Steady as she goes:
heating industry tacking toward steady growth

BY JOHN MESENBRINK
chief editor

Soft, flat and steady. Those are the buzzwords when describing the water heating economic forecast. To be positive, at least it can’t get worse, right. Well, let’s hope not! The industry may never achieve numbers it witnessed years ago when start-ups were cruising. Nevertheless, the economy is holding steady and is poised for “modest” Q1 growth

The focus of the industry, for the most part, has shifted to energy efficiency, remodel and repair, government jobs and riding what’s left of the commercial wave. Backlogs have been thinned and bidding competitive, but let’s hope for a stronger 2011. Companies are relying on stronger customer service and better trained technicians to minimize callbacks and increase word-of-mouth business.

To get a better understanding of the water heating dynamic, Phc News recently went looking for answers in forecasting the short- and long-term future of the water heating industry. Phc News conducted exclusive interviews with four major water heating manufacturers to get a pulse on the industry: economic forecast, the latest trends and new products and training.

The four major players represented are: Bruce Carnevale, vice president sales and marketing, Bradford White; David Chisolm, brand manager, A.O. Smith; Charles (Chuck) Rohde, wholesaler market manager and Jeff Haney, product manager, Rheem Water Heating; and Stirling Boston, director of marketing, Lochinvar Corporation.

A.O. Smith
David Chisolm,
Brand Manager

In general terms, how would you forecast the water heating market (economy) for Q4 2010 and early 2011?

We see the general water heater market staying relatively flat for the balance of 2010 with modest recoveries in 2011. It will be quite some time before the market recovers to the previous level that we experienced in 2008/2009.

What are some new trends you are seeing or are initiating in the water heating marketplace?

There is a general trend of new technology being driven by the demand for higher energy efficiency products. This trend is impacted by a number of factors: government and state incentives, utility rebates, consumer awareness, energy costs, etc. Likewise, with this new technology, advanced electronic controls and diagnostics are also emerging. With the advancement of these new technologies, homeowners now have many options when selecting a water heater. Regardless of fuel type, there are better performing, more energy efficient options now available.

Is your company offering any new products, incentives or training?

There is an entire portfolio of high efficiency products now available from A. O. Smith. From the Cirrex solar water heating system to hybrid gas (Next) and electric (Voltex) models to a high efficiency gas model (Effex), there are options for every lifestyle. With an increased focus on driving energy efficiency, there are now many options for homeowners regardless of their fuel type.

Describe any government incentives, rebates. Do your products qualify for Energy Star®?

Several of the high efficiency portfolio products qualify for the Federal Tax Credit, as well as other state and local utility incentives. The Hybrid Electric model (A. O. Smith Voltex) qualifies for a 30% Federal Tax Credit up to $1,500. Likewise that model often qualifies for additional state and utility rebates. A. O. Smith’s Next Hybrid gas model also qualifies for the Federal Tax Credit and many other state and local utility rebates. Many of these incentives expire at the end of 2010. On the other hand, A. O. Smith Cirrex solar thermal system qualifies for the Federal Tax Credit of 30% of the total installed cost with no upper limit. This credit is valid until the end of 2016.

Regarding Energy Star, the A. O. Smith Effex model is a high efficiency gas model that is ideal for replacement applications. With an EF of .70, it exceeds the upcoming (more stringent) phase of Energy Star. In addition to the Effex model, A. O. Smith’s Cirrex and Voltex models are also Energy Star qualified.

Bradford White
Bruce Carnevale,
Vice President Sales & Marketing

In general terms, how would you forecast the water heating market (economy) for Q4 2010 and early 2011?

In general, the water heater market has recovered nicely in the first half of 2010. The total market is up about 7% year over year through June, with growth in residential gas outpacing residential electric by about 3 to 1. This is likely driven by Energy Star rebates and new technologies in gas products such as Bradford White’s ICON System and some hybrid technologies. I expect this general trend to continue through the rest of 2010 and into the beginning of 2011.

What are some new trends you are seeing or are initiating in the water heating marketplace?

There has been a significant shift in sales toward the wholesale channel (away from the retail channel) in the first half of 2010. Again, this trend is more predominant with the residential gas category, but the residential electric category has also shifted towards wholesale. Clearly there is interest in products which are marketed as being more energy efficient such as Energy Star qualified models, hybrid gas models, heat pump water heaters, solar and tankless models. High efficiency (condensing) tankless models are quickly gaining share in the tankless market (not unlike mod-con boilers, but at a much slower rate).

Is your company offering any new products, incentives or training?

Bradford White continues with our strategy of bringing practical, energy saving technology to our broader product offering so that the majority of consumers can benefit (ICON and ICON Accessory Packages). At the same time, we continue to expand our line of specialty products such as our Combi1 and Combi2 Series of combination water heating/space heating models; our line of 32 different solar models (including a very unique solar water heater with gas back-up); and the ultra high efficiency Residential eF models.

Describe any government incentives, rebates. Do your products qualify for Energy Star®?

