CHAPTER 5. ENGINEERING ANALYSIS

TABLE OF CONTENTS

5.1 INTRODUCTION ............................................................................................... 5­1
 

5.2 PRODUCT CLASSES......................................................................................... 5­2
 

5.3 PRODUCT CLASSES ANALYZED.................................................................. 5­3
 

5.4 EFFICIENCY LEVELS....................................................................................... 5­5
 

5.4.1 Baseline Unit............................................................................................ 5­5
 

5.4.2 Intermediate Energy Efficiency Levels ................................................... 5­7
 

5.4.3 Max­Tech Efficiency Levels.................................................................. 5­11
 

5.5 METHODOLOGY OVERVIEW ...................................................................... 5­13
 

5.6 TEARDOWN ANALYSIS................................................................................ 5­15
 

5.6.1 Selection of Units................................................................................... 5­15
 

5.6.2 Baseline Units........................................................................................ 5­16
 

5.6.2.1 Water Heater Baseline Unit Features......................................... 5­16
 

5.6.2.2 Direct Heating Equipment Baseline Unit Features.................... 5­17
 

5.6.2.3 Pool Heater Baseline Unit Features........................................... 5­18
 

5.7 TECHNOLOGY OPTIONS .............................................................................. 5­19
 

5.7.1 Screened­In Technologies...................................................................... 5­20
 

5.7.1.1 Technologies for Gas­Fired Storage Water Heaters.................. 5­21
 

5.7.1.2 Technologies for Electric Storage Water Heaters...................... 5­22
 

5.7.1.3 Technologies for Oil­Fired Storage Water Heaters................... 5­23
 

5.7.1.4 Technologies for Gas­Fired Instantaneous Water Heaters ........ 5­23
 

5.7.1.5 Technologies for Gas Wall Fan Direct Heating Equipment ...... 5­24

5.7.1.6 Technologies for Gas Wall Gravity Direct Heating Equipment 5­24

5.7.1.7 Technology for Gas Floor Direct Heating Equipment............... 5­25
 

5.7.1.8 Technology for Gas Room Direct Heating Equipment.............. 5­25
 

5.7.1.9 Technologies for Pool Heaters................................................... 5­26
 

5.8 COST MODEL.................................................................................................. 5­27
 

5.8.1 Generation of Bills of Materials ............................................................ 5­27
 

5.8.2 Cost Structure of the Spreadsheet Models............................................. 5­28
 

5.8.3 Cost Model and Definitions................................................................... 5­28
 

5.8.3.1 Cost Definitions......................................................................... 5­29
 

5.8.4 Cost Model Assumptions Overview ...................................................... 5­29
 

5.8.4.1 Fabrication Estimates................................................................. 5­30
 

5.8.4.2 Production Volumes Assumptions............................................. 5­31
 

5.8.4.3 Factory Parameters Assumptions............................................... 5­32
 

5.8.4.4 Material Prices Assumptions..................................................... 5­33
 

5.8.5 Manufacturing Production Cost............................................................. 5­34
 

5.9 ENGINEERING MANUFACTURER INTERVIEWS..................................... 5­37
 

5.9.1 Key Issues Discussed............................................................................. 5­37
 

5.9.1.1 Recent Material Price Increases and the Effect on MPC........... 5­37
 

5.9.1.2 Cost Increases Caused by Ultra­Low NOX Requirements......... 5­38
 

5.9.1.3 Other Key Issues........................................................................ 5­38
 

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5.10	 COST VERSUS EFFICIENCY CURVES........................................................ 5­39
 

5.11	 MPC BREAKDOWN........................................................................................ 5­48
 

5.12	 MANUFACTURER MARKUP ........................................................................ 5­49
 

5.12.1 Manufacturer Selling Price .................................................................... 5­50
 

5.12.2 Manufacturing Markup Calculation....................................................... 5­50
 

5.12.3 Shipping Costs for Storage Water Heaters ............................................ 5­54
 

5.13	 ENGINEERING ANALYSIS SUMMARY OF RESULTS.............................. 5­57
 

5.14	 ENERGY EFFICIENCY EQUATIONS FOR GAS­FIRED AND ELECTRIC

STORAGE WATER HEATERS....................................................................... 5­63

5.14.1 DOE’s Review of the Current Water Heater Market............................. 5­65
 

5.14.1.1 Revised Energy Efficiency Equations ..................................... 5­67
 

5.14.1.2 Development of Alternative Energy Efficiency Equations ..... 5­69

5.14.2 Validation of the Energy Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters ........................................................................... 5­75

LIST OF TABLES

Table 5.2.1 Residential Water Heater Product Classes.................................................... 5­2

Table 5.2.2 Residential Direct Heating Equipment Product Classes (with Revised

Descriptions).................................................................................................................... 5­3

Table 5.2.3 Residential Pool Heaters Product Classes .................................................... 5­3

Table 5.3.1 Representative Residential Water Heaters as Described by Storage Capacity

and Defined by Gallons ................................................................................................... 5­4

Table 5.3.2 Representative Residential Direct Heating Equipment Product Class as

Described by Input Capacity............................................................................................ 5­5

Table 5.4.1 Baseline Unit EF for Water Heaters............................................................. 5­6

Table 5.4.2 Baseline Unit AFUE for Direct Heating Equipment .................................... 5­7

Table 5.4.3 Intermediate Efficiency Levels for 40­Gallon Gas­Fired Storage Water

Heaters ............................................................................................................................. 5­8

Table 5.4.4 Intermediate Efficiency Levels for 32­Gallon Oil­Fired Storage Water

Heaters ............................................................................................................................. 5­8

Table 5.4.5 Intermediate Efficiency Levels for 50­Gallon Electric Storage Water Heaters

.......................................................................................................................................... 5­9

Table 5.4.6 Intermediate Efficiency Levels for Gas­Fired instantaneous Water Heaters 5­9

Table 5.4.7 Intermediate Efficiency Levels for Gas Wall Fan DHE, Over 42,000 Btu/h . 5­

10

Table 5.4.8 Intermediate Efficiency Levels for Gas Wall Gravity DHE, Over 27,000

Btu/h and up to 46,000 Btu/h......................................................................................... 5­10

Table 5.4.9 Intermediate Efficiency Levels for Gas Room DHE Over 27,000 Btu/h and

up to 46,000 Btu/h.......................................................................................................... 5­10

Table 5.4.10 Intermediate Efficiency Levels for Gas Hearth DHE, Over 27,000 Btu/h and

up to 46,000 Btu/h.......................................................................................................... 5­11

Table 5.4.11 Intermediate Efficiency Levels for Gas­Fired Pool Heaters, 250,000 Btu/h 5­

11

Table 5.4.12 Max­Tech Efficiency Levels for Water Heaters....................................... 5­12

Table 5.4.13 Max­Tech Efficiency Levels for Direct Heating Equipment.................... 5­13

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Table 5.6.1 Market Baseline Unit Characteristics for Water Heaters............................ 5­17
 

Table 5.6.2 Market Baseline Unit Characteristics for Direct Heating Equipment ........ 5­18
 

Table 5.7.1 Technologies Considered for the Engineering Analysis for Water Heaters5­20
 

Table 5.7.4 Gas­Fired Storage Water Heater, 40 Gallon, Standard Burner................... 5­21
 

Table 5.7.5 Gas­Fired Storage Water Heater, 40 Gallon, Ultra­Low NOX Burner ....... 5­22
 

Table 5.7.6 Electric Storage Water Heater, 50 Gallon .................................................. 5­23
 

Table 5.7.7 Oil­Fired Storage Water Heater, 32 Gallon with Burner Assembly........... 5­23
 

Table 5.7.8 Gas­Fired Instantaneous Water Heater, 0 Gallon, 199,000 Btu/h Input
 

Capacity ......................................................................................................................... 5­24
 

Table 5.7.9 Gas Wall Fan DHE, Over 42,000 Btu/h ..................................................... 5­24
 

Table 5.7.10 Gas Wall Gravity DHE, Over 27,000 Btu/h and up to 46,000 Btu/h ....... 5­25
 

Table 5.7.11 Gas Floor DHE, Over 37,000 Btu/h ......................................................... 5­25
 

Table 5.7.12 Gas Room DHE, Over 27,000 Btu/h and up to 46,000 Btu/h .................. 5­26
 

Table 5.7.13 Gas­Fired Pool Heater, 250,000 Btu/h...................................................... 5­27
 

Table 5.8.1 Cost Model In­House Manufacturing Operation Assumptions.................. 5­30
 

Table 5.8.2 Domestic Water Heater Factory Parameter Assumptions .......................... 5­32
 

Table 5.8.3 International Water Heater Factory Parameter Assumptions..................... 5­32
 

Table 5.8.4 Direct Heating Equipment Factory Parameter Assumptions...................... 5­33
 

Table 5.8.5 Pool Heater Factory Parameter Assumptions............................................. 5­33
 

Table 5.8.6 Five­Year Metal Prices (2004 to 2008) ...................................................... 5­34
 

Table 5.8.7 Most Prevalent Resin Prices as of December 2008 .................................... 5­34
 

Table 5.10.1 Cost­Efficiency Curves and Corresponding Figures................................ 5­39
 

Table 5.11.1 Total Product MPC Breakdown for Water Heaters.................................. 5­49
 

Table 5.11.2 Total Product MPC Breakdown for Direct Heating Equipment............... 5­49
 

Table 5.11.3 Total Product MPC Breakdown for Pool Heaters .................................... 5­49
 

Table 5.12.1 Gross Profit Margin for Residential Heating Products Manufacturers*... 5­52
 

Table 5.12.2 Manufacturer Markups for Residential Heating Products Calculated for the
 

Preliminary Analysis...................................................................................................... 5­53
 

Table 5.12.3 Manufacturer Markups Calculated for the NOPR Analysis..................... 5­54
 

Table 5.12.4 Gas­Fired Storage Water Heater Shipping Cost Estimates ...................... 5­55
 

Table 5.12.5 Electric Storage Water Heater Shipping Cost Estimates.......................... 5­56
 

Table 5.12.6 Oil­Fired Storage Water Heater Shipping Cost Estimates........................ 5­57
 

Table 5.13.1 MPC and MSP for a 40­Gallon Gas­Fired Storage Water Heater............ 5­58
 

Table 5.13.2 MPC and MSP for a 40­Gallon Gas­Fired Storage Water Heater with UltraLow NOx Burner ........................................................................................................... 5­58
 

Table 5.13.3 MPC and MSP for a 32­Gallon Oil­Fired Storage Water Heater with Burner
 

Assembly........................................................................................................................ 5­58
 

Table 5.13.4 MPC and MSP for a 50­Gallon Electric Storage Water Heater ............... 5­59
 

Table 5.13.5 MPC and MSP for a 0­Gallon Gas­Fired Instantaneous Water Heater,
 

199,000 Btu/h Input Capacity........................................................................................ 5­59
 

Table 5.13.6 MPC and MSP for Gas Wall Fan DHE, Over 42,000 Btu/h Input Capacity 5­

Table 5.13.7 MPC and MSP for Gas Wall Gravity DHE, Over 27,000 Btu/h and up to

46,000 Btu/h Input Capacity.......................................................................................... 5­60

Table 5.13.8 MPC and MSP for Gas Floor DHE, Over 37,000 Btu/h Input Capacity.. 5­60

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Table 5.13.9 MPC and MSP for Gas Room DHE, Over 27,000 Btu/h and up to 46,000

Btu/h Input Capacity...................................................................................................... 5­60

Table 5.13.10 MPC and MSP for Gas Hearth DHE, Over 27,000 Btu/h and up to 46,000

Btu/h Input Capacity...................................................................................................... 5­60

Table 5.13.11 MPC and MSP for a Gas­Fired Pool Heater, 250,000 Btu/h Input Capacity

and Standing Pilot.......................................................................................................... 5­61

Table 5.13.12 MPC and MSP for a Gas­Fired Pool Heater, 250,000 Btu/h Input Capacity

and Electronic Ignition................................................................................................... 5­61

Table 5.14.1 Existing Federal Energy Conservation Standards for Residential Gas­Fired

and Electric Storage Water Heaters............................................................................... 5­64

Table 5.14.2 Alternative Energy Efficiency Equations for Gas Storage Water Heaters5­71

Table 5.14.3 Energy Factor Test Results for a Sample of Gas­Fired and Electric Storage

Water Heaters................................................................................................................. 5­77

LIST OF FIGURES

Figure 5.5.1 Flow Diagram of Engineering Analysis Methodology ............................. 5­14

Figure 5.8.1 Full Production Costs................................................................................ 5­35

Figure 5.10.1 Manufacturer Production Cost (2008$) versus Energy Factor for Gas­Fired

Storage Water Heaters, Standard Burner....................................................................... 5­40

Figure 5.10.2 Manufacturer Production Cost (2008$) versus Energy Factor for Gas­Fired

Storage Water Heaters, Ultra­Low NOX Burner............................................................ 5­41

Figure 5.10.3 Manufacturer Production Cost (2008$) versus Energy Factor for Oil­Fired

Storage Water Heaters ................................................................................................... 5­42

Figure 5.10.4 Manufacturer Production Cost (2008$) versus Energy Factor for Electric

Storage Water Heaters ................................................................................................... 5­43

Figure 5.10.5 Close­Up of Resistance Heating Electric Storage Water Heaters........... 5­44

Figure 5.10.6 Manufacturer Production Cost (2008$) versus Energy Factor for Gas­Fired

Instantaneous Water Heaters, 0 Gallon, 199,000 Btu/h Input Capacity ........................ 5­45

Figure 5.10.7 Manufacturer Production Cost (2008$) versus AFUE for Gas Wall Fan

DHE, Over 42,000 Btu/h ............................................................................................... 5­45

Figure 5.10.8 Manufacturer Production Cost (2008$) versus AFUE for Gas Wall Gravity

DHE, Over 27,000 Btu/h and up to 46,000 Btu/h.......................................................... 5­46

Figure 5.10.9 Manufacturer Production Cost (2008$) versus AFUE for Gas Floor DHE,

Over 37,000 Btu/h.......................................................................................................... 5­46

Figure 5.10.10 Manufacturer Production Cost (2008$) versus AFUE for Gas Room DHE,

Over 27,000 Btu/h and up to 46,000 Btu/h.................................................................... 5­47

Figure 5.10.11 Manufacturer Production Cost (2008$) versus AFUE for Gas Hearth

DHE, Over 27,000 Btu/h and up to 46,000 Btu/h.......................................................... 5­47

Figure 5.10.12 Manufacturer Production Cost (2008$) versus Thermal Efficiency for

Gas­Fired Pool Heater, 250,000 Btu/h........................................................................... 5­48

Figure 5.14.1 Distribution of Gas­Fired Storage Water Heater Models by Rated Storage

Volume........................................................................................................................... 5­66

Figure 5.14.2 Distribution of Electric Storage Water Heater Models by Rated Storage

Volume........................................................................................................................... 5­67

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Figure 5.14.3 Gas­Fired Storage Water Heater Efficiency Levels Using the Slope of the

Federal Energy Conservation Standard ......................................................................... 5­68

Figure 5.14.4 Electric Storage Water Heater Efficiency Levels Using the Slope of the

Federal Energy Conservation Standard ......................................................................... 5­69

Figure 5.14.5 Energy Efficiency Equations Using a Modified Slope Based on the AHRI

Consumers’ Directory for Gas­Fired Storage Water Heaters........................................ 5­71

Figure 5.14.6 Energy Efficiency Equations Using a Modified Slope Based on the AHRI

Consumers’ Directory for Electric Storage Water Heaters (Baseline – Level 5).......... 5­73

Figure 5.14.7 Energy Efficiency Equations Using a Modified Slope Based on the AHRI

Consumers’ Directory for Electric Storage Water Heaters (Efficiency Levels 6 and 7)... 5­

74

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CHAPTER 5.ENGINEERING ANALYSIS
 

5.1 INTRODUCTION
 

The U.S. Department of Energy (DOE) performed an engineering analysis to

establish the relationship between the manufacturer production cost (MPC) and the

energy efficiency of residential heating products, which include residential water heaters,

direct heating equipment (DHE), and pool heaters. The relationship between the MPC

and energy efficiency, or cost­efficiency relationship, serves as the basis for cost­benefit

calculations for individual consumers, manufacturers, and the Nation. This section

provides an overview of the engineering analysis (section 5.5), discusses the product

classes (section 5.3), establishes baseline unit specifications (section 5.4.1), discusses

incremental efficiency levels (section 5.4.2), explains the methodology used for data

gathering (section 5.8), and presents the analysis and results (section 5.10). DOE

completed a separate engineering analysis for each of the product types: residential water

heaters, direct heating equipment, and pool heaters.

The primary inputs of the engineering analysis are baseline information from the

market and technology assessment (chapter 3) and the technologies from the screening

analysis (chapter 4). Additional inputs include cost and efficiency data derived from the

physical teardown analysis and engineering interviews with manufacturers. The primary

output of the engineering analysis is a set of cost­efficiency curves.

DOE typically structures its engineering analysis around one of three

methodologies: (1) the design­option approach, which calculates the incremental cost of

adding specific design options to the baseline model; (2) the efficiency­level approach,

which calculates the relative costs of achieving increases in energy efficiency levels

without regard to the particular design options used to achieve such increases; and/or (3)

the reverse engineering cost­assessment approach, which involves a “bottom­up”

manufacturing cost assessment based on a detailed bill of materials (BOM) derived from

product teardowns. Which methodology to use for the engineering analysis depends on

the product, the technologies under study, and historical data.

To establish the industry cost­efficiency curves for residential heating products,

DOE used the efficiency­level approach to identify incremental improvements in

efficiency for each product and the cost­assessment approach to develop a cost for each

efficiency level. DOE identified the most common residential heating products on the

market and determined their corresponding efficiency levels, the component

specifications, and the distinguishing technology features associated with those levels.

After identifying the most common products that represent a cross section of the market,

DOE gathered additional information from reverse engineering; product information

from manufacturer catalogs; and discussions with experts and manufacturers of water

heaters, direct heating equipment, and pool heaters. This approach provided useful

information, including identification of potential technology paths manufacturers might

use to increase energy efficiency. DOE generated bills of materials by disassembling

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multiple manufacturers’ products that span a range of efficiency levels for each of the

three product categories. The BOMs describe the product in detail, including all

manufacturing steps required to make and/or assemble each part. Subsequently, DOE

developed a cost model that converted the BOMs and efficiency levels into MPCs. By

applying derived manufacturer markups to the MPCs, DOE calculated the manufacturer

selling prices (MSPs) and constructed industry cost­efficiency curves.

