Furnace Replacement Analysis

The Urban Shipleys were prompted (by an Enbridge Gas bill insert) to look at converting their existing 6-year-old, inefficient oil furnace to a high-efficiency gas furnace. The calculation presented below shows the financial analysis we used to make our decision. You can play with the numbers to see how your situation would work out, as long as your basic scenario is the same. Because the replacement of an old gas furnace with a new one is a pretty common decision, I made another analysis page to look at the financial picture for that scenario.

Financial Data

Comments:

Oil rate $ /litre Get from fuel bills
Gas rate $ /m3 Get from fuel bills
Electricity rate $ /kWh Get from power bills
Minimum Acceptable Rate of Return (MARR) % This is the rate of return you insist on for your money (in our household, it's our mortgage rate, since any "extra" money we have gets plopped in our open mortgage)
Time horizon years How long do you expect to be in the house?
Minimum difference to make a decision % Within this percentage, you would consider the decision a wash financially (which is different from taking a bath financially).

Data on Current Furnace

Annual cost of oil $ /year From oil bills for the year.
Annual oil consumption litres/year From billed oil cost divided by rate
Percentage of oil used for heat % If you use oil only for heat, enter 100%. If you also use oil for heating water, it will be closer to 75%.
Annual oil consumption for heat litres/year From previous calculation and oil heat percentage
Annual heating energy consumption MJ/year From oil consumption times 38.2 MJ/litre
Annual furnace fan electricity consumption kWh/year Estimated from Dave's experience.
Annual GHG Emissions kg CO2e/year Based on 0.07311 kg CO2e/MJ energy from oil and 0.236 kg CO2e/kWh energy from electricity
Annual operating cost $ /year Calculated from above inputs
Assumed efficiency % Estimated based on furnace type and energy auditor opinion.
Assumed life expectancy years Estimated based on Dave's experience.
Current age of furnace years Name plate data.
Remaining furnace life years Calculated from above inputs
Original cost of furnace $ Estimated based on furnace type.
Depreciated value of furnace now $ Based on straight line depreciation.

Data on New Furnace

Assumed efficiency % Based on quotes.
Annual heating energy consumption MJ/year From old heat consumption and the two efficiencies
Annual natural gas consumption m3/year Based on 37.5 MJ/m3 of gas
Annual furnace fan electricity consumption kWh/year Estimated from quotes.
Annual GHG Emissions kg CO2e/year Based on 0.04968 kg CO2e/MJ energy from gas and 0.236 kg CO2e/kWh energy from electricity
Annual operating cost $ /year Calculated from above inputs
Purchase price for new furnace (installed) $ From quotes.
Sales tax rate In Ontario, GST applies, but not PST.
Sales tax $ Based on sales tax rate above
Total capital cost $ Adding the figures above
Energy audit cost $ Cost reduced by a $150 rebate available for energy audits.
Manufacturer rebate $ From quote.
OPA rebate $ For variable speed ECM motor and programmable thermostat.
Utility rebate $ From Enbridge, for switching to high efficiency gas and for the thermostat.
Federal rebate $ From NRCan, for high efficiency gas, based on the energy audit.
Provincial rebate $ Matches the NRCan grant based on the audit.
Total rebates $ Adding the figures above
Total cost to the consumer $ Add capital cost and audit cost and subtract rebates
Expected recovery of furnace improvement in house sale $ Realtor association estimates 50-80% of the heating system improvement can be recovered in a subsequent house sale. This calculation assumes 50% recovery.

Results

Payback without rebates years Calculated from the capital cost and the annual energy savings.
Payback with rebates years Calculated from the total cost to the consumer and the annual energy savings.
Life cycle cost of old furnace $ Total cost of owning and operating the old furnace, assuming that if its expected life is shorter than our time horizon we would replace it with the gas furnace when it dies.
Life cycle cost of new furnace $ Total cost of owning and operating the new furnace, assuming we sell the house at the end of the time horizon and recover 50% of the added value.
GHG Emissions Savings kg CO2e/year Based on above calculations.

Conclusion


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Last Updated: 16 November 2007
WebMaster: Dave Shipley, urbship@magma.ca
© copyright 2007 David F. Shipley