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MARKET AND ECONOMIC ANALYSIS OF RESIDENTIAL

GAS FURNACE EFFICIENCY LEVELS IN CANADA

Final Report

Prepared for:Office of Energy Efficiency

Natural Resources Canada

580 Booth Street, 18th Floor

Ottawa, Ontario

K1A OE4

Att:Raouf Greiss

Prepared by:Caneta Research Inc.

7145 West Credit Avenue

Suite 102, Building 2

Mississauga, Ontario

L5N 6J7

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1.BACKGROUND AND INTRODUCTION

Canada's energy efficiency regulations cover natural gas furnaces (both single phase electric

current and three phase electric current) up to 400,000 Btu/h. The smaller categories (under

225,000) have a current minimum efficiency requirement or AFUE of 78%. Between 225,000

and 400,000 Btu/h the minimum requirement is a thermal efficiency of 80%.

About 36% of Canadian households have gas-fired furnaces as the principal heating equipment.

Furnaces account for the largest portion of the space heating natural gas consumption which is

estimated to be about 75% of the total Canadian residential gas consumption [1].

Natural Resources Canada wishes to investigate the implications to manufacturers and society of

increasing the minimum energy efficiency of these natural gas furnaces from current levels to an

AFLJE of 90% (condensing) or a thermal efficiency in excess of 90%.

This project involved information gathering, analysis and reporting as follows:

-Gather market data on sales/shipments of natural gas furnaces in the categories covered by

current regulations.

-Develop benchmarks for each size and technological category. Technology categories are

furnaces with (i) spark ignition - AFUE between 78% and 83%; (ii) spark ignition - condensing

- AFUE > 90% or thermal efficiency > 90%.

Benchmark information includes:

•equipment costs, both to manufacturers and consumers,

-expected life,

-service and maintenance requirements,

-design features relevant to each category.

-Estimation of the annual energy performance for each size and category of natural gas furnace.

Size categories which apply to residential covered in the Regulation are <_ 225,000 Btu/h.

Representative building models will be used to estimate annual furnace energy use.

-Investigation of the differences between standard efficiency and condensing furnaces. For

example, material requirements, venting requirements, heat exchanger design, ignition, induced

draft fan design for the different technological categories. The advantages and disadvantages of

condensing technology from a technological, economic and environmental point-of-view were

evaluated. The impacts on manufacturers and end users were investigated.

-Preparation of a report describing the approach taken, the benchmarking, the potential energy

savings, the economics and the results of the investigation of the differences, advantages and

disadvantages of condensing furnace technology.

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2.MARKET DATA

2.lResidential Gas Furnace Shipments

A survey of the market was undertaken to gather data on shipments of natural gas furnaces in the

categories covered by current regulations for the residential sector. The data sought included:

•historical data on the number of residential shipments of gas furnaces in Canada as a function

of furnace input capacity;

the number of shipments of gas furnaces in Canada for the same period of years of either

standard efficiency or condensing.

Contacts were established with HRAI, CGA, individual furnace manufacturers and the Ontario

Ministry of Energy. HRAI was unable to release shipment information , but the CGA provided

residential furnace shipment data.

Table 2.1 presents residential gas furnace shipments by year and furnace input capacity. The

largest market segment is in the range of 75,000 to under 100,000 Btu/hr input capacity. Other

significant segments exist just above and below this segment. A relatively small number of

residential gas furnaces (less than 5%) have input capacity in excess of 125, 000 Btu/hr.

Table 2.2 presents residential gas furnace shipments by region and type (i.e. efficiency). In

Ontario, condensing furnace shipments represent about 60% of total gas furnace shipments. In

other provinces, standard efficiency products still predominate, the exception being in Quebec,

where modest gas furnace sales in 1998 were dominated by condensing furnaces.

The replacement market is the largest sub-segment of the residential market with an estimated

75% of shipments [2] replacing existing furnaces annually.

