### CHAPTER 10: NATIONAL IMPACT ANALYSIS

TABLE OF CONTENTS

10.1 INTRODUCTION

......................................................................................................... 10-1 10.2 FORECASTED ENERGY EFFICIENCIES

................................................................. 10-1 10.2.1 Water Heaters

................................................................................................................. 10-2 10.2.2 Pool Heaters

................................................................................................................... 10-4 10.2.3 Direct Heating Equipment

............................................................................................. 10-5 10.3 NATIONAL ENERGY SAVINGS

............................................................................... 10-6 10.3.1 Definition of National Energy Savings

.......................................................................... 10-6 10.3.2 Inputs to National Energy Savings

................................................................................ 10-7 10.3.2.1 Annual Energy Consumption per Unit

........................................................ 10-7 10.3.2.2 Shipments and Equipment Stock

............................................................... 10-11 10.3.2.3 National Annual Energy Consumption

...................................................... 10-11 10.3.2.4 Site-to-Source Energy Conversion Factors

................................................ 10-12 10.4 NET PRESENT VALUE

............................................................................................. 10-13 10.4.1 Definition of Net Present Value

................................................................................... 10-13 10.4.2 Inputs to Calculation of Net Present Value

.................................................................. 10-14 10.4.2.1 Total Installed Cost per Unit

...................................................................... 10-15 10.4.2.2 Annual Operating Cost Savings per Unit

................................................... 10-17 10.4.2.3 Total Increases in Annual Installed Cost

................................................... 10-17 10.4.2.4 Total Savings in Annual Operating Cost

................................................... 10-17 10.4.2.5 Discount Factors

........................................................................................ 10-18 10.4.2.6 Present Value of Costs

............................................................................... 10-18 10.4.2.7 Present Value of Savings

........................................................................... 10-18 10.5 CALCULATION RESULTS

....................................................................................... 10-19 10.5.2 National Energy Savings Results

................................................................................. 10-20 10.5.2.1 Water Heaters

............................................................................................. 10-20 10.5.2.2 Pool Heaters

............................................................................................... 10-22 10.5.2.3 Direct Heating Equipment

......................................................................... 10-22 10.5.3 Annual Costs and Savings

........................................................................................... 10-24 10.5.4 Net Present Value Results

............................................................................................ 10-25 10.5.4.1 Water Heaters

............................................................................................. 10-25 10.5.4.2 Pool Heaters

............................................................................................... 10-27 10.5.4.3 Direct Heating Equipment

......................................................................... 10-28 10.6 IMPACT OF STANDARDS ON NATURAL GAS PRICES AND ASSOCIATED CONSUMER BENEFITS

.................................................................. 10-28 10.6.2 Impact of Changes in Natural Gas Price on Users

....................................................... 10-32 10.6.3 Components of the Benefit

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

LIST OF TABLES

Table 10.2.1 Gas-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015

.... 10-3 Table 10.2.2 Electric Storage Water Heaters: Energy Efficiency Distributions in 2015

....... 10-3

10-i

### Table 10.2.3 Oil-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015

..... 10-3 Table 10.2.4 Gas-Fired Instantaneous Water Heaters: Energy Efficiency Distributions in 2015

............................................................................................................... 10-4 Table 10.2.5 Pool Heaters: Energy Efficiency Distributions in 2013

..................................... 10-4 Table 10.2.6 Gas Wall Fan Direct Heating Equipment: Energy Efficiency Distributions in 2013

............................................................................................................... 10-5 Table 10.2.7 Gas Wall Gravity Direct Heating Equipment: Energy Efficiency Distributions in 2013

.......................................................................................... 10-5 Table 10.2.8 Gas Room Direct Heating Equipment: Energy Efficiency Distributions in 2013

.................................................................................................................... 10-6 Table 10.2.9 Gas Floor Direct Heating Equipment: Energy Efficiency Distributions in 2013

.................................................................................................................... 10-6 Table 10.3.1 Water Heaters: Shipments-Weighted Average per-Unit Annual Energy Consumption in 2015

......................................................................................... 10-8 Table 10.3.2 Pool Heaters: Shipments-Weighted Average per-Unit Annual Energy Consumption

.................................................................................................... 10-10 Table 10.3.3 Direct Heating Equipment: Shipments-Weighted Average per-Unit Annual Energy Consumption

....................................................................................... 10-11 Table 10.4.1 Water Heaters: Shipments-Weighted Average per-Unit Total Installed Cost in 2015

..................................................................................................... 10-15 Table 10.4.2 Pool Heaters: Shipments-Weighted Average Per-Unit Total Installed Costs

.. 10-16 Table 10.4.3 Direct Heating Equipment: Shipments-Weighted Average per-Unit Total Installed Costs

.................................................................................................. 10-16 Table 10.5.1 Inputs to National Energy Savings and Net Present Value

.............................. 10-19 Table 10.5.2 Gas-Fired Storage Water Heaters: Cumulative National Energy Savings

....... 10-20 Table 10.5.3 Electric Storage Water Heaters: Cumulative National Energy Savings

.......... 10-21 Table 10.5.4 Oil-Fired Storage Water Heaters: Cumulative National Energy Savings

........ 10-21 Table 10.5.5 Gas-Fired Instantaneous Water Heaters: Cumulative National Energy Savings

............................................................................................................. 10-22 Table 10.5.6 Pool Heaters: Cumulative National Energy Savings

....................................... 10-22 Table 10.5.7 Gas Wall Fan Direct Heating Equipment: Cumulative National Energy Savings

............................................................................................................. 10-23 Table 10.5.8 Gas Wall Gravity Direct Heating Equipment: Cumulative National Energy Savings

