Heat Pumps: An Untapped Resource For Energy Savings Programs. Regional and State-Level Economic Analysis of Heating Applications

Transcription

1 Heat Pumps: An Untapped Resource For Energy Savings Programs Regional and State-Level Economic Analysis of Heating Applications

2 INTRODUCTION Consumers and policymakers alike are concerned about the rising cost of energy, future energy resource availability, and energy contributions to climate change. These factors drive energy policy to facilitate the adoption of efficient technologies, because reducing energy consumption simultaneously decreases customer energy costs and greenhouse gas (GHG) emissions. Residential space heating is a prime candidate for these more efficient technologies because of its prominence; notably, space heating accounts for 42% of total residential energy consumption in the U.S. (EIA, 2013). Air-source heat pumps (ASHPs) represent a steadily growing segment of the residential space heating market (9%). Heat pumps operate using electricity, but can be two to three times more efficient than electric resistance heating. Higher energy efficiency, coupled with accessibility, makes heat pumps a strong alternative to other space heating systems. ASHPs are a prime candidate for energy efficiency or carbon emissions reduction programs, given the energy savings potential of the technology. One of the main barriers to widespread adoption of ASHPs, however, is the high capital cost relative to the cost of other substitute technologies. A comparative economic analysis is useful in helping policymakers, utilities, and consumers better understand the circumstances under which heat pump technology is cost effective. Key questions from these stakeholders include: When should incentives be offered for heat pump installations? How can utilities harness the potential of heat pumps to realize energy efficiency goals? How much money and energy will customers save with heat pumps? ASHPs are a prime candidate for energy efficiency or carbon emissions reduction programs, given the energy savings potential of the technology. Recent studies aimed to answer these questions often focus on a single geographic region or only compare fuel cost savings. Furthermore, cost savings provided by heat pumps are often calculated only with respect to electric resistance heating instead of a range of typical heating fuels and technologies (e.g., natural gas, oil, and electric furnaces). This report presents: The conditions under which ASHPs are economically viable either now or in the foreseeable future. A regional and state-by-state comparison of the total levelized cost of energy (LCOE) for ASHPs, oil furnaces, electric furnaces, and natural gas furnaces. An economic analysis of ASHPs as a function of natural gas prices (i.e. the natural gas price at which the levelized cost of heating with ASHPs is lower than the cost of heating with natural gas furnaces). 2 www. EMIConsulting.com Seattle, WA

3 METHODS, DATA AND ASSUMPTIONS The primary objective of this research is to compare costs of ASHPs to other energy sources using the levelized cost of energy (LCOE) method. This method aims to quantify the lifetime costs and energy benefits of a given heating system. As shown below, the LCOE is defined as the net present value of the system capital cost and the total heating costs of the heating system divided by the total discounted energy output of the system. We include capital costs and fuel costs in the analysis, but do not consider maintenance costs. where: LCOE is the levelized cost of energy of the system in dollars per MMBtu CapitalCost is the cost in dollars of the heating equipment and installation AnnualHeatingLoad is the energy output of the system, equal to the average annual energy consumption in MMBtu used for space heating FuelPriceyear is the yearly average fuel price in dollars per MMBtu, increased each year by the nominal fuel escalation rate d is the nominal discount rate This research uses a variety of sources and assumptions to calculate the LCOE for heating systems. Heating energy consumption values and fuel prices are taken from the Residential Energy Consumption Survey (EIA, 2013 and 2015). Other assumptions were taken from a previous study (Bernier, 2006). Below lists the LCOE Variables and their assumed Value. Equipment Lifetime 15 years Nominal Discount Rate 7% Fuel Prices Varies by fuel & by state Natural Fuel Escalation Rate 3% Heating Energy Consumption Varies by state www. EMIConsulting.com Seattle, WA

