CHAPTER 9. SHIPMENTS ANALYSIS TABLE OF CONTENTS 9.1 INTRODUCTION

........................................................................................................... 9-1 9.2 METHODOLOGY FOR SHIPMENTS MODELS

......................................................... 9-1 9.3 DATA INPUTS AND MODEL STRUCTURE

.............................................................. 9-2 9.3.1 Water Heaters

................................................................................................................... 9-4 9.3.1.1 Historical Shipments

...................................................................................... 9-4 9.3.1.2 Markets and Model Structure

......................................................................... 9-4 9.3.1.3 Forecasted Shipments

.................................................................................... 9-7 9.3.2 Gas-Fired Pool Heaters

.................................................................................................. 9-10 9.3.2.1 Markets and Model Structure

....................................................................... 9-10 9.3.2.2 Modeled Shipments

..................................................................................... 9-11 9.3.3 Direct Heating Equipment

............................................................................................. 9-12 9.3.3.1 Historical Shipments

.................................................................................... 9-12 9.3.3.2 Modeled Shipments

..................................................................................... 9-13 9.4 IMPACTS OF ENERGY CONSERVATION STANDARDS ON SHIPMENTS

........ 9-15 9.4.1 Water Heaters

................................................................................................................. 9-15 9.4.1.1 Replacement Market

.................................................................................... 9-15 9.4.1.2 New Construction Market

............................................................................ 9-17 9.4.2 Pool Heaters and Direct Heating Equipment

................................................................. 9-19 LIST OF TABLES Table 9.4.1 Estimated Percent of Base Case Electric Water Heater Shipments that Would Switch to Gas-Fired Water Heaters in Replacement Applications

........ 9-17 LIST OF FIGURES Figure 9.3.1 Historical and Forecasted Housing Completions/Starts

...................................... 9-3 Figure 9.3.2 Water Heaters: Retirement Functions

.................................................................. 9-5 Figure 9.3.3 Scenarios of Market Penetration of Gas-Fired Instantaneous Water Heaters in the United States Market for Gas-Fired Water Heaters

................................... 9-7 Figure 9.3.4 Gas-Fired Storage Water Heaters: Historical and Modeled Shipments

............... 9-8 Figure 9.3.5 Electric Storage Water Heaters: Historical and Modeled Shipments

.................. 9-8 Figure 9.3.6 Oil-Fired Storage Water Heaters: Historical and Modeled Shipments

................ 9-9 Figure 9.3.7 Gas-Fired Instantaneous Water Heaters: Historical and Modeled Shipments

............................................................................................................. 9-9 Figure 9.3.8 Gas-Fired Pool Heaters: Retirement Function

................................................... 9-11 Figure 9.3.9 Gas-Fired Pool Heaters: Historical and Modeled Shipments

............................ 9-12 Figure 9.3.10 Direct Heating Equipment: Historical Shipments

.............................................. 9-14 Figure 9.3.11 Direct Heating Equipment: Historical and Modeled Shipments by Product Class

................................................................................................................... 9-14

9-iFigure 9.4.1 Shipments of Electric Storage Water Heaters Given a Standard Requiring Heat Pump Design, Accounting for Switching to Gas-Fired Water Heaters..... 9-18

9-iiCHAPTER 9. SHIPMENTS ANALYSIS 9.1 INTRODUCTION Estimates of product shipments represent a necessary input to calculations of national energy savings (NES) and net present value (NPV). Shipments are also a necessary input to the manufacturer impact analysis (MIA), which the U.S. Department of Energy (DOE) conducts for its notices of proposed rulemaking (NOPRs). This chapter describes DOE’s methodology for projecting annual shipments and presents results for each of the sets of products being considered for this energy conservation standards rulemaking (i.e., water heaters, pool heaters, and direct heating equipment). DOE used a separate shipments model to estimate shipments for each product. Each shipments model estimates shipments for specific market segments, then aggregates those results to estimate total product shipments. For all of the considered products, DOE accounted for two market segments: (1) new construction and (2) replacements in existing buildings. The shipments models, which are Microsoft Excel spreadsheets, are accessible on the Internet ( http://www.eere.energy.gov/buildings/appliance_standards/ ). Appendix 9-A, user instructions for shipments and national energy savings spreadsheet model, describes how to access and use the shipments model and other related spreadsheets. The rest of this chapter explains the shipments models in more detail. Section 9.2 describes the methodology for each product covered in the shipments model; section 9.3 describes the data inputs and model calibration; and section 9.4 discusses how standards could affect shipments. 9.2 METHODOLOGY FOR SHIPMENTS MODELS DOE developed national stock models for estimating annual shipments of the products considered for this energy conservation standards rulemaking. The shipments models treat market segmentation as a distinct input to the shipments forecast. As represented by the following equation, the two primary market segments (which are common to all products except direct heating equipment) are new installations and replacements. Ship p ( j ) = Rpl p ( j ) + NI p ( j )
Where: Ship p (j) = total shipments of product class p in year j , Rpl p (j) = units of product class p retired and replaced in year j , and NI p (j) = number of new installations of product class p in year j

