APPENDIX 9-B. NIA FUEL SWITCHING MODEL
 

TABLE OF CONTENTS
 

9-B.1 INTRODUCTION ................................................................................................. 9-B-1 

9-B.1.1 Replacement Market .............................................................................................. 9-B-1 

9-B.1.2 New Construction Market...................................................................................... 9-B-2 

9-B.1.3 Summary of Estimated Water Heater Switching ................................................... 9-B-3 

LIST OF TABLES 

Table 9-B.1.1 Estimated Percent of Base Case Electric Water Heater Shipments that 

Would Switch to Gas-Fired Water Heaters in Replacement 

Applications ............................................................................................... 9-B-3
 

LIST OF FIGURES 

Figure 9-B.1.1 Electric to Gas Storage Water Heater Fuel Switching Flowchart.............. 9-B-2
 

Figure 9-B.1.2 Shipments of Electric Storage Water Heaters Given a Standard 

Requiring Heat Pump Design, Accounting for Switching to Gas Water 

Heaters ....................................................................................................... 9-B-4
 

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APPENDIX 9-B. NIA FUEL SWITCHING MODEL
 

9-B.1 INTRODUCTION
 

To the extent that revised energy conservation standards result in an increase in the price 

of a covered product compared to a competing product, some consumers (or home builders in the 

case of new construction market) may purchase the competing product. DOE’s analysis seeks to 

account for such “product switching.” 

Two of the four product classes for water heaters compete to some extent. The competing 

classes are gas-fired storage water heaters and electric storage water heaters. It is useful to 

consider the nature of the competition in the replacement and new construction market segments 

separately in order to assess the potential impact of energy conservation standards on shipments. 

9-B.1.1 Replacement Market 

When it comes time to replace a gas-fired storage water heater, switching to an electric 

product involves substantial cost because of the complexity involved in modifying the 

installation.1 Ordinarily, 30-amp electric wiring is not available near an existing gas-fired water 

heater. Providing such a circuit is expensive, and the main electric service panel may be 

inadequate for accepting the circuit. In addition, because it takes more time for an electric 

storage water heater to recover heated capacity, a larger electric tank is required to replace a gas 

unit. Therefore, changing from a gas-fired unit to an electric one entails significant expense. 

Consumers might be induced to switch from gas to electric only if there was a large increase in 

the price of a gas-fired water heater compared to an electric one. Because DOE does not envision 

a set of revised energy conservation standards that would result in such an increase, its analysis 

did not include switching from a gas-fired to an electric storage water heater in the replacement 

market. 

Switching from an electric storage water heater to a gas-fired water heater also may occur 

in the replacement market. DOE’s life-cycle cost (LCC) analysis indicates that the energy 

efficiency provided by electric heat pump water heaters produces large average LCC savings. 

Because this type of product in most cases has a higher total installed cost than does a typical 

gas-fired storage water heater and is relatively new to consumers and builders, DOE analyzed the 

potential for switching from an electric heat pump water heater to a gas-fired water heater. DOE 

considered the following potential combinations of standards for electric and gas-fired storage 

water heaters: 

•	 electric heat pump water heater and a gas-fired storage water heater using natural draft 

•	 electric heat pump water heater and a gas-fired storage water heater using power vent 

•	 electric heat pump water heater and a gas-fired storage water heater using condensing 

technology. 

DOE used data from the EIA’s 2005 Residential Energy Consumption Survey (RECS 

2005) to estimate the percentage of households expected to purchase an electric water heater in 

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the base case that could switch to a gas-fired water heater. First, all households that use an 

electric water heater were selected, assuming that those households reasonably represent future 

users of electric water heaters. Then, households that have no gas hookup were removed because 

they would be unlikely to switch to gas-fired water heating. Finally, households that had no 

central gas-fired furnace or boiler were removed, because the cost of venting and gas piping for a 

gas-fired water heater would be prohibitive. The remaining households—those that could switch 

to gas water heating—account for about 13 percent of the total households that have electric 

water heaters. 