In a subsequent life­cycle cost analysis (chapter 8), DOE used the industry costefficiency curves to determine consumer prices for each of the covered residential heating

products by applying the appropriate distribution channel markups.

5.2 PRODUCT CLASSES

According to the Energy Policy and Conservation Act (EPCA), products may be

seaparted into different product classes by energy source (e.g., natural gas, electricity),

capacity, other performance­related features (such as those that provide utility to the

consumer), or any other features deemed appropriate by the Secretary that would justify

the establishment of a separate energy conservation standard. (42 U.S.C. 6295 (q) and

6316(a))

Table 5.2.1, Table 5.2.2, and Table 5.2.3 show the product classes proposed in the

NOPR for the residential water heaters, DHE, and pool heaters that are subject to these

standards. Table 5.2.2 shows the proposed revisions to the direct heating equipment

product class descriptions. DOE is considering these revisions to include vented gas

hearth products (see chapter 3 for more information).

Table 5.2.1 Residential Water Heater Product Classes

Residential Water Characteristics

Heater Type Nominal Input Rated Storage Volume

Gas­Fired Storage 75,000 Btu/h or less 20 to 100 gallons

Oil­Fired Storage 105,000 Btu/h or less 50 gallons or less

Electric Storage 12 kilowatts (40,956 Btu/h) or

less 20 to 120 gallons

Gas­Fired

Instantaneous

Over 50,000 Btu/h up to

200,000 Btu/h 2 gallons or less

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Table 5.2.2 Residential Direct Heating Equipment Product Classes (with Revised

Descriptions)

Direct Heating Equipment Design Type Product Class, by Input Rating

Btu/h

Gas Wall Fan Up to 42,000

Over 42,000

Up to 27,000

Gas Wall Gravity Over 27,000 up to 46,000

Over 46,000

Gas Floor Up to 37,000

Over 37,000

Up to 20,000

Gas Room Over 20,000 up to 27,000

Over 27,000 up to 46,000

Over 46,000

Up to 20,000

Gas Hearth Over 20,000 up to 27,000

Over 27,000 up to 46,000

Over 46,000

Table 5.2.3 Residential Pool Heaters Product Classes
 

Pool Heater Type

Residential Gas­Fired

5.3 PRODUCT CLASSES ANALYZED

DOE reviewed all of the product classes of residential water heaters (storage­type

and instantaneous), DHE, and pool heaters for the engineering analysis. Because the

storage volume and input capacity affect the energy efficiency of the products, DOE

examined each product type separately. DOE analyzed water heaters, direct heating

equipment, and pool heaters that represent a cross section of the residential heating

products market. The analysis of these representative products and product classes

allowed DOE to analyze specific characteristics common to the products in a range of

storage and input capacities, where appropriate. DOE then expanded the analysis to

include all covered products in each product class

For residential storage­type water heaters, the tank volume significantly affects

the energy consumed. That is, it takes more energy to heat a larger volume of water from

a given temperature to a higher temperature. Additionally, the tank surface area increases

as tank volume increases. Among other factors, the heat transfer rate is a function of

surface area. Therefore, increased surface area increases the rate of heat transfer to the

ambient air, which increases standby losses. This is reflected in the existing Federal

energy conservation standards as the energy factor is a function of the tank storage

volume for gas­fired, oil­fired, and electric storage water heaters.

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DOE examined specific storage volumes (referred to as representative storage

volumes) for gas­fired, oil­fired, and electric storage water heaters because EPCA

established the energy efficiency equations for residential water heaters as a function of

storage volume. DOE reviewed shipment data from AHRI for the NOPR, and identified

the storage volumes corresponding to the highest number of shipments for gas­fired, oilfired, and electric storage water heaters. Storage volume typically does not vary for gasfired instantaneous water heaters, so DOE conducted a similar review of shipment data to

determine the input rating corresponding to the highest number of shipments. See chapter

9 of the NOPR TSD for more details on the shipment data. Table 5.3.1 presents the

representative rated storage volumes for residential water heaters.

Table 5.3.1 Representative Residential Water Heaters as Described by Storage

Capacity and Defined by Gallons

Residential Water Heater Product Class Representative Rated Storage Volume

gallons

Gas­Fired Storage 40

Oil­Fired Storage 32

Electric Storage 50

Gas­Fired Instantaneous 0

(199 kBtu/h input capacity)

After conducting the primary analysis on the representative rated storage volumes

for each product class, DOE extended the analysis to other rated storage volumes for gasfired, electric, and oil­fired storage water heaters using the energy efficiency equations

and the cost model. See section 5.8.6 for a description of how the MPCs were scaled to

other rated storage volumes and section 5.14 for additional details on DOE’s

methodology for extending the analysis beyond the representative rated capacities. For

gas­fired instantaneous water heaters, the analysis of the 199 kBtu/h input capacity was

applied to all products within the product class.

Unlike water heaters, DHE conservation standards are not determined by an

equation, but established by input capacity ranges. DOE examined one specific input

range, referred to as representative input rating ranges, for each DHE product class (i.e.,

gas wall fan, gas wall gravity, gas floor, gas room, and gas hearth). DOE reviewed DHE

shipment data from AHRI, data from California Energy Commission (CEC) appliance

directory, and the Hearth, Patio, and Barbeque Association (HPBA) shipment data for

this NOPR. DOE found the input rating range corresponding to the highest number of

shipments for each product class, or (for product classes where shipments data were not

available) the highest number of models available. Table 5.3.2 presents the representative

input rating ranges for residential DHE.

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Table 5.3.2 Representative Residential Direct Heating Equipment Product Class as

Described by Input Capacity

Direct Heating Equipment Type Representative Input Rating Range

Btu/h

Gas Wall Fan Over 42,000

Gas Wall Gravity Over 27,000 up to 46,000

Gas Floor Over 37,000

Gas Room Over 27,000 up to 46,000

Gas Hearth Over 27,000 up to 46,000

After analyzing each of the representative product input capacities, DOE extended

the analysis to the remaining input capacity ranges for each residential DHE product

class. DOE proposes to maintain the difference in Annual Fuel Utilization Efficiency

(AFUE) values for each input rating range established by EPCA. For example, if the

conservation standard increases by two AFUE percentage points for the representative

product class, the conservation standards for the other input capacities in the same

product type would also increase by two AFUE percentage points. The stringency

resulting from an amended standard will be constant across the range of inputs for a

given product type.

There is only one product class for residential gas­fired pool heaters. However,

this product class covers a range of input ratings wide enough to create variations in pool

heater design (e.g., large variations in input will change material usage and MPC).

Therefore, DOE reviewed the CEC directory of gas­fired pool heaters for this NOPR and

identified 250,000 Btu/h as the representative capacity based on the number of models in

the directory at each capacity.

5.4 EFFICIENCY LEVELS

DOE analyzed multiple efficiency levels for each product class presented in

section 5.3 and estimated the manufacturer production costs at those levels. The

following subsections provide the full efficiency range from the baseline to maximum

technologically feasible (“max­tech”) efficiency for each product class. In some cases,

DOE identified the highest efficiency level by reviewing product literature for

commercially available products.

5.4.1 Baseline Unit

DOE selected baseline units as reference points for each product class, against

which changes resulting from potential amended energy conservation standards could be

measured. The baseline unit in each product class displays the basic characteristics of

equipment in that class. Typically, a baseline unit is a unit that just meets and does not

exceed current Federal energy conservation standards and provides basic consumer

utility.

DOE uses the baseline unit for comparison in several phases of the analyses,

including the engineering analysis, life­cycle cost (LCC) analysis, payback period (PBP)

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analysis and national impacts analysis (NIA). To determine energy savings that will

result from an amended energy conservation standard, DOE compares energy use at each

of the higher energy efficiency levels to the energy consumption of the baseline unit.

Similarly, to determine the changes in price to the consumer that will result from an

amended energy conservation standard, DOE compares the price of a baseline unit to the

price of a unit at each higher efficiency level.

The identification of baseline units requires establishing the baseline efficiency

level. DOE defines baseline units as units with efficiencies equal to the current Federal

energy conservation standards.

The Federal energy conservation standards for residential water heaters, as

measured by the EF, became effective on January 20, 2004. (10 CFR Part 430.32(d),

Subpart C). For water heaters, DOE applied the representative storage capacity to the

energy efficiency equations in 10 CFR Part 430.32(d) to calculate the baseline unit EFs.

Table 5.4.1 presents the baseline unit’s EF for each product class of residential water

heaters at the representative storage volume.

Table 5.4.1 Baseline Unit EF for Water Heaters

Water Heater

Product Class

Representative Storage

Volume

gallons

Federal Energy Conservation

Standards

Energy Factor

Gas­Fired Storage 40 0.59

Oil­Fired Storage 30 0.53

Electric Storage 50 0.90

Gas­Fired

Instantaneous 0* 0.62

*Gas­fired instantaneous water heaters have a representative rated input capacity of 199,000 Btu/h.

The Federal energy conservation standards for residential DHE, as measured by

the AFUE, became effective on January 1, 1990. (10 CFR part 430.32(i), subpart C) For

direct heating equipment, DOE assigned the baseline units AFUEs as the AFUE

requirements corresponding to the representative input ratings in 10 CFR part 430.32(i).

Table 5.4.2 shows the baseline unit’s AFUE for each product class of residential DHE at

the representative input rating.

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Table 5.4.2 Baseline Unit AFUE for Direct Heating Equipment
 

Product Class Representative Input

Capacity Range

Btu/h

Federal Energy

Conservation Standards

AFUE

Gas Wall Fan Over 42,000 74%

Gas Wall Gravity Over 27,000 up to

46,000 64%

Gas Floor Over 37,000 57%

Gas Room Over 27,000 up to

46,000 64%

Gas Hearth Over 27,000 up to

46,000 64%

The Federal energy conservation standard for residential pool heaters, as

measured by thermal efficiency, became effective on January 1, 1990. (10 CFR part

430.32(k), subpart C) For pool heaters, the baseline unit thermal efficiency of 78 percent

corresponds to the energy conservation standard established in 10 CFR part 430.32(k).

See section 5.6.2 for more information on the characteristics of each baseline unit.

The market baseline units represent the products on the market that typically have the

lowest cost and simplest technologies.

5.4.2 Intermediate Energy Efficiency Levels

DOE conducted a survey of the residential heating products market to determine

what types of products are currently available to consumers. For each representative

product, DOE surveyed various manufacturers’ product offerings to identify the

efficiency levels that correspond to the highest number of models. By identifying the

most prevalent energy efficiencies in the range of available products, DOE was able to

establish a technology path that manufacturers would typically use to increase the energy

efficiency of residential heating products.

DOE established intermediate energy efficiency levels for each product class. The

intermediate efficiency levels are representative of efficiency levels along the technology

paths that manufacturers of residential heating products commonly use to maintain costeffective designs while increasing energy efficiency. DOE reviewed AHRI’s product

certification directory,1 manufacturer catalogs, and other publicly available literature to

determine which efficiency levels are the most prevalent for each representative product

class. Additionally, DOE associated each efficiency level with a particular technology or

combination of technologies to make the engineering analysis more transparent. Table

5.4.3 through Table 5.4.11 show the product classes and the respective intermediate

energy efficiency levels.

For gas­fired storage water heaters, DOE analyzed five efficiency levels between

the baseline and the max­tech. The energy factors correspond to the EFs most commonly

shipped and having the most commonly used efficiency­related characteristics. DOE

chose each of these efficiency levels because the incremental gains in efficiency

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correspond to common techniques and technologies manufacturers use to increase energy

efficiency. For gas­fired water heaters, manufacturers use natural draft and increased

insulation to reach the lower intermediate efficiency levels. Manufacturers achieve

efficiency levels three and above by using electronic ignition and power venting.

Table 5.4.3 Intermediate Efficiency Levels for 40­Gallon Gas­Fired Storage Water

Heaters

Efficiency Level Energy Factor

1 0.62

2 0.63

3 0.64

4 0.65

5 0.67

For oil­fired storage water heaters, DOE analyzed six efficiency levels between

the baseline and max­tech efficiency levels. The energy factors correspond to efficiency

levels shipped with technologies commonly used by manufacturers to improve energy

efficiency. For example, manufacturers achieve the incremental increases for lower

efficiency levels by adding half an inch of insulation for each efficiency level to the

baseline product. To achieve even higher efficiency levels, manufacturers switch from

fiberglass to foam insulation and usually improve the flue baffling.

Table 5.4.4 Intermediate Efficiency Levels for 32­Gallon Oil­Fired Storage Water

Heaters

Efficiency Level Energy Factor

1 0.54

2 0.56

3 0.58

4 0.60

5 0.62

6 0.66

For electric storage water heaters, DOE selected six efficiency levels between the

baseline and max­tech levels. For water heaters using electric resistance heating,

manufacturers usually increase EF by adding insulation. Each efficiency level shown

corresponds to insulation thicknesses commonly used by manufacturers, except for

Efficiency Level 6. At this efficiency level, manufacturers switch from a traditional

electric resistance heating design to an integrated heat pump design.

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Table 5.4.5 Intermediate Efficiency Levels for 50­Gallon Electric Storage Water

Heaters

Efficiency Level Energy Factor

1 0.91

2 0.92

3 0.93

4 0.94

5 0.95

6 2.00

For gas­fired instantaneous water heaters, DOE analyzed seven efficiency levels

between the baseline and max­tech. Manufacturers commonly produce units at Efficiency

Level 2 or higher. Manufacturers increase energy efficiency primarily by improving the

heat exchanger design and incorporating electronic ignition and power venting. Power

venting is usually used in units at Efficiency Level 3 and higher. Manufacturers typically

reach Efficiency Level 7 by using a condensing design. Efficiency levels 5 and 6 are

considered “near condensing,” meaning that the exhaust combustion gases may begin to

condense in certain conditions, leading to the formation of acidic condensate. Because of

this, manufacturers usually design equipment at these efficiencies to be able to handle

condensation for safety purposes. DOE considered this when developing the MPC for

gas­fired instantaneous water heaters for the NOPR analyses.

Table 5.4.6 Intermediate Efficiency Levels for Gas­Fired instantaneous Water

Heaters

Efficiency Level Energy Factor

1 0.69

2 0.78

3 0.80

4 0.82

5 0.84

6 0.85

7 0.92

For gas wall fan DHE, DOE chose three efficiency levels between the baseline

and max­tech for analysis. DOE found products produced by manufacturers at every

AFUE level between the baseline and max­tech. Manufactures commonly incorporate

intermittent ignition, two speed blowers, and improve the heater exchanger design to

increase energy efficiency. Manufacturers incorporate these three technologies to obtain

Efficiency Level 3.

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Table 5.4.7 Intermediate Efficiency Levels for Gas Wall Fan DHE, Over 42,000

Btu/h

Efficiency Level AFUE

1 75

2 76

3 77

For gas wall gravity DHE, DOE analyzed three efficiency levels between the

baseline and max­tech. These efficiency levels correspond to gas wall gravity DHE in

this product class with the most shipments. The two­ to three­point increases in AFUE

between each level reflect improvements in the heat exchanger design.

Table 5.4.8 Intermediate Efficiency Levels for Gas Wall Gravity DHE, Over 27,000

Btu/h and up to 46,000 Btu/h

Efficiency Level AFUE

1 66

2 68

3 71

DOE did not select any gas floor DHE intermediate efficiency levels to analyze

for the NOPR analysis, as manufacturers offer products only at baseline and max­tech

efficiency levels. Manufacturers commonly increase the AFUE of gas floor DHE by

improving the heat exchanger design.

DOE analyzed four efficiency levels between the baseline and max­tech for gas

room DHE. Manufacturers typically improve heat the heat exchanger design to achieve

incremental increases in AFUE.

Table 5.4.9 Intermediate Efficiency Levels for Gas Room DHE Over 27,000 Btu/h

and up to 46,000 Btu/h

Efficiency Level AFUE

1 65

2 66

3 67

4 68

DOE selected two intermediate efficiency levels for gas hearth DHE.

Manufacturers commonly employ an electronic ignition and ceramic glass to achieve

these efficiency levels.

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Table 5.4.10 Intermediate Efficiency Levels for Gas Hearth DHE, Over 27,000 Btu/h

and up to 46,000 Btu/h

Efficiency Level AFUE

1 67

2 72

DOE selected seven pool heater intermediate efficiency levels to analyze. DOE

reviewed product literature and brochures and identified the technologies most commonly

incorporated into these products. DOE found that manufacturers usually achieve

efficiency levels 1 and 2 by improving the heat exchanger design, and reach Efficiency

Level 3 by also improving the combustion chamber insulation. Manufacturers use power

venting for efficiency levels 4, 5, and 6, and condensing operation to achieve Efficiency

Level 7.

In addition, DOE distinguished between the standing pilot and electronic ignition

systems for residential pool heaters because of the difference in energy use of the two

ignition systems. The DOE test procedure to measure the thermal efficiency of residential

pool heaters does not account for the energy use differences between the two ignition

systems. DOE analyzed pool heaters to determine which have standing pilot ignitions and

which have electronic ignitions. After surveying the pool heater market, DOE determined

that electronic ignition is offered in products covering the whole range of efficiencies,

while standing pilot ignition systems are only offered in products corresponding to the

first three intermediate efficiency levels. Consequently, DOE developed two baseline

products and two efficiency pathways for efficiency levels 1 through 3.

Table 5.4.11 Intermediate Efficiency Levels for Gas­Fired Pool Heaters, 250,000

Btu/h

Efficiency Level Thermal Efficiency

%

1* 79

2* 81

3* 82

4** 83

5** 84

6** 86

7** 90

* Models having pilot or electronic ignition.

** Models having electronic ignition only.

5.4.3 Max­Tech Efficiency Levels

As part of the engineering analysis, DOE determined the maximum

technologically feasible improvement in energy efficiency for water heaters, direct

heating equipment, and pool heaters, as required by section 325(o) of EPCA. (42 U.S.C.

6295(o)) DOE conducted a survey of the residential heating products market and the

research fields that support the market. For the representative product within a given

product class, no working products or prototypes at higher efficiency levels above the

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max­tech level are currently available. Table 5.4.12 and Table 5.4.13 list the max­tech

levels DOE determined for this NOPR for the various product classes of residential water

heaters direct heating equipment. The max­tech level for the single pool heater product

class is also described below.

For gas­fired storage water heaters, DOE determined that condensing technology

could enable manufacturers to achieve efficiencies as high as 0.80 EF. DOE determined

that electric storage water heaters using integrated heat pump heating technology could

obtain EFs of 2.2. For oil­fired storage water heaters, DOE identified 0.68 EF as the maxtech efficiency level, which can be achieved using a combination of electronic ignition,

foam insulation, and enhanced flue baffling (i.e., a multiple flue design). DOE identified

0.95 EF as the max­tech for gas­fired instantaneous water heaters that use condensing

technology. Table 5.4.12 summarizes the max­tech efficiency levels identified for water

heaters.