4 The table below provides the capital cost and efficiency assumptions for each heating technology. Capital cost assumptions includes installation and all heating equipment have an assumed 50 kbtu capacity. Some heating technologies, including ASHPs, cannot meet the full heating load in extreme climates, and secondary heating systems are often needed. This analysis considers only the cost of primary heating. Electric furnace heaters do not have efficiency ratings; we use a comparable estimate from the EIA based a new electric heater with basic features. Electric Furnace Oil Furnace Natural Gas Furnace Air Source Heat Pump Capital Costs $1,500 $1,500 $5,400 $1,500 Effieciency Rating 98% est. 78% AFUE 82% AFUE 8.5 HSPF The energy performance of ASHPs, measured by the heating season performance factor (HSPF), depends upon outside air temperature and varies by climate. This means that the actual ASHP performance will deviate from its rated performance. Climate adjusted efficiencies used in the analysis for ASHPs vary from 5.0 to 15.0 based on state climate. Cold climate heat pumps can improve this efficiency, but we assumed a standard 8.5 HSPF rated heat pump for simplicity. We have limited this analysis to heating systems. ASHPs can also provide cooling and dehumidification, and they can therefore offset the capital cost of air conditioners or other cooling equipment. Our research has shown that ASHPs can reduce the energy demand in homes with existing cooling while providing a new service to customers who did not previously have cooling. Including the ability of ASHPs to provide cooling in our analysis would improve the overall economics of heat pumps, particularly in regions where air conditioning dominates annual HVAC energy costs. 4 www. EMIConsulting.com Seattle, WA

5 RESULTS This section presents the high level regional LCOE comparisons and directly compares ASHP to natural gas, electric, and oil furnaces. In the details, we call out nuances that are critical for forward thinking, such as historic variability of natural gas prices, climate dependent heating demand, and limited access to heating fuels. For all regions and the U.S. as a whole, ASHP are more cost-effective than oil and electric furnaces, but not as cost effective natural gas. Figure 1 shows the average LCOE by region, as well as the national average. Natural gas furnaces have the lowest national average LCOE, followed by ASHPs. On average oil furnaces are slightly more expensive than ASHPs. Electric furnaces have the highest For all regions and the U.S. as a whole, ASHPs are more cost-effective than oil and electric furnaces, but not as cost effective natural gas. average LCOE for all regions nationally. Ranges for LCOE (shown as error bars) are widest for states in the South and West due to the varied climates and prices within these regions. All states are weighted equally in the regional and national LCOE averages. Figure 1: Regional and National Average LCOE Comparison of Air Source Heat Pump to Natural Gas Heating Nearly half of residential customers heat their homes using natural gas, making it the most common fuel for residential space heating (EIA, 2013). Natural gas is currently inexpensive relative to other energy sources, but it has experienced considerable price volatility in the past. In addition, natural gas is inaccessible to many homes around the country due to gaps in infrastructure. These nuances should be considered when determining the economic viability of residential heating systems. www. EMIConsulting.com Seattle, WA

6 Figure 2 illustrates the cost of ASHP heating as a percentage of natural gas heating. Values less than 100% indicate that ASHP heating is less than natural gas heating and values greater than 100% indicate that ASHP heating is more expensive than natural gas heating. As shown, ASHP heating is more expensive than natural gas heating in every U.S. state. The states where ASHP costs are closest to natural gas costs are located in the Northeast, where natural gas prices are highest, and in the Northwest and South, where electricity prices are relatively low. For example, in Alabama, ASHP heating is 137% of the cost of natural gas heating. States with high ASHP costs (more than 200% the cost of natural gas furnaces) tend to be characterized by a combination of relatively high electricity prices (e.g., AK, CA), low climate adjusted ASHP performance (e.g., MN, AK), and low annual heating energy needs (e.g., FL, AZ). 224 Figure 2: Cost of ASHP Heating as a Percentage of the Cost of Natural Gas Heating * * 2009 RECS consumption data for Hawaii was insufficient to include in the analysis Percent Natural gas is not available to all customers. White areas in the graph represent geographic regions where little or no natural gas service is available. Due to low gas prices, natural gas heating (when available and accessible) currently has the lowest LCOE for all states. However, gas prices can be u ce: EMI 2015 Co nsulting 2015 volatile and it is worth examining the conditions under which ASHP heating will overtake natural gas as the lowest cost option. Figure 3 shows the minimum percent increase in natural gas price needed for ASHPs to have a lower LCOE than natural gas assuming no other changes in the economic model. In some states, this percent increase is as low as 50% while in other states it is well over 150%. Although these may appear Source : EMI Consulting, Source: EMI Consulting, www. EMIConsulting.com Seattle, WA

