8-i

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

8.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1

8.1.1 General Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1

8.2 METHOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-3

8.2.1 Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-4

8.2.2 Data Set for Calculating LCCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-11

8.2.2.1 New Construction versus Replacement Installations . . . . . . . . . . . . . . 8-13

8.3 INPUTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-14

8.3.1 First-Cost Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-14

8.3.1.1 Manufacturing Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-16

8.3.1.2 Installation Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-17

8.3.1.3 Finance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-18

8.3.2 Operating-Cost Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-18

8.3.2.1 Energy Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-19

8.3.2.2 Maintenance Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-21

8.3.3 Lifetime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-22

8.3.4 Discount Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-22

8.3.4.1 Approach for Estimating Discount Rates . . . . . . . . . . . . . . . . . . . . . . 8-22

8.3.4.2 Discount Rate Applied to New Housing Equipment . . . . . . . . . . . . . . 8-23

8.3.4.3 Discount Rate Applied to Replacement Equipment . . . . . . . . . . . . . . 8-23

8.3.4.4 Accounting for Variation in Discount Rates . . . . . . . . . . . . . . . . . . . . 8-24

8.3.5 Payback Period Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-24

8.3.6 Summary of Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-26

8.4 RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-26

8.4.1 Non-Weatherized Gas Furnaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-27

8.4.2 Other Product Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-31

LIST OF TABLES

Table 8.2.1 Criteria for Selection of RECS Household Data by Product Class . . . . . . . . . 8-12

Table 8.2.2 New Construction Share by Product Class for Residential Furnaces 

and Boilers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-14

Table 8.3.1 Manufacturing Cost Scalars for Furnaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-17

Table 8.3.2 Furnace and Boiler Lifetimes Used in the LCC Analysis (years) . . . . . . . . . . 8-22

Table 8.3.3 After-Tax Real Interest or Return Rates for Household Debt 

and Equity Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-24

Table 8.3.4 Summary of Inputs Used in the LCC and Payback Period Analysis . . . . . . . . 8-26

Table 8.4.1 LCC and PBP Results for Non-Weatherized Gas Furnaces Using 

Installation Model Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-28

Table 8.4.2 LCC and PBP Results for Weatherized Gas Furnaces . . . . . . . . . . . . . . . . . . . 8-31
8-ii

Table 8.4.3 LCC and PBP Results for Mobile Home Gas Furnaces . . . . . . . . . . . . . . . . . 8-33

Table 8.4.4 LCC and PBP Results for Oil-Fired Furnaces . . . . . . . . . . . . . . . . . . . . . . . . . 8-35

Table 8.4.5 LCC and PBP Results for Hot-Water Gas Boilers . . . . . . . . . . . . . . . . . . . . . . 8-37

Table 8.4.6 LCC and PBP Results for Hot-Water Oil-fired Boilers . . . . . . . . . . . . . . . . . . 8-39

LIST OF FIGURES

Figure 8.2.1 Non-Weatherized Gas Furnace LCC Analysis–Efficiency Levels and 

Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-5

Figure 8.2.2 Weatherized Gas Furnace LCC Analysis– Efficiency Levels 

and Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-6

Figure 8.2.3 Mobile Home Gas Furnace LCC Analysis–Efficiency Levels 

and Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-7

Figure 8.2.4 Oil Furnace LCC Analysis–Efficiency Levels and Design Options . . . . . . . . . 8-8

Figure 8.2.5 Hot-Water Oil Boiler LCC Analysis–Efficiency Levels 

and Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9

Figure 8.2.6 Hot-Water Gas Boiler LCC Analysis–Efficiency Levels 

and Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-10

Figure 8.3.1 First Cost for Non-Weatherized Gas Furnaces . . . . . . . . . . . . . . . . . . . . . . . . 8-15

Figure 8.3.2 Manufacturing Costs ($) for Baseline Model Non-Weatherized 

Furnaces by Input Capacity and Airflow Capacity . . . . . . . . . . . . . . . . . . . . . 8-16

Figure 8.3.3 Example RECS97 Household: Billing Data . . . . . . . . . . . . . . . . . . . . . . . . . . 8-20

Figure 8.3.4 Example RECS97 Household: Regression Lines, Slopes . . . . . . . . . . . . . . . . 8-20

Figure 8.4.1 Range of LCC Savings for Non-Weatherized Gas Furnaces . . . . . . . . . . . . . . 8-29

Figure 8.4.2 LCC Savings for Each Census Division for the 90 percent AFUE 

Condensing Furnace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-30

Figure 8.4.3 LCC Savings Ranges by Design Option for Weatherized Gas Furnaces . . . . 8-32

Figure 8.4.4 LCC Savings Ranges by Design Option for Mobile Home Furnace . . . . . . . . 8-34

Figure 8.4.5 LCC Savings Ranges by Design Option for Oil-Fired Furnaces . . . . . . . . . . . 8-36

Figure 8.4.6 LCC Savings Ranges by Design Option for Hot-Water Gas Boilers . . . . . . . 8-38

Figure 8.4.7 LCC Savings Ranges by Design Options for Hot-Water Oil-Fired Boilers . . 8-40
8-1

CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

To determine whether an energy efficiency standard is economically justified, EPCA

directs DOE to consider the economic impact of potential standards on consumers. To address

that impact, the Department calculated changes in equipment life-cycle cost (LCC) for

consumers that are likely to result from each candidate standard, as well as payback periods

(PBP). The effects of standards on individual consumers include changes in operating expenses

(usually lower) and changes in total installed cost (usually higher). The Department analyzed

the net effect of these changes by calculating the changes in LCC compared to a base case

forecast. The LCC calculation considers total installed cost (equipment purchase price plus

installation cost), operating expenses (energy and maintenance costs), equipment lifetime, and

discount rate. The analysis compares the LCC of equipment with various design

options—models with efficiency improvements designed to meet possible energy-efficiency

standards—with the LCC of the equipment chosen in the absence of standards.

The PBP represents the number of years of operation required to achieve savings

sufficient enough to pay for the increased efficiency features. It is the change in total installed

cost due to an increased efficiency standard divided by the change in annual operating cost from

increased efficiency.

The Department performed the calculations discussed in this chapter using a series of

Microsoft Excel spreadsheets, which are available on the Internet. 

8.1.1 General Approach

The goal of the LCC analysis is to calculate the LCC for representative equipment in

houses that are representative of the segment of the U.S. population that is buying furnaces and

boilers. The key inputs to the calculation of LCC are installation cost, operating cost, discount

rate, and equipment lifetime. 

The calculation of LCC is done for a representative sample of houses, one house at a

time, using appropriate values for the inputs each time. To account for uncertainty and

variability in specific inputs such as lifetime and discount rate, DOE used a distribution of values

with probabilities attached to each value. For each house, DOE sampled values of these inputs

from the probability distributions. As a result, the analysis produced a range of LCCs. A

distinct advantage of this approach is that DOE can identify the percentage of consumers

achieving LCC savings or attaining certain payback values due to an increased efficiency

standard, in addition to the average LCC savings or average payback for that standard. 

The Department based the payback period calculations in the engineering analysis on the

DOE test procedure. The test procedure uses specific, prescribed values to calculate annual
a

 (See: http://www.eia.doe.gov/emeu/recs/recs2001/append_a.html (last accessed on May 28, 2004) for more

information on EIA’s weighting methods.) 

b

 http://www.decisioneering.com/crystal_ball/ (last accessed on May 28, 2004)

8-2

energy consumption. At the time the test procedure was written, these values were considered to

be relatively typical of conditions in U.S. homes. In contrast, the LCC analysis estimates

furnace and boiler energy consumption under field conditions for a sample of houses that is

representative of U.S. homes. These conditions include outdoor climate during the heating and

cooling season which influence the operating hours of the equipment.

