Residential - Propane Education and Research Council...Demand In 2018, the residential sector...

RESIDENTIAL

Bryan Cordill [email protected]

202-452-8975

mailto:[email protected]

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Residential Overview According to the EIA, the residential sector is the third-largest energy-consuming sector in the United States. While the residential sector is the largest consumer of odorized propane, propane constitutes a relatively minor share of residential energy supply, with the bulk of energy coming from natural gas and electricity. The bulk of residential demand typically goes towards space heating with the rest primarily used for water heating and cooking. Residential propane consumption exhibits strong seasonality, with the bulk of demand occurring in the winter, for space heating. The northeast tends to have the highest market share of propane used for space heating. This is owing to the large number of relatively isolated rural communities, and the extreme winter weather commonly seen. In the southeast, propane is used in moderation for space heating, but is especially popular as a cooking fuel. The region’s moderate temperatures are a boon for outdoor cooking applications.

Propane has been declining on both an absolute and market share basis since 2008. The decline in overall propane demand for heating nationally is likely linked in part to falling heating degree days in the US since 2010. Expanded natural gas distribution (including in new shale gas-producing regions) has also been a limiting factor for propane demand. While propane could replace heating oil in some regions where natural gas infrastructure does not exist. Where the infrastructure does exist, customers will likely choose to convert to natural gas due to price advantages and perceived convenience. However, there are opportunities for propane in the residential market. Along with focusing on new appliance installations, propane needs to capitalize on areas that are already seeing and expecting increased growth to offset expected losses, such as housing starts (especially in the South), manufactured housing, and zero net energy homes.

Demand In 2018, the residential sector accounted for 56% of total propane sales, or around 5.2 billion gallons. This is an increase of almost 19% over 2017. In 2017, propane residential gallons made up 4.4 billion gallons or 53% of all propane demand gallons. Overall, propane has about 7.6% market share of the residential sector.

Total Residential Demand

Source: Propane Education & Research Council

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Propane Residential Demand

Residential US Energy Demand 2012-2018

Residential (9.0% of Total US Energy Demand in 2018)

Year CAGR 2012-2018 2012 2013 2014 2015 2016 2017 2018

Natural Gas 62.2% 64.9% 65.4% 63.6% 64.2% 65.0% 67.4% 3.6% Electricity 11.5% 9.7% 9.4% 10.2% 11.2% 10.9% 10.0% 0.3% Propane 7.1% 7.0% 7.0% 6.9% 7.2% 7.1% 7.6% 3.5% Wood/Biomass 9.0% 9.8% 9.4% 9.2% 8.7% 8.4% 7.3% -0.6% Diesel/Heating Oil 9.9% 8.4% 8.7% 9.8% 8.4% 8.3% 7.3% -1.9% Solar 0.1% 0.1% 0.1% 0.2% 0.2% 0.3% 0.3% 15.7% Coal/Coke 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% -6.4%



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Number of Propane Space Heating Households

Propane Space Heating Market Share

Source: U.S. Census Bureau


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Opportunities US Housing Units Starts US housing unit starts have been on a steady rise since 2011 and are expected to grow through 2025; however, unit starts are still short of pre-recession numbers. As the residential housing market continues to grow, the overall number of propane customers is likely to increase from now to 2025. However, long-term improvements in efficiency will offset customer growth and lead to a slow decline of total residential propane sales on a volume basis.

US Housing Unit Starts by Year

The South is seeing one of the largest increases in the number of US housing starts, although it had also experienced the greatest drop in counts during the recession.

US Housing Unit Starts by Census Region

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g-04

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-05

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NortheastMidwestSouthWest

Source: U.S. Census Bureau, HUD

Source: U.S. Census Bureau, HUD

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Primary Space Heating Source in New Housing Starts Over the past decade, market share for natural gas has increased, unlike most other fuels.

Market Share of Primary Space Heating Source for All Housing Starts

There are market share differences across regions (see Appendix for census regions defined). New England and East North Central are the regions with the greatest propane market share of new construction. In New England, propane has seen a large increase from 22% in 2009 to 43% in 2018 due to the displacement of heating oil as environmental regulations have come into effect and older technologies were phased out. In the East North Central region, natural gas has increased by a quarter while electricity has fallen 16%. A similar trend is seen in the West North Central and the West South Central regions. Even in the South Atlantic region, where electricity is the majority of new homes, electricity’s market share has decreased while natural gas has slightly increased. Propane is also down in the South Atlantic region, where housing starts are rising steadily.