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Table 2.1: Central Heating Gas Furnace Shipments

(Source: HRAI Manufacturers Division)

Maximum No. of Units Condensing Non- Condensing

Btuh Input

1997 1998 1997 1998 1997 1998

Less than 75,000 51,956 53,401 NA NA NA NA

75,000 -under 100,000 78,439 78,550 NA NA NA NA

100,000 -under 125,000 44,190 52,046 NA NA NA NA

125,000 - under 150,000 8,168 8,392 NA NA NA NA

150,000 and over 1,333 1,903 NA NA NA NA

Total 184,086 194,292 73,819 73,480 110,267 120,812

NA - not available

Table 2.2: Central Heating Gas Furnace Shipments by Region and Type

(Source: HRAI Manufacturers Division)

Province/Region Condensing Non-Condensing Total

1997 1998 1997 1998 1997 1998

Atlantic 262 235 4,657 3,805 4,919 4,040

Quebec 1,306 3,570 1,764 1,906 3,070 5,476

Ontario 66,768 63,823 38,231 43,774 104,999 107,597

Manitoba 1,545 1,637 7,025 8,029 9,170 9,666

Saskatchewan 925 789 7,210 6,900 8,135 7,689

Alberta 764 1,155 35,754 42,300 36,518 43,455

British Columbia 2,249 2,271 15,026 14,098 17,275 16,369

Total 73,819 73,480 110,267 120,812 184,086 194,292

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3. ANALYSIS OF ANNUAL ENERGY PERFORMANCE

In order to assess the economic benefit of condensing gas furnace technology, energy use simulation

was undertaken for both the standard efficiency and condensing cases. This, combined with the

installed costs, allowed the comparison of condensing versus standard efficiency equipment by a

simple payback period.

3.1 Residential Market Sector

The goal of this analysis was to cover a range of house sizes of current design and at representative

locations across Canada. Both new construction and replacement markets were to be analysed.

Three house sizes were selected, a 1200 ft2 townhouse, a 1800 ft2 two-storey detached house and a

3,000 ft2, two-storey detached house. These three house sizes represent a starter house, a medium

sized family dwelling and an upscale large house, respectively. Note that the townhouse was

assumed to be a centre-unit rather than an end-unit, as most townhouses are centre-units (an end-unit

is different as it is thermally equivalent to a semi-detached house). All three house types are

assumed to have basements that are heated.

Energy Use

To represent the variation in climatic and other effects across the nation , four different locations were

chosen. Shipment data and regional considerations determined the choice of location (see Market

Data section). This shipment data indicated that the most active furnace sales markets were British

Columbia, Alberta and Toronto and the representative cities selected for modeling were Vancouver,

Calgary and Toronto. Montreal was also analyzed as it is a growing market for gas furnaces. These

shipment trends can be seen in Table 2.2 in the market survey section of this report.

HOT 2000 archetypes [4] for new construction ( 1994) and existing housing (built between 1961 and

1977) were used to define the thermal envelope of the model houses . The insulation level for

existing construction houses varied as follows: walls R-12 to 13, roofR-20 to 24, windows R-1.5

to 2.1, and basement R-3.7 to 6.7. Window area varied between 13 % and 21 % of the floor area. The

new construction houses had R-values of R-14 to 20 for walls, R-29 to 36 for roofs, R-1.9 to 2.7 for

windows and R-7.9 to 11 for basements. Window area as a percent of floor area varied between 11 %

and 17%.

A standard efficiency furnace having an AFUE equal to the current regulated minimum of 78% was

adopted as the benchmark furnace. The high efficiency unit was a condensing design with an AFUE

of 91.74%. This AFUE value was obtained from reference [3], and was the mean value for all the

spark ignition condensing types of furnaces in the GRI Directory.

The residential building performance was analyzed using the HVAC Advisor program. This requires

the input of building type and envelope data, furnace size and efficiency , furnace fan motor size,

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energy cost, appliance or internal loads, thermostat settings, and location. The program determines

the furnace 's natural gas consumption and gas cost, using site-specific weather information, the

furnace's AFUE rating and a bin method of analysis. The cost of electricity used by the furnace fan

is also calculated by HVAC Advisor and is added to the gas costs in the analysis.

Capital and Installation Costs

Costs for the furnaces were determined through the construction cost surveyor company Helyar and

Associates [5]. The prices include applicable provincial sales tax, mechanical contractor's mark-up,

all labour and materials, thermostats and venting . They do not include the GST, the general

contractor's mark-up, ductwork and diffusers, and gas service . So that the cost actually transmitted

to the owners was reflected, the general contractors mark-up of 10% was added to these prices from

Helyar and Associates for the new construction market, but not for the replacement or existing

construction market. Prices were given for each size of furnace corresponding to the three house

sizes (75,000 Btu/hr, 100,000 Btu/hr, 150,000 Btu/hr).

