northwest power and conservation council slide 1 direct use of natural gas economic fuel choices...

Northwest Power and ConservationCouncil

Slide 1

Direct Use of Natural GasEconomic Fuel Choices from the Regional

Power System and Consumer’s Perspective

September 8, 2011


Slide 2

Study Objectives Determine which residential space and water heating systems

are least-cost (TRC) and least-risk for the region’s power system given;– The diversity of space conditioning and water heating

systems and existing housing characteristics– A large number of combinations of space conditioning and

water heating systems to select from– That carbon emissions as well as their economic risk are a

consideration Determine whether the retail market will lead consumers to

chose the space conditioning and water heating systems that are also least cost and least risk for the region’s power system


Slide 3

Significance Council’s existing policy on fuel choice/fuel switching has not

be thoroughly reviewed since 1996 Council’s analysis and policy recommendations are of intense

interest to the natural gas industry, as well as electric utilities in the region

Of the 3.6 million existing PNW households– 2.6 million will replace their space conditioning and water

heating system over the next 20 years– 130,000 annual “fuel choice” decisions

Potential for conversion of existing appliances:– Electricity to gas: Reduce load by 1,500 MWa– Gas to electricity: Increase load by 2,500 – 5,000 MWa


Slide 4

Two Perspectives Regional Power System

– Space conditioning and water heating system selection based on wholesale electricity and gas prices

– Considers total system “cost” and “risk” (i.e., consideration of individual space and water heating conversion costs and performance alone does not account for the cumulative effects of these systems on the need for new resources)

Consumer Perspective– Space conditioning and water heating system selection

based on retail electricity and gas prices– Does not consider for “system” level impacts

slide 4


Slide 5

Preliminary Observations From Regional Power System Perspective (1)

Most homes should stay with their current space heating and water heating systems– Extending gas service is an economic hurdle to converting all-electric

households to gas– The overall efficiency of inexpensive electric space heating and water

heating systems is an economic hurdle that limits the viability of converting existing gas systems to electricity

There are exceptions– Converting gas water heaters to electric heat pump water heaters

appears to be economically attractive in many cases The economic potential of gas-to-electric conversions is

dependent upon whether new gas-fired turbines are needed to serve these new loads or whether existing turbines could support conversions to electric appliance


Slide 6

Preliminary Observations From Regional Power System Perspective (1)

Regional emissions of CO2 are about the same under a scenario that maintains gas space and water heating market shares or a scenario that results in conversion to electric space and water heating systems– With the exception of heat pumps, electric appliances

produce more CO2 than gas appliances due to the inefficiency of the overall power system

– However, the small potential for economic conversions simply make the impact negligible


Slide 7

Remaining Analytical Work from Region Power System Perspective

Assess the impact of the interaction between “fuel conversions” and the amount of conservation available (e.g. increased market share of natural gas space heating reduces the potential for residential weatherization, heat pump efficiency upgrades, etc.)

Assess whether consideration of the cooling benefits provided by heat pumps alters the selection of space conditioning systems

Refine the granularity of results for specific market segments Add a heat pump-with-gas forced air furnace backup hybrid

space heating option


Slide 8

Consumer PerspectiveAlignment of Incentives

Analysis using the Resource Portfolio Model (RPM) revealed that existing homes employing natural gas for space and water heating would convert to electric space and water heating systems based on life-cycle costs using wholesale electricity and natural gas prices

If this were to occur, it would increase the Northwest power system’s cost and risk, which reflect generation plant and operation cost


Slide 9

Is This Scenario Highly Probable?

Given current retail electricity and natural gas prices and forecast future retail prices, would consumers likely convert from natural gas space and water heating systems to electric space and water heating systems?

If this is the case, should the Council modify its current policy on fuel choice/switching?

slide 9


Analytical Approach Compare the “first cost” and “life cycle

cost” of alternative space conditioning and water heating systems using:– Utility specific retail electricity and natural gas prices– 6th Plan forecast of future retail price escalation rates– “Average” system installation and operation and

maintenance cost– Representative range of housing sizes and climates

» 1500 – 2250 sq.ft.» Portland, Seattle, Boise, Spokane, Kalispel

slide 10


Slide 11

Analytical Approach

The “best” space conditioning and water heating system options for consumers is dependent upon the difference between their retail prices for electricity and natural gas

In order to represent this diversity the life cycle cost model was run using the retail rates for all gas and electric utilities in the region that serve the same general geographic area– “service territory” matching was not done

slide 11


Slide 12

Input Assumptions

Space and water heating systems are “converted” at the same time

Conversions are financed– 6% interest rate– 15 years

Tested alternative assumption where consumer pay cash– Results were nearly identical

slide 12


Slide 13

RPM Results Focused Consumer Economic Analysis

Resource Portfolio Model (RPM) revealed that eighteen of 95 existing market segments represented 80% of the likely “fuel shifts” from gas-to-electric systems

