Evaluation of Energy-Efficiency Standards for Room Air Conditioners in the US ()
1. Introduction
Every proposed new or amended US energy conservation standard must be designed to achieve significant additional conservation of energy and be technologically feasible and economically justified. In making its determination of whether a potential standard is economically justified the US Department of Energy (DOE) must assess whether the benefits of the proposed standard exceed its burdens to the greatest extent practical. DOE issued amended energy conservation standards for room air conditioners in 2011 [1]. As part of DOE’s evaluation, we analyzed the energy and economic impacts of possible energy efficiency standards for room air conditioners on both US consumers and the nation as a whole.
The effect of standards on individual consumers includes a change in operating expense (usually decreased) and a change in purchase price (usually increased). We use two metrics to determine the effect of standards on a representative sample of US consumers. Life-cycle cost (LCC) is the total consumer expense over the life of an appliance, including purchase expense and operating costs (including energy expenditures). We discount future operating costs to the time of purchase and sum them over the lifetime of the product. Payback period (PBP) measures the amount of time it takes consumers to recover the assumed higher purchase price of more energy-efficient products through lower operating costs.
For the national impact analysis (NIA), we evaluated 1) national energy savings (NES) attributable to each potential standard; 2) the monetary value of the energy savings to consumers of room air conditioners; 3) the increased total installed costs because of standards; and 4) the net present value (NPV) of the difference between the value of energy savings and increased total installed costs.
2. Technology Options Considered
For this study, we examined the most common improvements used in today’s market to increase the efficiency of residential room air conditioners. Table 1 and Table 2 lists the efficiency improvements associated with six efficiency levels for each of the two product classes discussed in this paper: room air conditioners less than 6000 Btu/h with louvers, and room air conditioners 8000 - 13,999 Btu/h with louvers. We chose to focus in this paper on these two product classes because they account for the majority of room air conditioner sales. The analysis performed for DOE’s rulemaking also evaluated other product classes.
Table 1. Room air conditioner with louvered sides, <6000 Btu/h; Efficiency levels considered.
Table 2. Room air conditioner with louvered sides, 8000 - 13,999 Btu/h;*Efficiency levels considered.
The baseline efficiency level reflects the existing Federal standard and assumes the standby power is 1.4 watts. Room air conditioner efficiency is expressed as combined energy efficiency ratio (CEER), which is cooling capacity in Btu/h per watt (W) of input power. CEER is an integrated metric that includes standby and off mode together with the active mode.
Efficiency level 1 in Table 1 and efficiency level 3 in Table 2 represent technology improvements that reduce standby power to 0.7 W. The remaining efficiency levels are accomplished by using common improvements found in today’s market, such as increasing the heat exchanger surface area (e.g. increasing evaporator width, frontal coil area, and adding additional tube rows to the condenser or evaporator, adding subcooler to the condenser coil) or using a more efficient compressor or higher efficiency fan motor.
3. Life-Cycle Cost and Payback Period Analysis
For each efficiency level, we calculated a consumer LCC and PBP. We define LCC using Equation (1):
(1)
where:
LCC = life-cycle cost in dollars;
IC = total installed cost in dollars;
∑ = sum over the lifetime, from year 1 to year N;
N = lifetime of appliance in years;
OC = operating cost in dollars;
r = discount rate;
t = year for which operating cost is being determined.
Numerically, the PBP is the ratio of the increase in purchase expense (i.e. from a less energy-efficient design to a more energy-efficient design) to the decrease in annual operating expenditures and is expressed in years. This type of calculation does not take into account changes in operating expense over time or the time value of money. Payback periods greater than the life of the product indicate that the increased total installed cost is not recovered with the reduced operating expenses.
The inputs to the total installed cost are the product cost and the installation cost. The inputs to the operating costs are the annual energy cost, the annual repair cost, and the annual maintenance cost. The PBP uses the same inputs as the LCC analysis, except that energy price trends and discount rates are not required.