Performance Results

Tables 3.1 a and b show the cost and energy use associated with the two furnace types for both the

new and replacement markets. The simple payback period resulting from the savings is given in the

last column. The simple payback period indicates that the new large house is the most economically

attractive application for a condensing gas furnace. Payback periods are 3.3, 5.2 and 6.8 years

respectively in Montreal , Toronto and Calgary. The other detached house has a payback period over

10 years in Calgary but within the 18 year lifetime [2] of the condensing gas furnace . In Montreal

and Toronto, the small new detached house exhibits simple payback periods of only 5.8 and 9.4

years, respectively.

The existing housing market (Table 3.1b) exhibits much more attractive economics. In all cases

examined, except the Vancouver townhouse, the payback period is well within the expected lifetime

of the condensing furnace, with 8 of the 12 of cases 8 years or less. Five cases had payback periods

under 5 years.

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Table 3.1 a: Economic Advantages of Condensing Gas Furnaces by Region and House Size - New Construction

City Type of Floor area Furnace Annual gas consumption Heating season cost (gas Installed cost of furnace Annual Simple

house output for heating cost and electricity cost for savings from payback

capacity furnace fan) condensing period

furnace

[sq. ft.] [kBtu/h] [cubic meters] [$ CDN] [$ C DN] [$ CDN] [Yrs]

std efficiency condensing std efficiency condensing std efficiency condensing

ancouver townhouse 1200 75000 611 519 200 181 1350 2035 19 36.1

detached 1800 100000 1508 1282 393 346 1440 2255 47 17.3

detached 3000 150000 2630 2236 644 562 1705 2450 82 9.1

algary townhouse 1200 75000 1263 1074 323 293 1220 1845 30 20.8

detached 1800 100000 2621 2229 544 483 1300 2045 61 12.2

detached 3000 150000 4322 3675 835 732 1530 2230 103 6.8

Toronto townhouse 1200 75000 1157 984 381 337 1375 2055 44 15.5

detached 1800 100000 2325 1977 682 594 1465 2290 88 9.4

detached 3000 150000 3839 3264 1086 940 1715 2475 146 5.2

Montreal townhouse 1200 75000 1145 974 475 407 1265 1910 68 9.5

detached 1800 100000 2235 1900 897 766 1350 2115 131 5.8

Table 3.1b: Economic Advantages of Condensing Gas Furnaces by Region and House Size - Existing Construction

City Type of Floor area Furnace Annual gas consumption Heating season cost (gas Installed cost of furnace Annual Simple

house output for heating cost and electricity cost for savings from payback

capacity furnace fan) condensing period

furnace

[sq. ft.] [kBtu/h] [cubic meters] [$ CDN] [$ CDN] [$ CDN] [Yrs]

std efficiency condensing std efficiency condensing std efficiency condensing

ancouver townhouse 1200 75000 938 797 269 240 1225 1850 29 21.6

detached 1800 100000 2042 1736 505 441 1310 2050 64 11.6

detached 3000 150000 3454 2937 819 711 1550 2225 108 6.3

algary townhouse 1200 75000 1744 1483 401 360 1110 1675 41 13.8

detached 1800 100000 3471 2951 680 597 1180 1860 83 8.2

detached 3000 150000 5573 4738 1035 903 1390 2025 132 4.8

oronto townhouse 1200 75000 1282 1090 413 364 1250 1870 49 12.7

detached 1800 100000 2594 2205 751 652 1330 2080 99 7.6

detached 3000 150000 4186 3559 1176 1017 1560 2250 159 4.3

Montreal townhouse 1200 75000 1425 1212 583 499 1150 1735 84 7.0

detached 1800 100000 2807 2387 1102 941 1230 1925 161 4.3

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4. DIFFERENCES BETWEEN STANDARD AND HIGH EFFICIENCY FURNACES

When manufacturer's improve the thermal performance of gas-fired furnaces from standard

efficiency levels into the condensing efficiency range, a number of design, material and component

changes must be implemented. These differences and associated issues are addressed below.

