U.S. Departmentof Energy June1999 

### NATIONAL ENERGY SAVINGS AND SHIPMENTS RESULTS Summaryof Results We analyzed the impact offour trialstandard levels forresidential water heaters tobe implemented inthe year 2003. The standard levels were selected bythe Department from a set of design options defined for four types ofwater heaters: electricity, natural gas (including liquid petroleum gas (LPG)), andfuel oil. We did not consider water heaters shared amongmultiple housing units. The Department's Advisory Committee on Appliance Energy Efficiency Standards requested that we consider three projections ofenergyprices, the Reference Case, the High Growth Case, and the Low Growth Case asreported in DOE/EIA'sAnnualEnergy Outlook 1999.The National Energy Savings and Net Present Value (NPV)' ofthose savings between 2003 and 2030 are shown in Table 1. Table 1 Summary of National Enery Savings andNet Present Value

Trial StandardLevel: One Two Three Four Energy Savings at Source (Quads) 1.0 3.3 5.3 to 5.4 9.5 to9.6 Net Present Value (billion 98$) 1.3 to 1.5 0.5 to 1.2 -4.9 to -3.9 -21.3 to -20.5 The discussion below describes how we developed these results. EfficiencyLevelsAnalyzed The Department analyzed the impact offour standard levels asdescribed inTables 2, 3, and 4. Table2 TrialStandardLevels forElectric Water Heaters Trial Design Option Standard

Level 0 0 "2003" Baseline I Heat Traps Baseline +Heat Traps 1 2 Insulated TankBottom Baseline +Heat Traps +Insulated Tank Bottom 2 3 2.5" Insulation Baseline +Heat Traps + Insulated TankBottom + 2.5" Insulation 4 3"Insulation Baseline +Heat Traps + Insulated TankBottom +3" Insulation 3,4 5 Plastic Tank Baseline +Heat Traps + 3"Insulation +Plastic Tank

Net Present Value isdefined asthe value ofa future stream ofexpenditures, discounted to thepresent. 1Table 3 TrialStandardLevels for Gas-Fired and LPG WaterHeaters Trial Design Option Standard

Level 0 0 "2003" Baseline 1 1 Heat Traps Baseline + Heat Traps 2 78% RE Baseline + Heat Traps + 78% RE 2 3 2" Insulation Baseline + HeatTraps +78% RE + 2" Insulation 4 2.5" Insulation Baseline + Heat Traps + 78% RE +2.5" Insulation 3 5 80% RE Baseline + Heat Traps + 80% RE +2.5" Insulation 6 Side-Arm Baseline + Heat Traps + 80% RE +2.5" Insulation +Side-Arm + Electronic Ignition 7 Plastic Tank Baseline + HeatTraps + 80% RE +2.5" Insulation +Side-Arm +

_______ ___

_Electronic Ignition + Plastic Tank 4 8 3" Insulation Baseline + Heat Traps + 80% RE +3" Insulation + Side-Arm + Electronic Ignition + Plastic Tank
Table 4 TrialStandardLevels for Oil-Fired Water Heaters Trial Design Option Standard

Level

0 0 "2003" Baseline 1 1 Heat Traps Baseline + HeatTraps 2 2" Insulation Baseline +Heat Traps+ 2" Insulation 2 3 2.5" Insulation Baseline +Heat Traps +2.5" Insulation 4 3" Insulation Baseline +Heat Traps + 3" Insulation 5 78% RE Baseline +Heat Traps +3" Insulation +78% RE 3 6 Interrupted Ignition Baseline + Heat Traps +3" Insulation + 78% RE + Interrupted Ignition 4 7 82% RE Increased HX Baseline +Heat Traps + 3" Insulation +Interrupted Ignition + _____Area 82% RE Increased HX Area The Base Case forecast ofshipments and consumption without standards was designated as a reference case against whichwe compared the other standard scenarios. The results are divided into three sections: energy savings, cost savings, and shipments. Tables 5, 6, and 7 summarize the costs and savings foreach standard level for three energy price projections (AEO 1999 Reference Case, High Growth Case, and Low Growth Case). Two otherprojections (Constant 1998 and GRI) are included in the spreadsheetbut notdiscussed here. EnergySavings To estimate energy savings from revised standards up to, and through, the year 2030, energy consumption in the base case forecast is compared to energy consumption inthe standards forecasts. The cumulative energy savings expected to be achieved between 2003 and 2030 due to the proposed standards are 1quad for Trial Standard Level One, 3.3 for Trial Standard Level Two, 5.3 forTrial Standard Level Three, and 9.6 for Trial Standard Level Four. Forecasts vary only slightly for the three energy projections. 2The forecast annual source energy consumption to 2030 forresidential waterheaters is shown in Figure 1. In 2003, the date new standards are totake effect, total annual consumption is 3.07 quads. Projected annual consumption in 2030 for the Base Case, without new standards, is4.16 quads. Annual energy savings for Trial Standard Level One at 2030 are 0.05 quads per year. For Trial Standard Level Two the annual savings are 0.17 quads per year. The annual savings inthat year is 0.27 quads for Trial Standard Level Three and 0.47 quads for Trial Standard Level Four.
National Water HeaterEnergy Consumption 4.5 4.0 3.5

