APPENDIX 10

- C. NATIONAL NET PRESENT VALUE OF CONSUMER BENEFITS
USING ALTERNATIVE PRODUCT PRICE FORECASTS

TABLE OF CONTENTS

10

- C.1 INTRODUCTION

................................ ................................ ................................ ......... 1 10

- C.2 EXPERIENCE CURVE EST IMATION

– LOW PRICE DECLINE SCENARIO FOR PORTABL E DEHUMIDIFIERS

................................ ..................... 1 10

- C. 3 EXPOTENTIAL FIT APPR OACH

– LOW PRICE DECLINE SC ENARIO FOR WHOLE

- HOME DEHUMIDIFIERS

................................ ................................ ... 4 10

- C.4 ANNUAL ENERGY OUTLOO K 2013 PRICE FORECAS T

– HIGH PRICE DECLINE SCENA RIO FOR PORTABLE AND WHOLE

- HOME DEHUMIDIFIERS

................................ ................................ ................................ ........ 6 10

- C.5 SUMMARY

................................ ................................ ................................ ................... 6 10

- C.6 RESIDENTIAL DEHUMIDI FIERS NPV RESULTS US ING ALTERNATIVE LEARNING RATES

................................ ................................ ......... 8

LIST OF TABL ES

Table 10

- C.5

- 1 Price Trend Scenarios

................................ ................................ ........................ 6 Table 10

- C.6

- 1 Residential Dehumidifiers: Net Present Value of Consumer Impacts Under Alternative Product Price Forecasts (3 Percent Discount Rate)

............. 8 Table 10

- C.6

- 2 Residential Dehumidifiers: Net Present Value of Consumer Impacts

............... 9

LIST OF FIGURES Figure 10

- C.2

- 1 Historical Real Price Index for Small Electric Household Appliacnes

............. 2 Figure 10

- C.2

- 2 Historical and Projected Shipments of Portable Dehumidifiers

...................... 3 Figure 10

- C.2

- 3 Relative Price versus Cumulative Shipments of Portable Dehumidifiers, with Power Law Fit

................................ ................................ ... 4 Figure 10

- C.3

- 1 Relative Price of Air

- Conditioning, Refrigeration, and Forced Air Heating Equipment versus Year, with Exponential Fit

................................ ..... 5 Figure 10

- C.5

- 1 Portable Dehumidifier Price Factor Indexes for the Default Case and Sensitivity Cases

................................ ................................ ................................ 7 Figure 10

- C.5

- 2 Whole

- Home Dehumidifier Price Factor Indexes for the Default Case and Sensitivity Cases

................................ ................................ ......................... 7

- 10

- C

- iAPPENDIX 10

- C. NATIONAL NET PRESENT VALUE OF CONSUMER BENEFITS
USING ALTERNATIVE PRODUCT PRICE FORECASTS

10

- C.1 INTRODUCTION

The NPV results presented in chapter 10 are based on future price projection derived from historical PPI data from the Bureau of Labor Statistics (BLS). DOE collected PPI data of “small electric household appliances, except fans” from 1983 to 2012 to proje ct future price for portable dehumidifiers and PPI data of “room AC and dehumidifiers” to project future price for whole

- home dehumidifiers. DOE also investigated the impact of different product price forecasts on the consumer net present value (NPV) for t he considered TSLs of both types of dehumidifiers. For portable dehumidifiers, DOE considered two price sensitivity scenarios: (1) a trend based on the experience curve approach, and (2) a trend based on the “furniture and appliances ” that was forecasted i n AEO2013 . Similarly, DOE also considered two price sensitivity scenarios for whole

- home dehumidifiers: (1) a trend based on “air

- conditioning, refrigeration, and forced air heating equipment” PPI, and (2) a trend based on the “furniture and appliances” th at was forecasted in AEO2013.