Secondary Heat Exchanger

In both residential and commercial applications, a secondary heat exchanger, in which combustion

product condensation takes place, is generally added to the existing "dry" heat exchanger. The

secondary heat exchanger must be constructed from materials capable of withstanding continuous

exposure to acidic condensate and must be configured to collect the condensate and conduct it out

of the furnace for appropriate disposal.

Means of Condensate Treatment/Disposal

Residential condensing furnaces generate approximately 4 litres of condensate per hour of operation,

or 20 litres/day, on average [2]. Typically, a family of four uses about 1500 litres of water per day,

providing for considerable (almost 100:1) dilution of the mildly acidic condensate, when it is simply

allowed to drain into the sewer.

If there is concern that the dilution will not be sufficient to avoid negative impacts on the sewage or

septic system, or if bylaws require it, condensate lines may be equipped with a refillable or

replaceable cartridge that neutralizes the acid [2]. When a condensate drain line passes through a

freezing space, it must be appropriately designed/protected.

Venting of Flue Gases

All venting systems must be appropriate for the flue gas temperatures to which they will be exposed

and vents for condensing furnaces must be sloped to provide means to dispose of the condensate.

Standard efficiency furnaces are typically vented through metal B-vents or lined masonry chimneys.

Condensing furnaces typically employ plastic direct vents since flue gas temperatures are low and

the material is not adversely affected by the acidic condensate. In retrofits, existing vent systems are

usually inappropriate for condensing furnace application, so a new direct sidewall vent would

typically be installed.

Shared Vents

When an existing furnace is being replaced, if more than one appliance (eg. furnace and hot water

heater) is connected to the same vent, then it is possible that the vent will be oversized for the

appliance that remains connected to it when a condensing furnace, with its own vent system, is

installed. Generally, a standard efficiency furnace can be connected to the same vent system as the

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companion appliance but condensing appliance vents cannot be manifolded.

In cases such as this, it must be determined if the size of the existing vent is acceptable for the

remaining appliances connected to it and if not, it would need to be re-sized. As a result, the cost

of replacing a standard efficiency (benchmark) furnace with a condensing one could include the cost

of two vent systems; one for the new furnace and the other to replace the one used by the companion

appliance.

On the other hand, in new installations, the sidewall vent can save money relative to a typical B-vent

installation.

Building Codes

In the past, building codes in some jurisdictions did not permit the use of technically acceptable

plastic vent materials but this concern has been overcome. Side-wall venting in densely populated

locations may still be restricted in some cities.

Advantages and Disadvantages

By reducing the amount of natural gas required to meet a given space heating requirement,

condensing furnaces have clear environmental and societal benefits and when the purchaser is able

to benefit from the savings for a long enough period, individual economic benefits follow as well.

Higher installed capital cost is a disadvantage of condensing technology. It can sometimes lead

consumers to select a less-efficient heating option, such as electric resistance, which has lower first

cost.

Condensing furnaces are considerably more complex than most existing furnaces, but, compared to

the current or standard efficiency furnace (which also typically utilizes power-venting and electronic

ignition), maintenance costs and service life (about 18 years [2]) should not be greatly different.

A disadvantage of condensing technology relates to the need for individual appliance venting. If

condensing furnaces are used, a separate vent must be provided for each. On the other hand, a

sidewall vented system has advantages over a B-vent in terms of not consuming any above-grade

floor area, minimal impact on the integrity of the house air barrier and lower installed cost.

ASHRAE reports the median estimated service life for gas- or oil-fired furnaces to be 18 years. It

is not yet known if standard efficiency or condensing gas furnaces, with their increased complexity

and parts-counts, will have different service lives than the older appliances. It is also too early to

know if the service life of a condensing furnace will be different than for current standard efficiency

units.

The relative impact of gas composition (quality) on standard efficiency and condensing furnaces is

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not clear at this time but since it can affect the concentrations of impurities and the fuel heating

value, it is likely to become the subject of research in the near future.

Current Availability in Marketplace

In the 1996 GAMA database for residential heating equipment [6], there were 1449 listings for

condensing natural gas-fired furnaces, compared to 6024 standard efficiency gas furnaces. In the

1998 -1999 Heating, Plumbing, Air-Conditioning Buyer's Guide there are 19 brands/manufacturers

of condensing furnaces listed.