For each product class, the LCC Analysis considers design options for all candidate

standard efficiency levels, as well as for the maximum-efficiency technology available.

To estimate the impact of improved efficiency across a wide range of households that use

furnaces and boilers, DOE selected a sample of households from the 1997 Residential Energy

Consumption Survey (RECS97).1

 For each sampled household, DOE estimated the energy

consumption of furnaces or boilers, incorporating: (1) baseline model design characteristics, and

(2) design options that yield higher efficiencies (see Chapter 7: Energy Consumption of Furnaces

and Boilers). For each sample household, DOE calculated the LCC for that household’s furnace

or boiler at a range of efficiency levels. 

To account for the uncertainty and variability in the inputs to the LCC calculation for a

given household and between different households, the Department used a Monte Carlo

simulation. A Monte Carlo simulation uses a distribution of values to allow for variability

and/or uncertainty on inputs for complex calculations. For each input, there is a distribution of

values, with probabilities (weighting) attached to each value. Monte Carlo simulations sample

input values randomly from the probability distributions.

For each product class, DOE calculated the LCC and PBP 10,000 times per Monte Carlo

simulation run. For some variables, such as energy price and climate, each calculation used the

values associated with RECS house. For these variables, the RECS houses were sampled

according to the weighting assigned to them by the Energy Information Administration (EIA).a

This weighting was designed to reflect the prevalence of various features in the national

population of houses. Sampling according to the weighting means that some of the RECS

houses are sampled more than once, and others may not be sampled at all.

The Department used Microsoft Excel spreadsheets with Crystal Ball, an add-on

software,b

 to perform the Monte Carlo analysis. Due to the use of the RECS houses in a Monte

Carlo simulation, the values displayed and calculated in the spreadsheet do not represent average

values.

The Department conducted LCC analyses for:
8-3

C Non-weatherized gas furnaces,

C Weatherized gas furnaces,

C Mobile home gas furnaces,

C Oil-fired furnaces,

C Hot-water gas boilers, and

C Hot-water oil-fired boilers.

The inputs to the LCC allow calculation of the first cost of the equipment and the

operating cost over the equipment lifetime. The inputs to the PBP calculation are the total

installed cost of the equipment to the customer and the annual operating expenditures in the first

year in which new standards would take effect. Since the PBP is a “simple” payback, energy

prices are required only for the year in which a new standard is to take effect—in this case, the

year 2012. The energy prices that DOE used in the PBP calculation were the prices projected

for 2012. Section 8.2 discusses each of the inputs further.

8.2 METHOD

Life-cycle cost consists of two main components: (1) the first cost of buying and

installing a furnace or boiler (in 2001$), and (2) the annual operating costs over the lifetime of

the equipment, discounted to the present (2001).

LCC = total installed cost + operating t

discount rate

lifetime

n n

cos

( ) 1 1 + ∑ =

The change in LCC resulting from a change to higher-efficiency equipment is calculated

relative to the equipment a house would have in the absence of any change in standards. For the

LCC analysis, the Department used the current distribution of efficiencies in shipments for the

year 2000 as the base case forecast. Thus, some houses already have higher-efficiency furnaces,

while others have furnaces at the minimum efficiency currently allowed.

8.2.1 Design Options

The Department calculated the LCC and PBP of furnaces and boilers incorporating a

variety of design options that improve efficiency. Figures 8.2.1–8.2.6 show the design options

that DOE analyzed for each product class. The design options in the lightly-shaded blocks are

related to electricity efficiency; they are not considered further in the LCC analysis. Results for

the electricity efficiency design options are presented in Appendix 8.5. The center trunk of the

flow chart, shown in the heavily-lined boxes, shows the efficiency-level improvements as

indicated by AFUE. The baseline model efficiency level occupies the bottom position on the

flow chart. Branches off the efficiency level improvements indicate either design options to

reduce electricity use or modulating designs, or both. Moving up the center trunk, the increased

efficiency levels build on previous design changes. For example, the heat-exchanger area

(Increase HX area) is incrementally bigger for each efficiency improvement for non-weatherized

gas furnaces.
8-4

NAECA Minimum

78% AFUE

Increase HX area

80% AFUE

Increase HX area

81% AFUE

Increase HX area

82% AFUE

Increase HX area

83% AFUE

ECM

Improved PSC

Increase 2nd HX area

92% AFUE

Increase 2nd HX area

Step Modulation

ECM

96% AFUE

Condensing

(Add secondary HX)

90% AFUE

Backw ard-Curved

w /ECM+

ECM

Improved PSC

Backw ard-Curved

w /ECM+

ECM

Improved PSC

Backw ard-Curved

w /ECM+

ECM

Backw ard-Curved

w /ECM+

ECM

2-Stage Modulation

2-Stage Modulation

Backw ard-Curved

w /ECM+

ECM

Improved PSC

Backw ard-Curved

w /ECM+

Backw ard-Curved

w /ECM+ 2-Stage Modulation

Backw ard-Curved

w /ECM+ Step Modulation

Condensing

Modulating

AFUE

78%

82%

80%

81%

83%

90%

92%

96%

Backw ard-Curved

w /ECM+

2-Stage Modulation

 Step Modulation

Backw ard-Curved

w /ECM+

Backw ard-Curved

w /ECM+

Backw ard-Curved

w /ECM+

ECM

Improved PSC

Backw ard-Curved

w /ECM+

ECM

2-Stage Modulation

Figure 8.2.1 Non-Weatherized Gas Furnace LCC Analysis–Efficiency Levels and Design

Options
8-5

AFUE

NAECA Minimum

78% AFUE

Increase HX area

80% AFUE

Increase HX area

81% AFUE

Increase HX area

82% AFUE

Increase HX area

83% AFUE

78%

82%

80%

81%

83%

Improved PSC

Improved Insulation

ECM

Improved Heat

Transfer Coefficient

Improved PSC

Improved Insulation

ECM

Improved Heat

Transfer Coefficient

Improved PSC

Improved Insulation

ECM

Improved Heat

Transfer Coefficient

Improved PSC

Improved Insulation

ECM

Improved Heat

Transfer Coefficient

Figure 8.2.2 Weatherized Gas Furnace LCC Analysis–

Efficiency Levels and Design Options
8-6

NAECA Minimum

Standing Pilot

75% AFUE

Increase HX &

Electronic Ignition

and induced draft

82% AFUE

ECM

Condensing

(Add secondary HX)

90% AFUE

ECM

ECM

Step Modulation

(~20% derate,

2/3 BOH)

Step Modulation

(~20% derate,

2/3 BOH)

Condensing

Modulating

AFUE

75%

82%

80%

81%

83%

90% Backw ard-Curved

w /ECM+

ECM

Improved PSC

ImprovedBlow er

w /PSC

Step Modulation

(~20% derate,

2/3 BOH)