Federal government energy tax credits are set to expire at the end of 2010. State rebate programs continue in some states under the “cash for clunkers appliance” program. This was funded by the federal government, but administered by the states. Each state has its own criteria and rebate levels. We maintain a database of all of the state rebate programs to assist our customers with what can be a very confusing process. We have many products which qualify for the current Energy Star program, and we have already introduced our “D4” Series of flue dampered residential gas models, which meet the September, 2010 Energy Star requirement of .67 Energy Factor.

There is interest in heat pump water heaters, but based on our research, the sales seem to be below expectation even with the 30% tax credit. It will be interesting to see what happens when the tax incentives are gone. However, with the new DOE minimum energy efficiency standards for 2015, heat pump water heaters will likely become standard for capacities more than 55 gallons.

Lochinvar Corp.
Stirling Boston,
Director of Marketing

What are some new trends you are seeing or are initiating in the water heating marketplace?

With the ongoing trend toward green building, Lochinvar is at the forefront of offering high-efficiency water heaters that keep energy usage and operating costs to an absolute minimum. In addition, Lochinvar is now offering new solar indirect water heaters, which draw heated water from a separate solar energy collector.

Is your company offering any new products, incentives or training?

Lochinvar has expanded upon its highly successful Squire® indirect water heater line to include a total of 12 stainless steel models with capacities between 30 and 119 gallons. Among the new models are six solar units, each of which features a hybrid system incorporating solar thermal panels along with a secondary boiler heating coil or electric back-up.

The ARMOR® water heater, which offers thermal efficiencies up to 98% and is available with inputs ranging from 150,000 to 800,000 Btu/hr, is now equipped with the enhanced SMART SYSTEM™ user control. The re-engineered SMART SYSTEM design features a larger display screen — nearly twice the size of the original, soft keys for quick and easy use, as well as color coding functionality. The interface displays a blue screen during normal system operation, while a yellow screen signals that maintenance is due and a red screen notifies the user that the appliance is in lockout mode.

In addition, the upgraded SMART SYSTEM offers two selectable cascade options to allow the user to fine-tune the sequencing of multiple-unit installations. While the built-in-cascading sequencer still allows up to eight boilers to be installed with Lead-Lag operation, the upgraded control now also offers the option of Efficiency Optimized cascade operation, under which multiple units in the system modulate at the same firing rate to meet load requirements.

Lochinvar recently announced their Solar Thermal Heating initiative, which is the result of a new partnership with TiSUN® GmbH of Tyrol, Austria. The partnership between Lochinvar and TiSUN has resulted in a winning team with smart strategies that provide the exact product, training and support that contractors need to provide renewable energy solutions for their clients.

Lochinvar also is expanding its current finished product warehouse facility in Lebanon, Tenn. As Lochinvar’s residential boiler business continues to grow and the company extends its offering to include new commercial solar thermal products and additional stainless steel indirect water heaters, many of which will be manufactured at the Lebanon headquarters, this expansion is a strategic step towards ensuring that demand is met and growth is maximized. The expansion will add a total of 23,000 square feet to the Lebanon Distribution Center. Lochinvar expects the project to be completed in August of 2010. The facility’s current operation will experience minimal disruption during the construction period.

Do your products qualify for Energy Star?

Energy Star is a residential appliance incentive. For boilers, it is for models under 300,000 Btu/hr with an afue rating of 85% or better.  With afue ratings of 95% and 96%, Lochinvar Knight boilers are Energy Star appliances. Currently, there is a federal rebate of up to $1,500 for the installation of Energy Star boilers. Also, many state and gas utilities offer rebate programs in addition to the federal program.

Rheem Water Heating
Charles (Chuck) Rohde, Wholesaler Market Manager

Jeff Haney, Product Manager

In general terms, how would you forecast the water heating market (economy) for Q4 2010 and early 2011?

We expect the water heater market to be up 5-7% in Q4 2010 and flat to up slightly in Q1 2011.

What are some new trends you are seeing or are initiating in the water heating marketplace?

Trends include the development of high energy factor (EF), alternative technology products (heat pump, solar, condensing gas and other hybrid gas); as well as Energy Star and compact/small footprint combo water/air heating products. Also, partnerships with off-grid, electric generation appliances (i.e., wind generation). Trends for the consumer include interconnectivity of hvac appliances; energy management and demand response management.

Is Rheem offering any new products or training?

• Online product and technology training for Rheem-Ruud plumbing contractors and utility partners.

• Combination products, such as tankless with solar; HPWH with solar.

• Water heaters with internal heat exchangers and thermal storage tanks for alternative energy sources.

• Rheem introduced its new Integrated hvac & Water Heating System Powered by Tankless Technology, a product that offers home heating and hot water from a single source. When combined with Rheem cooling equipment, the system offers complete air and water home comfort. The system is designed, built, and warranted by a single manufacturer, ensuring seamless product integration.

Do your products qualify for Energy Star®?

Rheem tankless water heaters are Energy Star qualified and eligible for a federal tax credit of 30 percent of the total installed cost, up to $1,500. The Rheem Integrated hvac & Water Heating System Powered by Tankless Technology is protected by a five-year air handler warranty and a 10- year tankless heat exchanger warranty.