Table 5.4.12 Max­Tech Efficiency Levels for Water Heaters

Water Heater

Product Class

Storage Volume

gallons

Max­Tech

Efficiency Level

Energy Factor

Gas­Fired Storage 40 0.80

Oil­Fired Storage 32 0.68

Electric Storage 50 2.2

Gas­Fired

Instantaneous 0 0.95

For gas wall fan DHE, DOE identified a max­tech efficiency level design with

induced draft combustion, resulting in an AFUE of 80 percent. For gas wall gravity DHE,

DOE identified 72 percent AFUE as the max­tech level, which is achievable with an

improved heat exchanger design and electronic ignition. For gas floor DHE, DOE

identified the max­tech efficiency level as 58 percent AFUE, which can be reached using

an improved heat exchanger design. For gas room DHE, DOE identified the max­tech

efficiency level as 83 percent AFUE, which manufacturers can achieve using an

electronic ignition and improved heat exchanger. For gas hearth DHE, DOE identified a

max­tech level of 93 percent AFUE, which requires condensing operation. Table 5.4.13

summarizes the max­tech efficiency levels DOE analyzed for the NOPR analysis.

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Table 5.4.13 Max­Tech Efficiency Levels for Direct Heating Equipment
 

Product Class Input Capacity

Btu/h

Max­Tech

Efficiency Level

AFUE

Gas Wall Fan Over 42,000 80

Gas Wall Gravity Over 27,000 up

to 46,000 72

Gas Floor Over 37,000 58

Gas Room Over 27,000 up

to 46,000 83

Gas Hearth Over 27, 000 up

to 46,000 93

For residential pool heaters, DOE identified products capable thermal efficiencies

of 95 percent as the max­tech, which are achievable with condensing operation.

5.5 METHODOLOGY OVERVIEW

This section describes the analytical methodology used in the engineering

analysis. Figure 5.5.1 shows a flow diagram of this methodology and the corresponding

sections in this chapter. The results of the engineering analysis are cost­efficiency curves

for each representative product class.

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Cost Model

(section 5.8)

Manufacturer

Markup

Analysis

(section 5.12)

Cost­Efficiency

Curves

(Efficiency* vs

MPC)

(section 5.10)

Engineering

Manufacturer

Interviews

(section 5.9)

Physical

Teardown

Analysis

(section 5.6)

Virtual

Teardown

Analysis

(section 5.6)

BOMs

(section 5.8.1)

Selling PriceEfficiency

Relationship

(Efficiency* vs

MSP)

(section 5.13) Efficiency Levels

and Associated

Design

Pathway

(section 5.7)

Screening

Analysis

(chapter 4)

*Efficiency is defined as energy factor (EF), annual fuel utilization efficiency (AFUE), or thermal

efficiency for water heaters, direct heating equipment, and pool heaters, respectively.

Figure 5.5.1 Flow Diagram of Engineering Analysis Methodology

DOE started by identifying residential heating products available on the market

and the energy efficiency level associated with each. DOE also identified the

technologies and features typically incorporated into products at the baseline level and

various energy efficiency levels above the baseline. Next, DOE selected products at the

representative rated storage volumes and input capacities for the physical teardown

analysis. DOE gathered the information from the physical teardown analysis to create

bills of materials for each product using reverse engineering methods (see section 5.6).

DOE then used the physical teardown analysis to identify the design pathways

manufacturers use to increase the EF of residential water heaters, the AFUE of residential

direct heating equipment, and the thermal efficiency of residential pool heaters. DOE

converted the information recorded in the BOMs to dollar values to calculate the MPC

for products spanning the full range of efficiencies from the baseline to the maximum

technology available. DOE also identified the technology or combination of technologies

mainly responsible for improving the energy efficiency of each product. Comparing the

increase in MPC to the increase in energy efficiency determined the cost­effectiveness of

each technology. Finally, DOE conducted a sensitivity analysis on material prices to

examine the effect of the spikes in metal prices that the heating products industries have

experienced over the past few years.

During the preparation of the cost­efficiency comparison and MPCs, DOE

interviewed manufacturers to gain insight into the water heating, direct heating, and pool

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heating industries and requested comments on the engineering approach DOE used for

the analysis (section 5.9). DOE used the information gathered from these interviews to

refine efficiency levels and potential technology pathways as well as assumptions in the

cost model. Next, DOE converted the MPCs into MSPs (section 5.12) using publicly

available water heating, direct heating, and pool heating industry financial data, along

with manufacturer feedback.

5.6 TEARDOWN ANALYSIS

To assemble BOMs and calculate the manufacturing costs of the different

components in residential heating products, DOE disassembled multiple units into their

components and estimated the material and labor cost of each component. This process is

referred to as a “physical teardown.” A supplementary method, called a “virtual

teardown,” uses published manufacturer catalogs and supplementary component data to

estimate the major physical differences between a product that was physically

disassembled and a similar product that was not. The teardown analysis for the

preliminary engineering analysis included more than 40 physical and virtual teardowns of

water heaters, direct heating equipment, and pool heaters. For the NOPR analysis, DOE

performed more than 20 additional physical teardowns to further supplement the analysis.

5.6.1 Selection of Units

When selecting units for teardowns, DOE considered three main questions:

•	 What efficiency levels should be captured in the teardown analysis?

•	 Are there units on the market that capture all potential efficiency levels?

•	 Which of the available units are most representative?

In responding to these questions, DOE adopted the following criteria for selecting

units for the teardown analysis:

•	 The selected products should span the full range of efficiency levels for each

product class under consideration.

•	 If possible, the selected products within each product class should come from the

same manufacturer and be within the same product series.

•	 The selected products should come primarily from manufacturers with large

market share in that product class, although the highest efficiency products were

chosen irrespective of manufacturer.

•	 The selected products should have non­efficiency related features that are the

same or similar to features of other products in the same class and for a range of

efficiency levels.

DOE surveyed the residential heating products industry and identified products

available to consumers as well as prototypes developed by manufacturers’ research

efforts. DOE then applied the aforementioned criteria and selected baseline, intermediate,

and max­tech units that met the product descriptions, energy efficiency levels, and

included the technologies identified in the market surveys (sections 5.3, 5.4, 5.7). In

several cases, DOE substituted a virtual teardown in the place of a physical teardown. For

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example, if two water heaters differed only by insulation thickness, one was physically

torn down and the additional material and cost (i.e., additional insulation, extra sheet

metal, longer temperature and pressure relief valve, etc.) were added to the first to

determine the MPC of the second.

Using the data gathered from the physical teardowns, DOE characterized each

component according to its weight, dimensions, material, quantity, and the manufacturing

processes used to fabricate and assemble it. For supplementary virtual teardowns, DOE

gathered product data such as dimensions, weight, and design features from publicly

available manufacturer catalogs. DOE obtained information and data not typically found

in catalogs and brochures, such as fan motor details, gas manifold specifications, and

assembly details, from the physical teardowns of similar products or by estimations based

on industry knowledge. DOE collected additional component information during the

manufacturer interviews.

DOE selected more than 50 examples of water heaters, direct heating equipment,

and pool heaters to represent the market, and used these for physical teardowns in the

engineering analysis. DOE did not identify the model number or manufacturer of the

units examined during the teardown analysis because this could expose sensitive

information about individual manufacturers’ products.

5.6.2 Baseline Units

DOE selected baseline units for the teardown analysis to determine which

technologies manufacturers incorporate into products to obtain energy efficiencies equal

to the current Federal energy conservation standards. Typically, the baseline units are

representative of the minimum technology and lowest cost product that manufacturers

can produce. DOE compared the technology and cost of products at the baseline to those

at higher energy efficiency levels. The efficiencies of the baseline units are described in

section 5.4.1.

5.6.2.1 Water Heater Baseline Unit Features

DOE gathered information from the physical and virtual teardowns and from

published information and data to determine which features manufacturers typically

incorporate into units at the baseline efficiency levels. DOE also identified the general

characteristics common to product types. For example, all storage tank designs include a

dip tube, a hot water outlet, and a sacrificial anode. DOE also identified the operating

features of the baseline units. For example, baseline gas­fired storage and instantaneous

products use standing pilots, require no electricity, and use a natural draft to ventilate.

Table 5.6.1 shows the characteristics of baseline water heaters.

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Table 5.6.1 Market Baseline Unit Characteristics for Water Heaters
 

Water Heater

Product Class

Characteristics Gas­Fired

Storage

Oil­Fired

Storage

Electric

Storage

Gas­Fired

Instantaneous

Storage Tank X X X

Foam Insulation X (1”) X (1.5”)

Fiberglass Insulation X (1”)

Dip Tube X X X

Cold Water Inlet X

Hot Water Outlet X X X X

Combustion Chamber X X X

Burner X X

Oil­Fired Power Burner

System X

Sacrificial Anode X X X

Flue/Flue Baffle (CRS) X X

Heat Exchanger (Copper) X

Vent X

Temperature/Pressure

Relief Valve X X X

Standing Pilot Ignition

System X X

Burner Control

Thermostat X X X

Gas Valve X X

Electric Resistive Heating

Elements X

Thermostat/Wire Harness X

Flow Detector X

Outer Case X X X X

Heat Trap X X

Packaging X X X X

5.6.2.2 Direct Heating Equipment Baseline Unit Features

DOE gathered information from the physical and virtual teardowns and from

published information and data to determine which features manufacturers incorporate

into direct heating equipment at the baseline efficiency levels. Generally, baseline direct

heating equipment units require no electricity (except where a wall fan needs power for

the fan motor), use standing pilot ignition systems, and use a natural draft to ventilate.

With the exception of the air circulation fan of a wall fan unit, direct heating equipment

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baseline products differ primarily by the outer casing design, while the method of

operation is similar for all product types. Table 5.6.2 shows the characteristics of baseline

direct heating equipment.

Table 5.6.2 Market Baseline Unit Characteristics for Direct Heating Equipment

Gas DHE Product Class

Characteristics Wall Fan Wall

Gravity Floor Room Hearth

Heat Exchanger (ACRS) X X X X X

Room Circulation Blower X

Standing Pilot Ignition

System X X X X X

Burner X X X X X

Pilot Light Sensing Control

Valve X X X X X

Combustion Chamber X X X X X

Flue X X X X X

Air Intake X X X X X

Burner Control Thermostat X X X X X

Floor Grate X

Outer Case X X X X X

Packaging X X X X X

5.6.2.3 Pool Heater Baseline Unit Features

DOE identified the characteristics of a baseline efficiency residential pool heater

by examining pool heaters during the physical teardown analysis and reviewing available

literature and data for pool heaters during virtual teardowns. For most units, a copper tube

heat exchanger is located above a burner assembly, and units are naturally drafted. DOE

did not specify a particular ignition system because both electronic ignitions and standing

pilot systems exist, and during the technology assessment DOE determined that the

ignition type had no effect on energy efficiency as measured by thermal efficiency

(chapter 3).

However, as noted previously, DOE distinguished between the two ignition

systems because of the energy use difference between electronic ignition and standing

pilot systems that the DOE test procedure does not account for. DOE’s test procedure is a

steady­state test procedure, determining thermal efficiency when the burner is on. The

thermal efficiency descriptor specified by EPCA and measured by DOE’s test procedure

does not account for the additional energy consumption of a continuous, standing pilot

light when the burner is off, and thus does not account for the energy efficiency benefits

from an electronic ignition. Therefore, DOE created two efficiency pathways with

separate baseline products to recognize the differences in energy use associated with

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standing pilots and electronic ignition. The market baseline unit characteristics for pool

heaters are:

• cold water inlet;

• hot water outlet;

• heat exchanger (copper);

• ignition system (standing pilot or electronic)

• burner;

• combustion chamber;

• flue/vent;

• air intake;

• burner control thermostat;
 

• outer case; and
 

• packaging.

The residential heating products baseline units were a reference point for

determining the cost­efficiency relationship of units with higher energy efficiencies. DOE

compared the design features incorporated into each baseline unit and the method of

operation (i.e., standing pilot, natural draft) to units with higher energy efficiencies to

determine the change in manufacturing, installation, and operating costs (chapter 8).

Finally, by comparing design features, DOE identified individual technologies and how

each affected energy efficiency and the cost­efficiency relationship for each unit.

5.7 TECHNOLOGY OPTIONS

Technology options are technology and design changes manufacturers use to

improve product energy efficiency. These technologies provide different ways to increase

product energy efficiency from the baseline to the market max­tech efficiency. While

manufacturers use many different technologies and approaches to increase the energy

efficiency of residential heating products, the technologies and combinations of

technologies presented in the following sections, and their ordering is one possible way

manufacturers could reach max­tech.

For the engineering analysis, DOE calculated the manufacturing costs for each

efficiency level between the baseline and max­tech at each of the levels specified in

section 5.4.2. Using the teardown analysis and discussions with manufacturers, DOE

identified each technology typically incorporated into each energy efficiency level, and

calculated the cost required to achieve each efficiency level. DOE input the designs for

each efficiency with the components, materials, and labor required for manufacturing

units at each efficiency level (as determined from the teardown analysis) into the cost

model to calculate the MPCs at each efficiency level analyzed for the NOPR analyses.

DOE averaged the costs to normalize the data and avoid exposing sensitive information

about individual manufacturers’ products. After determining the MPC at each efficiency

level, DOE created the cost­efficiency curves (section 5.10).

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5.7.1 Screened­In Technologies

DOE considered and analyzed various technologies for improving the energy

efficiency of residential water heaters, direct heating equipment, and pool heaters.

Several of the technologies DOE considered for improving energy efficiency met the

criteria of the screening analysis (chapter 4). DOE reduced the list of viable technologies

developed from the screening analysis based on products being manufactured at the time

of the analysis. DOE used information from the teardown analysis, manufacturer

interviews, and publicly available product literature to determine which technologies are

used in commercially available products so that DOE could most accurately represent the

current market. DOE also determined which technologies manufacturers would be most

likely to include in future products based on the cost effectiveness of these technologies.

Although several technologies are not included in the engineering analysis, DOE

acknowledges that these are viable methods to improve the energy efficiency of

residential water heaters, direct heating equipment, and pool heaters. Table 5.7.1 lists the

technologies for water heaters that DOE did not eliminate in the screening analysis

(chapter 4) and are included in the engineering analysis.

Table 5.7.1 Technologies Considered for the Engineering Analysis for Water

Heaters

Technology Considered Water Heater

Product Class

Gas­Fired

Storage

Electric

Storage

Oil­Fired

Storage

Gas­Fired

Instantaneous

Increased Jacket Insulation X X X

Foam Insulation X

Improve/Increased Heat

Exchanger Surface Area

X

Enhanced Flue Baffle X X

Direct­Vent (concentric venting) X

Power Vent X X

Electronic (or interrupted)

Ignition

X X X

Heat Pump Water Heater X

Condensing X X

For DHE the technologies that DOE included in the engineering analysis are:

• increased heat exchanger surface area;

• direct­vent (concentric venting);

• electronic ignition;

• two stage and modulating operation; and

• condensing operation.

For pool heaters the technologies that DOE included in the engineering analysis are:

• increased heat exchanger surface area;

• more effective insulation (combustion chamber);

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• power venting;

• sealed combustion; and

• condensing operation.

The most prevalent technologies to obtain the intermediate and max­tech energy

efficiency levels are described below.

5.7.1.1 Technologies for Gas­Fired Storage Water Heaters

To increase the energy efficiency of gas­fired storage water heaters,

manufacturers first increase the thickness of the insulation between the storage tank and

the outer shell. Manufacturers typically add up to 2 inches of insulation to reduce the

amount of heat loss through the sides of the tank. Manufacturers also replace the standing

pilot with an electronic ignition and combine this technology with thicker insulation. For

even greater improvements, manufacturers add a power vent to replace the natural vent

operation. An enhanced flue baffle, which can improve the heat transfer rate, may also be

included in a design having power venting. Max­tech gas­fired storage water heaters

include heat exchangers that condense the flue gases to extract the greatest amount of

heat. Table 5.7.2 shows the technologies associated with each efficiency level for the

representative product.

Table 5.7.2 Gas­Fired Storage Water Heater, 40 Gallon, Standard Burner

Efficiency Level Technology

Baseline (EF = 0.59) Standing Pilot and 1” Insulation

1 (EF = 0.62) Standing Pilot and 1.5” Insulation

2 (EF = 0.63) Standing Pilot and 2” Insulation

3 (EF = 0.64) Electronic Ignition, Power Vent, and 1” Insulation

4 (EF = 0.65) Electronic Ignition, Power Vent and 1.5” Insulation

5 (EF = 0.67) Electronic Ignition, Power Vent, and 2” Insulation

6 – Max­Tech (EF = 0.80) Condensing, Power Vent, 2” Insulation

To properly characterize the technologies and costs associated with ultra­low

NOX burners, DOE performed a separate analysis specifically for gas­fired storage water

heaters using ultra­low NOX burners. For ultra­low NOX GSWHs, DOE developed costefficiency curves by performing a teardown analysis of ultra­low NOX products at several

efficiency levels from different manufacturers. DOE analyzed ultra­low NOX gas­fired

storage water heaters at a 40­gallon representative storage volume, as was done for gasfired storage water heaters with a standard burner, and compared the ultra­low NOX Gas

storage water heaters to the comparable gas storage water heaters with standard burner

technology (i.e., not ultra­low NOX compliant). The same efficiency levels were used for

ultra­low NOX gas storage water heaters as were used for standard burner gas storage

water heaters. However, the technologies for standard burner gas­fired water heaters and

ultra­low NOX gas­fired water heaters vary due to differences in operating characteristics

of the burners. Ultra­low NOX burners typically reduce the pressure in the flue, which can

create venting problems if the pressures required to properly vent combustion products

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are not maintained. To mitigate these problems, manufacturers may reduce the amount of

baffling or other airflow restrictions to ensure proper venting, which in turn may decrease

efficiency. In order to overcome these issues, manufacturers must use power venting

technology to achieve energy factors that are lower than they would achieve with a

standard burner gas­fired storage water heater that can contain more baffling. Therefore,

the technologies associated with ultra­low NOX gas­fired water heaters are implemented

at lower efficiency levels and yield a lower energy factor than the same technologies

associated with gas­fired storage water heaters that use a standard burner.

