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Program Planning Committee: Program Review TemplateProgram Planning Committee: Program Review TemplateProgram Planning Committee: Program Review TemplateProgram Planning Committee: Program Review Template

Program Name:Program Name:Program Name:Program Name: Residential HVACResidential HVACResidential HVACResidential HVAC

1.1.1.1. PPPPROGRAM ROGRAM ROGRAM ROGRAM DDDDESCRIPTIONESCRIPTIONESCRIPTIONESCRIPTION

The New Jersey Clean Energy Program (NJCEP) Heating Ventilation and Air Conditioning (HVAC) Program

seeks to address the savings potential from the categories that make up more than half of residential

customer energy usage: heating and cooling equipment. Eligible customers include investor owned gas

and electric utility ratepayers, and municipal utility and oil and propane customers through State Energy

Program (SEP). The HVAC Program works in concert with other initiatives—such as the whole-house

retrofit, and retail products programs— through a collection of specific market-based interventions. The

program is split into two customer facing brands: WARMAdvantage and COOLAdvantage for heating and

cooling equipment, respectively.

The program delivers information and financial support aimed at overcoming conventional customer

and contractor barriers to the adoption of efficient systems, including awareness of relative comfort and

cost benefits and higher first costs of efficient systems. Additional market barriers include supply-chain

challenges such as product availability. This barrier, while hardly new, is exacerbated by recent

transitions to higher minimum federal appliance standards, and the concomitant higher bar for program

rebated savings. This is one of the primary reasons the Market Manager Team is recommending growing

the HVAC Program’s activities to include upstream approaches to program design and delivery .

As filed, the FY2015 HVAC Program includes:

• Customer rebates for high efficiency products and systems:

o Hot Water Heating (Gas Storage, Tankless, Heat Pump Water Heaters, Solar)

o Space Heating (Furnaces, Boilers, Combination Air & Water Units)

o Space Cooling (Central & Ductless Air-Conditioners, Air & Geothermal Heat Pumps)

• Contractor training on design, selection, installation, and maintenance of efficient equipment

• Trade ally marketing assistance to for cooperative promotion of rebate-qualifying equipment

• Statewide program marketing and communication

In addition to direct to consumer rebates for qualifying equipment, the HVAC Program also plays a role

in communicating the significant energy savings opportunities of whole-home retrofits. Contractors

indicate that the majority of Home Performance with ENERGY STAR (HPwES) projects come from

customers that sought out HVAC rebates when their system needed work. This “channeling” is primarily

driven by key features of HVAC equipment upgrades including: 1) high system cost and equipment

lifetime; 2) regular rate of system failure and/or repair; and 3) high rates of contractor-participation with

several thousand HVAC contractors providing services.

The HVAC Program’s effectiveness depends largely upon the development and maintenance of

relationships with the supply chain actors most in a position to affect customer choice: contractors and

their trade allies. Outreach, trainings, and marketing communications work together to build mindshare

for the interactions between the customer interests in cost, comfort, and safety and the equipment and

thermal shell (air-sealing and insulation) upgrades. Program requirements, financial support and

contractor training are, and continue to be, an essential part of impacting customer and contractor

decisions at the times when energy savings are available at the lowest cost.

2

Annual participation in recent years—as measured by counts of HVAC equipment rebates—is typically

15,000 to 20,000 units, and approximately 3,000 associated contractors. In FY2015, roughly 90% of

units are projected to be heating equipment.1

The Market Manager Team’s recommendations are aimed at two main areas of opportunity to boost

cost-effectiveness and overall savings yield: 1) specific recommendations on equipment categories and

eligibility levels, and 2) new approaches to greater market penetration, driving demand, and impact.

In the first category, qualifying products, the Market Manager Team has proposed modifications to

existing equipment and eligibility levels to improve alignment with available technology and recently

revised regional and national efficiency specifications. These recommendations are described in the

following sections and in Section 8, Recommended Program Modifications, and include:

• Adjusting WARMAdvantage and COOLAdvantage highest tier incentive requirements to match

performance levels for CEE Tier 3 and ENERGYSTAR Most Efficient versus ENERGY STAR labeling .

• Modify incentive amount and eligibility levels to better match the most efficient generally

available ductless equipment.

Recommendations in the second category, potential new program delivery approaches to more broadly

engage customers and the market, are discussed in Section 9 and 10, and include:

• Transition program support for qualifying hot water equipment from “downstream” (customer)

rebates towards “midstream” (retailers and wholesalers) and “upstream” (manufacturers and

distributors) to boost equipment availability and expand program participation;

• Add program support for highly efficient boiler circulator pumps (80% savings) through an

“upstream” approach; and

• Support customer-facing pathway for NJCEP rebates that integrates the full portfolio of offerings

and is driven by customer data.