............................................................................................................. 10-23 Table 10.5.9 Gas Room Direct Heating Equipment: Cumulative National Energy Savings

............................................................................................................. 10-23 Table 10.5.10 Gas Floor Direct Heating Equipment: Cumulative National Energy Savings

............................................................................................................. 10-24 Table 10.5.11 Gas-Fired Storage Water Heaters: Cumulative Net Present Value

................. 10-26 Table 10.5.12 Electric Storage Water Heaters: Cumulative Net Present Value

..................... 10-26 Table 10.5.13 Oil-Fired Water Heaters: Cumulative Net Present Value

................................ 10-27 Table 10.5.14 Gas-Fired Instantaneous Water Heaters: Cumulative Net Present Value

........ 10-27 Table 10.5.15 Pool Heaters: Cumulative Net Present Value Results

..................................... 10-28 Table 10.5.16 Direct Heating Equipment: Cumulative Net Present Value

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

10-ii

### Table 10.6.1

Table 10.6.2 Energy Efficiency Levels in Scenarios Used to Analyze Impacts on Natural Gas Price ............................................................................................. 10-29 Natural Gas Inverse Price Elasticity from Seven Energy Models ................... 10-30

LIST OF FIGURES
Figure 10.3.1
Figure 10.3.2 Figure 10.3.3 Figure 10.5.2
Figure 10.6.2
Figure 10.6.3 Gas-Fired Storage Water Heaters: Forecasted Trends in Average Energy Use ..................................................................................................................... 10-9 Electric Storage Water Heaters: Forecasted Trends in Average Energy Use.... 10-9 Site-to-Source Conversion Factors for Electricity........................................... 10-13 Non-Discounted Increases in Annual Installed Cost and Savings in Operating Cost for Gas-Fired Storage Water Heaters: Efficiency Level 2 ..... 10-25 Change in U.S. Natural Gas Consumption Associated with Scenarios for Water Heater Standards ................................................................................... 10-31 Effects of Water Heater Standard Scenarios on Average Natural Gas Prices at U.S. Wellheads.................................................................................. 10-31

10-iii

### 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 of the considered appliances 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 installed costs.

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, 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 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 determination, describes how each product’sper-unit energy consumption changes as a function of energy efficiency. For the NPV, the perunit 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 as a starting point the shipments-weighted energy efficiency for 2015. To represent the distribution of product

10-1

### energy efficiencies in 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), DOE examined the projected trend between the present and 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. The result that the market share of 0.80-EF gas-fired storage water heaters increases from zero at present to 2.5 percent in 2015; the market share of 2.20-EF electric storage water heaters increases from zero at present to 5 percent in 2015. The projected trend to 2015 represents an average annual increase in energy efficiency of 0.27 percent for gas-fired storage water heaters and 0.55 percent for electric storage water heaters. DOE applied the above values to estimate the increase in average energy efficiency (and the decrease in corresponding unit energy consumption) in each year through 2043. Because DOE set water heater utilization to remain constant throughout the forecast, trends in average energy consumption are indicative of trends in average energy efficiency.
Because DOE found no quantifiable indications of change in energy efficiencies over time for the oil-fired and instantaneous gas water heater product classes, direct heating equipment (DHE), and pool heaters, DOE estimated that energy efficiencies remain frozen at the 2015 or 2013 level until the end of the forecast period in 2043.
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 up” to meet the new standards level. Product energy efficiencies in the base case that exceeded the standards 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.

10.2.1 Water Heaters The market shares of energy efficiencies in the base case for water heaters are developed in chapter 8. Tables 10.2.1 through 10.2.4 show the distributions of product energy efficiencies that DOE used in its NIA for water heaters, as well as the shipments-weighted energy factor (SWEF) for each considered efficiency level.

10-2

### Table 10.2.1 Gas-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015 Energy Energy Market Share Efficiency Efficiency Base Efficiency Level Level Case 1 2 3 4 5 6 Baseline 0.59 82% 1 0.62 7% 89% 2 0.63 2% 2% 91% 3 0.64 1% 1% 1% 93% 4 0.65 2% 2% 2% 2% 94% 5 0.66 3% 3% 3% 3% 3% 98% 6 0.77 2% 2% 2% 2% 2% 2% 100% SWEF 0.60 0.63 0.63 0.64 0.65 0.66 0.77


### Table 10.2.2 Electric Storage Water Heaters: Energy Efficiency Distributions in 2015 Energy Energy Market Share Efficiency Efficiency Base Efficiency Level Level Case 1 2 3 4 5 6 Baseline 0.9 54% 1 0.91 22% 77% 2 0.92 6% 6% 82% 3 0.93 11% 11% 11% 93% 4 0.94 1% 1% 1% 1% 94% 5 0.95 1% 1% 1% 1% 1% 95% 6 2.2 5% 5% 5% 5% 5% 5% 100% SWEF 0.97 0.98 0.98 0.99 1.00 1.01 2.20


### Table 10.2.3 Oil-Fired Storage Water Heaters: Energy Efficiency Distributions in 2015 Energy Energy Market Share Efficiency Efficiency Base Efficiency Level Level Case 1 2 3 4 5 6 7 Baseline 0.53 27% 1 0.54 7% 34% 2 0.56 0% 0% 34% 3 0.58 3% 3% 3% 37% 4 0.6 18% 18% 18% 18% 55% 5 0.62 27% 27% 27% 27% 27% 82% 6 0.66 9% 9% 9% 9% 9% 9 % 91% 7 0.68 9% 9% 9% 9% 9% 9% 9% 100% SWEF 0.59 0.60 0.60 0.61 0.62 0.63 0.66 0.68

10-31 2 3 4 5 6 7 

### Table 10.2.4 Gas-Fired Instantaneous Water Heaters: Energy Efficiency Distributions in 2015 Energy Energy Market Share Efficiency Efficiency Base Efficiency Level Level Case 1 2 3 4 5 6 7 Baseline 0.62 0% 0.69 0% 0% 0.78 1% 1% 1% 0.8 13% 13% 13% 14% 0.82 57% 57% 57% 57% 71% 0.84 15% 15% 15% 15% 15% 86% 0.85 11% 11% 11% 11% 11% 11% 97% 0.92 3% 3% 3% 3% 3% 3% 3% 100% SWEF 0.83 0.83 0.83 0.83 0.83 0.84 0.85 0.92


### For oil-fired storage water heaters and for gas-fired instantaneous water heaters, DOE maintained the shipments-weighted energy efficiencies projected for 2015 throughout the forecast period.