. Rather than simply extrapolating a shipments trend based on current data, the shipments analysis uses driver input variables, such as construction forecasts and product lifetime distributions, to forecast sales in each market segment. Thus, DOE’s shipments models assume that construction of new housing units drives new installations. In each year, the product

9-1shipments for the new construction market segment are equal to the number of new housing units built times the purchase rate, which is determined by the market share of the product under consideration. DOE’s shipments models take an accounting approach, tracking market shares of each product class, the vintage of units in the existing stock, and expected construction trends. The models estimate shipments of replacements using sales in previous years and assumptions about the lifetime of the product. DOE determined the useful service life of each product to estimate how long it likely will remain in stock. The following equation represents how DOE estimated replacement shipments.

_ ageMax j 1 Rpl p ( j ) = 

# ∑ ∑ Ship j × prob Rtr ( age )
age = 0 j = N Where: prob Rtr (age) = probability that an appliance of a particular age will be retired, and N = start year for when the model begins its stock accounting (start year, which is based on historical shipments data, is specific to each product). Stock accounting uses product shipments and a retirement function as inputs to develop an estimate of the age distribution of in-service product stocks for all years. The age distribution of in-service product stocks is a key input to calculating both the NES and NPV, because operating costs for any year depend on the age distribution of the stock. Operating costs are dependent on product age distribution under a standards-case scenario that produces increasing energy efficiency over time, in that older, less energy efficient units may have higher operating costs, while younger, more energy efficient units have lower operating costs. 9.3 DATA INPUTS AND MODEL STRUCTURE As discussed above, shipments are driven primarily by two market segments: new construction and replacements. DOE estimated new construction shipments using two types of input data: new housing forecasts and new housing market share. New housing includes newly constructed single- and multi-family units, referred to as “new housing completions,” along with mobile home placements. For new housing completions and mobile home placements, DOE used actual data through 2007, 1 and adopted the projections of housing starts from the DOE Energy Information Administration’s (EIA’s) Annual Energy Outlook 2008 ( AEO 2008) for 2008–2030. 2 To determine new construction shipments, DOE used forecasts of market shares of new housing combined with forecasts of new housing units. Figure 9.3.1 presents historical new housing completions and forecasted starts based on AEO 2008 for 1990–2030. For 2031–2045, DOE applied a 0.05-percent growth rate for single9-2family and multi-family starts, while freezing completions of manufactured homes at the 2030 level.

0.0 0.5 1.0 1.5 2.0 2.5

1990 1995 2000 2005 2010 2015 2020 2025 2030Constructions (Millions)

Historical SFCompletions SF Starts projection Historical MFCompletions MF Starts Projections Historical Mobile Home Placements Mobile Home Placements Projection Total Figure 9.3.1 Historical and Forecasted Housing Completions/Starts Over time, some units are retired and removed from the stock, triggering the shipment of new units. DOE estimated replacement shipments using product retirement functions developed from product lifetimes. For all products, DOE based the retirement function on a triangular probability distribution for the product lifetime. The shipments models assume that no units are retired below a minimum product lifetime, and all units are retired before exceeding a maximum product lifetime. The models use the following equation to determine the probability of retirement at a certain age for all products.

L max R y , class = 

# ∑ FR class ( v ) × S ( y − v ) class v = L min Where:
R y,class = replacements, v = product vintage, S(y-v) = shipments in the year y-v , and FR class (v) = fraction of each cohort that will be replaced at each vintage.
The summation runs from the minimum to the maximum lifetime. The sum of the replacement fraction is equal to 1. The following sections describe the data inputs for each product.

