ARTICLE IN PRESS

Energy Policy 37 (2009) 2962–2976

Contents lists available at ScienceDirect

Energy Policy

0301-42

doi:10.1

� Corr

E-m

journal homepage: www.elsevier.com/locate/enpol

Market diffusion, technological learning, and cost-benefit dynamics ofcondensing gas boilers in the Netherlands

Martin Weiss a,�, Lars Dittmar b, Martin Junginger a, Martin K. Patel a, Kornelis Blok a

a Utrecht University, Copernicus Institute—Research Institute for Sustainable Development and Innovation, Heidelberglaan 2, 3584 CS Utrecht, The Netherlandsb Berlin University of Technology, Department of Energy Systems, Einsteinufer 25 (TA8), 10587 Berlin, Germany

a r t i c l e i n f o

Article history:

Received 8 October 2008

Accepted 17 March 2009Available online 5 May 2009

Keywords:

Energy demand technologies

Technological learning

Experience curves analysis

15/$ - see front matter & 2009 Elsevier Ltd. A

016/j.enpol.2009.03.038

esponding author. Tel.: +3130 253 5144; fax:

ail address: m.weiss@uu.nl (M. Weiss).

a b s t r a c t

High costs often prevent the market diffusion of novel and efficient energy technologies. Monitoring

cost and price decline for these technologies is thus important in order to establish effective energy

policy. Here, we present experience curves and cost-benefit analyses for condensing gas boilers

produced and sold in the Netherlands between 1981 and 2006. For the most dominant boiler type on

the Dutch market, i.e., condensing gas combi boilers, we identify learning rates of 1471% for the average

price and 1678% for the additional price relative to non-condensing devices. Economies of scale,

competitive sourcing of boiler components, and improvements in boiler assembly are among the main

drivers behind the observed price decline. The net present value of condensing gas combi boilers shows

an overall increasing trend. Purchasing in 2006 a gas boiler of this type instead of a non-condensing

device generates a net present value of 970 EUR (Euro) and realizes CO2 (carbon dioxide) emission

savings at negative costs of �120 EUR per tonne CO2. We attribute two-thirds of the improvements in

the cost-benefit performance of condensing gas combi boilers to technological learning and one-third to

a combination of external effects and governmental policies.

& 2009 Elsevier Ltd. All rights reserved.

1. Introduction

Introducing renewable energy technologies on a large scaleand improving the efficiency of energy demand and supplytechnologies are the two main trajectories towards a sustainableenergy system (IEA, 2008a). Energy efficiency improvements arethereby often regarded the most cost-effective and readilyavailable means for reducing non-renewable energy consumptionand greenhouse gas (GHG) emissions (e.g., EZ, 2005; IEA,2008b,c). Despite substantial improvements in past decades,considerable energy efficiency potentials still exist across bothcountries and economic sectors (IEA, 2008b). Whether or notthese potentials can be realized will depend on the marketdiffusion of novel and efficient energy supply and demandtechnologies. However, high initial investment costs often presenta key barrier for the market success of these technologies. Noveltechnologies are relatively expensive at the point of marketintroduction but eventually become cheaper due to mechanismssuch as learning-by-doing, technological innovation, and econo-mies of scale. The combined effect of these mechanisms we referto here as technological learning. Aspects of technological

ll rights reserved.

+3130 253 7601.

learning can be captured by the so-called experience curveapproach.1

The experience curve approach is an empirical concepthypothesizing that production costs of a technology decline at aconstant rate with each doubling of cumulative production (BCG,1968). In the 1970s and 1980s, the experience curve approach wasprimarily applied as a management tool in manufacturingindustries (Argote and Epple, 1990). In the 1990s, it gainedimportance as an instrument to forecast costs and diffusion ratesof energy technologies for building energy and CO2 (carbondioxide) emission scenarios (Wene et al., 2000; IEA, 2000, 2008a;van Vuuren et al., 2006). The experience curve approach has beenextensively applied to and redefined for renewable and non-renewable energy supply technologies (Junginger et al., 2004,2005, 2006, 2008; McDonald and Schrattenholzer, 2001; Neij,1999). Its application to efficient energy demand technologies is,however, still scarce (e.g., Iwafune, 2000; Laitner and Sanstad,2004).

Here, we address this knowledge gap by constructing experi-ence curves for one efficient energy demand technology, i.e.,condensing gas boilers. In addition, we analyze the importance oftechnological learning for costs and benefits of condensing gas

1 We use here the term experience curve instead of learning curve because the

latter is typically used for approaches that quantify the decline in labor costs only

(e.g., Junginger et al., 2008).

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M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2963

boilers from both a consumer and a governmental perspective. Wefocus our analysis on condensing gas boilers in the Netherlands.Choosing this technology is justified because condensing gasboilers offer substantial energy saving potentials in the residentialand commercial building sector of the European Union (EU).Weber et al. (2002) estimate that condensing gas boilers saveabout 5% of primary energy and 4% of CO2 emissions related toresidential space heating in the EU. National as well as Europeanpolicies targeted at energy efficiency improvements addresscondensing gas boilers as an important energy-efficiency technol-ogy (e.g., EU, 2005, 2006). We focus on the Netherlands becausethis country has been and still is an international front-runner inthe manufacturing and market diffusion of condensing gas boilers.Condensing gas boilers were introduced to the Dutch boilermarket already in 1981. Nowadays, they are a mature and fullydeveloped technology. Condensing gas boilers are by far the mostdominant boiler technology in the Netherlands, reaching marketshares of more than 90% in 2006. This allows us to study anefficient energy demand technology that has completed all stagesof its technology life cycle, i.e., invention, market introduction,market diffusion, and market saturation (see, e.g., Grubler et al.,1999).

In the next section, we give a brief overview of the history ofcondensing gas boilers in the Netherlands. In Section 3, weexplain our methodology for (i) constructing experiencecurves and (ii) analyzing costs and benefits of condensing gasboilers in the Netherlands. We present our results in Section 4,and we discuss methodology as well as implications of ourfindings for policy makers in Section 5. In Section 6, we drawconclusions.

2. A short history of condensing gas boilers in the Netherlands

In the 1960s, conventional non-condensing gas boilers withrelatively low efficiencies of around 80%2 became standardtechnology for space heating in the Netherlands (van Overbeeke,2001; Mooi, 2004). Triggered by increasing energy prices after thefirst oil crisis in 1973 and by expectations in a growingreplacement market for technically obsolete gas boilers, thenatural gas supplier Gasunie3 began researching options toimprove the energy efficiency of conventional non-condensinggas boilers. In 1978, Gasunie applied for patents for the firstprototype of a gas boiler, i.e., the so-called condensing gas boiler,which was able to utilize the latent heat of evaporation containedin the water vapor of flue gases. Based on this first prototype,Dutch boiler manufacturers started to develop own models ofcondensing gas boilers (Aptroot and Meijnen, 1993; Gasunie,1982; Weber et al., 2002). In 1981, condensing gas boilers from sixDutch manufacturers were successfully introduced into the Dutchboiler market. The first generation of these boilers reachedefficiencies of around 101–103% (Gasunie, 1982). Althoughreceiving subsidies until 1985, condensing gas boiler salesremained low due to the following obstacles (Brezet, 1994;Gasterra, 2007; Gasunie, 1982; Nefit, 2008; Sijbring, 2007):

4 Open boilers receive air from the buildings’ interior. Closed boilers, by

contrast, receive air via a pipe from outside of the building. While condensing gas

(i)

2

heati

effici

energ

the fl3

boilers have generally always been produced as closed boilers, this has not been the

case for conventional non-condensing boilers. Non-condensing boilers were in the

Installers lacked training and experience with the newtechnology and invested only insufficiently in marketingactivities.

