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............................................................................................ 5­6

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

5.4.3 “Max­Tech” Efficiency Levels.............................................................. 5­11

5.5 METHODOLOGY OVERVIEW .................................................................. 5­12

5.6 TEARDOWN ANALYSIS............................................................................ 5­14

5.6.1 Selection of Units................................................................................... 5­14

5.6.2 Baseline Units........................................................................................ 5­15

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

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

5.8 COST MODEL.............................................................................................. 5­28

5.8.1 Generation of Bills of Materials ............................................................ 5­28

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

5.8.3 Cost Model and Definitions................................................................... 5­29

5.8.4 Cost Model Assumptions Overview ...................................................... 5­30

5.8.5 Manufacturing Production Cost............................................................. 5­35

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

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

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

5.11 MPC BREAKDOWN.................................................................................... 5­45

5.12 MANUFACTURER MARKUP .................................................................... 5­46

5.12.1 Manufacturer Selling Price .................................................................... 5­47

5.12.2 Manufacturing Markup Calculation....................................................... 5­47

5.12.3 Manufacturer Financial Information Sources........................................ 5­47

5.13 ENGINEERING ANALYSIS SUMMARY OF RESULTS.......................... 5­51

5.14 SENSITIVITY ANALYSIS .......................................................................... 5­53

5.15 ENERGY EFFICIENCY EQUATIONS FOR GAS­FIRED AND ELECTRIC

STORAGE WATER HEATERS............................................................................... 5­55

5.15.1 DOE’s Review of the Current Water Heater Market............................. 5­57

5.15.2 Existing Federal Energy Conservation Standards and Revised EnergyEfficiency Equations Using the Current Energy­Efficiency Equation Slope .... 5­59

5.15.3 Alternative Approach for Developing Revised Energy­Efficiency

Equations for Gas­fired and Electric Storage Water Heaters ............................ 5­61

5.15.4 Validation of the Energy­Efficiency Equations for Gas­fired and Electric

Storage Water Heaters ....................................................................................... 5­65

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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 and Defined by British Thermal Units per Hour............... 5­5

Table 5.3.3 Representative Residential Pool Heater as Described by Input Capacity and

Defined by British Thermal Units per Hour .................................................................... 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 Baseline Unit Thermal Efficiency for Pool Heaters..................................... 5­7

Table 5.4.4 Intermediate Efficiency Levels for 40 Gallon Gas­fired Storage Water

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

Table 5.4.5 Intermediate Efficiency Levels for 30 Gallon Oil­fired Storage Water Heaters

.......................................................................................................................................... 5­8

Table 5.4.6 Intermediate Efficiency Levels for 50 Gallon Electric Storage Water Heaters

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

Table 5.4.7 Intermediate Efficiency Levels for Instantaneous Gas­fired Water Heaters 5­9

Table 5.4.8 Intermediate Efficiency Levels for Gas Wall Fan­type DHE, Over 42,000

Btu/h................................................................................................................................. 5­9

Table 5.4.9 Intermediate Efficiency Levels for Gas Wall Gravity­type DHE, Over 27,000

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

Table 5.4.10 Intermediate Efficiency Levels for Gas Floor­type DHE, Over 37,000 Btu/h

........................................................................................................................................ 5­10

Table 5.4.11 Intermediate Efficiency Levels for Gas Room­type DHE, Over 27,000

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

Table 5.4.12 Intermediate Efficiency Levels for Gas­fired Pool Heaters, 250,000 Btu/h....

........................................................................................................................................ 5­11

Table 5.4.13 “Max­Tech” Efficiency Levels for Water Heaters................................... 5­12

Table 5.4.14 “Max­Tech” Efficiency Levels for Direct Heating Equipment................ 5­12

Table 5.4.15 “Max­Tech” Efficiency Levels for Pool Heaters...................................... 5­12

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

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

Table 5.6.3 Market Baseline Units Characteristics for Pool Heaters ............................ 5­19

Table 5.7.1 Technologies Considered for the Engineering Analysis for Water Heaters5­21

Table 5.7.2 Technologies Considered for the Engineering Analysis for Direct Heating

Equipment...................................................................................................................... 5­21

Table 5.7.3 Technologies Considered for the Engineering Analysis for Pool Heaters . 5­21

Table 5.7.4 Gas­fired Storage Water Heater, 40 Gallon................................................ 5­22

Table 5.7.5 Oil­fired Storage Water Heater, 30 Gallon with Burner Assembly............ 5­23

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

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Table 5.7.7 Instantaneous Gas­fired Water Heater, 0 Gallon, 117 Btu/h Input Capacity ....

........................................................................................................................................ 5­24

Table 5.7.8 Gas Wall Fan­type DHE, Over 42,000 Btu/h ............................................. 5­24

Table 5.7.9 Gas Wall Gravity­type DHE, Over 27,000 Btu/h, up to 46,000 Btu/h....... 5­25

Table 5.7.10 Gas Floor­type DHE, Over 37,000 Btu/h ................................................. 5­26

Table 5.7.11 Gas Room­type DHE, Over 27,000 Btu/h, up to 46,000 Btu/h ................ 5­26

Table 5.7.12 Gas­fired Pool Heater, 250,000 Btu/h ...................................................... 5­27

Table 5.8.1 Cost Model In­House Manufacturing Operation Assumptions.................. 5­31

Table 5.8.2 Domestic Water Heater Factory Parameter Assumptions .......................... 5­33

Table 5.8.3 International Water Heater Factory Parameter Assumptions..................... 5­33

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

Table 5.8.5 Pool Heater Factory Parameter Assumptions............................................. 5­34

Table 5.8.6 Five­Year Metal Prices (2003 to 2007) ...................................................... 5­35

Table 5.8.7 Most Prevalent Resin Prices as of December 2007 .................................... 5­35

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

Table 5.11.1 Total Product MPC Breakdown for Water Heaters.................................. 5­46

Table 5.11.2 Total Product MPC Breakdown for Direct Heating Equipment............... 5­46

Table 5.11.3 Total Product MPC Breakdown for Pool Heaters .................................... 5­46

Table 5.12.1 Gross Profit Margin for Residential Heating Products Manufacturers*... 5­49

Table 5.12.2 Calculated Manufacturer Markups for Residential Heating Products...... 5­50

Table 5.13.1 MPC and MSP for Gas­fired Storage Water Heater, 40 Gallon Storage

Volume........................................................................................................................... 5­51

Table 5.13.2 MPC and MSP for Oil­fired Storage Water Heater, 32 Gallon Storage

Volume with Burner Assembly ..................................................................................... 5­51

Table 5.13.3 MPC and MSP for Electric Storage Water Heater, 50 gallon Storage

Volume........................................................................................................................... 5­51

Table 5.13.4 MPC and MSP for Instantaneous Gas­fired Water Heater, 0 Gallon Storage

Volume, 199 Btu/h Input Capacity ................................................................................ 5­52

Table 5.13.5 MPC and MSP for Gas Wall Fan­type DHE, Over 42,000 Btu/h Input

Capacity ......................................................................................................................... 5­52

Table 5.13.6 MPC and MSP for Gas Wall Gravity­type DHE, Over 27,000 Btu/h and up

to 46,000 Btu/h Input Capacity...................................................................................... 5­52

Table 5.13.7 MPC and MSP for Gas Floor­type DHE, Over 37,000 Btu/h Input Capacity

........................................................................................................................................ 5­52

Table 5.13.8 MPC and MSP for Gas Room­type DHE, Over 27,000 Btu/h and up to

46,000 Btu/h Input Capacity.......................................................................................... 5­53

Table 5.13.9 MPC and MSP for Gas­fired Pool Heater, 250,000 Btu/h Input Capacity and

Standing Pilot................................................................................................................. 5­53

Table 5.13.10 MPC and MSP for Gas­fired Pool Heater, 250,000 Btu/h Input Capacity

and Electronic Ignition................................................................................................... 5­53

Table 5.14.1 Annual Average 2007 Metal Prices.......................................................... 5­54

Table 5.14.2 Material Price Sensitivity Results............................................................. 5­54

Table 5.15.1 Existing Federal Energy Conservation Standards for Residential Gas­fired

and Electric Storage Water Heaters............................................................................... 5­56

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LIST OF FIGURES

Figure 5.5.1 Flow Diagram of Engineering Analysis Methodology ............................. 5­13

Figure 5.8.1 Full Production Costs................................................................................ 5­36

Figure 5.10.1 Manufacturer Production Cost (2007$) versus Energy Factor for Gas­fired

Storage Water Heaters ................................................................................................... 5­40

Figure 5.10.2 Manufacturer Production Cost (2007$) versus Energy Factor for Oil­fired

Storage Water Heaters ................................................................................................... 5­40

Figure 5.10.3 Manufacturer Production Cost (2007$) versus Energy Factor for Electric

Storage Water Heaters ................................................................................................... 5­41

Figure 5.10.4 Close­up of Resistance Heating Electric Storage Water Heaters............ 5­41

Figure 5.10.5 Manufacturer Production Cost (2007$) versus Energy Factor for

Instantaneous Gas­fired Water Heater, 0 Gallon, 199 Btu/h Input Capacity................. 5­42

Figure 5.10.6 Manufacturer Production Cost (2007$) versus AFUE for Gas Wall Fantype DHE, Over 42,000 Btu/h........................................................................................ 5­42

Figure 5.10.7 Manufacturer Production Cost (2007$) versus AFUE for Gas Wall Gravitytype DHE, Over 27,000 Btu/h, up to 46,000 Btu/h........................................................ 5­43

Figure 5.10.8 Manufacturer Production Cost (2007$) versus AFUE for Gas Floor­type

DHE, Over 37,000 Btu/h ............................................................................................... 5­43

Figure 5.10.9 Manufacturer Production Cost (2007$) versus AFUE for Gas Room­type

DHE, Over 27,000 Btu/h, up to 46,000 Btu/h ............................................................... 5­44

Figure 5.10.10 Manufacturer Production Cost (2007$) versus Thermal Efficiency for

Gas­fired Pool Heater, 250,000 Btu/h............................................................................ 5­45

Figure 5.15.1 Distribution of Gas­Fired Storage Water Heater Models by Rated Storage

Volume........................................................................................................................... 5­57

Figure 5.15.2 Distribution of Electric Storage Water Heater Models by Rated Storage

Volume........................................................................................................................... 5­58

Figure 5.15.3 Gas­fired Storage Water Heater Efficiency Levels Using the Slope of the

Federal Energy Conservation Standard ......................................................................... 5­60

Figure 5.15.4 Electric Storage Water Heater Efficiency Levels Using the Slope of the

Federal Energy Conservation Standard ......................................................................... 5­61

Figure 5.15.5 Energy­Efficiency Equations using a Modified Slope Based the AHRI

Consumers’ Directory for Gas­fired Storage Water Heaters......................................... 5­63

Figure 5.15.6 Energy­Efficiency Equations using a Modified Slope Based the AHRI

Consumers’ Directory for Electric Storage Water Heaters............................................ 5­64

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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 includes residential water

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

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

calculations in terms of individual customers, 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 during data

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

completed a separate engineering analysis for each of the product classes: 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 (MTA) (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 derived from

teardowns of products being analyzed. Deciding which methodology to use for the

engineering analysis depends on the product, the technologies under study, and any

historical data DOE can draw upon.

To establish the industry cost­efficiency curves for residential heating products,

DOE used both the efficiency level 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 using reverse engineering methodologies, 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

use to increase energy efficiency. DOE generated a bill of materials (BOM) by

disassembling 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

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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 customer prices for each of the products covered under

residential heating products by applying the appropriate distribution channel markups.

5.2 PRODUCT CLASSES

The Energy Policy and Conservation Act of 1975 (EPCA) establishes energy

conservation standards for residential heating products under 42 United States Code

(U.S.C.) 6295(e). EPCA prescribed the initial set of energy conservation standards for

residential water heaters in terms of the energy factor (EF). (42 U.S.C. 6295(e)(1)). The

initial energy conservation standards for residential direct heating equipment are

measured and expressed in terms of the annual fuel utilization efficiency (AFUE). (42

U.S.C. 6295(e)(3)) Finally, the initial energy conservation standards for residential pool

heaters are measured and expressed in terms of the thermal efficiency. (42 U.S.C.

6295(e)(2)) Table 5.2.1, Table 5.2.2, and Table 5.2.3 show the product classes for

residential water heaters, direct heating equipment, and pool heaters that are subject to

these standards. Additionally, Table 5.2.2 shows the potential revisions to the direct

heating equipment product class descriptions that DOE is considering to reflect the

inclusion of vented hearth products (see chapter 3, the MTA).