45% 43% 40% 38% 38% 38% 40% 40% 39% 40%

44% 47% 51% 54% 54% 54% 54% 55% 56% 55%

6% 6% 6% 6% 6% 6% 5% 4% 5% 4%3% 2% 2% 1% 1% 1% 1% 1% 1% 1%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Electricity Natural gasBottled or liquefied petroleum gas Oil (including heating oil or kerosene)Other or no heat Source: U.S. Census Bureau

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Space Heating Market Share for New Housing Starts: New England

Space Heating Market Share for New Housing Starts: Middle Atlantic

9% 7% 6% 5% 3% 5% 6% 6% 10% 6%

41% 42% 42%35% 40% 44% 43% 51% 45% 45%

22% 31% 31% 43% 45% 40% 41%36% 40% 43%

22%17% 17% 9%

8% 4% 5% 3% 3% 5%6% 3% 4% 8% 4% 6% 5% 4% 2% 2%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Electricity Natural gasBottled or liquefied petroleum gas Oil (including heating oil or kerosene)Other or no heat

15% 19% 12% 11% 11% 10% 14% 10% 11% 13%

76% 71% 78% 79% 78% 78%79% 82% 79% 82%

5% 5% 6% 6% 8% 9% 5% 5% 8% 4%

0%

20%

40%

60%

80%

100%




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Space Heating Market Share for New Housing Starts: East North Central

Space Heating Market Share for New Housing Starts: West North Central

28% 20% 19% 17% 14% 12% 15% 13% 11% 11%

49%55% 64% 64% 70% 69% 70% 71% 72% 75%

18% 21%13% 15% 13% 16% 12% 14% 15% 13%

5% 5% 4% 4% 3% 3% 3% 2% 1% 1%

0%

20%

40%

60%

80%

100%


36% 35%22% 23% 21% 24% 23% 20% 21% 18%

61% 61%74% 74% 75% 72% 73% 74% 73% 76%

1% 2% 2% 3% 4% 4% 4% 5% 5% 6%

0%

20%

40%

60%

80%

100%




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Space Heating Market Share for New Housing Starts: South Atlantic

Space Heating Market Share for New Housing Starts: East South Central

80% 75% 72% 72% 71% 72% 74% 73% 71% 74%

16% 22% 23% 23% 24% 23% 24% 27% 29% 25%

3% 3% 5% 5% 5% 4% 2% 1% 1% 1%

0%

20%

40%

60%

80%

100%


78% 72% 70% 63%76% 75% 70% 64% 70% 73%

18% 23% 27% 34%23% 22% 28% 35% 29% 25%

2% 1% 2% 1% 1% 2% 1% 1% 1% 1%

0%

20%

40%

60%

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100%




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Space Heating Market Share for New Housing Starts: West South Central

Space Heating Market Share for New Housing Starts: Mountain

58% 54% 51% 45% 40% 39% 40% 42% 38% 38%

40% 42% 44% 52% 58% 58% 58% 56% 60% 61%

1% 2% 3% 1% 1% 1% 1% 2% 1% 1%

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20%

40%

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80%

100%


22% 15% 11% 10% 11% 11% 13% 17% 16% 15%

68% 78% 82% 87% 87% 85% 83% 80% 80% 82%

10% 5% 5% 2% 2% 4% 3% 3% 5% 3%

0%

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40%

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80%

100%




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Space Heating Market Share for New Housing Starts: Pacific

New Appliance Installation in New and Existing Homes HVAC Appliance Installations HVAC boiler and HVAC furnace installations have both increased since 2015 (28% and 31% respectively).

New HVAC Boiler Installations by Year

In 2018, propane was 14% of all new boiler installations and 8% of furnace installations, while electricity was 25% and fuel oil 11% for boilers, and 19% and 3% respectively for furnaces. Piped gas still has the

16% 19% 17% 15% 14% 17% 14% 15% 17% 17%

67%72% 72% 77% 78% 75% 80% 76% 75% 74%

6%5% 6% 4% 3% 4% 3% 5% 5% 5%10% 4% 5% 4% 5% 4% 3% 3% 3% 3%

0%

20%

40%

60%

80%

100%


157,690 185,377 182,151 174,43347,007

82,307 72,342 77,370

268,444

383,375 342,619 342,73772,956

96,76878,922 98,107

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2015 2016 2017 2018

Electric Fuel oil Piped gas Propane Other


Source: Home Innovation Research Labs

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majority of market share for both HVAC boilers and furnaces. There is a lot of opportunity for propane for both boilers and furnace installations, especially in regions like West South Central where electric has a sizable market share of new installations, or New England and Mid Atlantic where fuel oil still maintains a strong share of new installations.