10

- C.2 EXPERIENCE CURVE EST IMATION

– LOW PRICE DECLINE SCENARIO FOR PORTABL E DEHUMIDIFIERS

For this sensitivity case, DOE is using the experience curve approach to forecast future prices of portable dehumidifiers

. In the experience curve method, the real cost of production is related to the cumulative production, or experience, with a manufactured product. That experience usually is measured in terms of cumulative production. As experience (production) accumulates, the cost of produc ing the next unit decreases. The percentage reduction in cost that occurs with each doubling of cumulative production is known as the learning rate. DOE was not able to apply the same shipment

- based learning curve approach to whole

- home dehumidifiers becau se the historical shipment data are insufficient.

In the experience curve method, the real product price (or proxy thereof) is related to the cumulative production or “experience” with a product. A common functional relationship used to model the evoluti on of production costs is :

Y = aX - b

W here :

a = an initial price (or cost), b = a positive constant known as the learning rate parameter, X = cumulative production, and Y = the price as a function of cumulative production

.

10

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- 1Thus, as experience (production) accumulates, the cost of producing the next unit decreases. The percentage reduction in cost that occurs with each doubling of cumulative production is known as the learning or experience rate ( E R ), and is given by:

E

R = 1

– 2 - b

In typical experience curve formulations, the experience rate parameter is derived using two historical data series: price (or cost) and cumulative production, which is a function of shipments during a long time span.

To derive an experience rate parameter for residential portable dehumidifiers , DOE obtained historical Producer Price Index (PPI) data for small electric household appliances spanning the time period 19 83

- 201 2 from the Bureau of Labor Statistics’ (BLS). a DOE used PPI data for this industry a s representative of residential portable dehumidifiers b ecause PPI data specific to residential portable dehumidifiers are not available. An inflation

- adjusted price index for small electric household appliances was calculated by dividing th e PPI series by the Gross Domestic Product Chained Price Index for the same years . This inflation

- adjusted price index (shown in Figure 10

- C.2

- 1 ) w as used in subseque nt analysis steps.

Figure 10

- C.2

- 1 Historical Real Price Index for Small Electric Household Appliacnes

a Series ID PCU33521033521014; http://www.bls.gov/ppi/ 10

- C

- 2DOE assembled a time

- series of annual shipments f rom 1972

- 2010 for portable dehumidifiers, which were obtained from the AHAM Fact Book. Th is annual historical shipments data were used to estimate cumulative shipments (production) for portable dehumidifiers. Projected shipments after 2010 w ere obtained from the base case p rojections made for the NIA

. Figure 10

- C.2

- 2 show s the shipments time series used in the analysis.

Figure 10

- C.2

- 2 H istorical and Projected Shipments of Portable Dehumidifiers

To estimate an experience rate parameter, a least

- squares power

- law fit was performed on the unified price index versus cumulative shipments. See Figure 10

- C.2

- 3

. The form of the fitting equation is:

P(X) = P o X

- b

, where the two parameters, b (the learning rate parameter) and P o (the price or cost of the first unit of production), are obtained by fitting the model to the data. DOE notes that the cumulative shipments on the right hand side of the equation can have a dependence on price, so there is an issue with simultaneity where the independent variable is not truly independent. DOE’s use of a simple least squares fit is equivalent to an assumption of no significant first price elasticity effects in the cumulative shipments variable.

10

- C

- 3Figure 10

- C.2

- 3 R elative Price versus Cumulative Shipments of Portable Dehumidifiers , with Power Law Fit

The regression performed as power

- law fit results in an R

- square of 0.986, which indicates a great fit to the data. The parameter values obtaine d are:

P o = 3

. 301

− 1

. 462 + 1

. 613 (95% confidence) for household laundry equipment , and b = 0.328±0.015 (95% confidence) for household laundry equipment

.

T he estimated experience rate (defined as the fractional reduction in price expected from each doubling of cumulative production) is 20

. 3

− 0

. 8 + 0

. 8 % (95% confidence)

. DOE then derived a price factor index for this scenario , and the index value in a given year is a function of the

e xperience rate and the cumulative production forecast through that year, which is based on the shipments forecast described in chapter 9.