Increase HX &

Electronic Ignition

and induced draft

82% AFUE

Increase HX &

Electronic Ignition

and induced draft

82% AFUE

Figure 8.2.3 Mobile Home Gas Furnace LCC Analysis–Efficiency Levels and

Design Options 
8-7

NAECA Minimum

78% AFUE

Increase HX area

80% AFUE

Increase HX area

81% AFUE

Increase HX area

82% AFUE

ECM

ECM

Fan Atomized

Burner w /2-Stage

Modulation

Fan Atomized

Burner w /2-Stage

Modulation

Modulating

AFUE

78%

82%

80%

81%

83%

Interrupted Ignition

Interrupted Ignition

84%

85% Increase HX area

85% AFUE

ECM

Interrupted Ignition

Increase HX area

84% AFUE

ECM

Interrupted Ignition

Fan Atomized

Burner w /2-Stage

Modulation

Fan Atomized

Burner w /2-Stage

Modulation

Fan Atomized

Burner w /2-Stage

Modulation

Increase HX area

83% AFUE

ECM

Interrupted Ignition

Figure 8.2.4 Oil Furnace LCC Analysis–Efficiency Levels and Design

Options
8-8

NAECA Minimum

80% AFUE

Increase HX area

81% AFUE

Increase HX area

82% AFUE

Increase HX area

83% AFUE

Increase HX area

84% AFUE

Improved Circulating

Pump

90% AFUE

Improved Circulation

Pump

Improved Circulation

Pump

Fan Atomized

Burner w ith Tw o

Stage Modulation

Fan Atomized

Burner w ith Tw o

Stage Modulation

Condensing

Modulating

AFUE

80%

83%

81%

82%

84%

86%

90%

95%

Fan Atomized

Burner w ith Tw o

Stage Modulation

Fan Atomized

Burner w ith Tw o

Stage Modulation

Improved Circulation

Pump

95% AFUE

Increase HX Area

86% AFUE

Improved Circulation

Pump

Interrupted Ignition

Interrupted Ignition

Interrupted Ignition

Interrupted Ignition

Interrupted Ignition

Fan Atomized

Burner w ith Tw o

Stage Modulation

Figure 8.2.5 Hot-Water Oil Boiler LCC Analysis–Efficiency Levels and Design Options
8-9

NAECA Minimum

Standing Pilot

80% AFUE

Increase HX area &

Electronic Ignition

and Induced Draft

81% AFUE

Increase HX area &

Electronic Ignition

and Induced Draft

82% AFUE

Increase HX area &

Electronic Ignition

and Induced Draft

83% AFUE

Increase HX area &

Electronic Ignition

and Induced Draft

84% AFUE

Improved Circulating

Pump

91% AFUE

Improved Circulation

Pump

Improved Circulation

Pump

Tw o stage

modulation

Tw o stage

modulation

Condensing

Modulating

AFUE

80%

83%

81%

82%

84%

88%

91%

99%

Tw o stage

modulation

Tw o stage

modulation

Improved Circulation

Pump

99% AFUE

88% AFUE

Figure 8.2.6 Hot-Water Gas Boiler LCC Analysis–Efficiency Levels and Design Options
8-10

8.2.2 Data Set for Calculating LCCs

For the LCC analysis, the Department used a subset of records from the complete

RECS97 data set that met all of the following criteria: 

1) Use central heating equipment,

2) Use a boiler or furnace as the main source of heat,

3) Use a heating fuel that is natural gas, liquefied petroleum gas (LPG), or fuel oil, and 

4) Heat only one housing unit.

The reason for the forth criterion is that the Department assumed any furnaces heating

more than one unit would be larger than a residential furnace.

Of the 5900 houses surveyed in RECS97, 2313 housing records (38.5 percent of the total

weighted sample) had central, forced-air furnaces and met the above criteria; 560 housing

records (8.5 percent of the weighted sample) had boilers and met the above criteria. The

residential furnace and boiler subset thus represents 47 percent of the total houses in the United

States (see Appendix 8.1).

The Department divided the RECS sample by product classes, using different

classification algorithms based on fuel type, home type, (the presence of) central air

conditioning, etc. (Table 8.2.1). The Department further divided the households with nonweatherized gas furnaces by census division and the four most populous states.
8-11

Table 8.2.1 Criteria for Selection of RECS Household Data by Product Class

Product Class Algorithm # of

Records

# of US Households

Represented (million)

Non-Weatherized Gas

Furnace

Central heating equipment = furnace

Heating fuel = gas

Home type = single or multi-family

Number of Housing Units Heated = 1

1986 37.3

Weatherized*

 Gas

Furnace 

Central heating equipment = furnace

Heating fuel = gas

Central air conditioning = yes (packaged unit)

Home type = single or multi-family

Number of Housing Units Heated = 1

Census Division = West or East South Central

Large State = California, Florida or Texas

396 7.2

Mobile Home Gas

Furnace

Central heating equipment = furnace

Heating fuel = gas

Home type = mobile home

Number of Housing Units Heated = 1

House Vintage = after 1976**

90 1.4

Oil-Fired Furnace Central heating equipment = furnace

Heating fuel = oil

Home type = single or multi-family

Number of Housing Units Heated = 1

237 2.7

Gas Hot-Water Boiler† Central heating equipment = boiler

Heating fuel = gas

Home type = single or multi-family

Number of Housing Units Heated = 1

315 5.2

Oil Hot-Water Boiler Central heating equipment = boiler

Heating fuel = oil

Home type = single or multi-family

Number of Housing Units Heated = 1

245 3.4

* Some of the same housing records are used for analyzing both weatherized and non-weatherized furnace product

classes, because equipment placement with respect to the building is not given in RECS97. To analyze

weatherized furnaces, DOE looked at the subset of housing records that had gas furnaces and central air

conditioners, and were located in the West South Central, or East South Central Census divisions, or in the states

of California, Florida, or Texas. ** Federal regulation regarding mobile housing construction changed the quality of the structures manufactured after

this year. † Because RECS does not distinguish between steam and hot-water boilers, DOE assumed for the purposes of this

analysis that all boilers in RECS are hot-water boilers. Hot-water boilers comprise 84 percent of gas boiler

shipments and 88 percent of oil-fired boiler shipments.2

8.2.2.1 New Construction versus Replacement Installations

The Department treated a furnace or boiler in a new home differently from one purchased

as replacement equipment, for three reasons:
8-12

1) Heating-equipment prices are different for new construction and retrofit applications.

Equipment cost for new construction includes a builder markup and does not include

sales tax. Equipment cost for replacement installations includes sales tax and does not

include a builder markup.

2) The financing method (and therefore the discount rate in the LCC calculation) for new

construction is usually a mortgage loan. Financing methods for replacement installations

can take a variety of forms—e.g., cash, credit cards, home equity loans—that have

different interest rates.

3) New construction tends to be built with more insulation and more energy-efficient

products, compared to houses that receive replacement installations. New construction is

also concentrated in certain parts of the country.

The share of equipment shipped to new construction varies depending on the product

class. Table 8.2.2 shows what criteria the Department used to determine which housing records

it treated as new construction.

The Department estimated that 26 percent of non-weatherized gas furnaces go to new

construction. It arrived at this figure by multiplying the number of housing starts in 1999

(1,604,000)3

 by the proportion of new houses with gas furnaces (51.2 percent),4 and then

dividing by the total gas furnace shipments in 1999 (3,126,147).5

 The vast majority of boilers

and oil-fired furnaces are sold for replacement; DOE analyzed all oil-fired furnaces, gas boilers,

and oil-fired boilers as replacements. The Department assumed that all mobile home gas

furnaces were sold in new construction. Insufficient data were available about the replacement

market for mobile home gas furnaces.

The Department divided the RECS sample houses into two subsets— new construction or

replacement. The Department assigned those houses constructed in the five-year period prior to

the RECS survey to the new construction subset, and houses built prior to 1992 to the

replacement installation subset. The Monte Carlo analysis sampled 26 percent of the iterations

from the new construction subset and 74 percent from the replacement installation subset. The

analysis sampled markups and discount rates from the appropriate distributions, depending on

whether the sample house was drawn from the new construction or replacement subsets.
8-13

Table 8.2.2 New Construction Share by Product Class for Residential Furnaces and

Boilers

Product Class New Construction Subset

Criterion

% of Total Class

Shipment

Non-weatherized Gas Furnace Houses constructed in the 5-year

period 1992-1997.

