregone energy savings. For this analysis, DOE estimated that this increased value to consumers is equivalent to the monetary value of the energy savings that would have occurred without the rebound effect. Therefore, the national economic impacts on consumers with or without the rebound effect, as measured by the NPV analysis, are the same.

10.5.2.5 Discount Factor

DOE multiplies monetary values in future years by a discount factor to determine present values. The discount factor ( DF ) is described by the equation:

1 DF = ( y y ) p (1 + r ) _

Where:

r = discount rate,

y = year of the monetary value, and

y P = year in which the present value is being determined.

DOE used both a 3-percent and a 7-percent real discount rate when estimating national impacts. These discount rates were applied in accordance with the Office of Management and Budget (OMB)’s guidance to Federal agencies on developing regulatory analyses (OMB Circular A-4, September 17, 2003, and section E., “Identifying and Measuring Benefits and Costs,” therein). DOE defines the present year as 2010 because the final rule for this rulemaking will be published in 2010.

10-2110.5.2.6 Present Value of Costs

The present value of increased installed costs is the annual increase in installed cost for each year (i.e., the difference between the standards case and base case), discounted to the present and summed over the period for which DOE is considering the installed products (from the effective date of energy conservation standards through 30 years later).

The increase in total installed cost refers to both product and installation costs associated with the higher energy efficiency of products purchased in the standards case compared to the

base case. DOE calculated annual increases in installed cost as the difference in total cost of new products installed each year, multiplied by the shipments in the standards case.

10.5.2.7 Present Value of Savings

The present value of savings in operating cost is the annual savings in operating cost (i.e., the difference between the base case and standards case), discounted to the present and summed over the period that begins with the effective date of standards and ends when the last installed

unit is retired from service.

Savings represent decreases in operating cost (including costs for energy, repair, and maintenance) associated with the higher energy efficiency of products purchased in a standards case compared to the base case. Total annual savings in operating cost are the savings per unit multiplied by the number of units of each vintage that survive in a particular year. Because equipment consumes energy throughout its lifetime, the energy consumption for units installed in the past year includes energy consumed until the unit is retired from service.

10.6 RESULTS

The NIA model provides estimates of the NES and NPV produced by various efficiency levels. The inputs to the NIA model were discussed in sections 10.3.2 (NES Inputs) and 10.4.2 (NPV Inputs). DOE generated the NES and NPV results using a Microsoft Excel spreadsheet, which is accessible on the Internet ( www.eere.energy.gov/buildings/appliance_standards / ). Details and instructions for using the spreadsheet are provided in appendix 9-A, User Instructions for Shipments and National Energy Savings Spreadsheet Model, in the section titled, “NES and NPV input summary.”

Table 10.6.1 summarizes inputs to the NIA model.

10-22Table 10.6.1 Inputs to National Energy Savings and Net Present Value

Input Data Description

Shipments Annual shipments from shipments model (see chapter 9).

Effective Date of Standard 2015 for water heaters, 2013 for pool heaters and DHE

Energy Efficiencies Forecasted for Base

Case Shipments-weighted unit energy consumption (UEC) determined for each year.

Energy Efficiencies in Standards Cases “Roll-up” scenario assumed for determining shipmentsweighted UEC for each standards case (see section 10.2.).

Annual Energy Consumption per Unit Annual weighted-average values are a function of shipmentsweighted UEC.

Total Installed Cost per Unit Annual weighted-average values are a function of efficiency

level.

Energy Cost per Unit Annual weighted-average values are a function of the annual UEC and energy prices (see chapter 8 for energy prices).

Repair Cost and Maintenance Cost per

Unit Annual values are a function of efficiency level (see chapter 8).

Escalation of Energy Prices Based on EIA AEO 2009 forecasts (to 2030) and on extrapolation to 2045 (see chapter 8).

Energy Site-to-Source Conversion

Factor Conversion, which differs yearly, is generated by DOE/EIA’s NEMS program (a time-series conversion factor that includes electric generation, transmission, and distribution losses).

Discount Rate 3 percent and 7 percent real.

Present Year Future expenses are discounted to 2010.

The results reported in this chapter are based on energy price forecasts and housing starts

forecasts from the AEO2009 Reference case

. Appendix 9-C presents results based on inputs from

the AEO2009 Low Economic Growth and High Economic Growth cases. These cases have higher and lower energy price trends compared to the Reference case, as well as higher and lower housing starts, which results in higher and lower appliance shipments to new homes.

