Water heaters, tax credits and financing

Water heating has been a commodity for way too long. Homeowners seemed unwilling to pay more than $120 at a home center for what was essentially a pot full of water with a flame under it. Fortunately, that's changed over the last few years because of Department of Energy efficiency regulations and the industry's flammable vapor ignition resistant designs. Both of them increased the price of water

Water heating has been a commodity for way too long. Homeowners seemed unwilling to pay more than $120 at a home center for what was essentially a pot full of water with a flame under it.

Fortunately, that's changed over the last few years because of Department of Energy efficiency regulations and the industry's flammable vapor ignition resistant designs. Both of them increased the price of water heaters and made them less of a commodity. Bruce Carnevale, vice president of sales and marketing for Bradford White Corp., says FVIR water heaters have made consumers think twice about installing the units themselves.

“We have seen some evidence of that shift in the retail market, a shift in the gas product as it went to FVIR,” Carnevale said. “It's clear that more of the gas product is now moving through wholesalers rather than retailers because the product is becoming more complicated. Homeowners are less likely to buy something that looks more complicated and try to install themselves, so retailers have moved from DIY to do-it-for-me.”

Nevertheless, the atmospherically fired tank-type water heater market remains a tough and low-profit area for contractors.

Other better, more energy-efficient and profitable alternatives are on the market as we explain beginning on page 26. There's a portion of the market, about 5% now and maybe 10% in the next five years, that requires genuine plumbing skills — tankless, solar, condensing, heat pump and even geothermal water heating. They are the green technologies that leading edge plumbing contractors can sell based on return on investment and tax credits to customers who won't nickel and dime them.

All of the manufacturers have strong opinions about why their technology is the best. Rheem's Butch Aikens notes that gas tankless units are 20%-30% more efficient than a brand-new tank-type unit and 50% more efficient than an old model. Makers of condensing water heaters are quick to note that most (but not all) tankless heaters are in the 80% efficiency range while they're in the 90s. Solar water heating packages are available that provide contractors plug-and-play convenience and simplicity. Contractors installing geothermal systems can tie in water heating with the space heating, just as contractors installing solar can add radiant floor heat to the system.

How big can these high-efficiency markets grow? Carnevale thinks 10% of the market. David Chisholm, brand manager for A.O. Smith, is more optimistic, pointing out that 40% of the HVAC market has moved to 90%-plus condensing technology.

Carnevale opines that water heating will move to low input, high storage systems such as solar, heat pump water heaters and geothermal. Numerous manufacturers have products available today with multiple heat exchangers for input and output from gas, electricity or solar and output for either domestic hot water or radiant floor heat.

Plumbing contractors must be aggressive in selling homeowners using the federal tax credit because the credit is 30% of the project cost with a $1,500 maximum. Plumbing contractors are competing with window installers, air conditioning contractors and insulators to get that $1,500. Plumbing contractors have to get there first.

Solar water heating, on the other hand, has a 30% tax credit with no dollar cap, so a homeowner could spend $30,000 on a solar system and get a $9,000 tax write-off. The same is true for geothermal systems.

Even with the tax credits, financing remains a problem even for worthy borrowers for green projects.

We were dismayed to hear about the closure of Michelle Kaufmann Designs in Northern California. Kaufmann designed a green show house that's currently on display at Chicago's Museum of Science and Industry. The house has introduced thousands of visitors to green building technologies.

Kaufmann, unfortunately, wasn't able to weather the recession after two of the factories she used to build prefab modules closed, and her clients, even the credit worthy ones, had trouble getting financing.

At the recent Radiant Panel Association REXperience event in Utica, N.Y., Ted Lowe, U.S. hydronic manager for Ipex USA LLC, told CONTRACTOR that green projects are being stalled by a lack of financing.

We're just beginning to see the clouds clearing on the horizon. We think the second half of this year will be better and financing will (we hope) be once again available.