2.2.2.2. PPPPROGRAM ROGRAM ROGRAM ROGRAM GGGGOALS AND OALS AND OALS AND OALS AND OOOOBJECTIVESBJECTIVESBJECTIVESBJECTIVES

The residential HVAC Program’s primary focus has traditionally been to deliver contractor trainings and

customer rebates that achieve statewide participation and energy savings targets. For FY2015 these

metrics were:

• 1,200 Contractor trained on high efficiency equipment, quality installation, maintenance and

safety standards and associated NJCEP program requirements and offerings

• Approximately 2,200 COOLAdvantage and 15,000 WARMAdvantage rebate applications

• 138,515 MWh electric and 4,073,856 DTh gas lifetime savings

These coarse but measurable goals are supplemented by additional high-priority program objectives,

including:

• Safety & Comfort. There are real, and ever-present comfort and life-safety risks associated with

the reliable performance of home heating and cooling equipment. The program actively

supports the quality installation of equipment that minimizes these risks, and avoids support for

1 Though some HVAC equipment types may provide both heating and cooling, the heating/cooling ratio is not strongly affected

by the amount of rebated heat pumps, and suggests that 90% may be conservative.

3

unproven, or unreliable technologies that may jeopardize the health and safety of occupants.

This issue is perhaps most acute when older less-efficient combustion appliances (e.g.

atmospherically-drafted water heaters) may no longer reliably vent exhaust products as a result

of a boiler or furnace upgrade. Broad program support for energy efficient water heaters, as

well as combination equipment rebates and comprehensive HVAC rebates are intended to

address these issues.

• Market Transformation. The program seeks to normalize customer demand and contractor

installation of high-efficiency cost-effective equipment and systems. As technology advances,

and system complexity increases, the stability of a program’s presence through trainings and

rebates helps increase the rate of adoption of products and practices to self-sustaining levels of

customer demand and market and service supply. New program proposals such as transitioning

to upstream approaches, and supporting emerging technologies like high-efficiency boiler

circulator pumps are targeted at total market transformation for these product categories.

• Whole-House Upgrades & Non-energy Benefits. HVAC upgrades can provide a highly effective

channel to less obvious, but no-less valuable energy savings from whole-house opportunities.

Accordingly, many aspects of the program are designed to provide a strategic base level of

supply to more comprehensive residential retrofit programs with richer incentives and increased

levels of flexibility, allowing for more optimally cost-effective system upgrades. Deeper savings

and more projects bring significant economic returns and increased building envelope

performance and moisture management, as well as providing non-energy benefits to customers

and the region.

• Energy Costs & Emerging Technology. Aligned with the first goal stated in New Jersey’s Energy

Master plan—to drive down the cost of energy for all customers—HVAC energy usage during

system peaks is a crucial element. The program currently supports only the most efficient tiers

of equipment performance associated with peak times. Further, the program is a leading and

active participant in coalitions and national specification-setting processes for bringing

connected technologies such as “Demand-Response ready” HVAC systems to market. These

products and services are largely untapped “systemic” and market-based pathways that provide

new alternatives that can dramatically lower the cost of managing peak loads. These

opportunities are include, but are not limited to emerging products such as internet enabled

heat pumps, air conditioners, and thermostats.

3.3.3.3. HHHHISTORIC ISTORIC ISTORIC ISTORIC PPPPROGRAM ROGRAM ROGRAM ROGRAM RRRRESULTSESULTSESULTSESULTS

There have been significant changes to both the overall savings and levels of participation in the HVAC

Program in the last several years. The charts that follow help tell some of this story, including the

relative impact of many of the following:

• Past program criteria revisions on contractor and customer levels;

• Federal tax credits and ARRA-funded SEP rebates;

• The impact of program criteria reductions in the response to Hurricane Sandy; and

• The establishment of new product technologies, such as heat pump water heaters and ductless

mini-split units.

While these data are not scientific, and the confounding factors insufficiently isolated, to be able to

measure the impact of any change in particular, the relative magnitude and correlation appear visible

thanks to the cyclical nature and multi-year depth of the program data.

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Cool Advantage

Figure 1: COOL Advantage Participants over time (number of rebates)

Though the summer/winter cycle of program participation can be clearly seen, the most notable change

visible in historic participation is the significant decrease in Central AC rebates that coincided with the

PY2013 elimination of all lower tiers of AC equipment. Although small in comparison, the steady growth

of minisplits is also apparent.

Figure 2: COOL Advantage Annual Energy Savings,(kWh)

In general, the savings associated with cooling equipment has followed participation levels. An

exception to this rule, is that heat pumps provide greater savings per unit and therefore contribute

greater savings than their proportion of units would suggest.

WARM Advantage

Figure 3: WARM Advantage Participants over time (number of rebates)

Participants

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Inversely seasonal to cooling equipment, heating rebates also have an annual cycle of high and low

participation. In contrast to cool advantage, there is no significant fall off in participation, which helps

make more apparent the impacts of federal tax credit policies on customer activity. A slight decline in

furnace numbers may reflect the economic recession, the harvesting effects of prior year tax credits, or

a number of other factors. Note the relatively rapid rise of storage water heaters—beginning in 2013 as

part of the program’s response to concerns over orphaned water heater—as a significant part of overall

program activity.