10.6.2 National Energy Savings Results

The following sections provide results of calculating NES for the TSLs analyzed for each of the three heating products. NES results, which are cumulative over the forecast period, are in primary energy savings. Because DOE based the inputs to the NIA model on weighted-average values, results are discrete point values, rather than a distribution of values as produced by the LCC and PBP analyses. DOE reports both undiscounted and discounted values of energy savings. Discounted energy savings represent a policy perspective where energy savings farther in the future are less significant than energy savings closer to the present

10.6.2.1 Water Heaters

Tables 10.6.2 through 10.6.4 show the NES results for the TSLs analyzed for water

heaters.

10-23Table 10.6.2 Water Heaters: Cumulative National Energy Savings in Quads

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 Gas-Fired Storage 0.83 1.29 1.29 1.29 1.46 1.29 5.33 Electric Storage 0.35 0.49 0.90 1.21 2.18 9.05 10.62 Oil-Fired Storage 0.01 0.01 0.01 0.01 0.01 0.01 0.03

Gas-Fired Instantaneous 0.08 0.08 0.08 0.08 0.08 0.08 0.87

TOTAL 1.26 1.88 2.28 2.60 3.74 10.44 16.85

Table 10.6.3 Water Heaters: Cumulative National Energy Savings in Quads, Discounted

at 3 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 Gas-Fired Storage 0.44 0.68 0.68 0.68 0.77 0.68 2.81 Electric Storage 0.19 0.27 0.48 0.65 1.17 4.84 5.70 Oil-Fired Storage 0.00 0.01 0.01 0.01 0.01 0.01 0.01

Gas-Fired Instantaneous 0.04 0.04 0.04 0.04 0.04 0.04 0.45

TOTAL 0.67 0.99 1.21 1.38 1.99 5.57 8.98

Table 10.6.4 Water Heaters: Cumulative National Energy Savings in Quads, Discounted

at 7 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 Gas-Fired Storage 0.21 0.32 0.32 0.32 0.37 0.32 1.33 Electric Storage 0.09 0.13 0.23 0.32 0.57 2.36 2.76 Oil-Fired Storage 0.00 0.00 0.00 0.00 0.00 0.00 0.01

Gas-Fired Instantaneous 0.02 0.02 0.02 0.02 0.02 0.02 0.20

TOTAL 0.32 0.47 0.58 0.66 0.96 2.71 4.31

10.6.2.2 Direct Heating Equipment

Tables 10.6.5 through 10.6.7 show the NES results for the TSLs analyzed for direct heating equipment.

10-24Table 10.6.5 Direct Heating Equipment: Cumulative National Energy Savings in Quads

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Gas Wall Fan 0.007 0.01 0.01 0.02 0.01 0.02 Gas Wall Gravity 0.008 0.02 0.06 0.06 0.10 0.10

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001

Gas Room 0.002 0.00 0.01 0.01 0.03 0.03

Gas Hearth 0.136 0.14 0.14 0.30 0.30 0.93

TOTAL 0.15 0.17 0.22 0.39 0.44 1.08

Table 10.6.6 Direct Heating Equipment: Cumulative National Energy Savings in Quads,

Discounted at 3 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Gas Wall Fan 0.004 0.005 0.007 0.013 0.004 0.013 Gas Wall Gravity 0.005 0.013 0.034 0.034 0.053 0.053

Gas Floor 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Gas Room 0.001 0.002 0.003 0.003 0.016 0.016

Gas Hearth 0.077 0.077 0.077 0.171 0.171 0.525

TOTAL 0.09 0.10 0.12 0.22 0.24 0.61

Table 10.6.7 Direct Heating Equipment: Cumulative National Energy Savings in Quads,

Discounted at 7 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Gas Wall Fan 0.002 0.003 0.004 0.007 0.002 0.007 Gas Wall Gravity 0.002 0.007 0.017 0.017 0.027 0.027

Gas Floor 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Gas Room 0.001 0.001 0.002 0.002 0.008 0.008

Gas Hearth 0.039 0.039 0.039 0.088 0.088 0.269

TOTAL 0.04 0.05 0.06 0.11 0.12 0.31

10.6.2.3 Pool Heaters

Table 10.6.8 shows the NES results for the TSLs analyzed for pool heaters.

