After much anticipation across all HVAC industry sectors, the 13 SEER (Seasonal Energy Efficiency Ratio) mandate went into effect on January 23.
Over the months that followed, HVAC manufacturers, distributors, and contractors faced a variety of larger-than-life challenges.
The 13 SEER mandate presented tremendous logistical, strategic, and material challenges for all industry sectors, and many questions had to be answered, such as:
- Would manufacturers meet the demand for 13 SEER systems, in addition to the 10 SEER units contractors would require before the manufacturing deadline?
- Would suppliers meet the demand for expansion valves, a key component to achieving maximum efficiency?
- Would contractors and their customers react to 13 SEER with stubborn resistance or willing compliance?
Retrospective Wish List
Executives interviewed by Contracting Business were generally pleased with the outcome of the 13 SEER initiative, but nonetheless had interesting comments on what they would do differently if they could turn back the clock.
Dave LaGrand, president of Nordyne, believes manufacturers deserve credit for proceeding with urgency rather than procrastinating.
"If we had a magic wand, and could have changed the whole process with the industry, the Department of Energy, and how 13 SEER came to be, we might like to go back and change it," LaGrand says, "but given the set of circumstances that the industry had to deal with, I feel comfortable that we aren't second-guessing ourselves in terms of what we did to prepare for the transition to 13 SEER."
LaGrand and many others were planning on a 12 SEER standard, which would have meant lower-cost systems for consumers, and reduced commodity outlays for manufacturers.
"From a consumer standpoint — based on economics and payback, and given the cost inflation that the industry has seen on commodities such as copper and aluminum — 12 SEER would have been a better level for the industry," LaGrand says. "However, it is what it is. We accepted that when the decision was made, and went all-out in our efforts to prepare for 13 SEER and above."
"As an industry, we were up against a very tight deadline," says Dave Pannier, president of Trane and American Standard. "There was much debate over whether the ruling would be 12 or 13 SEER. The 13 SEER ruling didn't come out until about 18 months prior to the actual effective date. Even though the industry anticipated the change, we didn't know what the extent of the change was going to be until relatively late in the process."
"The whole industry was preparing for the new minimum to be 12 SEER," agrees J.R. Jones, president of Rheem Heating and Cooling Division, "so the relatively sudden 13 SEER ruling resulted in Rheem having to redesign our coils and air handlers. In retrospect, if we had known that 13 SEER was the requirement, it would have been beneficial for us to have redesigned our coils and air handlers a lot sooner."
With any human endeavor of this magnitude, there are bound to be bumps in the road, despite everyone's best-laid plans. During the 13 SEER journey, communication helped the industry navigate smarter.
"We started communicating the transition to distributors, and distributors to their dealers, one year in advance," says Herman Kling, president of International Comfort Products. "Our customers tell us this was one of the smoothest new-product introductions they've ever experienced, especially considering we introduced 97 product families in an 18-month period."
In an ironic twist of fate, Kling says the hot weather of 2005 provided an extra challenge, along with other industry and economic factors.
"The weather used up a lot of the product buffer we may have had, and we then had multiple hurricanes, oil prices went up, and the industry mixed heavier toward heat pumps (due to gas prices) than we planned, at a time when we had already gone through many of our transition dates. Things started to back up at that point."
"The 13 SEER initiative was a 'perfect storm,' with a significant amount of activity at all levels," says Doug Young, president and chief executive officer of Lennox International, Inc. Residential Heating and Cooling. Young also credits the hot summer of 2005 as a challenge, along with tremendous, simultaneous demand for both 10 and 13 SEER equipment, and for thermostatic expansion valves (TXVs).
Research Validates Inventory Concerns
Research by Emerson Climate Technologies revealed that a considerable number of HVAC contractors (41%) and wholesalers (52%) increased inventory significantly on 10 SEER outdoor units, in anticipation of the 13 SEER transition.
The survey also showed that along with building up increased inventory, 42% of contractors and 54% of wholesalers pulled forward system sales into the fall of 2005 by offering homeowners and builders 10 and 12 SEER to avoid higher 13 SEER prices in 2006.
"We knew there would be significant demand for 10 SEER, but I don't think any of us anticipated that demand would be as high as 8.6 million units," Jones says, citing the total unitary shipments for 2005, as reported by the Air-Conditioning and Refrigeration Institute (ARI).
"And, when you look at January 2006 industry output, we exceeded any January in history by 300,000 units. The industry shipped 700,000 units in January 2006 alone. In total, the final 13 months of 10 SEER production shipped 8.9 million units. No one could have anticipated that."
"The schedule was compressed into a short period of time," concurs Gary Clark, senior vice president of marketing for Goodman Distribution, Inc.
"It's incredible," he reflects, "the amount of effort the industry has gone through in the past 24 months, to basically redesign two-thirds of their product offerings."
Says Rick Roetken, director of marketing for Carrier Corporation, "The speed of market acceptance created great demand early in the year, which was challenging to meet. In addition, dealers were making decisions as to what efficiency levels and features they wished to sell in the local marketplace. Both were challenging issues for 2006."