Table 5.7.3 Gas­Fired Storage Water Heater, 40 Gallon, Ultra­Low NOX Burner

Efficiency Level Technology

Baseline (EF = 0.59) Standing Pilot and 1” Insulation

1 (EF = 0.62) Standing Pilot and 2” Insulation

2 (EF = 0.63) Electronic Ignition, Power Vent, and 1” Insulation

3 (EF = 0.64) Electronic Ignition, Power Vent and 1.5” Insulation

4 (EF = 0.65) Electronic Ignition, Power Vent, and 1” Insulation

5 (EF = 0.67) Not Attainable (would go to condensing)

6 – Max­Tech (EF = 0.80) Condensing, Power Vent, 2” Insulation

5.7.1.2 Technologies for Electric Storage Water Heaters

The majority of electric storage water heaters use resistive heating elements to

heat water. Manufacturers usually increase the energy efficiency of electric storage water

heaters by increasing the thickness of the foam insulation surrounding the tank. To make

significant improvements in energy efficiency, several manufacturers have recent

developed products using heat pump water heating technology. Table 5.7.4 shows that

heat pump water heaters supplemented by resistive heaters can achieve energy

efficiencies up to 2.2 EF. A heat pump water heater at Efficiency Level 7 (i.e., 2.2 EF) is

typically more efficient than a heat pump water heater at Efficiency Level 6 (i.e., 2.0 EF)

because of improvements to the heat pump coils and compressor and optimized airflow

through the heat pump system. Heat pump water heaters are the maximum technology

available for electric storage water heaters.

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Table 5.7.4 Electric Storage Water Heater, 50 Gallon
 

Efficiency Level Technology

Baseline (EF = 0.90) 1.5” Foam Insulation

1 (EF = 0.91) 2” Foam Insulation

2 (EF = 0.92) 2.25” Foam Insulation

3 (EF = 0.93) 2.5” Foam Insulation

4 (EF = 0.94) 3” Foam Insulation

5 (EF = 0.95) 4” Foam Insulation

6 (EF = 2.0) Heat Pump Water Heater

7 – Max­Tech (EF = 2.2) Heat Pump Water Heater, More Efficient

Compressor

5.7.1.3 Technologies for Oil­Fired Storage Water Heaters

Energy efficiency improvements for oil­fired storage water heaters are similar to

those for other storage water heaters. By their nature of operation, baseline oil burners

feature interrupted ignition and power venting; no oil­fired water heater on the market

features a standing pilot or lacks a power vent. Increasing the thickness of insulation

surrounding the tank and switching from fiberglass to less conductive foam insulation

reduces the amount of heat loss through the tank walls. Enhanced flue baffles or a

multiple flue design can increase the rate of heat transfer, which can improve energy

efficiency. Table 5.7.5 shows the technologies incorporated into oil­fired storage water

heaters.

Table 5.7.5 Oil­Fired Storage Water Heater, 32 Gallon with Burner Assembly

Efficiency Level Technology

Baseline (EF = 0.53) 1” Fiberglass Insulation

1 (EF = 0.54) 1.5” Fiberglass Insulation

2 (EF = 0.56) 2” Fiberglass Insulation

3 (EF = 0.58) 2.5” Fiberglass Insulation

4 (EF = 0.60) 2” Foam Insulation

5 (EF = 0.62) 2.5” Foam Insulation

6 (EF = 0.66) 1” Fiberglass Insulation and Multi­flue Design

7 – Max­Tech (EF = 0.68) 1” Foam Insulation and Multi­flue Design

5.7.1.4 Technologies for Gas­Fired Instantaneous Water Heaters

Manufacturers of gas­fired instantaneous water heaters increase energy efficiency

with technologies similar to those used for gas­fired storage water heaters. EF is

increased by improving the heat exchanger area to increase the rate of heat transfer

(similar to enhancing flue baffles), replacing the standing pilot with an electronic

ignition, and/or adding power vents. Incorporating a direct vent configuration can also

improve energy efficiency. The maximum efficiency available for instantaneous water

heaters is achieved by using a condensing design. In certain applications (e.g., unusually

low return water temperatures), the increased efficiency may cause units at intermediate

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efficiency levels 5 and 6 (i.e., 0.84 and 0.85 EF, respectively) to operate as condensing

water heaters. To manage safety concerns that arise with acidic condensate from

condensing flue gases, gas­fired instantaneous water heater manufacturers use heat

exchangers and designs capable of managing condensate at these efficiency levels.

DOE’s MPCs reflect the additional cost of condensate management at efficiency levels 5

and 6. Table 5.7.6 shows the technologies incorporated into gas­fired instantaneous water

heaters.

Table 5.7.6 Gas­Fired Instantaneous Water Heater, 0 Gallon, 199,000 Btu/h Input

Capacity

Efficiency Level Technology

Baseline (EF = 0.62) Standing Pilot

1 (EF = 0.69) Standing Pilot and Improved Heat Exchanger Area

2 (EF = 0.78) Electronic Ignition And Improved Heat Exchanger

3 (EF = 0.80) Electronic Ignition and Power Vent

4 (EF = 0.82) Electronic Ignition, Power Vent, and Improved Heat

Exchanger Area

5 (EF = 0.84) Electronic Ignition, Power Vent, and Improved Heat

Exchanger Area

6 (EF = 0.85) Electronic Ignition, Power Vent, Direct Vent, and Improved

Heat Exchanger Area

7 (EF = 0.92) Electronic Ignition, Power Vent, Direct Vent, Condensing

8 – Max Tech (EF = 0.95) Electronic Ignition, Power Vent, Direct Vent, Condensing

5.7.1.5 Technologies for Gas Wall Fan Direct Heating Equipment

DOE identified several technologies that manufacturers of wall fan DHE use to

improve energy efficiency. Typically, manufacturers replace the standing pilot ignition

system with an electronic system and incorporate a two­speed blower to reduce motor

power consumption. Improved heat exchanger design increases the rate of heat transfer.

Manufacturers reach the maximum technology by including an induced draft combustion

system to increase the AFUE to 80. Table 5.7.7 shows the technologies manufacturers

typically include in wall fan DHE.

Table 5.7.7 Gas Wall Fan DHE, Over 42,000 Btu/h

Efficiency Level Technology

Baseline (AFUE = 74) Standing Pilot

1(AFUE = 75) Intermittent Ignition and Two­Speed Blower

2 (AFUE = 76) Intermittent Ignition and Improved Heat Exchanger

3 (AFUE = 77) Intermittent Ignition, Two­Speed Blower, and Improved

Heat Exchanger

4 – Max­Tech (AFUE = 80) Induced Draft and Electronic Ignition

5.7.1.6 Technologies for Gas Wall Gravity Direct Heating Equipment

Technologies incorporated into wall gravity DHE at lower efficiency levels

typically do not involve electricity. The baseline units do not use electricity. To enable

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use during a power outage, manufacturers avoid adding components that would require

an electrical connection. Instead, manufacturers improve the heat exchanger to increase

the rate of heat transfer and AFUE. When heat exchanger improvements maximize

AFUE and even greater energy efficiencies are desired, manufacturers add an electrical

connection for an electronic ignition to achieve the max­tech efficiency level. Table 5.7.8

shows the technologies incorporated into wall gravity DHE.

Table 5.7.8 Gas Wall Gravity DHE, Over 27,000 Btu/h and up to 46,000 Btu/h

Efficiency Level Technology

Baseline (AFUE = 64) Standing Pilot

1 (AFUE = 66) Standing Pilot and Improved Heat Exchanger

2 (AFUE = 68) Standing Pilot and Improved Heat Exchanger

3 (AFUE = 71) Standing Pilot and Improved Heat Exchanger

4 – Max Tech (AFUE = 72) Electronic Ignition

5.7.1.7 Technology for Gas Floor Direct Heating Equipment

Gas floor direct heating equipment is commonly designed to operate without

using electricity. Therefore, manufacturers avoid technologies requiring electrical

connections, and usually improve efficiency only through using an improved heat

exchanger. For gas floor DHE, DOE only analyzed the two efficiency levels currently

available on the market, which have been demonstrated to be feasible. Table 5.7.9 shows

the technology manufacturers typically use to improve AFUE.

Table 5.7.9 Gas Floor DHE, Over 37,000 Btu/h

Efficiency Level Technology

Baseline (AFUE = 57) Standing Pilot

1 – Max Tech (AFUE = 58) Standing Pilot and Improved Heat Exchanger

5.7.1.8 Technology for Gas Room Direct Heating Equipment

Technologies for gas room DHE are similar to those incorporated into gas wall

gravity DHE. Manufacturers typically improve the heat exchanger until the achievable

AFUE is maximized, then use an electronic ignition to further increase the energy

efficiency. Table 5.7.10 shows the technologies commonly used in gas room DHE.

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Table 5.7.10 Gas Room DHE, Over 27,000 Btu/h and up to 46,000 Btu/h
 

Efficiency Level Technology

Baseline (AFUE = 64) Standing Pilot

1 (AFUE = 65) Standing Pilot and Improved Heat Exchanger

2 (AFUE = 66) Standing Pilot and Improved Heat Exchanger

3 (AFUE = 67) Standing Pilot and Improved Heat Exchanger

4 (AFUE = 68) Standing Pilot and Improved Heat Exchanger

5 – Max Tech(AFUE = 83) Electronic Ignition and Multiple Heat Exchanger Design

5.7.1.9 Technologies for Pool Heaters

Manufacturers improve the energy efficiency of pool heaters using several

different technologies, which DOE identifies in the market and technology assessment

(chapter 3). DOD did not include electronic ignition in this analysis because it does not

improve the thermal efficiency as measured by the relevant DOE test procedure. During

the market analysis, DOE identified models with both standing pilot and electronic

ignition systems at the baseline efficiency level. Consequently, DOE examined two

baseline units during the reverse­engineering performed for the engineering analysis—

one with a standing pilot and one with an electronic ignition.

Manufacturers typically increase the energy efficiency of a pool heater with a

standing pilot ignition system by making improvements to the heat exchanger and the

insulation surrounding the combustion chamber. Pool heaters with standing pilot ignition

systems can only achieve up to 82 percent thermal efficiency. Table 5.7.11 shows the

range of efficiency levels DOE analyzed for pool heaters with standing pilots. The

highest thermal efficiency possible for pool heaters with standing pilot ignition is shown

at Efficiency Level 3.

Pool heaters with electronic ignitions are available at all the efficiency levels

DOE analyzed. Since pool heaters with electronic ignitions already require electricity,

manufacturers can achieve higher efficiency by using additional technologies that also

require electricity. Pool heaters with electronic ignitions can achieve much higher energy

efficiency ratings than pool heaters with standing pilot ignitions. Manufacturers typically

improve the energy efficiency of pool heaters with electronic ignition by improving the

heat exchanger design and adding more effective insulation around the combustion

chamber (as is done with standing pilot models). They further improve efficiency by

adding power venting and/or sealing the combustion chamber to protect from high winds.

The max­tech efficiency level is achieved by including technologies that make the pool

heater capable of condensing operation.

Electronic ignitions are usually included in pool heaters at Efficiency Level 3 and

below when local regulations prohibit the use of standing pilots. Electronic ignitions are

included in products above Efficiency Level 3 because an electrical connection (usually

present due to the electrical requirements of other components) makes it easier for

manufacturers to implement this design. Pool heaters at Efficiency Level 4 and above

employ power vents, which require an electrical power source. Table 5.7.11 shows the

technologies commonly incorporated in pool heater designs at each efficiency level from

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the baseline through max­tech. As noted, models at the baseline through Efficiency Level

3 can use either standing pilot or electronic ignition systems, while the models at

Efficiency Level 4 and above only use electronic ignition systems.

Table 5.7.11 Gas­Fired Pool Heater, 250,000 Btu/h

Efficiency Level Technology

Baseline (Thermal Efficiency = 78)*

1 (Thermal Efficiency = 79)* Improved Heat Exchanger Design

2 (Thermal Efficiency = 81)* Improved Heat Exchanger Design

3 (Thermal Efficiency = 82)* Improved Heat Exchanger Design, More

Effective Insulation (Combustion Chamber)

4 (Thermal Efficiency = 83) Power Venting

5 (Thermal Efficiency = 84) Power Venting, Improved Heat Exchanger

Design

6 (Thermal Efficiency = 86) Sealed Combustion, Improved Heat Exchanger

Design

7 (Thermal Efficiency = 90) Sealed Combustion, Condensing

8 – Max­Tech (Thermal Efficiency = 95) Sealed Combustion, Condensing, Improved

Heat Exchanger Design

*Technologies incorporating either a standing pilot or electronic ignition. Efficiency levels 4 through 8

include electronic ignition.

DOE identified the technologies that manufacturers commonly incorporate into
 

residential heating products, as well as the efficiency levels associated with each
 

technology or combination of technologies. Then DOE determined manufacturing costs
 

at various efficiency levels by incorporating the technologies, along with the materials,
 

labor, and components required for manufacturing (as determined by the teardown
 

analysis and included in the BOMs) into the cost model. This information allowed DOE
 

to develop the relationship between cost and efficiency for each efficiency level.
 

5.8 COST MODEL

5.8.1 Generation of Bills of Materials

The end result of each teardown is a structured BOM, which describes each

product part and its relationship to the other parts in the estimated order in which

manufacturers assembled them. The BOMs describe each fabrication and assembly

operation in detail, including the type of equipment needed (e.g., presses, drills), process

cycle times, and labor associated with each manufacturing step. The result is a thorough

and explicit model of the production process, including space, conveyor, and equipment

requirements by planned production level. DOE developed structured BOMs for each of

the physical and virtual teardowns.

The BOMs incorporate all materials, components, and fasteners classified as

either raw materials or purchased parts and assemblies. The designations as raw materials

or purchased parts were based on DOE’s previous industry experience, recent

information in trade publications, and discussions with high­ and low­volume original

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equipment manufacturers (OEMs). DOE also visited manufacturing plants to reinforce its

understanding of the industry’s current manufacturing practices for each of the three

types of residential heating products.

The price of purchased parts is estimated based on volume­variable price

quotations and detailed discussions with manufacturers and component suppliers. For

fabricated parts, the prices of “raw” materials (e.g., tube, sheet metal) are estimated on

the basis of 5­year averages (section 5.8.4.4). The cost of transforming the intermediate

materials into finished parts is estimated based on current industry pricing. DOE shared

major estimates with manufacturers during manufacturer interviews to gain feedback on

its analysis, assumptions, methodology, and results.

5.8.2 Cost Structure of the Spreadsheet Models

DOE uses a detailed, component­focused technique for calculating the

manufacturing cost of a product (direct materials, direct labor, and the overhead costs

associated with production). The first step in the manufacturing cost assessment was

creating a complete and structured BOM by disassembling the units selected for

teardown. The units were dismantled, and each part was characterized according to

weight, manufacturing processes, dimensions, material, and quantity. The BOM

incorporates all materials, components, and fasteners, as well as estimates of raw material

and purchased part costs. Assumptions on the sourcing of parts and in­house fabrication

were based on industry experience, information in trade publications, and discussions

with manufacturers. Interviews with manufacturers and plant visits added industry

experience for the methodology and pricing.

After generating the BOMs from the teardown analysis, the final step was to

convert this information into dollar values. DOE collected information on labor rates,

tooling costs, raw material prices, and other factors. DOE assumed values for these

parameters using internal expertise and confidential information available to DOE

contractors. Although most of the assumptions are manufacturer­specific and cannot be

revealed, section 5.8.4.3 provides a discussion of the values used for each assumption.

DOE assigned costs of labor, materials, and overhead to each part, whether

purchased or produced in­house. DOE then aggregated single­part costs into major

assemblies (e.g., gas manifold assembly, combustion chamber assembly, heat exchanger

assembly, controls, etc.) and summarized these costs in a worksheet. During engineering

interviews with manufacturers, DOE shared key estimates from the cost model and

requested feedback. DOE considered all relevant information manufacturers gave and

incorporated it into the analysis, if appropriate.

5.8.3 Cost Model and Definitions

Once DOE disassembled selected units, gathered information from manufacturer

catalogs on additional products, and identified technologies, DOE created a

manufacturing cost model to translate physical information into MPCs. The cost model is

based on production activities and divides factory costs into the following categories:

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•	 Materials: Purchased parts (e.g., gas valves, blower motors, ignition modules),

raw materials (e.g., cold rolled steel, copper tube), and indirect materials used for

processing and fabrication.

•	 Labor: Fabrication, assembly, indirect, and supervisor labor. Fabrication and

assembly labor cost are burdened with benefits and supervisory costs.

•	 Overhead: Equipment, tooling, and building depreciation, as well as utilities,

equipment and tooling maintenance, insurance, and property taxes.

5.8.3.1 Cost Definitions

Because there are many different accounting systems and methods to monitor

costs, DOE defined the above terms as follows:

•	 Direct material: Purchased parts (outsourced) plus manufactured parts (made in

house from raw materials).

•	 Indirect material: Material used during manufacturing (e.g., welding rods,
 

adhesives).
 

•	 Fabrication labor: Labor associated with in­house piece manufacturing.

•	 Assembly labor: Labor associated with final assembly.

•	 Indirect labor: Labor costs that scaled with fabrication and assembly labor. This

included the cost of technicians, manufacturing engineering support, stocking, etc.

that were assigned on a span basis.

•	 Equipment and plant depreciation: Money allocated to pay for initial equipment

installation and replacement as the production equipment wears out.

•	 Tooling depreciation: Cost for initial tooling (including non­recurring engineering

and debugging of the tools) and tooling replacement as it wears out.

•	 Building depreciation: Money allocated to pay for the building space and the

conveyors that feed and/or make up the assembly line.

•	 Utilities: Electricity, gas, telephones, etc.

•	 Maintenance: Money spent on maintaining tooling and equipment.

•	 Insurance: Appropriated as a function of unit cost.

•	 Property Tax: Appropriated as a function as unit cost.

5.8.4 Cost Model Assumptions Overview

As discussed in the previous section, assumptions about manufacturer practices

and cost structure played an important role in estimating the final product cost.

Assumptions varied for specific manufacturers, depending on market position,

manufacturing practices, and size.

In converting physical information about the product into cost information, DOE

reconstructed manufacturing processes for each component using internal expertise and

knowledge of the methods used by the industry. DOE used assumptions about

manufacturing process parameters (e.g., equipment use, labor rates, tooling depreciation,

and cost of purchased raw materials) to determine the value of each component. DOE

then summed the values of the components into assembly costs and, finally, the total

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product cost. The product cost included the material, labor, and overhead costs associated

with the manufacturing facility. The material costs included both direct and indirect

materials. The labor costs included fabrication, assembly, indirect, direct, and supervisor

labor rates, including the associated overhead.