10.2.2 Pool Heaters The market shares of energy efficiencies in the base case for pool heaters are developed in chapter 8. Table 10.2.5 shows the distributions for the base- and standards-case product energy efficiency for 2013, which DOE used in its NIA for pool heaters. Also included in the table is the shipments-weighted energy efficiency associated with the base case and each considered standard level.
Table 10.2.5 Pool Heaters: Energy Efficiency Distributions in 2013 Energy Thermal Market Share Efficiency Efficiency Base Efficiency Level Level (%) Case 1 2 3 4 5 6 7 8 Baseline 78 1% 1 79 13% 14% 2 81 21% 21% 35% 3 82 33% 33% 33% 68% 4 83 14% 14% 14% 14% 81% 5 84 12% 12% 12% 12% 12% 93% 6 86 6% 6% 6% 6% 6% 6% 99% 7 90 0% 0% 0% 0% 0% 0% 0% 99% 8 95 1% 1% 1% 1% 1% 1% 1% 1% 100% SWEF 82.1 82.1 82.4 82.7 83.4 84.2 86.1 90.1 95.0


### DOE maintained the shipments-weighted energy efficiencies for 2013 throughout the forecast period (2013–2043).

10-4

### 10.2.3 Direct Heating Equipment The market shares of energy efficiencies in the base case for direct heating equipment are developed in chapter 8. Tables 10.2.6 through 10.2.9 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 standard level.
Table 10.2.6	 Gas Wall Fan Direct Heating Equipment: Energy Efficiency Distributions in 2013 Energy AFUE* Market Share Efficiency (%) Base Efficiency Level Level Case 1 2 3 4 Baseline 74 48% 1 75 12% 60% 2 76 19% 19% 79% 3 77 19% 19% 19% 98% 4 80 2% 2% 2% 2% 100% Shipments-Weighted AFUE 75.2 75.7 76.3 77.1 80.0

* Annual fuel utilization efficiency 

### Table 10.2.7	 Gas Wall Gravity Direct Heating Equipment: Energy Efficiency Distributions in 2013 Energy Market Share Efficiency AFUE (%) Base Efficiency Level Level Case 1 2 3 4 5 Baseline 64 46% 1 66 21% 67% 2 68 33% 33% 100% 3 71 0% 0% 0% 100% 4 72 0% 0% 0% 0% 100% 5 75 0% 0% 0% 0% 0% 100% Shipments-Weighted AFUE 65.7 66.7 68.0 71.0 72.0 75.0

10-51 2 3 4 5 6 7 

### Table 10.2.8 Gas Room Direct Heating Equipment: Energy Efficiency Distributions in 2013 Energy AFUE Market Share Efficiency (%) Base Efficiency Level Level Case 1 2 3 4 5 6 7 Baseline 64 40% 65 25% 65% 66 15% 15% 80% 67 11% 11% 11% 91% 68 5% 5% 5% 5% 96% 70 2% 2% 2% 2% 2% 98% 78 2% 2% 2% 2% 2% 2% 100% 93 0% 0% 0% 0% 0% 0% 0% 100%ShipmentsWeighted AFUE 65.5 65.9 66.5 67.3 68.2 70.1 78.0 93.0



### Table 10.2.9 Gas Floor Direct Heating Equipment: Energy Efficiency Distributions in 2013 Energy AFUE Market Share Efficiency (%) Base Efficiency Level Level Case 1 2 3 4 5 Baseline 57 22% 1 58 78% 100% 2 61 0% 0% 100% 3 62 0% 0% 0% 100% 4 65 0% 0% 0% 0% 100% 5 78 0% 0% 0% 0% 0% 100% Shipments-Weighted AFUE 57.8 58.0 61.0 62.0 65.0 78.0



### As noted previously, DOE assumed that energy efficiencies for all product classes of direct heating equipment remain frozen at 2013 levels.

10.3 NATIONAL ENERGY SAVINGS The following sections discuss the definition of NES and the inputs to calculations of NES.

10.3.1 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

## )class 

### = AffStock

## (y

## )class 

### × 

# ( UEC(y) base,class 

### − UEC(y) std ,class 

# )

10-6

### 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

class 

### = 

# ∑ ( )class 

### × Surv

## (y
− i

## )class 

### AffStock y S i

i=stdyr 

### 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 

### 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 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 2015–2043 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.



