ACHRNEWS

Adding Up The Costs Of Higher SEER

November 16, 2001
The debate over moving up to a proposed 12 SEER efficiency standard for central air conditioners and heat pumps, or making it 13 SEER, shows cost figures that diverge significantly from Department of Energy (DOE) estimates. The Air-Conditioning and Refrigeration Institute (ARI) says 13 SEER will be more costly than estimated. Goodman Manufac-turing points to a report that says it will be less costly.

ARI supports the 12 SEER proposal (a 20% increase) that it says would be more affordable to consumers. Goodman supports 13 SEER (a 30% increase), saying that it would maximize energy savings to make up for the added cost.

Formal comments were filed with the DOE on October 19 by ARI, manufacturers, contractors, utilities, government agencies, interest groups, and citizens. The new standard is proposed to be phased in over five years, currently in 2006. Federal law requires DOE to choose an efficiency level that is economically justified.



The 12-SEER Position

According to Ed Dooley, vice president of communications and education for ARI, the institute commented that 13 SEER would be counterproductive because it would increase costs to the extent that many homeowners would keep using their older, less-efficient units.

Dooley stated, “At least 75% of consumers purchasing a 13-SEER split-system air conditioner would incur a net cost, i.e., increases in equipment costs would exceed the value of energy savings. The impact would be even greater on lower-income families: at least 83% would incur net costs.”

Deborah E. Miller, ARI’s vice president, government affairs, submitted a map to the DOE to illustrate that, applying its industry cost multipliers and markups, payback periods would range from five to 10 years to greater than 20 years for the majority of the nation (see Figure 1). “In effect,” she stated, “13 SEER only makes clear economic sense in Florida and the tip of Texas.”

The 12 SEER standard “would be more affordable to many more consumers and payback periods would be more reasonable, thus encouraging the replacement of lower-efficiency units,” according to ARI.

Dooley also said that DOE was underestimating the cost impact of increased standards. Thus, the case for adopting a 12 SEER standard is even stronger than estimated by DOE, noted Dooley. For example, ARI said that the cost of a 3-ton split air conditioner under the current 10 SEER minimum would jump from $2,410 to $2,817, a $407 difference compared to the $213 estimated by DOE. A 13 SEER standard would boost costs to $3,122, a $712 increase over a 10-SEER unit and $305 more than a 12-SEER unit, compared to the $122 estimated by DOE.

For central system heat pumps, 10-SEER unit costs would increase from $3,922 to $4,316 under a 12 SEER standard, and to $4,644 under 13 SEER.

Dooley added that while the cost evaluation used by DOE is based on 3-ton units, a majority of U.S. homes would need larger sized units, which would hike average costs.



ARI's estimated 13 SEER payback period, using its industry cost multipliers and markups.

13 Seer Support

David Parks, president of Goodman Manufacturing, stated that 13 SEER received “broad-based support from a variety of entities.” He said that more than 100 organizations and 18,000 citizens submitted comments supporting it. (See The News, October 29, 2001, pg. 7.)

He also noted that the Environmental Protection Agency (EPA) submitted a report that supports 13 SEER.

Goodman has said that its cost differential for 12 vs. 13 SEER is more in line with the DOE’s original estimates and that paybacks are faster than ARI estimates, particularly in hotter southern climates, where paybacks could be as fast as one year.

Because costs can be configured in various ways, Parks said he referred to the EPA report for its analysis. “They took an independent view of it,” he said.

The EPA states that the DOE proposal understates the savings benefits of 13 SEER due to higher efficiency, and it does not accurately represent distributional inequalities.

The agency says the underestimate of the efficiency savings is due to DOE’s analysis, which is based on summer 1996 electricity prices rather than current prices. “Changes in the electricity market due to deregulation have resulted in increased electricity prices overall,” noted the EPA.

The agency says that, according to wholesale electricity price data, DOE underestimates the cost of electricity for residential air conditioning by an average of approximately $0.02/kWh.

“Adjusting DOE’s analysis to include more recent electricity prices will definitely and drastically alter the results, indicating that a DOE minimum standard of 13 SEER represents the better decision for the nation.”

The EPA also sees distributional inequalities that it says the DOE has not adequately considered. One is because the residential price of electricity does not include the complete cost for running air conditioning systems that largely operate at peak times.

That is, residential customers, except in select circumstances, purchase electricity based upon average rates, not “time-of-use” rates, says the agency. The cost of electricity at peak times is significantly higher, and those higher peak rates drive up the average cost. Therefore, operating less-efficient equipment at peak times drives up the cost of electricity for all customers.

The EPA also pointed out the availability of utility rebates for 13 SEER and above equipment. In New Jersey, a three-year rebate program began in 2000 with a $370 rebate given for the installation of 13-SEER products and $550 for 14-SEER equipment. A total of 14,000 rebates were given last year, the agency reports. As of August 2001, 8,000 rebates were given out. The Long Island Power Authority (LIPA) launched a similar rebate program for 13- and 14-SEER systems.

For 2002, the agency says, utilities in Texas and California are planning such incentive programs targeting 13 SEER and above.

Parks also emphasized the need to look at the history of the previous standard change. “When the 10-SEER standard was introduced, the cost of the units went down. When that became the baseline, economies of scale brought down the cost.”

He also does not agree with the ARI assertion that a majority of U.S. homes would need units larger than 3 tons’ capacity. “Our most popular sizes are two, two-and-a-half, and three tons,” Parks said. “Four and five tons are not our average selling units.” And with the use of zoning, he added, consumers would use multiple smaller units rather than larger sizes.



Sizing Issues

ARI also noted, Dooley said, that with the average 13-SEER unit, “there will be many instances where it will be very difficult to physically fit the larger indoor coil, needed to match the outdoor 13-SEER condensing unit, without retrofitting the air handler originally designed for a smaller, lower-SEER indoor coil.

“This process is costly. The problem will exist for tens of millions of units shipped between 1985 and the end of 2000, and millions more to be shipped until 2006.”

Parks responded that, for Goodman’s equipment, coil size is not a problem in retrofit applications. He stated, “The exact same coil works in the same cabinetry size for 12- and 13-SEER units.” He said that he can’t speculate on the size of other manufacturers’ equipment.

ARI further noted that the Department of Justice and Small Business Administration both expressed anticompetitive concerns regarding a jump to 13 SEER, saying that it may drive some manufacturers out of business. Parks again pointed to the EPA report, which says both large and small manufacturers have the technology and numerous models are currently available.



State, Federal Complications

Parks remarked, “If the DOE doesn’t go with 13 SEER, some states may advance further and faster than the federal efficiency standard.” Individual states can seek a waiver to impose a higher standard if the DOE chooses 12 SEER. This can mean different standards for different states.

Another complication is that Senate Energy Committee Chair-man Jeff Bingaman (D-NM) has issued a statement strongly supporting the EPA’s 13 SEER stand. If the Democratically-controlled Senate includes 13 SEER as an issue when it introduces its version of the energy bill, there could be confusion over whether DOE rulemaking has the final say, although this would need to be worked out with the House of Representatives.

Despite receiving what Dooley called a “deluge of recommendations,” both parties hope that the DOE will publish its rule this year and the hvacr industry can move forward, at least on this front.

Publication date: 11/19/2001