Figure 4: WARM Advantage Annual Energy Savings,(Therms)

Here again the correlation between seasonal participation levels and savings are apparent. However,

this does not appear to hold true in the case of furnaces from 2013 onward. The Market Manager Team

has investigated the reasons and found that these lower per unit savings are the result of a change to

the federal minimum furnace baseline that was planned to go into effect, but the subsequently

suspended. Though the savings protocols were corrected for the suspension of the rule, the software

savings calculations were only recently revised to reflect that the higher baseline never went into effect.

Thus the apparent shortfall in savings for the program from 2013-2014 does not reflect any substantive

change in program performance.

Figure 5: WARM Advantage Savings Per Measure (Therms)

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As indicated above, the program savings claims associated with furnaces were dramatically reduced on a

per unit basis between 2012 and 2013. Though similar reductions occurred as a result of new standards

for storage water heaters and boilers, the higher levels of participation through furnace rebates are the

main cause for overall program savings reductions. Given that the federal standard for furnaces did not

end up going into effect, a significant rebound can be expected.

Figure 6: WARM Advantage Measure Savings Cost ($/Therm)

Program incentives for water heaters were significantly increased to mitigate the risks of orphaned

water heaters, and this is the main reason for their elevated per therm cost. In contrast, the boiler and

furnace cost per therm increases are the combined result of higher rebates and higher equipment

baselines.

4.4.4.4. RRRRESULTS OF ESULTS OF ESULTS OF ESULTS OF BBBBENEFITENEFITENEFITENEFIT/C/C/C/COST OST OST OST AAAANALYSISNALYSISNALYSISNALYSIS

Though best available information informs this cost benefit analysis, it is important to contextualize its

limitations: input data quality. Significant additional value can be provided through evaluations that

more regularly—or even continuously—develop new, and perhaps most importantly, program-specific

data. High-quality local information on baseline and efficient equipment costs and savings is a best

practice feedback mechanism for quality assurance and continuous program improvement.

2012

2013

2014

2011

2012

2013

2014

2011

2012

2013

2014

2011

2012

2013

2014

$/lifetime therm

7

Table 1. Cost Benefit Analysis for FY2015 Budget, Savings Updates and FY2016

FY2014 FY2015 Budget FY2016 Proposal

Total Resource Cost Test ($4,980,911) ($3,693,356) ($2,856,519)

Benefits-Cost Ratio 0.9 0.9 0.9

Societal Cost Test $ 5,161,754 $ 1,876,810 $ 4,070,399

Benefits-Cost Ratio 1.1 1.1 1.1

The (draft) ERS benchmarking report shared with the Market Manager Team in December compared

NJCEP programs to several regional Program Administrators (PAs). The cost per kWh of the HVAC

Program (in red) was among the more cost effective of the peer programs. However, it should be noted,

as the report does, that the general lack of evaluation of programs can call these savings results into

question.

Note: conducted prior to the FY2016 proposals, these cost analyses do not yet include the program

impact of the new efficient boiler circulator pumps and the transition of water heater rebates

“upstream.” As these changes are estimated to be more cost-effective than either the program

average (circulator pumps) or the prior program approach (upstream water heater rebates) these

results can be considered to be conservative relative to the proposed changes.

5.5.5.5. CCCCOMPARISON TO OTHER POMPARISON TO OTHER POMPARISON TO OTHER POMPARISON TO OTHER PROGRAMSROGRAMSROGRAMSROGRAMS

5.15.15.15.1 Incentive levelsIncentive levelsIncentive levelsIncentive levels

The draft ERS benchmarking comparison of incentive criteria and amounts shows the NJCEP HVAC

Program to be generally well-aligned with peers for central air conditioning and furnaces. In particular,

the requirement aimed at reducing peak demand energy costs, EER 13 is consistent in the region for

central air conditioning.

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Table 2: Comparison of Incentive Levels

PA NJCEP Con Edison PECO WI NGrid MA BGE LIPA NSTAR ComEd

Central AC

incentive $500 $400 $500 $250 $500 $500 $500 $500 $400

Central AC

requirement

EER

13 13 13 unclear 13 13 13 13 N/A

Central AC

requirement

SEER

17 16 16 16 16 18 16 16 16

Gas furnace

incentive $200/$500 $600 N/A $225 $600 $400 N/A $600 N/A

Gas furnace

requirement

AFUE

95%/ 95%

and

E*qualified

94% w/

ECM N/A 0.97

97% w/

ECM

92%

w/

ECM

N/A

97%

w/

ECM

N/A

A relative newcomer to the HVAC Program incentive offering is the combination space and water heater

rebate. Though this may at first appear to be on the low end of the scale (see Figure 7below), this is

moderated somewhat by the flexibility of meeting the requirement (indirect tanks) and because

customers can combine the NJCEP rebates with utility incentives.