26%

Weatherized Gas Furnace Houses constructed in the 5-year

period 1992-1997.

26%

Mobile Home Gas Furnace Houses constructed in the 10-year

period 1986-1997.

100%

Oil-Fired Furnace DOE assumed that no new

construction receives oil-fired

furnaces.

0%

Hot-Water Gas Boiler DOE assumed that no new

construction receives gas boilers.

0%

Hot-Water Oil Boiler DOE assumed that no new

construction receives oil-fired

boilers.

0%

8.3 INPUTS

8.3.1 First-Cost Inputs

The flow chart in Figure 8.3.1 represents the inputs for first cost. The chart represents

both baseline model and higher-efficiency equipment; however, the markups differ for these two

types of equipment. The chart shown represents non-weatherized gas furnaces; other product

classes differ slightly.

One of the key factors determining first cost is equipment size. The Department chose

typical sizes of heating equipment that appear in US households (see Chapter 7, Energy

Consumption of Furnaces and Boilers, for more details). The Department then determined

model manufacturing cost, using a reverse-engineering cost analysis and applied markups for

each point along the distribution chain (see Chapter 5, Markups for equipment price

determination, and Chapter 6, Engineering Analysis). The markup that DOE applied depended

on the type of installation (i.e., in new construction or replacement). Installation costs are the

final component of first cost.

The size of the equipment, the type of installation, and the installation costs depend on

the households for which the equipment is bought. Characteristics listed in the RECS data set

enabled DOE to make reasonable assumptions about these factors for each household in the

analysis.
8-14

Manufacturer Costs

First Costs

Sales Tax

Manufacturer Markup

Wholesaler Markup

Builder Markup

New or

Retrofit?

Installation

Cost

Size of Equipment

Contractor

Markup - New

Construction

Contractor

Markup - Retrofit

Figure 8.3.1 First Cost for Non-Weatherized Gas Furnaces
8-15

45 50 60 70 75 80 90 100 115 120 125 140

800 CFM

(2 tons) (-

$9.79)

307.65 311.06 319.59

1200 CFM

(3 tons) 

($0.00)

317.44 320.85 329.38 337.92 341.33 346.45 356.69 366.93

1600 CFM

(4 tons) 

($5.79)

343.71 347.12 352.24 362.48 372.72 388.08 393.20 398.32

2000 CFM

(5 tons) 

($14.82)

361.27 371.51 381.75 397.11 402.23 407.35 422.71

Cost 

Scalars

0.93 0.94 0.965 0.99 1 1.015 1.045 1.075 1.12 1.135 1.15 1.195

Input Capacity (kBTU/h)

Figure 8.3.2 Manufacturing Costs ($) for Baseline Model Non-Weatherized Furnaces by

Input Capacity and Airflow Capacity

8.3.1.1 Manufacturing Cost

The Department determined manufacturing costs using a reverse-engineering cost

analysis for one size of equipment for each product class. To derive the manufacturing costs for

other sizes of furnaces and boilers, DOE scaled the reverse-engineered model costs. See Chapter

6, Engineering Analysis, for a description of the reverse-engineering cost analysis.

Non-Weatherized Gas Furnace. To represent the majority of combinations of input

capacity and nominal maximum airflow, the Department chose virtual models to represent 26

different combinations of those two variables. Each virtual model had its own cost and energy

characteristics. (See Chapter 7, Energy Consumption of Furnaces and Boilers, for more details

about virtual models.) To develop the cost for each virtual model, DOE reverse-engineered one

model size (input capacity = 75kBTU/h and airflow capacity = 3 tons) and assigned costs for the

different components. The Department scaled the cost for other input capacities from the basic

model cost for both non-condensing and condensing models. A cost adder included adjusted

costs for furnaces of different maximum nominal airflow capacity. The virtual models include

models with the most commonly occurring input capacities (Qin), with corresponding maximum

nominal airflow rates at 0.5 inches water gauge. Figure 8.3.2 shows manufacturing costs by

input capacity and airflow capacity for baseline model non-weatherized gas furnaces. The

scalars that DOE used to adjust the cost from 75kBTU/h are found in the bottom row. Airflow

capacity adders are in the left column.
8-16

Other Product Classes. In its analysis of weatherized gas furnaces, DOE used the same

virtual models as it used in the analysis of non-weatherized gas furnaces. For mobile home

furnaces and oil-fired furnaces, the Department used a subset of the 25 virtual furnace models,

because the market in those product classes is limited to a smaller number of sizes of furnaces.

The Department used the sizes of the generic models for non-weatherized gas furnaces, weighted

to match the boiler sizes in the shipments data from Gas Appliance Manufacturers Association

(GAMA).6

For weatherized gas furnaces, mobile home furnaces, and oil-fired furnaces, DOE scaled

the cost for input sizes from the basic model cost for both non-condensing and condensing

models. Table 8.3.1 shows the cost scalars that DOE used. The Department developed these

scalars as part of the manufacturing cost estimates. It used the same cost scalers for boilers.

Table 8.3.1 Manufacturing Cost Scalars for Furnaces

Input Capacity (kBtu) AFUE < 90% AFUE $ 90%

45 0.930 0.910

50 0.940 0.925

60 0.965 0.955

70 0.990 0.985

75 1.000 1.000

80 1.015 1.020

90 1.045 1.055

100 1.075 1.090

115 1.120 1.150

120 1.135 1.170

125 1.150 1.190

140 1.195 1.240

8.3.1.2 Installation Cost

The installation cost is the cost to the consumer of installing a furnace or a boiler; in this

analysis it is not considered part of the retail price. The cost of installation covers all labor

associated with the installation of a new unit or the replacement of an existing one. This

includes costs of changes to the house, such as venting modifications, that would be required for

the correct installation of the equipment.

Chapter 6, Engineering Analysis, describes the approach for estimating installation costs. 

For the LCC analysis, DOE assigned each household an installation cost from a distribution of

weighted average values. For non-weatherized gas furnaces, oil-fired furnaces, and gas and oil

boilers, the distribution was calculated with the Installation Model. For weatherized gas

furnaces, DOE used calculations based on the RS Means approach to calculate a mean value, and

assigned a triangular distribution of ±15 percent around the mean. For mobile home furnaces,
8-17

because they are installed at the mobile home factory, the installation cost is included in the

markup. 

For non-weatherized gas furnaces, DOE calculated LCCs using each of the three sets of

installation cost data described in Chapter 6: the Installation Model, Gas Research Institute

(GRI), and Natural Resources Canada (NRCan). For gas boilers, DOE calculated LCCs using

the Installation Model and GRI costs. In both cases, DOE considered the costs from the

Installation Model as default values, and the LCC results calculated with these costs are

presented in section 8.4 below. Alternative installation costs were not available for the other

product classes.

The GRI costs are generally higher than the Installation Model costs, while the NRCan

costs are lower. They represent alternative costs that bound the potential range of installation

costs. Appendix 8.3 presents the LCC results for non-weatherized gas furnaces and gas boilers

using the alternative installation costs. For the GRI data set, DOE used the distribution of values

provided in the GRI report. For the NRCan data set, which provided mean values, DOE

assigned a triangular distribution of ±15 percent around the mean.