10

- C.3 EXPOTENTIAL FIT APPR OACH

– LOW PRICE DECLINE SC ENARIO FOR WHOLE

- HOME DEHUMIDIFIERS

As mentioned above, the historica l shipments for whome

- home dehumidifiers are not sufficient enough to perform an experence curve estimation. Therefore, for this scenario, DOE used an inflation

- adjusted air

- conditioning, refrigerationm and forced air heating equipment Producer Price Index (PPI) from 1978

- 2012 to fit an exponential model with year as the

10

- C

- 4explanatory variable. b DOE chose this PPI series because this is the more aggregated industry including whole

- home dehumidifiers than the room AC and dehumidifiers industry used in the defa ult price scenario. The PPI data reflect nominal prices, adjusted for product quality changes. An inflation

- adjusted (deflated) price index for air

- conditioning, refrigeration and forced air heating equipment was calculated by dividing the PPI series by th e Gross Domestic Product Chained Price Index . The deflated price index is now presented in 2012 dollar values. In this case, the exponential function takes the form of:

Y = a ∙ e bX

where Y is the motor price index, X is the time variable, a is the constant and b is the slope parameter of the time variable.

To estimate these exponential parameters, a least

- square fit was performed on the inflation

- adjusted air

- conditioning, refrigerationm and forced air heating equipment PPI versus
year f rom 1978 to 2012. See Figure 10

- C.3

- 1

.

Figure 10

- C.3

- 1 R elative Price of Air

- Conditioning, Refrigeration, and Forced Air Heating Equipment versus Year , with Exponential Fit

The regression performed as an exponential trend line fit results in an R

- square of 0.85, which indicates a good fit to the data. The final estimated e xponential function is:

b Series ID PCU333415333415; http://www.bls.gov/ppi/ 10

- C

- 5Y = 7

. 393 × 10 6

∙ e (

− 0

. 0079 ) X

DOE then derived a price factor index for this scenario, with 201 2 equal to 1, to project prices in each future year in the analysis period considered in the NIA since 2012 . The index value in a given year is a function of the exponential parameter and year

.

10

- C.4 ANNUAL ENERGY OUTLOO K 2013 PRICE FORECAS T

– HIGH PRICE DECLINE SCENARIO FOR PORTABLE AND WHOLE

- HOME DEHUMIDIFIERS

DOE also examined a forecast based on the “chained pr ice index

— furniture and appliances” that was forecasted for AEO201 3 out to 2040. This index is the most disaggregated category that includes both types of dehumidifiers. To develop an inflation

- adjusted index, DOE normalized the above index with the “chain ed price index

— gross domestic product” forecasted for AEO201 3 . To extend the price index beyond 2040, DOE used the average annual price growth rate in 2031 to 2040.

10

- C.5 SUMMARY

Table 10

- C.5

- 1 shows the summary of the average annual rates of changes for the product price index in each scenario. Figure 10

- C.5

- 1 and Figure 10

- C.5

- 2 shows the resulting price trends for portable and whole

- home dehumidifiers respectively

.

Table 10

- C.5

- 1 Price Trend Scenarios Product Scenario Price Trend Average Annual Rate of Change % Portable Dehumidifier Default Exponential Fit using Small Electric Household Appliances PPI (1983 to 2012) - 2.02

High Price Decline AEO2013 “chained price index

— furniture and appliances” - 2.41

Low Price Decline Experience Curve Estimation using Small Electric Household Appliances PPI (1983 to 2012) - 1.08

Whole

- Home Dehumidifier Default Exponential Fit using Room AC and Dehumidifiers (1990 to 2009) - 2.32
High Price Decline AEO2013 “chained price index

— furniture and appliances” - 2.41

Low Price Decline Exponential Fit using Air

Conditioning, Refrigeration, and Forced Air Heating Equipment PPI (1978 to 2012) - 0.79

10

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- 6Figure 10

- C.5

- 1 Portable Dehumidifier Price Factor Indexes for the Default Case and Sensitivity Cases