Table 10.6.8 Pool Heaters: Cumulative National Energy Savings in Quads

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Not Discounted 0.02 0.03 0.08 0.10 0.13 0.28

Discounted at 3 % 0.01 0.02 0.05 0.06 0.08 0.16

Discounted at 7 % 0.00 0.01 0.03 0.03 0.04 0.09

10.6.3 Annual Costs and Savings

Figure 10.6.1 illustrates the basic inputs to calculations of the NPV for the example of thenon-discounted annual increases in installed cost and annual savings in operating cost for gasfired storage water heaters under TSL 4. The figure also shows net savings, which is the

10-25I difference between the savings and costs for each year. The annual product cost is the sum of the increase in the total installed cost for products purchased each year during the forecast period. The annual savings in operating cost is the savings for products operating in each year. (Incremental repair and maintenance costs are zero for this efficiency level.) The NPV is the difference between the cumulative annual discounted savings and the cumulative annual discounted costs. Figures similar to the one presented below could be created for each of the considered products’ standard cases.

-$0.60 -$0.40 -$0.20 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 2015 2025 2035 2045Billions of 2008 Dollars Equipment Cost Impact

Energy Cost Savings

Maintenance and Repair Cost
mpact Net Savings

Figure 10.6.1 Non-Discounted Increases in Annual Installed Cost and Savings in Operating Cost for Gas-Fired Storage Water Heaters: TSL 4

10.6.4 Consumer Net Present Value Results

The following sections provide results from calculations of consumer NPV for the TSLs considered for each type of heating product. Results, which are cumulative, are shown as the discounted value of the net savings in dollar terms. Because DOE based the inputs to the NIA model on weighted-average values, results are discrete point values, rather than a distribution of values as produced by the LCC and PBP analyses.

The present value of total increased installed costs is the total annual increase in installed cost (i.e., the difference between the standards case and base case), discounted to the present and summed over the period for which DOE evaluates the impact of energy conservation standards. Savings are decreases in operating costs associated with the higher energy efficiency of products purchased in the standards cases compared to the base case. Total savings in operating cost are the savings per unit multiplied by the number of units of each vintage (year of manufacture) that

10-26survive in a particular year. For units purchased up through the final year (2043 or 2045), the operating cost includes energy consumed until the last unit is retired from service.

10.6.4.1 Water Heaters

Tables 10.6.9 and 10.6.10 show the results of calculating the consumer NPV at 3 and 7 percent discount rates for the TSLs analyzed for water heaters.

Table 10.6.9	 Water Heaters: Cumulative Consumer Net Present Value, Discounted at 3

Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

Billion 2008 dollars
Gas-Fired Storage 7.58 9.04 9.04 9.04 9.63 9.04 11.27
Electric Storage 2.19 3.16 4.73 6.02 11.67 31.90 41.94 Oil-Fired Storage 0.12 0.20 0.28 0.28 0.28 0.28 0.47

Gas-Fired Instantaneous 0.30 0.30 0.30 0.30 0.30 0.30 -5.68

TOTAL 10.20 12.71 14.36 15.64 21.89 41.52 47.99

Table 10.6.10 Water Heaters: Cumulative Consumer Net Present Value, Discounted at 7

Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

Billion 2008 dollars Gas-Fired Storage 2.94 3.09 3.09 3.09 3.17 3.09 -1.10
Electric Storage 0.69 1.03 1.32 1.59 3.35 5.22 8.50 Oil-Fired Storage 0.05 0.09 0.12 0.12 0.12 0.12 0.19

Gas-Fired Instantaneous 0.01 0.01 0.01 0.01 0.01 0.01 -4.84

TOTAL 3.69 4.20 4.53 4.79 6.64 8.43 2.75

10-2710.6.4.2 Direct Heating Equipment

Tables 10.6.11 and 10.6.12 show the results of calculating the consumer NPV at 3 and 7 percent discount rates for the TSLs analyzed for direct heating equipment.