Figure 7: Comparison of combination rebate levels with other programs

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5.25.25.25.2 Program requirementsProgram requirementsProgram requirementsProgram requirements

Table 2 above shows the NJCEP SEER requirement is higher than most of the other PA’s but not the

highest. In prior years, the HVAC Program had lower requirements which a greater proportion of

available equipment met, and saw significant participation. These lower tiers were eliminated in

response to increasing budget pressures, while the highest tier was maintained, and raised so that the

program could continue to provide market presence. The remaining SEER 16 equipment was a special

incentive for homes impacted by Hurricane Sandy.

Figure 8: Central AC SEER histogram (by program year)

Figure 9: MiniSplit AC SEER histogram (by program year)

Note: There is a very significant difference in scale between the central and minisplit figures above, as

the historical number of central units is much larger than for minisplits.

5.35.35.35.3 Identify best practicesIdentify best practicesIdentify best practicesIdentify best practices

With regard to much of the FY2015 details, the HVAC Program is generally in keeping with efficiency

program standards and best practices:

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• Comprehensive breadth of qualifying equipment categories. With nearly full coverage of all

mainstream, generally available, and cost effective products, the program presents a meaningful

offering for most HVAC upgrade opportunities.

• Incentive amounts and program criteria. Financial support and equipment eligibility levels are

in line with comparable levels from leading programs from peer regions and markets.

• Reliable rebate availability and program consistency. The long-term stability of the program

and year-round, statewide offering provides the degree of certainty that sustained market

impact requires. Supply chain actors must have confidence in the value of the program criteria

and initiatives, so that they can invest in compliance, training, and communications necessary to

participate. This is particularly important for the success of upstream approaches.

• Quality installation. The energy performance of many high-efficiency equipment types is

dependent upon proper matching of system components to the specifics of the home, and

commissioning of the equipment. The program’s requirements for, and specific contractor

trainings on, Manual J load calculations (including use of software applications), Manual S

equipment selection, proper charging and airflow, all relate to the technical material that can

adversely affect system comfort and energy performance issues.

• Channeling to whole-house savings opportunities. The NJCEP portfolio offers the most

complete incentives and financing packages through the HPwES program. These features, along

with greater performance-based efficiency criteria are intentionally designed to drive customers

to invest in greater savings at cost-preferred moments in their home’s lifetime. This helps to

minimize the lost savings opportunities afforded by standalone HVAC upgrades.

There are, of course, elements within the collection of best practices of energy efficient HVAC Program

design and delivery that are not currently a part of the NJCEP HVAC Program. These include:

• Inconsistencies with some current national efficiency specifications. CEE Tier 3 for Central Air

Conditioning and Air Source Heat Pumps (SEER and HSPF levels), and recently revised ENERGY

STAR for oil furnaces, are not used in the NJCEP HVAC Program. The Market Manager Team

proposes to align with these levels for FY2016, comfortably after the sell-through period of

equipment already manufactured. See Section 9 for details.

• Supply-chain incentives & relationships. Shifting rebate payments from “downstream”

customers to “upstream” manufacturers and distributors is rapidly emerging as a best practice

for HVAC equipment. Supply-chain incentives are most effectively deployed across an entire

state to gain benefit of scale, and reduce utility territory confusion, rather than an individual

utility territory, which strongly suggests an important and valuable role for NJCEP to take. When

implemented, upstream approaches significantly boost the market value, yield, and long term

program performance towards goals and objectives. This results primarily in in broad upgrades

to program market knowledge and understanding, program reach (increases of 10x or more are

not uncommon), and changes in equipment stocking practices. Realizing the added value of an

engaged and satisfied supply chain is a large and important non-energy benefit of upstream

programs. Increased satisfaction stems from the simplification of customer participation, faster

incentive payments, and simpler processes for supporting for adding emerging technologies to

the program.1 See Section 10 for details on how the Market Manager proposes to incorporate

upstream approaches.

1 http://swenergy.org/publications/documents/Upstream_Utility_Incentive_Programs_05-2014.pdf

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• No rebate offering for some product categories. In a region with significant boiler systems, it is

an emerging best practice to support high efficiency circulator pumps that use 80% less energy.

Adding program support, preferably through an upstream approach, is one of the Market

Manager Team’s proposed additions detailed in Section 10. Many programs are also currently

conducting pilot studies of the savings potential for connected, and or intelligent climate

controls (i.e. smart or wi-fi thermostats). Though conducting such a study is not specifically

proposed at this time, the Market Manager Team does encourage the development of

consistent budget and strategic objectives for emerging technologies.

• Irregular and infrequent evaluations of program impact. We support any direction by the BPU

that would provide program managers with timely information on program impacts.

• Lack of entry-level efficiency tiers for COOLAdvantage equipment. This is primarily the

consequence of budgetary constraints and a priority-based tradeoff to support program-wide

cost-effectiveness and maintain a relevant and year-round stable presence in the cooling

equipment market.

