Distribution, Gas, Markets, Technology

Electric heaters in hot water

On average, hot water heating makes up approximately 25 per cent of energy usage around the home. Electricity and natural gas are the main energy sources for water heating, accounting for almost half each. However, electricity resistance water heaters account for 80 per cent of the carbon emissions associated with water heaters.

In response to this fact, the Federal Government has initiated a phase-out of electric hot water systems, to be implemented in two stages, starting from 2010.

Phaseout program

The first stage of the phaseout will be implemented on a state-by-state basis for new and existing homes in all states and territories except Tasmania.

Both Queensland and South Australia already have this program in place, and Victoria, Western Australia and New South Wales have existing programs for new homes only.

Under this first stage, electric resistance water heaters in existing homes do not have to be replaced by water heaters of a different type, unless states have regulations prescribing otherwise. The exact nature of the program is yet to be determined.

The second stage, commencing in 2012, will see the phaseout extended.

Under the second stage, greenhouse intensive electric hot water systems will not be allowed to be installed in any new or existing detached, terraced, townhouse or hostel, or any new flats and apartments with access to piped gas, except where an exemption applies. Exemptions may apply, for example, if dwellings do not have access to appropriate infrastructure.

The obligation to comply with the proposed plumbing regulations will rest with plumbers and other installers such as electricians, gas-fitters, builders and carpenters.

Replacements to date

The replacement of hot water systems is largely driven by failure of an existing water heater. This means that the water heater choice is usually made rapidly, without a great deal of consideration of alternatives. Customers tended not to switch between heater types and are more concerned with capital costs than running costs.

Replacement hot water systems make up approximately 80 per cent of the water heater market, meaning that the second stage of the new program will have the greatest impact on the market.

Although gas, heat pump and solar hot water systems have reduced the rate of electric hot water sales, electric hot water systems continue to make up approximately one third of replacement sales.

In 2007-08, 740,000 new water heaters were sold, of which 600,000 were replacements. The gas hot water heater market share was approximately 45-50 per cent, and had been growing strongly until 2008, when the Federal Government increased rebates for solar and electric heat pump hot water systems.

These incentive programs negatively impacted gas hot water sales through 2008-09. Following urging by gas industry representatives, the Federal Government has reduced these direct subsidies, helping gas hot water systems regain some of the lost market share.

Electric storage water heaters accounted for approximately 53 per cent of all hot water systems in use Australia in 2008, and approximately 37 per cent of hot water system sales. Just two years earlier, that share of sales was closer to 50 per cent.

The consultation regulation impact statement (RIS) for the proposed phase out states that if the current state-based regulations and incentives for installation of low emissions water heaters were removed, electric hot water systems would regain much of their historical share.

Choosing gas

Under the phase out program, electric hot water heaters can be replaced by gas hot water systems, gas or electricity-boosted solar systems, or heat pumps. Of these, gas hot water systems are the most common.

The Federal Department of Climate Change and Energy Efficiency, which is charged with implementing the initiative, notes in particular that gas-boosted solar hot water systems generate the lowest greenhouse emissions of any low-emissions water heater.

Cost being a key consideration for most consumers, gas hot water systems look to be the most attractive alternative. Gas hot water systems are, on average, the cheapest to install of the low-emissions options, as well as having some of the lowest running costs.

Gas hot water heaters have an energy star label to provide customers with information on their energy efficiency, similar to the rating system used on electrical appliances.

The Federal Government is planning to introduce a minimum performance standard for gas hot water heaters, which would require them to be at least four stars. Currently, gas hot water storage systems generally have a range of efficiencies from two to five stars, although systems are available with a rating of over six stars.

Current use of gas water heaters

The Gas Industry Alliance (GIA) has said that the program should help improve the current decline in gas consumption. For existing gas customers, the switch from an electric to a gas hot water system is relatively simple.

The GIA also notes that water heater manufacturers are well-placed to respond to changes in demand, as they have a flexible product mix and two Australian states already run this policy.

“However,”? says the GIA, “there will need to be significant assistance and training to manage the transition of hot water technologies for the installation and consumer interface.”?

The program will have a significant effect on the plumbing and gas fitting industries, says the GIA, which may mean the program will have to be implemented in phases. Training programs will be needed for hot water systems that are currently less common.

The RIS also notes that a key risk in implementing the program is the possibility that product performance will be poorly matched to hot water demand and climate. Certain systems have capacity and pressure limitations, and solar systems are obviously better suited to warmer climates.

Another potential hazard is poor installation by contractors unfamiliar with certain systems, however, plumbers and installers are becoming more familiar with the new systems as their popularity increases.

Going for gas

The question is, then, to what extent can the gas industry benefit from the new regulation?

In 2008, the first point of contact for a home occupant when a water heater failed was a plumber for 46 per cent of home occupants; a hot water specialist for 15 per cent; an energy retailer for 15 per cent; a heater retailer for 18 per cent and a builder for 2 per cent.

Evaluation of alternatives is often limited, which means that this first point of contact can provide an important opportunity for consumer education about the benefits of gas hot water systems. Indeed, the RIS notes that intermediaries have a high level of influence over this choice.

The RIS estimates that the greatest increase in sales as a result of the regulations will be in the LPG hot water heater market, followed by electric-boosted solar systems, gas systems and heat pump systems.

“The use of LPG in non-metropolitan areas as a seeding step for later natural gas reticulation to urban areas is a well established practice spanning more than three decades in Australia,”? the GIA notes. As such, the regulation may also provide a long-term, indirect benefit to the gas industry.

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