8.3.1.3 Finance Costs

Many consumers purchase heating equipment with some type of financing. Calculations

of the value of payments made over time should be discounted. The present value of the

payments for consumers purchasing equipment over time is exactly the value of the equipment

payments as if paid all at once. The discount rate section (8.3.4) discusses the assumptions

regarding selection of methods of financing for furnaces and boilers. Because of this, DOE

sampled discount rates from various types of financing methods available to consumers for

furnaces and boilers.

8.3.2 Operating-Cost Inputs

Operating cost consists of energy and maintenance costs. The energy cost consists of

separate costs for natural gas or oil, and electricity. Electricity is used for blower fans shared by

furnaces and air conditioners, and by other electrical components in fossil-fueled furnaces and

boilers. The Department’s energy consumption calculations and results are presented in Chapter

7, Energy Consumption of Furnaces and Boilers.

8.3.2.1 Energy Prices

For all classes of gas equipment, the Department used the average energy price for each

house to calculate the energy costs of base case equipment. It used marginal energy prices

determined for each house for the cost of saved energy associated with higher-efficiency
8-18

equipment. Marginal energy prices are the prices consumers pay for the last unit of energy used. 

 Since marginal prices reflect a change in a consumer’s bill associated with a change in energy

consumed, such prices are appropriate for determining energy cost savings associated with

efficiency standards.

For oil-fired furnaces and boilers, the Department used the average oil prices for each

house for both base case forecast equipment and higher-efficiency equipment, as the data

necessary for estimating marginal prices were not available. The Department used the same

method for LPG-fired equipment.

The LCC analysis requires information on the price of natural gas or heating oil during

the winter, as well as the price of electricity used by electrical components. A furnace fan

operates during the heating season and the cooling season. Since electricity prices vary by

season in much of the country, DOE used different winter and summer electricity prices. Boilers

generally are not operated during the summer months and, therefore, do not use electricity in the

summer.

Calculating Energy Prices for RECS Households in 1998. The Department calculated

average and marginal energy prices for each sample house in 1998 using RECS data. Along

with RECS household data, EIA collects billing data (for up to 16 billing cycles) for a subset of

households in the total RECS sample (see Figure 8.3.3). For each household with billing data,

the RECS data set includes, for each billing cycle: the start and end date, the electricity cost in

dollars, the electricity consumption in kilowatt-hours (kWh), the natural gas bill in dollars, and

the gas consumption in hundreds of cubic feet.

The Department estimated marginal energy prices from the RECS monthly billing data

by calculating linear regression of monthly customer bills to monthly customer energy

consumption for each household for which billing data were available (see Figure 8.3.4). The

Department interpreted the slope of the regression line for each household as the marginal

energy price for that household for the season in question.7

To derive seasonal electricity prices, DOE divided the electricity billing data into

summer and the rest of the year (non-summer). The Department considered a bill to be a

summer bill if the midpoint of its billing period was in the four-month period from June 1 to

September 30. The 
a

 While the “r2” values for the regressions of RECS electricity bills were generally very high, DOE eliminated some

outliers by rejecting slopes (marginal prices) where the linear regression had an r2

 value less than 0.90 for either the

summer or the non-summer. When acceptable slopes were not available for either season, DOE used the slope for the

regression of all of the available billing cycles (unless the r2

 value of the annualized slope was also less than 0.90). Based

on this methodology, DOE rejected 8 percent of the household electricity billing data. Using these criteria, 4396

households with electricity billing data had acceptable marginal price slopes; 79 percent of those households had

acceptable seasonal data. For the remaining 21 percent of the households where both seasons did not have regression-line

slopes with r2

 values greater than 0.90, DOE used all of the monthly billing periods in combined form to estimate an

annual marginal price.

8-19

H ousehold 5093

0

200

400

600

800

1000

1200

Pe riod

kWh

0

20

40

60

80

100

120

140

160

$

Quantity

Cost

<--sum m er-->

Figure 8.3.3 Example RECS97

Household: Billing Data

Household 5093

y = 0.1173x + 2.3075

r

2

 = 0.9993

y = 0.1557x - 20.017

r

2

 = 0.9985

0

20

40

60

80

100

120

140

160

0 200 400 600 800 1000 1200

kWh

Cost ($)

Non-Summer

Data

Summer Data

Non-Summer

Trend

Summer Trend

Figure 8.3.4 Example RECS97

Household: Regression

Lines, Slopes

Department estimated the marginal electricity price for each season to be equal to the slope of

the regression line for the billing data for that season.a

The Department divided the natural gas billing data into two seasons: winter and the rest

of the year. The Department considered a bill to be a winter bill if the midpoint of its billing

period was in the four-month period from November 1 to February 28. Using the same r2

 cutoffs

for the seasonal gas price regressions as for the electricity price regressions, the Department

rejected 10 percent of the household gas billing data. Using these criteria, 2317 households with

gas billing data had acceptable marginal price slopes; 66 percent of those households had

acceptable seasonal data. The Department estimated annual marginal gas prices for the other 34

percent of the households in the same manner as it had for electricity prices.
8-20

For each household sampled from the RECS database, DOE identified the average

electricity and gas prices—either from that household’s data, if available, or from another nearby

household. For the RECS subset used in this LCC analysis, DOE used 1740 housing records (of

the 2317 housing records with natural gas price data and 2269 housing records with electricity

price data). 

The Department calculated annual average LPG prices with data for RECS97 houses

with LPG-fired equipment. Monthly data necessary to calculate marginal prices were not

available for households using LPG heating. The same method was used for houses with oilfired equipment.

Projecting 1998 Prices to 2012 and Beyond. As in past rulemakings, the Department

used price forecasts by the EIA to estimate the trend in natural gas, oil, and electricity prices. It

multiplied the average and marginal prices for 1998 of each sampled house by the forecast

annual price changes in EIA’s Annual Energy Outlook 2003 (AEO 2003)

8

 to arrive at prices in

2012 and beyond. The Department calculated LCC and PBP using three separate projections

from AEO2003: Reference, Low Economic Growth, and High Economic Growth. These three

cases reflect the uncertainty of economic growth in the forecast period. The high and low

growth cases show the projected effects of alternative growth assumptions on energy markets. 

Appendix 8.4 presents the LCC results for High Growth and Low Growth price projections for

residential natural gas, fuel oil, and electricity. The Department used the same method to

forecast LPG prices.

8.3.2.2 Maintenance Cost

Maintenance cost is the annual cost of maintaining a furnace or boiler in working

condition. Each product class has distinct maintenance costs. Chapter 6 describes the approach

for determining maintenance costs. As discussed there, DOE developed several groups of

maintenance costs, according to the Annual Fuel Utilization Efficiency (AFUE), for most of the

product classes. 

For the LCC analysis, DOE assumed a triangular distribution for maintenance costs to

capture the variability of these costs. The Department was not aware of any reliable data that

provide a distribution of maintenance costs. It assumed a minimum and maximum of 15 percent

of the average cost.

8.3.3 Lifetime

The lifetime is the age at which furnaces or boilers are retired from service. Table 8.3.2

shows the lifetime range for the six product classes.
8-21

Table 8.3.2 Furnace and Boiler Lifetimes Used in the LCC Analysis (years)

Product Class Low Average High

Non-Weatherized Gas Furnace* 10 20 30

Weatherized Gas Furnace* 12 18 24

Mobile Home Furnace† 14 19 23

Oil-Fired Furnace* 10 15 20

Hot-Water Gas Boiler‡ 13 17 22

Hot-Water Oil-Fired Boiler‡ 12 15 19

* Appliance Magazine9

†

 Mobile Home Technical Support Document, 199310

‡

 GRI, 1990

8.3.4 Discount Rates

8.3.4.1 Approach for Estimating Discount Rates

The Department derived the discount rates for the LCC analysis from estimates of the

interest or “finance cost” to purchase furnaces or boilers. Following financial theory, the finance

cost of raising funds to purchase furnaces or boilers can be interpreted as: (1) the financial cost

of any debt incurred to purchase equipment, principally interest charges on debt, or (2) the

opportunity cost of any equity used to purchase equipment, principally interest earnings on

household equity.

