Furnace Manufacturers Hot Under the Collar Over New Energy Standard

Furnace Manufacturers Hot Under the Collar Over New Energy Standard

A new standard being considered by the Department of Energy (DOE) has generated some opposition in the heating industry.

The current minimum efficiency standard for residential nonweatherized natural gas furnaces is 80 AFUE (Annualized Fuel Utilization Efficiency).  This means furnaces must convert 80% of fuel energy into useful heat energy.  However, the Department of Energy (DOE) is seeking to increase this standard by a whopping 12 percentage points, to 92 AFUE. If approved, this increase would effectively eliminate use of noncondensing furnaces, which cannot reach such high levels of efficiency, and force consumers installing new equipment to choose condensing furnaces. 

However, there has been significant push back from the industry.  While the initial proposal to increase the minimum standard was introduced in March 2015, as of April 2017 a final rule has yet to be published and with the current President’s efforts to reduce industry regulations, the proposed rule might be dropped completely.

92 AFUE Would Have Mixed Results for Consumers

Condensing furnaces have two major benefits versus less efficient models: cheaper operational costs and reduced carbon dioxide emissions. There is also relatively little cost difference in installing a condensing furnace during new building construction.

Costs begin to rise, however, when one installs a condensing furnace in a building that had previously used a noncondensing model. Because they use different combustion technologies, different venting systems are required. Most noncondensing boilers use a vertical vent shaft to expel waste heat, which is often shared with the water heater.  However, a condensing boiler typically requires a horizontal vent, with waste heat expelled out the side of the structure.  Not only does this require the addition of a new vent system, but in instances where a water heater and noncondensing furnace previously used a vertical vent shaft, that shaft must be downsized to accommodate only the water heater.

A number of trade associations, such as the American Public Gas Association and the Air Conditioning, Heating, and Refrigeration Institute, have come out against the new standard and the burden it would place on consumers. The APGA in particular has been outspoken on the issue, stating on its website that the “APGA strongly believes that this furnace rule, although intended to increase efficiency, would undermine energy efficiency goals and increase costs to consumers.”  Those increased consumer costs, argues the APGA, would come from higher installation costs due to building retrofits or higher operating costs if a consumer switches to an electric furnace.

Consumers Are Willing to Pay More for Greater Energy Efficiency, but Only if They Can See the Results

A recent Nielsen study reported that consumers are willing to invest in energy efficient products if the costs can be made up in lower utility bills, which condensing furnaces would be able to achieve.  However, also according to Nielsen, in 2015 households spent on average $250 on improving home efficiency and most consumers expect the payback period to be six years or less.  Retrofitting an existing structure to utilize a condensing furnace far exceeds $250, while the payback period depends largely on the age and type of system it is replacing.

Compromises are Beginning to Take Shape

In September 2016, the DOE released a Supplement Notice of a Proposed Rule that maintained the same minimum energy efficiency level for all furnaces except those of 55,000 Btu or less.  The DOE argues that this excludes furnaces used in warmer climates and in smaller homes, where the cost savings from using a more efficient furnaces would be small.

In response, the APGA released a statement with its own proposed solution, stating that the DOE should set separate standards for condensing furnaces and noncondensing furnaces.  Doing so, the APGA argues, ensures that consumers maintain control of their purchasing decision.

More than two years have passed since the proposed standard was announced.  As advocates on both sides of the issue continue to search for common ground, it will take a while for consumers to see the impact of any final rule that is issued.  However, with the current administration not placing a high priority on energy efficiency, and in fact making an attempt to curb regulations, the implementation of the 92 AFUE rule looks unlikely.

Research on the Heating Equipment Market

For more information, see the Heating Equipment Market in the US, a new industry study by The Freedonia Group.  This comprehensive report provides vital information on market environment factors and analysis on the following:

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About the Author:

Kyle Peters is the Assistant Manager of the Machinery and Equipment Group at The Freedonia Group, where he works on studies related to the US and global machinery, appliances, and industrial components markets.