9-39.3.1 Water Heaters The following sections describe historical shipments, markets, the model structure, and forecasted shipments for water heaters (WHs). 9.3.1.1 Historical Shipments DOE used historical shipments data (domestic shipments and imports) provided by the 3 Air-Conditioning, Heating, and Refrigerating Institute (AHRI) to populate its shipments model for water heaters. A total stock of water heaters in each product class was developed by integrating historical shipments. Over time, some of the units are retired and removed from the stock, triggering the shipment of a new unit. Because of the relationship between retirements and total stock, there is a strong correlation between past and future shipments. 9.3.1.2 Markets and Model Structure The following sections discuss further DOE’s modeling approach for each market segment (new construction and replacement units) for water heaters. Replacements. DOE determined shipments to the replacement water heater market using an accounting method that tracks the stock of units. Depending on vintage, a certain percentage of each type of unit will fail and be replaced. To determine when a unit fails, DOE used asurvival function based on a distribution of product lifetimes having an average value for gasfired storage water heaters (SWHs) of 12 years, with minimum and maximum values of 7 and 20 years, respectively; an average value for electric storage water heaters of 14 years, withminimum and maximum values of 6 and 20 years, respectively; and an average value for oilfired and liquefied petroleum gas (LPG) storage water heaters of 9 years, with minimum and maximum values of 5 and 13 years, respectively. For a more complete discussion of water heater lifetimes, refer to chapter 8, life-cycle cost and payback period analyses. Figure 9.3.2 shows the retirement functions that DOE used to estimate replacement shipments for water heaters.

9-40% 5% 10% 15% 20% 25% 30%

0 5 10 15 20 25 30 Age (years)%ofVintageRetiring Gas Water Heater
Electric Water Heater
Oil Water Heater
Instantaneous Gas Water Heater

Figure 9.3.2 Water Heaters: Retirement Functions The shipments model for water heaters assumes that when a unit using a particular fuel is retired, it generally is replaced with a unit that uses the same fuel. (Section 9.4.1 describes situations in which buyers may switch to a product that uses a different fuel.) Within the category of gas-fired water heaters, DOE disaggregated the percentages of gas-fired storage water heaters and gas-fired instantaneous water heaters (IWHs) based on projections of total shipments of instantaneous water heaters (as discussed below). New Construction . DOE used information on choice of water heater product in recently built housing to estimate shipments to the new construction market. The market shares of water heaters using a particular fuel (gas, electricity, or oil) were assumed to follow the average pattern in new homes for 2000–2006 throughout the forecast period. Section 9.4.1 discusses the potential effects of energy conservation standards on choice of water heater product in the new construction market. Instantaneous Water Heaters. Gas-fired instantaneous water heaters are in the early stage of what seems likely to be considerable growth in market share. The growth will derive from two sources: installation in new construction, and replacement of storage water heaters with instantaneous water heaters. In addition, replacements of installed instantaneous water heaters with another instantaneous water heater are expected to increase during the next 20 years, Because there is considerable uncertainty about the future of instantaneous water heaters, DOE modeled three scenarios for their market penetration. The scenarios are based on experience with instantaneous water heaters in Australia, where the proportion of instantaneous water heaters in total gas-fired water heater shipments has grown considerably in the past decade. Residential water heating services and technology in Australia are roughly comparable