Several inputs to the determination of consumer LCC and PBP are either variable or uncertain. Recognizing this, we developed LCC and PBP spreadsheet models incorporating both Monte Carlo simulation and probability distributions by using a Microsoft Excel spreadsheet combined with Crystal Ball (a commercially available add-on program). The spreadsheet is accessible on DOE’s appliance standards website [2].
We used the DOE Energy Information Administration (EIA)’s 2005 Residential Energy Consumption Survey (RECS) to develop household samples for room air conditioners [3]. The 2005 RECS, which consists of 4382 housing units, was constructed by the EIA to be a national representation of the household population in the United States. We were able to assign a unique annual energy use and/or energy price to each household in the sample. The variability across households in annual energy use and/or energy pricing contributes to the range of LCCs and PBPs calculated for any particular energy efficiency level.
We also analyzed use of room air conditioners in the commercial sector. As described below, an estimated 12 percent of the total stock of room air conditioners is in the commercial sector.
3.1. Inputs to Calculations
Because we gathered most of our data for the LCC and PBP analyses in 2009, we express dollar values in 2009$. The compliance date when amended energy efficiency standards for room air conditioners become operative will be June 2014. We calculated the LCC and PBP for all consumers as if they each would purchase a new product in 2014.
3.2. Inputs to Total Installed Cost
3.2.1. Manufacturer Cost
Baseline manufacturer cost refers to the costs incurred by the manufacturer to produce products meeting existing minimum efficiency standards. We used the baseline manufacturer costs for room air conditioners developed by DOE in the 2011 rulemaking for room air conditioners (see chapter 5 of the technical support document (TSD) for the final rule) [4]. DOE used a combination of cost data submitted by the Association of Home Appliance Manufacturers (AHAM) and a reverse engineering analysis to develop manufacturer cost increases associated with increases in room air conditioner efficiency levels. Table 3 presents the manufacturer cost increase for each considered efficiency level for the two product classes.
3.2.2. Markups
DOE developed an average manufacturer markup by examining the annual Securities and Exchange Commission (SEC) 10-K reports filed by four publicly traded manufacturers primarily engaged in appliance manufacturing and whose combined product range includes room air conditioners. For retailers, we developed separate markups for baseline products (baseline markups) and for the incremental cost of more-efficient products (incremental markups). Incremental markups are coefficients that relate the change in the manufacturer sales price of higher-efficiency models to the change in the retailer sales price. The overall markup is the value determined by multiplying the manufacturer and retailer markups and the sales tax together to arrive at a single markup value. The overall baseline markup is 1.96, while the overall incremental markup is 1.58.
3.2.3. Installation Cost
The cost of installation covers all labor and material costs associated with the replacement or installation of a product. We derived installation costs from the 2010 RS Means Residential Cost Data, which provides estimates on the labor required to install residential room air conditioners. We assumed a trip charge equal to half an hour for each crew member. The installation cost ranges from $73 to $213, depending on the unit size.
Higher efficiency equipment that has significantly larger dimensions or weight may require additional labor hours during installation. We generated estimates of such additional labor hours on the labor hours for higher capacity room air conditioners having similar dimensions or weight. We used regional labor costs to more accurately estimate the regional variation in installation costs.
3.2.4. Future Product Prices
DOE’s engineering analysis estimated manufacturer costs in 2010. Economic literature and historical data suggest that the real costs of certain appliances and equipment may trend downward over time according to learning or experience curves. An extensive literature discusses the learning or experience curve phenomenon, typically based on observations in the manufacturing sector [5]. To explain the empirical relationship, the theory of technology learning is used to substantiate a decline in the cost of producing a given product as firms accu
Table 3. Room air conditioner with louvered sides, manufacturer cost-efficiency relationship.
mulate experience with the technology. A common functional relationship used to model the evolution of production costs is shown in Equation (2):
(2)
where:
a = an initial price (or cost);
b = a positive constant known as the learning rate parameter;
X = cumulative production;
Y = the price as a function of cumulative production.
Thus, 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 experience rate (ER) and is given by
. 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 throughout a long period.