2018 New HVAC Boiler Installations by Fuel

HVAC Furnace Installations by Year

020406080

100120140160

180

NEWENGLAND

MIDATLANTIC

E NCENTRAL

W NCENTRAL

SOUTHATLANTIC

E SCENTRAL

W SCENTRAL

MOUNTAIN PACIFIC

Thou

sand

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557 619 775 69691 89

105 120

1,8292,252

2,438 2,459

236

301243 302

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2015 2016 2017 2018

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2018 New HVAC Furnace Installations by Region

Electricity maintains at least 70% of the market share for new HVAC heat pump backup installations each year, followed by piped gas at around 20%. Although propane is a small percentage, its market share has been increasing each year. It has increased from less than 4% in 2015 to over 6% in 2018.

New HVAC Heat Pump Backup Installations by Year

The South Atlantic continues to be an area of opportunity with over 700,000 heat pump installations, comprising 39% of all new heat pumps installations in the US. In 2018, electricity made up 83% of new South Atlantic heat pumps, while propane was only 5% in that same region. Other areas with over 70% electric market share included East South Central, West South Central, and the Mountain regions.

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Thou

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1,129 1,255 1,284 1,360

243351 399 369

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2018 New HVAC Heat Pump Backup Installations by Region

Water Heater Appliance Installations Tank water heaters make up over 80% of new installations. However, propane maintains a larger market share of tankless water heaters compared to tank water heaters. Since 2015, propane has had an average 5% share of tank water heaters compared to 13% of tankless water heaters.

New Tank and Tankless Water Heater Installations by Year

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Over a quarter of tankless water heater shipments and 22% of tank water heaters were installed in the South Atlantic region in 2018. Electricity made up a majority of both tank and tankless water heaters in the South Atlantic (67% and 45% respectively). Similarly, in East South Central, electricity was over 60% of tank water heater shipments compared to 2% for propane.

2018 New Water Heater Installations by Region

New Generator Installations With recent natural disasters and extended blackouts, the need for backup power has become more important. Each year, there has been an increase in both newly added and replaced generators. According to Home Innovation Research Labs, new generator installations have increased 61% since 2015.

45% 41%31% 31% 25% 29%

40%31%

67%

45%61%

46% 45%32% 28% 34% 34% 26%

10%0%

4% 0%0% 0%

0%0%

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42% 58%52% 67% 63%

52%52%

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43% 48%55% 65% 59% 60%

67%

6%18%

7%17%

7% 8% 8%18%

5%15%

2%11% 7% 13% 7% 8% 5% 7%

Tank

Tank

less

Tank

Tank

less

Tank

Tank

less

Tank

Tank

less

Tank

Tank

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Tank

Tank

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Tank

Tank

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Tank

Tank

less

Tank

Tank

less

NEWENGLAND

MIDATLANTIC

E NCENTRAL

W NCENTRAL

SOUTHATLANTIC

E SCENTRAL

W SCENTRAL

MOUNTAIN PACIFIC

Electric Fuel oil Piped gas PropaneSource: Home Innovation Research Labs

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New Generator Installations by Year

In 2018 South Atlantic had the most generator installations, accounting for about 23% of those installed that year. Around 29% of new generators in South Atlantic were propane.

2018 Generator Installations by Region

Manufactured Housing Higher-end manufactured homes could be a source of residential sector propane demand growth. Manufactured homes are poised for growth, mainly as prices for site-built homes continue to rise, and there is low stock of pre-owned residences available to buyers. Manufactured housing shipments have been on the rise, increasing 11% on average since 2014; however, it remains around 10% of current new

191 229 256 292100

144 139178123

116 142

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Piped gas Propane Gasoline Diesel Other

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Piped gas Propane Gasoline Diesel Other



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housing sales. In 2018, close to 96,000 manufactured homes were shipped compared to less than 64,000 in 2014. In 2018, multi-section homes made up slightly more than half at 53% of the shipments.