'We Want Them Yesterday'
There was a perception in the industry that distributors couldn't get 13 SEER units fast enough, a claim which our executive panel doesn't dispute. However, it does offer a defense, based on the sheer breadth of the initiative, everyday supply and demand realities, and contractors' interest in R-410A systems.
"At various points in time during the transition to 13 SEER, and really throughout the summer, there were some industry issues," says Nordyne's David LaGrand. "In hindsight, most component suppliers attempted to support the third-and fourth-quarter build-out of less-than 13 SEER systems. There was tremendous demand for those products.
"I think, almost by default, component suppliers' conversion to new components designed for systems rated at 13 SEER and above started off perhaps a little later than what they otherwise may have anticipated. As a result, they may have started with lower inventories. So I think the supply chain basically had to struggle to keep up with the manufacturers' production schedules, and with the demand that was in the marketplace.
"There has also been an industry shift to higher heat pump sales, so perhaps some of that was unanticipated, and certainly, as I mentioned, we saw a much greater shift to R-410A products than we would have expected."
Demand for 13 SEER units was indeed intense, admits Kling, and compounded by start-up issues.
"Everyone needed 13 SEER at the same time. As we come out of the cooling season, and into the winter months, manufacturers will be in better positions to provide equipment," he says.
Young agrees that the change in seasons will now help everyone breathe easier.
"This late in the year, you've already seen a significant transition to the heating season. Three months ago, you would have still seen the impact the TXV shortage had on the industry, which was the single largest contributor to shortages," Young says.
According to Greg Trimbach, president of 2-J Supply Co., Dayton, OH, and a member of the HARDI Systems and Equipment Council, distributors were indeed busy stocking up.
"Every distributor took a different strategy for 13 SEER, depending on what their goals were," Trimbach says.
"Half of them said 'We're going 100% 13 SEER, and we're going to get rid of our other stuff as fast as we can,' and the other half said they were going to order as many 10 SEER units as possible, thinking that their customer base would demand them.
"However, I think 13 SEER caused the high demand of all products during the first part of the year. That has softened since July."
13 SEER Units Well-Accepted
The months leading up to 13 SEER D-Day were filled with questions related to acceptance of these systems, primarily among contractors. Concerns over larger, heavier units, inventory issues, training, consumer acceptance, and the technical/efficiency ramifications of installing improperly matched systems bounced around the U.S. as contractors prepared for the change.
Manufacturers did their best to keep contractors' concerns in mind, and when the smoke cleared, the best contractors did what they could to prepare, and were pleased with the outcome. "The reaction to our new products has been outstanding," LaGrand reports.
"We started producing all of our new designs in mid-January, and we've received a lot of great feedback on their operation and performance.
"We've attempted to keep our footprints very small and manageable for contractors, and placed a lot of emphasis in the design criteria on the units' performance and quietness. The feedback that we're getting tells us that we met or exceeded our design goals."
From the Goodman perspective, Gary Clark says, "We get a large sampling of information from contractors who visit our Houston factory in spring and fall, and acceptance has been great." "Our distributors and dealers are thrilled," ICP's Kling says. "We recently brought together members of our Dealer Development Group to provide feedback on how we did. They're truly excited with the performance and features of the new products, including the look, the new platform, improved quality and sound levels. The feedback has been over the top."
Lennox' Young says acceptance of the 13 SEER units has been "strong at all levels," based in part on the fact that contractors have worked with higher efficiency equipment — 13 SEER and higher — for years. Utility rebates have also helped prime the pump.
"If you look at the industry numbers, you'll see, from the contractor perspective, that they've done a good job of selling a lot of equipment at 13 SEER and above," Young adds. "Higher SEER levels translate to improved efficiency. Manufacturers have also been aided by the fact that utility rebates are extending beyond 13 SEER."
"We value the fact that we completely redesigned our product line. We feel we have a more competitive product because of it," Roetken says. "We like the fact that we had a new product to show, not just the same product at a higher efficiency level.
"We were fortunate to have had products since 1996 that met the 2006 standard, in fact, they meet the 2010 standard because they're also based on Puron R-410A refrigerant. We had a lot of 13 SEER experience, but it was tricky to guess how much of it would move, and how quickly."
From Trane's perspective, Dave Pannier adds, "Industry reaction in the third and fourth quarter — with the big spikes in manufacturer shipments to get ahead of the 13 SEER curve — really put a strain on the industry," Pannier says. "We could have done a better job of anticipating."
Lessons Learned Applied to R-410A
The industry is now turning its attention to the mandated conversion to R-410A refrigerant, which has a January 1, 2010 deadline.
Compared to the 13 SEER mandate, the R-410A exercise should be easier to handle, both from a time and technical perspective, and our experts believe communication will be the key to controlling the R-410A initiative.
"We've learned the importance of providing all the relevant technical information, as well as training for our dealers," says Tom Huntington, vice president and general manager, Unitary Products, Building Efficiency Business, Johnson Controls, Inc. "By being proactive, our dealers can provide better products and service to their customers." "A key practice will be early communication, and working towards an adoption curve that doesn't come at the 11th hour," Young says. "As an industry, there has been slow adoption of R-410A, but hopefully, by the time we reach the end date towards the end of 2009, we won't see the entire industry trying to convert to R-410A 'overnight.'"
