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November 1, 2011

Direct Use of Natural Gas Economic Fuel Choices from the Regional Power System and Consumer’s Perspective. November 1, 2011. Study Objectives. Determine which residential space and water heating systems are least-cost (TRC) and least-risk for the region’s power system given;

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November 1, 2011

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  1. Direct Use of Natural GasEconomic Fuel Choices from the Regional Power System and Consumer’s Perspective November 1, 2011

  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

  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

  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

  5. Observations From Regional Power System Perspective • In the Council’s Resource Portfolio model’s “least cost/least risk” plan new gas-fired turbines are deployed to serve load growth beyond that met with conservation and renewable resources • Consideration of these costs make some conversions to natural gas economically preferable • However, most homes (~75%) should stay with their current space heating and water heating systems • Improvements in the efficiency of electric space heating and water heating systems is a lower cost (TRC) option than converting most homes without existing gas access to gas space and/or water heating • Extendinggas service is an economic hurdle to converting all-electric households to gas space and/or water heating

  6. Summary-TRC PerspectiveEnergy Impacts • Over 20 years • 560 MWa decline in power use • 225 MWa from improvements in electric efficiency • 335 MWa from conversion to gas space and/or water heating • 7 x 1012 BTUs per year decrease in regional natural gas use • 13.1 x 1012 BTUs per year increase in direct gas use • 20.1 x 1012 BTUs per year decrease in gas used for power generation • Households • 129,695 existing households

  7. Summary-TRC PerspectiveHouseholds • Over 20 years • 2,593,839 Existing households with electric or gas space or water heating (excludes 20% of without “gas access” via main or line extension) • 1,896,000 Retain existing electric space and/or water heating systems, but upgrade efficiency • 698,000 convert from electric space and/or water heating to natural gas (424,000 water heating, 115,00 space and water heating) • 125,000 convert from gas to electric water heating (HPWH)

  8. Summary – TRC PerspectiveEmissions • 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 • While existing electric appliances produce more CO2 than gas appliances due to the inefficiency of the overall power system, conversion to heat pumps for space and water heating produce roughly equivalent emissions • Moreover, the limited potential for economic conversions to natural gas make the impact negligible

  9. Consumer Perspective Given current retail electricity and natural gas prices and forecast future retail prices, would consumers likely select the space and water heating systems found to be economically preferable from a regional (TRC) perspective Is there evidence that consumers are selecting the space and water heating systems that are economical preferable from a TRC perspective?

  10. 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

  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

  12. 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

  13. First Cost of Space Conditioning Systems

  14. First Cost of Water Heating Systems

  15. Cumulative Distribution of LCC for Gas Furnace w/Condensing Gas DHW

  16. Cumulative Distribution of LCC for Gas Furnace w/HPWH DHW

  17. Cumulative Distribution of LCC for Gas Furnace w/AC w/Condensing Gas DHW

  18. Cumulative LCC for Heat Pump w/ HPWH DHW

  19. Space Conditioning System Choices Selections Based on Regional and Consumer Economics

  20. Water Heating System Choices Selections Based on Regional and Consumer Economics LCC-2 Assumes choices that have LCC within 1% of Total LCC are a “tie”.

  21. Summary of FindingsConsumer PerspectiveAlignment With TRC Results • Given current retail electricity and natural gas prices and forecast future retail prices, it appears that consumers would generally find the space and water heating systems found to be economically preferable from a regional (TRC) perspective to also be the lowest life cycle systems • High efficiency gas and electric water heating systems are economically competitive on an LCC basis

  22. Summary of FindingsConsumer PerspectiveMarket Evidence • NEEA surveys indicate that consumers selected the space and water heating systems that are economical preferable from a TRC perspective • Continued decline in electric space and water heating market share indicate that where gas is available consumers are converting to gas space and/or water heating systems • Limited recent surveys of conversions

  23. Backup Slides

  24. TRC Economics of Water Heating Are Competitive

  25. Water Heating Choices129,693 households per year 15,010 households/yr 6,430 change to electricity -101.4 BTUs 10^9/yr 31,202 households/yr T 5,745 households/yr 5,745 change to gas 99.7 BTUs 10^9/yr T T T 13,379 households/yr 64,356 households/yr 21,197 change to gas 364.5 BTUs 10^9/yr

  26. Space Heating Choices129,693 households per year 6,019 households/yr T T 67 households/yr 15,343 households/yr T 4,793 households/yr 491 households/yr T T T T 72,919 households/yr799 change to gas 31.6 BTUs 10^9/yr 6,177 households/yr6,136 change to gas 247.2 BTUs 10^9/yr 4,111 households/yr 499 households/yr499 change to gas 15.7 BTUs 10^9/yr T T 19,275 households/yr

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

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

  29. Therefore, Only Limited Generalizations About Which System Has the Lowest Life Cycle Cost Are Possible (or Prudent)

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