The purchase of equipment for new homes entails different finance costs for consumers

than does purchase of replacement equipment. Thus, the Department used different discount

rates corresponding to the finance cost of new construction and replacement installations. 

8.3.4.2 Discount Rate Applied to New Housing Equipment

The Department estimated discount rates for new-housing equipment based on mortgage

interest rate data provided in the Federal Reserve Boards’ Survey of Consumer Finances (SCF). 

This survey indicates that mortgage rates carried by homeowners in 1998 averaged 7.9 percent.11

After adjusting for inflation and interest tax deduction, real after-tax interest rates on mortgages

averaged 4.2 percent and ranged from -1.6 percent to 12.8 percent. The Department used a 28

percent marginal income tax rate and 1.56 percent price inflation. (The median U.S. household

income in 2000 was $43,162.12 The marginal income tax of heads of households with this

income is 27.5 percent.13 The Department rounded 27.5 percent to 28 percent for this analysis. 

Price inflation reflects the change in the consumer price index (CPI) in 1998.) 
8-22

8.3.4.3 Discount Rate Applied to Replacement Equipment

For equipment purchased to replace old or failed equipment where cash or some form of

credit is used to finance the acquisition, it is appropriate to establish how the purchase affects a

consumer’s overall household financial situation. For example, even though the purchase might

be financed through a dealer loan or some other short-term financing vehicle, the more probable

effect of the purchase is to cause the consumer either to incur additional credit card debt or to

forego investment in some type of savings-related asset. Cash that was once available to either

pay for household expenses or to invest in an asset like the stock market or a savings account

now must be earmarked to pay off the equipment purchase, thus causing the consumer to incur

additional credit card debt or to lose the opportunity to earn income from assets. 

The Department estimated the average household equity and debt portfolio from 1995

and 1998 SCF data. The Department estimated interest or return rates associated with each type

of equity and debt from a variety of sources. Rates for second mortgages and credit cards are

from 1998 SCF data. The Department estimated interest rates associated with household

certificates of deposit (CDs), treasury bills (T-bills), and corporate bonds as an average of the

Federal Reserve Board time-series data covering 1977–2001.14 Based on relative returns to lessliquid assets, the Department assumed that the interest rate on transactions (checking) accounts

averages 2 percent real. The midpoint of the transactions account distribution is 2 percent. The

2 percent figure is based on an analysis of returns to money-market accounts and savings

accounts, and returns to CD and bond holdings. The Department estimated annual return

associated with household stock holdings as an average of data published by the Stern Business

School covering the 1977–2001 period.15 The Department estimated mutual fund rates as an

average of the Standard and Poor’s (S&P) 500 stock rate (67 percent) and the T-bill rate (33

percent).

Table 8.3.3 summarizes the average shares of household equity and debt based on the

above sources and the real, after-tax interest rates associated with each type of equity or debt.

The Department assumed a marginal tax rate of 28 percent and CPI inflation to derive real from

nominal values. The weighted-average real, after-tax interest rate across all types of household

debt and equity used to purchase replacement furnaces or boilers is 6.7 percent.
8-23

Table 8.3.3 After-Tax Real Interest or Return Rates for Household Debt and Equity

Types

Type

Average Share of

Household Debt plus

Equity (%)

Rate Mean (%)

Second mortgage 3.0 5.9

Credit card and installment 9.1 12.0

Transaction (checking) accounts 20.0 2.0

CD (6-month) 7.9 2.8

Savings bonds (Treasury) 1.6 3.7

Bonds (Corporate AAA) 8.3 4.4

Stocks (S&P500) 30.2 9.6

Mutual funds 19.8 7.6

Total/Weighted-average discount rate 100 6.7

8.3.4.4 Accounting for Variation in Discount Rates

To account for variation in discount rates among consumers, DOE used a distribution of

rates of interest or return on debt and equity among households. The data used to construct these

distributions are provided in Appendix 8.2, where the figures show the distribution of nominal

rates obtained from the data sources previously mentioned. The Department calculated the real,

after-tax rates as described in sections 8.3.4.2 and 8.3.4.3. The interest-rate distribution for

transactions accounts is assumed to be triangular and to range from 0 percent to 4 percent. 

8.3.5 Payback Period Inputs

The data inputs to the PBP calculation are the cost of the equipment to the customer and

the annual (first-year) operating expenditures. The PBP calculation uses the same inputs as the

LCC analysis, except that electricity price trends and discount rates are not required. Since the

PBP is a “simple” payback, the required energy prices are only for the year in which a new

standard is to take effect—in this case the year 2012. The energy prices that DOE used in the

PBP calculation were the prices projected for that year.

The payback period equation can be expressed as:
8-24

Payback 

EquipCost EquipCost

OprCost OprCost

option

option base

base option

=

−

−

where base is the base case design, and option is the design option being considered.

Numerically, the simple payback period is the ratio of the increase in purchase (and

installation) price to the decrease in annual operating expenditures (including maintenance). The

Department made the comparisons based on replacing the base case forecast furnace or boiler

with a furnace or boiler incorporating another design option. Payback periods are expressed in

years. A payback period of three years means that the increased purchase price for the energyefficient furnace or boiler is equal to three times the value of reduced operating expenses in the

year of purchase; in other words, the increased purchase price is recovered in three years because

of lower operating expenses. Payback periods greater than the life of the product mean that the

increased purchase price is never recovered in reduced operating expenses. Negative payback

periods are not relevant and DOE disregarded them.
8-25

8.3.6 Summary of Inputs

Table 8.3.4 Summary of Inputs Used in the LCC and Payback Period Analysis

Input Description

Equipment Price Derived by multiplying manufacturer cost by manufacturer, distributor, contractor, and

builder markups and sales tax, as appropriate.

Installation Cost Uses a distribution of weighted-average installation costs from the “Installation Model.”

Installation configurations are weight-averaged by frequency of occurrence in the field, and

vary by installation size. The Installation Model is RS Means-based, and comparable to

available known data.

Maintenance Costs Uses GRI data for gas furnaces and boilers, water heater rulemaking survey results for oilfired equipment, and data from the 1993 rulemaking for mobile home furnaces.

Annual Heating and

Cooling Load

Heating and cooling loads calculated using 1997 RECS data. The furnace input capacity

versus airflow capacity is assumed based on the vintage of the equipment and

characteristics of each house. 

Annual Energy Use 26 virtual models based on actual furnace characteristics capture the range of common

furnace sizes. Energy calculations reflect actual house characteristics.

Energy Prices 1997 average and marginal energy prices are calculated for each house. AEO 2003

forecasts are used to estimate future average and marginal energy prices.

Lifetime Uses Appliance Magazine survey results.

Discount Rate Data from Survey of Consumer Finance and other sources were applied to estimate a

discount rate for each house.