Table 5.2.1 Residential Water Heater Product Classes

Residential Water

Heater Type Characteristics

Gas­fired Storage­type Nominal input of 75,000 Btu/h or less; rated storage volume

from 20 to 100 gallons

Oil­fired Storage­type Nominal input of 105,000 Btu/h or less; rated storage volume

of 50 gallons or less

Electric Storage­type Nominal input of 12 kilowatts (40,956 Btu/h) or less; rated

storage volume from 20 to 120 gallons

Instantaneous Gas­fired Nominal input of over 50,000 Btu/h up to 200,000 Btu/h;

rated storage volume of 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 Type Up to 42,000

and

Gas, Recessed, Fan­Type Hearth Products Over 42,000

Up to 10,000

Over 10,000 up to 12,000

Gas Wall Gravity Type Over 12,000 up to 15,000

and Over 15,000 up to 19,000

Gas, Recessed, Gravity­Type Hearth Products Over 19,000 up to 27,000

Over 27,000 up to 46,000

Over 46,000

Gas Floor Up to 37,000

Over 37,000

Up to 18,000

Gas Room Over 18,000 up to 20,000

and Over 20,000, up to 27,000

Gas, Non­Recessed Hearth Products 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 separated residential water heaters, direct heating equipment and pool

heaters into product classes as shown in the tables above. Because DOE formulated a

separate energy conservation standard for each product class, the criteria for separation

into different product classes are: (1) energy source (natural gas or electricity), and (2)

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

consumer, or others 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))

For the engineering analysis, DOE reviewed all of the product classes of

residential water heaters (storage­type and instantaneous), direct heating equipment, and

pool heaters. Since the storage volume and input capacity effect the energy efficiency of

the products, DOE examined each product type separately. DOE chose those water

heaters, direct heating equipment, and pool heater products 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 that can then be

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applied to all of the products in a range of storage and input capacities, where

appropriate.

For residential, storage­type water heaters, the volume of the tank significantly

impacts 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, as the tank volume

increases, the tank surface area increases. Among other factors, the heater transfer rate is

a function of surface area. Therefore, for a given temperature difference between the

stored water and the ambient air, the rate of heat transfer to the ambient air increases as

the surface area increases. As a result, the standby losses can increase. This is reflected

by DOE’s existing Federal energy conservation standards; the energy factor is a function

of the storage volume of the tank for gas­fired, oil­fired, and electric storage water

heaters.

For analysis purposes, DOE examined specific storage volumes for gas­fired, oilfired, and electric storage water heaters (referred to as representative storage volumes)

since the energy efficiency equations for residential water heaters established by EPCA

are a function of the products’ storage volume. DOE reviewed the shipments data

provided by AHRI for today’s preliminary rulemaking, and found the storage volume

corresponding to the highest number of shipments for gas­fired water heaters, oil­fired

water heaters, and electric water heaters (see chapter 3 of the TSD for more details on the

shipments data). Consequently, DOE chose to examine these four product classes further.

Table 5.3.1 exhibits 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 Class Representative Storage Volume

Gas­fired Storage­type 40 Gallons

Oil­fired Storage­type 30 Gallons

Electric Storage­type 50 Gallons

Instantaneous Gas­fired 0 Gallons

(199 kBtu/h Input Capacity)

Once DOE conducted the primary analysis on the representative rated storage

volumes for each of the product classes, DOE extended the analysis to other rated storage

volumes. DOE conducted a similar review of shipment data for instantaneous gas­fired

water heaters and determined the input rating corresponding to the highest number of

shipments since storage volume does not vary for this product class. For analysis

purposes with regards to instantaneous gas­fired water heaters, analysis of the 199 kBtu/h

input capacity applies to all products within the product class.

Unlike water heaters, direct heating equipment (DHE) conservation standards are

not determined by an equation, rather, they are established by input capacity ranges. DOE

examined one specific input range for gas wall fan, gas wall gravity, gas floor, and gas

room, which are referred to as representative input rating ranges. DOE reviewed the DHE

(including vented hearth products) shipment data provided by AHRI for today’s

preliminary rulemaking and found the input rating range corresponding to the highest

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number of shipments for gas wall fan, gas wall gravity, gas floor, and gas room DHE.

Table 5.3.2 exhibits the representative rated input rating ranges for residential direct

heating equipment.

Table 5.3.2 Representative Residential Direct Heating Equipment Product Class as

Described by Input Capacity and Defined by British Thermal Units per Hour

Direct Heating Equipment Design

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 46,000

After analysis of the representative product class (i.e., input rating range), the

analysis can be applied to the remaining product classes for each residential direct

heating equipment types. Unlike the water heaters, an equation is not applied to relate the

range of input ratings. Instead, the AFUE difference between each input rating range as

established by EPCA will be maintained. That is, if the conservation standard is increased

by two AFUE percentage points for the representative product class, for example, the

conservation standards for the other product classes within this product type would all

raise by two AFUE percentage points. The stringency as a result of an amended standard

is 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 wide range of input ratings. Although within the same product

class, the variation in input rating is large enough to create variations in pool heater

design (e.g., large variations in input will vary material usage and MPC). Therefore, DOE

reviewed the shipment data provided by AHRI for today’s preliminary rulemaking, and

found the input rating corresponding to the highest number of shipments. Table 5.3.3

exhibits the representative input rating for residential gas­fired pool heaters.

Table 5.3.3 Representative Residential Pool Heater as Described by Input Capacity

and Defined by British Thermal Units per Hour

Pool Heater Type Representative Input Rating (Btu/h)

Residential Gas­fired 250,000

The engineering analysis results for the representative product classes are used in

the remaining DOE analyses, including the life­cycle cost analysis and the national

impact analysis. DOE used the analytical results for the representative product classes to

examine the current energy­efficiency levels as well as the impacts of amended

standards.

5.4 EFFICIENCY LEVELS

For the majority of the product classes presented in section 5.3, DOE analyzed

multiple efficiency levels and estimated the manufacturer production costs of these

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levels. The following subsections provide the full efficiency level range from the baseline

efficiency level to the maximum technology feasible efficiency level for each product

class. DOE notes that in some cases the highest efficiency level was identified through

review of available product literature for products commercially available.

5.4.1 Baseline Unit

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

which DOE measured changes resulting from potential amended energy conservation

standards. The baseline unit in each product class represents the basic characteristics of

equipment in that class. Typically, a baseline unit is a unit that just meets current Federal

energy conservation standards and provides basic consumer utility.

DOE used the baseline units in the engineering analysis and the life­cycle­cost

and payback­period analysis. To determine energy savings and changes in price, DOE

compared each higher­energy­efficiency levels with the baseline unit.

The identification of baseline units required establishing the baseline efficiency

level. Baseline units for this preliminary rulemaking are defined by the current Federal

minimum energy conservation standards and the representative characteristics for each

product.

The Federal minimum 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, the representative storage capacity was applied to the

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

Table 5.4.1 demonstrates 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

Product Class Representative

Storage Volume

Federal Minimum Energy

Conservation Standards (EF)

Gas­fired Storage Water

Heater 40 Gallons 0.59

Oil­fired Storage Water

Heater 30 Gallons 0.53

Electric Storage Water

Heater 50 Gallons 0.90

Instantaneous Gas­fired

Water Heater 0 Gallons 0.62

The Federal minimum energy conservation standards for residential direct heating

equipment, as measured by the AFUE, became effective on January 1, 1990 (10 CFR part

430.32(i), subpart C). For direct heating equipment, the AFUEs corresponding to the

representative input ratings in 10 CFR part 430.32(i) were assigned the baseline unit

AFUEs. Table 5.4.2 demonstrates the baseline unit’s AFUE for each product class of

residential direct heating equipment 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 Minimum Energy

Conservation Standards

(AFUE)

Gas Wall Fan­type Over 42,000 74

Gas Wall Gravitytype

Over 27,000 up to

46,000 64

Gas Floor­type Over 37,000 57

Gas Room­type Over 27,000 up to

46,000 64

The Federal minimum 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 thermal efficiency corresponding to the

conservation standard established in 10 CFR part 430.32(k) is the baseline unit thermal

efficiency. Table 5.4.3 demonstrates the baseline unit’s thermal efficiency for residential

gas­fired pool heaters.

Table 5.4.3 Baseline Unit Thermal Efficiency for Pool Heaters

Product Class Representative Input

Capacity (Btu/h)

Federal Minimum Energy

Conservation Standards

(Thermal Efficiency)

Gas­fired type 250,000 78%

For more information on the characteristics of each baseline unit, see section

5.6.2. The market baseline units identified in the engineering analysis represent the

energy efficiency and cost of the typical minimum technology products on the market.

DOE used these baseline efficiencies for the subsequent analyses (e.g., life­cycle cost

(LCC), payback period (PBP), national impact analysis (NIA), manufacturer impact

analysis (MIA), etc).

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. Particularly, for each

representative product, DOE surveyed all of the manufacturers’ product offerings to

identify the efficiency levels corresponding 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 for increasing energy efficiency that is

representative of the approach that manufacturers would typically take.

DOE established intermediate energy efficiency levels for each of the product

classes. The paths these levels make are representative of the technology paths that

manufacturers of residential heating products typically use in order to maintain costeffective designs while increasing energy efficiency. DOE reviewed AHRI’s product

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

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

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product class. Additionally, DOE associated each efficiency level selected with a

particular technology, or combination of technologies selected for the preliminary

analysis, thus making its engineering analysis more transparent to interested parties. DOE

selected the following efficiency levels to represent the range of available products along

with one associated design pathway. Table 5.4.4 through Table 5.4.12 show the product

classes and their respective intermediate energy efficiency levels.

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

the baseline and max­tech to analyze. The energy factors typically correspond to the EFs

most commonly shipped and having the most common energy­efficiency characteristics.

DOE considered these efficiency levels because the incremental gains in efficiency

correspond to common techniques and technologies manufacturers use to increase energy

efficiency. For example, the increases in EF of the first efficiency level for gas­fired,

storage water heaters correspond to an increase in the thickness of insulation. For gasfired water heaters, the lower efficiency levels utilize natural draft and manufacturers

achieve efficiency levels in the upper half of the range by utilizing electronic ignition and

power vents.

Table 5.4.4 Intermediate Efficiency Levels for 40 Gallon Gas­fired Storage Water

Heaters

Efficiency Level Energy Factor

Efficiency Level 1 0.62

Efficiency Level 2 0.63

Efficiency Level 3 0.64

Efficiency Level 4 0.65

Efficiency Level 5 0.66

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

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

commonly 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 also switch

from fiberglass to foam insulation and can include enhancements to the flue baffle.

Table 5.4.5 Intermediate Efficiency Levels for 30 Gallon Oil­fired Storage Water

Heaters

Efficiency Level Energy Factor

Efficiency Level 1 0.54

Efficiency Level 2 0.56

Efficiency Level 3 0.58

Efficiency Level 4 0.60

Efficiency Level 5 0.62

Efficiency Level 6 0.66

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

baseline and max­tech. For water heaters utilizing electric resistance heating,

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

corresponds to insulation thicknesses commonly used by manufacturers.

Table 5.4.6 Intermediate Efficiency Levels for 50 Gallon Electric Storage Water

Heaters

Efficiency Level Energy Factor

Efficiency Level 1 0.91

Efficiency Level 2 0.92

Efficiency Level 3 0.93

Efficiency Level 4 0.94

Efficiency Level 5 0.95

For instantaneous gas­fired water heaters, DOE selected six efficiency levels

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

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

the heat exchanger design and incorporating electronic ignition and power vents. DOE

found that power vents are typically found in units at Efficiency Level 3 and higher.

Table 5.4.7 Intermediate Efficiency Levels for Instantaneous Gas­fired Water

Heaters

Efficiency Level Energy Factor

Efficiency Level 1 0.69

Efficiency Level 2 0.78

Efficiency Level 3 0.80

Efficiency Level 4 0.82

Efficiency Level 5 0.84

Efficiency Level 6 0.85

DOE selected three efficiency levels between the baseline and max­tech levels for

gas wall fan­type DHE to analyze for the preliminary analysis. DOE found products

produced by manufacturers at every AFUE level between the baseline and max­tech.

Manufactures typically incorporate intermittent ignition, two speed blowers, and improve

the heater exchanger design in order to increase the energy efficiency. Manufacturers

incorporate all three of these technologies in order to obtain Efficiency Level 3.

Table 5.4.8 Intermediate Efficiency Levels for Gas Wall Fan­type DHE, Over 42,000

Btu/h

Efficiency Level AFUE

Efficiency Level 1 75

Efficiency Level 2 76

Efficiency Level 3 77

For gas wall gravity­type DHE, DOE selected four efficiency levels to analyze

between the baseline and max­tech. These efficiency levels correspond to gas wall

gravity­type DHE having the most shipments with in this product class. The two to three

point increase in AFUE between levels reflects an improvement by the manufacturer in

the heat exchanger design. Efficiency Level 4 is an exception. Instead, DOE found that

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the majority of products increase AFUE to obtain Efficiency Level 4 by including an

electronic ignition on top of modifications to the heat exchanger design.

Table 5.4.9 Intermediate Efficiency Levels for Gas Wall Gravity­type DHE, Over

27,000 Btu/h, up to 46,000 Btu/h

Efficiency Level AFUE

Efficiency Level 1 66

Efficiency Level 2 68

Efficiency Level 3 71

Efficiency Level 4 72

DOE selected four gas floor­type DHE intermediate efficiency levels to analyze

for the preliminary analysis. DOE found that the range of efficiencies offered by

manufacturers of gas floor­type DHE is similar to gas wall gravity­type DHE, with

regards to the incremental increases in AFUE. Again, DOE found that manufacturers

typically increase AFUE by improving the heat exchanger design. Additionally,

manufacturers also add electronic ignition (in addition to an improving the heat

exchanger) in order to obtain Efficiency Level 4.