7 to be large price increases, they are within historical natural gas price fluctuations. Forecasted natural gas prices increase in all of the EIA Annual Energy Outlook 2015 scenarios, including the high oil and gas resource scenario (EIA, 2015). Figure 4 shows the average residential natural gas prices (real) from 1967 to 2014 as well as the rolling 5-year average change in price (EIA, 2015). In the past decade, natural gas prices have decreased by as much as 30% and increased by as much as 40%. Figure 3: Minimum Percent Increase in Natural Gas Price Required for ASHP Cost of Heating to Equal Natural Gas Cost of Heating Percent WA, OR, ME, AL, GA: Moderate gas price increases in these states will likely cause ASHPs to overtake natural gas as the lowest cost option Figure 4. Historical Natural Gas Prices and 5-Year Average Percent Change in Natural Gas Price U.S. Price of Natural Gas (real) Delivered to Residential Consumers % Change in Natural Gas Price (5-Year Average) 20 60% Natural Gas Price ($/1000 cu. ft.) 16 40% 12 20% 8 0% 4-20% 0-40% % Change in Price Comparison of ASHP Heating to Electric Resistance Heating According to the EIA, electricity is the second most common primary heating fuel (behind natural gas) with 34% of residential customers using electric heat as their primary heating fuel. However, this number includes multiple heating technologies: heat pumps, space heaters, built in units, and warm air furnaces. For technology comparison, we focus on electric resistance heating through warm air furnaces; this is used by 17% of housing units. Electricity infrastructure is more widely available in the U.S. than that of natural gas. www. EMIConsulting.com Seattle, WA

8 Figure 5 compares the LCOE for ASHP heating to the LCOE for electric furnaces. In nearly all states, the LCOE with ASHPs is less than the cost of heating with electric furnace heating. This is primarily due to the high efficiency of ASHPs compared to electric resistance heating. In Florida and Arizona, ASHP heating is more expensive than electric heating resistance, due to low annual heating loads; the heating load is not high enough to justify the current higher upfront capital costs of ASHPs in these climates. Increasing electricity prices or decreasing incremental costs from the electric furnace to the ASHP would change this relationship Figure 5. Cost of ASHP Heating as a Percentage of the Cost of Electric Resistance Heating (Central Electric Furnace) Percent FL, AZ: High ASHP cost driven by low annual heating loads Comparison of ASHP Heating to Oil Furnace Heating Figure 6. Cost of ASHP Heating as a Percentage of the Cost of Emollient Furnace Heating Percent AZ, TX, & FL: High ASHP cost driven by low annual energy consumption. CT, MA, & VT: High ASHP cost driven by ASHP performance (If not a cold climate ASHP) CA & AK: High ASHP cost driven by high electricity prices. Figure 6 compares the LCOE for ASHP heating to the LCOE for oil furnaces. In the majority of states, the levelized cost of heating with ASHPs is less than the cost of heating with oil furnaces. In the states where oil heating is more cost effective than ASHP, the primary driver is either low annual consumption (not enough to justify capital cost of the ASHP) or the reduced performance of ASHPs in cold climates. We assumed a standard 8.5 HSPF heat pump in this analysis; modern cold climate heat pumps allow for higher performance at low temperatures and may be more cost effective than standard heat pumps. 8 www. EMIConsulting.com Seattle, WA

