The Economics of Residential Water Heating: Fuel Choise, Economic Efficiency and Environmental Sustainability

Panel: Panel 2: Programme Evaluation

Author:
Kenneth H. Tiedemann, B.C. Hydro

Abstract

Water heating accounts for about one-third of residential energy consumption in British ColumbiaIn British Columbia, natural gas is the dominant water heater fuel in single family dwellings, largely because it has advantages in terms of operating costs and recovery time. However, electricity is still a significant water heating fuel in multifamily apartment housing despite its higher operating costsThis is due to market barriers, that is the Inability of developers to recover higher incremental capital costs for natural gas water heaters.To overcome this barrier, B.C.Hydro and the gas utilities have provided incentives for the installation of natural gas water heaters through the Residential Natural Choice pilot.

This paper reports on the evaluation of the Residential Natural Choice pilot. It focusses on three key issues: the determinants of water heater fuel choice; the costs and benefits of the pilot in terms of economic efficiency; and the impact of the pilot on environmental sustainability. Three main methodologies are used: discrete choice modelling; cost benefit analysis; and engineering algorithms.

Key findings include the following.First, relative capital costs of the water heaters, relative fuel prices and dwelling characteristics are the main determinants of water heater fuel choiceSecond, the pilot was cost effective from the perspective of the Participant Test, the Utility Test and the Total Resource Cost Test.Third, the pilot was not cost effective, given B.C.Hydro? fuel mix, from the perspective of the Societal Test which includes the effects of greenhouse gases and local emissions.These findings have significant implications for future fuel switching programs.