Table 5.4.10 Intermediate Efficiency Levels for Gas Floor­type DHE, Over 37,000

Btu/h

Efficiency Level AFUE

Efficiency Level 1 58

Efficiency Level 2 61

Efficiency Level 3 62

Efficiency Level 4 65

DOE selected six intermediate efficiency levels between the baseline and maxtech to analyze for gas room­type DHE. DOE found that the most commonly shipped

products follow a similar increase in AFUE as gas wall gravity and floor­type DHE. For

the first four efficiency levels, manufacturers increase AFUE by one point by improving

the heat exchanger design. Additionally, DOE found that manufacturers also ship models

with electronic ignition and induced draft, and these correspond to Efficiency Levels 5

and 6.

Table 5.4.11 Intermediate Efficiency Levels for Gas Room­type DHE, Over 27,000

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

Efficiency Level AFUE

Efficiency Level 1 65

Efficiency Level 2 66

Efficiency Level 3 67

Efficiency Level 4 68

Efficiency Level 5 70

Efficiency Level 6 78

DOE selected seven pool heater intermediate efficiency levels to analyze for the

preliminary analysis. DOE also reviewed product literature and brochures and identified

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the technologies typically incorporated into these products. DOE found that

manufacturers typically achieve Efficiency Levels 1 and 2 by improving the heat

exchanger design, and reach Efficiency Level 3 by also adding better insulation to the

combustion chamber. For Efficiency Levels 4, 5, and 6, manufacturers add power vents,

and at Efficiency Level 7, manufacturers produce pool heaters with condensing

operations.

DOE also 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. DOE distinguished

between the two ignition systems because of the energy use difference between electronic

ignition and standing pilot systems. The DOE test procedure does not account for these

energy use differences in the thermal efficiency metric. Consequently, DOE developed

two baseline products and two efficiency pathways for Efficiency Levels 1 through 3.

Table 5.4.12 Intermediate Efficiency Levels for Gas­fired Pool Heaters, 250,000

Btu/h

Efficiency Level Thermal Efficiency (%)

Efficiency Level 1** 79

Efficiency Level 2** 81

Efficiency Level 3** 82

Efficiency Level 4* 83

Efficiency Level 5* 84

Efficiency Level 6* 86

Efficiency Level 7* 90

*Models having electronic ignition only

**Models having pilot or electronic ignition

5.4.3 “Max­Tech” Efficiency Levels

DOE has determined the maximum improvement in energy efficiency that is

technologically feasible (“max­tech”) for water heaters, direct heating equipment, and

pool heaters, as required by section 325(o) of EPCA. (42 U.S.C. 6295(o)). DOE

identified the “max­tech” levels as part of the engineering analysis. 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 are currently available. Table 5.4.13, Table

5.4.14, and Table 5.4.15 list the “max­tech” levels that DOE determined for this

preliminary rulemaking.

DOE determined the max­tech levels for residential water heaters. For gas­fired

storage water heaters, DOE found products capable of condensing operations. The most

efficient oil­fired storage water heater identified has an EF of 0.68 and includes electronic

ignition, foam insulation, and enhanced flue baffles. DOE found electric heat pump water

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heaters capable of obtaining EFs of 2.2. Finally, DOE identified instantaneous gas­fired

water heaters capable of condensing as the max­tech level.

Table 5.4.13 “Max­Tech” Efficiency Levels for Water Heaters

Product Class Storage Volume “Max­Tech”

Efficiency Level (EF)

Gas­fired Storage

Water Heater 40 Gallons 0.77

Oil­fired Storage

Water Heater 30 Gallons 0.68

Electric Storage

Water Heater 50 Gallons 2.2

Instantaneous Gasfired Water Heater 0 Gallons 0.92

DOE identified the max­tech levels for residential direct heating equipment by

surveying the current market. DOE identified that gas wall fan, wall gravity, and floortype DHE max­tech levels are all equipped with induced draft combustion systems.

Manufacturers have achieved higher AFUEs for gas room­type DHE. DOE identified

room­type products capable of condensing operations.

Table 5.4.14 “Max­Tech” Efficiency Levels for Direct Heating Equipment

Product Class Input Capacity

(Btu/h)

“Max­Tech”

Efficiency Level (AFUE)

Gas Wall Fan­type Over 42,000 80

Gas Wall Gravitytype

Over 27,000 up

to 46,000 75

Gas Floor­type Over 37,000 78

Gas Room­type Over 27,000 up

to 46,000 93

DOE also surveyed residential pool heater products and prototypes to determine

the maximum technology available. DOE identified pool heater products capable of

condensing operations and thermal efficiencies of 95 percent.

Table 5.4.15 “Max­Tech” Efficiency Levels for Pool Heaters

Product Class Input Capacity

(Btu/h)

“Max­Tech”

Efficiency Level (Thermal

Efficiency)

Gas­fired type 250,000 95

5.5 METHODOLOGY OVERVIEW

This section describes the analytical methodology used in the engineering

analysis. Figure 5.5.1 Flow Diagram of Engineering Analysis Methodology shows a flow

diagram of this methodology and the corresponding sections in this chapter. The results

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of the engineering analysis are cost­efficiency curves for each representative product

class.

Cost Model

(section 5.8)

Engineering

Manufacturer

Interviews

(section 5.9)

Physical

Teardown

Analysis

(section 5.6)

Virtual

Teardown

Analysis

(section 5.6)

Selling PriceEfficiency

Relationship

(Efficiency* vs

MSP)

(section 5.13)

Screening

Analysis

(chapter 4)

Material PriceSensitivity

Analysis

(section 5.14)

Manufacturer

Markup

Analysis

(section 5.12)

BOMs

(section 5.8.1)

Cost­Efficiency

Curves

(Efficiency* vs

MPC)

Efficiency Levels (section 5.10)

and Associated

Design

Pathway

(section 5.7)

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

efficiency.

Figure 5.5.1 Flow Diagram of Engineering Analysis Methodology

At the start of the process, DOE identified residential heating products available

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

the technologies and features that are typically incorporated into products at the baseline

level and various energy efficiency levels above the baseline. Next, DOE selected

products for the physical teardown analysis that corresponded to the representative rated

storage volumes and input capacities. DOE gathered the information from the physical

teardown analysis to create a bill of materials (BOMs) using reverse engineering methods

(see section 5.6). DOE then used the physical teardown analysis to identify the design

pathways manufacturers are typically using to increase the EF of residential water

heaters, the AFUE of residential direct heating equipment, or the thermal efficiency of

residential pool heaters. DOE calculated the MPC for products spanning the full range of

efficiencies from the baseline to the maximum technology available at various levels.

DOE also identified each technology or combination of technologies, in each product that

was responsible for improving the energy efficiency. The cost­effectiveness of each of

these technologies was determined by comparing the increase in MPC to the increase in

energy efficiency. Finally, DOE conducted a sensitivity analysis on material prices to

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examine the effect of 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 held

interviews with manufacturers to gain insight into each of the water heating, direct

heating, and pool heating industries and requested comments on the engineering approach

DOE used in the analysis (see section 5.9). DOE used the information gathered from

these interviews to refine efficiency levels and technology pathways as well as

assumptions in the cost model. Next, DOE converted the MPCs into MSPs (see section

5.12) using publicly available water heating, direct heating, and pool heating industry

financial data, in addition to manufacturers’ 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 individual 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 this

engineering analysis included over 40 physical and virtual teardowns of water heaters,

direct heating equipment, and pool heaters.

5.6.1 Selection of Units

During the process of selecting units for teardowns, DOE considered 3 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 the proceeding 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;

• Within each product class, if possible, the selected products should come from the

same manufacturer and be within the same product series;

• The selected products should primarily come from manufacturers with large

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

chosen irrespective of manufacturer; and

• 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.

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DOE surveyed the residential heating products industry and identified products

available to consumers and prototypes developed by manufacturers’ research efforts.

DOE then applied the aforementioned criteria for selecting baseline units, intermediate

efficiency levels, and max­tech units and selected products for the physical teardown that

met the product description, the energy efficiency level, and included the technologies

identified in the market surveys (see sections 5.3, 5.4, 5.7). In several cases, DOE found

instances where virtual teardowns could be used in the place of a physical teardown. For

example, where 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.) was calculated and 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 from publicly available manufacturer catalogs, such as dimensions,

weight, and design features. DOE obtained information and data not typically found in

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

assembly details, from the physical teardowns of a similar product or by estimations

based on industry knowledge. DOE collected additional component information during

the engineering manufacturer interviews.

DOE selected over 25 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 explicitly identify the model number or manufacturer of the units it tore

down 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 in order to obtain energy

efficiencies equal to the current Federal energy conservation standards. Typically, the

baseline units are representative of the minimum technology and lowest costing product

that a manufacturer can produce. DOE used the baseline units as a reference point to

compare the technology and cost of products with 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 as well as

from published information and data to determine which features manufacturers

incorporate into baseline units. DOE also identified the general characteristics common to

all, or a portion, of product types. For example, all storage tank designs include a dip

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

of the baseline units. For example, baseline gas­fired products (i.e., storage and

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instantaneous) 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 Units Characteristics for Water Heaters Product Class Gas­fired Storage Water Heater

Oil­fired Storage Water Heater

Electric Storage Water Heater

Instantaneous Gas­fired Water

Heater

Characteristics

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

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5.6.2.2 Direct Heating Equipment Baseline Unit Features

DOE gathered information from the physical and virtual teardowns as well as

from published information and data to determine which features manufacturers

incorporate into baseline units. Generally, baseline direct heating equipment units require

no electricity (except where a wall fan­type 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 fan­type unit, direct heating equipment 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 Units Characteristics for Direct Heating Equipment Product Class Gas Wall Fan­type

Gas Wall Gravity­type

Gas Floor­typeGas Room­type

Characteristics

Heat Exchanger (ACRS) X X X X

Room Circulation Blower X

Standing Pilot Ignition

System X X X X

Burner X X X X

Pilot Light Sensing Control

Valve X X X X

Combustion Chamber X X X X

Flue X X X X

Air Intake X X X X

Burner Control Thermostat X X X X

Floor Grate X

Outer Case X X X X

Packaging X X X X

5.6.2.3 Pool Heater Baseline Unit Features

DOE identified the characteristics of a baseline pool heater. 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

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ignitions and standing pilot systems exist, and the technology assessment determined that

the ignition type had no affect on the energy efficiency (see chapter 3, MTA).

DOE distinguished between the two ignition systems because of the energy use

difference between electronic ignition and standing pilot systems. The DOE test

procedure does not account for these differences in energy use in the thermal efficiency

metric. The thermal efficiency descriptor specified by EPCA and measured by DOE’s

test procedure does not take into account the energy efficiency benefits of ignition

sources that are alternatives to standing pilots (e.g., electronic ignition). The thermal

efficiency descriptor also does not account for additional energy consumption of a

continuous, standing pilot light when the burner is off because it is a steady­state test

procedure and thermal efficiency is determined when the burner is on. Therefore, two

baseline products were established to create two efficiency pathways so that the

differences in energy use associated with standing pilots and electronic ignition are

distinguished.

Table 5.6.3 shows the characteristics of baseline pool heater.

Table 5.6.3 Market Baseline Units Characteristics for Pool Heaters

Characteristics

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

Packaging

The residential heating products baseline units were a reference point for

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

design features incorporated into each baseline unit and the method of operation (i.e.,

standing pilot, natural draft) were compared to units with higher energy efficiencies to

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

LCC Analysis for installation and operating costs). 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 minimum (“baseline”) to the market maximum

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(“max­tech”). While DOE recognizes that manufacturers use many different technologies

and approaches to increase the energy efficiency of residential heating products, the

presented technologies and combination of technologies 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 incorporated into each energy efficiency level (i.e., EF,

AFUE, or thermal efficiency), and calculated the individual cost for each efficiency level.

DOE fed the designs for each efficiency levels and the BOMs into the cost model to

calculate all the MPCs, including the costs for the baseline unit and each incremental

efficiency level. DOE averaged the costs to normalize the data and prevent exposing

sensitive information about individual manufacturers’ products. Once the MPC of each

efficiency level was determined, DOE calculated the cost­efficiency curves (see section

5.10).

5.7.1 Screened­In Technologies

Several technologies for improving energy efficiency of residential water heaters,

direct heating equipment, and pool heaters were considered and analyzed (see chapter 3).

Additionally, several of these technologies met the criteria of the screening analysis (see

chapter 4) and were considered as viable technologies for improving energy efficiency.