### 10.3.2 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)



### 10.3.2.1 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 (chapter 7, energy use determination, and chapter 8, life-cycle cost and payback period analyses). Because per-unit annual energy consumption is directly dependent on energy efficiency, DOE used the shipments-weighted energy efficiencies

10-7

### 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 10.3.1).


### Table 10.3.1	 Water Heaters: Shipments-Weighted Average per-Unit Annual Energy Consumption in 2015
Product Base Efficiency Level

Class Case 1 2 3 4 5 6 7 EF 0.59 0.62 0.63 0.64 0.65 0.66 0.77

GSWH* Annual Energy

Use (MMBtu/ yr†) 16.4 15.6 15.3 15.2 14.9 14.7 12.7
EF 0.90 0.91 0.92 0.93 0.94 0.95 2.20

ESWH‡ Annual Energy

Use (kWh/yr§) 2,612 2,589 2,558 2,526 2,490 2,455 1,478

EF 0.53 0.54 0.56 0.58 0.60 0.62 0.66 0.68

OSWH# Annual Energy

Use (MMBtu/ yr) 17.3 17.2 16.9 16.7 16.4 16.0 15.3 14.9

EF 0.62 0.69 0.78 0.80 0.82 0.84 0.85 0.92

GIWH′′ Annual Energy

Use (MMBtu/ yr) 12.4 12.4 12.4 12.4 12.4 12.2 12.1 11.3 * Gas-fired storage water heater. † Thousand thousand (million) British thermal units per year. ‡ Electric storage water heater. § Kilowatt-hours per year. # Oil-fired storage water heater.

′′ Gas-fired instantaneous water heater.

10-8

### When calculating energy consumption at each considered efficiency level for each water heater, DOE applied a rebound effect of 10 percent. As discussed in chapter 8, when the rebound effect is incorporated, calculated energy use is higher than if no rebound effect were considered.

17.0UEC (MMBtu) 16.0

15.0

14.0

13.0

12.0 2015 2020 2025 2030 2035 2040 2045

Base Case CSL 1 CSL 2 CSL 3 CSL 4 CSL 5 CSL 6 

### Figure 10.3.1	 Gas-Fired Storage Water Heaters: Forecasted Trends in Average Energy Use

2800

2600

2400

2200UEC (kWh) 2000

1800

1600

1400

1200

1000 2015 2020 2025 2030 2035 2040 2045 Base Case CSL 1 CSL 2 CSL 3 CSL 4 CSL 5 CSL 6 

### Figure 10.3.2	 Electric Storage Water Heaters: Forecasted Trends in Average Energy Use 10-9

### 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 (shown in Table 10.3.1) mirrors the trends in energy efficiency.



### Pool Heaters. DOE used the relationship between pool heater energy efficiency and annual energy consumption described in chapter 8 to calculate per-unit annual gas consumption for pool heaters. The calculations were based on the shipments-weighted energy efficiencies that correspond to the base case and each considered efficiency level (Table 10.3.2).


### Table 10.3.2	 Pool Heaters: Shipments-Weighted Average per-Unit Annual Energy Consumption

Base Case Efficiency Level 1 2 3 4 5 6 7 8 Thermal Efficiency (%) 78 79 81 82 83 84 86 90 95 Annual Energy Use (MMBtu/yr) 50.9 50.9 50.7 50.5 49.4 49.0 48.1 46.2 44.1


### When calculating energy consumption at each considered efficiency level for each pool heater, DOE applied a rebound effect of 10 percent. As discussed in chapter 8, 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 frozen at 2013 levels. Because per-unit annual energy consumption is a function of energy efficiency, DOE held the values shown in Table 10.3.2 constant throughout the forecast period.


### Direct Heating Equipment. Using the relationship between the EF of each direct heating equipment product and the annual energy consumption described in chapter 8, DOE calculated the per-unit annual energy consumption of direct heating equipment products. 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 (Table 10.3.3).

10-10

### Table 10.3.3 Direct Heating Equipment: Shipments-Weighted Average per-Unit Annual Energy Consumption
Product

Class Base Case Efficiency Level 1 2 3 4 5 6 7 Gas Wall Fan DHE AFUE (%) 74 75 76 77 80
Gas (MMBtu/yr) 26.4 25.8 25.6 25.4 24.6 Gas Wall Gravity

DHE AFUE (%) 64 66 68 71 72 75
Gas (MMBtu/yr) 29.0 28.6 28.2 27.2 26.3 25.4

Gas Room DHE AFUE (%) 64 65 66 67 68 70 78 93
Gas (MMBtu/yr) 21.6 21.5 21.3 21.1 20.9 19.8 18.1 15.8

Gas Floor DHE AFUE (%) 57 58 61 62 65 78
Gas (MMBtu/yr) 30.0 29.9 28.8 28.4 26.2 22.6


### When calculating energy consumption at each considered efficiency level for each direct heating equipment product, DOE applied a rebound effect of 15 percent. As discussed in chapter 8, 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 frozen at 2013 levels. Because per-unit annual energy consumption is a function of energy efficiency, DOE held the values shown in Table 10.3.3 constant throughout the forecast period.



### 10.3.2.2 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 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.



### 10.3.2.3 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.

10-11

### AEC

## (y

## )class 

### = UECbase, 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.
10.3.2.4 Site-to-Source Energy Conversion Factors In determining annual NES, DOE initially considered the annual energy consumption at a residence (for electricity, the energy in kWh consumed by the household). 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) that corresponds to the DOE Energy Information 1 

### Administration’s (EIA’s) Annual Energy Outlook 2008 (AEO 2008). The factors 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. The AEO 2008 forecasts losses of about 7 percent for natural gas, with only slight variation from year to year. 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). NEMS outputs stop in 2030; DOE assumed that conversion factors remain constant at 2030 values throughout the rest of the forecast. Figure 10.3.3 shows the site-to-source conversion factors for electricity between 2005 and 2030. The conversion factor for natural gas increases slightly from 1.083 Btu in 2005 to 1.097 Btu in 2030.

10-12

### 0 2000 4000 6000 8000 10000 12000 14000

2005 2010 2015 2020 2025 2030Btu/kWh



### Figure 10.3.3 Site-to-Source Conversion Factors for Electricity

10.4 NET PRESENT VALUE The following sections provide the definition of NPV and inputs to the calculation of NPV.



### 10.4.1 Definition of Net Present Value The NPV is the value in the present of a combination of costs and savings. 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.