• No integrated and data-driven marketing. HVAC Programs can see significant benefits in

program participation due to “lift” from behavioral comparison programs, or facilitated,

personalized customer engagement platforms. Though these programs are often delivered

broadly, and drive participation rates up across the portfolio, it is a rapidly emerging best

practice to provide personalized, push-pull marketing to segmented customer audiences. One of

the barriers to effective delivery of this best practice are the significant requirements to

customer data sharing and handling between utilities and 3rd party vendors. As such, no

proposal to incorporate such a marketing campaign is being made at this time.

6.6.6.6. SSSSUMMARY OF INPUT FROMUMMARY OF INPUT FROMUMMARY OF INPUT FROMUMMARY OF INPUT FROM CONTRACTORS AND CUSTCONTRACTORS AND CUSTCONTRACTORS AND CUSTCONTRACTORS AND CUSTOMERSOMERSOMERSOMERS

Through regular, ongoing, and focused outreach with customers, contractors, and other stakeholders,

the Market Manager Team broadly summarizes the input received as follows:

• HVAC Program importance to HPwES. Active contractors and administrators of the residential

whole-house retrofit program repeatedly emphasized that the existing HVAC Program design

provides an accessible, and actively followed pathway to HPwES project origination.

• Upstream program efforts must minimize negative impacts on HPwES. Significant concerns

were raised over the potential for HVAC Program changes to remove savings or significant

incentive dollars from HPwES customers.

• Comprehensive Program Offering. The FY2015 program was generally regarded to provide

steady support for a wide variety of efficient equipment. Contractors selling the equipment find

significant value in rebates through customer marketing and upselling better performing

equipment.

• Equipment Eligibility/Availability. The current EER standards are considered too high for many

(otherwise very efficient) ductless air conditioners and heat pumps.

• Value of Incentive Amounts. The highest tiers at $500 was assessed as being “about right,”

meaningful, but not so low as to seem trivial in comparison with the overall cost of the

equipment. Some doubts were raised about the viability of maintaining customer and

contractor interest if lower tier rebates were to be decreased from $250.

• Rebate eligibility confusion. Some stakeholders expressed confusion over eligibility of

“matched” systems, citing that ratings were difficult to verify.

• Rebate payment periods. Requests were made to explore ways to reduce the time it currently

takes (often in excess of 120 days) to receive rebates.

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7.7.7.7. CCCCODES AND ODES AND ODES AND ODES AND SSSSTANDARDS TANDARDS TANDARDS TANDARDS IIIIMPACTS ON MPACTS ON MPACTS ON MPACTS ON PPPPROGRAMROGRAMROGRAMROGRAM

As the combined energy consumption of HVAC Program equipment makes up more than 50% of

national home energy usage, it is expected that upgrades to minimum efficiency standards have

impacted the HVAC Program and associated qualifying performance tiers.

• CAC and ASHPs. As of January 1, 2015, new Federal Standard for residential central air

conditioners and air source heat pumps came into effect. For New Jersey, at the southern

border of the North region, these Standards do not directly affect the Program; they match the

existing assumed baseline (see graphic below). However, the update informed the relative levels

of the CEE Tiers shown below. The FY2015 HVAC Program central air conditioning efficiency

criteria (SEER 17, EER 13) are between these new CEE Tiers 2 and 3 and above the CEE packaged

tiers. Heat pumps are similarly situated with the additional 8.5 HSPF requirement, which is lower

than the CEE specification for the comparable level of SEER and EER. The Market Manager Team

recommends alignment with the highest CEE tiers for FY2016.

Table 3: New CEE Performance Tiers for Central Air Conditioners

Performance Level SEER EER

CEE Tier 0 new 14.5 12

CEE Tier 1 increase from 14.5 SEER, 12 EER 15 12.5

CEE Tier 2 increase from 15 SEER, 12.5 EER 16 13

CEE Tier 3 not under revision 18 13

Note: New Federal Minimum (effective of 1/1/15)

North: 13 SEER

South 14 SEER

Southwest: 14 SEER, 12.2 EER (<45K Btu/h)/11.7 (>45K Btu/h)

Table 4: New CEE Performance Tiers for Central Air-Source Heat Pumps

Performance Level SEER EER HSPF

CEE Tier 0 new 14.5 12 8.5

CEE Tier 1 increase from 14.5 SEER, 12 EER, 8.5

HSPF 15 12.5 8.5

CEE Tier 2 increase from 15 SEER, 12.5 EER, 8.5

HSPF 16 13 9

CEE Tier 3 new 18 13 10

Note: New Federal Minimum (effective 1/1/15): 14 SEER, 8.2 HSPF

• Furnaces & Boilers. Similar to the items above, The Market Manager Team recommends

aligning incentive tiers with the current CEE efficiency specifications.

• Water Heaters. Water heaters are addressed in Section 8, below.