9-5to those in the United States. Storage water heaters have somewhat lower volume capacities in Australia, but end-use hot water demand also may be lower. For the evolution of the Australian water heater market, DOE relied on a recent studyconducted as part of a proposal to introduce a minimum energy performance standard for gas4fired water heaters. In discussing the changing mix of gas-fired storage water heaters and gasfired instantaneous water heaters, the report says: It is certain that instantaneous water heater penetration of all households has increased over recent years, and probable that gas-fired storage water heaterpenetration has started to fall. BIS Shrapnel reports that its 2006 survey put gasfired storage water heater and instantaneous water heater penetration at 25 percent and 20 percent respectively. However, examination of import data suggests that instantaneous water heater penetration is only about 11 percent. (All instantaneous water heaters are imported and, while imports have increased rapidly in recent years, they don’t account for 20 percent of the installed stock.) Accordingly, our baseline puts gas-fired storage water heater and instantaneous water heater penetration, in 2005, at 27 percent and 11 percent respectively. It seems certain that instantaneous water heater penetration will increase further and that gas-fired storage water heater penetration will fall, but there is uncertainty about the timing and extent of the changes. Our baseline scenario is that, by 2015, gas-fired storage water heater and instantaneous water heaters will each have 50 percent of the installed stock of gas-fired water heater. This means that both converge on a total market penetration of 20 percent in 2015 and then grow in line with projected penetration for gas-fired water heaters, reaching 21 percent in 2020. (p. 10) Combining the above penetration scenario with the projections of sales (shipments) results in a 45:55 split between gas-fired storage water heaters and gas-fired instantaneous water heaters for 2010–2020. A major factor behind the popularity of gas-fired instantaneous water heaters in Australia is that their prices are roughly comparable to prices of gas-fired storage water heaters (excluding installation costs). In the United States, gas-fired instantaneous water heaters currently cost about twice as much as typical 40-gallon gas-fired storage water heaters. Although the price differential in the United States likely will decrease, the United States market probably will not duplicated that in Australia. Nonetheless, DOE believes that the market evolution in Australia provides an approximate model for scenarios for the United States. The scenario of high future market penetration of gas-fired instantaneous water heaters in the United States assumes that market evolution in the United States will follow that seen and projected for Australia, but will be 25 percent lower each year. The medium and low scenarios assume that the shape of the market penetration curve for the United States will be the same as in the high scenario, but will be 50 percent or 75 percent, respectively, lower than Australian market shares. Figure 9.3.3 shows the resulting trends in market penetration.

9-60% 5% 10% 15% 20% 25% 30% 35% 40% 45%

1990 1995 2000 2005 2010 2015 2020 2025 2030 High Penetration Scenario Reference Penetration Scenario Low Penetration Scenario `

Figure 9.3.3 Scenarios of Market Penetration of Gas-Fired Instantaneous Water Heaters in the United States Market for Gas-Fired Water Heaters The projected shipments of gas-fired instantaneous water heaters are the sum of shipments that represent switching from gas-fired storage water heaters, installations in new homes, and replacements-in-kind (that is, when a retired instantaneous water heater is replaced with the same type of product). In the case of switching from a gas-fired storage water heaters to a gas-fired instantaneous water heater, a product that has a longer lifetime (gas-fired instantaneous water heater) replaces one having a shorter lifetime (gas-fired storage water heaters). Over time, therefore, total shipments of gas-fired water heaters are less than they would have been in a market comprised only of gas-fired storage water heaters. 9.3.1.3 Forecasted Shipments Figures 9.3.4 through 9.3.7 show the modeled and actual historical shipments of water heaters in each product class. Differences between actual and modeled historical shipments may arise for several reasons. Data are insufficient to reflect early replacements or changes in the mean replacement time of the products over time.

9-70.0 1.0 2.0 3.0 4.0 5.0 6.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040Million

Modeled New Construction Modeled Replacements Historical Data

Figure 9.3.4 Gas-Fired Storage Water Heaters: Historical and Modeled Shipments

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045Million

Modeled New Construction Modeled Replacements Historical Data

Figure 9.3.5	 Electric Storage Water Heaters: Historical and Modeled Shipments

9-80.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045Million

Modeled New Construction Modeled Replacements Historical Data

Figure 9.3.6 Oil-Fired Storage Water Heaters: Historical and Modeled Shipments

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

2004 2009 2014 2019 2024 2029 2034 2039Millions

Modeled New Construction Modeled Replacements Historical Data

Figure 9.3.7	 Gas-Fired Instantaneous Water Heaters: Historical and Modeled Shipments

9-99.3.2 Gas-Fired Pool Heaters For gas-fired pool heaters (PHs), DOE obtained data through only 1990. For years after 1990, shipments were based on a model of market segments. As with other heating products, market segments for pool heaters comprise new construction and replacements. In addition, DOE included a segment for existing households that install a pool heater for the first time (first-time owners). Starting with historical shipments data through 1990, taken from the 1993 Technical Support Document (TSD) for gas-fired pool heaters, 5 DOE developed a total stock of pool heaters by integrating historical shipments. Over time, some units are retired and removed from the stock, triggering the shipment of new units. Because of the relationship between retirements and total stock, there is a strong correlation between past and future shipments. 9.3.2.1 Markets and Model Structure The following sections describe forecasted shipments and markets for pool heaters. New Construction . To forecast pool heater shipments for new construction for any given year, DOE multiplied the housing starts forecasted for single- and multi-family housing by the 6 estimated saturation of gas-fired pool heaters in new housing. Based on data from PKData, DOE estimated the saturation of gas-fired pool heaters in recently built single- and multi-family housing to be 1.5 percent. This saturation was used for the entire forecast period. Replacements. DOE integrated historical shipments to estimate a stock of gas-fired pool heaters by vintage. Over time, some units are retired and removed from stock, triggering the shipment of replacement units. Depending on vintage, a certain percentage of each type of unit will fail and be replaced. To determine when a unit fails, DOE used a survival function based on a distribution of product lifetimes having an average value of 6 years, with minimum and maximum values of 3 years and 9 years, respectively. For a more complete discussion of pool heater lifetimes, refer to chapter 8, life-cycle cost and payback period analyses. Figure 9.3.8 shows the retirement function that DOE used to estimate replacement shipments.