Impacts on Manufacturers

Currently, in the residential sector, there is a substantial price premium on condensing furnaces

relative to standard efficiency units (typically about 50%). Since the standard (or mid) efficiency

furnace has become the entry-level product in the marketplace, price competition in this segment is

much more intense than in the up-market condensing furnace segment. It follows that profit margins

are greater on the more expensive condensing equipment.

If condensing equipment becomes the standard, these products would be expected to face much

increased price competition and manufacturers profit margins on these units would be reduced.

However, increased numbers of condensing furnaces produced should help to counteract the effect

of reduced margins.

Impacts on End Users

Increasing minimum efficiency levels from the current standard level to the condensing level will

mean that the end user is faced with an increased capital expenditure at the time of purchase, but

which will be offset over time by lower annual operating costs.

There is also an element of increased risk with respect to the economics of condensing versus

standard efficiency furnaces, since the actual service lives for either of these technologies have not

yet been clearly established. However, as stated earlier, since many similar components are used in

both standard efficiency and condensing furnaces, service life and maintenance costs should be

similar.

5. CONCLUSIONS

Condensing furnaces represented about 40% of the residential furnace shipments in 1998, with about

85% of these concentrated in Ontario (the Ontario market alone accounts for 55% of all residential

furnace shipments). In new construction, 8 of 12 market segments examined exhibited a payback

period of 12 years or less. The larger the house (or heating load) the more attractive the economics.

In existing housing, 8 of the 12 market segments had payback periods between 2 and 8 years, again

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with the more attractive economics in larger dwellings. Approximately 75% of new furnaces are

installed in existing houses and 85% of these are in single detached houses [1].

Condensing furnaces are widely available for the residential market. The technology has been used

in Canadian housing since the early 1980s. The HPAC Buyer's Guide lists 19 brands/manufacturers

of condensing furnaces. The 1996 GAMMA directory contains listings for 1449 condensing furnace

models and 6024 standard efficiency gas furnace models. Standard efficiency (formerly called midefficiency) gas furnaces and condensing furnaces use many similar components suggesting that

service life and maintenance costs should be similar.

The shipment weighted AFUE of natural gas furnaces in Canada is estimated to be about 85%, as

40% of all gas furnaces sold are high efficiency. Increasing the minimum efficiency of natural gas

furnaces from 78% AFUE to 90% AFUE should therefore not impose significant burden on the

industry. Further, based on the results presented here, the consumer economics are attractive in the

majority of cases.

6. REFERENCES

1. Canadian Gas Research Institute. 1994. Technology Review of Residential Gas-Fired

Appliances in Canada. Prepared for Natural Resources Canada.

2. Battelle Columbus. 1994. Assessment of Technology for Improving the Efficiency of

Residential Gas Furnaces and Boilers. Volume 1. Gas Research Institute. Chicago, Illinois.

3. Caneta Research Inc., 1997. Development of Correlations Between Steady-State and Seasonal

Efficiency Ratings for Furnaces, Boilers, Heat Pumps and Air-Conditioners. Prepared for

Natural Resources Canada.

4. HOT2000 Archetype Data - Various Sources:

• 1993 Survey of Household Energy Use: National Results, Provincial Results and Details of Provincial Results

obtained by Office of Energy Efficiency.:

• National Energy Use Database (NEUD), Survey of Houses Built in Canada in 1994, statistical report.

• NRCan Survey: Detailed empirical data on 395 Canadian houses from all regions and age groups.

• CREEDAC (Canadian Residential Energy End-use Data and Analysis Centre): Space Heating Thermal

Requirements and Unit Energy Consumption of Canadian Homes in 1993, based on HOT2000 files for

Canadian houses.

• Scanada and Marbek. Home Energy Retrofit in Canada, March 1994.

• Scanada: Air Leakage Characteristics of Canadian Housing Stock and Defaults for the Home Energy Rating

System, 1996.

5. David Wells, Helyar and Associates, Letter on Residential Gas Furnace Costs, April 30, 1999.

6. Gas Appliance Manufacturers Association. Consumers' Directory of Certified Efficiency Ratings

for Residential Heating and Water Heating Equipment. September, 1996. 99^7^MRTA

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