9 REGIONAL SPOTLIGHT ON FUEL TYPE National and regional averages tell us most of the story, but climates and fuel costs vary considerably across the different regions. There is also variation within states with regard to fuel costs, availability, and climate; averages are useful for general audiences while individual utilities or municipalities may want a more detailed view. Here we provide additional detail by region. additionally we provide more detailed information at the state level. Northeastern and Midwestern States The Northeastern and Midwestern regions of the U.S. have the highest annual average energy consumption for space heating per household. Homes in the Northeastern states consume an average of 59.8 million Btu (MMBtu) per year (with a low of 48.4 MMBtu and a high of 71.4 MMBtu) and homes in Midwestern states consume an average of 58.2 MMBtu (with a low of 42.1 MMBtu and a high of 69.8 MMBtu). This high annual heating energy consumption causes the total LCOE to be dominated by fuel costs, instead of the capital cost of heating equipment. ND SD NE NE MN IA Midwest (12 States) MO WI MO IN MI PA VT NY Northeast (9 States) RI CT NJ ME NH MA Key Takeaways High heating loads LCOE dominated by fuel costs Homes in these regions could benfit from ASHPs when Natural gas infrastructure is not available Natural gas prices increase sufficiently, particularly in IN & OH, where the difference in LCOE of natural gas & ASHP is relatively small Figure 7 compares the total LCOE of oil furnaces, electric furnaces, ASHPs and natural gas furnaces in Northeastern states. In MA, NH, NY, and ME the LCOE of oil and ASHP heating are about the same. However, in RI, PA and NJ, ASHP heating is less expensive than oil. It is worth noting that in these three states, 50%, 15%, and 9% of homes currently use oil for primary heating, respectively. In CT and VT, ASHP heating is slightly more expensive than oil heating. This is due to a combination of higher electricity prices and lower ASHP performance in cold climates. Figure 7. Comparison of LCOE of Different Heating Technologies in the Northeastern States Total LCOE ($/MMBtu) in Northeastern States Oil Furnace Electric Furnace ASHP Natural Gas Furnace $80 $40 $- PA RI NJ ME MA NH CT NY VT www. EMIConsulting.com Seattle, WA

10 Figure 8 compares the total LCOE of oil furnaces, electric furnaces, ASHPs and natural gas furnaces in Midwestern states. For all of the Midwestern states, ASHP heating is the second least expensive option after natural gas. Currently, about 70% of homes in the Midwest rely on natural gas for primary heating, 2% rely on oil, and 18% use electric resistance heating. Figure 8. Comparison of LCOE of Different Heating Technologies in the Midwestern States Total LCOE ($/MMBtu) in Midwestern States Oil Furnace Electric Furnace ASHP Natural Gas Furnace $80 $40 $- IN OH IL ND WI MO SD IA NE KS MI MN Western and Southern States Many of the Western and Southern states are characterized by mild winters and lower annual energy consumption for space heating. Western states consume an annual average of 27.7 MMBtu/household (with a low of 10.1 MMBtu and high of 56 MMBtu) while Southern states consume an average of 22.1 MMBtu/household (with a low of 5.6 MMBtu and a high of 36.3 MMBtu). Because of these lower heating consumption levels, the total LCOEs in these states are dominated by the capital costs of the heating technology used. Key Takeaways Low heating loads LCOE dominated by capitol costs Homes in these regions could benfit from ASHPs when Natural gas infrastructure is not available Natural gas prices increase Capital costs for ASHP decrease Western (13 states) AK CA OR WA NV MT ID WY UT CO AZ NM HI OK OR TX AK MD DE Southern (17 states) VA KY TN NC AR SC MS AL GA LA FL Figure 9 compares the total LCOE of oil furnaces, electric furnaces, ASHPs and natural gas furnaces in Western states. In these states, ASHP heating is on average 2.3 times the cost of natural gas heating. Although ASHPs are less expensive than electric resistance heating and oil furnaces in most of these states, they are more expensive than oil furnaces in CA, AK, and AZ. In AZ, ASHPs are the most expensive heating option. These results are mainly due to both the high capital cost of ASHPs and low space heating energy needs in AZ and CA. In AK, this is due to very high electricity prices and low performance of ASHPs in cold climates. 10 www. EMIConsulting.com Seattle, WA

11 Figure 9. Comparison of LCOE of Different Heating Technologies in the Western States Total LCOE ($/MMBtu) in Western States Oil Furnace Electric Furnace ASHP Natural Gas Furnace $80 $40 $- WA UT ID OR CO MT NV NM WY CA AK AZ Figure 10 compares the total LCOE of oil furnaces, electric furnaces, ASHPs and natural gas furnaces in Southern states. In these states, ASHP heating is on average 1.8 times the cost of natural gas heating. The lower relative cost in the southern region compared to the western region is due to the slightly better ASHP performance. Natural gas is not widely used or available for heating in Southern states, and the cost of extending natural gas lines or service is not included. For areas where natural gas is not readily available, the ASHP is competing more directly with central electric furnaces. The exceptionally high LCOE for ASHP heating in FL is due to the low annual heating load; thus, the capital cost dominates the LCOE. Figure 10. Comparison of LCOE of Different Heating Technologies in the Southern States Total LCOE ($/MMBtu) in Southern States Oil Furnace Electric Furnace ASHP Natural Gas Furnace $80 $40 $- WV LA VA DC TN AR GA DE MD MS OK AL NC SC KY TX FL www. EMIConsulting.com Seattle, WA

