Since 1990, water heater manufacturers have been required to comply with Department of Energy (DOE) standards to increase the overall energy efficiency levels of residential water heaters. According to DOE, the original standards set almost 25 years ago in the National Appliance Energy Conservation Act (NAECA) are estimated to save 3.2 quads of energy between 1990 and 2019, which translates into $34.8 billion in energy savings.

In 2004, NAECA standards were further tightened to drive efficiency standards even higher. This newer standard would save 6 quads of energy and result in $70.6 billion in energy savings between 2004 and 2033. As technology continues to improve and the demand for energy efficiency continues to rise, NAECA is being revised once again, with a new efficiency standard for residential water heaters set to take effect on April 16, 2015. This new standard is expected conserve an additional 3.3 quads of energy and result in $63 billion in energy savings between 2015 and 2044.

“We refer to [this update] as NAECA 3,” explained Ralph Perez, director of product management with A. O. Smith. “Most storage water heaters will have to become more efficient. It covers storage and tankless residential water heaters. Most of the impact will be on regular, atmospheric vent standing pilot gas water heaters, as well as conventional electric water heaters. Some products will get larger as more insulation is added. Some models will no longer be permitted under the new regulations because current technology is not capable of achieving the new efficiency requirements.”

The guideline affects water heaters that are manufactured on or after April 16, 2015. But, the guideline doesn’t reach back to products made or installed before then.
“Anything manufactured before that date can still be sold,” Perez continued. “Anything in stock or on a truck can be sold.”

“While all affected models will see an increase in the EF [energy factor] requirement, the most dramatic changes are in larger capacity models,” said Chad Sanborn, product marketing manager at Bradford White Corp. “The DOE established the EF requirement for residential gas and electric water heaters over 55 gallons so as to drive manufacturers to implement new, more energy efficient technologies. While the new rule does not require a specific technology, the only currently viable technologies to meet the EF requirement over 55 gallons are heat pump water heaters for electric and high efficiency condensing gas water heaters.”

“For the most part, the largest volume of product sold in the industry is in the 55-gallon or less range. That is where the impact is in terms of overall number of products,” said Chuck Rohde, wholesale market manager, Rheem Water Heating Division. “So, you have nominal efficiency changes of a number of points on a gas product, which will be addressed essentially with more and denser insulation. With electric products, you are looking for a little larger EF changes, so the challenge will be trying to hit those numbers while minimizing the impact to the product’s footprint.”

In many cases, adding more insulation will be a major part of the strategy manufacturers use to reach the new efficiency standard. That additional bulk can create challenges for manufacturers, contractors and homeowners alike.

“Electric water heaters, already very efficient, will likely require more insulation,” Sanborn said. “This will increase the diameter and/or height of the water heater. Additional insulation may be required for piping and fittings, such as the drain and T&P valves. For electric water heaters over 55 gallons, the only current available technology able to meet the EF requirement is a heat pump water heater.”

Some challenges await gas and oil-fired models, as well.

“To meet the required minimum EF, gas models may require additional insulation, incorporate newer flue baffling technologies [like flue dampers], incorporate electronic ignition in lieu of the standing pilot, or any combination of these,” Sanborn continued. “Again, the likely impact will be an increase in the overall tank size, especially in diameter. For gas water heaters over 55 gallons, high efficiency, fully condensing technology will be required. And much like gas products, oil-fired water heaters will likely require additional insulation or completely new combustion systems.”

“For contractors, the most significant thing is that under the new regulations, most water heaters will be larger,” Perez said. “You’re going to require more space for insulation. And where space is a concern, you may have to install a smaller tank and put a tempering valve or something on it. You may have to relocate the heater or in the case of gas, it might be time to consider an efficient tankless water heater.”

Many tankless solutions already boast high efficiency levels and are, by their nature, space savers. In fact, some have long met and surpassed the EF standards set in the new version of NAECA. But, manufacturers need to take heed of the new requirements, as well.

“The new 2015 standard requires all tankless products to have an energy factor of 0.82,” noted Eric Ashley, product marketing supervisor at Navien. “Navien’s first products introduced in 2008 already exceeded the 2015 water heater standard with energy factors above 0.95.”

“There will be challenges, especially when it comes to replacing water heaters,” Rohde said. “Water heaters aren’t always installed in a basement or garage where there is plenty of space. Sometimes they’re in an alcove or closet. Especially when you get into multifamily, we have to be very conscious that we’re not making it too big to fit in the applications where it is used. And if a consumer has to downsize the storage capacity, you run the risk of them not being happy because they don’t get enough hot water or the heater is being overworked.”

For some manufacturers distributors, installers and homeowners, these new guidelines may carry additional costs on certain products and solutions.

“Because the products will likely increase in size, additional distribution facilities may be required and logistics cost will increase as fewer units may fit into a trailer or shipping container,” Sanborn explained. “Distributors will be required to train their employees so they understand the intricacies of the new standards and, as with the manufacturer, space is at a premium and these new products will take up more space in the warehouse. Contractors will see costs associated with getting employees up to speed on the new technologies, and some installations that were once a one-person job may now require two people. As water heaters get larger and heavier, they may prove too awkward to be handled by one person.”

All of this may ultimately be reflected in a higher price for the end user, as well.

“The cost of these products is going to increase,” Rohde said. “We’re changing the dimensions, so that means there is more foam, more steel and more packaging. It impacts the whole supply chain anytime you make dimensional changes.”

“The homeowner may have to deal with increased costs,” Sanborn agreed. “In some cases, the water heater will have to be relocated to operate properly, or to mitigate noise. While the operating cost of the new water heaters will be less because of their increased energy efficiency, it is likely the product, installation and maintenance costs will increase because of more complex designs.”

While DOE mandates the standards and EF targets each type of residential water heater must achieve, it does not spell out the manner in which these targets must be met.

“We’re all trying to apply the same laws of physics to achieve the same minimum efficiencies without impacting the footprint very much. It’s challenging,” Rohde said. “We’ve looked at options and there are different ways to skin the cat. I think the industry will come up with some creative solutions.”

There may be some hurdles at the start, but there are positive opportunities for the industry with this change.

“Certainly, the EF updates to NAECA will pose challenges for manufacturers, wholesalers, installers and customers, but when products become more complex, it is less likely they will be purchased and installed by the do-it-yourself customer,” Sanborn said. “Therefore, a potential impact of the 2015 water heater changes will be an increase in the share sold through wholesale distribution, thereby increasing installer opportunities.”

Rising cost of base level models may also create opportunities to up-sell.

“I think we have 40 residential products that already exceed the new minimum standards,” Rohde said. “But right now you have a big price gap between your high efficiency products and minimum efficiency products. As minimum efficiency products become more expensive, it’s easier to sell people up to the higher efficiencies because the gap isn’t so big.”

April 16, 2015 may seem like a long time from now, but it’s never too early to start preparing. Professionals in all parts of the supply chain should educate themselves on the standard and on the particulars of the new products that will meet it.

“This is a good time to learn about this new stuff,” Perez said. “Don’t wait until 2015. Get familiar with it today.”