DOE determined labor costs by the type of product (water heaters, direct heating

equipment, or pool heaters) manufactured at the factory. Overhead costs include

equipment depreciation, tooling depreciation, building depreciation, utilities, equipment,

tooling maintenance, insurance, property, and taxes.

DOE presented a draft of the cost­efficiency results to manufacturers during the

interviews, and used information from the interview to update the cost model to address

manufacturer comments about component and material pricing and production volumes.

DOE modified the cost model immediately after an interview so refined data could be

presented to the next manufacturer. Positive feedback from manufacturers presented with

refined data confirmed the accuracy of the changes.

The next sections discuss assumptions about outsourcing, factory parameters,

production volumes, and material prices. When the assumptions are manufacturerspecific, they are presented as industry averages to prevent disclosure of confidential

information.

5.8.4.1 Fabrication Estimates

DOE characterized parts based on whether manufacturers purchased them from

outside suppliers or fabricated them in house. For purchased parts, DOE estimated the

purchase price. For fabricated parts, DOE estimated the price of raw materials (e.g., tube,

sheet metal) and the cost of transforming them into finished parts. Whenever possible,

DOE obtained price quotes directly from the manufacturers’ suppliers.

DOE based the manufacturing operations assumptions on internal expertise,

interviews with manufacturers, and visits to manufacturing facilities. Table 5.8.1 presents

the major manufacturer processes identified and developed for the spreadsheet model.

Table 5.8.1 Cost Model In­House Manufacturing Operation Assumptions

Fabrication Finishing Assembly/Joining Quality Control

Fixturing Washing Adhesive Bonding Inspecting and Testing

Stamping/Pressing Painting Spot Welding

Turret Punch Powder Coating Seam Welding

Tube Forming De­Burring Packaging

Brake Forming Polishing

Cutting and Shearing Refrigerant Charging

Insulating/Insulation

Injection

Enameling

Fabrication process cycle times were estimated and entered into the BOM. The

differences in the manufacturing processes for water heater, direct heating equipment,

and pool heater products are reflected in the purchased components. For some of the

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larger subassemblies, such as burner assemblies, DOE estimated the purchased part costs

on a volume­weighted basis from discussions with component suppliers.

5.8.4.2 Production Volumes Assumptions

Manufacturer production volumes vary depending on several factors, including

market share, the product produced (i.e., water heater versus pool heater), and whether

the manufacturer produces similar products (e.g., commercial equipment, boilers,

furnaces, storage tanks). DOE based production volume assumptions for residential

heating products on industry knowledge and manufacturer interviews.

According to water heater manufacturers, virtually all new residential

constructions use water heaters to heat potable water. Approximately 0.91 million singlefamily and multi­family home constructions started in 2008, which contributes

significantly to total water heater shipments (chapter 3). The replacement market was

responsible for a majority of the shipments, however, and brought the total units shipped

to approximately 8.2 million in 2008.2 Three competitors hold the majority of the water

heater market share. Gas­fired and electric storage water heaters make up the majority of

the market, and large production volumes are necessary for these three companies to

service this large demand. Based on the information from manufacturers and shipment

information from AHRI, DOE estimated that a factory manufacturing gas­fired and

electric storage water heaters produces an average of 1.25 million units per year. Water

heater manufacturers have multiple facilities capable of this capacity that collectively

meet the overall demand.

The market for oil­fired storage water heaters is smaller, and the factory

parameters DOE estimated reflect this. Fewer units are purchased per year so factories do

not have large volumes or high rates of output, compared to gas­fired or electric storage

water heater production. DOE estimated that a manufacturer of oil­fired storage water

heaters produces an average of 15,000 units per year.

Manufacturers of direct heating equipment have significantly smaller production

volumes than manufacturers of water heaters because the majority of U.S. homes are

heated with ducted heating systems rather than direct heaters. Additionally, some direct

heating equipment is sold primarily in the replacement market (e.g., floor heaters).

Considering these factors, DOE estimated that a manufacturer of direct heating

equipment products produces an average of 35,000 units per year.

Manufacturers of pool heaters hold a unique position in the residential heating

products market because their products serve a small market segment and are considered

luxury items. Additionally, shipment levels fluctuate based on the time of year, consumer

preferences, economic conditions, and changing regulations from local governments.

Four manufacturers supply the majority of pool heaters to the U.S. market. Based on

information from manufacturers and shipment information from AHRI, DOE estimated

that a manufacturer of pool heaters produces an average of 40,000 units per year.

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5.8.4.3 Factory Parameters Assumptions

Manufacturers of water heaters, direct heating equipment, and pool heaters have

different factory parameters to meet production volumes. Therefore, DOE used

information gathered from publicly available literature, manufacturer interviews, and

analysis of common industry practices to formulate factory parameters for each type of

manufacturer. DOE first made assumptions about a set of factory parameters before the

manufacturer interviews, then revised the assumptions based comments and information

gathered during the interviews. Table 5.8.2, Table 5.8.3, Table 5.8.4, and Table 5.8.5 list

DOE’s assumptions for manufacturers of water heaters, direct heating equipment, and

pool heaters. Table 5.8.3 lists assumptions for factory parameters of water heater

manufacturers located outside the United States. A portion of units, particularly gas­fired

instantaneous water heaters, purchased by U.S. consumers are manufactured outside of

the United States where factory parameters are different (Table 5.8.2). However,

manufacturers with facilities outside the United States typically have some

manufacturing, distribution, research and development, and customer service operations

in the U.S. The cost model accounts for the impact on MPCs of both domestic and

international operations.

Table 5.8.2 Domestic Water Heater Factory Parameter Assumptions

Parameter

Estimate

Gas­Fired

Manufacturing

Facility

Electric

Manufacturing

Facility

Oil­Fired

Manufacturing

Facility

Plant Capacity units/year 1,500,000 1,500,000 50,000

Actual Annual Production

Volume units/year

1,250,000 1,250,000 15,000

Fabrication Labor Wages $/hr 16.00 16.00 16.00

Fringe Benefits Ratio % 60 50 60

DOE accounted for the different characteristics of water heater manufacturing

facilities outside the United States. International and domestic manufacturing differs from

domestic manufacturing by capacity (Table 5.8.3). Because workers in foreign facilities

often receive lower wages and fewer benefits, these facilities typically have lower

assembly and manufacturing costs and therefore larger capacities and higher product

output.

Table 5.8.3 International Water Heater Factory Parameter Assumptions

Parameter Estimate

Plant Capacity units/year 1,500,000

Actual Annual Production Volume units/year 1,250,000

Labor Wages $/hr 15.50

Fringe Benefits Ratio % 50

The direct heating equipment industry is smaller than the water heater industry,

and the manufacturing capacities reflect this (Table 5.8.4). Consumer demand for direct

heating equipment typically fluctuates over the year and the majority of shipments occur

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during the heating season. During the warmer months, plant operations are sometimes

suspended entirely, with wage workers taking up to two months’ leave. In addition, some

products (e.g., floor furnaces) are only sold as replacement units, which reduces

production volumes even more, as markets for a particular product do not grow.

Table 5.8.4 Direct Heating Equipment Factory Parameter Assumptions

Parameter Estimate

Plant Capacity units/year 50,000

Annual Production Volume units/year 35,000

Labor Wages $/hr 16.00

Fringe Benefits Ratio % 50

Pool heater manufacturing capacity falls between the levels for water heaters and

direct heating equipment, and factory parameters for pool heater manufacturing are

similar to those for direct heating equipment. Production levels are subject to fluctuations

over the year as the majority of pool heaters are shipped during the warmer seasons when

pools are in use. In addition, pool heaters are considered a luxury item, unlike water

heaters, which are considered a household necessity. Therefore pool heater shipment

levels are lower and depend on consumers’ financial status, weather, and installation and

maintenance costs.

Table 5.8.5 Pool Heater Factory Parameter Assumptions

Parameter Estimate

Plant Capacity units/year 80,000

Annual Production Volume units/year 40,000

Labor Wages $/hr 16.00

Fringe Benefits Ratio % 50

The main differences among the assumptions for the residential heating products

are the production volumes and the product output rates. Labor rates for manufacturers of

water heaters differ between domestic and international operations. These rates, for both

foreign and domestic manufacturers, are based on weighted averages. Certain

manufacturers of water heaters, particularly gas­fired instantaneous water heaters, make

their products in foreign factories where labor rates are lower than domestic rates.

Foreign labor rates are based on information gathered during manufacturer interviews,

internal expertise, and industry literature research. DOE assumed that all manufacturers

of direct heating equipment and pool heaters are domestic. Domestic labor rates are based

on published labor rates for the Heating, Ventilation, and Air Conditioning (HVAC)

manufacturing industry from the U.S. Bureau of Labor.3

5.8.4.4 Material Prices Assumptions

DOE determined the cost of raw materials using publicly available information

such as the American Metals Market,4 interviews with manufacturers, and discussions

with material suppliers. Metals used in the fabrication of residential heating products

include plain cold rolled steel (CRS), copper tubing, and aluminum. There have been

drastic fluctuations in metal prices over the last few years; to account for these

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fluctuations, DOE used a 5­year average of metal prices from the Bureau of Labor

Statistics Producer Price Indices (PPIs) spanning 2004 to 2008, with an adjustment to

2008$.5 DOE used the PPIs for copper rolling, drawing, and extruding, and steel mill

products, and made the adjustments to 2008$ using the gross domestic product implicit

price deflator.6 Table 5.8.6 shows the 5­year average metal prices DOE used for the

analysis.

Table 5.8.6 Five­Year Metal Prices (2004 to 2008)

Metals Cost (2008$)

$/lb

Plain Cold Rolled Steel 0.41

Painted CRS 0.70

Galvanized CRS 0.54

Aluminized CRS 0.55

Textured CRS 0.61

CRS Tube 0.64

Stainless Steel 2.07

Fin Aluminum 1.23

Plain Copper 1.82

Copper Tube – Plain 2.45

Brass 1.65

For resins used in the fabrication of these products, DOE used current prices

gathered from industry research, publicly available publications such as Plastics News,

7

and interviews with manufacturers. Resin prices are contract­specific, determined by

quantity and supplier, and therefore have no true fixed market price. For this analysis,

DOE used market resin prices current as of December 2008. The prices of resins have

been constantly increasing and closely follow petroleum prices. Table 5.8.7 shows the

current resin prices DOE used in the analysis.

Table 5.8.7 Most Prevalent Resin Prices as of December 2008

Resins Cost (2008$)

$/lb

Polystyrene (PS) 0.598

Polypropylene (PP) 0.683

Low Density Polyethylene 0.742

Polyurethane Foam (non­HCFC blowing agent) 1.468

PVC (Hard) 0.967

5.8.5 Manufacturing Production Cost

Once the cost estimate for each teardown unit was finalized, DOE prepared a

detailed summary for relevant components, subassemblies, and processes. The BOM thus

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details all aspects of unit costs. DOE totaled the cost of materials, labor, and direct

overhead used to manufacture a product in order to calculate the MPC.a

Figure 5.8.1 shows the general breakdown of costs associated with manufacturing

a product.

Figure 5.8.1 Full Production Costs

The full cost of product is broken down into two main costs: the full production

cost or MPC, and the non­production cost. The non­production cost is equal to the

manufacturer markup minus profits.

Following the development of the MPCs, DOE reviewed its major cost estimates

during interviews with residential heating products manufacturers, who provided

feedback and validation. DOE used a continuous refinement process by incorporating

each manufacturer’s feedback before the subsequent interview. As a result, DOE

developed MPCs for use in the engineering analysis and subsequent analyses.

Technologies used in the units subject to teardown are noted in the summary

sheet of each cost model and the costs are estimated individually. Thus, various

implementations of technologies can be accommodated, ranging from assemblies that are

a When viewed from the company­wide perspective, the sum of all material, labor, and overhead costs

equals the company’s sales cost, also referred to as the cost of goods sold (COGS).

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entirely purchased to units that are entirely made from raw materials. Therefore, hybrid

assemblies, consisting of purchased parts and parts made on site, are also accommodated.

5.8.6	 MPCs for Rated Storage Volumes Other than the Representative Rated

Storage Volume for Water Heaters

Residential storage water heaters display large variations in manufacturing

production cost (and as a result, first cost to consumer) across the full range of rated

storage volumes. In order to account for these variations in costs at storage volumes

larger or smaller than the representative rated storage volume, DOE scaled its MPC

estimates and efficiency levels using the energy efficiency equations and manufacturing

cost model. DOE analyzes several discrete rated storage volumes higher and lower than

the representative storage volume for each water heater product class. DOE developed

the MPCs for water heaters at each of the rated storage volumes shown in Table 5.8.8.

These storage volumes were determined to be the most prevalent storage volumes

available on the market during the market analysis (see Chapter 3 of the TSD).

Table 5.8.8 Additional Water Heater Storage Volumes Analyzed

Water Heater Product Class Additiona Rated Storage Volumes

Analyzed (Gallons, U.S.)

Gas­fired Storage 30, 50, 65, 75

Electric Storage 30, 40, 66, 80, 119

Oil­fired Storage 50

To develop the MPCs for the additional storage volumes, DOE performed a

reverse­engineering analysis (i.e., teardowns analysis) of representative units from a

range rated storage volumes and multiple manufacturers. DOE expanded its cost model at

the various additional storage volumes based on the data obtained from these teardowns.

Whenever possible, DOE maintained the same product line across the full range of rated

storage volumes that was identified using the teardowns at the representative storage

volumes (see section 5.3). For example, manufacturers often produce lines of products

with the same or similar design characteristics across a range of storage volumes. DOE

would select models for teardowns at storages volumes outside of the representative rated

storage volume that were from the same product line(s) (and thus had similar

characteristics) as the models torn down at the representative storage volume. DOE could

then attempt to characterize how different components would scale at the different

volume sizes. From this information, DOE estimated the corresponding changes in labor

and material costs for water heaters with rated storage volumes outside of the

representative one.

The cost model accounts for all changes in the size of water heater components

that would scale with tank volume. This primarily includes the tank dimensions, wrapper

dimensions, tank and wrapper wall thicknesses, insulation thickness, anode rod(s), and

flue pipe(s). Components that typically do not change based on tank volume were

assumed to remain largely the same across the different storage volume sizes, while

accounting for price differences due to changes in insulation thickness. Major

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components that do not scale with storage volume capacity are gas valves, thermostats,

and controls. DOE estimated the changes in material and labor costs that occur at volume

sizes higher and lower than the representative capacity based on observations made

during teardowns and professional experience. As with the teardowns performed at the

representative rated storage volume, performing teardowns of models outside of the

representative rated storage volume allowed DOE to accurately model certain

characteristics (such as tank wall thickness and wrapper thickness) that are not

identifiable in manufacturer literature. Section 5.13.2 summarizes the results of DOE’s

scaling of manufacturing costs to the additional rated storage volumes for gas­fired,

electric, and oil­fired water heaters.

5.9 ENGINEERING MANUFACTURER INTERVIEWS

Throughout the rulemaking process, DOE seeks feedback and insight from

interested parties to improve the information used in the analyses. For the engineering

analysis, DOE discussed the analysis assumptions and estimates, cost model, and costefficiency curves with manufacturers of water heaters, direct heating equipment, and pool

heaters. When refining the cost model, DOE considered all the information

manufacturers provided. DOE incorporated equipment and manufacturing process figures

into the analysis in the form of averages to avoid disclosing sensitive information about

individual manufacturers’ products or manufacturing processes.

Before the interviews, DOE gave manufacturers an interview guide (Appendix

12­A) that includes questions that might be asked during the interview, along with

assumptions, estimates, and cost­efficiency results. DOE asked manufacturers to provide

feedback on the representation of the market and to supply any data that could improve

DOE’s estimates and assumptions.

5.9.1 Key Issues Discussed

During interviews, DOE engaged manufacturers in open discussions so that all

issues regarding the heating products rulemaking would be covered. In addition to

responding to DOE’s specific questions about the engineering analysis and MPCs,

manufacturers also commented on a range of other issues affecting the engineering

analysis. DOE compiled all of the issues manufacturers discussed and presents those

manufacturers consider paramount. Analysis of these key issues allowed DOE to refine

the engineering analysis and the manufacturer impact analysis (MIA) (chapter 12).

Manufacturers presented two key issues: recent material price increases and the effects on

MPC, and cost increases caused by ultra­low NOX regulations.

5.9.1.1 Recent Material Price Increases and the Effect on MPC

During interviews, manufacturers commented on the prices DOE used for metal

materials used in heating products, which are a 5­year average from 2004 to 2008. DOE’s

prices are lower than current prices because the averages do not reflect the recent spikes

in material prices. Manufacturers commented that within that 5­year time frame and in

even smaller periods, metal prices have significantly increased, affecting product prices.

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According to the U.S. Department of Labor’s Bureau of Labor Statistics and based on the

Bureau’s producer price indices, the price of copper has increased approximately 150

percent in the 5­year span, and the price of cold rolled steel sheets and strips has

increased approximately 63 percent. From 2005 to 2007, the price of copper pipe and

tube increased approximately 72 percent.8

The material price increases affect products such as instantaneous water heaters,

for example, where heat exchanger improvements typically increase the amount of

copper and copper tubing within the heat exchanger design. In addition, pool heaters are

sensitive to the price of copper due to their large heat exchangers, which are made

primarily from finned­copper tubing. The significant amount of copper used to construct

windings may also influence technologies involving purchased motors. Water heater

prices may also be affected by cold rolled steel prices. Typically, efficiency

improvements increase the amount of cold rolled steel in the form of increased flue or

heat exchanger size and material additions to the flue baffle. Manufacturer feedback

about MPCs was usually based on current prices that incorporate higher material prices.

5.9.1.2 Cost Increases Caused by Ultra­Low NOX Requirements

During the interviews conducted for the NOPR analysis, manufacturers

commented on the impacts of regional ultra­low NOX requirements on manufacturing

costs. Recently, several air quality management districts (AQMDs) in southern California

and elsewhere have enacted regulations requiring manufacturers to limit NOX emissions

from gas­fired appliances, including gas­fired storage water heaters. Manufacturers

commented that research and development, changes to manufacturing processes, and new

equipment are needed to meet this new requirement. Manufacturers indicated that ultralow NOX systems increased the MPCs above the level initially DOE estimated. As a

result, DOE developed a separate analysis, potential technology pathway, and MPCs for

ultra­low NOX products, as described in section 5.7.1.1.