However, DOE chose to further reduce the list of technologies developed from the

screening analysis. Information gathered from the teardown analysis, manufacturer

interviews, and information gathered from publicly available product literature was used

to determine which technologies manufacturers incorporate into products that are

currently available to consumers so that DOE could represent the current market. DOE

also determined which technologies manufacturers are most likely to include in future

products. Although several technologies are not included in the engineering analysis,

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

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

5.7.2, and Table 5.7.3 list the technologies that DOE did not screen out in the screening

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

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Table 5.7.1 Technologies Considered for the Engineering Analysis for Water

Heaters

Technology Product Class

Increased Jacket Insulation Gas, electric, oil storage

Foam Insulation Oil storage

Improve/Increased Heat Exchanger Surface Area Gas, electric, oil storage, instantaneous

Enhanced Flue Baffle Gas, oil storage

Direct­Vent (concentric venting) Instantaneous

Power Vent Gas, oil storage, instantaneous

Electronic (or interrupted) Ignition Gas, oil storage, instantaneous

Heat Pump Water Heater Electric storage

Condensing Gas, oil storage, instantaneous

Table 5.7.2 Technologies Considered for the Engineering Analysis for Direct

Heating Equipment

Technology

Increased Heat Exchanger Surface Area

Direct­Vent (concentric venting)

Electronic Ignition

Induced Draft

Two stage and Modulating Operation

Condensing

Table 5.7.3 Technologies Considered for the Engineering Analysis for Pool Heaters

Technology

Increased Heat Exchanger Surface Area

More Effective Insulation (Combustion Chamber)

Power Venting

Sealed Combustion

Condensing

The most prevalent and commonly used technologies to obtain the intermediate

and max­tech energy efficiency levels are described below.

5.7.1.1 Technologies for Gas­fired Storage Water Heaters

In order to increase the energy efficiency of gas­fired storage water heaters,

manufacturers first increase the thickness of 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 a power vent. Finally, max­tech gas­fired storage water

heaters include heat exchangers that condense the flue gases in order to extract the

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greatest amount of heat. Table 5.7.4 shows the technologies associated with each

efficiency level for the representative product.

Table 5.7.4 Gas­fired Storage Water Heater, 40 Gallon

Efficiency Level (EF) Technology

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

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

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

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

Insulation

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

Insulation

Efficiency Level 5 (EF = 0.66) Electronic Ignition, Power Vent, and 2”

Insulation

Efficiency Level 6 – Max­Tech (EF = 0.77) Condensing, Power Vent, 2” Insulation

5.7.1.2 Technologies for Oil­fired Storage Water Heaters

Energy efficiency improvements for oil­fired, storage water heaters are similar to

those made 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 insulation thickness and

switching from fiberglass to less conductive foam reduces the amount of heat loss

through the tank walls. Additionally, enhanced flue baffles 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.

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Table 5.7.5 Oil­fired Storage Water Heater, 30 Gallon with Burner Assembly

Efficiency Level (EF) Technology

Baseline (EF = 0.53) Electronic Ignition and 1” Fiberglass

Insulation

Efficiency Level 1 (EF = 0.54) Electronic Ignition and 1.5” Fiberglass

Insulation

Efficiency Level 2 (EF = 0.56) Electronic Ignition and 2” Fiberglass

Insulation

Efficiency Level 3 (EF = 0.58) Electronic Ignition and 2.5” Fiberglass

Insulation

Efficiency Level 4 (EF = 0.60) Electronic Ignition and 2” Foam Insulation

Efficiency Level 5 (EF = 0.62) Electronic Ignition, 2.5” Foam Insulation

Efficiency Level 6 (EF = 0.66) Electronic Ignition, 1” Fiberglass

Insulation, and Enhanced Flue Baffles

Efficiency Level 7 – Max­Tech (EF = 0.68) Electronic Ignition, 1” Foam Insulation, and

Enhanced Flue Baffles

5.7.1.3 Technologies for Electric Storage Water Heaters

The majority of electric storage water heaters typically heat water with resistive

heating elements. Typically, manufacturers increase the energy efficiency of electric,

storage water heaters by increasing the thickness of the insulation. In order to make

significant improvements in energy efficiency, manufacturers rely on heat pump

technology. Table 5.7.6 shows that heat pump water heaters supplemented by resistive

heaters can improve the energy efficiency up to 2.2 EF. Heat pump water heaters are the

maximum technology available for electric storage water heaters.

Table 5.7.6 Electric Storage Water Heater, 50 gallon

Efficiency Level (EF) Technology

Baseline (EF = 0.90) 1.5” Foam Insulation

Efficiency Level 1 (EF = 0.91) 2” Foam Insulation

Efficiency Level 2 (EF = 0.92) 2.25” Foam Insulation

Efficiency Level 3 (EF = 0.93) 2.5” Foam Insulation

Efficiency Level 4 (EF = 0.94) 3” Foam Insulation

Efficiency Level 5 (EF = 0.95) 4” Foam Insulation

Efficiency Level 6 – Max­Tech (EF = 2.2) Heat Pump Water Heater

5.7.1.4 Technologies for Instantaneous Gas­fired Water Heaters

Manufacturers of instantaneous gas­fired water heaters use technologies similar to

those used for gas­fired storage water heaters to increase energy efficiency. EF is

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

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

ignition, and by adding power vents. Additionally, energy efficiency is also improved by

incorporating a direct vent configuration. Finally, the maximum technology available for

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instantaneous water heaters is a condensing design. Table 5.7.7 shows the technologies

incorporated into instantaneous gas­fired water heaters.

Table 5.7.7 Instantaneous Gas­fired Water Heater, 0 Gallon, 117 Btu/h Input

Capacity

Efficiency Level (EF) Technology

Baseline (EF = 0.62) Standing Pilot

Efficiency Level 1 (EF = 0.69) Standing Pilot and Improved Heat

Exchanger Area

Efficiency Level 2 (EF = 0.78) Electronic Ignition And Improved Heat

Exchanger

Efficiency Level 3 (EF = 0.80) Electronic Ignition and Power Vent

Efficiency Level 4 (EF = 0.82) Electronic Ignition, Power Vent, Improved

Heat Exchanger Area

Efficiency Level 5 (EF = 0.84) Electronic Ignition, Power Vent, and

Improved Heat Exchanger Area

Efficiency Level 6 (EF = 0.85) Electronic Ignition, Power Vent, Direct

Vent, and Improved Heat Exchanger Area

Efficiency Level 7 – Max­Tech (EF = 0.92) Condensing

5.7.1.5 Technologies for Gas Wall Fan­type Direct Heating Equipment

DOE identified several ways manufacturers of wall fan­type 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. In addition, manufacturers improve the heat exchanger design to increase

the rate of heat transfer. Finally, manufacturers reach the maximum technology by

including an induced draft combustion system to increase the AFUE to 80. Table 5.7.8

shows the technologies manufacturers typically include in wall fan­type DHE.

Table 5.7.8 Gas Wall Fan­type DHE, Over 42,000 Btu/h

Efficiency Level (AFUE) Technology

Baseline

(AFUE = 74)

Standing Pilot

Efficiency Level 1

(AFUE = 75)

Intermittent Ignition and 2 Speed Blower

Efficiency Level 2

(AFUE = 76)

Intermittent Ignition and Improved Heat Exchanger

Efficiency Level 3

(AFUE = 77)

Intermittent Ignition, 2 Speed Blower, and Improved

Heat Exchanger

Efficiency Level 4 – Max­Tech

(AFUE = 80)

Induced Draft and Electronic Ignition

5.7.1.6 Technologies for Gas Wall Gravity­type Direct Heating Equipment

Technologies incorporated into wall gravity­type DHE at lower efficiency levels

typically exclude technologies involving electricity. The baseline units do not use

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electricity, so manufacturers avoid adding components that would require an electrical

connection in order to remain cost­effective. Instead, manufacturers make improvements

to 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 ultimately add an electrical connection for an electronic ignition.

Finally, manufacturers obtain the maximum efficiency with an induced draft system.

Table 5.7.9 shows the technologies incorporated into wall gravity­type DHE.

Table 5.7.9 Gas Wall Gravity­type DHE, Over 27,000 Btu/h, up to 46,000 Btu/h

Efficiency Level (AFUE) Technology

Baseline (AFUE = 64) Standing Pilot

Efficiency Level 1 (AFUE = 66) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 2 (AFUE = 68) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 3 (AFUE = 71) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 4 (AFUE = 72) Electronic Ignition

Efficiency Level 5 – Max­Tech (AFUE =

75)

Induced Draft

5.7.1.7 Technology for Gas Floor­type Direct Heating Equipment

Gas floor­type direct heating equipment products are typically made to operate

without the use of electricity. Therefore, manufacturers avoid technologies requiring

electrical connections. However, after a certain point, it becomes cost­effective to add

electrical components. Floor­type DHE technologies and the pathway is similar to that

used for wall gravity­type DHE. Table 5.7.10 shows the technologies manufacturers

typically use to improve AFUE.

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Table 5.7.10 Gas Floor­type DHE, Over 37,000 Btu/h

Efficiency Level (AFUE) Technology

Baseline (AFUE = 57) Standing Pilot

Efficiency Level 1 (AFUE = 58) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 2 (AFUE = 61) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 3 (AFUE = 62) Standing Pilot and Improved Heat

Exchanger

Efficiency Level 4 (AFUE = 65) Improved Heat Exchanger and Electronic

Ignition

Efficiency Level 5 – Max­Tech (AFUE =

78)

Induced Draft

5.7.1.8 Technology for Room­type Direct Heating Equipment

Technologies for room­type DHE are similar to the technologies incorporated into

wall gravity­type and floor­type DHE. Wall gravity­type, floor­type, and room­type

products have baseline units and operations similar to each other, and the major

differences are only in the outer casing and method of installation, therefore, their

technology pathways are similar. Table 5.7.11 shows the technologies of room­type

DHE. Room­type DHE is capable of a higher max­tech, however. DOE identified roomtype heaters capable of condensing operations.

Table 5.7.11 Gas Room­type DHE, Over 27,000 Btu/h, up to 46,000 Btu/h

Efficiency Level (AFUE) Technology

Baseline (AFUE = 64) Standing Pilot

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

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

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

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

Efficiency Level 5 (AFUE = 70) Electronic Ignition

Efficiency Level 6 (AFUE = 78) Induced Draft

Efficiency Level 7 – Max­Tech

(AFUE = 93)

Condensing

5.7.1.9 Technologies for Pool Heaters

Pool heater manufacturers incorporate many technologies in order to improve the

energy efficiency of pool heaters. Electronic ignition, as a technology option, is not

included (see chapter 3, MTA) because it does not improve the thermal efficiency, as

measured by DOE test procedures. However, DOE identified two separate baseline units:

one that uses a standing pilot and one that uses an electronic ignition. The energy

efficiency of a pool heater incorporating a standing pilot can be increased by improving

the heat exchanger design and by improving the insulation surrounding the combustion

chamber. Table 5.7.12 shows the range of efficiency levels covered by a pool heater

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having a standing pilot. The highest thermal efficiency achieved by this type of pool

heater is shown at Efficiency Level 3.

Pool heaters, including baseline units, are also manufactured with electronic

ignitions. This type of pool heater is capable of much higher energy efficiencies.

Manufacturers improve the energy efficiency of these types of pool heaters by improving

the heat exchanger design, adding more effective insulation around the combustion

chamber, adding power venting, and sealing the combustion chamber to protect from

high winds. The maximum technology is achieved by including technologies capable of

condensing operations.

Electronic ignitions are typically included in pool heaters at Efficiency Level 3

and below when local regulations prohibit the use of standing pilots. Additionally,

electronic ignitions are included in products above Efficiency Level 3 because an

electrical connection is present. Pool heaters at Efficiency Level 4 and above utilize

power vents that require an electrical source. Therefore, DOE conducted the engineering

analysis for residential pool heaters with two baseline models: one with a standing pilot

and one with an electronic ignition.

Table 5.7.12 Gas­fired Pool Heater, 250,000 Btu/h

Efficiency Level (Thermal Efficiency) Technology

Baseline (Thermal Efficiency = 78)*

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

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

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

Effective Insulation (Combustion

Chamber)

Efficiency Level 4 (Thermal Efficiency = 83) Power Venting

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

Exchanger Design

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

Exchanger Design

Efficiency Level 7 (Thermal Efficiency = 90) Sealed Combustion, Condensing

Efficiency Level 8 – Max­Tech

(Thermal Efficiency = 95)

Sealed Combustion, Condensing,

Improved Heat Exchanger Design

*Technologies incorporating either a standing pilot or electronic ignition. Efficiency Levels

above 3 include electronic ignition.

DOE identified the technologies that manufacturers typically incorporate into

residential heating products. DOE also identified what efficiency levels are associated

with each technology, or a combination of technologies. Next, the technologies, along

with the BOMs, were incorporated into the cost model to determine manufacturing costs

at various efficiency levels. This information allowed DOE to develop the relationship

between cost and efficiency for each efficiency level.

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5.8 COST MODEL

5.8.1 Generation of Bills of Materials

The end result of each teardown is a structured bill of materials (BOM). DOE

developed structured BOMs for each of the physical and virtual teardowns. Structured

BOMs describe 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), the process cycle times, and the labor associated with each manufacturing step.

The result is a thorough and explicit model of the production process, which includes

space, conveyor, and equipment requirements by planned production level.

