# #42

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 6J71.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 currentminimum 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.

12.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.

2Table 2.1: Central Heating Gas Furnace Shipments (Source: HRAI Manufacturers Division)

Maximum No. ofUnits 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 73,480 110,267 120,812 184,086 194,2923. 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, Albertaand 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] fornew 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 basementR-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 forroofs, R-1.9 to 2.7 for windows andR-7.9 to 11 for basements. Windowarea 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 HVACAdvisor program. This requires the input of building type and envelope data, furnace size and efficiency , furnace fan motor size,

4energy 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 forthe furnaces were determined throughthe construction cost surveyor company Helyar and Associates [5]. Theprices 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 contractorsmark-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.

5Table 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] [$ CDN] [$ 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 4.34. 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

7companion 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

8not 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

9with the more attractive economics in larger dwellings. Approximately 75% ofnew 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 furnacemodels 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

10