5.9.1.3 Other Key Issues

Manufacturers provided feedback about other key issues that DOE considered for

this rulemaking, though they do not directly affect the engineering analysis. Chapter 12

presents these issues in detail:

1.	 state and local emission standards;

2.	 the ENERGY STAR program for water heaters;

3.	 increases in installation costs as a result of amended standards;

4.	 packaging and shipment impacts as a result of amended standards;

5.	 safety concerns regarding near­condensing instantaneous water heaters and pool

heaters;

6.	 potential fuel and equipment switching as a result of amended standards;

7.	 derating direct heating equipment and the impact on consumers; and

8.	 a potential decrease in pool heater shipments as a result of amended standards.

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5.10 COST VERSUS EFFICIENCY CURVES

As described in section 5.8.5, DOE first estimated the MPC of the baseline units

for each product class. DOE then determined the intermediate efficiency levels, up to

max­tech, that represent the residential heating products market, and identified the MPCs

for each of these intermediate efficiency levels.

The result of the engineering analysis is 11 cost­efficiency curves representing the

product classes examined for this NOPR. For storage water heaters, the cost efficiency

curves show the representative rated storage volumes, in addition to the other storage

volumes analyzed.

Figure 5.10.1 through Figure 5.10.12 show the 12 cost­efficiency curves in the

form of energy efficiency (i.e., EF, AFUE, or thermal efficiency) versus MPC. Table

5.10.1 lists the curves and their corresponding figure numbers.

Table 5.10.1 Cost­Efficiency Curves and Corresponding Figures

Product Curve Shown in

Gas­Fired Storage Water Heater, Standard

Burner Figure 5.10.1

Gas­Fired Storage Water Heater, Ultra­Low

NOx Burner Figure 5.10.2

Oil­Fired Storage Water Heater Figure 5.10.3

Electric Storage Water Heater Figure 5.10.4

Electric Storage Water Heater Close­Up Figure 5.10.5

Gas­Fired Instantaneous Water Heater Figure 5.10.6

Gas Wall Fan DHE Figure 5.10.7

Gas Wall Gravity DHE Figure 5.10.8

Gas Floor DHE Figure 5.10.9

Gas Room DHE Figure 5.10.10

Gas Hearth DHE Figure 5.10.11

Gas­Fired Pool Heater Figure 5.10.12

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Figure 5.10.1 Manufacturer Production Cost (2008$) versus Energy Factor for GasFired Storage Water Heaters, Standard Burner

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Figure 5.10.2 Manufacturer Production Cost (2008$) versus Energy Factor for GasFired Storage Water Heaters, Ultra­Low NOX Burner

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Figure 5.10.3 Manufacturer Production Cost (2008$) versus Energy Factor for OilFired Storage Water Heaters

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Figure 5.10.4 Manufacturer Production Cost (2008$) versus Energy Factor for

Electric Storage Water Heaters

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Figure                    5.10.5 Close­Up of Resistance Heating Electric Storage Water Heaters
 

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Figure 5.10.6 Manufacturer Production Cost (2008$) versus Energy Factor for GasFired Instantaneous Water Heaters, 0 Gallon, 199,000 Btu/h Input Capacity

Figure 5.10.7 Manufacturer Production Cost (2008$) versus AFUE for Gas Wall

Fan DHE, Over 42,000 Btu/h

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Figure 5.10.8 Manufacturer Production Cost (2008$) versus AFUE for Gas Wall

Gravity DHE, Over 27,000 Btu/h and up to 46,000 Btu/h

Figure 5.10.9 Manufacturer Production Cost (2008$) versus AFUE for Gas Floor

DHE, Over 37,000 Btu/h

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Figure 5.10.10 Manufacturer Production Cost (2008$) versus AFUE for Gas Room

DHE, Over 27,000 Btu/h and up to 46,000 Btu/h

Figure 5.10.11 Manufacturer Production Cost (2008$) versus AFUE for Gas Hearth

DHE, Over 27,000 Btu/h and up to 46,000 Btu/h

DOE identified two baselines for residential pool heaters. The first includes pool

heaters incorporating a standing pilot ignition system, and the second includes pool

heaters incorporating an electronic ignition. DOE did not consider electronic ignition as a

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technology option because it does not improved thermal efficiency, as defined by DOE

test procedures (chapter 3). However, the total energy use of the two ignition types is

different and will be used in the consumer economic models (i.e., the LCC and the PBP

analysis).

Figure 5.10.12 Manufacturer Production Cost (2008$) versus Thermal Efficiency

for Gas­Fired Pool Heater, 250,000 Btu/h

The results show that the cost­efficiency curves are nonlinear. As efficiency

increases, manufacturing becomes more difficult and more costly. Large jumps are

evident when designs include electronic ignition, blower motors, power vent, and

condensing operation designs. Additionally, MPC increases greatly when heat pump

technology is used as an alternative to resistive heating for electric storage water heaters.

The non­linear relationship is common to all product types. Products such as DHE

and high­efficiency pool heaters see larger increases in MPC due to lower production

volumes than water heaters.

5.11 MPC BREAKDOWN

After DOE incorporated all the assumptions into the cost model, it calculated the

production cost percentages. The product cost percentages validate the assumptions by

comparing them to manufacturers’ actual financial data published in annual reports, along

with feedback from manufacturers during interviews. DOE also used these figures in the

MIA (chapter 12). DOE calculated the average product costs percentages by product type

(i.e., water heater, DHE, pool heater) as well as by product class (e.g., gas­fired storage

water heater, electric storage water heater) due to the large variations in production

volumes, fabrication and assembly costs, and other factors that affect the calculation of

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the unit’s total MPC. Table 5.11.1, Table 5.11.2, and Table 5.11.3 show the different

percentages for the production costs that make up the total product MPC.

Table 5.11.1 Total Product MPC Breakdown for Water Heaters

Percentage Cost Breakdown by Water Heater Type

baseline, by %

Gas­Fired,

Storage

Oil­Fired,

Storage

Electric,

Storage

Gas­Fired,

Instantaneous

Materials 79.3 68.1 75.6 60.0

Labor 11.2 6.6 13.9 29.1

Depreciation 3.2 11.5 2.4 2.8

Overhead 6.3 13.7 8.1 8.1

Table 5.11.2 Total Product MPC Breakdown for Direct Heating Equipment
 

Percentage Cost Breakdown by Direct Heating Equipment Type

baseline, by %

Gas Wall

Fan

Gas Wall

Gravity

Gas

Floor

Gas

Room

Gas Hearth

Materials 48.0 53.9 48.9 49.0 53.4

Labor 24.5 16.5 28.4 19.0 15.1

Depreciation 15.9 17.8 12.9 18.9 16.7

Overhead 11.6 11.7 9.9 13.2 14.7

Table 5.11.3 Total Product MPC Breakdown for Pool Heaters
 

Percentage Cost Breakdown

baseline, by %

Pool Heater

Materials 62.4

Labor 15.9

Depreciation 10.4

Overhead 11.2

5.12 MANUFACTURER MARKUP

To meet new or amended energy conservation standards, manufacturers often

introduce design changes to their product lines, which often result in increased MPCs.

Depending on the competitive environment for these particular products, some or all of

the increased production costs can be “passed through” to retailers and eventually to

consumers in the form of higher purchase prices. As production costs increase,

manufacturers also typically incur additional overhead at the factory and corporate levels.

The MSP must cover both of these contributions to overhead if a company is to maintain

profitable. As discussed previously, overhead costs in the DOE model are a function of

investments, material costs, labor costs, or total costs, depending on the overhead

category. Together, materials, labor, and factory overhead make up the full production

cost. DOE applies another multiplier to the full production cost to account for corporate

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non­production costs and profit. This multiplier, the non­production cost markup, is the

focus of this section.

In this section, DOE presents its methodology for converting the MPCs to MSPs,

which is done using the non­production cost markup (“manufacturer markup”). The

manufacturer markup is an integral part of the overall markup, which also includes the

markups in the distribution chain (e.g., wholesalers, distributors, retailers, contractors).

The distribution chain markups convert MSP to consumer price. The consumer prices and

installation costs are key inputs to the LCC analysis, PBP analysis, and the NIA. Using

manufacturer and distribution chain markups and installation costs, DOE can calculate

the first costs that consumers would face under each efficiency level. DOE evaluates the

tradeoff between the increase in first cost and the resulting energy cost savings at each

efficiency level in the LCC and PBP analyses (chapter 8), and NIA (chapter 10).

The manufacturer markup also has an important bearing on profitability. A high

markup under a standards scenario suggests manufacturers can pass through the increased

variable costs and some of the capital and product conversion costs (one­time

expenditures). A low markup implies that manufacturers will not be able to recover as

much of the necessary investment in plant and equipment.

5.12.1Manufacturer Selling Price

The MSP is the price at which the manufacturer can recover all production and

non­production costsb and earn a profit. DOE calculated the MSP for gas­fired storage

and instantaneous water heaters, DHE, and pool heaters by multiplying the MPCs by the

calculated manufacturer markup. For storage water heaters only, DOE analyzed the

shipping cost (typically considered a non­production cost and included in the

manufacturer markup) separately from the manufacturer markup for the NOPR analyses.

So in the case of storage water heaters DOE calculated the MSP by multiplying the MPC

by the manufacturer markup, and then added the shipping cost.

5.12.2Manufacturing Markup Calculation

Applying a manufacturer markup to the MPC of the product yields the MSP. In

general, the manufacturer markup should ensure that the MSP of the product is high

enough to recover the full cost of the product (i.e., full production and non­production

costs), and generate a satisfactory profit.

The law requires publicly owned companies to disclose financial information on a

regular basis by filing forms with the U.S. Securities and Exchange Commission (SEC).

The SEC form 10­K, filed by companies annually, provides a comprehensive overview of

the company’s business and financial conditions. The 10­K report includes the

company’s revenues and direct and indirect costs. In the preliminary analysis, DOE used

10­Ks from publicly owned residential heating product companies to estimate

manufacturer markups. The income statement section of the 10­K often lists the figures

b Non­production costs include selling, general, and administration (SG&A) costs, the cost of research and

development, and interest.

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necessary for calculating the manufacturer markup—the net sales, costs of sales, and

gross profit.

For the preliminary analysis, DOE calculated baseline manufacturer markups by

using averages of SEC 10­K report figures from 2000 to 2006, then calculated markups.

DOE used the following equations to calculate gross profit and gross profit

margins for the preliminary analysis:

Gross Profit = Net Sales – Cost of Sales Eq. 5.1

Gross Profit

Gross Profit Margin = Net Sales Eq. 5.2

Table 5.12.1presents the calculated gross profit margins for a sample of

manufacturers.

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Table 5.12.1 Gross Profit Margin for Residential Heating Products Manufacturers*
 

Manufacturer Financial Figure Year

2006 2005 2004 2003 2002 2001 2000

A

Net Sales $

Cost of Sales $

Gross Profit $

Gross Profit Margin %

2,161,300 1,698,200 1,653,100 1,530,700 1,469,100 1,151,200 1,247,900

1,697,400 1,337,200 1,355,100 1,232,000 1,169,300 948,800 999,800

463,900 352,000 298,000 298,700 299,800 202,400 248,100

21.5 20.8 18.0 19.5 20.4 17.6 19.9

Average Gross Profit Margin 19.8%

B

Net Sales $

Cost of Sales $

Gross Profit $

Gross Profit Margin %

158,767 138,999 126,940 120,165 128,301 130,211 116,002

130,410 114,065 103,320 93,713 100,477 98,712 87,235

28,357 24,934 23,620 26,452 27,824 31,499 28,767

17.9 17.9 18.6 22.0 21.7 24.2 24.8

Average Gross Profit Margin 20.8%

C

Net Sales $

Cost of Sales $

Gross Profit $

Gross Profit Margin %

3,671,100 3,366,200 2,982,700 2,789,900 2,727,400 3,119,691 3,247,357

2,515,900 2,258,200 1,985,200 1,846,600 1,861,300 2,190,041 2,228,046

1,155,200 1,108,000 997,500 943,300 866,100 929,650 1,019,311

31.5 32.9 33.4 33.8 31.8 29.8 31.4

Average Gross Profit Margin 32.0%

D**

Net Sales $

Cost of Sales $

Gross Profit $

Gross Profit Margin %

210,603 182,808 180,203 157,966 162,128 170,950

154,110 137,277 137,008 116,185 116,462 123,405

56,493 45,531 43,195 41,781 45,666 47,545

26.8 24.9 24.0 26.4 28.2 27.8

Average Gross Profit Margin 26.3%

E

Net Sales $

Cost of Sales $

Gross Profit $

Gross Profit Margin %

2,155,225 2,131,505 1,563,394 1,060,303 932,420 882,615 898,247

1,536,675 1,517,631 1,114,699 771,900 693,720 653,135 642,246

618,550 613,874 448,695 288,403 238,700 229,480 256,001

28.7 28.8 28.7 27.2 25.6 26.0 28.5

Average Gross Profit Margin 28.0%

Note: Figures in thousands of dollars.

* 2000, 2001, 2002, 2003, 2004, 2005, and 2006 SEC 10­K reports.

** Data are not available for missing years.

To calculate the time­average gross profit margin for each firm for the

preliminary analysis, DOE first summed the gross profit for all the years and then divided

the result by the sum of the net sales for the same years. Each manufacturer’s nonproduction cost markup was calculated as:

Eq. 5.3

Table 5.12.2 shows the manufacturer markups using this method.
 

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Table 5.12.2 Manufacturer Markups for Residential Heating Products Calculated

for the Preliminary Analysis

Manufacturer Manufacturer Markup

A 1.25

B 1.26

C 1.47

D 1.36

E 1.39

Average 1.35

For the preliminary analysis, DOE calculated the average manufacturer markup as

1.35 across all three product types. In other words, residential heating products

manufacturers, on average, sell their products to the next party in the distribution channel

at 35 percent above the full manufacturing production cost.

DOE presented the calculated manufacturer markup to manufacturers during the

preliminary interviews. Numerous manufacturers of residential heating products are

privately held companies, companies owned through employee stock ownership plans,

and companies owned through private stock plans, none of which file SEC 10­K reports.

In addition, while publicly owned companies file SEC 10­K reports, the financial

information summarized is not only for the heating products portion of their business. It

can include financial information from other product sectors, whose margins might be

quite different from the residential heating products industries. After considering

manufacturer feedback from the preliminary analysis, DOE determined the residential

storage water heating, direct heating equipment, and pool heating industry markups to be

approximately 1.38 on an aggregate basis. To reflect the differences experienced by

manufacturers in the instantaneous water heating market, DOE used 1.45 to represent the

manufacturer markup.

To further refine the manufacturer markups used in the engineering analysis, DOE

addressed the issue again during the manufacturer interviews conducted for the NOPR

phase of the heating products rulemaking. DOE had in­depth discussions with

manufacturers about their markups of products with various sizes, features, and

efficiencies. DOE aggregated all manufacturer feedback and developed separate

manufacturer markups for each product type. Markups typically account for all nonproduction costs and profit. However, in the case of storage water heaters, DOE separated

the shipping costs out of the manufacturer markup to make the engineering analysis more

transparent. Table 5.12.3 presents the baseline manufacturer markups used for the NOPR

engineering analysis. The markups for storage water heaters do not account for shipping

costs, which are analyzed separately (section 5.12.3).

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Table 5.12.3 Manufacturer Markups Calculated for the NOPR Analysis
 

Product Type Product Class Markup

Gas­Fired Storage 1.31

Water Heaters Electric Storage 1.28

Oil­Fired Storage 1.30

Gas­Fired Instantaneous 1.45

Direct Heating Equipment All 1.35

Pool Heaters All 1.30

The engineering analysis uses these multipliers to determine the MSPs for each

representative product class. DOE used a constant markup to reflect the MSPs of the

baseline products as well as more efficient products. DOE took this approach because

amended standards may make high­efficiency products, which are currently considered

premium products, the baselines.

5.12.3Shipping Costs for Storage Water Heaters

As mentioned previously, DOE analyzed the cost of shipping storage water

heaters separately from other non­production costs. DOE assumed manufacturers ship

storage water heaters in a straight frame trailer with dimensions of 53’ x 10’ x 8’. DOE

assumed the average cost per trailer load to be approximately $4,000.

Based on the average size of models at each efficiency level and tank gallon

capacity, DOE estimated the average shipping cost for a full load of units of each

efficiency level/tank gallon size combination to determine the average shipping cost for

each particular unit. Because the average unit size varies for each efficiency level and

tank gallon size, DOE based assumptions about how many units could fit on a trailer on

the size of the average unit at that efficiency level. For example, DOE estimated that,

based on the height of a 30­gallon gas­fired storage water heater at Efficiency Level 1,

manufacturers would be able to double stack these units in the trailer. However, the

average 80­gallon model at Efficiency Level 1 is taller, and could not be double stacked

in the trailer, leading to an increase in shipping cost. When estimating how many units

could fit in each trailer load, DOE also accounted for the space needed for loading and

unloading (e.g., space between the boxes and the trailer wall to allow for clamp trucks to

load the boxes, space at the top to allow for easier unloading). Table 5.12.4, Table 5.12.5,

and Table 5.12.6 show the shipping cost estimates DOE calculated at each efficiency

level for various storage volumes of gas­fired, electric, and oil­fired storage water

heaters.

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Table 5.12.4 Gas­Fired Storage Water Heater Shipping Cost Estimates
 

Storage Volume

gallons, U.S.

Engineering

Efficiency Level

Shipping Cost

2008$

30

Baseline 17.86

1 19.23

2 20.00

3 17.86

4 19.23

5 20.00

6 20.00

40

Baseline 19.23

1 20.00

2 27.78

3 19.23

4 20.00

5 27.78

6 27.78

50

Baseline 38.46

1 40.00

2 55.56

3 38.46

4 40.00

5 55.56

6 55.56

65

Baseline 55.56

1 57.97

2 60.61

3 55.56

4 57.97

5 60.61

6 60.61

75

Baseline 60.61

1 63.49

2 63.49

3 60.61

4 63.49

5 63.49

6 63.49

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Table 5.12.5 Electric Storage Water Heater Shipping Cost Estimates
 

Storage Volume

gallons, U.S.

Engineering

Efficiency Level

Shipping Cost

2008$

40

Baseline 14.29

1 15.15

2 15.63

3 16.13

4 16.67

5 24.69

6 30.30

7 32.26

50

Baseline 28.57

1 30.30

2 31.25

3 32.26

4 33.33

5 49.38

6 30.30

7 32.26

66

Baseline 23.81

1 24.69

2 24.69

3 25.64

4 26.67

5 28.99

6 49.38

7 51.28

80

Baseline 45.98

1 47.62

2 49.38

3 49.38

4 53.33

5 55.56

6 47.62

7 49.38

119

Baseline 51.28

1 53.33

2 53.33

3 55.56

4 57.97

5 60.61

6 53.33

7 55.56

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Table 5.12.6 Oil­Fired Storage Water Heater Shipping Cost Estimates
 

Storage Volume

gallons, U.S.