9-100% 5% 10% 15% 20% 25% 30% 35%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Age (years)%VintageRetired

Figure 9.3.8 Gas-Fired Pool Heaters: Retirement Function First-Time Owners. DOE introduced into the shipment model for pool heaters a market segment representing purchases by existing households that previously had not owned a pool heater. Such households are referred to as first-time owners (FTOs). FTOs include existing 6 households that have a pool and those that install one. Based on available data, DOE estimated that after 2006, 70,000 households without a gas-fired pool heater would purchase this product annually during the forecast period. DOE assumes that this market segment is 0 in 1990, ramping up to 70,000 in 2006. Shipments to FTOs remain at that level throughout the rest of the forecast period. 9.3.2.2 Modeled Shipments Figure 9.3.9 presents actual and modeled historical shipments of gas-fired pool heaters. Shipments are disaggregated into the following market segments: replacements, new housing, and FTOs.

9-110.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

1981 1987 1993 1999 2005 2011 2017 2023 2029 2035Million First Time Owners New Housing Installations Modeled Replacements Historical Data

Figure 9.3.9	 Gas-Fired Pool Heaters: Historical and Modeled Shipments 9.3.3 Direct Heating Equipment The following sections describe historical and modeled shipments of direct heating equipment (DHE). 9.3.3.1 Historical Shipments DOE used three primary data sources to estimate historical shipments of direct heating equipment, beginning with data for 1990–2006 that the Air-Conditioning, Heating, and 3 Refrigeration Institute (AHRI) provided in March 2008. In May 2008, AHRI provided DOE with a second set of data that included 2002-2006 shipments for gas wall gravity DHE and gas 7 wall fan DHE for the representative product classes only. In addition, DOE used shipments 5 information from the 1993 TSD. AHRI’s March 2008 data for wall furnace shipments is not disaggregated by gas wall gravity and gas wall fan DHE, but instead by vented wall furnaces and direct-vent wall furnaces. To estimate the proportions of gas wall gravity and gas wall fan DHE from total vented and direct-vent wall furnaces, DOE used information from the 1993 TSD. This information was used to establish the equipment percentages for 1990–2001: 86.5 percent for gas wall gravity DHE, and 13.5 percent for gas wall fan DHE. For 2002–2005, DOE developed total shipments of gas wall fan DHE based on the May 2008 data for the representative product class (more than 42 kilo British thermal units per hour) and the fraction of gas wall fan DHE shipments by product class