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8.8.8.8. CCCCHANGING HANGING HANGING HANGING BBBBASELINES ASELINES ASELINES ASELINES IIIIMPACTS ON MPACTS ON MPACTS ON MPACTS ON PPPPROGRAMROGRAMROGRAMROGRAM

On April 16, 2015, the Federal Standard for electric water heaters larger than 55 gallons and tankless gas

water heaters will rise significantly, along with minor changes to other water heaters. For electric water

heaters, the standard virtually requires heat pump water heaters (HPWH). This will require a change in

the baseline for calculation of savings from large HPWH, and a similar change in the savings from

tankless water heaters. The impact will be significant, but manageable because although the change

affects some of the measures represented in red in the graph below, nearly all of the measures in pink,

and some of the measures in brown, the majority of Warm Advantage projects (green and orange) are

left untouched.

The timing of this change is one of the reasons that the Market Manager Team is proposing to transition

support for water heaters upstream in FY2016. The national change will drive discussion at all levels of

the supply chain, and will be a prime opportunity to for the program to introduce itself and its value

proposition to wholesalers, manufacturers, and distributors. Added reasons such as the product fit for

upstream approach, the safety concern over “orphaned” water heaters, and the relatively low level of

market penetration in the category, make this a logical candidate for the HVAC Program’s first foray

“upstream.”

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9.9.9.9. SSSSUMMARY OF UMMARY OF UMMARY OF UMMARY OF RRRRECOMMENDED ECOMMENDED ECOMMENDED ECOMMENDED PPPPROGRAM ROGRAM ROGRAM ROGRAM MMMMODIFICATIONSODIFICATIONSODIFICATIONSODIFICATIONS

This section describes the Market Manager Team’s proposed modifications to the HVAC Program for

FY2016. Recommendations in this section are designed to adjusting basic WARMAdvantage and

COOLAdvantage requirements to:

• Improve alignment with revised efficiency standards, and highest tier incentive requirements to

match performance levels for CEE Tier 3 and ENERGYSTAR Most Efficient.

• Modify incentive amount and eligibility levels to better match the most efficient generally

available ductless equipment.

The results of these relatively incremental improvements to the current program is expected boost

program savings and cost effectiveness due to:

• Reductions in customer and contractor confusion around equipment eligibility, thereby

increasing participation rates;

• Increases in per-unit energy savings with higher qualifying criteria; and

• Increases in eligible equipment levels at reduced incentive amounts while maintaining support

for the most efficient equipment.

9.19.19.19.1 Basic Changes to Eligible Equipment and Incentive LevelsBasic Changes to Eligible Equipment and Incentive LevelsBasic Changes to Eligible Equipment and Incentive LevelsBasic Changes to Eligible Equipment and Incentive Levels

The Market Manager Team has identified a small selection of areas where modest changes to

performance criteria and incentive amounts can improve overall program performance with negligible

tradeoffs. They are, by program category:

COOLAdvantage

Area of Change Summary FY2015 Proposed FY2016

Central Air

Conditioners &

Air-Source Heat

Pumps

Align $500 incentive

specification with CEE’s

highest tier

17 SEER, 13 EER, 8.5 HSPF 18 SEER, 13 EER, 10 HSPF

Ductless Mini-

Splits

Expand program

presence in market

category, align with

technology savings

opportunity1

17 SEER, 13 EER, 8.5 HSPF

$500 incentive2

20 SEER, 12.5 EER, 10 HSPF

$300 incentive

Note: The change to ductless performance criteria is driven by stakeholder input, and the significant

gains made in mini-split energy performance. Though the 0.5 reduction in the EER standard is a

reduction in peak demand savings, the drop is modest, comes at a reduced incentive level, and benefits

1 Although neither CEE nor ENERGYSTAR have developed specifications that recognize the particular technology capabilities and

tradeoffs of ductless units, Other leading programs, such as Masssave, have, and this level is aligned with those leading

actors.

2 Ductless criteria were previously undifferentiated from central units, and as a result, subject to the same 13 EER and $500

incentive, despite capabilities for significant energy savings with higher SEER, and only slight EER tradeoffs.

15

from significant improvements in SEER and HSPF. The reduced incentive level reflects the average

overall lower costs of mini-splits compared to central systems.

WARMAdvantage

Area of Change Summary FY2015 Proposed FY2016

Furnaces Reflect changing

standards and

market for gas

and oil fired

units

Gas Tier 2: 95 AFUE (and

ENERGY STAR)

Oil Tier 2: 85 AFUE (and

ENERGY STAR)

Gas Tier 2: 97 AFUE (level of

ENERGY STAR Most Efficient)

Oil Tier 2: 90 AFUE (equiv. new

level of ENERGY STAR)

Boilers Align and

differentiate

between gas

and oil fired

units.

Gas: 85% AFUE (old ENERGY

STAR)

Oil: 85 AFUE (old ENERGY

STAR)

Gas: 90% AFUE (equiv. new

level of ENERGY STAR)

Oil: 87% AFUE, (equiv. new

level of ENERGY STAR)

After-market

Boiler Rest

Controls

Discontinue Less than 20 expected rebates. Eliminate due to small size, lack

of growth, closing window for

cost-effective opportunities.