10-13

### 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 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.



### 10.4.2 Inputs to Calculation of Net Present Value The inputs to calculations of 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.

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### 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 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.



### 10.4.2.1 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.



### 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 10.4.1). 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 10.4.1	 Water Heaters: Shipments-Weighted Average per-Unit Total Installed Cost in 2015

Product

Class Base Case (2015) Efficiency Level

1 2 3 4 5 6 7 EF 0.59 0.62 0.63 0.64 0.65 0.66 0.77 Gas Storage Total Installed Cost (2007$) 1,023 1,035 1,050 1,514 1,526 1,541 1,782 EF 0.90 0.91 0.92 0.93 0.94 0.95 2.20 Electric Storage Total Installed Cost (2007$) 713 720 726 748 794 819 1,475
EF 0.53 0.54 0.56 0.58 0.60 0.62 0.66 0.68 Oil Storage Total Installed Cost (2007$) 1,865 1,869 1,882 1,888 1,885 1,898 2,088 2,227 EF 0.62 0.69 0.78 0.80 0.82 0.84 0.85 0.92

GIWH Total Installed Cost (2007$) 1,918 1,918 1,918 1,919 1,924 1,949 1,964 2,258


### As noted in section 10.2, DOE assumed that forecasted energy efficiencies in the base and standards cases remain frozen at the levels existing in the effective year of the standard. Because per-unit total installed costs are a function of energy efficiency, DOE maintained the values shown in Table 10.4.1 constant throughout the forecast period.

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### 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, presented in chapter 8, between pool heater efficiency and total installed cost, 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 10.4.2).


### Table 10.4.2	 Pool Heaters: Shipments-Weighted Average Per-Unit Total Installed Costs
Base Case Efficiency Level 1 2 3 4 5 6 7 8 Thermal Efficiency (%) 78 79 81 82 83 84 86 90 95 Total Installed Cost (2007$) 2,473 2,473 2,476 2,493 2,587 2,630 2,676 3,062 3,267


### As described in section 10.2, DOE assumed that forecasted energy efficiencies in the base and standards cases remain frozen at 2013 levels. Because per-unit total installed costs are a function of energy efficiency, DOE held the values shown in Table 10.4.2 constant throughout the forecast period.


### 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, presented in chapter 8, between the annual fuel utilization efficiency (AFUE) for direct heating equipment and total installed cost, 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 10.4.3).


### Table 10.4.3	 Direct Heating Equipment: Shipments-Weighted Average per-Unit Total Installed Costs
Product Base Efficiency Level

Class Case 1 2 3 4 5 6 7 AFUE ( %) 74 75 76 77 80 Gas Wall Fan DHE* Total Installed Cost (2007$) 1,825 1,854 1,872 1,902 2,023 Gas Wall AFUE ( %) 64 66 68 71 72 75 Gravity

DHE Total Installed Cost (2007$) 1,413 1,441 1,452 1,518 1,767 1,893

AFUE ( %) 64 65 66 67 68 70 78 93 Gas Room DHE Total Installed Cost (2007$) 1,485 1,500 1,523 1,551 1,583 1,810 1,933 2,377

AFUE ( %) 57 58 61 62 65 78 Gas Floor DHE Total Installed Cost (2007$) 2,038 2,046 2,078 2,111 2,360 2,486 

### * Direct heating equipment.

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### 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 total installed cost 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 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.
Estimates of per-unit annual energy consumption for the base case and each standards case were presented in section 10.3.2.1. As described previously, DOE forecasted the per-unit annual energy consumption for the base case and each standards case for gas storage water heaters and electric storage water heaters based on the estimated market impact of the new ENERGY STAR efficiency levels for water heaters.
For all other products, DOE forecasted the per-unit annual energy consumption for the base case and each standards case by freezing the consumption at levels estimated for the effective year. DOE forecasted energy prices based on EIA’s AEO2008. The energy prices and price trends are described in chapter 8.



### 10.4.2.3 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)



### 10.4.2.4 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., a warmer indoor environment). The net impact is the sum of the change in the cost of owning the heating product (that is, national

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### 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. The national economic impacts on consumers with or without the rebound effect, as measured by the NPV analysis, therefore are the same.



### 10.4.2.5 Discount Factors 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 =

_ 

### (1 + r) ( y y p )



### 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 2007.



### 10.4.2.6 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.



### 10.4.2.7 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. 10-18

### 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.



### 10.5 CALCULATION 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 10.5.1 summarizes inputs to the NIA model.


### Table 10.5.1 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 AEO2008 forecasts (to 2030) and on extrapolation to 2043 (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 the year 2007. * Chapter 13 in the Utility Impact Analysis and the Environmental Assessment Report provide more detail on

NEMS. 10-191 2 3 4 5 6 

### 10.5.2 National Energy Savings Results The following sections provide results of calculating NES for each of the three heating products in the standards cases. NES results, which are cumulative to 2043, are shown as 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.



### 10.5.2.1 Water Heaters Tables 10.5.2 through 10.5.5 show the NES results for the standard levels analyzed for water heaters. The largest savings by far are associated with electric water heaters at level 6, which calls for a heat pump water heater. For this efficiency level, DOE estimated the increased cost of switching from an electric heat pump water heater to a gas water heater for each gas water heater efficiency level (see chapter 9.) The NES results that account for switching (Table 10.5.3) include the reduced electricity savings associated with fewer heat pump water heaters, as well as the gas consumption of the gas water heaters that some households switch to. Estimated energy savings decrease slightly when switching is included, because the gas-fired water heater designs use slightly more energy than does an electric heat pump water heater.


