NEEP HVAC Initiatives gain upstream momentum

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As the Northeast moves into another stretch of hot summer months, air conditioning efficiency and peak electric demand will be at the forefront of many people’s minds. NEEP’s HVAC Initiatives are entering a new phase of work and relationships that will address these issues and contribute to greater regional energy savings.

Background: Air conditioning and peak demand

Electric system peaks generally occur on the hottest of summer days, usually in July or August, in the mid- to late afternoon when most customers of all types tend have their air conditioning systems running simultaneously. Since all electric system infrastructure (generation, transmission and distribution) must be sized to meet the peak regardless of whether it is needed just for the few peak hours or all year long, it is extremely important to manage, or minimize, peak. In the Northeast, this is especially important since the systems were built and sized for loads projected years ago and actual loads have grown much more to the point that systems are operating at or very near capacity. 

As high-demand equipment that also runs at peak periods, air conditioners are a key target for efficiency programs. Residential central air conditioners can yield savings on the order of 30 kilowatt hours (kWh) per year per ton for each incremental seasonal energy efficiency rating value (SEER, as found in product literature and as described by virtually all contractors as part of their discussion with customers) above existing or baseline. For commercial unitary equipment, the savings can reach 45 kWh per year per ton per increase in SEER. Kilowatt hours measure the actual amount of energy consumed over time rather than specifically at the peak, but by using conversion factors developed through load research to translate kWh to peak kW it is easy to measure the all-important peak savings that provides the benefit to the transmission and distribution infrastructure. For example, in cases where an efficiency program pursues replacement of old, working air conditioners with new, high-efficiency ones, the savings can be around 1 kW for a typical residential scenario or 2.75 kW for a typical commercial scenario.¹ To the electric utility a kW of peak demand savings is generally worth well over $1,000 per year in avoided infrastructure costs so these savings really add up.

Shift in Focus Aims to Increase Efficiency

The last issue of NEEP Notes discussed NEEP’s strategic shift towards the pursuit of upstream relationships and joint-promotional activities to advance energy efficient residential and commercial HVAC systems in the region. (See http://www.neep.org/newsletter/1Q2007/HVAC.html). Initial work has now begun to yield promising results and all parties are moving forward to develop concepts and discussions into plans and frameworks for action.

HVAC systems are one of the most critical end-uses that can be addressed by energy efficiency programs. NEEP’s Residential and Commercial HVAC Initiatives are focusing on efforts to engage upstream market players including manufacturers and distributors as opposed to previous (and ongoing) downstream incentive strategies that target the end-use customer. This new approach is being pursued as a result of research indicating that the “reach” of the now mature downstream incentive strategy has peaked. By facilitating access between initiative sponsors and appropriate industry contacts, and by enabling those industry contacts to deal directly with most of the efficiency programs in the region, NEEP is bringing greater advantages to its sponsors and HVAC market partners. Ultimately these relationships will yield greater energy savings for HVAC customers and the region as a whole.

NEEP’s Upstream HVAC Efforts

Through a series of meetings held in April 2007, NEEP brought  together both residential and commercial program sponsors with HVAC equipment manufacturers and distributors. The parties discussed the opportunities and obstacles associated with building sales and market share of high-efficiency air conditioning and heating equipment. They also addressed ways in which efficiency programs, manufacturers and distributors (or “upstream partners”) can work together in their markets. One of the first and most important questions NEEP and its initiative sponsors had was, “Will attempting to work jointly with the upstream partners work?” The upstream partners expressed early and often their sense that market share gains for high-efficiency equipment could be enhanced by moving upstream. Participants in the joint meetings included:

Program Sponsors	Upstream Partners
Connecticut Light & Power	American Standard
Efficiency Maine	Bryant
Long Island Power Authority	Carrier
Massachusetts Utilities	Lennox
New Jersey Clean Energy Program	Trane
NYSERDA	York
United Illuminating

Upstream Partner Perspectives

Throughout the meetings, HVAC distributors stressed that the relationship between contractor and customer for HVAC equipment is complicated and fast-paced. From their perspective this relationship makes it difficult for the contractor to educate customers on the benefits of efficient equipment choices. On the other hand, the distributor-contractor relationship, through which the distributor provides the equipment to the contractor at wholesale, is ripe for ways to sell up efficient equipment. These parties tend to “speak each other’s language,” and generally it is  the distributors that drive the stocking decision, with contractors simply tending to sell what the distributor stocks. Leveraging relationships between efficiency programs and distributors can lead to increased stocking, and therefore sales and installation, of higher efficiency HVAC equipment.

Manufacturers and distributors both made it clear that newer, more aggressive minimum efficiency requirements for all units is a challenge. Minimum efficiency standards have resulted in physically larger base model equipment. Consequently, entry-level equipment is more expensive than it used to be, leading customers of all types to more seriously consider repairing equipment rather than replacing it. Rising raw materials costs add to this dilemma and opportunities to place high-efficiency equipment into service are therefore limited. Perhaps more importantly, product development and supply has not yet caught up with the new efficiency levels. For example, in 2006, manufacturers tended to emphasize baseline equipment, rather than higher efficiency units. 

The upstream partners also confirmed the Sponsors’ notion that is necessary to conduct separate programs for the residential and commercial markets because industry organizations are separated along these lines, and business transactions are significantly different for commercial equipment than for residential. 

Lastly, the meetings included an interesting dialogue about the type of savings joint relationships intended to achieve. Industry partners initially felt that the driver of joint activity was a reduction in customer consumption and energy bill savings, while the program administrators explained that they were driven by achieving greater savings for the generation, transmission and distribution systems. Both sets of savings will be impacted by any upstream HVAC activities going forward.  

Outcomes and Next Steps

The most important outcome of the meetings was that all sides agreed to continue the process of jointly developing upstream program options, including “straw proposals,” that would benefit all parties. The discussions continue today, although there are still many hurdles to leap. It will be challenging to find equipment specifications and incentive levels that work for both the programs and industry, and that work across the different areas of the region. Also, in many cases, it will take significant time and effort to educate the many layers of program interests on the reasons for, and value of, the proposed change in both focus and methods. Pilot or demonstration programs are likely to be employed at first, so all stakeholders can gain experience and confidence in the viability of the upstream model. This new approach between efficiency program administrators and the HVAC industry will yield great increases in energy efficiency around the region, resulting not only in lower customer energy consumption, but also reduced peak summer electric demand and greater electric system reliability.

For more information, please contact Jon Linn, manager of NEEP's Commercial Initiatives, or Melissa Lucas, manager of NEEP's Residential Initiatives.

1 Residential 3 ton SEER 8 replaced with SEER 15 and Commercial 5 ton SEER 8 replaced with SEER 15.