Throughout this article, we express all efficiencies based on the lower

ng value (LHV) of fuels, e.g., natural gas. The thermodynamic maximum

ency of condensing gas boilers is 111%. This efficiency assumes that the

y content of the fuel (including the energy contained in the water vapor of

ue gas) is fully converted into useful heat.

N.V. Nederlandse Gasunie is a leading gas company in the Netherlands.

(ii)

majo

2007

cond

boile5

Data

[EUR

use c

Condensing gas boilers put additional requirements onhousehold infrastructure (e.g., installation of non-corrosiveflues, condensate drainage to the sewage system, air supply).

(iii)

Condensing gas boilers were less reliable and far moreexpensive than conventional non-condensing gas boilers.

(iv)

In 1981, boiler producers also introduced conventional non-condensing boilers with improved efficiencies (approxi-mately 88%) to the market. These boilers were cheaper andeasier to install than condensing gas boilers.

The first three obstacles mentioned above were addressed bythe various stakeholders in consecutive years. Condensing gasboiler sales remained nevertheless lower than expected, reachinga market share of only 8% by 1987. Aptroot and Meijnen (1993)argue that high consumer investment costs and falling natural gasprices between 1985 and 1989 caused unattractively high paybacktimes for condensing gas boilers in the mid to late 1980s.However, from 1990 onwards the Dutch gas boiler market wascharacterized by a rapid shift from non-condensing to condensinggas boilers. This development lead to a displacement mainly ofnon-condensing gas space heating boilers by so-called condensinggas combi boilers, which provide both space heating and hot tapwater from one single boiler unit (Fig. 1).

By 1996, condensing gas boilers were the dominant boilertechnology in the Netherlands. Since 2000 the market share ofcondensing gas boilers exceeds 80%. The rapid market diffusion inthe 1990s was mainly caused by the following factors (Brezet,1994; Gasterra, 2007; Gasunie, 1982; Nefit, 2008; Sijbring, 2007):

(i)

the reintroduction of a subsidy scheme, which had beenabsent in 1988 and 1989,

(ii)

technological developments in conventional non-condensinggas boiler manufacturing that led to a switch from inexpen-sive open to more expensive closed boiler systems,4 therebymaking condensing gas boilers also attractive for thereplacement market,

(iii)

continuous cost decline in production, installation, andmaintenance of condensing gas boilers.

In 2006, condensing gas combi boilers reached sales of 387,000units thereby accounting for 85% of total gas boiler sales and even93% of condensing gas boiler sales in the Netherlands.

Throughout past decades, the Dutch government did notfollow a consistent support policy for condensing gas boilers. Afirst subsidy program was set up for the period between 1981 and1985, granting subsidies of around 250 Dutch Guilders (NLG), i.e.,113 Euro (EUR) per condensing gas boiler.5 Between 1985 and1987, subsidies covered 33–40% of additional investment andinstallation costs for condensing gas boilers (Consumentenbond,1983–2006). A new subsidy program started in 1990, granting 350NLG (159 EUR) per condensing gas boiler. The governmentstopped this program in 1993 for budgetary reasons (Weberet al., 2002). In 1994, a final subsidy program was initiated,granting 100 NLG (45 Euro) per condensing gas boiler. This

rity open boilers until the early 1990s (Gasterra, 2007; Nefit, 2008; Sijbring,

). The shift from open to closed boilers caused a temporary increase in non-

ensing gas boiler prices. The introduction of closed non-condensing gas

rs was, however, necessary to reduce heat losses due to convection.

We uniformly apply an exchange rate of 2.20371:1 to convert NLG into EUR.

expressed in monetary units are given in this paper either in nominal terms

] or in real terms, deflated to the base year of 2006 [EUR2006]. For deflation, we

onsumer price indices as given by CBS (2007).

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0

50

100

150

200

250

300

350

400

450

500

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Year

Dut

ch b

oile

r sal

es in

100

0 un

its

Condensing gas space heating boilers

Condensing gas combi boilers

Non-condensing gas boilers (space heating and combi)

Non-condensing gas space heating boilers

Non-condensing gas combi boilers

Fig. 1. Sales of condensing and non-condensing gas boilers in the Netherlands (In years prior to 1992, available data do not allow for differentiating between non-

condensing gas space heating and combi boilers.) (data sources: CBS, 2007; Aptroot and Meijnen, 1993; Remeha, 2007; Sijbring, 2007).

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762964

program ended in 2002. From this year onwards, no subsidieshave been provided for condensing gas boilers in the Netherlands.Based on Dougle and Oosterheert (1999), Eiff et al. (2001), Joosenet al. (2004), and Oude Lohuis (2004), we estimate that in theNetherlands total nominal subsidies of roughly 70710 millionEUR were spent in direct support of condensing gas boilers.

Having described the market diffusion of condensing gasboilers in the Netherlands, we set the stage for our empiricalanalysis. We now explain in detail the methodology of bothexperience curve approach and cost-benefit analysis.

3. Methodology

In this section, we first present our methodology for con-structing experience curves. Afterwards, we explain in detailapproach and data sources used for our cost-benefit analysis.

3.1. Constructing experience curves

The experience curve approach models costs of a technology aspower-law function of cumulative production

Ccumi ¼ C0;i ðPcumiÞbi (1)

where Ccumi (EUR2006/kWth) represents here the price at Pcumi,C0,i (EUR2006/kWth) the price of the first unit produced, Pcumi

(MWth) the cumulative experience (i.e., cumulative production),and bi the product-specific experience index of technology i. Byapplying the logarithmic function to Eq. (1), we can plot a linearexperience curve with bi as slope parameter and log C0,i as theprice-axis intercept. Based on this methodology, we calculateproduct-specific progress ratio (PRi) (%) and learning rate (LRi) (%)as

PRi ¼ 2bi (2)

LRi ¼ 1� PRi ¼ 1� 2bi (3)

We estimate the error interval of PRi and LRi as the implicit errorof the regression analysis, i.e., the 95% confidence interval of theslope parameter of the experience curve. Here, we uniformly usemarket prices as proxy for actual production costs and we use

Dutch market sales as a proxy for actual condensing gas boilerproduction. The first proxy is a simplification that is, strictlyspeaking, only valid for competitive markets where prices closelyfollow production costs (BCG, 1968). This is generally the case forcondensing gas boilers in the Netherlands (see also the discussionin Section 5.1). Moreover, the use of prices is widely acceptedpractice in experience curve analysis because data on actualproduction costs are generally kept confidential by producers (see,e.g., Junginger et al., 2008). We justify the use of Dutch sales dataas a proxy for condensing gas boiler production based on twoconsiderations. First, Dutch boiler producers claim that conden-sing gas boilers have been invented (late 1970s), developed (early1980s), as well as produced (until the early 1990s) withoutsubstantial technology spill-over from other countries and regions(Nefit, 2008; Remeha, 2007). It is hence reasonable to assume anational learning system. Second, Dutch sales data proved to be (i)more reliable and (ii) more readily available than Dutch produc-tion data. Furthermore, net trade of condensing gas boilers isnegligible until the early 1990s and only minor relative todomestic production in the years afterwards (Nefit, 2008;Remeha, 2007). The use of sales data thus allows us to constructreliable experience curves for relatively long time periods.However, our approximation of cumulative condensing gas boilerproduction by Dutch sales data disregards knowledge spill-over toand from the Netherlands since the early 1990s. To quantify theresulting uncertainties, we conduct a sensitivity analysis based oncumulative sales of condensing gas boilers within the fifteenWestern European member countries of the European Union(EU-15) (see below and the discussion in Section 5.1).