9-12from the 1993 TSD. To determine shipments of gas wall gravity DHE, DOE subtracted the estimated shipments of gas wall fan DHE from total wall furnace shipments. In their March 3, 2008 submittal, AHRI provided historical shipments data for room 3 heater DHE for 1990–2005. In addition to the data provided by AHRI, DOE incorporated data 8 from GAMA’s 10-year shipments summary (1995–2004), which included data on shipments of “vented gas fireplace heaters” for 2001–2004. This category includes gas room DHE and gas wall fan DHE that are not part of the 2008 AHRI shipment data. Based on GAMA’s directory of 9 certified products, DOE estimated that 2.3 percent of shipments of vented gas fireplace heaters are gas wall fan DHE, and the remaining 97.7 percent are gas room DHE. DOE also incorporated shipments data for “Other vented hearth products” from GAMA’s 10-year summary, assigning 15 percent of those to gas room DHE. AHRI provided historical shipment data for floor furnace DHE in two sets. AHRI 3 provided the data for 1990–1999 on March 3, 2008, and the data for 2000–2007 on March 11, 10 2008. The DOE shipments model develops a total stock of direct heating equipment by integrating historical shipments. Over time, some units are retired and, therefore, removed from stock, triggering the shipment of a new unit. Because of the relationship between retirements and total stock, there is a strong correlation between past and future shipments. 9.3.3.2 Modeled Shipments Data were unavailable to develop separate forecasts of direct heating equipment shipments for replacement and new home installations, so the forecast through 2043 was based on the time series of historical total shipments developed for each product class. To forecast shipments of gas room DHE, shipments of room heaters were frozen using the average shipments for 2002–2005 (~20,000 per year); fireplace shipments assigned to gas room DHE were frozen at the average during 2002–2004 (~215,000 per year). Forecasted floor furnaces shipments follow the downward trend for 2000–2007. For gas wall gravity and gas wall fan DHE, DOE based its forecasts on recent trends in shipments. Total combined shipments of gas wall gravity and gas wall fan DHE were held constant at the average during 2002–2006 (~146,000); the upward trend during 2002–2006 was extrapolated for gas wall fan DHE; and future shipments of gas wall gravity DHE were calculated as the difference. Shipments of fireplaces assigned to gas wall fan DHE were frozen at the average during 2002–2004 (~5,000 per year). Figures 9.3.10 and 9.3.11 show the modeled and historical shipments for each product class of direct heating equipment. The sharp rise in gas room DHE results from incorporating shipments of vented gas fireplace heaters beginning in 2002 (no data were available for previous years).

9-130.000 0.050 0.100 0.150 0.200 0.250

1990 1995 2000 2005million

Gas Wall Fan DHE (AHRI 2008) Gas Wall Gravity DHE (AHRI 2008) Gas Floor DHE (AHRI 2008) Gas Room DHE (AHRI 2008) Vented Fireplace Heaters allocated to Gas Wall Fan DHE Vented Fireplace Heaters allocated to Gas Room DHE Other Hearth Products allocated to Gas Room DHE Figure 9.3.10 Direct Heating Equipment: Historical Shipments

0.000 0.050 0.100 0.150 0.200 0.250 0.300

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040million Gas Room DHE Gas Wall Gravity DHE Gas Wall Fan DHE Gas Floor DHE

Figure 9.3.11	 Direct Heating Equipment: Historical and Modeled Shipments by Product Class

9-149.4 IMPACTS OF ENERGY CONSERVATION STANDARDS ON SHIPMENTS To the extent that revised energy conservation standards result in an increase in the price of a covered product compared to a competing product, some consumers (or home builders in the case of shipments for new construction) may purchase the competing product. DOE’s analysis seeks to account for such “product switching.” 9.4.1 Water Heaters Three of the four product classes for water heaters compete to some extent. Thecompeting classes are gas-fired storage water heaters, electric storage water heaters, and gasfired instantaneous water heaters. It is useful to consider the nature of the competition in the replacement and new construction market segments separately in order to assess the potential impact of energy conservation standards on shipments. 9.4.1.1 Replacement Market When it comes time to replace a gas-fired storage water heaters, switching from gas to electric would involve substantial cost because of the complexity involved in modifying the installation. 11 Ordinarily, 30-amp electric wiring is not available near an existing gas-fired water heater. Providing such a circuit is expensive, and the main electric service panel may be inadequate for accepting the circuit. In addition, because it takes more time for an electric storage water heater to recover heated capacity, a larger electric tank is required to replace a gas unit. In sum, changing from a gas-fired unit to an electric one entails significant expense. Consumers might be induced to switch from gas to electric if there was a large increase in the price of a gas-fired water heater compared to an electric one. Because DOE does not envision a set of revised energy conservation standards that would result in such an increase, its analysis did not include switching from a gas-fired to an electric storage water heater in the replacement market. A purchaser might be likely to switch from a gas-fired storage water heater to a gas-fired instantaneous water heater. Although the installed price of a gas-fired instantaneous water heater currently is much higher than that of a gas-fired storage water heater, the popularity of gas-fired instantaneous water heaters has increased in recent years, and DOE forecasts substantial growthin their market share. If energy conservation standards significantly increased the price of a gasfired storage water heater compared to an instantaneous water heater, some additional consumers might be induced to switch to the latter product. DOE is unaware of data that would enable estimation of such switching, however, because market competition between gas-fired storage water heaters and gas-fired instantaneous water heaters is a relatively new phenomenon. DOE, however, will consider the potential for impacts from switching when evaluating candidate standard levels. Switching from an electric storage water heater to a gas-fired water heater also may occur in the replacement market. The life-cycle cost (LCC) analysis indicates that the energy efficiency provided by electric heat pump water heaters produces large average LCC savings. Because this

9-15type of product has a higher installed cost than does a typical gas-fired storage water heater and is relatively new to consumers and builders, DOE analyzed the potential for switching from an electric heat pump water heater to a gas-fired water heater. DOE considered the following potential combinations of standards for electric and gas-fired storage water heaters.