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

either raw materials or purchased parts and assemblies. The classifications into 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

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

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

product categories.

For purchased parts, the purchase price 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 (see 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 the engineering manufacturer

interviews to gain feedback on the analysis, its methodology, and preliminary results.

5.8.2 Cost Structure of the Spreadsheet Models

The manufacturing cost assessment methodology used is 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 the creation of a complete and structured BOM from

the disassembly of the units selected for teardown. The units were dismantled, and each

part was characterized according to weight, manufacturing processes used, dimensions,

material, and quantity. The BOM incorporates all materials, components, and fasters with

estimates of raw material costs 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. Interview and plant visits were

conducted with manufacturers to add industry experience on the methodology and

pricing.

The last step was to convert this information into dollar values. To perform this

task, DOE collected information on labor rates, tooling costs, raw material prices, and

other factors. DOE assumed values for these parameters using internal expertise and

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confidential information available to DOE contractors. Although most of the assumptions

are manufacturer specific and cannot be revealed, section 5.8.4.3 provides a discussion of

the values used for each assumption.

In summary, 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 showed key estimates from the cost

model and asked for feedback. DOE considered any information manufacturers gave that

was relevant to the cost model 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 an appropriate

manufacturing cost model that could translate physical information into MPCs. The cost

model is based on production activities and divides factory costs into the following

categories:

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

raw materials (i.e., cold rolled steel, copper tube, etc.), and indirect materials that

are 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 inhouse 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.

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• 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: Annual 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. Some

assumptions were different for specific manufacturers, depending on their 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 regarding the

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

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.

The labor costs were determined by the type of product (water heater, direct

heating equipment, and pool heater) manufactured at the factory. Overhead costs

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

equipment, tooling maintenance, insurance, property, and taxes.

DOE presented an initial draft of the cost­efficiency curves to manufacturers

during the interviews. Using the information gathered from the interviews, DOE made

significant updates to the cost model to address manufacturer comments. These changes

involved updating component and material pricing, and production volumes. DOE

utilized a continuous refinement process to update information. Changes to the cost

model were made immediately after interviews so that 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 specific 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.

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5.8.4.1 Fabrication Estimates

DOE characterized parts based on whether manufacturers purchased them from

outside suppliers or fabricated them in­house. 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 manufacturing facilities site visits. The major

manufacturer processes identified and developed for the spreadsheet model are listed in

Table 5.8.1.

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. Water

heater, direct heating equipment, and pool heater products have different manufacturing

processes. These differences are reflected in the purchased components. For some of the

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

from discussions with component suppliers on a volume­weighted basis.

5.8.4.2 Production Volumes Assumptions

A manufacturer’s production volumes vary depending on several factors,

including market share, the type of product produced (i.e., water heater versus pool

heater), and if the manufacturer produces other similar products (e.g., commercial

equipment, boilers, furnaces, storage tanks, etc.). DOE based production volume

assumptions for these residential heating products on industry knowledge and

engineering manufacturer interviews.

According to manufacturers of water heaters, virtually all new residential

constructions use water heaters to heat potable water. As reported in the MTA,

approximately 1.75 million single­family and multi­family home constructions started in

2006, which contributed to water heater shipments. Additionally, the replacement market

was responsible for a majority of the shipments, which brought the total to approximately

9.45 million shipments in 2006.2 As reported in the MTA, four 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

four companies to service this large demand. Based on the information provided by

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manufacturers and shipment information provided by AHRI, DOE estimated that a

factory manufacturing gas­fired and electric storage water heaters produces an average of

1.5 million units per year3. 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 estimated by DOE reflect this. Fewer units are purchased per year so factories

do not have large volumes or high rates of output, when 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. The main reason for the low production

volume is that the majority of homes in the U.S. use ducted heating systems rather than

direct heating methods to heat homes. Additionally, some direct heating equipment is

sold primarily in the replacement market, floor heaters for example. In consideration of

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 and are dependent upon 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 provided by manufacturers and shipment information provided by

AHRI, DOE estimated that a manufacturer of pool heaters produces an average of 40,000

units per year.

5.8.4.3 Factory Parameters Assumptions

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

have different factory parameters to meet the production volumes described previously.

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

preliminary factory parameters before the manufacturer interviews. DOE then revised the

assumptions using 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 of the U.S. It was

important to consider this type of factory for water heaters because a portion of units,

particularly instantaneous gas­fired water heaters, purchased by U.S. consumers are

manufactured outside of the U.S where factory parameters are different, as the table

shows. It should be noted, however, manufacturers who utilize facilities outside of the

U.S. typically still have operations of some level (i.e., some manufacturing, distribution,

research and development, customer service) occurring within the U.S. DOE accounted

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for the impact on MPCs in the cost model when both domestic and international

operations are present.

Table 5.8.2 Domestic Water Heater Factory Parameter Assumptions

Parameter

Estimate

Gas­fired and

Electric

Manufacturing

Facility

Oil­fired

Manufacturing

Facility

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

Actual Annual Production Volume (units/year) 1,250,000 15,000

Fabrication Labor Wages ($/hr) 16.00 16.00

Fringe Benefits Ratio 60% 60%

For those water heaters manufactured outside of the U.S., DOE accounted for the

different characteristics found in these manufacturing facilities. International

manufacturing differs from domestic manufacturing by capacity, as Table 5.8.3 shows.

Facilities overseas typically have larger capacities and are able to have higher product

output. This is accomplished with lower assembly and manufacturing costs because

worker wages and benefits are typically lower than those found in the U.S.

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 characteristic, as shown in Table 5.8.4.

Consumer demand for direct heating equipment typically fluctuates over the year, and the

majority of shipments occur during the heating season. During the warmer months, plant

operations are sometimes suspended entirely and wage workers can take leave for up to

two months. In addition, some products are only sold as replacement units, and this

reduces the production volumes even more, as markets for a particular product do not

grow. Floor furnaces are an example.

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 share

similar characteristics with direct heating equipment. Production levels are subject to

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

seasons and when pools are used. In addition, pool heater manufacturers serve a specific

market and their products are considered a luxury item (i.e., unlike water heaters which

are considered a household necessity), therefore shipment levels are lower and sometimes

dependent 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 difference between the assumptions for all of the residential heating

products is 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, instantaneous gas­fired

water heaters, make their products in foreign factories where labor rates are less than

domestic rates. Foreign labor rates are based on engineering 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 HVAC manufacturing industry from the U.S. Bureau of

Labor.4

5.8.4.4 Material Prices Assumptions

DOE determined the cost of raw materials using publicly available information

such as the American Metals Market,5 interviews with manufacturers, and direct

discussions with material suppliers. Common 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 fluctuations, DOE used a 5­year average of metal prices from the Bureau of

Labor Statistics Producer Price Indices (PPIs) spanning 2003 to 2007 with an adjustment

to 2007$.6 DOE used the PPIs for copper rolling, drawing, and extruding and steel mill

products, and made the adjustments to 2007$ using the gross domestic product implicit

price deflator.7 Table 5.8.6 shows the 5­year average metal prices DOE used for the

analysis.

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Table 5.8.6 Five­Year Metal Prices (2003 to 2007)

Metals Cost ($/lb)

(2007$)

Plain Cold Rolled Steel $0.36

Painted CRS $0.57

Galvanized CRS $0.43

Aluminized CRS $0.53

Textured CRS $0.63

CRS Tube $0.74

Stainless Steel $2.39

Fin Aluminum $1.57

Plain Copper $1.52

Copper Tube – Plain $1.90

Brass $2.00

Between 2003 and 2006, the price of steel rose over 60 percent and the price of

copper rose over 140 percent. DOE used a 5­year average in material prices from 2003 to

2007 to normalize these drastic increases to some extent to better represent long­term

material price averages.

For resins used in the fabrication of these residential heating products, DOE used

current resin prices gathered from industry research, publicly available publications such

as Plastics News,8 and interviews with manufacturers. Resin prices are determined by

quantity and supplier (i.e., contract specific) and therefore have no true fixed market

price. For this analysis, DOE used market resin prices current as of December 2007. The

prices of resins have been constantly increasing and closely follow petroleum prices.

Table 5.8.7 shows the current resin prices used in the analysis.

Table 5.8.7 Most Prevalent Resin Prices as of December 2007

Resins Cost ($/lb) (2007$)

Polystyrene (PS) $0.63

Polypropylene (PP) $0.55

Low Density Polyethylene $0.72

Polyurethane Foam (non­HCFC blowing agent) $1.50

PVC (Hard) $0.51

5.8.5 Manufacturing Production Cost

Once the cost estimate for each teardown unit was finalized, a detailed summary

was prepared for relevant components, subassemblies, and processes. The BOM thus

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 manufacturing

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production cost (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

by conducting engineering interviews with residential heating products manufacturers.

DOE presented the data and estimates to manufacturers who provided feedback and

validation. DOE used a continuous refinement process by incorporating each

manufacturer’s feedback before each set of interviews. 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 are cost­estimated individually. Thus, various

implementations of technologies can be accommodated, ranging from assemblies that are

entirely purchased to units that are entirely from raw materials. Hybrid assemblies,

consisting of purchased parts and parts made on site are thus also accommodated.

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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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

preliminary cost­efficiency curves with various manufacturers of water heaters, direct

heating equipment, and pool heaters. DOE considered all the information manufacturers

provided when refining the cost model. 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 engineering package that

included possible questions to be asked during the interview and a spreadsheet with

preliminary assumptions, estimates, and results (cost­efficiency curves). DOE asked

manufacturers to provide feedback regarding the representation of the market and to

supply any data that could improve DOE’s estimates and assumptions. DOE’s questions

included the following:

• Which design features affecting energy use are generally incorporated into

“baseline” products?

• What are the costs of attaining the individual efficiency levels selected? How do

these efficiency levels correspond to the various technologies listed? What other

technologies are used, and what are the corresponding efficiency levels?

• Are the industry manufacturing costs we have calculated representative of your

firm’s costs for new construction as well as replacement units?

DOE also asked manufacturers to supply any engineering insight into how

manufacturers select technologies to manufacture, how costs associated for efficiency

levels are determined, the general manufacturing strategies used to modify manufacturing

processes, and several other questions in order to gain insight and feedback.

5.9.1 Key Issues Discussed

DOE conducted multiple interviews with manufacturers. During these interviews,

DOE engaged the manufacturers in open discussions, so that all issues regarding the

heating products rulemaking would be discussed. In addition to providing comment and

feedback regarding the specific questions asked by DOE about the engineering analysis

and MPCs, manufacturers also supplied comments on a range of other issues affecting the

engineering analysis. DOE compiled all of the issues discussed by manufacturers and

presents those considered paramount by manufacturers, collectively. Analysis of these

key issues allowed DOE to refine the engineering analysis and the preliminary

manufacturer impact analysis (MIA) (chapter 12). Manufacturers presented the following

key issues.

1. Recent material price increases and the affects on MPC

2. Cost increases caused by flammable vapor ignition resistant (FVIR) requirements

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
5.9.1.1 Recent Material Price Increases and the Affect on MPC

During interviews, manufacturers commented on the prices DOE used for metal

materials used in heating products, which are a five year average from 2003 to 2007.

DOE’s prices are lower than the current prices because the averages do not reflect the

recent spikes in material prices. Manufacturers commented that within that five year time

frame, and in even smaller periods, metal prices have significantly increased which has

affected product prices. 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 five year span, and the price of cold rolled

steel sheets and strips has increased approximately 63 percent in the five year span.

Additionally, from 2005 to 2007, the price of copper pipe and tube has increased

approximately 72 percent.9

The material price increases are reflected in 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. Technologies involving purchased motors may also

be influenced because of the significant amount of copper used to construct windings.

Water heater prices may also be affected by prices of cold rolled steel (CRS). Typically,

efficiency improvements increase the amount of CRS in the form of increased flue or

heat exchanger size and material additions to the flue baffle.

Typically, manufacture feedback included MPCs based on current prices, which

include the high material prices.

5.9.1.2 Cost Increases Caused by Flammable Vapor Ignition Resistant (FVIR)

requirements

Manufacturers commented on the impacts of the FVIR requirements on

manufacturing costs. In 2003, manufacturers were required to include FVIR systems in

all 30, 40, and 50 gallon residential water heaters, and as of 2007 all residential water

heaters are required to be FVIR compliant. Manufacturers commented that research and

development, changes to manufacturing processes, and new equipment were needed to

meet this new requirement. Manufacturers indicated that FVIR systems increased the

MPCs above the level initially estimated by DOE.

5.9.1.3 Other Key Issues

Manufacturers also provided the following feedback regarding other key issues

that do not directly affect the engineering analysis, but still considered by DOE for this

preliminary rulemaking. Chapter 12 presents these key issues in detail:

1. State and local emission standards;

2. 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;

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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 impact on consumers; and

8. Potential decrease in pool heater shipments as a result of amended standards

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 the

max­tech level (described by EF, AFUE, or thermal efficiency) that represent the

residential heating products market. Additionally, DOE identified the MPCs for each of

these intermediate efficiency levels.