10.10.10.10. SSSSUMMARY OF UMMARY OF UMMARY OF UMMARY OF RRRRECOMMENDED ECOMMENDED ECOMMENDED ECOMMENDED NNNNEW EW EW EW PPPPROGRAMSROGRAMSROGRAMSROGRAMS

More than incremental upgrades, this section presents some more substantive proposals that would

bolster the HVAC Program’s foundation with additional program elements based on the gaps identified

through the best-practice research:

• Transition program support for qualifying hot water equipment from “downstream” (customer)

rebates towards “midstream” (retailers and wholesalers) and “upstream” (manufacturers and

distributors) to boost equipment availability and expand program participation.

• Add program support for highly efficient boiler circulator pumps (80% savings) by leveraging the

“upstream” approach.

• Facilitate the transition to lower incentives, and boost participation in the residential retrofit

program (HPwES) with innovative cross-program connections between incentives and savings.

Successfully implementing these changes would put the program squarely on the path to realizing the

maximum savings potential within NJ Residential HVAC’s >50% share of the energy pie in homes.

10.110.110.110.1 Transition Hot WTransition Hot WTransition Hot WTransition Hot Water Equipment Rebates Upstreamater Equipment Rebates Upstreamater Equipment Rebates Upstreamater Equipment Rebates Upstream

There are several market barriers that the HVAC Program has addressed historically by using rebates to

reduce customer incremental costs, by attracting customer attention through marketing, and by

conducting contractor training and outreach. Further, the changing program requirements for efficient

equipment that result from recent increases to higher federal minimum standards has the effect of

increasing one barrier significantly: supply chain stocking and promotion. In addition to the past and

FY2015 plans to address to market barriers, the Market Manager is proposing to transition more

program support upstream. This approach brings the following advantages:

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• Availability of equipment can be more directly encouraged through program relationships with

distributors and manufacturers. This is especially important for the significant percent of the

HVAC market that is driven by emergency replacements.

• Incremental costs may be addressed prior to downstream “markups” and can amplify the value

of program incentives.

• Existing manufacturer and distributor networks may be leveraged to reach a larger number of

customers through established contractor relationships.

• Regular trainings between contractors and distributors can provide a bi-directional

communication channel for high quality information sharing, such as market trends, program

offers, and co-operative promotions.

• Full coverage of market opportunities is gained by removing requirement for the “last mile” of

program awareness and comprehension by all customers.

While the NJCEP has a well-established, and highly successful track record, with upstream approaches

elsewhere in the portfolio (i.e., the Energy Efficient Products Program) this would be new territory for

the HVAC Program, and may likely present new challenges due to increased market or equipment

complexities. The Market Manager Team proposes to leveraging the Products Program experience by

transitioning the most “product-like” existing measure category of water heaters, roughly half of which

are sold at retail locations.

Although water heaters already make up a significant portion—roughly 4,000 units (~20%)—of program

participation numbers, an upstream approach could likely raise the ceiling of the past few years and

could achieve penetration rates many multiples higher. This large potential upside to navigating the

transition is primarily defined by two reference frames: 1) a coarse estimate of the average annual rate

of water heater replacements1; and 2) the experience of other efficiency rebate programs which have

piloted upstream approaches with water heaters and other HVAC technology categories2.

These levels can be achieved only through the cultivation and development of specific program

initiatives and connections with the majority of the supply chain and providing broad market coverage.

Such relationships depend upon clear expectations, information sharing, and mutual recognition of

value. They cannot be established quickly (nor should they be) but once in place they can be highly

effective at not only addressing several market barriers, but also in the long-term realization of market

transformation goals.

Impacts of this proposed direction are:

• Build on NJCEP Upstream Experience. “Upstream” approaches may be new for HVAC, but the

Products program is well versed in the details. Though some of the market structure and entity

relationships are different, there’s actually a significant amount of overlap between box stores

already connected to the products program and where ~50% of water heaters are sold.

• HVAC Water Heater Savings Costs/Unit. Though savings protocols would need to de-rate

claimed savings in accordance with an estimated territory “leakage” rate, and the program

1 For example: For a statewide population of 9 million, living in an average household size of 3, 30% of which are in buildings

with the type of water heaters addressed by the program would suggest a potential upgrade market of roughly 1 million

water existing water heaters. Allocate a replacement of those water heaters over a 10 year average lifetime provides an

estimate of roughly 100,000 water heaters replaced annually.

2 VT, MA, Personal Communications, http://swenergy.org/publications/documents/Upstream_Utility_Incentive_Programs_05-

2014.pdf

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would not have a rebate recovery mechanism through HPwES projects, it is anticipated that the

scale of these impacts would be fairly minor relative to 1) the boost in participation, which

would likely at least double, and 2) lower per unit incentive amounts to (from $500 to ~$300 on

average) to extend and leverage the influence of program dollars through supply chain.