Engineering

Efficiency Level

Shipping Cost

2008$

32

Baseline 16.13

1 17.24

2 17.86

3 24.69

4 17.86

5 24.69

6 16.13

7 16.13

50

Baseline 25.64

1 26.67

2 27.78

3 28.99

4 27.78

5 28.99

6 25.64

7 25.64

5.13 ENGINEERING ANALYSIS SUMMARY OF RESULTS

The results from the engineering analysis are used in the LCC analysis to

determine consumer prices for residential heating products. Using the calculated

manufacturer markup, DOE calculated the MSPs of the representative water heaters,

DHE, and pool heaters at the baseline and more efficient levels.

5.13.1Summary of Results for Representative Models

Each of the MPCs and MSPs developed in the engineering analysis for the

representative capacity are shown in Table 5.13.1 through Table 5.13.12. DOE was able

to receive manufacturer feedback on these MPCs and MSPs during the manufacturer

interviews (see chapter 12, MIA). As described in section 5.12.1, the MSP for storage

water heaters is calculated by multiplying the MPC by the manufacturer markup, then

adding the shipping cost. For instantaneous water heaters, DHE, and pool heaters, the

MSP is calculated by multiplying the MPC by the manufacturer markup.

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Table 5.13.1 MPC and MSP for a 40­Gallon Gas­Fired Storage Water Heater
 

Efficiency Level MPC

2008$

MSP*

2008$

Baseline (EF=0.59) 180 255

1 (EF=0.62) 187 265

2 (EF=0.63) 194 282

3 (EF=0.64) 307 421

4 (EF=0.65) 315 432

5 (EF=0.67) 322 449

6 – Max­Tech (EF=0.80) 454 622

*For storage water heaters, DOE calculated the MSP as the MPC multiplied by the manufacturer

markup, plus shipping costs.

Table 5.13.2 MPC and MSP for a 40­Gallon Gas­Fired Storage Water Heater with

Ultra­Low NOx Burner

Efficiency Level MPC

2008$

MSP*

2008$

Baseline (EF = 0.59) 247 343

1 (EF = 0.62) 262 371

2 (EF = 0.63) 374 509

3 (EF = 0.64) 381 520

4 (EF = 0.65) 388 537

5 (EF = 0.67) N/A N/A

6 – Max­Tech (EF = 0.80) 521 710

*For storage water heaters, DOE calculated the MSP as the MPC multiplied by the manufacturer

markup, plus shipping costs.

Table 5.13.3 MPC and MSP for a 32­Gallon Oil­Fired Storage Water Heater with

Burner Assembly

Efficiency Level MPC

2008$

MSP*

2008$

Baseline (EF = 0.53) 577 767

1 (EF = 0.54) 583 776

2 (EF = 0.56) 589 784

3 (EF = 0.58) 599 804

4 (EF = 0.60) 596 793

5 (EF = 0.62) 608 815

6 (EF = 0.66) 680 900

7 – Max­Tech (EF = 0.68) 685 906

*For storage water heaters, DOE calculated the MSP as the MPC multiplied by the manufacturer

markup, plus shipping costs.

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Table 5.13.4 MPC and MSP for a 50­Gallon Electric Storage Water Heater
 

Efficiency Level MPC

2008$

MSP*

2008$

Baseline (EF = 0.90) 133 194

1 (EF = 0.91) 140 204

2 (EF = 0.92) 144 209

3 (EF = 0.93) 148 215

4 (EF = 0.94) 156 226

5 (EF = 0.95) 173 251

6 (EF = 2.0) 542 743

7 – Max­Tech (EF = 2.2) 589 805

*For storage water heaters, DOE calculated the MSP as the MPC multiplied by the manufacturer

markup, plus shipping costs.

Table 5.13.5 MPC and MSP for a 0­Gallon Gas­Fired Instantaneous Water Heater,

199,000 Btu/h Input Capacity

Efficiency Level MPC

2008$

MSP

2008$

Baseline (EF = 0.62) 282 410

1 (EF = 0.69) 297 430

2 (EF = 0.78) 327 474

3 (EF = 0.80) 437 633

4 (EF = 0.82) 474 687

5 (EF = 0.84) 763 1,106

6 (EF = 0.85) 808 1,171

7 (EF = 0.92) 885 1,283

8 – Max­Tech (EF = 0.95) 985 1,429

Table 5.13.6 MPC and MSP for Gas Wall Fan DHE, Over 42,000 Btu/h Input

Capacity

Efficiency Level MPC

2008$

MSP

2008$

Baseline (AFUE = 74) 351 474

1 (AFUE = 75) 376 508

2 (AFUE = 76) 387 523

3 (AFUE = 77) 407 549

4 – Max­Tech (AFUE = 80) 465 628

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Table 5.13.7 MPC and MSP for Gas Wall Gravity DHE, Over 27,000 Btu/h and up

to 46,000 Btu/h Input Capacity

Efficiency Level MPC

2008$

MPSP

2008$

Baseline (AFUE = 64) 207 280

1 (AFUE = 66) 234 315

2 (AFUE = 68) 250 338

3 (AFUE = 71) 285 385

4 – Max Tech (AFUE = 72) 354 478

Table 5.13.8 MPC and MSP for Gas Floor DHE, Over 37,000 Btu/h Input Capacity
 

Efficiency Level MPC

2008$

MSP

2008$

Baseline (AFUE = 57) 357 482

1 – Max­Tech (AFUE = 58) 381 514

Table 5.13.9 MPC and MSP for Gas Room DHE, Over 27,000 Btu/h and up to

46,000 Btu/h Input Capacity

Efficiency Level MPC

2008$

MSP

2008$

Baseline (AFUE = 64) 226 305

1 (AFUE = 65) 241 325

2 (AFUE = 66) 256 346

3 (AFUE = 67) 263 355

4 (AFUE = 68) 272 367

5 – Max­Tech (AFUE = 83) 406 548

Table 5.13.10 MPC and MSP for Gas Hearth DHE, Over 27,000 Btu/h and up to

46,000 Btu/h Input Capacity

Efficiency Level MPC

2008$

MSP

2008$

Baseline (AFUE = 64) 359 485

1 (AFUE = 67) 357 482

4 (AFUE = 72) 531 717

5 – Max­Tech (AFUE = 93) 886 1196

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Table 5.13.11 MPC and MSP for a Gas­Fired Pool Heater, 250,000 Btu/h Input

Capacity and Standing Pilot

Efficiency Level MPC

2008$

MSP

2008$

Baseline (Thermal Efficiency = 78) 529 688

1 (Thermal Efficiency = 79) 540 702

2 (Thermal Efficiency = 81) 553 719

3 (Thermal Efficiency = 82) 584 759

Table 5.13.12 MPC and MSP for a Gas­Fired Pool Heater, 250,000 Btu/h Input

Capacity and Electronic Ignition

Efficiency Level

(Thermal Efficiency)

MPC

2008$

MSP

2008$

Baseline (Thermal Efficiency = 78) 547 712

1 (Thermal Efficiency = 79) 558 725

2 (Thermal Efficiency = 81) 572 744

3 (Thermal Efficiency = 82) 603 784

4 (Thermal Efficiency = 83) 673 876

5 (Thermal Efficiency = 84) 735 955

6 (Thermal Efficiency = 86) 979 1,273

7 (Thermal Efficiency = 90) 1,466 1,906

8 – Max­Tech (Thermal Efficiency = 95) 1,602 2,082

5.13.2Summary of Results for Water Heater Models Outside of the

Representative Capacity

As described in section 5.8.6, DOE calculated the MPCs of storage water heaters

with rated storage volumes at capacities above and below the representative capacity.

These MPCs are used downstream in the LCC analysis to determine the impacts on

consumers. Table 5.13.13 through Table 5.13.16 show the MPC results at each efficiency

level and each discrete rated storage volume analyzed for gas­fired, electric, and oil­fired

storage water heaters.

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Table 5.13.13. Manufacturing Production Costs for Gas­Fired Storage Water

Heaters with a Standard Burner by Rated Storage Volume

Efficiency

Level

Manufacturing Production Cost

30 Gallon 50 Gallon 65 Gallon 75 Gallon

Baseline $166 $191 $220 $237

1 $172 $199 $229 $246

2 $179 $207 $239 $256

3 $293 $319 $349 $367

4 $299 $327 $359 $376

5 $306 $335 $369 $387

6 $432 $468 $513 $538

Table 5.13.14. Manufacturing Production Costs for Gas­Fired Storage Water

Heaters with an Ultra Low NOX Burner by Rated Storage Volume

Efficiency

Level

Manufacturing Production Cost

30 Gal 50 Gallon 65 Gallon 75 Gallon

Baseline $232 $259 $287 $307

1 $246 $276 $307 $327

2 $358 $386 $416 $436

3 $365 $394 $425 $445

4 $372 $402 $436 $456

5 N /A N/A N/A N/A

6 $498 $536 $583 $611

Table 5.13.15. Manufacturing Production Costs for Electric Storage Water Heaters

by Rated Storage Volume

Efficiency

Level

Manufacturing Production Cost

30 Gal 40 Gallon 66 Gallon 80 Gallon 119 Gallon

Baseline $109 $122 $142 $164 $204

1 $115 $128 $150 $172 $214

2 $118 $133 $155 $179 $222

3 $121 $136 $158 $183 $227

4 $128 $143 $168 $192 $237

5 $142 $160 $188 $214 $263

6 $512 $529 $554 $580 $628

7 $556 $574 $601 $629 $666

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Table 5.13.16. Manufacturing Production Costs for Oil­Fired Storage Water

Heaters by Rated Storage Volume

Efficiency Level Manufacturing

Production Cost

50 Gal

Baseline $631

1 $639

2 $645

3 $654

4 $653

5 $664

6 $733

7 $738

5.14 ENERGY EFFICIENCY EQUATIONS FOR WATER HEATERS

DOE’s existing regulations for all types of water heaters are specified in terms of

an equation where the required EF is a function of storage volume. For gas­fired storage

and electric storage water heaters, DOE modified the energy efficiency equations based

on available market data and testing results as described in section 5.14.1. For oil­fired

storage and gas­fired instantaneous water heaters, the available market data did not

suggest a need to change the efficiency equations, as described in section 5.14.2.

5.14.1Gas­fired Storage and Electric Storage Energy Efficiency Equations

As part of the engineering analysis for residential water heaters, DOE reviewed

the energy efficiency equations that define the existing Federal energy conservation

standards for gas­fired and electric storage water heaters. The energy efficiency equations

allow DOE to expand the analysis on the representative rated storage volume to the full

range of storage volumes covered under the Federal energy conservation standard. In the

following section, DOE describes the methodology used to expand the analysis

conducted for the representative storage volumes at each efficiency level to the full rated

storage volume ranges.

DOE uses energy efficiency equations to characterize the relationship between

rated storage volume and energy factor. The energy efficiency equations consider the

increases in standby losses as tank volume increases. As the tank storage volume

increases, the tank surface area increases. The larger surface area results in higher heat

transfer rates which, in turn, result in higher jacket losses. Other losses to consider are

feed­through losses and flue losses (for gas­fired water heaters). The current energy

efficiency equations show that as the rated storage volume increases for each water heater

class, the minimum energy factor decreases.

For the existing Federal energy conservation standards, the slope and the intercept

of each energy efficiency equation are constant for each product class. Table 5.14.1

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shows the energy efficiency equations of the existing Federal energy conservation

standards for gas­fired and electric storage water heaters.

Table 5.14.1 Existing Federal Energy Conservation Standards for Residential GasFired and Electric Storage Water Heaters

Residential Water Heater Class Minimum Energy Factor

Gas­Fired Storage 0.67 – (0.0019 × Rated Storage Volume in Gallons)

Electric Storage 0.97 – (0.00132 × Rated Storage Volume in Gallons)

For this NOPR, DOE reviewed AHRI’s March 2008 Consumers' Directory of

Certified Efficiency Ratings for Heating and Water Heating Equipment and developed a

product database that includes all gas­fired and electric storage water heater models

subject to this rulemaking. DOE also reviewed manufacturer catalogs to gather

information on the design characteristics of each water heater model. The catalogs

include information on efficiency ratings, product series descriptions, jacket insulation

thicknesses, ignition types, and drafting methods (i.e., natural or power vented drafting).

DOE also contracted an independent third party to test the energy factor ratings of 27

gas­fired and electric storage water heaters at various energy factor ratings and storage

volumes (section 5.14.1.4).

DOE used its database and additional product information gathered from testing

and manufacturer literature to help characterize the relationship between EF and rated

storage volume of gas­fired and electric storage water heater models currently on the

market. DOE also compared the EFs and rated storage volumes in its database of

products to the energy efficiency equations defined by Federal energy conservation

standards. Generally, current products demonstrate a similar trend of decreasing

efficiency with increasing rated storage volume.

However, as the efficiency of the models increases, the relationship between the

EF and rated storage volume does not closely follow the relationship described by current

Federal energy conservation standards. Since the January 2001 water heater rulemaking,

manufacturers have continued to introduce storage water heaters with higher efficiencies.

Manufacturers currently offer several models with similar features (i.e., models from the

same product series) that have the same energy factors, but a variety of different rated

storage volumes. In theory, the energy factor should decrease with increased storage

volume, primarily due to increased losses from the increased tank surface area. However,

these few high­efficiency model series seem to exhibit the same EF, though their rated

storage volumes vary. There are several plausible explanations for this discrepancy,

including (1) the precision of the test procedure at higher efficiencies (i.e., the number of

significant digits reported during the EF calculation does not reveal differences in actual

values of the energy factors of high­efficiency storage water heaters in the full range of

storage volumes); (2) the possibility for small design changes that are not described in the

product literature, and (3) the possibility of slight differences in the geometry of the

storage tanks for the larger rated volumes, which would affect the heat loss characteristics

of the tank. To further investigate the relationship between EF and rated storage volume,

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DOE reviewed the current market to establish a revised set of energy efficiency equations

based on available models for gas­fired and electric storage water heaters.

5.14.1.1 DOE’s Review of the Current Water Heater Market

DOE reviewed the gas­fired and electric storage water heaters listed in AHRI’s

Consumers’ Directory and described in manufacturer catalogs to examine the relationship

between energy factor and rated storage volume. When examining the energy efficiency

equations, DOE considered

• input and feedback from interested parties,

• energy efficiency potentials of screened­in technologies,

• standby heat loss,

• analysis from previous rulemakings,

• Federal energy conservation standards (to prevent backsliding), and

• energy efficiency levels developed for this NOPR.

The existing Federal energy conservation standard applies to gas­fired storage

water heaters ranging from 20 to 100 gallons. The majority of models in AHRI’s

Consumers’ Directory have rated storage volumes between 30 and 75 gallons. DOE

selected 40 gallons as the representative rated storage volume for this class of water

heater. The corresponding energy conservation standard at 40 gallons is 0.59 EF. Figure

5.14.1 shows the current Federal energy conservation standard and its relationship to

models in the AHRI Consumers’ Directory.

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Energy Factor (EF)

0.80

0.75

0.70

0.65

Current Standard

0.60

0.55

0.50

0.45
 

20 30 40 50 60 70 80 90 100
 

Rated Volume (Gallons)

Figure 5.14.1 Distribution of Gas­Fired Storage Water Heater Models by Rated 

Storage Volume 

  In general, the EF decreases with rated storage volume. However, DOE found that 

manufacturers offer models with similar EFs for the two most common storage volumes 

(40 and 50 gallons) and in some instances for other storage volumes. For example, 

between 0.60 and 0.65 EF, several 40­gallon models on the market have the same EFs as 

several 50­gallon models in AHRI’s Consumers' Directory. This trend does not apply 

over the entire range of storage volumes offered. For example, gas­fired storage water 

heaters having rated storage volumes of 60 gallons and above appear to decrease in EF 

with increasing rated storage volume (Figure 5.14.1). 

  The existing Federal energy conservation standard applies to electric storage 

water heaters ranging from 20 to 120 gallons. The majority of models in AHRI’s 

Consumers’ Directory have rated storage volumes between 30 and 120 gallons. DOE 

selected 50 gallons as the representative rated storage volume for this class of water 

heater, and the corresponding conservation standard at 50 gallons is 0.90 EF. Figure 

5.14.2 shows the current Federal energy conservation standard and its relationship to 

models in the AHRI Consumers’ Directory. 

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1.00

0.95

Energy Factor (EF) 0.90 Current Standard

0.85

0.80
 

20 30 40 50 60 70 80 90 100 110 120
 

Rated Volume (Gallons)

Figure 5.14.2 Distribution of Electric Storage Water Heater Models by Rated 

Storage Volume 

  In general, DOE found that EF decreases with rated storage volume. However, for 

electric storage water heaters ranging from 30 to 80 gallons, DOE found that 

manufacturers produce models with similar EFs. For example, water heaters ranging 

from 30 to 80 gallons are available with EFs ranging from the baseline to 0.95 EF, 

regardless of the rated storage volume. However, Figure 5.14.2 suggests that this trend is 

not true for the entire market over the entire range of storage volumes. Figure 5.14.2 also 

demonstrates that manufacturers of 120­gallon electric storage water heaters offer only 

models with EFs of 0.86 or below. 

5.14.1.2 Revised Energy Efficiency Equations   

DOE examined revised energy efficiency equations by expanding efficiency 

levels to a full range of tank sizes by using the equation slopes defined by the existing 

Federal energy conservation standards. DOE did not alter the slopes for this portion of 

the analysis, and changed only the position of the intercepts (i.e., the point that intersects 

0 gallons). 

  For 40­gallon gas­fired storage water heaters, DOE examined six efficiency 

levels: 0.62 EF, 0.63 EF, 0.64 EF, 0.65 EF, 0.67 EF, and 0.80 EF (max­tech). DOE then 

expanded these efficiency levels to the full range of gallon sizes (i.e., 20 to 100 gallons) 

by relating EF to rated volume using the slope of the Federal energy efficiency equation 

(i.e., constant slope of ­0.0019). Figure 5.14.3 shows the revised energy efficiency 

equations and their relationship to models in the AHRI Consumers’ Directory. 