In the first instance, we construct experience curves separatelyfor condensing gas combi and space heating boilers. Subsequently,we extend the conventional experience curve approach byconstructing experience curves for the additional price of thetwo condensing gas boiler types relative to non-condensingimproved-efficiency gas boilers. We regard such analysis as usefulbecause it reveals insight into the dynamics of costs that resultfrom upgrading non-condensing gas boilers to condensing devices(e.g., costs related to the installation of an additional heatexchanger and the adjustment of internal boiler settings).

We obtain price data for condensing and non-condensing gascombi and space heating boilers from various sources, i.e., AGPO

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M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2965

(2007), AWB (2007), Consumentenbond (1983–2006), Itho (2007),Nefit (2001, 2007), Remeha (2007), Vaillant (2007), and Warmte-service (2007). We chose to include data from all these sourcesinto our experience curve analysis because this allows us toestimate average prices for a higher number of individual years.We include in our analysis only gas boilers with a capacity lessthan or equal to 30 kWth because these boilers are typically usedfor central heating and hot tap water production in Dutchhouseholds (CBS, 2007; Remeha, 2007). Based on available pricedata, we calculate price averages and related standard deviationsfor individual years.

We estimate cumulative condensing gas boiler sales in theNetherlands based on data as provided by Aptroot and Meijnen(1993), Remeha (2007), and Sijbring (2007). For our sensitivityanalysis, we estimate condensing gas boiler sales in the EU-156

based on available sales data for France, Germany, the UK, and theNetherlands. These four countries account together for roughly90% of the total condensing gas boiler sales in the EU-15 (Remeha,2007; Weber et al., 2002).

3.2. Cost-benefit analysis

We perform cost-benefit analysis for condensing gas combiand space heating boilers of 25 kWth capacity7 from both aconsumer and a governmental perspective. We first take aconsumers perspective and calculate net present value,8 internalrate of return, and simple payback time 9 of condensing gascombi and space heating boilers relative to non-condensingimproved-efficiency gas boilers. The internal rate of return(IRRij) thereby represents the consumer discount rate (rij) atwhich the net present value (NPVij) of investments into acondensing gas boiler of type i in year j becomes zero. Theinternal rate of return in individual years fulfils the followingcriterion:

IRRij ¼ rij ) NPVðrijÞ ¼ 0 (4)

To obtain more detailed insight into the drivers of the observedcost-benefit dynamics, we disaggregate simple payback times forcondensing gas combi boilers, which is the most dominant boilertype on the Dutch market. We distinguish three principle factors,(i) boiler technology (i.e., changes in installation and maintenancecosts, boiler prices, and boiler efficiencies), (ii) externalities (i.e.,price and consumption of natural gas), and (iii) governmentalpolicy (i.e., taxes and subsidies).

6 Despite substantial gas boiler sales in countries like Korea and Japan, we

limit our sensitivity analysis to the EU-15 because complete time series data that

would allow an estimation of cumulative global condensing gas boiler sales or

production are not available. Our approach is justified because knowledge spill-

over is more likely to occur between European countries than with countries

outside of Europe due to close spatial proximity of European countries and a de-

regulated domestic European market.7 The average capacity of condensing and non-condensing gas combi and

space heating boilers varies between 16 and 26 kWth but shows an overall

increasing trend in the period between 1983 and 2006. To assure data consistency,

we recalculate boiler prices uniformly for a boiler of 25 kWth capacity. We assume

a linear relationship between price and boiler capacity in the specified capacity

range based on Consumentenbond (1983–2006).8 We assume that parameters affecting costs and benefits (e.g., natural gas

prices, household natural gas consumption) remain constant at the level of the

year of investment.9 Simple payback time is a widely applied criterion for evaluating the

profitability of investments. The simple payback time is a simplified parameter

for approximating actual payback time that disregards (i) interest rate, i.e., the

implicit discount rate of consumer investments and (ii) changes in costs and

benefits that might become effective during the use phase of condensing gas

boilers.

In the second part of our cost-benefit analysis, we take agovernmental perspective and calculate specific costs for realizedCO2 emission savings as:

CCO2 ;ij ¼ a� Iij þ Cij � BijDMCO2 ;ij (5)

where CCO2 ;ij (EUR2006/t (tonne) CO2) stands for the costs ofrealized CO2 emission savings, a for the capital recovery factor, Iij

for the initial investment, Bij for the annual benefits (EUR2006), Cij

for the annual costs (excluding capital costs) (EUR2006), andDMCO2 ;ij (t CO2) for CO2 emissions saved by a condensing gas boilerof type i bought in year j instead of a non-condensing improved-efficiency gas boiler.

Our choice to compare condensing gas boilers with improved-efficiency non-condensing gas boilers is justified because con-sumers who installed a condensing gas boiler would havechosen a so-called improved-efficiency non-condensing gasboiler (instead of a less efficient non-condensing standard-efficiency gas boiler), if condensing gas boilers were not available.We perform cost-benefit analysis for condensing gas combiboilers only for the period of 1988–2006 because data on bothboiler prices and actual natural gas consumption for hot tap waterproduction in Dutch households are not available to us for earlieryears.

We base our cost-benefit analysis on the same data sources asused for our experience curve analysis. Additional information isprovided by CBS (2007), EnergieNed (1981–2006), EnergieNed(2006), and Visser (2007) (see Tables A1–A3 in the Appendix).For Dutch natural gas, we assume a lower heating value of31.67 MJ/m3 (megajoules per cubic meter) and a specific CO2

emission factor of 1.78 kg CO2/m3 (kilograms per cubic meter)(Gasunie, 1988; IPCC, 1995).

4. Results

We begin by presenting and explaining the results of ourexperience curve analysis in Section 4.1. Afterwards, we analyzecosts and benefits of condensing gas boilers relative to non-condensing gas boilers from both a consumer and a governmentalperspective (Section 4.2).

4.1. Experience curve analysis

We first provide an overview of price data used for ourexperience curve analysis (Fig. 2). Condensing gas combi boilersshow the highest price decline in real terms, i.e., 50% between theyears 1988 and 2006 or on average 4% per year. The price ofcondensing gas space heating boilers declines by 39%(1983–2006), whereas price decline of non-condensing gasboilers ranges from 40% (1988–2006) for improved-efficiencygas combi boilers to 29% (1983–2006) for standard-efficiency gascombi boilers (Fig. 2).

Based on the price data presented in Fig. 2, we now constructtwo sets of experience curves (i) for the price of condensing gascombi and space heating boilers and (ii) for the additional price ofcondensing gas combi and space heating boilers relative to non-condensing improved-efficiency gas boilers. The price of conden-sing gas combi and space heating boilers, declines at learningrates of 1471% and 671%, respectively (Figs. 3 and 4).

Our results exceed the findings of Martinus et al. (2005), whoidentified a learning rate of 4% for condensing gas boilers based onprice data and cumulative installed capacities referring to theNetherlands. By recalculating the results of Martinus et al. (2005),we can entirely explain the observed differences. Martinus et al.(2005) cover with their analysis only the period between 1983and 1997 and they do not differentiate between non-condensing

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Cumulative sales of condensing gas boilers in the Netherlands in MWth

104 105

Pric

e of

con

dens

ing

gas

com

bi b

oile

rs in

EU

R20

06/k

Wth

40

50

60

70

80

90

100

R2 = 0.98LR = 14 ± 1%

PR = 86 ± 1%

y = (615±67) x(−0.22±0.01)

1988 (4)

1990 (2)

1994 (7)

1998 (13)

2001 (8)

2002 (35)

2006 (51)

2005 (8)

2004 (3)

Fig. 3. Experience curve for condensing gas combi boilers in the Netherlands for the period from 1988 to 2006 (in parentheses, number of price data included in our

analysis; error bars indicate the standard deviation of prices; note that the uncertainty of price averages is smaller than indicated by the error bars).