Figure 10

- C.5

- 2 Whole

- Home Dehumidifier Price Factor Indexes for the Default Case and Sensitivity Cases

10

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- 710

- C.6 RESIDENTIAL DEHUMIDIFIERS NPV RESULTS USING ALTERNATIVE LEARNING RATES

Table 10

- C.6

- 1 Residential Dehumidifiers : Net Present Value of Consumer Impacts Under Alternative Product Price Forecasts (3 Percent Discount Rate)
Price Trend Product Class (pints/day) Candidate Standard Levels
C SL1 C SL 2 C SL 3 C SL 4

Default ≤20.00 1.423 1.592 1.842 2.205

20.01

- 30.00 0.039 0.221 0.395 0.978

30.01

- 35.00 0.041 0.324 0.959 1.285

35.01

- 44.99 0.004 0.118 0.936 1.274
≥45.00 0.119 0.144 0.144 0.226
≤8ft 3 Case Volume (Whole

- home) 0.006 0.006 0.006 0.013

>8 ft 3 Case Volume (Whole

- home) 0.012 0.025 0.025 0.032

Low Price Decline ≤20.00 1.418 1.584 1.828 2.181

20.01

- 30.00 0.038 0.219 0.390 0.959

30.01

- 35.00 0.040 0.321 0.943 1.261

35.01

- 44.99 0.004 0.116 0.922 1.255
≥45.00 0.114 0.137 0.137 1.255
≤8ft 3 Case Volume (Whole

- home) 0.006 0.006 0.006 0.011

>8 ft 3 Case Volume (Whole

- home) 0.012 0.024 0.024 0.030

High Price Decline ≤20.00 1.424 1.594 1.846 2.211

20.01

- 30.00 0.039 0.222 0.397 0.982

30.01

- 35.00 0.041 0.325 0.963 1.292

35.01

- 44.99 0.004 0.118 0.939 1.279
≥45.00 0.120 0.146 0.146 0.230
≤8ft 3 Case Volume (Whole

- home) 0.006 0.006 0.006 0.013

>8 ft 3 Case Volume (Whole

- home) 0.012 0.025 0.025 0.032

10

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- 8Table 10

- C.6

- 2 Residential Dehumidifiers : Net Pr esent Value of Consumer Impacts Under Alternative Product Price Forecasts (7 Percent Discount Rate)
Price Trend Product Class (pints/day) Candidate Standard Levels
C SL1 C SL 2 C SL 3 C SL 4

Default ≤20.00 0.609 0.679 0.779 0.925
20.01

- 30.00 0.016 0.095 0.171 0.41 3
30.01

- 35.00 0.017 0.144 0.40 4 0.5 40
35.01

- 44.99 0.003 0.051 0.38 6 0.53 8
≥45.00 0.046 0.05 7 0.05 7 0.0 538 ≤8ft 3 Case Volume (Whole

- home) 0.003 0.003 0.003 0.004
>8 ft 3 Case Volume (Whole

- home) 0.004 0.009 0.009 0.010

Low Price Decline ≤20.00 0.606 0.676 0.773 0.914
20.01

- 30.00 0.016 0.094 0.169 0.402
30.01

- 35.00 0.017 0.143 0.395 0.527
35.01

- 44.99 0.003 0.050 0.379 0.528
≥45.00 0.044 0.053 0.053 0.078 ≤8ft 3 Case Volume (Whole

- home) 0.003 0.003 0.003 0.004
>8 ft 3 Case Volume (Whole

- home) 0.004 0.008 0.008 0.009

High Price Decline ≤20.00 0.609 0.680 0.781 0.927
20.01

- 30.00 0.016 0.095 0.171 0.413
30.01

- 35.00 0.017 0.144 0.404 0.540
35.01

- 44.99 0.003 0.051 0.386 0.538
≥45.00 0.046 0.057 0.057 0.087 ≤8ft 3 Case Volume (Whole

- home) 0.003 0.003 0.003 0.004
>8 ft 3 Case Volume (Whole

- home) 0.004 0.009 0.009 0.010

10

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- 9