### Table 10.5.2 Gas-Fired Storage Water Heaters: Cumulative National Energy Savings Energy NES Efficiency Level EF No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 0.62 0.98 0.49 0.21 0.63 1.31 0.65 0.28 0.64 1.24 0.61 0.27 0.65 1.56 0.77 0.33 0.66 1.88 0.93 0.40 0.77 4.26 2.11 0.91

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### Table 10.5.3 Electric Storage Water Heaters: Cumulative National Energy Savings
Energy Efficiency Level EF NES

No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 1 0.91 0.24 0.12 0.05 2 0.92 0.58 0.28 0.12 3 0.93 0.93 0.46 0.20 4 0.94 1.32 0.65 0.28 5 0.95 1.71 0.84 0.36 6 - No Switching 6 - Switching with GSWH efficiency level 6 2.2

2.2 8.70

8.47 4.27

4.17 1.83

1.79 6 - Switching with GSWH efficiency level 5 2.2 8.35 4.12 1.77 6 - Switching with GSWH efficiency level 4 2.2 8.33 4.43 1.99 6 - Switching with GSWH efficiency level 3 2.2 8.32 4.10 1.76 6 - Switching with GSWH efficiency level 2 2.2 7.75 3.85 1.66 6 - Switching with GSWH efficiency level 1 2.2 7.71 3.83 1.65


### Table 10.5.4 Oil-Fired Storage Water Heaters: Cumulative National Energy Savings Energy NES Efficiency Level EF No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 1 0.54 0.001 0.001 0.000 2 0.56 0.004 0.002 0.001 3 0.58 0.006 0.003 0.001 4 0.60 0.008 0.004 0.002 5 0.62 0.011 0.006 0.002 6 0.66 0.018 0.009 0.004 7 0.68 0.022 0.011 0.005

10-211 2 3 4 5 6 7

1

2 3 4 5 6 7 8 

### Table 10.5.5 Gas-Fired Instantaneous Water Heaters: Cumulative National Energy Savings Energy NES Efficiency Level EF No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 0.69 0.00 0.00 0.00 0.78 0.00 0.00 0.00 0.80 0.00 0.00 0.00 0.82 0.02 0.01 0.00 0.84 0.14 0.07 0.03 0.85 0.21 0.10 0.04 0.92 0.69 0.33 0.13



### 10.5.2.2 Pool Heaters Table 10.5.6 shows results of calculating the NES for the efficiency levels analyzed for pool heaters.


### Table 10.5.6 Pool Heaters: Cumulative National Energy Savings Energy Thermal NES Efficiency Level Efficiency (%) No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 79 0.001 0.000 0.000 81 0.020 0.010 0.005 82 0.043 0.022 0.010 83 0.171 0.087 0.039 84 0.222 0.113 0.051 86 0.336 0.170 0.077 90 0.560 0.284 0.129 95 0.814 0.413 0.187



### 10.5.2.3 Direct Heating Equipment Tables 10.5.7 through 10.5.10 show the results of calculating NES for the efficiency levels analyzed for direct heating equipment.

10-22

### Table 10.5.7 Gas Wall Fan Direct Heating Equipment: Cumulative National Energy Savings Energy 

### NES Efficiency Level AFUE (%) No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 1 75 0.018 0.009 0.004 2 76 0.024 0.011 0.005 3 77 0.030 0.015 0.006 4 80 0.052 0.025 0.011


### Table 10.5.8 Gas Wall Gravity Direct Heating Equipment: Cumulative National Energy Savings Energy 

### NES Efficiency Level AFUE (%) No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 1 66 0.008 0.004 0.002 2 68 0.020 0.011 0.005 3 71 0.044 0.023 0.011 4 72 0.068 0.036 0.017 5 75 0.087 0.046 0.022


### Table 10.5.9 Gas Room Direct Heating Equipment: Cumulative National Energy Savings Energy 

### NES Efficiency Level AFUE (%) No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 1 65 0.010 0.005 0.002 2 66 0.026 0.013 0.006 3 67 0.045 0.023 0.010 4 68 0.066 0.033 0.015 5 70 0.166 0.084 0.038 6 78 0.301 0.152 0.068 7 93 0.523 0.264 0.118

10-231 2 3 4 5 

### Table 10.5.10 Gas Floor Direct Heating Equipment: Cumulative National Energy Savings

Energy 

### NES Efficiency Level AFUE (%) No Discount (quads) 3% Discount

Rate (quads) 7% Discount

Rate (quads) 58 0.000 0.000 0.000 61 0.000 0.000 0.000 62 0.001 0.000 0.000 65 0.001 0.001 0.000 78 0.002 0.001 0.001



### 10.5.3 Annual Costs and Savings Figure 10.5.1 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 efficiency level 2. The figure also shows net savings, which is the 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.

10-24-$0.20 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 2015 2025 2035 2045Billions of 2007 Dollars Equipment Cost Operating Cost Savings Maintenance and Repair Cost Net Savings



### Figure 10.5.2 Non-Discounted Increases in Annual Installed Cost and Savings in Operating Cost for Gas-Fired Storage Water Heaters: Efficiency Level 2

10.5.4 Net Present Value Results The following sections provide results from calculations of NPV for the efficiency levels considered for the product classes of each considered 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 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.



### 10.5.4.1 Water Heaters Tables 10.5.11 through 10.5.14 show the results of calculating the NPV for the efficiency levels analyzed for each water heater product class. The highest EFs that have positive NPVs are

10-251 2 3 4 5 6

1 1 2 2 3 3 4 4 5 5 6 

### 0.63 for gas-fired storage water heaters, 2.2 for electric storage water heaters, 0.66 for oil-fired storage water heaters, and 0.85 for gas-fired instantaneous water heaters.
Table 10.5.12 shows the effect of consumers potentially switching from electric heat pump water heaters to gas-fired water heaters at efficiency level 6. The NPV results reflect the lower installed and operating costs for the electric heat pump water heaters that some households switch away from, as well as the installed and operating costs for the gas water heaters that they switch to.