Year1985

Ave

rage

boi

ler p

rice

in E

UR

2006

/kW

th

0

20

40

60

80

100

Non-condensing improved-efficiency gas combi boilersNon-condensing improved-efficiency gas space heating boilersNon-condensing standard-efficiency gas combi boilersNon-condensing standard-efficiency gas space heating boilersCondensing gas combi boilersCondensing gas space heating boilers

1990 1995 2000 2005

Fig. 2. Average prices for condensing and non-condensing gas boilers in the Netherlands between 1981 and 2006.

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762966

gas combi and space heating boilers. If we apply the same systemboundaries as Martinus et al. (2005), we identify a learning rate of475% for condensing gas boilers as a whole. If we distinguishbetween the two types of condensing gas boilers, we find learning

rates of 873% for condensing gas combi boilers and 273% forcondensing gas space heating boilers, respectively.

The following factors characterize product improvements andexplain the observed price decline for both condensing gas combi

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Cumulative sales of condensing gas boilers in the Netherlands in MWth

103 104 105

Pric

e of

con

dens

ing

gas

spac

e he

atin

gbo

ilers

in E

UR

2006

/kW

th

30

40

50

60

70

80

90

100

y = (163 ± 16)x(−0.10 ± 0.01)

R2 = 0.92

LR = 6 ± 1%

PR = 94 ± 1%

1983 (6)

1988 (4) 1990 (5)

1994 (6)

1997 (13)1998(13)

2001 (7) 2002 (22)

2006 (16)

Fig. 4. Experience curve for condensing gas space heating boilers in the Netherlands for the period from 1983 to 2006 (in parentheses, number of price data included in our

analysis; error bars indicate the standard deviation of prices; note that the uncertainty of price averages is smaller than indicated by the error bars).

M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2967

and space heating boilers (Gasterra, 2007; Nefit, 2008; Remeha,2007; Sijbring, 2007):

(i)

10

depen

simpl

economies of scale and increased automation in both boilerassembly and component manufacturing during the entireperiod since market introduction in 1981,

(ii)

reduction of boiler size, thereby reducing material costs for,e.g., heat exchangers by roughly 50% in the entire periodsince market introduction in 1981,

(iii)

improvements in quality and reliability of boiler components(i.e., shift from non-modulating to modulating pre-mixburners10 in the early 1990s, introduction of internal boilerdiagnosis systems, and modulating ventilators),

(iv)

price reduction and performance improvement of controlelectronics since the early 1990s,

(v)

increasing competition among component manufacturerswith rising shares of components being imported from low-wage countries like China (since the 1990s),

(vi)

standardization of boiler components and competitive out-sourcing of component production to specialized companies(especially since the end of the 1990s),

(vii)

further streamlining of boiler assembly lines, decreasingassembly times, custom-made just-in-time manufacturing,and reduction of on-site component stocks, semi-finishedand finished boilers in recent years.

11 Note that both increasing cumulative production and rising levels of actual

Major changes regarding individual components refer especiallyto heat exchangers and control electronics. In the early 1980s, heatexchangers were the single largest cost component in condensinggas boiler manufacturing, accounting for 30% of total boilerproduction costs. This share has been reduced drastically in thepast 25 years. Nowadays, control electronics are the most

Modulating burners allow for a dynamic adjustment of burner capacity

ding on actual heat demand. Non-modulating burners function based on a

e on-off mechanism that does not allow for dynamic capacity adjustments.

important cost component (Gasterra, 2007; Remeha, 2007;Sijbring, 2007). Looking at the whole time period of 1981–2006,technological developments allowed for a reduction in bothvolume and weight of condensing gas boilers by a factor of 2–3.Especially competitive outsourcing of component production tospecialized companies since the end of the 1990s has been a majordriver for reducing production costs of condensing gas boilers(Gasterra, 2007; Remeha, 2007; Sijbring, 2007). The recentmerging of boiler producers offers further potential for economiesof scale, thus decreasing costs for raw materials, components,marketing, and research and development.

We explain the difference in the learning rates for condensinggas combi and space heating boilers with

(i)

prod

enab

caus1

only

the effect of additional technological learning in adaptinginternal boiler settings for providing combined space heatingand hot tap water,

(ii)

scale effects of the market, i.e., the market dominance ofcondensing gas combi boilers enabled producers to realizeadditional economies of scale, thus reducing production costsof condensing gas combi boilers to a larger extent thanproduction costs of space heating devices (Nefit, 2008).11

In the second part of our experience curve analysis, we nowfocus on the price difference between condensing and non-condensing gas boilers. This part of the analysis is especiallyrelevant for policy makers because the price difference betweenboth gas boiler types is one important indicator of the effort thatis required to stimulate market up-take of condensing gasboilers.12 In line with price trends depicted in Fig. 2, we identify

uction potentially reduce production costs. High volumes of actual production

le economies of scale that often help to reduce production costs beyond levels

ed by increased cumulative production alone.2 The price difference between condensing and non-condensing gas boilers is

one important indicator of the efforts required to assure market diffusion. The

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Cumulative sales of condensing gas boilers in the Netherlands in MWth

103 104 105

Pric

e di

ffere

nce

in E

UR

2006

/kW

th

789

15

20

30

40

50

60

10

Space heating boilers - condensing versus non-condensing standard-efficiency:R2 = 0.54; LR = 14 ± 9%; PR = 86 ± 9%Space heating boilers - condensing versus non-condensing improved-efficiency:R2 = 0.64; LR = 8 ± 4%; PR = 92 ± 4%Combi boilers - condensing versus non-condensing standard-efficiency:R2 = 0.99; LR = 26 ± 3%; PR = 74 ± 3%Combi boilers - condensing versus non-condensing improved-efficiency:R2 = 0.72; LR = 16 ± 8%; PR = 84 ± 8%

1988

2006

1983

Fig. 5. Experience curves for the additional price of condensing gas combi and space heating boilers relative to conventional, non-condensing gas boilers in the Netherlands

(numbers in the diagram indicate base year and final year of the analysis).

13 For condensing and non-condensing gas space heating boilers, we cover in

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762968

a general trend towards declining price differences betweencondensing and non-condensing gas boilers (Fig. 5). For theadditional price of condensing gas combi boilers, which isnowadays the dominant boiler type on the Dutch market, weidentify a learning rate of 1678%. Our results also indicate thatthe price difference between combi boilers (condensing versusnon-condensing improved-efficiency combi boilers) declinesroughly twice as fast as the price difference between the varioustypes of space heating boilers. This finding is explained to someextent by additional economies of scale in the manufacturing ofcondensing gas combi boilers.

We also find that differences in the length of the analyzed timeperiods (i.e., 1988–2006 for combi boilers versus 1983–2006 forspace heating boilers) have an impact on our results. The shortertime period covered by the data for combi boilers leads to a lowernumber of doublings of cumulative sales. By recalculating ourestimates for space heating boilers, we identify for the period1988–2006 learning rates of 1173% and 1978% for the additionalprice of condensing gas boilers compared to non-condensingimproved-efficiency and standard-efficiency gas boilers, respec-tively. This result shows that deviations regarding the analyzed

(footnote continued)

realized savings of energy and related costs is another one. In the next section, we

analyze total life-cycle costs of condensing gas boilers compared to non-

condensing improved-efficiency gas boilers, thereby providing more comprehen-

sive insights regarding, e.g., subsidy requirements.

time periods contribute 37% and 42% to the differences betweenthe learning rates for the additional price of condensing gas combiand space heating boilers, respectively.