To estimate how many of the households that could switch to gas-fired water heaters 

would do so, DOE considered the difference in installed cost between a gas-fired storage water 

heater and an electric heat pump water heater in each of the combinations listed above. To do 

this, DOE performed a Monte Carlo simulation comparing installation costs for each household 

in the RECS 2005 subsample for electric water heaters. If the total installed cost of the electric 

heat pump water heater was greater than that of the gas-fired storage water heater, DOE assumed 

that a switch would occur. See Figure 9-B.1.1. 

Figure 9-B.1.1	 Electric to Gas Storage Water Heater Fuel 

Switching Flowchart 

9-B.1.2 New Construction Market 

For home builders, the choice of a water heater depends primarily on the availability of 

natural gas.1 If gas is available, builders generally will install a gas-fired water heater (and 

usually a gas furnace). If gas is not available, but the utility says that it will be available soon, the 

developer will install a temporary central propane tank until natural gas is available. If natural 

gas will remain unavailable for the foreseeable future, as is the case in parts of the Pacific 

Northwest and Florida and in most rural areas of the United States, builders usually will install 

an electric water heater. 

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Price has little effect on the builder’s choice of water heater because generally the water 

heater is a small part of the total cost for plumbing a new house. The builder pays attention 

primarily to the total plumbing cost, not individual components. Small changes in the cost of the 

water heater therefore are unlikely to induce a builder to switch to a different product. 

To assess the likelihood that a builder would switch from an electric heat pump water 

heater to a gas-fired storage water heater in new home construction, DOE first developed a 

sample of RECS households to serve as a proxy for future new homes that have electric water 

heating.a Then households were selected that potentially could switch from electric to gas-fired 

water heating because natural gas is available. This group contains 7 percent of all RECS 

households in the sub-sample that has electric water heating (most new homes that have electric 

water heating do not have access to natural gas). Similarly to the replacement case, DOE 

performed a Monte Carlo simulation comparing installation costs for each household in the 

RECS 2005 subsample for electric water heaters. In total, DOE estimated that less than one 

percent of new homes with electric water heating would switch. 

9-B.1.3 Summary of Estimated Water Heater Switching 

Table 9.B.1.1 summarizes the percentage of electric water heater shipments in the base 

case that DOE estimates would be switched to gas-fired storage water heaters in each of the three 

standards combinations considered. 

Table 9-B.1.1 Estimated Percent of Base Case Electric Water Heater Shipments that 

Would Switch to Gas-Fired Water Heaters in Replacement Applications 

Standards Combination Percent that Switch (%)

Replacements New 

Construction 

HPWH and Gas-fired SWH using natural draft (TSL 6) 3.3 0.4 

HPWH and Gas-fired SWH using power vent 8.8 0.3 

HPWH and Gas-fired SWH using condensing Technology 

(TSL 7) 

0.0 0.1 

Figure 9-B.1.2 shows the total effect on shipments of electric storage water heaters in the 

case of a standard level that would require a heat pump design. The figure shows projected 

shipments without switching and projected shipments if consumers switch to gas-fired water 

heaters that meet various energy conservation standards levels. 

a For new construction, DOE began with a subset of those RECS households having electric water heaters that were 

built in the most recent period before the survey. 

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4.50 

5.00 

5.50 

6.00 

6.50 

7.00 

2015 2020 2025 2030 2035 2040 2045 

Millions 

No Switching 

Condensing GSWH at TSL 7 

Power Vent GSWH 

Natural Vent GSWH at TSL6 

Figure 9-B.1.2	 Shipments of Electric Storage Water Heaters Given 

a Standard Requiring Heat Pump Design, 

Accounting for Switching to Gas Water Heaters 

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REFERENCES
 

1. Smith Carroll Drew, Consultant Report - Water Heater Market Shares, 2008. Florence, 

SC. 

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