The result of the engineering analysis is a set of cost­efficiency curves. DOE

created ten curves representing each product class examined under this preliminary

rulemaking. 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 5.10.10 show the ten 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 Class Curve Shown in:

Gas­fired Storage Water Heater Figure 5.10.1

Oil­fired Storage Water Heater Figure 5.10.2

Electric Storage Water Heater Figure 5.10.3

Electric Storage Water Heater Close­Up Figure 5.10.4

Instantaneous Gas­fired Water Heater Figure 5.10.5

Gas Wall Fan­type DHE Figure 5.10.6

Gas Wall Gravity­type DHE Figure 5.10.7

Gas Floor­type DHE Figure 5.10.8

Gas Room­type DHE Figure 5.10.9

Gas­fired Pool Heater Figure 5.10.10

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
$500

$450

$400

$350

$300

32 gallons

50 gallons

MPC ($)

$250 40 gallons

30 gallons $200

50 gallons

$150 75 gallons

$100

0.50 0.55 0.60 0.65 0.70 0.75 0.80

Energy Factor (EF)

Figure 5.10.1 Manufacturer Production Cost (2007$) versus Energy Factor for Gasfired Storage Water Heaters

$590

MPC ($)

$580

$570

$560

$550

$540

$530

$520

$510

$500

0.45 0.50 0.55 0.60 0.65 0.70

Energy Factor (EF)

Figure 5.10.2 Manufacturer Production Cost (2007$) versus Energy Factor for Oilfired Storage Water Heaters

5­40

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
$0

$100

$200

$300

$400

$500

$600

MPC ($)

50 gallons

30 gallons

40 gallons

66 gallons

75 gallons

See Close­up in

following Figure

0.75 0.95 1.15 1.35 1.55 1.75 1.95 2.15 2.35

Energy Factor (EF)

Figure 5.10.3 Manufacturer Production Cost (2007$) versus Energy Factor for

Electric Storage Water Heaters

$100

$110

$120

$130

$140

$150

$160

$170

$180

$190

$200

MPC ($)

50 gallons

30 gallons

40 gallons

66 gallons

75 gallons

0.85 0.87 0.89 0.91 0.93 0.95 0.97 0.99

Energy Factor (EF)

Figure 5.10.4 Close­up of Resistance Heating Electric Storage Water Heaters

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
MPC ($)

$700

$600

$500

$400

$300

$200

0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95

Energy Factor (EF)

Figure 5.10.5 Manufacturer Production Cost (2007$) versus Energy Factor for

Instantaneous Gas­fired Water Heater, 0 Gallon, 199 Btu/h Input Capacity

$480

$460

$440

$420

73 74 75 76 77 78 79 80 81

Annual Fuel Utilization Efficiency (AFUE)

MPC ($)

$400

$380

$360

$340

$320

$300

Figure 5.10.6 Manufacturer Production Cost (2007$) versus AFUE for Gas Wall

Fan­type DHE, Over 42,000 Btu/h

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
$150

$170

$190

$210

$230

$250

$270

$290

$310

$330

$350

MPC ($)

62 64 66 68 70 72 74 76

Annual Fuel Utilization Efficiency (AFUE)

Figure 5.10.7 Manufacturer Production Cost (2007$) versus AFUE for Gas Wall

Gravity­type DHE, Over 27,000 Btu/h, up to 46,000 Btu/h

$480

$460

$440

$420

55 60 65 70 75 80

Annual Fuel Utilization Efficiency (AFUE)

MPC ($)

$400

$380

$360

$340

$320

$300

Figure 5.10.8 Manufacturer Production Cost (2007$) versus AFUE for Gas Floortype DHE, Over 37,000 Btu/h

5­43

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
MPC ($)

$600

$550

$500

$450

$400

$350

$300

$250

$200

60 65 70 75 80 85 90 95

Annual Fuel Utilization Efficiency (AFUE)

Figure 5.10.9 Manufacturer Production Cost (2007$) versus AFUE for Gas Roomtype DHE, Over 27,000 Btu/h, up to 46,000 Btu/h

Two baselines were identified for residential pool heaters. The first includes pool

heaters incorporating a standing pilot ignition system in their design, and the second

includes pool heaters incorporating an electronic ignition in their designs. Electronic

ignition was screened out and was not considered as a technology option because it does

not improved thermal efficiency, as defined by DOE test procedures (see chapter 3,

MTA). However, the total energy use of both ignition types is different and will be used

in the consumer economic models (i.e., the LCC and the PBP analysis).

5­44

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
$400

$500

$600

$700

$800

$900

$1,000

MPC ($)

Electronic Ignition

Standing Pilot

75 80 85 90 95 100

Thermal Efficiency (%)

Figure 5.10.10 Manufacturer Production Cost (2007$) 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 for manufacturers.

Large jumps are evident when efficiencies approach levels where electronic ignition,

blower motors, power vent, and condensing operation are included in 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 with all product types. Products such as

direct heating equipment and high efficiency pool heaters see larger increases in MPC

due to lower production volumes as compared to water heaters.

5.11 MPC BREAKDOWN

After DOE incorporated all of the assumptions into the cost model, the different

production costs percentages were calculated. The product cost percentages are used as

validation of the assumptions by comparing them to manufacturers’ actual financial data

that are published in annual reports, along with feedback from manufacturers during

interviews. DOE also used these figures in the MIA (see chapter 12). DOE calculated the

average product costs percentages by product type (i.e., water heater, direct heating

equipment, pool heater) as well as by product class (i.e., gas­fired storage water heater,

electric storage water heater, etc.) due to the large variations in production volumes,

fabrication and assembly costs, and other assumptions that affect the calculation of the

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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)

Gas­fired,

Storage

Water Heater

Oil­fired,

Storage

Water Heater

Electric,

Storage

Water Heater

Gas­fired,

Instantaneous

Water Heater

Materials 80.4% 65.8% 76.9% 67.8%

Labor 10.9% 6.3% 13.3% 20.6%

Depreciation 2.6% 13.6% 2.8% 3.0%

Overhead 6.1% 14.3% 7.1% 8.6%

Table 5.11.2 Total Product MPC Breakdown for Direct Heating Equipment

Percentage Cost Breakdown by Direct Heating Equipment Type

(Baseline)

Gas Wall

Fan­type

Gas Wall

Gravity­type

Gas

Floor­type

Gas

Room­type

Materials 57% 48.8% 48% 55%

Labor 15.5% 12.8% 23.8% 15%

Depreciation 16.4% 24.4% 16.9% 16.7%

Overhead 11.1% 14% 11.2% 13%

Table 5.11.3 Total Product MPC Breakdown for Pool Heaters

Percentage Cost Breakdown

(Baseline)

Pool Heater

Materials 60.5%

Labor 15.8%

Depreciation 12.2%

Overhead 11.5%

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 “passed­through” from manufacturers to retailers

and eventually to customers in the form of higher purchase prices. As production costs

increase, manufacturers also typically incur additional overhead at both the factory and

corporate levels. The MSP must cover both of these additional contributions to overhead

if a company is to maintain its profitability. As discussed previously, overhead costs

within 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 comprise the full production cost. DOE applies another multiplier to the full

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
production cost to account for corporate non­production costs and profit. This latter

multiplier, the non­production cost markup, is the focus of this section.

In this section, DOE presents its methodology for converting the MPCs to

manufacturer selling prices (MSPs), referred to as the non­production cost markup

(“manufacturer markup”). The manufacturer markup is an integral part of the overall

markup. The overall markup also includes the markups in the distribution chain (e.g.,

wholesalers, distributors, retailers, contractors, etc.). The distribution chain markups

convert MSP to customer price. The customer prices and installation costs are key inputs

to the LCC analysis, PBP analysis, and the NIA. Through the use of the manufacturer and

distribution chain markups (and installation costs), DOE can calculate the first costs that

customers would face under the various efficiency levels evaluated. 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 (see chapter 8), and NIA analysis (see

chapter 10).

The manufacturer markup also has an important bearing on the manufacturers’

profitability. A high markup under a standards scenario suggests manufacturers can passthrough the increased variable costs and some of the capital and product conversion costs

(the one­time expenditures). A low markup implies that manufacturers will not be able to

recover as much of the necessary investment in plant and equipment.

5.12.1 Manufacturer 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 water heaters, direct

heating equipment, and pool heaters by multiplying the MPCs by the calculated

manufacturer markup, which is explained below.

5.12.2 Manufacturing Markup Calculation

A manufacturer markup is applied to the MPC of the product to arrive at 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 yield a satisfactory profit.

5.12.3 Manufacturer Financial Information Sources

Publicly owned companies are required by law to disclose financial information

on a regular basis by filing different forms with the U.S. Securities and Exchange

Commission (SEC). The SEC form 10­K, filed by companies on an annual basis,

provides a comprehensive overview of the company’s business and financial conditions.

Relevant information in the 10­K reports includes the company’s revenues and direct and

indirect costs. For the manufacturer markups, DOE used 10­K reports from publicly

owned residential heating products companies. The financial figures necessary for

b Non­production costs include selling, general, and administration (SG&A) costs, the cost of research and

development, and interest.

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
calculating the manufacturer markup are net sales, costs of sales, and gross profit. The

income statement section of the 10­K reports often lists these figures.

DOE calculated the baseline manufacturer markups by using financial figures

from manufacturers’ SEC 10­K reports, such as the net sales (revenues) and cost of sales

to calculate gross profit and gross profit margins. DOE used averages of the financial

figures spanning 2000 to 2006 and then calculated the markups.

DOE used the following equations to calculate the gross profit and gross profit

margins:

Gross Profit = Net Sales – Cost of Sales Eq. 1

Gross Profit

Gross Profit Margin = Net Sales Eq. 2

Table 5.12.1contains the calculated gross profit margins for a sample of

manufacturers.

5­48

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 5.12.1 Gross Profit Margin for Residential Heating Products Manufacturers*

Manufacturer Financial Figure Year

2006 2005 2004 2003 2002 2001 2000

Net Sales $ 2,161,300 1,698,200 1,653,100 1,530,700 1,469,100 1,151,200 1,247,900

Cost of Sales $ 1,697,400 1,337,200 1,355,100 1,232,000 1,169,300 948,800 999,800

A Gross Profit $ 463,900 352,000 298,000 298,700 299,800 202,400 248,100

Gross Profit Margin 21.5% 20.8% 18.0% 19.5% 20.4% 17.6% 19.9%

Average Gross Profit Margin 19.8%

Net Sales $ 158,767 138,999 126,940 120,165 128,301 130,211 116,002

Cost of Sales $ 130,410 114,065 103,320 93,713 100,477 98,712 87,235

B Gross Profit $ 28,357 24,934 23,620 26,452 27,824 31,499 28,767

Gross Profit Margin 17.9% 17.9% 18.6% 22.0% 21.7% 24.2% 24.8%

Average Gross Profit Margin 20.8%

Net Sales $ 3,671,100 3,366,200 2,982,700 2,789,900 2,727,400 3,119,691 3,247,357

Cost of Sales $ 2,515,900 2,258,200 1,985,200 1,846,600 1,861,300 2,190,041 2,228,046

C Gross Profit $ 1,155,200 1,108,000 997,500 943,300 866,100 929,650 1,019,311

Gross Profit Margin 31.5% 32.9% 33.4% 33.8% 31.8% 29.8% 31.4%

Average Gross Profit Margin 32.0%

Net Sales $ 210,603 182,808 180,203 157,966 162,128 170,950

Cost of Sales $ 154,110 137,277 137,008 116,185 116,462 123,405

D** Gross Profit $ 56,493 45,531 43,195 41,781 45,666 47,545

Gross Profit Margin 26.8% 24.9% 24.0% 26.4% 28.2% 27.8%

Average Gross Profit Margin 26.3%

Net Sales $ 2,155,225 2,131,505 1,563,394 1,060,303 932,420 882,615 898,247

Cost of Sales $ 1,536,675 1,517,631 1,114,699 771,900 693,720 653,135 642,246

E Gross Profit $

Gross Profit Margin

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, 2002, 2003, 2004, 2005, and 2006 SEC 10­K reports.

** Data is not available for missing years

To calculate the time­average gross profit margin for each firm, 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. 3

Table 5.12.2 shows the manufacturer markups using this method.

5­49

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 5.12.2 Calculated Manufacturer Markups for Residential Heating Products

Manufacturer Manufacturer Markup

Manufacturer A 1.25

Manufacturer B 1.26

Manufacturer C 1.47

Manufacturer D 1.36

Manufacturer E 1.39

Average 1.35

DOE calculated the average manufacturer market to be 1.35. 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

interview process. DOE acknowledged that there are numerous manufacturers of

residential heating products that are privately held companies, companies owned through

employee stock ownership plans, and companies owned through private stock plans.

Consequently, these companies do not file SEC 10­K reports. In addition, while the

public owned companies file SEC 10­K reports, the financial information summarized is

not exclusive for the heating products portion of their business. It can include financial

information from other product sectors, whose margins could be quite different from the

residential heating products industries.

