High-Efficiency Furnace Offers Big Payback

by Paul Bianchina, Inman News

It’s always a tough situation when a major appliance, such as your furnace, decides it’s had enough of working for a living and chooses to quit producing any more heat. You have the heating contractor out to examine the situation, and you end up with options to repair the old furnace, replace it with a new one of the same type, or replace it with an upgraded model that is more energy efficient.

In making the decision on the best course of action, you have to weigh any number of factors, and the decision that follows is typically a difficult balancing act of budget constraints, expediency, energy savings, and comfort.

There’s often not too much you can do about the first two considerations. If repairing the furnace can be done for $500 as opposed to several thousand dollars for a new one, that may dictate the decision. Likewise, if it’s mid-winter and repairs can be done in a day when a new furnace would take two weeks to order and install, again the decision may be made for you.

But if you have the time to weigh all your options, and perhaps the possibility of arranging the necessary financing for a new furnace if that proves to be the best route, then the next thing you need to do is look at which option makes the most sense from a payback perspective.
Let’s look at the case of two new gas furnaces, one standard, mid-efficiency model for $2,500, and one high-efficiency model for $4,000. Let’s say that on a yearly basis, you spend an average of $100 per month on gas for heating. When you meet with the contractor, he tells you that you’ll save approximately 20 percent on your heating billings. You’ve now reduced your gas consumption by $20 per month (20 percent of $100), or $240 per year.

The difference in the cost of the two furnaces is $1,500. At a savings of $240 per year, it would take about 6.25 years to earn back the difference. After that, you would be pocketing a savings of $240 a year for the life of the furnace, which could be 30 years or more. So, assuming that you will be staying in the house, and giving the furnace a life of 30 years, you could expect to save about $5,700 over the life of the furnace (23.75 years of furnace life after the initial payback period, times $240 per year savings).
All in all, a very good investment, based on some very hypothetical figures. There are lots of variables here, from the amount of labor involved in changing furnaces to the energy efficiency of your particular home and the lifestyle of you and your family. When you talk with the heating contractor and see the actual prices of the furnaces, and factor in the actual amount that you pay for heating fuel each month, you can plug those numbers in and get a more realistic idea of how it will work out for your specific situation.

Let’s look at another common situation. You currently have an electric water heater, and your friends have been telling you that you’ll save money by heating your water with natural gas instead. Your electric water heater is a little smaller than you like and is starting to show some signs of age, so you want to look at the replacement cost difference between the two. Again, these are hypothetical figures.

A replacement electric water heater is around $400. Since you’re already wired and plumbed for it, the labor is only another $150, for a total of $550. The gas water heater is around $500 for the same capacity. However, the gas water heater will require that a gas line be run to it. Also, your old electric water heater did not require an exhaust flue, but the new gas one does. Depending on the difficulty in running the gas line and especially in adding a flue all the way to the outside of the house, that can add considerably to the cost. For example purposes, let’s say it’ll cost $1,100 for additional parts and labor, for a total cost of $1,600.

The two water heaters are both upgraded models, with high energy-efficiency ratings. According to the manufacturer’s Energy Guide labels, you can expect to pay an average of $270 per year for fuel costs with the gas water heater, and $410 per year for fuel costs with the electric model, an annual savings of $140. The difference in installed cost between the two water heaters is $1,050, so the gas water heater would pay back its initial investment in 7 1/2 years.

Again, there are lots and lots of variables to consider when making these kinds of decisions. In addition to the straight financial calculations, you also have to factor in how long you will be in your home, what other homes in your neighborhood have done, and even the intangible effects of your decision on the environment.

A good place to start for accurate information when calculating payback costs on any energy-related investment, from appliances to weatherization, is your utility company.

Remodeling and repair questions? E-mail Paul at [email protected].
What’s your opinion? Send your send a letter to the editor.

Copyright 2008 Inman News

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.

To subscribe to our blog, click here.