4.2. Cost-benefit analysis

We now present our analysis of costs and benefits associatedwith condensing gas boilers in the Netherlands. First, we take aconsumer perspective and calculate the net present value percondensing gas combi and space heating boiler relative to a non-condensing improved-efficiency gas boiler in the periods between1988 and 2006 and between 1981 and 2006, respectively.13 Thenet present value of both condensing gas boiler types shows largefluctuations but an overall increasing trend in the time periodsanalyzed (Fig. 6).

With the exception of the periods 1988–1989 and 1997–1999,we find a positive net present value for condensing gas combiboilers. By contrast, the net present value of condensing gas space

our cost-benefit analysis the entire period between 1981 and 2006. To do so, we

have to estimate average boiler capacities for the years 1981 and 1982 by

extrapolation. For this reason, we do not cover these years in our experience curve

analysis. Note again that we assume here costs and benefits (e.g., natural gas

prices, household natural gas consumption, and maintenance costs) to remain

constant at the level of the year in which the investment into a 25 kWth gas boiler

is made.

ARTICLE IN PRESS

Year

1981

1982

1983

1984

1986

1987

1988

1989

1991

1992

1993

1994

1996

1997

1998

1999

2001

2002

2003

2004

2006

2007

1980

1985

1990

1995

2000

2005

Net

pre

sent

val

ue in

EU

R20

06

-400

-200

0

200

400

600

800

1000

Condensing gas space heating boilers (excluding subsidies)Condensing gas space heating boilers (including subsidies)Condensing gas combi boilers (excluding subsidies)Condensing gas combi boilers (including subsidies)

Fig. 6. Net present value of condensing gas boiler relative to non-condensing improved-efficiency gas boilers (assuming 25 kWth boilers capacity and a discount rate of 7%).

M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2969

heating boilers (excluding subsidies) is largely negative until1996. In the years after 1999, both condensing gas boiler typesshow a positive and steadily increasing net present value relativeto improved-efficiency gas boilers. Fig. 6 also shows that subsidiesincreased the net present value of condensing gas boilersconsiderably. The net present value of condensing gas combiboilers is on average higher than the one of condensing gas spaceheating boilers. We explain this finding by the high natural gassavings of combi boilers that over-compensate for additionalconsumer costs relative to condensing gas space heating boilers.The main drivers for the observed net present value dynamics are(see also below for a detailed analysis of simple payback time)

(i)

the declining price difference between condensing and non-condensing gas boilers,

(ii)

increased efficiency of condensing gas boilers relative to non-condensing improved-efficiency devices,

(iii)

declining natural gas consumption in households, and (iv) generally increasing natural gas prices.

In particular, the rise of net present value in the period2000–2006 strongly follows natural gas price dynamics. By2006, condensing gas combi and space heating boilers generatea net present value of 970 EUR and 550 EUR per boiler,respectively.

Reaching a positive net present value at a consumer discountrate of 7% does not, however, necessarily imply that consumerschose a condensing gas boiler. In fact, consumers often appear toapply much higher implicit discount rates than 7% when makingtheir purchasing decisions (Blok, 2007; Meier and Whittier, 1983;Train, 1985). Therefore, we also estimate the internal rate ofreturn, i.e., the discount rate at which the net present value per

condensing gas boiler relative to an improved-efficiency devicebecomes zero (Fig. 7).

Condensing gas combi boilers show zero net present value atan internal rate of return below 5% in 1988, 1989, and 1998.However, as early as in 1990 subsidies increase the profitability ofcondensing gas combi boilers to such an extent that the netpresent value becomes positive even at an internal rate of returnof 100% (Fig. 7). Overall, subsidies considerably increased theinternal rate of return for condensing gas combi and space heatingboilers. After 1999, both condensing gas combi and space heatingboilers reach zero net present value at an internal rate of return ofat least 10%. In 2006, the internal rate of return for condensing gascombi and space heating boilers reaches 49% and 25%, respec-tively. This result indicates the high attractiveness of condensinggas boilers for consumers in recent years, even when applyingimplicit discount rates much higher than 7%.

Next to net present value and internal rate of return, the simplepayback time provides an easily applicable and widely usedindicator for the profitability of consumer investments. Thesimple payback time for purchasing a condensing gas boilerinstead of a non-condensing improved-efficiency gas boilerfollows the inverse dynamics of net present value (Fig. 7).

In 1988, 1989, and 1993 condensing gas space heating boilerscannot regain additional consumer investments within their lifetime without receiving subsidies. After the year 2000, consumerinvestments in condensing gas combi boilers can be recoveredwithin less than 5 years. The simple payback time for investmentsin condensing gas combi boilers in the year 1993 specificallyhighlights the effect of subsidies. In this year, no governmentalsubsidies were granted for condensing gas boilers. Compared tothe years 1992 and 1994, the simple payback time for acondensing gas combi boiler increases from around 5–6 years to8.5 years, making consumer investments far less attractive. This

ARTICLE IN PRESS

External effects

Sim

ple

payb

ack

time

in th

e pe

riod

from

198

8 to

199

6 in

a

0

2

4

6

8

10

12

14

16

Governmentalpolicy

Technological learning

Par

amet

ers

froze

n at

the

leve

l of t

he y

ear 1

988

+ ch

angi

ng b

oile

r pric

es1)

+ ch

angi

ng in

stal

latio

n co

sts1)

+ ch

angi

ng m

aint

enan

ce c

osts

1)

+ ch

ang.

eff.

of c

ond.

2)

+ ch

ang.

eff.

of n

on-c

ond.

3)

+ ch

ang.

hou

seho

ld n

atur

al g

as c

ons.

4)

+ ch

angi

ng n

atur

al g

as p

rice

+ su

bsid

ies

+ ta

xes5)

-7%-8%

-35%

+24%

+29% -17%

-21%

-14%

Inte

rnal

rate

of r

etur

n in

%

50

30

20

10

5

3

1

Fig. 8. Drivers for the dynamics of simple payback time in the period from 1988 to 1996; percentages indicate the contribution to the change of simple payback time ((1)

aggregated effect of changing prices, installation costs, and maintenance costs for condensing and non-condensing improved-efficiency gas boilers; (2) changing efficiency

of condensing gas boilers; (3) changing efficiency of non-condensing improved-efficiency gas boilers; (4) changing household natural gas consumption; (5) including levy for

the Environmental Action Plan).

Year

1981

1982

1983

1984

1986

1987

1988

1989

1991

1992

1993

1994

1996

1997

1998

1999

2001

2002

2003

2004

2006

2007

1980

1985

1990

1995

2000

2005

Sim

ple

payb

ack

time

in a

0

2

4

6

8

10

12

14

16

18

Inte

rnal

rate

of r

etur

n in

%

Condensing gas space heating boilers (excluding subsidies)Condensing gas space heating boilers (including subsidies)Condensing gas combi boilers (excluding subsidies)Condensing gas combi boilers (including subsidies)

50

5

10

20

30

3

1

Fig. 7. Simple payback time and internal rate of return for condensing gas boilers relative to a non-condensing improved-efficiency gas boilers; assuming a boiler capacity

of 25 kWth.

14 Note that technological learning is also influenced indirectly by govern-

mental policies through direct and indirect policy effects on cumulative

production.

