Fossil Fuels Comparison, Geothermal HVAC, ROI and Home Heating

When deciding upon a heating source for a new custom home or commercial building people often ask, “what is the best bang for my buck”?  This is obviously a loaded question and will be answered in a myriad of different ways depending upon whom you pose the question to.  Here, on Long Island, where No. 2 fuel oil is still a dominant market influence, your local oil dealer will espouse the benefits of oil heat with special emphasis on the fact that it has the most BTUs per gallon of any of the 3 fossil fuel sources (the others being natural gas and propane).  Your natural gas utility will tell you that the cost of oil is never going down again and that the cost of clean natural gas is stable and the supply is plentiful. Furthermore, if you measure the cost per BTU of gas versus oil, you will see that natural gas is the less expensive better choice, especially considering that high efficiency gas fired equipment can operate at efficiencies of over 95%, while even the highest efficiency oil burner will top out at 89% or so.  And then there is propane, which propane dealers will argue is much better than oil because it burns cleaner, can operate with gas equipment to give you those higher efficiencies and can be used for cooking as well.

So, who is telling the truth and where is the proof?  We don’t sell any fuel commodity, so I really don’t have a horse in the race and although the prices of fossil fuels are changing all the time, there are some constants. Let us say, for this example, that you live in suburban or rural Long Island and you cannot get natural gas as a heating source. As of this writing, according to NYSERDA, the current price per gallon of #2 fuel oil on Long Island is $4.05 per gallon. The cost of propane (LPG) is $3.38 per gallon. To the layman, this may make propane look more attractive than oil, but the truth is that there is considerably more BTU capacity in a gallon of No. 2 home heating oil than there is in a gallon of propane.  This stands to reason because propane is actually a byproduct of petroleum and its relative price fluctuates in much the same way oil does. Considering that there are approximately 138,000 BTUs in a gallon of oil and 92,000 BTUs in a gallon of propane, this changes your understanding a bit.  If you divide the BTU output versus the cost, you will see that currently oil provides 34,100 BTUs per dollar spent while propane provides 27,200 BTUs per dollar spent.  Well, that makes it a no-brainer right?  Oil is cheaper on a per BTU basis.  Unfortunately, you forgot one thing. Gas-fired equipment can operate at a higher AFUE (Annualized Fuel Utilization Efficiency) than propane. So if you compare a 96% efficient propane burner to an 85% efficient oil burner, what happens? Then you are just about dead even. Do the math yourself.  Now, if you add the non-tangible benefits of propane, like being able to install a gas stove, gas dryer or gas fireplace insert, it might just tip the scales for you.  It actually makes sense that this decision could come down to a coin flip on a cost basis because LPG does indeed stand for liquified petroleum gas and propane is a byproduct of petroleum.

So much for the propane versus gas battle. What about the properties and cost of natural gas?  According to NYSERDA, the current price of natural gas in New York State is $1.60 per Therm (or 100 CCF). There are 100,000 BTUs per Therm of natural gas.  Therefore, if you were to price natural gas versus no. 2 fuel oil by the BTU content of a gallon of oil (138,000 BTUs) the current rates would be $4.05 for a gallon of oil and $2.21 for a “gallon” of natural gas with the same heating capacity.  So, is there really a consideration here?  You don’t need to hear about cleanliness, safety, efficiency and other factors with such a price advantage.  However, this has not always been the case.  In fact, the January home heating price of natural gas has fallen by 28% in New York State (and across the country) over the past 5 years.  The cost of petroleum based fuels in New York has continued to steadily rise. The reasons for this evolve around the fact that hydrofracturing processes have opened up vast new reserves of natural gas in subterranean shale fields throughout the US. At the same time, the volatility of foreign oil reserves and the limited capacity of US refineries all but assure that petroleum products will not see the same type of price reductions. At best, petroleum prices will slowly increase with plateaus at various levels.

Now, how does this all relate to the cost of geothermal heating and cooling. After several years of doing Return On Investment comparisons for new homes and buildings I have seen several consistencies. Geothermal HVAC is by far and away the best investment for your dollar in new home heating while the current 25C Federal Tax Credits are in place.  If you combine the 30% Federal Tax Credit (good until 2016) with the advantage of no recurring utility cost (besides a small electric KW requirement) against the installed cost of fossil fuel heating and electric cooling systems, you should see a return on investment of anywhere from 4 to 8 years, depending upon the type of fossil fuel, your rates, your usage and the efficiency of the equipment chosen. In our comparison analysis, the payback period typically ranges from 4-6 years versus fuel oil/propane and 6 to 8 years versus natural gas at current rates. This can change in retrofits depending upon the age of your home, the condition or presence of existing ductwork and the amount of site work required for the ground loop heat exchanger.  Try out our home savings calculator sometime to see your savings versus fossil fuels. This does not apply to commercial projects, as the 30% Federal Tax Credit is only available residentially.  There are other credits and financing considerations for commercial geothermal projects that can be seen in the state incentive database.

If you want to compare all of your potential fuels and relative equipment efficiency to determine what is best for you, this link will download a great fuel comparison spreadsheet.  It was created by the US Energy Information Administration and you can input your local utility rates and fuel costs and the efficiency of the equipment you are considering to determine the best estimate of your true cost to operate with different fuels. Under “electricity”, it does include geothermal heat pumps as long as you know the COP (Coefficient of Performance) of the geothermal heat pump being selected.  We will also be happy to provide an ROI analysis for you on any project you are considering.

As always, to keep up to date with what’s new in HVAC technology, visit our website at airideal.com and follow us on Twitter @airideal and at our Facebook page!

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3 comments on “Fossil Fuels Comparison, Geothermal HVAC, ROI and Home Heating

  1. You make a great case for moving to geothermal in residential applications. Here in the Pacific Northwest we are a bit more limited in our energy choices. Oil is rarely used here to heat homes so it is pretty much electricity only. The up-front cost of geothermal is high but the return on investment is worth it. Thanks!

  2. […] For more information on heating fuels comparisons, including propane and geothermal, see our previous article here. […]

  3. Thanks for the comparisons you have made. Although I am against hydraulic fracturing for the damage it does to underground aquifers and the unknown consequences of some of the fluids they use in the process the plentiful nature of natural gas has helped the US in a time of rising oil prices and declining reserves. I live off grid and am powered by the sun but do not have a geo thermal system in place. I did not have the money when I built this home. Perhaps sometime in the future I can become even more self reliant utilizing even more technologies when the funds become available. Thanks so much for your information. I plan on coming back in the future.

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