Table 10.6.11 Direct Heating Equipment: Cumulative Consumer Net Present Value,

Discounted at 3 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Billion 2008 dollars

Gas Wall Fan 0.07 0.09 0.11 0.14 0.07 0.14 Gas Wall Gravity 0.07 0.22 0.52 0.52 0.37 0.37

Gas Floor 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003

Gas Room 0.02 0.05 0.08 0.08 0.35 0.35

Gas Hearth 1.52 1.52 1.52 -1.06 -1.06 -3.49

TOTAL 1.68 1.87 2.22 -0.33 -0.26 -2.63

Table 10.6.12 Direct Heating Equipment: Cumulative Consumer Net Present Value,

Discounted at 7 Percent

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Billion 2008 dollars

Gas Wall Fan 0.03 0.04 0.04 0.04 0.03 0.04 Gas Wall Gravity 0.03 0.09 0.20 0.20 0.06 0.06

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001

Gas Room 0.01 0.02 0.03 0.03 0.14 0.14

Gas Hearth 0.64 0.64 0.64 -1.16 -1.16 -3.78

TOTAL 0.71 0.79 0.91 -0.89 -0.93 -3.54

10.6.4.3 Pool Heaters

Table 10.6.13 shows the results of calculating the consumer NPV at 3 and 7 percent discount rates for the TSLs analyzed for pool heaters.

Table 10.6.13 Pool Heaters: Cumulative Consumer Net Present Value Results

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Billion 2008 dollars

Discounted at 3% 0.16 0.18 0.40 0.25 -1.97 -4.51

Discounted at 7% 0.08 0.07 0.14 0.03 -1.27 -2.94

10-2810.7 IMPACT OF STANDARDS ON NATURAL GAS PRICES AND ASSOCIATED

NATIONAL BENEFITS

The NIA described in the preceding sections examines the national benefits and costs of alternative standard levels on consumers of the products being considered. To evaluate potentially important indirect effects of energy conservation standards on energy users in general, DOE analyzed the potential impact on natural gas prices resulting from amended standards on water heaters and the associated benefits for all natural gas users in all sectors of the

economy.

DOE’s analysis used a version of the National Energy Modeling System – Building Technology (NEMS-BT), modified to account for the energy savings associated with possible standards. Like other widely-used energy-economic models, NEMS uses elasticities to estimate the energy price change that would result from a change (increase or decrease) in energy demand. The elasticity of price to a decrease in demand is the “inverse price elasticity.” The calculated inverse price elasticity based on NEMS-BT simulations differs throughout the forecast period in response to the dynamics of natural gas supply and demand. The average inverse gas price elasticity during 2013–2030 is 1.32 with TSL 4 (the proposed standard). A value of 1.32 means that, given a one-percent decrease in demand, the price of gas would decline by 1.32

percent.

The average inverse price elasticities reported above are generally consistent with other studies that used versions of NEMS to examine the impacts on natural gas prices resulting from reductions in natural gas demand. In a review of such studies, Wiser and Bollinger 2 examined analyses that reported the reductions in natural gas demand caused by certain energy policies, and the resulting decline in the average U.S. wellhead gas price. Wiser and Bollinger found that the average values of the inverse price elasticity throughout the forecast period in each study ranged from 0.7 to 4.7. The average inverse price elasticities in 13 of 19 analyses were between

0.8 and 2.0. The value from DOE's current analysis (1.32 for TSL 4) is in the middle of that

range.

Other widely used, complex energy demand/supply models produce price elasticities that are similar to those incorporated in NEMS. Table 10.7.2 compares the results of several studies that modeled the response of natural gas prices to changes in gas consumption. These results are summarized in a 2003 study by Stanford's Energy Modeling Forum (EMF). 3 Although the magnitude of the price response (as summarized by the inverse price elasticity) varies considerably among the models, they generally confirm a sizable price effect associated with changes in natural gas consumption. b It is worth noting that the NEMS average value determined by the EMF study is smaller than that of most of the other models. Therefore, it is reasonable to conclude that the impacts estimated by NEMS are conservative.

b The EMF scenarios modeled the effect of increased gas demand on price. Assuming a smooth supply curve over the long term, however, the elasticities implied by an increase in demand should be equivalent to those implied by a decrease in demand. For undetermined reasons, two of the models studied in the Wiser and Bollinger report (NANGAS and NARG) report somewhat anomalous inverse elasticities.