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762970

example points to the importance of subsidies for improving theattractiveness of condensing gas boilers in times when gas priceswere low and costs for purchase and installation were high.

To obtain quantitative insight into the drivers of the observeddynamics, we now perform a more detailed analysis for conden-sing gas combi boilers. In the first step, we analyze the entire timeperiod from 1988 to 2006. Here, we attribute two-thirds of thedecline in simple payback time to technological learning (i.e.,

declining prices for purchase and installation as well as efficiencyimprovements of condensing gas combi boilers)14 and one-thirdto external effects (e.g., changes in natural gas price) and

ARTICLE IN PRESS

External effects

Sim

ple

payb

ack

time

in th

e pe

riod

from

199

6 to

200

6 in

a

0

2

4

6

8

Governmentalpolicy

Technological learning

Par

amet

ers

froze

n at

the

leve

l of t

he y

ear 1

996

+ ch

angi

ng b

oile

r pric

es1)

+ ch

angi

ng in

st. c

osts

1)

+ ch

angi

ng m

aint

. cos

ts1)

+ ch

. eff.

of c

ond.

2)

+ ch

. eff.

of n

.-con

d.3)

+ ch

. hou

se. n

. gas

con

s.4)

+ ga

s pr

ice

+ su

bsid

ies

+ ta

xes5)

-37%

-13%-25%

+6% +28%

-56%

+48% -28%

50

30

20

10

Inte

rnal

rate

of r

etur

n in

%

Fig. 9. Drivers for the dynamics of simple payback time in the period from 1996 to 2006; percentages indicate the contribution to the changes of simple payback time ((1)

aggregated effect of changing prices, installation costs, and maintenance costs for condensing and non-condensing improved-efficiency gas boilers; (2) changing efficiency

of condensing gas boilers; (3) changing efficiency of non-condensing improved-efficiency gas boilers; (4) changing household natural gas consumption; (5) including levy for

the Environmental Action Plan).

Year

1981

1982

1983

1984

1986

1987

1988

1989

1991

1992

1993

1994

1996

1997

1998

1999

2001

2002

2003

2004

2006

2007

1980

1985

1990

1995

2000

2005

Cos

ts fo

r avo

ided

CO

2 em

issi

ons

in E

UR

2006

/t C

O2

-75

-25

25

75

-100

-50

0

50

Condensing gas space heating boilersCondensing gas combi boilers

Fig. 10. Costs for CO2 emission savings generated by condensing gas boilers (capacity of 25 kWth) in the Netherlands (excluding direct subsidies and taxes on natural gas as

well as on purchase, installation, and maintenance of gas boilers).

15 Note (i) that the scales of y-axes in Figs. 8 and 9 differ from each other and

(ii) that the effect of individual parameters on the simple payback time depends on

the order of disaggregation. We try to correct for this order-dependency by stating

percentage changes in simple payback time always relative to the previous level of

disaggregation. Thus, the sum of percentage changes does not equal 100%.

M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2971

governmental policies (e.g., subsidies and taxes). However,depending on the year of analysis, these shares might vary. Toillustrate the variability in the contribution of individual para-meters, we differentiate two distinct time periods: (i) 1988–1995in which natural gas prices remain relatively constant and (ii)1996–2006 in which natural gas prices as well as fees and taxes onenergy show a steady increase. In the period between 1988 and1996, payback times for condensing gas combi boilers dropped by50% from 16 years to 8 years. We identify improved efficiency ofcondensing gas combi boilers to be the single major driver for the

observed decline in simple payback time (Fig. 8)15. In the sameperiod, external effects increase and governmental policiesdecrease simple payback time, whereas the opposite is true forthe period from 1996 to 2006. In the latter period, declining prices

ARTICLE IN PRESS

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762972

for condensing gas combi boilers and rising prices for natural gasprices provide major contributions to the decline of simplepayback time (Fig. 9). Between 1996 and 2006, technologicallearning contributes two-thirds to the reduction of simplepayback time from 7 to 2 years, whereas the combination ofexternal effects and governmental policies together contributearound one-third (Fig. 9). Our results demonstrate thattechnological learning (i.e., declining prices for purchase andinstallation as well as improvements in the efficiency ofcondensing gas combi boilers) contributed in both time periodssubstantially to the cost-effectiveness of condensing gas boilers inthe Netherlands. Declining natural gas consumption in Dutchhouseholds, primarily due to improvements in wall and roofinsulation as well as in window glazing, has a substantial adverseeffect on the payback time for condensing gas combi boilers in theentire period from 1988 to 2006.

For the second part of our cost-benefit analysis, we now take agovernmental perspective. In the period between 1981 and 2006,condensing combi and space heating gas boilers saved in theNetherlands 8.4 Gm3 (giga cubic meters) of natural gas, beingequivalent to: 2.1 billion EUR in energy costs (excluding taxes),approximately 270 PJ (petajoules) in primary energy, and 15 Mt(megatonnes) in CO2 emissions. In 2006 only, condensing gasboilers saved 2.0 Mt CO2 emissions, which account for roughly1.2% of total energy-related CO2 emissions of the Netherlands(UNFCCC, 2008). These energy savings were associated withadditional consumer costs for purchase and installation ofcondensing gas boilers. The costs of realized CO2 emission savings(excluding direct governmental taxes and subsidies on natural gasand the purchase, installation, and maintenance of gas boilers)follow the trend of net present value. Both condensing gas combiand space heating boilers save CO2 emissions at steadily decliningcosts (Fig. 10). Condensing gas combi boilers are in general morecost-efficient than condensing gas space heating boilers andrealize in the year 2006 emission savings at negative costs of �116EUR/t CO2.

16 One might argue that technological learning is more complex than

discussed here: manufacturers not only aim at minimizing production costs by

reducing the quantities of production factors but also by substituting production

factors (e.g., energy for labor), if substantial price changes occur. This is indeed the

case in reality where factor substitution is a main driver behind cost decline in

manufacturing. Regardless, it is unlikely that prices of production factors follow an

experience curve pattern because these depend not only on technological learning

in other sectors (e.g., growing experience in energy production, in the

manufacturing of raw materials and semi-finished components, as well as in

information technology) but also on additional factors such as resource scarcity,

availability of skilled labor, or the dynamics of profit margins in other sectors.

5. Discussion

In the first part of this section, we discuss the strengths andweaknesses of our methodology. Afterwards, we discuss theimplications of our results for energy and CO2 emission mitigationpolicy.

5.1. Discussion of methodology

Both experience curve analysis and cost-benefit calculationsare subject to uncertainties. We begin with a qualitative discus-sion of uncertainties and caveats related to our experience curveanalysis.

Our approach of using cumulative Dutch boiler sales as anindicator for cumulative experience in condensing gas boilermanufacturing is justified because condensing gas boilers weredeveloped and produced in the Netherlands without considerableexogenous technology spill-over until the early 1990s (Nefit,2008; Remeha, 2007). However, in subsequent years, condensinggas boilers became more frequently traded. The mergers of boilerproducers additionally contributed to international knowledgetransfer. One might argue that using data on Dutch cumulativeboiler sales introduces a bias into our experience curve analysis.Therefore, we perform a sensitivity analysis on our results,plotting Dutch condensing gas boiler prices as a function ofcumulative condensing gas boiler sales in the EU-15. We estimatelearning rates of 1471% and 672% for condensing gas combi andspace heating boilers, respectively. The results of our sensitivity

analysis are within the uncertainty range of our estimates, thusindicating that the uncertainties attached to the use of data oncumulative Dutch boiler sales are small.