Segments are characterized by– Housing Type (Single Family or Multifamily)– Existing space heating system– Existing water heating system & storage tank capacity– Presence of existing central air conditioning– Foundation type– Natural gas service access

slide 13


Slide 14

Consumer Life Cycle Cost Model

Designed to compare:– First cost (Installed cost of system excludes gas line

extension cost)– First year space conditioning and water heating cost– Life cycle space conditioning and water heating cost– “Annual Levelized cost” of space conditioning and

water heating User can model specific utilities and climates Users with “Crystal Ball” can model distributions

of climate zones and utility rates

slide 14


Slide 15

Consumer Life Cycle Cost Model

User inputs:– Climate (5 locations across region)– Utility specific or climate specific distribution

of retail electric and gas rates– Utility specific or regional forecast of

escalation rates for retail rates– Existing and converted space conditioning and

water heating system configurations– Five home sizes (2 – MF, 3-SF)

slide 15


Five Segments Represent Over 50% of the Potential Change in Gas or Electric Load

slide 16

Existing Space

Conditioning System

Existing Water

Heating System

Water heater

capacity (gals)

House Type &

Size (sq.ft.) Basement?

Gas Access

Share of Total

Converted Electric

Load

Converted Load (Mwa)

Converted Load

(MMBtu)

Gas FAFGas Storage

Tank X<=55 SF - 1900 No Existing 19% 321

(1,111,661)

Gas FAFGas Storage

Tank X<=55 SF-2250 Yes Existing 13% 215 (775,632)

Gas FAF

Electric Resistance

Storage Tank X<=55 SF-1900 No Existing 9% 153

(530,703)

Gas FAF

Electric Resistance

Storage Tank X<=55 SF-2250 Yes Existing 7% 115

(414,670)

Gas FAF w/Central

ACGas Storage

Tank X<=55 SF-1900 No Existing 6% 96

(332,507)


Slide 17

Results for Largest Market SegmentsExisting Homes with Gas Furnaces and Gas or Electric

Water Heating

slide 17

$5,00

0

$6,00

0

$7,00

0

$8,00

0

$9,00

0

$10,0

00

$11,0

00$16,000

$16,500

$17,000

$17,500

$18,000

$18,500

$19,000

$19,500

$20,000

First Cost vs. Life Cycle Cost of Alternative Space Conditioning and Water Heating Systems

Assumes 1900 sq.ft. home without basement or central AC

Gas FAF with HPWH (EF2.0) Capacity <=55 gals

Gas FAF with Gas Condensing (EF75) Capacity <=55 gals

Gas FAF with Gas Storage Tank (EF63) Capacity<=55 gals

Gas FAF with Electric Resistance (EF95) Capacity <=55 gals

Gas FAF with Gas Tankless (EF82) Capacity <=55 gals

Heat Pump with HPWH (EF2.0) Capacity <=55 gals

Heat Pump with Gas Condensing (EF75) Capacity <=55 gals

Electric FAF with HPWH (EF2.0) Capacity <=55 gals

Hybrid Heat Pump with HPWH (EF2.0) Capacity <=55 gals

Electric FAF with Gas Condensing (EF75) Capacity <=55 gals

Installed Cost of System (2009$)

Lif

e C

ycle

Cos

t (2

009$

)


Slide 18

Results for Largest Market Segments w/ Limited Standard Deviation

Existing Homes with Gas Furnaces and Gas or Electric Water Heating

slide 18

$5,000 $7,000 $9,000 $11,000 $13,000$16,000

$16,500

$17,000

$17,500

$18,000

$18,500

$19,000

$19,500

$20,000


Assumes 1900 sq.ft. home without basement or central AC






Hybrid Heat Pump with Gas Storage Tank (EF63) Capacity<=55 gals

Hybrid Heat Pump with Gas Tankless (EF82) Capacity <=55 gals

Hybrid Heat Pump with Gas Condensing (EF75) Capacity <=55 gals

Heat Pump with Gas Storage Tank (EF63) Capacity<=55 gals

Heat Pump with Gas Tankless (EF82) Capacity <=55 gals


Lif

e C

ycle

Cos

t (2

009$

)


Slide 19

Results for Largest Market Segments Existing Homes with Basements using Gas Furnaces and

Gas or Electric Water Heating

slide 19

$5,00

0

$6,00

0

$7,00

0

$8,00

0

$9,00

0

$10,0

00

$11,0

00

$12,0

00$15,000

$15,500

$16,000

$16,500

$17,000

$17,500

$18,000

$18,500


Assumes 2250 sq.ft. home with basement without central AC






Electric FAF with HPWH (EF2.0) Capacity <=55 gals


Electric FAF with Gas Condensing (EF75) Capacity <=55 gals




Lif

e C

ycle

Cos

t (2

009$

)