### Table 10.5.11 Gas-Fired Storage Water Heaters: Cumulative Net Present Value Energy Efficiency Level EF NPV 3% Discount Rate (billion 2007$) 7% Discount Rate (billion 2007$) 0.62 7.62 2.91 0.63 9.50 3.56 0.64 -22.35 -11.66 0.65 -20.14 -10.87 0.66 -18.34 -10.25 0.77 -13.12 -9.66


### Table 10.5.12 Electric Storage Water Heaters: Cumulative Net Present Value Energy Efficiency Level EF NPV 3% Discount Rate (billion 2007$) 7% Discount Rate (billion 2007$) 0.9 1.94 0.72 0.9 4.84 1.82 0.9 6.58 2.33 0.9 6.78 2.06 0.9 8.63 2.60

2.2 28.08 5.89 6 - No Switching 6 - Switching with GSWH level 6 2.2 27.15 5.60 6 - Switching with GSWH level 5 2.2 26.89 5.55 6 - Switching with GSWH level 4 2.2 26.81 5.52 6 - Switching with GSWH level 3 2.2 26.72 5.49 6 - Switching with GSWH level 2 2.2 24.68 4.87 6 - Switching with GSWH level 1 2.2 24.48 4.80

10-261 2 3 4 5 6 7

1 2 3 4 5 6 7 

### Table 10.5.13 Oil-Fired Water Heaters: Cumulative Net Present Value Energy Efficiency Level EF NPV 3% Discount Rate (billion 2007$) 7% Discount Rate (billion 2007$) 0.54 0.01 0.00 0.56 0.03 0.01 0.58 0.05 0.02 0.60 0.07 0.03 0.62 0.10 0.04 0.66 0.04 0.01 0.68 -0.02 -0.02



### Table 10.5.14 Gas-Fired Instantaneous Water Heaters: Cumulative Net Present Value Energy Efficiency Level EF NPV 3% Discount Rate (billion 2007$) 7% Discount Rate (billion 2007$) 0.69 0.00 0.00 0.78 0.00 0.00 0.8 -0.04 -0.02 0.82 0.06 0.00 0.84 0.54 0.09 0.85 0.81 0.13 0.92 -1.81 -1.78



### 10.5.4.2 Pool Heaters Table 10.5.15 shows the results of calculating the NPV for the efficiency levels analyzed for pool heaters. The highest thermal efficiency that has a positive NPV at 7 percent and 3 percent discount rate is 86 percent (efficiency level 6).

10-271 2 3 4 5 6 7 8

1 2 3 4 5 6 7 

### Table 10.5.15 Pool Heaters: Cumulative Net Present Value Results Energy Efficiency Level Thermal Efficiency (%) NPV 3% Discount Rate (billion 2007$) 7% Discount Rate (billion 2007$) 79 0.007 0.003 81 0.190 0.079 82 0.287 0.110 83 0.922 0.326 84 1.087 0.372 86 1.252 0.410 90 0.030 -0.333 95 0.924 -0.070



### 10.5.4.3 Direct Heating Equipment Table 10.5.16 shows the results of calculating the NPV for the efficiency levels analyzed for each product class of direct heating equipment.


### Table 10.5.16 Direct Heating Equipment: Cumulative Net Present Value

Standard

Level Gas Wall Fan DHE Gas Wall Gravity DHE Gas Room DHE Gas Floor DHE 7% Discount

Rate (billion 2007$) 3% Discount

Rate (billion 2007$) 7% Discount

Rate (billion 2007$) 3% Discount

Rate (billion 2007$) 7% Discount

Rate (billion 2007$) 3% Discount

Rate (billion 2007$) 7% Discount

Rate (billion 2007$) 3% Discount

Rate (billion 2007$) 0.056 0.162 0.022 0.058 0.012 0.048 0.000 0.000 0.066 0.198 0.069 0.170 0.033 0.127 0.002 0.004 0.075 0.235 0.141 0.354 0.056 0.218 0.002 0.004 0.054 0.210 0.078 0.291 0.078 0.313 0.003 0.008 0.053 0.258 -0.017 0.346 0.006 0.014 0.002 0.422 0.001 0.963



### 10.6 IMPACT OF STANDARDS ON NATURAL GAS PRICES AND ASSOCIATED CONSUMER BENEFITS The NIA described in the preceding sections examines the potential impacts of alternative standard levels on consumers of the products being considered. To evaluate potentially important indirect effects of energy efficiency standards on energy users in general, DOE analyzed the potential impact on natural gas prices resulting from new standards on water heaters and the associated benefits for all natural gas consumers in all sectors of the economy. DOE consideredtwo scenarios for standards. The selected efficiency levels scenario consists of standards on gasfired storage water heaters, gas-fired instantaneous water heaters, and electric storage water

10-28

### heaters that reflect the energy efficiency levels found to have the greatest average LCC savings and NPV. The assumed standard is 0.95 EF for electric storage water heaters. a 

### The max-tech scenario encompasses standards on the above products that reflect the identified max-tech energy efficiency levels. The max-tech scenario represents the upper bound for impacts on natural gas prices. Table 10.6.1 shows the energy efficiency levels included in each scenario.