• electric heat pump water heater and a gas-fired storage water heater using natural draft
• electric heat pump water heater and a gas-fired storage water heater using power vent
• electric heat pump water heater and a gas-fired storage water heater using condensing technology. DOE used data from the EIA’s Residential Energy Consumption Survey (RECS) to estimate the percentage of households expected to purchase an electric water heater in the base case that could switch to a gas-fired water heater. First all households that use an electric water heater were selected, assuming that those households reasonably represent future users of electric water heaters. Then households that have no gas hookup were removed, because they would be unlikely to switch to gas-fired water heating. Finally, households that had no central gas-fired furnace or boiler were removed, because the cost of venting and gas piping for a gas-fired water heater would be prohibitive. The remaining households—those that could switch to gas water heating—account for 13 percent of the total households that have electric water heaters. a To estimate how many of the 13 percent of households that could switch would switch to gas-fired water heaters, DOE considered the difference in installed cost between the gas-fired storage water heaters and an electric heat pump water heater in each of the combinations listed above. In the case of a gas-fired storage water heaters using natural draft, DOE estimated that half of installations would require a separate vent for the water heater, and half would combine venting with the furnace or boiler. DOE estimated that 25 percent of the households using a separate vent and all of the households using a combined vent would find it advantageous to switch. In sum, 63 percent of the households that could switch to gas-fired storage water heaters would switch, representing 8 percent of the sample households that use electric water heating. In the case of a gas-fired storage water heaters using either a power vent or condensing technology, DOE estimated that approximately 25 percent of the households that could switch to a gas-fired storage water heaters would find it advantageous to do so, which is about 3 percent of the sample households that use electric water heating. Table 9.4.1 summarizes the percentage of electric water heater shipments in the base case that DOE estimates could and would be switched to gas-fired storage water heaters in each of the three standard combinations considered.

a To analyze product switching in the replacement market for the NOPR, DOE will develop a housing sample from RECS 2005.

9-16Table 9.4.1 Estimated Percent of Base Case Electric Water Heater Shipments that Would Switch to Gas-Fired Water Heaters in Replacement Applications Standards Combination Percent of Shipments of Replacement Electric SWHs that Switch (%) HPWH and Gas-fired SWH Using Natural Draft 8.2 HPWH and Gas-fired SWH Using Power Vent 3.3 HPWH and Gas-fired SWH Using Condensing Technology 3.3 9.4.1.2 New Construction Market Historically, home builders have had a choice between gas-fired and electric storage water heaters. Generally, the choice of a water heater depends primarily on the availability of 11 natural gas. If gas is available, builders generally will install a gas-fired water heater (and usually a gas furnace). If gas is not available, but the utility says that it will be available soon, the developer will install a temporary central propane tank until natural gas is available. If natural gas will remain unavailable for the foreseeable future, as is the case in parts of the Pacific Northwest and Florida and in most rural areas of the United States, builders usually will install an electric water heater. Price has little effect on the builder’s choice of water heater because generally the water heater is a small part of the total cost for plumbing a new house. The builder pays attention primarily to the total plumbing cost, not individual components. Small changes in the cost of the water heater therefore are unlikely to induce a builder to switch to a different product. To assess the likelihood that a builder would switch from an electric heat pump water heater to a gas-fired storage water heater in new construction, DOE first developed a sample of RECS households to serve as a proxy for future new homes that have electric water heating. b Then households were selected that potentially could switch from electric to gas-fired water heating because natural gas is available. This group contains 7 percent of all RECS households in this sub-sample that have electric water heating (most new homes that have electric water heating do not have access to natural gas). The estimated average installed cost of an electric heat pump water heater is about $60 less than the average installed cost of a natural draft or power vent gas-fired water heater. The estimated average installed cost is much less (by about $360) than that of a condensing gas water heater. Given this result, the analysis includes no cases in which a builder would switch to a gas-fired water heater. Figure 9.4.1 shows the total effect on shipments of electric storage water heaters in the case of a standard level that would require a heat pump design. The figure shows projected shipments without switching and projected shipments if consumers switch to gas-fired water heaters to meet various energy efficiency standards levels. Where the gas water heater standard

b For new construction, DOE began with a subset of those RECS households having electric water heaters that were built in the most recent period before the survey. For the NOPR analysis, DOE will use a subset from RECS 2005.