- 3.0
+ BaseCase ) 2.5 - Std Level 1 r2.0 -- tdLeve

1.5 1.0 0.5
0.0
. . . . .,. 1995 2000 2005 2010 2015 2020 2025 2030 Figure 1 Cost Savings The energy savings described above result in significant cost savings to consumers. However, the efficiency measures required by theproposed standards result in greater equipment costs. Trial Standard Level One forecasts anundiscounted cumulative fuel cost saving of$6.6-7.7 billion by the year 2030. The fuel cost savings outweigh the equipment costs in every yearexcept 2003, the year the standards are to be implemented. A longer period is required before savings willberealized in the other standards cases. For Trial Standard Level Two, it is severalyears before the annual fuel cost savings outweigh the equipment costs. However, by 2030, a cumulative fuel cost savings of$20-24 billion is achieved. In the High Growth Case, the savings are nearly twice the savings ofTrial Standard Level One. The cumulative fuel cost savings in Trial Standard Level Three are quite high, over $33 billionby 2030, but are countered by higher equipment costs. Annualnet savings are not realized by 2030, the end year ofour analysis. The cumulative equipment cost in 2030 is $44 billion.
3As in Trial Standard Level Three, fuel cost savings due to standard implementation forTrial Standard LevelFour are quite high, as high as $54 billion for the High Growth scenario, butare offsetby thejump in equipment price due to added efficiency measures. Annual net savings are never achieved during the analysis period. Cumulative equipment costs are nearly twice the cumulative energy cost savings. A closer look atthe datareveals that after 2020, electricity consumption is actually greater in Trial Standard Level Four than for any other Trial Standard Level. The increase in shipments of electric waterheaters isthe cause for thistrend. In Trial Standard Level Four, equipmentprice and efficiency level for electric water heaters remain the same as in Trial Standard Level Three, while fuel-fired water heater prices increase significantly. This results in amarket share increase forelectric water heaters (see Figure 5

- Trial Standard Level Four Shipments Projections).
NetPresentValue Net Present Value (NPV) measures the benefits or losses U.S. consumers may face from the proposed standards. It is calculated asthe difference between fuel savings and equipment costs, discounted at 7% to 1998. The sum ofthe discounted net cost savings for each year between 2003 and 2030 istheNPV. When itispositive, itis often referred to as "net present benefit." Similarly, anegative value represents a net present loss. We used three scenarios offuture energy prices, thereference case, the high growth and low growth in the Annual Energy Outlook (AEO) from the Energy Information Administration. Using the AEO Reference Case projection for energyprices, the NPV isroughly 1.4 billion and 0.8 billion 1998$ for the firsttwo standards cases respectively. In Trial Standard Levels Three and Four, consumers face net present losses of4.4 and 21.0 billion 1998$, respectively. NPVs in the High Growth Case are higher than in the Reference Case for each standard level, while NPVs are lower in the Low Growth Case than in the Reference Case, as shown in Tables 5, 6, and 7. SavingsSummary Tables 5, 6, and7 show energy savings (source), consumer energy cost savings (site), equipment costs, and net present value for each standards case scenario. Table 5usesthe AEO Reference Case projection for energy prices, Table 6 usesthe High Growth Case, and Table 7 uses the Low Growth Case. Table 5 Summary ofStandardsImpact, 2003-2030 (AEO Reference Case) Trial StandardLevels One Two Three Four Energy Savings (Source Quads) 1.01 3.27 5.32 9.55 Consumer Energy Savings (billion 98$) 7.19 22.34 36.06 51.73 Consumer Equipment Cost (billion 98$) 1.51 15.83 43.93 111.34 Net Present Value (billion 98$) 1.38 0.84 -4.35 -21.02

