The Cost Impact of DOE Standard Changes

The cost impact on manufacturers preparing for January 2023 is a complex issue. While the impact for the consumer directly will undoubtedly result in a higher-priced product, each manufacturer’s approach to meet the DOE standards will vary.

With the 2023 HVAC SEER standards, some manufacturers are redesigning their entire product line to meet requirements throughout the three regions. Explore various facets of the cost impact below.

How manufacturers plan to comply with regional HVAC changes

Because DOE’s standard changes vary slightly across three regions in the U.S., manufacturers are adjusting in different ways.

“In the north, there are different standards for date of installation and date of manufacturing,” explained David Bail, director of business groups at Ferguson. “Heat pumps, for example, are based on date of manufacturing. They still must meet a new higher efficiency standard, and some manufacturers are going to produce product to comply with that new standard.”

Another option, Bail added, is rerating.

“Some manufacturers are going to rerate their existing products. Rerating basically means that they are going to have to put those combinations into a test chamber to get a certificate through AHRI (Air-Conditioning, Heating, and Refrigeration Institute) so that they can meet the standard to be able to sell legally compliant product in the markets they serve.”

Inflation and cost increases

Current economic inflation is not making this transition process easier. Distributors have seen three to four increases with most manufacturers in a rolling 12 months. As an example, Rheem just announced another price increase of up to 9% effective May 1, 2022.

“They just had a price increase Jan. 1, and now they’re going up May 1, and that does not include the new pricing for this DOE change,” Bail said.

Supply chain and component procurement

Another issue surrounding these upcoming changes involves supply chain and manufacturers procuring components such as refrigerant, copper and aluminum. Tack on costs to freight, lack of drivers and the cost of fuel, and the industry is getting pinched.

“Because of all the supply chain strain, component shortages and production issues, most manufacturers could produce more in capacity, but they don’t have the ability to because of a lack of components and, in some cases, a lack of labor,” Bail said.

“The net effect is going to be some manufacturers are saying that they see a 10 to 15% increase in their redesign because they are retesting. Others anywhere from 20 to 30% increase net because they are redesigning all of their products, and a lot of investment goes into that over the last several years to prepare for the new standards.”

Additional supply shortages involve manufacturers stopping production of current model products, but most will not be compliant in 2023.

Heat pumps can be sold based on date of manufacturing, but AC systems—such as split ACs and package AC units—are based on date of install in the South and Southwest regions.

Stopping and starting production

In 2023, those products that distributors are stocking today are no longer legally compliant in specific regions, so the manufacturers must stop production and start production of their either rerated product or their new redesigned product to meet the standards.

“Most of them cannot do both at the same time for a very long period. With the demand we have today, there is growth,” Bail explained. “There is opportunity in our markets for growth and contractors are struggling to find solutions and will look to their distribution partners to make sure that their distributors have their backs in 2023.”

He continued: “The real challenge isn’t just going to be relying on the manufacturing piece. Of all the efficiency changes, redesigns and refrigerant mandates that have gone into effect in my over 30-year career in HVAC, this particular one’s going to be the most significant because there’s so many varying challenges from supply chain all the way up to the new standard and the price points that are going to go into it.”

Other downstream implications for DOE standard changes

While most of the pricing talk will be on the equipment, other products and considerations will also be influenced by this new standard.

The newer, more efficient equipment will ultimately lead to possible reframing of interior mechanical spaces, larger base pads or condenser mounts, possible line set changes, larger ductwork, controls (thermostats) upgrades, and much more.

Financing options for customers

An HVAC system is a large purchase for the average household, and many may not have the funds on hand for a new heating and cooling system. That is why financing and options within financing will rise in importance and should be included in every conversation with a customer.

“Financing is absolutely going to be critical for consumers, those who have money, and those who don’t have money to understand the value of financing … but it has to be offered,” Bail said. “The dealers really need to be comfortable when having those conversations, so training is key.”

Part of that training involves things like financing menus, which help break down costs into an affordable monthly payment.

“There are benefits for the contractor as well,” Bail explained. “They can propose adding accessory items that fit each homeowner’s living space and comfort, including indoor air quality products, connected products, ventilation products.”

With the potential cost increases coming with the new 2023 DOE energy efficiency standards, contractors will need to have financing as part of their offering to stay competitive.

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