### Table 10.6.1	 Energy Efficiency Levels in Scenarios Used to Analyze Impacts on Natural Gas Price Product Class Selected Efficiency Levels (EF) 

### Max-Tech (EF)
Gas-Fired Storage WH 0.62 0.77 Gas-Fired Instantaneous WH 0.85 0.92 Electric Storage WH 0.95 2.20
DOE’s analysis used a version of the National Energy Modeling System – Building Technology (NEMS-BT) modified to account for natural gas savings associated with possible standards. Like other widely-used energy-economic models, NEMS uses the elasticities in energy price to estimate the 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 inverse price elasticity incorporated in NEMS differs throughout the forecast period in response to the dynamics of natural gas supply and demand. The average value of elasticity during the forecast period is 0.79 in the selected efficiency levels scenario, and 0.81 in the max-tech scenario. A value of 0.79 means that given a one-percent decrease in demand, the price of gas would decline by 0.79 percent.
The average inverse price elasticity reported above is generally consistent with other studies that used versions of NEMS to examine the impacts on natural gas prices resulting from 2 

### reductions in natural gas demand. In a review of such studies, Wiser and Bollinger 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 average values from DOE's current analysis (0.79-0.81) fall in the lower end of that range.
Other widely used, complex energy demand/supply models produce price elasticities that are similar to those incorporated in NEMS. Table 10.6.2 compares the results of several studies that modeled the response of natural gas prices to changes in gas consumption. These results are

a For this notice of public meeting, DOE included no results for a scenario like the selected efficiency levels scenario, but did include a standard that effectively would require a heat pump water heater design. DOE excluded from consideration a scenario similar to the selected efficiency levels scenario, because that scenario incorporates considerable switching from electric to gas-fired water heaters, resulting in only minor savings of natural gas and low potential impacts on natural gas prices. 10-293 

### summarized in a 2003 study by Stanford's Energy Modeling Forum (EMF). 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.


### Table 10.6.2 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 10.6.2, studies have been conducted by the 4 5 

### National Petroleum Council and the National Commission on Energy Policy 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.
As described in chapter 13, utility impact analysis, using NEMS-BT to analyze impactsof relatively small annual changes in energy consumption typically involves using higherdecrement runs to isolate the impacts of the standards from numerical noise. DOE utilized a regressed interpolation toward the origin to derive the price effects associated with the energy savings resulting from water heater standards.
Figure 10.6.1 shows the annual change in U.S. natural gas consumption, relative to the base case involving no new standards, for each considered scenario. Because the standards decrease electricity demand, and a large percentage of electricity is generated using natural gas, the standards reduce natural gas consumption in the utility sector as well as the residential sector.

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. 10-30

### Change in Gas Consumption

-0.25 -0.20 -0.15 -0.10 -0.05 0.00

2015 2018 2021 2024 2027 2030quads

Selected Efficiency Max Tech



### Figure 10.6.2	 Change in U.S. Natural Gas Consumption Associated with Scenarios for Water Heater Standards
Figure 10.6.2 shows the annual change in average U.S. wellhead price for natural gas, relative to the base case, for each considered scenario. The price reduction averages 0.7 cents per MMBtu (in 2006$) in the selected efficiency levels scenario, and 2.3 cents per MMBtu (in 2006$) in the max-tech scenario. These average price reductions equal 0.1 percent in the selected efficiency levels scenario and 0.4 percent in the max-tech scenario.

Change in Wellhead Prices

-0.04 -0.04 -0.03 -0.03 -0.02 -0.02 -0.01 -0.01 0.00

2015 2018 2021 2024 2027 20302006$/MMBtu

Selected Efficiency Max Tech



### Figure 10.6.3 Effects of Water Heater Standard Scenarios on Average Natural Gas Prices at U.S. Wellheads

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### It is worth noting that the decline in wellhead gas prices likely would reduce electricity prices somewhat, because a large percentage of electricity is generated using natural gas. The new water heater standards also would decrease electricity demand, further affecting electricity prices.



### 10.6.2 Impact of Changes in Natural Gas Price on Users Although calculations indicate that the new water heater standards reduce natural gas prices only slightly, the associated economy-wide savings in natural gas expenditures during the forecast period are substantial. DOE calculated the nominal savings in total natural gas expenditures in each year by multiplying the annual change in the wellhead price for natural gas by the total annual U.S. natural gas consumption associated with each scenario. The calculation of the NPV of the savings in natural gas expenditures for 2015–2030 (applying a 7-percent discount rate) yields a value of $0.8 billion in the selected efficiency levels scenario and $2.7 billion in the max-tech scenario. The water heater standards would continue to reduce demandfor natural gas after 2030 (which is the last year in the NEMS forecast). The estimated economywide savings for 2015–2043 (the period used to estimate the NPV of the national consumer benefits from water heater standards) has an NPV of $1.0 billion for the selected efficiency levels scenario and $3.6 billion for the max-tech scenario. c



### 10.6.3 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). d 

### 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

c The estimate for 2031–2045 applies the average price reduction in 2015–2030 to estimated total gas consumption in 2031–2045. This 15-year average reflects guidance from EIA for extrapolating AEO energy price forecasts after 2030. DOE estimated the latter value by extrapolating the average rate of change (decline) for 2025–2030.

d Gas producers include domestic, other North American, and overseas LNG producers. The proportion of domestic producers is expected to decline in the future. 10-32

### 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.
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 efficiency standards decrease future costs for natural gas extraction because they result in decreased rates of depletion of low-cost natural gas supplies anddecreased imports of high-cost LNG. This result further suggests that a large part of the longterm 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, D.C.

2. Wiser, R., M. Bolinger, and M. 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. Energy Modeling Forum. Natural Gas, Fuel Diversity and North American Energy Markets. September 2003. Energy Modeling Forum, Stanford University. EMF Report No. 20.

4. National Petroleum Council. 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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