8.4 RESULTS

For each set of sample houses using equipment in a given product class, DOE calculated

the average LCC savings and the median and average payback period for each of the design

options and efficiency levels. The Department calculated LCC savings and payback period

relative to the base case forecast equipment in each house. As mentioned above, the base case

forecast (no new standards) assumes purchase of equipment reflecting current patterns with

respect to efficiency. The Department sampled the efficiency (AFUE) of the base case forecast

equipment assigned to each house from a distribution of AFUEs that is representative of

shipments for the year 2000, and is correlated with climate. Therefore, the base case equipment

is not limited to the baseline model. (For that reason, the average LCC savings are not equal to

the difference between the LCC of a specific option and the LCC of the baseline equipment.) 

For some houses, the Department assigned furnaces that are more efficient than some of the

design options. The Department assumed that a household would not replace higher-efficiency

equipment with lower-efficiency equipment, and thus considered these as “no impact” cases,

since they would not be affected. 
8-26

The tables below present LCC and PBP results using the energy price forecast in the

Reference case from AEO2003. Appendix 8.4 presents results using the energy price forecasts in

the Low and High Economic Growth cases from AEO2003. 

8.4.1 Non-Weatherized Gas Furnaces

Table 8.4.1 shows the LCC and payback results for non-weatherized gas furnaces. The

81 percent AFUE level using single-stage (8 percent of installations use Category III venting

system) shows basically no change (-$3) in LCC impact. The 81 percent AFUE level using twostage modulation (no Category III venting systems required) has a positive LCC savings of $72. 

The positive LCC savings for the 81 percent two-stage modulation design are due, in part, to it

having lower energy consumption than the single-stage furnace of the same AFUE. To estimate

the energy use of this furnace under field conditions, DOE adopted the assumptions for twostage modulation that appear in the DOE test procedure (see Appendix 6.3 for discussion of the

issues concerning use of these assumptions). The 90 percent AFUE condensing level has a

negative LCC impact (-$154). The LCC and PBP results calculated using GRI and NRCan

installation costs are presented in Appendix 8.3.
8-27

Table 8.4.1 LCC and PBP Results for Non-Weatherized Gas Furnaces Using Installation

Model Costs

Design Option:

AFUE

LCC Payback

Average Average

Savings

Net

Cost

No

Impact*

Net

Benefit

Median Average**

$ $ % % % years years

78% $9,966

80% $9,795 $0 0% 99% 1% 2.1 37.8

80% 2-stage mod. $9,718 $41 33% 27% 40% 8.6 13.5

81% single stage, 8% Cat. III $9,789 -$3 32% 27% 41% 8.8 27.8

81% 2-stage Mod, no Cat. III $9,680 $63 29% 26% 45% 7.6 17.0

82% $10,170 -$292 70% 26% 4% 28.7 84.6

82% 2-stage Mod $10,103 -$256 65% 26% 9% 18.5 60.2

83% $10,400 -$468 73% 26% 1% 63.3 121.3

90% $9,917 -$154 56% 26% 18% 17.9 42.5

92%Incr. HX Area $9,924 -$166 60% 15% 25% 16.1 41.7

96% Step Mod ECM $10,724 -$954 89% 2% 9% 32.3 88.9

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than the

level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely large

paybacks. These extremely large paybacks will skew the average payback. In these cases, median is probably a

better indicator.
8-28

Figure 8.4.1 shows the range of LCC savings for non-weatherized gas furnaces, using the 

Installation Model cost data. For each design option, the top and the bottom of the box indicate

the 75th and 25th percentiles, respectively. The bar at the middle of the box indicates the median;

50 percent of the households have LCC savings above this value. The ‘whiskers’ at the bottom

and the top of the box indicate the 5th and 95th percentiles. The small box shows the average

LCC savings for each design option. For condensing design options, such as 90 percent AFUE

and 92 percent AFUE, the wide range of LCC savings reflects the differences across regions of

the country.

LCC Savings Ranges By Design Option

80% Incr. HX Area

80% 2-stage Mod

81% 2 stage Mod, 8% Cat. III

81% 2 stage Mod, no Cat. III

82% Incr. HX Area

82% 2 stage Mod

83% Incr. HX Area

90% Baseline Cond.

92% Incr. HX Area

96% Step Mod ECM

-2500

-2000

-1500

-1000

-500

0

500

1000

Median

Mean

Figure 8.4.1 Range of LCC Savings for Non-Weatherized Gas Furnaces
8-29

Figure 8.4.2 shows the range of LCC savings for each census division for the 90 percent

AFUE condensing furnace. Most regions show negative mean savings.

LCC Savings Ranges By Division

New England

Mid Atlantic

East North Central

West North Central

South Atlantic

East South Central

West South Central

Mountain

Pacific

New York

California

Texas

Florida

Division

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

LCC Savings for 90% Baseline Cond.

Median

Mean

Figure 8.4.2 LCC Savings for Each Census Division for the 90 percent

AFUE Condensing Furnace
8-30

8.4.2 Other Product Classes

For weatherized gas furnaces (Table 8.4.2), the results show positive average LCC

savings for AFUE levels through 82.5 percent.

Table 8.4.2 LCC and PBP Results for Weatherized Gas Furnaces

Design Option:

AFUE

LCC Payback

Average Average

Savings

Net

Cost

No

Impact*

Net

Benefit

Median Average**

78% Baseline Model $8,545

80% Incr. HX Area $8,457 $2 0% 98% 2% 1.1 1.5

80% Improved Insulation $8,454 $4 26% 46% 28% 9.0 8.2

80% Improved Heat Xfer $8,467 -$4 52% 46% 2% 2.8 3.7

81% Incr. HX Area $8,418 $23 2% 46% 52% 2.0 2.6

81% Improved Insulation $8,415 $25 20% 20% 60% 5.2 6.4

81% Improved Heat Xfer $8,424 $18 32% 20% 48% 3.8 5.1

82% Incr. HX Area $8,380 $53 3% 20% 77% 2.1 2.9

82% Improved Insulation $8,377 $56 18% 0% 82% 4.3 5.6

82% Improved Heat Xfer $8,382 $51 24% 0% 76% 2.5 3.4

82.5% Incr. HX Area $8,347 $86 6% 0% 94% 2.9 3.9

82.5% Improved Insulation $8,345 $88 11% 0% 89% 3.9 5.5

82.5% Improved Heat Xfer $8,345 $89 4% 0% 96% 2.4 3.3

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than the

level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely large

paybacks. These extremely large paybacks will skew the average payback. In these cases, median is probably a

better indicator.
8-31

Figure 8.4.3 shows the range of LCC savings by design option for weatherized gas

furnaces.

LCC Savings Ranges By Design Option

80% Incr HX Area

80% Improved Insulation80% Improved Heat Xfer

81% Incr HX Area

81% Improved Insulation81% Improved Heat Xfer

82% Incr HX Area

82% Improved Insulation82% Improved Heat Xfer

83% Incr HX Area

83% Improved Insulation83% Improved Heat Xfer

-50

0

50

100

150

200

250

300

350

Median

Mean

Figure 8.4.3 LCC Savings Ranges by Design Option for Weatherized Gas

Furnaces
8-32

For mobile home gas furnaces (Table 8.4.3), the results show positive average LCC

savings for the 80-82 percent AFUE levels using single-stage technology. The 90 percent AFUE

condensing level shows an average LCC savings of $192, but 45 percent of the households have

a negative impact.