The use of market prices as a proxy for actual productionpotentially introduces uncertainty into our results, if profitmargins of producers vary considerably. We regard this sourceof uncertainty as minor because the Dutch boiler market has beenand still is highly competitive, leaving only relatively small butnevertheless declining profit margins for producers (Nefit, 2008).Furthermore, quality and availability of price data are othersources of uncertainty. We analyzed the sensitivity of ourexperience curve results with respect to the inclusion andexclusion of the various sources of price data (see Section 3.1).We find that the differences in the learning rates are small, i.e.,within the uncertainty range of our results.

In more general, uncertainties might be introduced into ourresults by substantial and sudden changes in the price ofproduction factors used for the manufacturing of gas boilers, i.e.,the price of capital, labor, energy, and materials. To understandthis source of uncertainty, we reiterate the basic assumption ofthe experience curve approach: production costs decline at aconstant rate with each doubling of cumulative production due totechnological learning and the accumulation of experience inmanufacturing. One might argue that technological learningcauses foremost a reduction in the quantity of production factorsused for manufacturing but not a reduction in the price ofproduction factors. Changes in the price of production factors aregenerally triggered from outside of the learning system and mightlead to a temporary or permanent change in the costs ofmanufacturing. A prominent example in the case of condensinggas boiler manufacturing is the reduction of labor costs at the endof the 1990 by competitive outsourcing of component manufac-turing to China. The realized cost reduction can be largelyattributed to low wages in China, i.e., a decline in the price forthe production factor labor, but not to a decline in the quantity oflabor needed to manufacture condensing gas boilers. Similarly, asubstantial increase in oil and energy prices as observed in 2007might have a substantial adverse effect on manufacturing costs,despite continuous technological learning of manufacturers.16

Furthermore, meaningful experience curve analysis requiresthat the technology studied remains homogenous with regard toits components and the consumer services provided. Condensinggas boilers generally meet this requirement. However, the switchfrom open to closed non-condensing gas boilers in the early 1990slead to a temporary price increase, and thus introduces un-certainty into the learning rates identified for the additional priceof condensing gas boilers relative to non-condensing devices. Thetemporary price increase for non-condensing gas boilers between1988 and 1994 (see Fig. 2) suggests that the applicability of theexperience curve approach to this boiler type is limited, given thelevel of detail of available price data. This finding also indicatesthat the time period chosen for experience curve analysis stronglyinfluences the learning rate in cases where technologies undergosubstantial changes during their life cycle (see data comparisonwith Martinus et al. (2005) in Section 4.1). Despite the sources of

ARTICLE IN PRESS

M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2973

uncertainty discussed so far, we regard the results of ourexperience curve analysis valid.

We now discuss uncertainties of our cost-benefit analysis. Forour calculations, we use average gas boiler prices, efficiencies, aswell as natural gas consumption in centrally heated dwellings ofthe Netherlands. We exclude a detailed sensitivity analysis forthese parameters, because we primarily analyze trends regardingcosts and benefits of condensing gas boilers. The level of detail ofour analysis is, therefore, insufficient to reflect the situation inindividual cases, e.g., for households with natural gas consump-tion below or above average and for cases where specific boilerprices deviate considerably from the averages used here. Theselimitations can, however, be addressed to some extent by moredetailed analysis with, e.g., the Dutch residential energy model(DREM) (Dittmar et al., 2007).

Moreover, the results of our cost-benefit analysis reflect thesituation of the year in which the investment decision is made. Wethereby assume that conditions (e.g., natural gas consumption,natural gas price) remain unchanged during the life time ofcondensing gas boilers. We chose this approach because itprobably best reflects the perceived consumer costs and benefitsat the time of purchase. However, given the substantial increase innatural gas prices in recent years, our results potentially under-estimate the real consumer benefits of condensing gas boilers.Uncertainties of our cost-benefit analysis also refer to data quality.We estimate natural gas consumption for hot tap water produc-tion based on EnergieNed (1981–2006). Data for years prior to1996 are estimated based on data extrapolation and are, therefore,uncertain.

5.2. Discussion of results

The results of our analysis indicate a trend towards decliningprices and rising consumer and governmental benefits related tocondensing gas boilers in the Netherlands. The identified learningrates of 1471% and 1678% for the absolute and additional price ofcondensing gas combi boilers are in line with the findings ofJunginger et al. (2008), who identified in an overview studylearning rates of on average 16% for energy demand technologies.

Our research identifies (i) economies of scale, (ii) increasedspecialization and automation of production processes, and (iii)outsourcing of production to low-wage regions as main drivers forprice reductions of condensing gas boilers (Gasterra, 2007; Nefit,2008; Remeha, 2007). It is not possible for us to quantify theindividual contributions of these factors to the observed overallprice decline. Such analysis would require far more disaggregatedcost data that are generally not available due to confidentialityreasons.

Our cost-benefit analysis shows that the purchasing ofcondensing gas boiler was not profitable for consumers in severalyears after market introduction. Condensing gas boilers onlygained market shares slowly, requiring more than 10 years toachieve a breakthrough in the market (Fig. 1). However, our cost-benefit analysis also demonstrates that the cost-effectiveness ofcondensing gas boilers in saving both non-renewable energyresources and CO2 emissions increased rapidly after 1999. Ourresults indicate that technological learning (i.e., declining pricesfor purchase and installation as well as improvements in theefficiency of condensing gas boilers) is indeed a main driver forthis development. However, especially in the period between1999 and 2006, also rising natural gas prices greatly improved thecost-effectiveness of condensing gas combi boilers (Fig. 9).

Our analysis also provides a rationale for establishing subsidyschemes for novel but not yet cost-effective technologies (e.g.,heat pumps, innovative lighting technologies, and renewable

energy-supply technologies). At the example of condensing gasboilers, we have shown that subsidies can indeed substantiallyimprove the cost-performance of novel and efficient energytechnologies in early years when technology costs are high andmarket volumes small. Depending on the dynamics of marketdiffusion and energy prices, subsidies might be, however,necessary for long time periods of a decade or more.

The Dutch experience with condensing gas boilers in the earlyyears after market introduction (i.e., 1981–1985) also indicatesthat the cost-effectiveness is not a guarantee for market success, if(i) experience with the new technology is limited and (ii) thetechnology does not comply with legal regulations, infrastructurecharacteristics, as well as non-cost-related consumer preferences(Brezet, 1994).

6. Conclusions

Experience curve analyses for efficient energy demand tech-nologies are still scarce to date. Here, we address this knowledgegap by applying the experience curve approach along with cost-benefit analysis to condensing gas boilers in the Netherlands. Weregard the experience curve approach as applicable and useful foranalyzing price-dynamics of condensing gas boilers. For the pasttwo decades, we identify a trend towards declining prices as wellas rising consumer and governmental benefits. The dynamics ofnet present value and simple payback time are driven by threefactors: (i) technological learning, (ii) external effects, and (iii)governmental policies. Technological learning (i.e., decliningprices for purchase and installation as well as improvements inthe efficiency of condensing gas boilers) explains two-thirds of theobserved dynamics, whereas the two latter factors togetherexplain one-third. Our results highlight the importance of bothtechnological learning and non-technology-related factors such asenergy prices for realizing cost-effective emission savings. Theexample of condensing gas boilers in the Netherlands shows howproduct innovation can improve energy efficiency in the residen-tial sector. Limited subsidy support of roughly 70710 million EURcontributed to savings of 270 PJ primary energy and 15 Mt CO2

emissions in the period from 1981 to 2006. The example ofcondensing gas boilers in the Netherlands, however, also showsthat energy policy aiming at improving energy efficiency mightneed perseverance over several years to decades. We concludethat our analysis provides an important component of ex-post

technology analysis, which adds valuable insight into marketdiffusion as well as price- and cost-dynamics of one efficientenergy demand technology. Our analysis thereby assists policymakers in designing effective governmental support for othernovel and efficient energy technologies as well.