• HVAC Combination Rebate. The mechanism for claiming the combination rebate could remain

via the mail-in form for boilers. Though the combination rebate amount should likely be

reduced, on average, in the amount of the upstream rebate (perhaps by ~$300) the remaining

incentive is still significant enough to drive participation.

• Home Performance with Energy Star. Existing HPwES savings and incentives would not be

affected. Double-counting savings could be addressed on the HVAC Program side with HPwES

data, already available within the existing data system, to deduct savings using the on the EF

rating of participant projects with water heater upgrades.

The benefits of this proposed direction, to the HVAC Program and its stakeholders, are shown below.

Table 5: Summary of Stakeholder Benefits through Upstream Approach1

Stakeholder Benefits

Manufacturer • Opportunity to balance product mix

• Accelerate technology adoption in end-market

Distributor • Increased profits and market share

• Sales and marketing tool

Contractor

• Lower first cost

• No rebate completion required

• Sales and marketing tool to sell jobs

End-users

• No rebate processing (time and money)

• Lower first cost

• Energy and lifetime cost savings

Program Administrator • Eliminate loss of savings associated with forms

• Opportunity to reach larger customer base

In summary, moving the water heating incentives upstream requires non-trivial program investments to

develop new vendor relationships, savings protocols, and data management logistics—especially crucial

when it comes to interactions with other programs to avoid double-counting and unintended

consequences. However, the potential for accelerating and amplifying the savings, reach, and sustained

market transformation are the key drivers behind the efforts of leading programs to overcome the

multitude of challenges and tradeoffs of transitioning to the upstream approach.

10.210.210.210.2 Develop and deploy HighDevelop and deploy HighDevelop and deploy HighDevelop and deploy High----Efficiency Boiler Circulator Pump Upstream RebatesEfficiency Boiler Circulator Pump Upstream RebatesEfficiency Boiler Circulator Pump Upstream RebatesEfficiency Boiler Circulator Pump Upstream Rebates

Relative to what is involved with the cost and complexity of transitioning water heaters rebates

upstream, the key elements for a successful boiler circulator pump program are less complex:

1 Source: Sondhi, Strong, Arnold, “The End of Prescriptive Rebate Forms? Massachusetts Moves Upstream” ACEEE 2014

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• No existing program interactions. Circulator pumps would be a new measure for the HVAC

Program and the rest of the NJCEP portfolio. This eliminates all concerns about double-counting

savings and double-paying of incentives.

• Build on Market Manager Team experience. Though this is a new product category for NJCEP,

other regional programs affiliated with the Market Manager Team can provide valuable

assistance in establishing the new upstream program.

• Shorter, straighter supply-chain. In contrast to the much more varied water heater market,

there are only 5 manufacturers and 12 products that meet established efficiency criteria (80%

savings) for circulator pumps. This greatly reduces the level of effort required to establish broad

market coverage.

• Incentive level and savings. Estimate savings at 140kWh. Target incentive amount would be $75

per unit.

10.310.310.310.3 Improve HVAC Integration with Residential Retrofit Program (HPwES)Improve HVAC Integration with Residential Retrofit Program (HPwES)Improve HVAC Integration with Residential Retrofit Program (HPwES)Improve HVAC Integration with Residential Retrofit Program (HPwES)

As the Home Performance with ENERGY STAR Program takes on the daunting task to boost participation

while at the same time reducing incentive amounts, any help the HVAC program can provide would be

beneficial. The Market Manager Team has considered several pathways that better integrate the high

levels of participation, savings, and incentives of standalone heating and cooling equipment into the

whole-house program to drive savings:

• Make HVAC incentives available to HPwES Projects. Providing a way for customers to access

both the HVAC incentives as well as the whole-house retrofit incentives could mitigate the

effects of lower future HPwES rebates.

• Provide an expanded window of applicability. At present, many HPwES projects are initiated by

HVAC upgrades, but to qualify for whole-house savings they must complete air sealing and

insulation within the same project. If, as proposed in the first bullet, HVAC incentives can be

made available to HPwES project participants, then a more reasonable period of time could be

provided for the savings from HVAC equipment upgrades to be applied to the % savings targets

of HPwES incentive tiers.

• More Effective Cross-Promotion. Once the two previous items have been achieved, then

targeted marketing efforts can provide a more valuable and relevant message to HVAC program

participants. Tens of thousands of customers could receive communications about time-

sensitive opportunities to get credit for savings they’ve already bought towards cost-effective

air-sealing and insulation savings opportunities. This can raise the visibility of the HPwES

program with an audience with a greater propensity to act than the general public, and improve

the yield of the program portfolio.

These concepts would constitute significant changes to the operation, cost-effectiveness, and design of

multiple portfolio programs, utility initiatives, and overall market and customer engagement. Further

exploration is required to avoid negative potential consequences, but the returns through more

effective engagement with customers across programs are very large, and worthy of serious pursuit in

the course of future program improvements.