To derive an experience rate parameter for room air conditioners, we obtained historical Producer Price Index (PPI) data for room air conditioners from the Bureau of Labor Statistics (BLS) from 1990-2009. Inflation-adjusted price indices for room air conditioners were calculated by dividing the PPI series by the Consumer Price Index (CPI) “all items” index for the same years. We assembled a time-series of annual shipments for 1946- 2009 for room air conditioners from data submittals from AHAM, AHAM Fact Books, and Appliance magazine.
To estimate an experience rate parameter, a leastsquares power-law fit was performed on the unified price index versus cumulative shipments. For room air conditioners, the estimated experience rate (defined as the fractional reduction in price expected from each doubling of cumulative production) is 
(95% confidence). We then derived a price factor index, with 2010 equal to 1, to forecast prices in each future year in the analysis period. The index value in a given year is a function of the experience and the cumulative production forecast through that year. We applied the same value to forecast prices for each room air conditioner product class at each considered efficiency level.
3.2.5. Total Installed Cost
Table 4 presents the total installed costs in 2014 by efficiency level for the two considered room air conditioner product classes.
3.3. Inputs to Operating Cost
3.3.1. Annual Energy Consumption
We calculated the annual energy consumption of a room air conditioner using Equation (3):
(3)
where:
= room air conditioner annual energy consumption (kWh/year),
= rated capacity in Btu/h;
= operating hours per year,
= combined energy efficiency ratio in Btu/ h/W.
We began with the data reported by RECS 2005 on the annual energy consumption (field energy consumption) for room air conditioning, referred to as
. EIA used a regression technique to estimate how much of the total annual electricity consumption for each household can be attributed to each end-use category. The reported field energy consumption refers to the consumption of all of the room air conditioners in a home.
RECS 2005 also reports the number of room air conditioners in the home. Of all homes that use a room air conditioner, 35 percent have two room air conditioners, and 14 percent have three or more room air conditioners. To estimate the energy consumption of a single room air conditioner, referred to as
, we divided FEC- (all)RECS by the reported number of room air conditioners. For houses with both central air conditioning and room air conditioning, we scaled 
using a relative use factor. Although in reality the utilization of each of the room air conditioners in a home may vary, we had no way to estimate such variation.
For commercial-sector room air conditioners, we estimated the energy consumption using variables specific to each building in the sample and data on cooling degree-days.
In conducting the analysis of energy use by products that would meet some future standard, we effectively substituted the room air conditioners in the sample residential and commercial buildings with a new product of identical product class (capacity) but with different energy efficiency. In order for the estimate of new room air
Table 4. Room air conditioners: Total installed costs in 2014, residential applications.
conditioner energy consumption to reflect field conditions, we needed to estimate the number of room air conditioner operating hours for each household or commercial building in the samples.
We calculated the annual room air conditioner active mode operating hours for each residential sample unit using Equation (4):
(4)
where:
OH = operating hours per year,
= field energy consumption for a room air conditioner,
= the estimated EER of the room air conditioner in the sample home,
= the room air conditioner capacity in Btu/h,
= adjustment to building shell efficiency in 2014, percent,
= cooling degree days (CDD) adjustment in Btu/h.
The capacity is given by the product class. To ensure that the estimated operating hours are representative of future conditions, we used the building shell index factor from Annual Energy Outlook (AEO) 2010 in 2014 for space cooling in all homes of 0.96 and historical average CDD by census division [6]. The building shell index factor decreased energy use by 4 percent, while the CDD adjustment factor decreased energy use by 10 percent on average.
We estimated the EER of the room air conditioner in each sample household by matching the age of the room air conditioner given by RECS with the average EER for the specific product class in the year of its vintage. Once the vintage year was determined, we assigned an EER to the unit equal to the average EER for the appropriate capacity for that year.
The estimated mean number of operating hours for the residential room air conditioner sample is 756 hours for the <6000 Btu/h product class, and 611 hours for the 8000 to 13,999 Btu/h product class. For comparison, the DOE test procedure uses 750 hours per year for all room air conditioners.
Table 5 provides the average annual energy consumption by efficiency level for the main room air conditioner product classes in residential applications. The energy use in commercial applications is considerably higher.