12 CONCLUSIONS AND OPPORTUNITIES The results of this analysis indicate that ASHP heating is less expensive than electric and oil furnace heating in the majority of states in the U.S. This is especially true for electric furnace heating, where the LCOE for ASHP represents savings of at least 10% in 42 states (up to nearly 40%). Considering the benefit of reduced cooling costs would further improve the economic performance for warm or more varied climates. However, to truly transform the market, ASHPs would need to offer cost savings over natural gas, which is the most common primary heating fuel in the residential sector. ASHP heating is currently more expensive than natural gas heating in all states, although natural gas price fluctuations may change the economics in the future. Our analysis shows that natural gas prices would need to increase by 50% to 150% for ASHPs to be cost effective relative to natural gas for a majority of states. Although this range is broad, this is within the range of historic gas price fluctuations. Where gas is not available, ASHPs are already competitive. These findings open up a number of opportunities for policy or program leaders to harness the potential of ASHP technology in their area: Education In areas where natural gas is either unavailable or inaccessible, customers could benefit from outreach programs to educate the public on the cost-saving benefits of ASHPs over more common heating systems. Many utilities and state energy offices already provide information about heating system choices. Clear and simple statements about the performance of ASHPs may increase adoption without any incentives. Timing of messaging will be critical to ensure that customers are educated when making purchase decisions. Market research can be used to assess the impact of education programs. Financial Incentives Energy Efficiency $ In areas where the levelized costs of heat pump heating and natural gas heating are close, financial incentives may have a large impact on the market penetration of heat pumps. A more detailed analysis involving economic forecasts and engineering models within the targeted region, state, or utility territory would provide stakeholders with costs and benefits to determine the potential impact of heat pump incentives. Based on the climate, heating system types, and heating consumption in a particular area or jurisdiction, utilities can quantify the potential of ASHP technology to help meet local or state energy efficiency or environmental goals. Our analysis shows ASHPs are cost-effective across most of the country. Program opportunities for including ASHP will rely on targeted customer messages appropriate for the local context. Regardless, ASHPs represent a relatively untapped energy savings potential for much of the country. Future work in this area could include performing similar analyses at the utility service territory level to refine the costs and benefits of ASHPs locally and inform customer marketing. 12 www. EMIConsulting.com Seattle, WA

13 ABOUT EMI CONSULTING EMI Consulting delivers strategic research and analysis services to utility companies and other energy industry clients nationwide. We provide expertise in policy, planning and evaluation; customer and market research; and engineering analysis and technology assessment. Our highly qualified team is passionate about helping clients see beyond the numbers. We are uniquely positioned to capture crucial information, clarify its meaning, and transform it into actionable results for our clients. EMI Consulting was founded in 1995 and is headquartered in Seattle. CREATIVELY ENGINEERING THE ENERGY FUTURE The EMI Consulting Engineering Analysis and Technology Assessment team mission is to apply Kerstin Michael Erica Dave Andrea Sean Jess For more information on how EMI Consulting can help bring clarity on this or other issues, please contact us. (206) Columbia Street, Suite 400 Seattle, WA References ASHRAE. (2009). Economic Database in Support of ASHRAE (Energy-Efficient Design of Low-Rise Residential Buildings) 1481 RP. Bernier, M. A. (2006, September). Closed-Loop Ground-Coupled Heat Pump Systems. ASHRAE Journal. EIA. (2008). Distribution of Natural Gas: The Final Step in the Transmission Process. Retrieved from EIA. (2014, June). EIA Fuel Cost Calculator. Retrieved March 2015, from heatcalc.xls EIA. (2015, March). Natural Gas. Retrieved from EIA. (2013). Residential Energy Consumption Survey (RECS). Retrieved March 2015, from U.S. Energy Information Administration: EIA. (2015, Jan). U.S. Energy Information Administration. Retrieved March 2015, from Sources and Uses: NREL. (2013, Mar). National Residential Efficiency Measures Database. Retrieved June 2015, from NREL. (2014, Jan). Energy Analysis. Retrieved March 2015, from Simple Leveilized Cost of Energy Calculation Documentation: www. EMIConsulting.com Seattle, WA