Therefore, DOE considered the feedback from manufacturers in order to

supplement the information presented above, and refined the markup to better reflect the

residential heating products market. DOE determined the manufacturer markup for the

residential storage water heating, direct heating equipment, and pool heating industries to

be approximately 1.38 on an aggregate basis. DOE calculated this aggregate markup by

weighting the feedback received from manufacturers on a market share basis. For the

instantaneous market, DOE determined the manufacturers of these products usually

operate under higher margins because the product is less of a commodity. To reflect the

differences experienced by manufacturers in the instantaneous water heating market,

DOE used 1.45 to represent the manufacturer markup. Instantaneous water heaters are

considered a premium product, not a commodity product, in a niche market where

consumers make purchases based, typically, on preference rather than first costs.

These multipliers are used in the engineering analysis to determine the MSPs for

each of the representative product classes. 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 high efficiency products, which

currently are considered premium products, the baselines and commodities.

5­50

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
5.13 ENGINEERING ANALYSIS SUMMARY OF RESULTS

Throughout the rulemaking process, 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, direct heating equipment, and pool heaters at the baseline

and more efficient levels, and listed each, in addition to the MPCs, on Table 5.13.1

through Table 5.13.10.

Table 5.13.1 MPC and MSP for Gas­fired Storage Water Heater, 40 Gallon Storage

Volume

Efficiency Level (EF) MPC

(2007$)

MSP

(2007$)

Baseline (EF = 0.59) $160 $221

Efficiency Level 1 (EF = 0.62) $167 $230

Efficiency Level 2 (EF = 0.63) $175 $242

Efficiency Level 3 (EF = 0.64) $276 $381

Efficiency Level 4 (EF = 0.65) $283 $391

Efficiency Level 5 (EF = 0.66) $291 $402

Efficiency Level 6 – Max­Tech (EF = 0.77) $425 $587

Table 5.13.2 MPC and MSP for Oil­fired Storage Water Heater, 32 Gallon Storage

Volume with Burner Assembly

Efficiency Level (EF) MPC

(2007$)

MSP

(2007$)

Baseline (EF = 0.53) $510 $704

Efficiency Level 1 (EF = 0.54) $518 $715

Efficiency Level 2 (EF = 0.56) $529 $730

Efficiency Level 3 (EF = 0.58) $539 $744

Efficiency Level 4 (EF = 0.60) $534 $737

Efficiency Level 5 (EF = 0.62) $547 $755

Efficiency Level 6 (EF = 0.66) $540 $745

Efficiency Level 7 – Max­Tech (EF = 0.68) $551 $760

Table 5.13.3 MPC and MSP for Electric Storage Water Heater, 50 gallon Storage

Volume

Efficiency Level (EF) MPC

(2007$)

MSP

(2007$)

Baseline (EF = 0.90) $122 $168

Efficiency Level 1 (EF = 0.91) $128 $177

Efficiency Level 2 (EF = 0.92) $132 $182

Efficiency Level 3 (EF = 0.93) $136 $188

Efficiency Level 4 (EF = 0.94) $144 $199

Efficiency Level 5 (EF = 0.95) $160 $221

Efficiency Level 6 – Max­Tech (EF = 2.2) $490 $676

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 5.13.4 MPC and MSP for Instantaneous Gas­fired Water Heater, 0 Gallon

Storage Volume, 199 Btu/h Input Capacity

Efficiency Level (EF) MPC

(2007$)

MSP

(2007$)

Baseline (EF = 0.62) $225 $326

Efficiency Level 1 (EF = 0.69) $235 $341

Efficiency Level 2 (EF = 0.78) $270 $392

Efficiency Level 3 (EF = 0.80) $343 $497

Efficiency Level 4 (EF = 0.82) $361 $523

Efficiency Level 5 (EF = 0.84) $379 $550

Efficiency Level 6 (EF = 0.85) $388 $563

Efficiency Level 7 – Max­Tech (EF = 0.92) $643 $932

Table 5.13.5 MPC and MSP for Gas Wall Fan­type DHE, Over 42,000 Btu/h Input

Capacity

Efficiency Level

(AFUE)

MPC

(2007$)

MSP

(2007$)

Baseline (AFUE = 74) $335 $490

Efficiency Level 1 (AFUE = 75) $382 $527

Efficiency Level 2 (AFUE = 76) $396 $546

Efficiency Level 3 (AFUE = 77) $413 $570

Efficiency Level 4 – Max­Tech (AFUE = 80) $468 $646

Table 5.13.6 MPC and MSP for Gas Wall Gravity­type DHE, Over 27,000 Btu/h

and up to 46,000 Btu/h Input Capacity

Efficiency Level

(AFUE)

MPC

(2007$)

MPSP

(2007$)

Baseline (AFUE = 64) $198 $273

Efficiency Level 1 (AFUE = 66) $224 $309

Efficiency Level 2 (AFUE = 68) $231 $319

Efficiency Level 3 (AFUE = 71) $259 $357

Efficiency Level 4 (AFUE = 72) $284 $392

Efficiency Level 5 – Max­Tech (AFUE = 75) $337 $465

Table 5.13.7 MPC and MSP for Gas Floor­type DHE, Over 37,000 Btu/h Input

Capacity

Efficiency Level

(AFUE)

MPC

(2007$)

MSP

(2007$)

Baseline (AFUE = 57) $338 $466

Efficiency Level 1 (AFUE = 58) $353 $487

Efficiency Level 2 (AFUE = 61) $368 $508

Efficiency Level 3 (AFUE = 62) $383 $529

Efficiency Level 4 (AFUE = 65) $410 $566

Efficiency Level 5 – Max­Tech (AFUE = 78) $468 $646

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 5.13.8 MPC and MSP for Gas Room­type DHE, Over 27,000 Btu/h and up to

46,000 Btu/h Input Capacity

Efficiency Level

(AFUE)

MPC

(2007$)

MSP

(2007$)

Baseline (AFUE = 64) $221 $305

Efficiency Level 1 (AFUE = 65) $237 $327

Efficiency Level 2 (AFUE = 66) $252 $348

Efficiency Level 3 (AFUE = 67) $267 $368

Efficiency Level 4 (AFUE = 68) $282 $389

Efficiency Level 5 (AFUE = 70) $307 $424

Efficiency Level 6 (AFUE = 78) $361 $498

Efficiency Level 7 – Max­Tech (AFUE = 93) $552 $762

Table 5.13.9 MPC and MSP for Gas­fired Pool Heater, 250,000 Btu/h Input

Capacity and Standing Pilot

Efficiency Level

(Thermal Efficiency)

MPC

(2007$)

MSP

(2007$)

Baseline (Thermal Efficiency = 78) $520 $718

Efficiency Level 1 (Thermal Efficiency = 79) $531 $733

Efficiency Level 2 (Thermal Efficiency = 81) $544 $751

Efficiency Level 3 (Thermal Efficiency = 82) $559 $771

Table 5.13.10 MPC and MSP for Gas­fired Pool Heater, 250,000 Btu/h Input

Capacity and Electronic Ignition

Efficiency Level

(Thermal Efficiency)

MPC

(2007$)

MSP

(2007$)

Baseline (Thermal Efficiency = 78) $523 $722

Efficiency Level 1 (Thermal Efficiency = 79) $534 $737

Efficiency Level 2 (Thermal Efficiency = 81) $547 $755

Efficiency Level 3 (Thermal Efficiency = 82) $578 $798

Efficiency Level 4 (Thermal Efficiency = 83) $648 $894

Efficiency Level 5 (Thermal Efficiency = 84) $664 $916

Efficiency Level 6 (Thermal Efficiency = 86) $691 $954

Efficiency Level 7 (Thermal Efficiency = 90) $903 $1,246

Efficiency Level 8 – Max­Tech (Thermal

Efficiency = 95)

$961 $1,326

5.14 SENSITIVITY ANALYSIS

DOE conducted a sensitivity analysis on material prices to examine the effect of

spikes in metal prices that the heating products industries have experienced over the past

few years. The sensitivity analysis used the annual average 2007 prices for various metals

used in the manufacturing of residential heating products, shown on Table 5.14.1.

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Table 5.14.1 Annual Average 2007 Metal Prices

Metals Cost ($/lb) (2007$)

Price Change

(percent)

2007

Prices

2003 to 2007

Average

Prices

Plain Cold Rolled Steel $0.39 $0.36 8.3%

Painted CRS $0.56 $0.57 ­1.8%

Galvanized CRS $0.48 $0.43 11.6%

Aluminized CRS $0.60 $0.53 13.2%

Textured CRS $0.67 $0.63 6.3%

CRS Tube $0.77 $0.74 4.1%

Stainless Steel $2.46 $2.39 2.9%

Fin Aluminum $1.57 $1.57 0.0%

Plain Copper $2.62 $1.52 72.4%

Copper Tube – Plain $3.00 $1.90 57.9%

Brass $3.00 $2.00 50.0%

According to the results, the increase in metal prices has resulted in various

percentage increases in normalized MPC and MSP over the range of normalized energy

efficiencies for the different product classes. Table 5.14.2 shows the range of percent and

dollar increase in price for each product class due to metal price increases.

Table 5.14.2 Material Price Sensitivity Results

Product Type Increase in MSP

(percent)*

Increase in MSP

(dollar)*

Gas­fired Storage Water Heater 2.3 $8

Oil­fired Storage Water Heater 0.8 $6

Electric Storage Water Heater 3.0 $8

Instantaneous Gas­fired Water Heater 6.7 $32

Gas Wall Fan­type DHE 1.6 $9

Gas Wall Gravity­type DHE 1.5 $5

Gas Floor­type DHE 2.4 $13

Gas Room­type DHE 1.5 $6

Gas­fired Type Pool Heater 6.0 $54

*Per pound average over range of energy efficiencies.

According to manufacturers, the increase in copper prices has had a significant

impact on manufacturing costs. Because greater quantities of copper are used in the

manufacture of heat exchangers and other components for residential heating products,

the sharp increase in copper price corresponds to significant increases in product MSP.

The sensitivity analysis confirms manufacturer feedback and shows that plain

copper can affect the MSPs of instantaneous gas­fired water heaters and gas­fired pool

heaters. Both of these products contain significant amounts of plain copper in their heat

exchangers, and achieving higher energy efficiency levels typically involves adding more

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
plain copper to the heat exchangers. A $1.10 (or about a 57.9 percent) increase in price

per pound of plain copper could contribute to a $32 (or about a 6.7 percent) increase in

product MSP for instantaneous gas­fired water heaters. Additionally, the results also

show that the 57.9 percent increase in price per pound for plain copper could also

contribute to about a $54 (or about 6.0 percent) increase in product MSP for gas­fired

pool heaters.

Increases in cold rolled steel prices have also contributed to the increases in MSPs

of water heaters and direct heating equipment. Water heater storage tanks, flues, and flue

baffles, and direct heating equipment heat exchangers and outer cases are made primarily

from cold rolled steel. Additionally, reaching higher energy efficiencies often increases

the amount of cold rolled steel added to these products.

The sensitivity analysis shows that about a $0.03 (or about a 8.3 percent) increase

in price per pound of plain cold rolled steel could contribute to about a $7 (or about a 2.1

percent) increase in product MSP for storage water heaters. The sensitivity analysis also

shows that the 8.3 percent increase in price per pound for plain cold rolled steel could

also contribute to about an $8 (or about a 1.7 percent) increase in product MSP for direct

heating equipment.

5.15 ENERGY EFFICIENCY EQUATIONS FOR GAS­FIRED AND

ELECTRIC STORAGE WATER HEATERS

As part of the engineering analysis for residential water heaters, DOE reviewed

the energy­efficiency equations that define the existing Federal energy conservation

standards for gas­fired and electric storage water heaters. The energy­efficiency

equations allow DOE to expand the analysis on the representative rated storage volume to

the full range of storage volumes covered under the existing 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 energy­efficiency equations to characterize the relationship between

rated storage volume and energy factor. The energy­efficiency 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 that result in higher jacket losses. Other losses to consider are the feed

through losses as well as the flue losses (for gas­fired water heaters). The current energyefficiency equations show that for each water heater class, as the rated storage volume

increases, the minimum energy factor decreases.

For the existing Federal energy conservation standards, the slope and the intercept

of each energy­efficiency equation are constant for each product class. Table 5.15.1

shows the energy­efficiency equations of the existing Federal energy conservation

standards for gas­fired and electric storage water heaters.