9-17requires natural draft, shipments of electric storage water heaters are 404,000 units less per year than in the no-switching case. Shipments of electric storage water heaters are 162,000 units less per year in the case where the gas water heater standard requires a power vent or condensing design.

4.50 5.00 5.50 6.00 6.50 7.00

2015 2020 2025 2030 2035 2040 2045Millions

No Switching Condensing GSWH Power Vent GSWH Natural Vent GSWH

Figure 9.4.1 Shipments of Electric Storage Water Heaters Given a Standard Requiring Heat Pump Design, Accounting for Switching to Gas-Fired Water Heaters Gas-fired instantaneous water heaters increasingly are becoming an option for home builders. In new construction, the difference in installation cost between a gas-fired instantaneous unit and a gas-fired storage unit is less than in replacement applications, because the home design can provide for the larger gas pipe, larger vent pipe, and electrical wiring sometimes required. DOE’s shipments forecast accounts for the fact that in the future some builders likely will find instantaneous water heaters attractive. If energy conservation standards result in a large price differential between storage and instantaneous water heaters, the standards may affect builder choice. Although DOE currently is unaware of data that would enable accurate quantification of such effects, DOE will consider the potential for such effects when evaluating potential standards.

9-189.4.2 Pool Heaters and Direct Heating Equipment Some consumers who have a pool may forego purchasing gas-fired pool heaters if energy conservation standards result in increased prices. Consumers may purchase electric direct heating equipment if energy conservation standards result in increased prices for gas-fired DHE. In both cases, DOE is unaware of any data that could be used to estimate the number of such choices. Further, DOE considers that significant impacts would occur only in response to large increases in product prices. DOE will consider the potential for such effects when evaluating potential standards for pool heaters and direct heating equipment.

9-19REFERENCES
1. U. S. Department of Commerce - Bureau of the Census, New Residential Construction ­ Quarterly Starts and Completions by Purpose and Design Washington, D.C.
2. U.S. Department of Energy - Energy Information Administration, Annual Energy Outlook 2008 with Projections to 2030 , 2008. Washington, DC. Report No. DOE/EIA0383(2008).
3. Air-Conditioning Heating and Refrigeration Institute, AHRI Shipments Data, March 3, 2008.
4. Syneca Consulting, Cost-Benefit Analysis: Proposal to Introduce a Minimum Energy Performance Standard for Gas Water Heaters , 2007. Australian Greenhouse Office: Equipment Energy Efficiency Gas Committee. 5. U.S. Department of Energy-Office of Codes and Standards, Technical Support Document: Energy Efficiency Standards for Consumer Products: Room Air Conditioners, Water Heaters, Direct Heating Equipment, Mobile Home Furnaces, Kitchen Ranges and Ovens, Pool Heaters, Fluorescent Lamp Ballasts & Television Sets , 1993. Washington, DC Vol. 1 of 3. Report No. DOE/EE-0009. 6. P.K. Data Inc., Pool Heaters Market Data: Custom Compilation for Lawrence Berkeley National Laboratory , 2007. Duluth, GA.
7. Air-Conditioning Heating and Refrigeration Institute, AHRI Wall Furnace Supplemental Shipments Data, May 19, 2008.
8. Gas Appliance Manufacturers Association, Ten Year Summary, 1995 - 2004 , 2005. Arlington, VA.
9. Gas Appliance Manufacturers Association (GAMA), Consumer's Directory of Certified Efficiency Ratings for Heating and Water Heating Equipment (GAMA Directory March 2007), 2007. (Last accessed March, 2007.) < http://www.gamanet.org/gama/inforesources.nsf/vAllDocs/Product+Directories?OpenD ocument > 10. Air-Conditioning Heating and Refrigeration Institute, AHRI Floor Furnace Supplemental Shipments Data, March 11, 2008.
11. Smith Carroll Drew, Consultant Report - Water Heater Market Shares , 2008. Florence, SC.

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