Slide 20


Existing Homes with Basements using Gas Furnaces and Gas or Electric Water Heating

slide 20

$5,000 $7,000 $9,000 $11,000 $13,000$15,000

$15,500

$16,000

$16,500

$17,000

$17,500

$18,000

$18,500

$19,000

$19,500

$20,000


Assumes 2250 sq.ft. home with basement without central AC












Lif

e C

ycle

Cos

t (2

009$

)


Slide 21

Results for Largest Market Segments Existing Homes with Gas Furnaces and Central AC

and Gas Water Heating

slide 21

$5,00

0

$6,00

0

$7,00

0

$8,00

0

$9,00

0

$10,0

00

$11,0

00$16,000

$16,200

$16,400

$16,600

$16,800

$17,000

$17,200

$17,400

$17,600


Assumes 1900 sq.ft. home with basement and central AC



Gas FAF w/CAC with HPWH (EF2.0) Capacity <=55 gals


Gas FAF w/CAC with Gas Condensing (EF75) Capacity <=55 gals


Heat Pump with Electric Resistance (EF95) Capacity <=55 gals


Electric FAF w/CAC with HPWH (EF2.0) Capacity <=55 gals

Gas FAF w/CAC with Gas Storage Tank (EF63) Capacity<=55 gals


Lif

e C

ycle

Cos

t (2

009$

)


Slide 22


Existing Homes with Gas Furnaces and Central ACand Gas Water Heating

slide 22

$5,00

0

$6,00

0

$7,00

0

$8,00

0

$9,00

0

$10,0

00

$11,0

00

$12,0

00$16,000

$16,500

$17,000

$17,500

$18,000

$18,500


Assumes 1900 sq.ft. home with basement and central AC


Gas FAF w/CAC with Gas Condensing (EF75) Capacity <=55 gals


Gas FAF w/CAC with Gas Storage Tank (EF63) Capacity<=55 gals

Gas FAF w/CAC with Electric Resistance (EF95) Capacity <=55 gals


Gas FAF w/CAC with Gas Tankless (EF82) Capacity <=55 gals





Lif

e C

ycle

Cos

t (2

009$

)


Slide 23

Preliminary Findings (1)

Conversion of existing water heaters, whether gas or electric, to heat pump water heaters appears to be preferable on a life cycle cost basis– However, gas condensing water heaters have

life cycle cost that are very nearly as low and heat pump water heaters

Air Source heat pumps appear to be preferable on a life cycle cost basis when air conditioning is desired, except in zonal electric homes where “ductless” heat pumps have lower LCC

slide 23


Summary of ResultsExisting Systems with Lower Life Cycle Cost

Options Requiring Fuel Conversion

slide 24

Existing Space Cond.

System

Existing Water

Heating System

Minimum LCC Space

Cond. System

Minimum LCC Water

Heating System

SH Fuel Conversion

WH Fuel Conversiion

Share of Total

Potential Electric

Conversions

Electric FAFElectric Resistance Gas FAF HPWH Yes No 5.5%

Gas FAFGas Condensing Gas FAF HPWH No Yes 4.2%

Gas FAF

Gas Storage Tank Gas FAF HPWH No Yes 32.0%

Gas FAF HPWH Gas FAF HPWH No No 1.2%

Gas FAF w/CAC

Electric Resistance Heat Pump HPWH Yes No 4.6%

Gas FAF w/CAC

Gas Storage Tank Heat Pump HPWH Yes Yes 8.6%


Slide 25

Preliminary Findings (2)

Conversion of existing electric water and gas heating systems to higher efficiency systems (heat pump water heaters and heat pumps when air conditioning is desired) appears to be preferable to conversion to natural gas space heating and water heating from a life cycle cost perspective

However, this finding is not applicable to all consumers due to variations in retail electricity and gas prices across the region

slide 25


Slide 26

Summary of ResultsExisting Systems with Lower Life Cycle Cost

Options Requiring Efficiency Upgrades

slide 26

Existing Space Cond. System

Existing Water Heating System

Minimum LCC Space Cond. System

Minimum LCC Water Heating System

Share of Total Potential Electric Conversions

Electric FAF w/CACElectric Resistance Heat Pump HPWH 1.3%

Electric Zonal Electric ResistanceElectric Zonal HPWH 3.0%

Electric Zonal Electric Resistance Ductless HP HPWH 5.6%

Gas FAF Electric Resistance Gas FAF HPWH 16.0%


Slide 27

Life Cycle Cost of Each Space Conditioning and Water Heating System Vary Across the Region

slide 27


The Life Cycle Cost Heat Pumps and Gas Furnaces with Central AC Are Distributed Differently Across the Region

slide 28

11449.17234458814512.988491427217576.804638266420640.620785105623870.0486155577

0

100

200

300

400

500

600

700

800

900

Life Cycle Cost - Heat Pump

Fre

qu

ency

15342.514800061416985.043332962718627.57186586420270.100398765322001.4142577694

0

100

200

300

400

500

600

Life Cycle Cost - Gas FAF with Central AC

Fre

qu

ency


Slide 29

Therefore, Only Limited Generalizations About Which System Has the Lowest Life Cycle Cost