Table 8.4.3 LCC and PBP Results for Mobile Home Gas Furnaces

Design Option:

AFUE

LCC Payback

Average

LCC

Average

Savings

Net Cost No

Impact*

Net

Benefit

Median Average**

75% Baseline Model $7,904

80% $7,480 $64 1% 85% 14% 2.4 4.7

80% 2-stage modulation $7,718 -$163 80% 5% 15% 26.0 60.5

81% $7,428 $112 10% 5% 85% 4.4 6.3

81% 2-stage modulation $7,670 -$117 75% 5% 20% 24.9 60.3

82% $7,385 $153 14% 5% 81% 5.1 7.5

82% 2-stage modulation $7,630 -$80 70% 5% 25% 22.9 56.3

90% $7,352 $184 46% 5% 49% 12.5 22.7

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than the

level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely large

paybacks. These extremely large paybacks will skew the average payback. In these cases, median is probably a

better indicator.
8-33

Figure 8.4.4 shows the range of LCC savings by design option for mobile home gas

furnaces. 

LCC Savings Ranges By Design Option

80% Incr HX Area

80% 2-Stage Mod

81% Incr HX Area

81% 2-Stage Mod

82% Incr HX Area

82% 2-Stage Mod

90% Condensing

-600

-400

-200

0

200

400

600

800

1000

1200

1400

1600

Median

Mean

Figure 8.4.4 LCC Savings Ranges by Design Option for Mobile Home

Furnace
8-34

For oil-fired furnaces (Table 8.4.4), the results show positive average LCC savings for

AFUE levels from 80 percent through 83 percent.

Table 8.4.4 LCC and PBP Results for Oil-Fired Furnaces

Design Option:

AFUE

LCC Payback

Average Average

Savings

Net

Cost

No

Impact*

Net

Benefit

Median Average**

78% AFUE - Baseline Model $16,194

80% AFUE- Incr. HX Area $15,900 $11 0% 96% 4% 0.2 0.2

81% AFUE- Incr. HX Area $15,762 $95 2% 39% 59% 0.4 0.5

81% AFUE Atom Burner 2-stage Mod. $15,885 $8 42% 30% 28% 11.7 19.4

82% AFUE- Incr. HX Area $15,625 $190 2% 30% 68% 0.3 0.4

82% AFUE Atom Burner 2-stage Mod. $15,753 $89 35% 22% 42% 8.5 13.8

83% AFUE- Incr. HX Area $15,492 $293 3% 22% 75% 0.3 0.4

83% AFUE Atom Burner 2-stage Mod. $15,626 $178 31% 15% 54% 6.8 11.2

84% AFUE- Incr. HX Area $15,967 -$111 58% 15% 27% 13.7 20.8

84% AFUE Atom Burner 2-stage Mod. $16,106 -$240 71% 7% 22% 16.3 25.1

85% AFUE- Incr. HX Area $15,845 $1 49% 7% 44% 10.0 13.8

85% AFUE Atom Burner 2-stage Mod. $15,989 -$143 69% 0% 31% 13.7 20.1

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than

the level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely

large paybacks. These extremely large paybacks will skew the average payback. In these cases, median is

probably a better indicator.
8-35

Figure 8.4.5 shows the range of LCC savings by design option for oil-fired furnaces. 

LCC Savings Ranges By Design Option

80% Incr HX Area81% Incr HX Area

81% Atom Burner 2-stage Mod

82% Incr HX Area

82% Atom Burner 2-stage Mod

83% Incr HX Area

83% Atom Burner 2-stage Mod

84% Incr HX Area

84% Atom Burner 2-stage Mod

85% Incr HX Area

85% Atom Burner 2-stage Mod

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

1200

Median

Mean

Figure 8.4.5 LCC Savings Ranges by Design Option for Oil-Fired Furnaces
8-36

For hot-water gas boilers (Table 8.4.5), the results show positive average LCC savings

for the AFUE levels from 81 percent through 84 percent using single-stage technology. 

Table 8.4.5 LCC and PBP Results for Hot-Water Gas Boilers

Design Option:

AFUE

LCC Payback

Average

LCC

Average

Savings

Net Cost No

Impact*

Net

Benefit

Median Average**

80% Baseline Model $10,635

81% $10,371 $93 0% 65% 35% 2.1 2.4

81% 2-stage modulation $10,599 -$36 38% 44% 18% 9.9 14.8

82% $10,314 $125 3% 44% 53% 2.5 3.3

82% 2-stage modulation $10,542 -$36 48% 30% 22% 9.3 19.6

83% $10,256 $166 5% 30% 66% 2.5 3.3

83% 2-stage modulation $10,483 -$29 59% 15% 27% 9.9 23.3

84% $10,199 $215 6% 15% 79% 2.5 3.4

84% 2-stage modulation $10,426 $0 62% 6% 32% 10.5 22.7

88% $10,741 -$294 67% 6% 27% 17.5 29.8

91% $10,823 -$372 75% 3% 22% 19.3 43.0

99% $11,304 -$853 85% 0% 15% 21.7 46.1

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than the

level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely large

paybacks. These extremely large paybacks will skew the average payback. In these cases, median is probably a

better indicator.
8-37

Figure 8.4.6 shows the range of LCC savings by design option for hot-water gas boilers.

LCC Savings Ranges By Design Option

81% Imp Ht Xfer/Elec Ign

81% 2-stage Mod + Indc Draft

82% Imp Ht Xfer/Elec Ign

82% 2-stage Mod + Indc Draft

83% Imp Ht Xfer/Elec Ign

83% 2-stage Mod + Indc Draft

84% Imp Ht Xfer/Elec Ign

84% 2-stage Mod + Indc Draft

88% 91% 99% 

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

Median

Mean

Figure 8.4.6 LCC Savings Ranges by Design Option for Hot-Water Gas

Boilers
8-38

For hot-water oil-fired boilers (Table 8.4.6), the AFUE levels through 84 percent

(without use of atomized burner) have positive average LCC savings. 

Table 8.4.6 LCC and PBP Results for Hot-Water Oil-fired Boilers

Design Option:

AFUE

Average Average

Savings

Net Cost No

Impact*

Net

Benefit

Median Average**

80% $14,890

81% $14,772 $6 0% 95% 5% 0.6 0.8

81% Atomized Burner $15,166 -$36 11% 89% 0% 70.4 104.9

82% $14,657 $18 0% 89% 11% 0.7 0.8

82% Atomized Burner $15,051 -$45 16% 84% 0% 35.0 64.3

83% $14,545 $36 0% 84% 16% 0.7 0.8

83% Atomized Burner $14,939 -$119 37% 61% 2% 23.0 45.0

84% $14,435 $79 0% 61% 39% 0.7 0.8

84% Atomized Burner $14,830 -$169 58% 37% 5% 26.7 57.6

86% $14,943 -$234 52% 37% 11% 23.0 31.6

86% Atomized Burner $15,338 -$602 91% 7% 2% 53.0 98.1

90% $15,260 -$527 81% 7% 12% 19.6 23.8

95% $15,561 -$829 88% 0% 12% 19.1 23.0

* “No impact” means that the base case forecast furnace assigned to the household has greater efficiency than the

level indicated, so the household is not affected. 

** From the form of the payback calculation, a very small change in operating cost can result in extremely large

paybacks. These extremely large paybacks will skew the average payback. In these cases, median is probably a

better indicator.
8-39

Figure 8.4.7 shows the range of LCC savings by design option for hot-water oil-fired

boilers.

LCC Savings Ranges By Design Option

81%

81% Atom 2-stage

82%

82% Atom 2-stage

83%

83% Atom 2-stage

84%

84% Atom 2-stage

86% 

86% Atom 2-stage

90%95%

-2200

-2000

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

Median

Mean

Figure 8.4.7 LCC Savings Ranges by Design Options for Hot-Water OilFired Boilers
8-40

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