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Energy Factor (EF)

0.85

0.80

0.75

0.70 Current Standard

0.62 EF Standard

0.63 EF Standard

0.65 0.64 EF Standard

0.65 EF Standard

0.66 EF Standard

0.77 EF Standard 0.60

0.55

0.50

0.45
 

20 30 40 50 60 70 80 90 100
 

Rated Volume (Gallons)

Figure 5.14.3 Gas­Fired Storage Water Heater Efficiency Levels Using the Slope of 

the Federal Energy Conservation Standard 

  DOE generally found that products meet or exceed the majority of the considered 

efficiency levels for volume sizes ranging from 40 to 75 gallons. The market data suggest 

that the slope of the equation defining the current Federal energy conservation standard 

may not reflect the characteristics of the entire market because there are models currently 

available having similar EFs with different rated storage volumes. DOE also found that at 

small rated volumes (i.e., less than 30 gallons) and large rated volumes (i.e., 100 gallons) 

manufacturers do not offer models that would meet some of the efficiency levels that 

DOE is considering. For example, at 100 gallons, the existing water heater market would 

be eliminated by all of the efficiency levels being considered if equations have the same 

slope as the current Federal energy conservation standard.  

For electric storage water heaters, DOE considered six efficiency levels above the 

baseline efficiency level: 0.91 EF, 0.92 EF, 0.93 EF, 0.94 EF, 0.95 EF. DOE excluded the 

2.0 EF level and the max­tech efficiency level (i.e., 2.2 EF, an integral heat pump water 

heater, which is not currently available to consumers) for this portion of the analysis. 

DOE expanded each efficiency level below the max­tech (i.e., efficiency levels 0.91 to 

0.95 EF) to the full range of rated volumes (i.e., 20 to 120 gallons) by relating EF to rated 

volume using the slope of the Federal energy efficiency equation (i.e., a constant slope of 

­0.00132) as shown in Figure 5.14.4. 

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Energy Factor (EF)

1.00

0.95

Current Standard

0.91 EF Standard

0.92 EF Standard

0.90 0.93 EF Standard

0.94 EF Standard

0.95 EF Standard

0.85

0.80
 

20 30 40 50 60 70 80 90 100 110 120
 

Rated Volume (Gallons)

Figure 5.14.4 Electric Storage Water Heater Efficiency Levels Using the Slope of the 

Federal Energy Conservation Standard 

  DOE generally found that electric storage water heaters currently manufactured 

meet or exceed the majority of efficiency levels for volume sizes ranging from 30 to 120 

gallons. As with gas­fired storage water heaters, the market data for electric storage water 

heaters suggest that the slope of the equation defining the current Federal energy 

conservation standard may not reflect the characteristics of the entire market because 

there are models currently available with similar EFs, over a wide range of rated storage 

volumes. DOE also found that manufacturers do not offer models that would meet all of 

the energy efficiency levels DOE is considering for the full range of rated storage 

volumes. For example, DOE found that at small rated volumes (i.e., less than 50 gallons) 

manufacturers do not offer models that would meet the efficiency levels being considered 

that exceed 0.95 EF. 

5.14.1.3 Development of Alternative Energy Efficiency Equations 

  DOE developed an alternative approach for revising the energy efficiency 

equations based on the database of products. DOE applied four constraints to the 

development process: 

• For gas­fired water heaters, each energy efficiency equation must include 

units with the specified efficiency level at the 40­gallon rated storage volume. 

• For electric storage water heaters, each energy efficiency equation must 

include units with the specified efficiency level at the 50­gallon rated storage 

volume. 

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•	 For electric storage water heaters, the energy efficiency equation should not

lead to a standard greater than 0.95 EF for the 20­ to 120­gallon rated volume

range.

•	 The energy efficiency equations cannot result in a standard that falls below

current standards over the entire rated volume range.

DOE chose this approach because it takes into account the models currently on

the market, considers the technologies incorporated into those models, and attempts to

optimize the number of models across the entire rated volume range that would meet the

efficiency levels DOE is considering. This approach also attempts to minimize the

number of models that would be eliminated from the market by the efficiency levels DOE

is considering across the entire range of storage volumes.

In examining the market data to develop the energy efficiency equations, DOE

noted a trend of greater decline in energy efficiency at higher rated storage volumes than

at lower storage volumes. As a result, DOE developed energy efficiency equations with

varying slopes at several of the efficiency levels covered in the NOPR analysis. These

equations maintain one slope from the minimum covered rated storage volume of 60

gallons for gas­fired storage water heaters up to 80 gallons for electric storage water

heaters, and then maintain a different slope over the remaining range of covered storage

volumes. DOE selected 60­ and 80­gallon storage volumes as the point where the change

in slope of the energy efficiency equations for gas­fired and electric storage water

heaters, respectively, should occur because the market data suggested a natural break in

the available products at those points. Gas­fired models larger than 60 gallons and

electric models larger than 80 gallons typically have efficiencies that reduce much more

quickly with increasing storage volume than at the lower volume sizes. The higher ends

of the residential storage capacities also have a lower volume of shipments.

For gas­fired storage water heaters, DOE kept the same slope above 60 gallons at

each efficiency level. Few gas­fired storage water heaters exist with storage volumes

greater than 60 gallons, and therefore market data were very limited. Due to this lack of

data, DOE used the slope defining the current standard for residential gas­fired storage

water heaters, as listed in DOE’s regulations at 10 CFR Part 430.32(d). DOE maintained

the same slope for efficiency levels 1 through 5 for gas­fired storage water heaters above

60 gallons.

For the max­tech efficiency levels considered for gas­fired storage water heaters

and electric storage water heaters, DOE did not change the slope of the energy efficiency

equations from the existing slopes. Because there are no products on the market that meet

the max­tech efficiency levels, DOE could not perform an analysis or come to any

conclusion about the effect of storage volume on energy factor at these efficiency levels.

With any storage water heater, the standby losses will increase with storage volume due

to increased tank surface area. Because there are no data that DOE can use to determine

an appropriate slope at these levels, DOE maintained the relationship between storage

volume and energy factor developed previously for water heaters.

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Figure 5.14.5 illustrates the energy efficiency equations using the criteria

developed for gas­fired storage water heaters. Figure 5.14.6 and Figure 5.14.7 illustrate

the energy efficiency equations using the criteria developed for electric storage water

heaters.

Table 5.14.2 Alternative Energy Efficiency Equations for Gas Storage Water

Heaters

Efficiency Level 20 to 60 Gallons Over 60 and up to 100 Gallons

Baseline EF = ­0.00190(VR)+0.670

1 EF = ­0.00150(VR)+0.675 EF = ­0.00190(VR)+0.699

2 EF = ­0.00120(VR)+0.675 EF = ­0.00190(VR)+0.717

3 EF = ­0.00100(VR)+0.680 EF = ­0.00190(VR)+0.734

4 EF = ­0.00090(VR)+0.690 EF = ­0.00190(VR)+0.750

5 EF = ­0.00078(VR)+0.700 EF = ­0.00190(VR)+0.767

6 EF = ­0.00078(VR)+0.8312

Figure 5.14.5 Energy Efficiency Equations Using a Modified Slope Based on the

AHRI Consumers’ Directory for Gas­Fired Storage Water Heaters

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Table 5.15.3 Alternative Energy Efficiency Equations for Electric Storage Water

Heaters

Efficiency Level 20 to 80 Gallons Over 80 and up to 120 Gallons

Baseline EF = ­0.00132(VR)+0.97

1 EF = ­0.00113(VR)+0.97 EF = ­0.00149(VR)+0.999

2 EF = ­0.00095(VR)+0.967 EF = ­0.00153(VR)+1.013

3 EF = ­0.00080(VR)+0.966 EF = ­0.00155(VR)+1.026

4 EF = ­0.00060(VR)+0.965 EF = ­0.00168(VR)+1.051

5 EF = ­0.00030(VR)+0.960 EF = ­0.00190(VR)+1.088

6 EF = ­0.00113(VR)+2.057

7 EF = ­0.00113(VR)+2.257

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Figure 5.14.6 Energy Efficiency Equations Using a Modified Slope Based on the

AHRI Consumers’ Directory for Electric Storage Water Heaters (Baseline – Level 5)

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Figure 5.14.7 Energy Efficiency Equations Using a Modified Slope Based on the

AHRI Consumers’ Directory for Electric Storage Water Heaters (Efficiency Levels 6

and 7)

For gas­fired and electric storage water heaters, the energy efficiency equations

and the data from AHRI’s Consumers’ Directory generally exhibit the same trend of

decreasing EF with increasing rated volume. The existing energy efficiency equations

and current market also show a similar trend in which the slope caused by the decreasing

EF typically approaches a constant (i.e., a flat line across the range of rated volumes) as

the efficiency levels increase. However, these energy efficiency equations eliminate the

larger volume water heaters offered by manufacturers at the higher potential amended

energy conservation standards.

The product database, manufacturer specifications, and other publicly available

literature do not include all the details on the specific energy efficiency features

incorporated in each water heater design. Based on the extent of the information, these

energy efficiency equations may represent manufacturing practices, consumer

preferences, and marketing efforts, but not the energy efficiency potential of screened­in

technologies or the heat loss characteristics of the entire rated volume range.

For example, manufacturers offer several models with similar features (i.e.,

models from the same product series) and the same energy factors in a variety of different

rated storage volumes. Water heaters of different volumes can have the same EF as a

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result of manufacturers adding insulation (e.g., to the top of the tank or the feed­throughs)

or making design modifications not described in the manufacturer catalogs as rated

volume increases. Such design changes could offset any increase in heat loss as surface

area increases. This would alter the relationship between heat loss (and ultimately EF)

and rated volume for that particular product series. Manufacturers may produce product

lines with EF constant across a range of rated volumes to market high­efficiency water

heaters to specific consumers.

DOE could not verify the relationship between EF and rated volume or how EF

changes for different rated volume ranges and at various efficiency levels based solely on

AHRI data or publicly available literature. Specifically, it is not possible to identify the

specific technologies that manufacturers use to maintain the same EF as rated volume

increases. In addition, the reporting precision of the test procedure at higher efficiencies

does not reveal how small losses affect EF as the rated storage volume increases. It is

also impossible to verify that the geometry of the storage tank design is identical through

the entire range of storage volumes based solely on the information obtained from the

AHRI directory and manufacturer product literature. Therefore, DOE verified this

relationship through testing and tear­down analysis, described in section 5.14.1.4.

5.14.1.4 Validation of the Energy Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters

To further examine the relationship between EF and rated storage volume, DOE

verified the EF of various models through third­party testing and performed a teardown

analysis of these same models to identify potential geometry and design differences. As

noted previously, when reviewing products on the market, DOE found that some

manufacturers produce high­efficiency gas­fired and electric storage water heaters where

the energy efficiency technologies remain constant (e.g., the same insulation thickness)

across a range of rated volumes while maintaining the same EF for all products. This is

contrary to DOE’s understanding that jacket losses should increase as the surface area of

the tank increases with rated volume. Thus, DOE assumed manufacturers make some

minor improvements (small insulation improvements, for example) to offset the increase

in heat loss as a result of increasing surface area, or make geometric modifications to the

tank design to obtain constant EFs for a range of rated volumes. However, the market

data and manufacturers catalogs suggest this is not true for some product series, and this

data and the information in manufacturer catalogs are not sufficient to specify how

manufacturers achieve constant EF. Consequently, DOE tested and performed a teardown

analysis of available water heater models to validate its approach for developing the

energy efficiency equations and further supplement its data on the relationship between

EF and storage volume.

DOE conducted testing according to the water heater test procedure specified in

appendix E to subpart B of 10 CFR 430 (the same test procedure used by manufacturers

to certify products in AHRI’s Consumers’ Directory) to verify the EF values. DOE tested

model series with similar design characteristics and volumetric designs to isolate how EF

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changes with rated storage volume. DOE repeated this test for a number of model series

at various efficiencies and for a variety of different manufacturers. DOE chose models to

test by selecting product series from multiple major manufacturers that spanned the range

of rated volumes within each product class and that span the range of efficiency levels.

DOE purchased the units selected for testing through a mechanical contractor at the end

of the distribution chain similar to one used by a typical consumer. After the testing,

DOE performed a teardown analysis of the water heaters to examine the components and

verify the technologies used to increase the efficiency of water heaters. DOE closely

examined the differences among models rated at the same efficiency factors with

different gallon sizes to determine what additional features (if any) are implemented in

larger models to achieve the same efficiencies as smaller models. For units that

performed below their rated energy factor, DOE searched for any manufacturing

irregularities (such as foam voids) that could have lead to these test results. The results of

the testing are shown in Table 5.14.3.

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Table 5.14.3 Energy Factor Test Results for a Sample of Gas­Fired and Electric

Storage Water Heaters

Product Class Rated Storage Volume

gallons, U.S.

Rated Energy

Factor

Tested Energy

Factor

Gas­Fired Storage 29 0.63 0.604

Gas­Fired Storage 30 0.61 0.639

Gas­Fired Storage 40 0.59 0.612

Gas­Fired Storage 40 0.59 0.585

Gas­Fired Storage 40 0.62 0.602

Gas­Fired Storage 40 0.64 0.635

Gas­Fired Storage 40 0.59 0.588

Gas­Fired Storage 50 0.62 0.609

Gas­Fired Storage 50 0.59 0.577

Gas­Fired Storage 50 0.64 0.622

Gas­Fired Storage 50 0.58 0.572

Gas­Fired Storage 65 0.57 0.575

Gas­Fired Storage 65 0.57 0.577

Gas­Fired Storage 75 0.59 0.603

Electric Storage 30 0.93 0.924

Electric Storage 30 0.95 0.938

Electric Storage 30 0.93 0.924

Electric Storage 40 0.95 0.951

Electric Storage 40 0.92 0.922

Electric Storage 50 0.93 0.917

Electric Storage 50 0.91 0.922

Electric Storage 55 0.95 0.952

Electric Storage 66 0.92 0.937

Electric Storage 66 0.95 0.944

Electric Storage 80 0.93 0.943

Electric Storage 80 0.95 0.947

Electric Storage 80 0.86 0.919

5.14.2Oil­Fired Storage and Gas­Fired Instantaneous Energy Efficiency

Equations

As part of the engineering analysis for residential water heaters, DOE reviewed

the energy efficiency equations that define the existing Federal energy conservation

standards for oil­fired storage and gas­fired instantaneous water heaters. As with gasfired and electric storage water heaters, the energy efficiency equations allow DOE to

expand the analysis on the representative rated storage volume to the full range of storage

volumes covered under the Federal energy conservation standard.

For oil­fired storage and gas­fired instantaneous water heaters, DOE uses energy

efficiency equations to characterize the relationship between rated storage volume and

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energy factor. The current energy efficiency equations show that as the rated storage

volume increases for these water heater classes, the minimum energy factor decreases.

For the existing Federal energy conservation standards, the slope and the intercept of

each energy efficiency equation are constant for each product class. Table 5.14.4 shows

the energy efficiency equations of the existing Federal energy conservation standards for

gas­fired and electric storage water heaters.

Table 5.14.4 Existing Federal Energy Conservation Standards for Residential OilFired Storage and Gas­Fired Instantaneous Water Heaters

Residential Water Heater Class Minimum Energy Factor

Oil­Fired Storage 0.59 – (0.0019 × Rated Storage Volume in Gallons)

Gas­Fired Instantaneous 0.62 – (0.0019 × Rated Storage Volume in Gallons)

DOE reviewed AHRI’s March 2008 Consumers' Directory of Certified Efficiency

Ratings for Heating and Water Heating Equipment and developed a product database that

includes all residential water heater models subject to this rulemaking. DOE also

reviewed manufacturer catalogs to gather information on the design characteristics of

each water heater model. DOE also compared the EFs and rated storage volumes in its

database of products to the energy efficiency equations defined by Federal energy

conservation standards. Generally, current products demonstrate a similar trend of

decreasing efficiency with increasing rated storage volume. The relationship of EF and

storage capacity for the oil­fired storage and gas­fired instantaneous models in the

database did not provide any justification for revising the existing energy efficiency

equations. Therefore, to create the various efficiency levels for these two water heater

product classes, DOE maintained the same slope defined by existing standards and

adjusted the intercept to create efficiency levels higher than the baseline. Table 5.14.5

and Table 5.14.6 show the energy efficiency equations for oil­fired storage and gas­fired

instantaneous water heaters, respectively.

Table 5.14.5 Energy Efficiency Equations for Oil­Fired Storage Water Heaters

Efficiency Level Minimum Energy Factor

1 0.60 – (0.0019 × Rated Storage Volume in Gallons)

2 0.62 – (0.0019 × Rated Storage Volume in Gallons)

3 0.64 – (0.0019 × Rated Storage Volume in Gallons)

4 0.66 – (0.0019 × Rated Storage Volume in Gallons)

5 0.68 – (0.0019 × Rated Storage Volume in Gallons)

6 0.72 – (0.0019 × Rated Storage Volume in Gallons)

7 0.74 – (0.0019 × Rated Storage Volume in Gallons)

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Table 5.14.6 Energy Efficiency Equations for Gas­Fired Instantaneous Water

Heaters

Efficiency Level Minimum Energy Factor

1 0.69 – (0.0019 × Rated Storage Volume in Gallons)

2 0.78 – (0.0019 × Rated Storage Volume in Gallons)

3 0.80 – (0.0019 × Rated Storage Volume in Gallons)

4 0.82 – (0.0019 × Rated Storage Volume in Gallons)

5 0.84 – (0.0019 × Rated Storage Volume in Gallons)

6 0.85 – (0.0019 × Rated Storage Volume in Gallons)

7 0.92 – (0.0019 × Rated Storage Volume in Gallons)

8 0.95 – (0.0019 × Rated Storage Volume in Gallons)

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REFERENCE
 

1 GAMA. Consumers’ Directory of Certified Efficiency Ratings, Performance Data

Updated March 21, 2008. Last accessed March 21, 2008. < www.gamapower.org/>.

2 “56th Annual Report. Statistical Review.” Appliance Magazine, May 2009.

3 U.S. Department of Labor, Bureau of Labor Statistics, Wages by Area and

Occupation. Last accessed March 21, 2008. < www.bls.gov/bls/blswage.htm>.

4 American Metals Market. Last accessed March 21, 2008. <www.amm.com>.

5 U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Indices.

Last accessed March 21, 2008. < www.bls.gov/ppi>.

6 U.S. Department of Commerce, Bureau Economic Analysis, Gross Domestic

Product Implicit Price Deflator. Last accessed March 21, 2008.

<bea.gov/bea/dn/nipaweb/TableView.asp#Mid>.

7 Plastic News, Resin Pricing. Last accessed March 21, 2008.

<www.plasticsnews.com/subscriber/headlines.phtml>.

8 U.S. Department of Labor, Bureau of Labor Statistics. Producer Price Indexes.

Last accessed March 21, 2008. <www.bls.gov/ppi/home.htm>.

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