Are Possible (or Prudent)

slide 29

$12,000 $14,000 $16,000 $18,000 $20,000 $22,000 $24,000 0

100

200

300

400

500

600

700

800

900

1000

Heat Pump

Gas FAF w/AC

Life Cycle Cost

Fre

qu

ency


Slide 30

Consideration of “Variance” Changes the Results

Retail electricity prices differ more across the region than retail natural gas prices– Electricity prices range from 2.3 cents/kWh to 12.3

cents/kWh (530%)– Gas prices range from $8.54/MMBtu to $16.13/MMBtu

(190%) Selecting the systems with the lowest life cycle

cost and limiting the “standard deviation” increases the likelihood that natural gas space heating systems are the best economic choice– Heat pump hot water heaters are still selected

slide 30


Summary of ResultsExisting Systems with Lower Life Cycle Cost Options

Requiring Fuel Conversion When “Variance” is Considered

slide 31

Existing Space Cond.

System

Existing Water

Heating System

Minimum LCC Space

Cond. System

Minimum LCC Water

Heating System

SH Fuel Conversion

WH Fuel Conversiion

Share of Total

Potential Electric

Conversions

Electric FAFElectric Resistance Gas FAF HPWH Yes No 5.5%

Gas FAFGas Condensing Gas FAF HPWH No Yes 4.2%

Gas FAF

Gas Storage Tank Gas FAF HPWH No Yes 32.0%

Gas FAF HPWH Gas FAF HPWH No No 1.2%

Gas FAF w/CAC

Electric Resistance

Gas FAF w/CAC HPWH Yes No 4.6%

Gas FAF w/CAC

Gas Storage Tank

Gas FAF w/CAC HPWH Yes Yes 8.6%


Slide 32

Results for Other Segments

slide 32

Existing Space

Conditioning System

Existing Water

Heating System

Water heater

capacity (gals)

House Type &

Size (sq.ft.) Bsmnt?

Lowest LCC w/o Std Dev Limit

Lowest LCC w/Std Dev Limit

Electric Zonal

Electric or Gas

Storage Tank X<=55 MF - 1050 No

Electric Zonal with Gas Tankless (EF82) Capacity <=55 gals


Electric Zonal

Electric or Gas

Storage Tank X<=55 MF - 1450 No


Ductless HP with Gas Tankless (EF82) Capacity <=55 gals

Electric Zonal

Electric or Gas

Storage Tank X<=55 SF - 1500 No

Electric Zonal with HPWH (EF2.0) Capacity <=55 gals

Ductless HP with HPWH (EF2.0) Capacity <=55 gals

Electric FAF

Electric or Gas

Storage Tank X<=55 SF-1900 No



Electric FAF w/CAC

Electric or Gas

Storage Tank X<=55 SF-1900 No




Slide 33

Results for Other Segments

slide 33

Existing Space

Conditioning System

Existing Water

Heating System

Water heater

capacity (gals)

House Type &

Size (sq.ft.) Bsmnt?

Lowest LCC w/o Std Dev Limit

Lowest LCC w/Std Dev Limit

Heat Pump

Electric or Gas Storage

Tank X<=55 SF - 1900 NoHeat Pump with HPWH (EF2.0) Capacity <=55 gals


Heat Pump


Tank X>55 SF -1900 YesHeat Pump with HPWH (EF2.0) Capacity >55 gals

Gas FAF w/CAC with HPWH (EF2.0) Capacity >55 gals

Gas FAF w/CAC


Tank X<=55 MF - 1450 NoDuctless HP with Gas Tankless (EF82) Capacity <=55 gals

Ductless HP with Gas Tankless (EF82) Capacity <=55 gals

Electric or Gas FAF


Tank X>55 SF-22500 YesGas FAF with HPWH (EF2.0) Capacity >55 gals

Gas FAF with HPWH (EF2.0) Capacity >55 gals


Slide 34

Next Steps

Solicit Your Input on updated “Regional Power System” and “Consumer Life Cycle Cost Model” Findings

Review Implications for Council’s Current Policy of Direct Use of Gas

Develop staff recommendation for Council consideration

slide 34

northwest power and conservation council slide 1 direct use of natural gas economic fuel choices...

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