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

9-B-iAPPENDIX 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

9-B-1the 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.

9-B-2Price 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.

9-B-34.50 5.00 5.50 6.00 6.50 7.00

2015 2020 2025 2030 2035 2040 2045Millions

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

9-B-4REFERENCES

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

SC.

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