Acknowledgements

This research was funded by the Dutch Ministry of EconomicAffairs. We thank Klaas-Jan Koops from the Dutch Ministry ofEconomic Affairs for the fruitful cooperation during this researchproject. We thank Alexandra Newman (Colorado School of Mines,Golden, USA) and one anonymous reviewer for their valuablecomments on earlier drafts of this article.

Appendix

See Tables A1–A3.

ARTICLE IN PRESS

Table A1Background data for our cost-benefit analysis of condensing gas boilers (data sources: CBS, 2007; Consumentenbond, 1983–2006; EnergieNed, 1981–2006; Visser, 2007).

Year Condensing

gas boiler

sales (1000

units)

Natural gas

consumption for

space heating in

ICH dwellingsa

(m3)

Natural gas

consumption for

hot tap water in

ICH dwellingsa

(m3)

Average efficiency

of gas boilers

installed in ICH

dwellingsa (%)

Nominal

natural gas

price (EUR/

m3)

Condensing gas boilers Improved-efficiency

non-condensing gas

boilers

Average

efficiency

(%)

Market

share (%)

Average

efficiency

(%)

Market

share

(%)

1981 13 3110 280 75 0.19 101 7 88 7

1982 15 2980 270 76 0.22 101 7 88 10

1983 16 2850 260 76 0.23 102 9 88 21

1984 19 2720 245 76 0.25 102 10 88 29

1985 20 2590 245 77 0.26 102 9 89 32

1986 21 2460 260 77 0.25 102 9 89 37

1987 23 2330 330 78 0.18 103 8 89 42

1988 29 2200 335 79 0.18 103 11 89 45

1989 34 2070 355 79 0.17 103 12 89 50

1990 47 1940 360 80 0.20 103 16 89 55

1991 94 1810 360 81 0.22 104 30 90 56

1992 127 1680 360 83 0.21 104 38 90 57

1993 135 1640 370 84 0.20 104 41 90 55

1994 145 1720 370 86 0.21 105 40 91 52

1995 160 1690 370 87 0.21 105 44 91 50

1996 190 1785 375 89 0.28 106 51 91 45

1997 233 1640 380 91 0.25 107 58 92 37

1998 267 1545 375 92 0.25 107 68 92 29

1999 280 1565 375 94 0.24 107 75 92 24

2000 307 1580 375 95 0.31 107 81 92 18

2001 322 1614 375 96 0.38 107 83 92 17

2002 323 1559 375 97 0.40 107 86 92 13

2003 340 1514 377 99 0.43 107 86 92 13

2004 358 1494 380 99 0.44 107 87 92 12

2005 384 1432 380 100 0.50 107 91 92 8

2006 416 1432 380 101 0.55 107 91 92 7

a The term ICH dwellings refers to individually and centrally heated dwellings.

Table A2Background data for our cost-benefit analysis of condensing gas boilers (data sources: Consumentenbond, 1983–2006; Warmteservice, 2007; Visser, 2007).

Year Average nominal boiler price (EUR)a Nominal

subsidy per

condensing

gas boiler

(EUR)

Nominal

subsidy per

improved-

efficiency

non-

condensing

gas boiler

(EUR)

Nominal

installation

costs for

condensing

gas boilers

(EUR)

Nominal

installation

costs for

non-

condensing

gas boilers

(EUR)

Sales tax

(%)

Consumer

price index

(%)Condensing

gas combi

boilers

Condensing

gas space

heating

boilers

Improved-

efficiency

non-

condensing

gas combi

boilers

Improved-

efficiency

non-

condensing

gas space

heating

boilers

1981 – 1224 – 794 113 – 343 250 18.0 43

1982 – 1230 – 800 113 – 343 255 18.0 50

1983 – 1236 – 806 113 – 343 265 18.0 52

1984 – 1245 – 831 113 – 353 275 18.0 54

1985 – 1255 – 855 154b – 353 285 18.0 56

1986 – 1265 – 880 151b – 363 290 18.0 52

1987 – 1275 – 905 175c – 363 295 18.0 41

1988 1737 1285 1294 930 – – 372 309 18.0 40

1989 1696 1300 1417 987 – – 372 309 18.0 38

1990 1655 1316 1539 1044 159 – 379 327 18.0 43

1991 1628 1325 1475 1042 159 91 393 340 18.0 46

1992 1602 1334 1411 1041 159 91 393 340 17.5 45

1993 1575 1343 1347 1039 – – 417 372 17.5 42

1994 1548 1352 1283 1036 91 – 417 372 17.5 44

1995 1579 1337 1244 1042 91 – 417 386 17.5 44

1996 1610 1322 1205 1049 91 – 424 397 17.5 47

1997 1641 1308 1166 1056 – – 424 420 17.5 51

1998 1672 1316 1127 1037 – – 488 465 17.5 52

1999 1602 1321 1124 1013 45 – 545 511 17.5 52

2000 1532 1327 1121 988 45 – 556 556 17.5 59

2001 1463 1332 1115 963 45 – 635 635 19.0 68

2002 1575 1428 1177 1027 45 – 630 630 19.0 72

2003 1522 1431 1192 1029 – – 635 635 19.0 77

M. Weiss et al. / Energy Policy 37 (2009) 2962–29762974

ARTICLE IN PRESS

Table A3Assumptions for our cost-benefit analysis of condensing gas boilers.

Electricity savings of condensing gas boilers in kWh/a (Vaillant, 2007)a 0

Difference in nominal installation costs between condensing and non-

condensing gas boilers in EURb

20

Interest rate in % 7

Life time of boilers in years 15

a Based on information from Vaillant (2007), we assume average power

requirements of 140 We for both condensing and non-condensing gas boilers. This

assumption contrasts estimates from Consumentenbond (1983–2006) according

to which condensing gas boiler save 200–300 kWhe per year compared to non-

condensing gas boilers. We explain the discrepancy with the fact that

Consumentenbond (1983–2006) compares condensing gas boilers with outdated

non-condensing gas boilers of the existing boiler stock but not with most recent

non-condensing gas boilers competing on the market with condensing devices for

purchase.b Including sales tax.

Table A2 (continued )

Year Average nominal boiler price (EUR)a Nominal

subsidy per

condensing

gas boiler

(EUR)

Nominal

subsidy per

improved-

efficiency

non-

condensing

gas boiler

(EUR)

Nominal

installation

costs for

condensing

gas boilers

(EUR)

Nominal

installation

costs for

non-

condensing

gas boilers

(EUR)

Sales tax

(%)

Consumer

price index

(%)Condensing

gas combi

boilers

Condensing

gas space

heating

boilers

Improved-

efficiency

non-

condensing

gas combi

boilers

Improved-

efficiency

non-

condensing

gas space

heating

boilers

2004 1470 1434 1207 1030 – – 655 655 19.0 80

2005 1548 1437 1223 1032 – – 655 655 19.0 91

2006 1520 1440 1238 1034 – – 680 680 19.0 100

a Assuming average boiler capacity of 25 kWth, including sales taxes.b Subsidy covers 33% of additional costs for purchase and installation.c Subsidy covers 40% of additional costs for purchase and installation.

M. Weiss et al. / Energy Policy 37 (2009) 2962–2976 2975

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