Toolkit: The relationship between product efficiency and price...•A core aim of energy efficiency...

IEA 2019. All rights reserved.

Toolkit: The relationship between product efficiency and price

Session 6

Kevin Lane, IEA – Pretoria, 15 October 2019

#energyefficientworld


Overview of the appliance and equipment training sessions

0 Introduction and roundtable

1 Planning energy efficiency programmes

2 Selecting products for MEPS and Labelling programmes

3 Assessing efficiency performance and setting MEPS

Special - Regional harmonisation

4 Industry transformation

5 Stakeholder involvement and communication

6 The relationship between product efficiency and price o

7 Modernising energy efficiency through digitalisation o

8 Insights into energy labels o

9 Monitoring, verification and enforcement o

10 Evaluating policies and programmes o

Special - Available resources U4E o

11 Roundtable discussion, review and report back o

Monday 14 October 2019

Tuesday 15 October 2019

Wednesday 16 October 2019


Scenario

You have been asked to prepare an impact statement for your regulations,

including the effect on product prices.

How would you go about the task of estimating future product prices?


Why are appliance costs/prices important?

• A core aim of energy efficiency programs is to deliver

cost benefits to consumers

• In principle, any additional costs of more efficient

equipment is offset by lifetime savings in fuel bills

• Consumer Life-cycle cost = Capital cost + lifetime

running costs

• Often used to set performance thresholds, i.e. via

least life-cycle costs


Consumer life-cycle costs

Average product Energy efficient product

Capital Cost ($) $300 $350

Running cost per annum=150kWh x 0.2$

= $30

=120kWh x 0.2$

= $24

Lifetime (years) 12 12

Total lifetime cost (LC) = 300 + (30 x 12) = 350 + (24 x 12)

LC $660 $638


Setting MEPS at Least Life-cycle cost

Current efficiency

level Proposed MEPS level


Impact of product prices on setting MEPS

• If you are setting MEPS based on least life-cycle cost….

• What impact is there if efficient products costs are higher/lower?


Setting MEPS at Least Life-cycle cost


What is actually happening to product prices?

• So that is the theory

• Now lets look at what is actually happening……..


Thailand – Retail price vs capacity (and country manufacture)

0

500

1000

1500

2000

2500

3000

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

Reta

il p

rice

per

12,0

00 B

TU

/h

SEER (W/W)

Retail price normalised by capacity versus SEER, by country of manufacture

Thailand

China

Malaysia

Vietnam

Korea

MEPS ASEAN 2020 3.08 W/W


Thailand - Retail price vs capacity (and technology)

$-

$200

$400

$600

$800

$1,000

$1,200

2.50 3.50 4.50 5.50 6.50 7.50 8.50

Reta

il p

rice

per

12,0

00 B

TU

/h

SEER (W/W)

Retail price normalised by capacity versus SEER, by type

Inverter - not popular

Fixed - not popular

Inverter - popular

Fixed - popular


Analysis: Impact of Refrigerator Standards: Energy Consumption in the USA

Source: EIA, 2013

Ratcheting MEPS have has reduce energy consumption of new US refrigerators by 75%


Analysis: Impact of Refrigerator Standards: Energy Consumption in the USA

Source: ACEEE, 2017. Energy-Saving States of America: How Every State Benefits from National Appliance Standards


Analysis: Impact of refrigerators standards in Ghana

0

50

100

150

200

250

300

350

0

200

400

600

800

1000

1200

1400

1600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Annual Energy Use (kWh) PRICE /USD Net Total Vol/Ltrs

Energ

yU

se (

kW

h/yr

)

or

Real Pri

ce

Adju

sted

Volu

me (L

itrs)

Annual Energy Use, Volume and Real Price of Refrigerating Appliances

Source: Kofi Agyarko, IEA EE Global 2018


Analysis: Impact of Clothes Washer Standards on Annual Energy Consumption in the US

Source: IEA 4E, Achievements of appliance energy efficiency standards and labelling programs - A Global Assessment in 2016


Examination of MEPS impacts: Cold appliances: % change

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

United States Australia (refrig)

Australia

(freezer) UK (refrig) UK (freezer) Japan

Av. Energy Consumption Av. Price



Examination of MEPS impacts: other appliances: % change

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

United States

(clothes

washers)

Australia

(clothes

washers)

Australia

(clothes dryers)

United States

(a/c) Japan (a/c)

Av. Energy Consumption Av. Price



What does this tell us?

• No evidence that Standards and Labeling policies have increased real prices to consumers

- Some minor movements, usually explained by other factors

• Generally average real prices for studied products have fallen faster than for other goods in these markets

• No correlation with energy/electricity prices - increasing energy price is a less effective policy, and has inequity issues

• Manufacturers confirm that, given notice, energy efficiency requirements can be absorbed into design process with little or no extra cost


What does this tell us?

• No correlation between product price and efficiency

• However, sometimes the most efficient products are also the most expensive, because:

• High priced products differentiate through:

- branding

- quality of materials

- design

- energy efficiency is a further indicator of quality


Implications for policy

• So how does this impact on our policy settings?


What happened? (increase in purchase cost, expected, actual)

Appliance TypeDOE estimate price

BEFORE

Census prices

AFTER

Refrigerators 56 37

Clothes washers 54 -35

Clothes washers 199 10

Electric water heaters 108 28

Non-electric water heaters 121 34

Central ac 267 207

Room ac 13 -162

Commercial ac 512 -224

Ballasts 6.73 -1.78

Average 148 -12

Median 108 10


Why did we get it wrong?

• Predictions made prior to regulations based on engineering analysis

• Observed prices may be 5-10 years later

• In the meantime:

- Regulations stimulate growth in the market

- Costs have reduced as the market share has grown

- Some shift to offshore manufacturing

- Companies find innovative solutions

- Technologies rarely predicted


Price changes over time

0

20

40

60

80

100

120

140P

rod

uct

Pri

ce

Efficient product –new technology

Engineering analysis Retrospective analysis

Assumed price

premium

Observed price

premium

Regulations

Time

Existing

products


Conclusions

• Current cost-benefit analysis tends to overstate the future costs of efficient appliances

- Politically conservative

• Observations fit ‘learning-by-doing’ model

• Suggests that we have not been optimising policies to reduce energy and CO2

• Policies could be more stringent and still show positive benefits

• Some countries now reduce estimates for future cost impacts


Resources

• www.iea.org/efficiency

• www.iea-4E.org

Toolkit: The relationship between product efficiency and price...•A core aim of energy efficiency...

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