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 5.15.1 Existing Federal Energy Conservation Standards for Residential Gasfired and Electric Storage Water Heaters

Residential Water Heater Class Minimum Energy Factor (EF)

Gas­Fired Storage Type 0.67 – (0.0019 × Rated Storage Volume in gallons)

Electric Storage Type 0.97 – (0.00132 × Rated Storage Volume in gallons)

For this preliminary rulemaking, DOE reviewed AHRI’s March 2008 Consumers'

Directory of Certified Efficiency Ratings for Heating and Water Heating Equipment and

developed a database of products that includes all gas­fired and electric storage water

heater models subject to this rulemaking. DOE also reviewed manufacturers’ catalogs to

gather information on the design characteristics of each water heater model. The

manufacturers’ 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 used its database and additional product information to help characterize the

relationship between EF and rated storage volume of models currently on the market for

gas­fired and electric storage water heaters. DOE also compared the EFs and rated

storage volumes from its database of products to the energy­efficiency equations defined

by the existing Federal energy conservation standards. Generally, the 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 the

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

increasing storage volume for a given design primarily due to the increases in losses as a

result of increased tank surface area. However, these few high efficiency model series

seem to exhibit the same EF even though their rated storage volumes vary. There are

several plausible explanations, including the precision of the test procedure at higher

efficiencies (i.e., the number of significant digits reported during the EF calculation is not

adequate to discern differences in actual values of the energy factors of high efficiency

storage water heaters in the full range of storage volumes), the possibility for small

design changes that are not described in the product literature, as well as the possibility

for the geometry of the storage tanks to be slightly different 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, DOE reviewed the current market to

try and establish a revised set of energy­efficiency equations based on available models

for gas­fired and electric storage water heaters.

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
5.15.1 DOE’s Review of the Current Water Heater Market 

  DOE reviewed the gas­fired and electric storage water heaters currently listed in 

AHRI’s Consumers’ Directory and further described in manufacturers’ catalogs to 

examine the relationship between energy factor and rated storage volume. When 

examining the energy­efficiency equations, DOE considered: 

� input and feedback from interested parties;  

� energy­efficiency potentials of screened­in technologies; 

� standby heat loss; 

� analysis from previous rulemakings; 

� Federal energy conservation standards (to prevent backsliding); and 

� energy­efficiency levels developed for this preliminary rulemaking. 

  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, and the corresponding energy conservation standard at 40 gallons is 0.59 EF. 

Figure 5.15.1 shows the current Federal energy conservation standard and its relationship 

to models currently in the AHRI Consumers’ Directory. 

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 5.15.1 Distribution of Gas­Fired Storage Water Heater Models by Rated 

Storage Volume  Energy Factor (EF)

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
  In general, the EF decreases with rated storage volume. However, for the two 

most common storage volumes, 40 and 50 gallons, (and in some instances for other 

storage volumes), DOE found that manufacturers currently offer models with similar 

EFs. For example, between 0.60 and 0.65 EF, several 40 gallon models on the market 

have the same EFs as several 50 gallon models in AHRI’s Consumers' Directory. 

However, this trend does not apply over the entire range of storage volumes currently 

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 (as 

shown in Figure 5.15.1). 

  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 

5.15.2 shows the current Federal energy conservation standard and its relationship to 

models currently in the AHRI Consumers’ Directory. 

1.00

0.95

0.90 Current Standard

0.85

0.80

20 30 40 50 60 70 80 90 100 110 120

Rated Volume (Gallons)

Figure 5.15.2 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 offered with EFs that span from the baseline to 0.95 EF, 

regardless of the rated storage volume. However, Figure 5.15.2 suggests that this trend  Energy Factor (EF)

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
does not hold true for the entire market over the entire range of storage volumes. Figure

5.15.2 also demonstrates that manufacturers of 120 gallon electric storage water heaters

only offer models with EFs of 0.86 or below.

5.15.2 Existing Federal Energy Conservation Standards and Revised EnergyEfficiency Equations Using the Current Energy­Efficiency Equation Slope

DOE examined revised energy­efficiency equations by expanding efficiency

levels to a full range of tank sizes by using the equation slopes as defined by the existing

Federal energy conservation standards. DOE did not alter the slopes for this portion of

the analysis, and only changed the position of the intercepts (i.e., the point that intersects

zero gallons).

5.15.2.1 Gas­fired Storage Water Heaters

For gas­fired storage water heaters DOE examined six efficiency levels, including

0.62 EF, 0.63 EF, 0.64 EF, 0.65 EF, 0.66 EF, and 0.77 EF (max­tech), for the

representative 40 gallons. 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 energy­efficiency equation (i.e., constant slope of ­0.0019). Figure 5.15.3 shows

the revised energy­efficiency equations and their relationship to models currently in the

AHRI Consumers’ Directory.

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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

0.60 0.77 EF Standard

0.55

0.50

0.45

20 30 40 50 60 70 80 90 100

Rated Volume (Gallons)

Figure 5.15.3 Gas­fired Storage Water Heater Efficiency Levels Using the Slope of 

the Federal Energy Conservation Standard 

  DOE generally found that there are products currently manufactured that 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 that defines 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. Additionally, DOE found that at small rated volumes 

(i.e., less than 30 gallons) and large rated volumes (i.e., 100 gallons) manufacturers do 

not currently 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.  

5.15.2.2  Electric Storage Water Heaters 

  For electric storage water heaters, DOE considered five efficiency levels above 

the baseline efficiency level including levels at 0.91 EF, 0.92 EF, 0.93 EF, 0.94 EF, 0.95 

EF, and excluded the max­tech efficiency level (i.e., 2.2 EF, an integral heat pump water 

heater, which is not currently being offered 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 energy­efficiency equation (i.e., a constant slope of 

­0.00132) as shown in Figure 5.15.4. 

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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 5.15.4 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 suggests that the slope of the equation that defines the current Federal energy 

conservation standard may not reflect the characteristics of the entire market because 

there are models currently available with similar EFs, while ranging in rated storage 

volumes. Additionally, DOE found that manufacturers do not currently 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 currently offer models that would meet the 

efficiency levels DOE is considering that exceed 0.95 EF. 

5.15.3 Alternative Approach for Developing Revised Energy­Efficiency Equations 

for Gas­fired and Electric Storage Water Heaters 

  DOE developed an alternative approach for revising the energy­efficiency 

equations based on the database of products and four constraints. DOE applied the 

following constraining criteria to the development process: 

• for gas­fired water heaters, each energy­efficiency equation must include 

units with the specified efficiency level at 40 gallon rated storage volume; 

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
• for electric storage water heaters, each energy­efficiency equation must

include units with the specified efficiency level at 50 gallon rated storage

volume;

• the energy­efficiency equations cannot result in a standard that falls below

current standards over the entire rated volume range; and

• for electric storage water heaters, the energy­efficiency equation should

not lead to a standard greater than 0.95 EF for the 20 to 120 gallon rated

volume range.

DOE chose this approach because it takes into account the models currently

available 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. Additionally, the approach 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. DOE

accomplished this by accounting for all of the models currently available in the gas­fired

and electric storage water heater markets, and considered the technologies incorporated

into those models. Next, DOE attempted to identify the different product series and the

models that belong to each product series. DOE then assigned an efficiency level to each

of these series based on the efficiency level at the representative rated volume. Finally,

DOE used the assumptions outlined above and the data points within each series to

develop a line to define the equation for each efficiency level. DOE then varied the slope

of the line to maximize the number of models in the series that meet the efficiency levels

DOE is considering in the full range of rated storage volumes.

As an example, for electric storage water heaters, DOE first reduced the model set

characterized by AHRI’s Consumer Directory (921 models) to 198 unique models.

Second, DOE grouped these 198 unique models into 42 model series. Third, DOE

assigned an efficiency level to each of these series based on the efficiency level for the 50

gallon model in that series. Finally, DOE used the assumptions outlined above and the

data points within each series to develop an equation for each efficiency level. DOE then

varied the slope of the line to maximize the number of models in the series that meet or

exceed the potential energy conservation standard.

Figure 5.15.5 illustrates the energy­efficiency equations using the criteria

developed for gas­fired storage water heaters, and Figure 5.15.6 illustrates the energyefficiency equations using the criteria developed for electric storage water heaters.

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
0.85

0.80

Energy Factor (EF)

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 0.60

0.55

0.50

0.45

20 30 40 50 60 70 80 90 100

Rated Volume (Gallons)

Figure 5.15.5 Energy­Efficiency Equations using a Modified Slope Based the AHRI 

Consumers’ Directory for Gas­fired Storage Water Heaters 

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
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 5.15.6 Energy­Efficiency Equations using a Modified Slope Based the AHRI 

Consumers’ Directory for Electric Storage Water Heaters

  For gas­fired and electric storage water heaters, the energy­efficiency equations 

and the data from AHRI’s Consumers’ Directory generally exhibits the same trend of 

decreasing EF with increasing rated volume. Additionally, the energy­efficiency 

equations and current market also show a similar trend where 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 energy­efficiency equations 

eliminate the larger volume water heaters currently offered by manufacturers at the 

higher potential amended energy conservation standards. 

  The information provided in Figure 5.15.5 and Figure 5.15.6, in addition to the 

product database, manufacturers’ specifications, and other publicly available literature, 

does not include all of the details regarding the specific energy­efficiency features 

incorporated in each water heater design. Based on the extent of the information, these 

energy­efficiency equations may represent manufacturing practices, consumer 

preferences, and marketing efforts, while not representing the energy­efficiency 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) that are currently available on the market with the 

same energy factors in a variety of different rated storage volumes. The fact that water 

heaters of different volumes can have the same EF could be a result of manufacturers 

adding insulation (e.g., to the top of the tank, to the feed throughs, etc.) or making design 

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EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
modifications that are not described in the manufacturer catalogs as rated volume

increases. Such design changes could offset any increase in heat loss as surface area

increases and this would alter the relationship between heat loss (and ultimately EF) and

rated volume for that particular product series. Manufacturers may do this to produce

product lines where EF is constant across a range of rated volumes as a means to market

high efficiency water heaters to specific consumers.

DOE was not able to verify the relationship between EF and rated volume and

how it changes for different rated volume ranges and at various efficiency levels based

solely on AHRI data or publicly available literature. Specifically, DOE was not able to

identify the specific technologies that manufacturers use or add to water heaters as rated

volume increases to maintain the same EF. In addition, the reporting precision of the test

procedure at higher efficiencies does not allow for the precise discernment of how small

losses affect EF as the rated storage volume increases. Lastly, DOE cannot verify that the

geometry of the storage tank design is identical through the entire range of storage

volumes.

5.15.4 Validation of the Energy­Efficiency Equations for Gas­fired and Electric

Storage Water Heaters

In order to further verify the relationship between EF and rated storage volume,

DOE is planning to verify the EF of various models currently on the market through third

party testing and then to teardown these same models to identify potential geometry and

design differences. As DOE previously mentioned, DOE found that some manufacturers

produce high efficiency models of gas­fired and electric storage water heaters where the

energy­efficiency technologies remain constant (e.g., the same insulation thickness)

across a range of rated volumes while maintaining the same EF for all products. This

seems contrary to DOE’s understanding that jacket losses should increase as the surface

area of the tank increases with rated volume. Thus, DOE will conduct testing to

determine if manufactures would make 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 in order to obtain constant EFs for a range of rated

volumes. However, the market data and manufacturers catalogs suggest this is not the

case for some product series, and these data are not sufficient to confirm specifically how

manufacturers achieve constant EF. Consequently, DOE plans to test and teardown water

heater models currently available on the market in order to validate its approach for the

development of the energy­efficiency equations.

DOE investigated the design changes manufacturers employ to improve EF only

for the representative gas­fired and electric storage water heaters (i.e., 40 and 50 gallon

products, respectively). However, DOE did not extend the teardown analysis to other

rated volumes to determine if manufacturers use the same methods to increase energy

efficiency across the entire rated volume range. This additional analysis will allow DOE

to determine the changes manufacturers employ for a given model series as the rated

storage volume of the tank increases.

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DOE will conduct 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. Ideally,

DOE would test a model series with similar design characteristics and volumetric designs

to isolate how EF changes with rated storage volume. DOE would then repeat this test for

a number of model series at various efficiencies and for a variety of different

manufacturers. DOE will choose models to test by selecting product series from multiple

major manufacturers that span the range of rated volumes within each product class and

that span the range of efficiency levels. After completion of testing, DOE will conduct a

teardown analysis to confirm the specific technologies that affect energy efficiency and

the volumetric characteristics of the tank. DOE will adjust the energy­efficiency

equations based on the results of this analysis.

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REFERENCE

1 GAMA. Consumers’ Directory of Certified Efficiency Ratings, Performance Data

Updated March 21, 2008. Last accessed March 21, 2008. <http://www.gamapower.org/>.

2 “54th Annual Report. Statistical Review.” Appliance Magazine, May 2007.

3 Ibid.

4 U.S. Department of Labor, Bureau of Labor Statistics, Wages by Area and

Occupation. Last accessed March 21, 2008. <http://www.bls.gov/bls/blswage.htm>.

5 American Metals Market. Last accessed March 21, 2008.

<http://www.amm.com>.

6 U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Indices.

Last accessed March 21, 2008. <http://www.bls.gov/ppi>.

7 U.S. Department of Commerce, Bureau Economic Analysis, Gross Domestic

Product Implicit Price Deflator. Last accessed March 21, 2008.

<https://bea.gov/bea/dn/nipaweb/TableView.asp#Mid>.

8 Plastic News, Resin Pricing. Last accessed March 21, 2008.

<http://www.plasticsnews.com/subscriber/headlines.phtml>.

9 U.S. Department of Labor, Bureau of Labor Statistics. Producer Price Indexes.

Last accessed March 21, 2008. <http://www.bls.gov/ppi/home.htm>.

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