What new energy efficiency regulations mean for propane marketers

March 6, 2015 By    
Water heater

New governmental regulations on energy efficiency standards for water heaters could grow tankless sales. Photo courtesy of Navien Inc

New federal standards designed to boost the energy efficiency of water heaters take effect in April and have far-reaching impacts for companies with ties to this popular household appliance.

The U.S. Department of Energy (DOE) updates are creating a series of repercussions, from how manufacturers design the appliances, to which models consumers choose for their homes, even to installation methods. But what do they mean for propane marketers?

Industry stakeholders say propane companies should educate themselves on the heightened Energy Factor (EF) ratings for residential gas, electric and oil water heaters and learn about the best value propositions for propane. The new energy efficiency mandates go into effect April 16 as a result of updates to the National Appliance Energy Conservation Act.

“This is a major shift across all residential water heaters. It’s going to have implications on electric units, as well as gas – being natural gas or propane – and heating oil units,” says Jamie Lyons, research engineer at Newport Partners, a Maryland firm providing analytical and technical services for clients in the public and private sectors.

The new EF ratings vary depending on the type and volume of the water heater (see chart below). For example, the new minimum standard on 50-gallon gas storage water heaters increases from 0.58 to 0.60 and, on 75-gallon tanks, from 0.53 to 0.74.

According to the DOE, the new standard will save 3.3 quads of energy and result in about $63 billion in energy bill savings for products shipped over the next 30 years.

Manufacturers’ perspective
Water heater manufacturers have known about the new DOE requirements for about five years, giving them time to implement design changes to the appliances before the April deadline. The changes are minor in some cases and more radical on larger volume products.

“Water heaters are changing. They will become larger in size, [with] more insulation, or utilize different technologies, but they will be more efficient and use less overall energy,” says Chad Sanborn, product marketing manager for Bradford White.

Added insulation up to 2 inches will help water heaters with 20- to 55-gallon tanks meet the new efficiency standards, says Brian Fenske, specialty channel sales manager for Navien Inc. Thicker tank insulation can help a water heater retain its fuel energy.

But gas-fired and electric storage water heaters with a volume greater than 55 gallons will require more than insulation, Fenske adds. Larger gas-fired units will also use advanced combustion systems and controls, requiring power venting and electric to operate.

“Electric storage tanks above 50 gallons will see even more of a change to meet the new standards,” Fenske says. “Because of slower recoveries, these popular 80-gallon electrics will become extinct and be replaced with newer, but not always better, technology.”

Fenske says electric water heaters with tanks greater than 55 gallons will become heat pump water heaters in order to meet the standards. This technology allows for the exchange of air temperature with water.

“While much more efficient than standard electric resistance water heaters, these are quite expensive, large, tall and not suited for all installation and geographic application locations,” he says.

Sanborn does not believe the new standards will have a large impact on one particular fuel source.

“Some customers will be faced with tough decisions when replacing a water heater, and an option for them may be to switch fuels,” he says. “For example, maybe [a customer switches from] an electric water heater to a propane water heater because the new electric water heater doesn’t fit, but we expect that these situations will be rare.”

Fenske says, “In some cases, an alternative may need to be considered because of space restrictions or modifications made to fit the newer, bigger tank water heaters.”

Electric users without natural gas available will look differently at LP gas-fired tanks and tankless, giving these options stronger consideration to avoid the heat pump units, Fenske adds.

Water heater prices are expected to increase as a result of the design modifications, as well, manufacturers say. In a November 2014 letter to its manufacturer representatives, one company announced the cost of its 2015 product line would increase 15 to 35 percent, if not more on some models requiring completely new technology.

The price increases, though, have the potential to lift tankless water heater sales. Many tankless gas models already surpass the new 0.82 EF rating and won’t be priced at such a premium to tank-style models, Lyons adds.

“The tankless industry is optimistic that our sales and demand for our products will increase due to the increased tank water heater costs, physical size increases and limitations on the larger units,” Fenske says.

Rinnai says it owns more than 40 percent of the gas tankless water heater market share in North America and is poised to capitalize on the efficiency changes.

“In situations where the tank is in an area that is not large enough to accommodate the new, larger tank without renovations, with its compact size, tankless is a great solution,” says Joe Holliday, director of business and product development for Rinnai. “Additionally, as the product and potential installation costs of tanks increase, there is even more of an incentive to investigate more efficient tankless technology.”

Propane marketer outreach
Water heating represents about 18 percent of total annual household energy consumption in the United States, making it the third-largest residential energy application, behind space heating, and electronics and lighting, according to the U.S. Energy Information Administration.

Armed with knowledge about the water heater standard changes and the appliances in general, propane marketers can sell customers on the benefits of the propane-fueled products, says Tom Jaenicke, a consultant to the propane industry from ATomiK Creative Solutions.

There’s a lot of market share to gain, Jaenicke says, because the propane industry has the water-heating load for only about one-third of its propane customers.

Jaenicke believes marketers can take one of three business approaches on propane water heaters: promote their usage; partner with a trade ally to grow their usage and installation; and actively sell, install and service them.

Water heating is one of five primary propane-burning applications for inside the home, with space heating, cooking, clothes drying and fireplaces. Marketers can counter appliance efficiency gains by focusing on growing all propane-consuming systems inside the home, Jaenicke says.

“Propane marketers need to consider that higher-efficiency equipment is an ongoing process that will continue and the best way to get average usage per customer up is to have more propane usage points in the home and not be concerned about equipment-efficiency improvements,” he says.

What is the Energy Factor?
Energy Factor (EF) ratings are increasing for virtually all residential water heaters and some light-duty commercial water heaters. EF indicates a water heater’s overall energy efficiency based on the amount of hot water produced per unit of fuel consumed over a typical day, the U.S. Department of Energy says.

Water heater sales
About 4 million gas-fired (propane and natural gas) and 4.2 million electric residential tank-style water heaters are sold annually, according to Navien specialty channel sales manager Brian Fenske. He says about 465,000 gas-fired tankless water heaters were sold in the United States last year by the tankless water heater manufacturers.

Water heater resources
 The Air-Conditioning, Heating, and Refrigeration Institute offers product performance information on many appliances, including water heaters. Visit www.ahridirectory.org.

 The Appliance Standards Awareness Project covers the new water heater standards and key facts about the changes. Visit www.appliance-standards.org/product/water-heaters.

 Bradford White and Rinnai are among the water heater manufacturers hosting webpages with information on what the new standards mean for businesses. Visit www.bradfordwhite.com/naeca and www.rinnai.us/about-rinnai/doe.

 Newport Partners is conducting an analysis for the Propane Education & Research Council (PERC), measuring the energy, economic and environmental implications of the water heater standard changes. The firm is also updating PERC’s educational courses on water heaters.

 PERC offers a variety of materials at its Propane Marketer Resource Catalog. In addition, the council has more information about water heaters and other propane-fueled applications for inside the home at www.buildwithpropane.com/propane-systems/product-directory.

Conversion Standards

Online exclusive
LP Gas Editor in Chief Brian Richesson provides an explanation of what water heater efficiency changes mean for retail propane companies.

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

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