"You can't communicate enough," Kling agrees. "We've been on what we call 'The Victory Tour' for two years, as a means to help dealers and contractors prepare for 13 SEER and R-410A. The mix continues to move toward R-410A, and I think it's a natural. Nearly every product in our line this year is available in both R-22 and R-410A."
"Given the 20 months that the industry really had to prepare for the transition to 13 SEER, the issues we experienced industry-wide were a one-time event," says La-Grand. "The lead time that we have for full conversion to R-410A gives everyone time to prepare."
"I think that this transition to R-410A will be much less dramatic than the changeover to 13 SEER," Pannier says. "Most manufacturers, Trane included, have used the 13 SEER transition to create a broad portfolio of R-410A products."
"We feel completely prepared for the refrigerant transition," Roetken says.
"More than half of our business is already there. We've already conducted the training and provided the tools. It's a segment of the business that Carrier excels within."
Carrier isn't the only company that's ahead of the curve.
"Unitary Products has been manufacturing products that use R-410A since 2003, and we continue to incorporate this refrigerant into all of our new products. On the residential side, almost all of our products are now available with R-410A," Huntington says.
"Those residential products that do not have R-410A are currently in testing and will be rolled out soon. We expect to have the majority of our commercial products to be available with R-410A in the next 12 to 18 months."
R-410A Training Focus
Manufacturers say they're prepared to help contractors with the training required for the safe and correct use of R-410A.
"Most contractors' concerns center on operating pressures associated with R-410A," says Goodman's Clark.
"But when they get their hands on products that use R-410A, they're finding that the only thing that changes is where the needle sits on the gauge. They can use the same service and installation-practices used for R-22."
"We've had a large advantage because we started in 1996," says Roetken of Carrier. "We've conducted countless hours of training with 10 years of experience and well over one million units in service."
"We don't really anticipate any new challenges at this point. We have dealt with it in two different design platforms, we have dealt with it for 10 years in every application from new construction to commercial."
"We do a lot of technical training so that contractors can understand what's different," says Trane's Dave Pannier.
"Fundamentally, it's a function of the system operating at a much higher pressure — we go over how the installation practices may change, and troubleshooting. The contractor has to have the right tools, as well as the knowledge base to be comfortable dealing with the different refrigerants."
"We've been training contractors to use R-410A for four years now. Many of our customers are using a majority of these products today, so we feel we understand the learning curve," Huntington says.
"We've also spent a great deal of our engineering resources building equipment that is optimized for R-410A. To the technician, that means fewer problems."
And for the industry, that means a gold star in the preparedness category, and more control over another approaching transition in an era of change.
OUR ROUNDTABLE EXPERTS:
Gary Clark, Vice President, Sales and Marketing, Goodman Distribution, Inc.
SMALL COMPONENTS IN BIG DEMAND
Thermostatic expansion valves (TXVs) and compressors — key components to achieving high efficiency — were key pieces in the 13 SEER puzzle.-OEMs across the country wanted them badly, all at the same time. Component suppliers did all they could to meet the surprise demand.
"One surprise was in not anticipating the immensity of the final build-out of 10 SEER products that took place," says Dick Schul, group vice president of Emerson Climate Technologies.
"In our fiscal first quarter, the demand for 10 SEER units was 100% greater than we had seen any time before; it was off the charts," he says. "Then, the industry got into a 13 SEER mindset, and in about the middle of the second calendar quarter, there was a realization among the OEMs that we had to differentiate ourselves beyond 13 SEER, which required production of 14 SEER and 15 SEER product lines, which created another surge of orders.
"Finally, the summer weather was very hot. We anticipated a strong first half in our fiscal year, and then a slowdown. We just never experienced the slowdown."
"Less than 30% of the residential market was using expansion valves. In going to 13 SEER, it was estimated that 90 to 95% of units produced would use expansion valves, tripling the market demand," says Stephen Gugliotta, director of sales, Danfoss Air Conditioning Americas.
"We fully expected a shortage of expansion valves, and we discussed this with many of our customers (air conditioning manufacturers) to find out what their plans were in response to the 13 SEER mandate. We promoted the fact that we were investing in 13 SEER expansion valve production. The demand far outweighed supply, which we could immediately see beginning in January of this year. Currently, our expansion valve production is running at full capacity."
"I believe we did everything we could to prepare for the increase demand for thermostatic expansion valves, given the information and level of customer commitments that we had going into the 13 SEER product launch," says Dave Dorste, thermal expansion valve product manager for the Sporlan Division of Parker.
The industry as a whole under-estimated the "last call" for the 10 and 12 SEER units in the fourth quarter of 2005, the initial demand for the 13 SEER product to fill the supply chain in the first quarter of 2006, and the growth in the heat pump unit shipments related to higher fuel prices."
Looking ahead to R-410A conversion, component suppliers say they will be ready. "The industry is not 'waiting' for 2010; you're going to see more gradual conversions over to R-410A, and that's certainly reflected in our own compressor usage," says Schul.