4Table 6 Summary ofStandards Impact,2003-2030 (AEO High Growth Case) Trial StandardLevels One Two Three Four Energy Savings (Source Quads) 1.01 3.27 5.30 9.53 Consumer Energy Savings (billion 98$) 7.69 23.80 38.20 53.95 Consumer Equipment Cost (billion 98$) 1.51 15.83 43.92 111.45 Net Present Value (billion 98$) 1.50 1.18 -3.85 -20.50
Table 7 Summary ofStandardsImpact,2003-2030 (AEO Low Growth Case) Trial StandardLevels One Two Three Four Energy Savings (Source Quads) 1.01 3.28 5.35 9.58 Consumer Energy Savings (billion 98$) 6.62 20.74 33.75 50.41 Consumer Equipment Cost (billion 98$) 1.52 15.84 43.93 111.20 Net Present Value (billion 98$) 1.25 0.46 -4.89 -21.30 Shipments Base Case. In 1998, the lastyear with historical shipment data, 4.16 million electric water heaters, 4.31 million gas-fired water heaters, 0.36 million LPG water heaters, and 0.04 million oil-fired water heaters were shipped. The base case shipments projections, using the AEO Reference Case projection for energy prices (see Figure 2), show shipments increasing almost linearlyto 6.16 million electric, 7.03 milliongas-fired, 0.54 million LPG, and 0.10 million oil-fired water heaters shipped inthe year 2030. The shipment projections do not vary significantly when AEO High Growth and Low Growth cases are used toproject energy prices.

5Energy Price: AEO 1999 Reference Case Base Case Shipments Projections 10 Gas (historic)

9
_ Elec (historic) LPG(historic) 8 · Oil (historic) Gas (forecast) 7 .-...Elec (forecast) LPG (forecast) 6

- Oil (forecast)

4
. . A0A AA 3

A- a * A 2 ,,

1950 1960 1970 1980 1990 2000 2010 2020 2030 Figure 2 Energy Price: AEO 1999 Reference Case TrialStandardLevel One Shipments Projections 10 

## 1 * Gas (historic)

9

- M Elec (historic) o LPG(historic) 8 » Oil (historic)

- Gas (forecast) 7_
.... Elec(forecast) LPG(forecast)

- 

## 61 Oil (forecast) 0 ~

a .. a\\" baP" 

### 2

1950 1960 1970 1980 1990 2000 2010 2020 2030 Figure 3

6Energy Price: AEO 1999 Reference Case Trial StandardLevel Two Shipments Projections 10 - Gas (historic)

9 ° Elec (historic) LPG (historic) 8 Oil (historic) Gas (forecast)

- Elec (forecast)

LPG (forecast) 6

-- Oil (forecast)

a4
. .,,_.° 3

a a * *a n ". " '=.**55,; 2 -

0 - I'I . . .. . .... ......... I 1950 1960 1970 1980 1990 2000 2010 2020 2030 Figure 4 Energy Price: AEO 1999 Reference Case TrialStandardLevel Three Shipments Projections 10 ------

_ Gas (historic) 9 = EElec (historic) o LPG (historic) 8 Oil (historic)

- Gas (forecast) 7 _- - Elec (forecast) LPG(forecast) 6

- Oil (forecast)

0 . ... . . ... ~4

~ ~ ~ ~a-

. . 3

Figure 5 1 - c==== ==


### 1950 1960 1970 1980 1990 2000 2010 2020 2030 Figure 5Energy Price: AEO 1999 Reference Case TrialStandardLevel FourShipments Projections 10 - 1 Gas (historic)

9
_ Elec(historic) o LPG (historic) 8 Oil (historic) Gas (forecast) 7

- E(Elec (forecast) LPG(forecast)

--- Oil (forecast) I 5
= 

### , 4A,

* A A e e&A„ a & 

### 0 -...... ......... .... ... . . ......
1950 1960 1970 1980 1990 2000 2010 2020 2030 Figure 6 Figure 3 shows Trial Standard Level One shipment projections. These projections do not differ significantly from the base case projection. Figure 4 shows Trial Standard Level Two shipment projections. A small but pronounced change in fuel choice occurs in electric and gas-fired water heater shipments in the year standards are implemented. Shipments for gas-fired water heaters increase faster than shipments for electric water heaters because the price for gas-fired water heaters increases very little. Figure 5 showsTrial Standard Level Three shipment projections. Similar to the Trial Standard Level Two projection, a change in fuel choice is seen when the standard isimplemented. Figure 6 shows Trial Standard Level Four shipmentprojections. Gas-fired water heater shipments decrease, while electric water heater shipments increase relative to the base case so that market shares are nearly equal. For electric water heaters, the efficiency level is the same asin Trial Standard Level Three. Therefore, the cost isthe same. The price ofgas-fired water heaters increases quite significantly inthis standards case, giving electric water heaters an edge on the market.

8