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
 

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LIST 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
 

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Table 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
 

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CHAPTER 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 

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4 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: 

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EF = 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) 

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TSL 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. 

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10.3 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 energy 

efficiencies 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 

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up” 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 

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Table 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. 

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Table 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 

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Table 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 in 

the 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. 

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Table 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 

AffStock y S i ( ) = ( ) × Surv (y − i) class ∑ class class 

i=stdyr 

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The 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 UECbase,class and UECstd,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 (STOCKV) 

• 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). 

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Table 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). 

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8.0 

9.0 

10.0 

11.0 

12.0 

13.0 

14.0 

15.0 

16.0 

17.0 

2015 2020 2025 2030 2035 2040 2045 

UEC (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 

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800 

1000 

1200 

1400 

1600 

1800 

2000 

2200 

2400 

2600 

2800 

2015 2020 2025 2030 2035 2040 2045 

UEC (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. 

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Table 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 

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probability 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: 

UECbase 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. 

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0 

2000 

4000 

6000 

8000 

10000 

12000 

14000 

2005 2010 2015 2020 2025 2030 

Btu/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 

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of 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 

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forecasted 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). 

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Table 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) 

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10.5.2.4 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
 

yP = 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. 

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10.5.2.6 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. 

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Table 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. 

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Table 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. 

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Table 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 the 

non-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 

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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 2045 

Billions 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 

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survive 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 

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10.6.4.2 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 

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10.7 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 Bollinger2 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. 

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Table 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 Council4 and the National Commission on Energy Policy5 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. 

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Change 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 2030 

quads 

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 impacts 

of 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. 

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Change in Wellhead Prices 

-0.20 

-0.15 

-0.10 

-0.05 

0.00 

0.05 

2015 2018 2021 2024 2027 2030 

2008$/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. 

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post-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. 

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Because 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. 

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REFERENCES
 

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> 

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