10-29Table 10.7.1 Natural Gas Inverse Price Elasticity from Seven Energy Models

2005 2010 2015 2020 Average

NEMS 1.8 2.2 0.53 0.11 1.2

POEMS 2.4 1.8 2.5 1.8 2.1

CRA 3.5 2.5 1.1 0.9 2.0

NANGAS 5.4 7.0 7.6 5.1 6.3

E2020 1.5 1.0 1.0 0.7 1.1

MARKAL N/A 2.0 N/A 2.1 2.1

NARG 8.7 12.4 5.6 2.4 7.3

Source: Based on EMF, 2003. NEMS (National Energy Modeling System, 2002); POEMS (Policy Office Electricity Modeling System); CRA (Charles River Associates); NANGAS (North American Natural Gas Analysis System), E2020 (Energy 2020); MARKAL (MARKet ALlocation); NARG (North American Regional Gas model).

In addition to the models listed in Table 10.7.2, studies have been conducted by the

National Petroleum Council 4 and the National Commission on Energy Policy 5 that are based on the EEA model. The EEA model has higher inverse price elasticities (between 4.0 and 16.8) than those predicted by NEMS and most other national energy models, leading to larger natural gas price reductions for a given decrease in demand.

10.7.2 Impact on Natural Gas Prices

Figure 10.7.1 shows the annual change in U.S. natural gas consumption, relative to the base case involving no new standards, for the proposed standard (TSL 4) and for TSL 7, which consists of the max-tech efficiency levels. Because standards may decrease electricity demand, and a significant percentage of electricity is generated using natural gas, the standards may reduce natural gas consumption in the utility sector as well as in the residential sector.

10-30Change in Gas Consumption

-0.35 -0.30 -0.25 -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10

2015 2018 2021 2024 2027 2030quads

TSL 4

TSL 7

Figure 10.7.1 Change in U.S. Natural Gas Consumption Associated with Considered Water Heater Energy

Conservation Standards

As described in chapter 13, utility impact analysis, using NEMS-BT to analyze impactsof relatively small annual changes in energy consumption typically involves using higherdecrements to isolate the impacts of the standards from numerical noise (i.e., larger energy savings quantities than those resulting from the considered standards). After generating results using higher decrements to gas consumption, DOE utilized a regressed interpolation toward the origin to derive the price effects associated with the energy savings resulting from each

considered TSL.

Figure 10.7.2 shows the annual change in average U.S. wellhead price for natural gas, relative to the base case, for TSL 4 and TSL 7. The price reduction averages 1.6 cents per MMBtu (in 2008$) under TSL 4. This average price reduction equals 0.23 percent.

10-31Change in Wellhead Prices

-0.20 -0.15 -0.10 -0.05 0.00 0.05

2015 2018 2021 2024 2027 20302008$/MMBtu

TSL 4

TSL 7

Figure 10.7.2 Effects of Considered Water Heater Energy Conservation Standards on Average U.S. Wellhead

Natural Gas Prices

10.7.3 Impact of Changes in Natural Gas Price on Gas Users

Although NEMS indicates that amended standards for water heaters would reduce natural gas prices by only a small amount, the associated economy-wide savings in natural gas expenditures during the forecast period are substantial. For each TSL, DOE calculated the nominal savings in total natural gas expenditures in each year by multiplying the annual change in the average-user price for natural gas by the total annual U.S. natural gas consumption forecast by NEMS. c The amended standards would continue to reduce demand for natural gas after 2030 (which is the last year in the NEMS forecast). DOE’s estimate for 2031–2045 (the period used to estimate the NPV of the national consumer benefits from amended standards) multiplied the average gas price reduction in 2015–2030 by estimated total annual gas consumption in 2031–2045. d DOE then discounted the stream of reduced expenditures to

calculate a NPV.

Table 10.7.2 shows the calculated NPV of the economy-wide savings in natural gas expenditures for each considered TSL at 3-percent and 7-percent discount rates. The need to extrapolate price effects and gas consumption beyond 2030 suggests that one should interpret the

c The average user includes electric utilities. Presumably the decrease in expenditures of natural gas that they experience would largely be passed on to electricity consumers.

d The estimation of gas consumption after 2030 uses the average annual growth rate in 2026-2030 from the AEO 2009 Reference projection.

10-32post-2030 results as a rough indication of the benefits to natural gas users in the post-2030 period.

