U.S. Department of Energy June 1999

NATIONAL ENERGY SAVINGS AND SHIPMENTS RESULTS

Summary of Results

We analyzed the impact of four trial standard levels for residential water heaters to be

implemented in the year 2003. The standard levels were selected by the Department from a set of

design options defined for four types of water heaters: electricity, natural gas (including liquid

petroleum gas (LPG)), and fuel oil. We did not consider water heaters shared among multiple

housing units. The Department's Advisory Committee on Appliance Energy Efficiency Standards

requested that we consider three projections of energy prices, the Reference Case, the High

Growth Case, and the Low Growth Case as reported in DOE/EIA's Annual Energy Outlook

1999. The National Energy Savings and Net Present Value (NPV)' of those savings between

2003 and 2030 are shown in Table 1.

Table 1 Summary of National Enery Savings and Net Present Value

Trial Standard Level: One Two Three Four

Energy Savings at Source (Quads) 1.0 3.3 5.3 to 5.4 9.5 to 9.6

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.

Efficiency Levels Analyzed

The Department analyzed the impact of four standard levels as described in Tables 2, 3, and 4.

Table 2 Trial Standard Levels for Electric Water Heaters

Trial Design Option

Standard

Level

0 0 "2003" Baseline

I Heat Traps Baseline + Heat Traps

1 2 Insulated Tank Bottom Baseline + Heat Traps + Insulated Tank Bottom

2 3 2.5" Insulation Baseline + Heat Traps + Insulated Tank Bottom + 2.5" Insulation

4 3" Insulation Baseline + Heat Traps + Insulated Tank Bottom + 3" Insulation

3,4 5 Plastic Tank Baseline + Heat Traps + 3" Insulation + Plastic Tank

Net Present Value is defined as the value of a future stream of expenditures, discounted to the present.

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Table 3 Trial Standard Levels for Gas-Fired and LPG Water Heaters

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 + Heat Traps + 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 + Heat Traps + 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 Trial Standard Levels for Oil-Fired Water Heaters

Trial Design Option

Standard

Level

0 0 "2003" Baseline

1 1 Heat Traps Baseline + Heat Traps

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 of shipments and consumption without standards was designated as a

reference case against which we 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 for each standard level for three energy price projections (AEO 1999

Reference Case, High Growth Case, and Low Growth Case). Two other projections (Constant

1998 and GRI) are included in the spreadsheet but not discussed here.

Energy Savings

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 in the standards

forecasts.

The cumulative energy savings expected to be achieved between 2003 and 2030 due to the

proposed standards are 1 quad for Trial Standard Level One, 3.3 for Trial Standard Level Two,

5.3 for Trial Standard Level Three, and 9.6 for Trial Standard Level Four. Forecasts vary only

slightly for the three energy projections.

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The forecast annual source energy consumption to 2030 for residential water heaters is shown in

Figure 1. In 2003, the date new standards are to take effect, total annual consumption is 3.07

quads. Projected annual consumption in 2030 for the Base Case, without new standards, is 4.16

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 in that

year is 0.27 quads for Trial Standard Level Three and 0.47 quads for Trial Standard Level Four.

National Water Heater Energy Consumption

4.5

4.0

3.5 -

3.0

+ Base Case

) 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 the proposed standards result in greater equipment costs.

Trial Standard Level One forecasts an undiscounted cumulative fuel cost saving of $6.6-7.7 billion

by the year 2030. The fuel cost savings outweigh the equipment costs in every year except 2003,

the year the standards are to be implemented.

A longer period is required before savings will be realized in the other standards cases. For Trial

Standard Level Two, it is several years 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 of Trial Standard Level One.

The cumulative fuel cost savings in Trial Standard Level Three are quite high, over $33 billion by

2030, but are countered by higher equipment costs. Annual net savings are not realized by 2030,

the end year of our analysis. The cumulative equipment cost in 2030 is $44 billion.

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As in Trial Standard Level Three, fuel cost savings due to standard implementation for Trial

Standard Level Four are quite high, as high as $54 billion for the High Growth scenario, but are

offset by the jump 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 at the data reveals 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 water heaters is the cause for this trend. In Trial Standard Level Four, equipment price

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 a market share increase

for electric water heaters (see Figure 5 - Trial Standard Level Four Shipments Projections).

Net Present Value

Net Present Value (NPV) measures the benefits or losses U.S. consumers may face from the

proposed standards. It is calculated as the difference between fuel savings and equipment

costs, discounted at 7% to 1998. The sum of the discounted net cost savings for each year

between 2003 and 2030 is the NPV. When it is positive, it is often referred to as "net present

benefit." Similarly, a negative value represents a net present loss.

We used three scenarios of future energy prices, the reference 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 energy prices, the NPV is roughly 1.4 billion and 0.8

billion 1998$ for the first two standards cases respectively. In Trial Standard Levels Three and

Four, consumers face net present losses of 4.4 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.

Savings Summary

Tables 5, 6, and 7 show energy savings (source), consumer energy cost savings (site), equipment

costs, and net present value for each standards case scenario. Table 5 uses the AEO Reference

Case projection for energy prices, Table 6 uses the High Growth Case, and Table 7 uses the Low

Growth Case.

Table 5 Summary of Standards Impact, 2003-2030 (AEO Reference Case)

Trial Standard Levels

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

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Table 6 Summary of Standards Impact, 2003-2030 (AEO High Growth Case)

Trial Standard Levels

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 of Standards Impact, 2003-2030 (AEO Low Growth Case)

Trial Standard Levels

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 last year 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

linearly to 6.16 million electric, 7.03 million gas-fired, 0.54 million LPG, and 0.10 million oil-fired

water heaters shipped in the year 2030. The shipment projections do not vary significantly when

AEO High Growth and Low Growth cases are used to project energy prices.

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Energy 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

Trial Standard Level 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

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Energy Price: AEO 1999 Reference Case

Trial Standard Level 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

Trial Standard Level 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 5

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Energy Price: AEO 1999 Reference Case

Trial Standard Level Four Shipments 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 * e e&A„ 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 shows Trial Standard Level Three shipment projections. Similar to the Trial Standard

Level Two projection, a change in fuel choice is seen when the standard is implemented.

Figure 6 shows Trial Standard Level Four shipment projections. 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 as in Trial

Standard Level Three. Therefore, the cost is the same. The price of gas-fired water heaters

increases quite significantly in this standards case, giving electric water heaters an edge on the

market.

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