Total US Manufactured Homes Shipped by Year

In 2018, the West South Central region made up 28% of the total manufactured shipments, followed by the South Atlantic region at 23%. Although the West South Central area has received the most shipments, the South Atlantic has been seeing an average yearly increase of 16% since 2014 compared to the West South Central at almost 7%. Multi-section homes make up the majority of new shipments, with the exception of those shipped to the East North Central, West North Central, and the West South Central regions.

2018 US Manufactured Homes Shipped by Region

In 2018, Texas received the most shipments, receiving almost 20% of all manufactured housing shipments, followed by Florida at 8%. The top 10 states make up 62% of all shipments in 2018 (see chart below for the top states).

33,779 38,011 41,740 46,490 51,203

29,846 31,96538,534

46,163 44,709

0

20,000

40,000

60,000

80,000

100,000

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2014 2015 2016 2017 2018Multi- section Single- section

12001 134067270

4079 6230 3707 2100 1589 821

153288706

66236088 1093

23651840 2012

6540

5000

10000

15000

20000

25000

30000

West SouthCentral

SouthAtlantic

East SouthCentral

East NorthCentral

Pacific Mountain MiddleAtlantic

West NorthCentral

NewEngland

Multi- section Single- section

Source: Manufactured Housing Institute


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Top 10 States for Manufactured Housing Shipments

Manufactured Housing: Map of US Shipments

The price of manufactured housing has also risen. From 2014 to 2018, prices have increased 20%.

83715229

1813 2081 2249 2162 2298 3388 1781 2057

10261

2093

3063 2726 2218 2277 1737 6001776 1446

02000400060008000

100001200014000160001800020000

Multi- section Single- sectionSource: Manufactured Housing Institute


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Average Sales Price of Manufactured Homes

Zero Net Energy (ZNE) Homes Over the past few years, there has been tremendous growth in zero net energy homes, especially with multi-family units which make up most of new ZNE projects. ZNE units have increased 259% from 2015 to 2018. California leads the way in the number of zero energy buildings.

Growth in ZNE Units

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2014 2015 2016 2017 2018

Total Single Double

408 741 1153 16293399 4077

6059 701561778023

13906

22146

0

5000

10000

15000

20000

25000

2015 2016 2017 2018Projects Builders Units


Source: Team Zero

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ZNE: Single vs Multi-Family Units

Top States for ZNE Buildings

Percentage of Units by Energy Performance

3106 3476 5582 54163071 4727

832315707

0

5000

10000

15000

20000

25000

2015 2016 2017 2018

Single-Family Units Multi-Family Units

0 50 100 150 200 250

VermontWashington

FloridaTexas

ColoradoNew York

MaineArizonaOregon

California

Number of ZNE Buildings

85%72% 74% 67%

9%20% 22% 29%

6% 7% 5% 5%

2015 2016 2017 2018Zero Energy Ready Zero Energy Net Positive

Source: Team Zero

Source: Team Zero

Source: North America; NBI; 2018

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The growth in ZNE homes is expected to continue. In a recent study, the Propane Education & Research Council found that builders expect a growing demand for ZNE homes. Nine out of 10 surveyed predict demand to increase in the next five to 20 years and four out of 10 expect it to grow significantly. Nearly all builders are favorable to ZNE homes (98%), along with buyers (95%) and remodelers (89%). Both builders (84%) and remodelers (81%) are even willing to pay between 20-30% more for a ZNE home, and buyers and builders are likely to consider a ZNE home for their next home purchase or build (83% and 89% respectively). Propane is well positioned to be part of that growth in ZNE. Part of measuring zero energy performance includes the “upstream” efficiencies and losses of various energy sources. That might include the energy needed to extract, process, and distribute fuels like propane and natural gas, or the energy associated with using those fuels for power generation, along with the efficiency losses in the power generation process and distributing the electric power to the home. Source Energy Explained

For example, for every unit of electricity used on site, 3.03 units of source energy in the form of a fuel like natural gas or coal must be extracted to generate and deliver that electricity. Propane, however, only requires 1.15 units of energy at the source to account for losses from extracting, processing, and distribution. Units of Source Energy Compared


Based on national averages. Source: GHG and Criteria Pollutant Emissions Analysis. Gas Technology Institute for PERC, 2017.

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Appendix US Census Regions (4)

US Census Regions (9)

Residential - Propane Education and Research Council...Demand In 2018, the residential sector...

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