Table 10.7.2	 Cumulative NPV of the Economy-Wide Savings in Natural Gas Expenditures Due to the Projected Decline in Natural Gas Prices Resulting from Amended

Standards for Water Heaters*

Discount Rate TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 billion $2008 3 percent 3.0 4.5 5.1 5.6 7.1 23.6 47.7 7 percent 1.4 2.2 2.5 2.7 3.4 12.0 24.2

* Impacts for units sold from 2015 to 2045

10.7.4 Components of the Benefit

A decline in natural gas consumption may lower natural gas prices for two primary reasons. One reason is that decreasing consumption would lower the output of existing natural gas production capacity, leading to increased competition and downward pressure on prices. A second reason is that reduced consumption slows the depletion of low-cost gas reserves, lowers the future cost of finding and extracting natural gas resources, and dampens expectations for future prices.

When gas prices drop in response to a lower output of existing natural gas production capacity, consumers benefit, but producers suffer. In economic terms, the situation represents a benefits transfer to consumers (whose expenditures fall) from producers (whose revenue falls equally). e When prices decrease because extraction costs decline, however, consumers and producers both benefit, and the change in natural gas prices represents a net gain to society. Consumers benefit from the lower prices, and producers, whose revenues and costs both fall, are

made no worse off.

The short-term impact of lower consumption on natural gas price likely results from changes in the utilization of natural gas production and capacity. It is likely that reduced consumption has only a short-term impact on capacity utilization in the natural gas industry. Producers can adjust to changes in consumption in the long term by either increasing or decreasing investments in infrastructure to bring capacity utilization rates back to original levels.

The long-term impact on natural gas prices probably results from changes in extraction costs. Natural gas is an exhaustible resource, and conventional natural gas sources are limited. When those low-cost sources are depleted, producers must turn to higher-cost sources of natural gas, at which point extraction costs and wellhead prices will increase. Reduced demand creates downward pressure on extraction costs and prices because it delays the depletion of low-cost reserves and forestalls a shift toward higher-cost sources.

e Gas producers include domestic, other North American, and overseas LNG producers. The proportion of domestic producers is expected to decline in the future.

10-33Because the NEMS is a complex model, it is difficult to determine exactly how much of the model-estimated drop in natural gas price in any given year is explained by a decrease in utilization of capacity, and how much is explained by a decrease in extraction costs. One would expect, however, that most of the forecasted price decline after 2015 is caused by a decline in extraction costs. Supporting evidence for this conclusion derives from comparing the sources of natural gas drawn upon to supply consumers in the base case (without standards) and the standards cases of the model runs. The three principal sources of natural gas considered in NEMS for 2030 are termed conventional sources, unconventional sources, and imports [primarily liquefied natural gas (LNG) imports]. Conventional sources are the lowest-cost, and imports are the highest-cost source of natural gas, as forecast by NEMS.

The effect of standards on extraction costs is revealed by comparing the rate of natural gas production from the three natural gas sources in model runs for the base case with the rates for the standards cases. As shown in the recent furnace/boiler rulemaking (see the TSD, chapter 10), NEMS indicates that standards produce decreases in natural gas production from all three sources, but production from the higher-cost sources declines most of all. This result suggests that, based on the NEMS model, energy conservation standards decrease future costs for natural gas extraction because they result in decreased rates of depletion of low-cost natural gas supplies and decreased imports of high-cost LNG. This result further suggests that a large part of the long-term decreases in wellhead prices forecasted by the NEMS represents both a benefit to consumers of natural gas and a net benefit to society.

10-34REFERENCES

1. U.S. Department of Energy - Energy Information Administration, Annual Energy Outlook 2008 (Revised Early Release) with Projections to 2030 , 2008. Washington, DC. Report No. DOE/EIA-0383(2008).

2. Ryan Wiser, Mark Bolinger, and Matt St. Clair, Easing the Natural Gas Crisis: Reducing Natural Gas Prices through Increased Deployment of Renewable Energy and Energy Efficiency, January, 2005. Lawrence Berkeley National Laboratory. Report No. 56756.

3. Natural Gas, Fuel Diversity and North American Energy markets, September 2003. Energy Modeling Forum, Stanford University. Report No. EMF Report 20.

4. Balancing Natural Gas Policy - Fueling the Demands of a Growing Economy, Vol. I Summary of Findings and Recommendations, September 25, 2003. National Petroleum

Council.

5. National Commission on Energy Policy, Increasing U.S. Natural Gas Supplies: A Discussion Paper and Recommendations from the National Commission on Energy Policy, October, 2003. < www.energycommission.org >

10-35