### Geothermal Analysis: How's it Working (Part 2)?

From the last two posts, we know we have saved on the amount of heating oil we use with geothermal heat pump installation, but we are using a lot more electricity. One lingering question is "Are we saving any money by switching to the heat pumps or did we just change energy sources?"

Before starting with the calculation, it is important to remember the goal, namely, we wish to reduce dependence on foreign energy sources (particularly oil, but also natural gas), and to do it in a manner that helps (or is at least neutral) environmentally. In a world with uncertain oil geopolitics, it is important to consider that a big part of this process is buying insurance, and traditionally, insurance costs more than it is worth (otherwise, insurance companies wouldn't be in existence).

In our particular case, it turns out we aren't saving much money by moving to geothermal from heating oil, so it is win-win-draw: our dependence is reduced, the environment is bettered, but little savings have accrued (or, at least not yet). There are many reasons for this, and if planned properly, I don't think that this has to be the case.

This post has some technical details in it, and they are included for clarity (hopefully) and for helping others make similar calculations. There is a lot of uncertainty in some of the crucial numbers, so the actual numbers may be different. If you spot any errors, please let me know, for I'm more interested in getting to the truth than I am in advocating a position.

Let's recall two graphs from the last two posts: (1) the heating oil use, and (2) the electric use. Also, to beat a dead horse, the house was renovated from late 2005 to mid-2006. There are a lot of moving parts in all of this, and that introduces more uncertainty than one would like.

The total cost to install the 3 wells and the heat pumps was $44,800. To break this down, it was $32,410 for the heat pumps and new air handler, $15,390 for the 3 wells, and we received a $3000 rebate from CL&P. However, we did not install air conditioners, which I estimate would have cost $15,000 for high efficiency condensers. The incremental cost is then $29,800. This cost could be bettered if one plans for geothermal initially instead of making a decision half-way through the process of renovation, but okay, enough self-flagellation.

It helps to have a so-called back-of-the-envelope number that is easy to calculate. Here is my version of that. In the older house, for the winter months (Nov-Mar), we'd use between 1500 and 2000 gallons of heating oil. With 2 gallons/day for water heating (I'm still amazed it is that much and am kicking myself for not making sure the de-superheater came with the geothermal unit), and adjusting for the number of days, we can roughly say between 1200 and 1800 gallons were used to heat the house. Last year we used 700, with about 280 for water heating (from 11/17/06 to 4/9/07), and so we used 420 gallons to space-heat. In this simple comparison, we saved between 780 and 1380 gallons of heating oil, or about $1850-$3300. (Heating oil last year was $2.39/gallon).

For power, we used to use between 50-60 KWH per day and we now use around 120 KWH per day in the winter months. In the old house, we used fewer lights, but we used more electric space heating. Let's say net-net the effects cancel, and we are using about 60 KWH per day heating, or about 8600 KWH in the same period we used the 700 heating oil gallons last winter. At $.18/KWH (one of the highest rates in the Continental USA), that cost us $1548, so it is about $300 - $1700 saved from the geothermal, so according to this quick calculation, we made somewhere between 1-6% return on investment. Can we better the estimate? Let's try.

To make some the conversions below, I used the EIA kid's page

(http://www.eia.doe.gov/kids/energyfacts/science/energy_calculator.html#unitsexplained).

A more detailed review of the electricity usage makes me conclude that over the period of 11/17/2006 to 4/9/2007 (the period in which we used 480 gallons of heating oil for space heat), we used between 8360 and 9430 KWH for operating the heat pumps These numbers are still suspect and requires some subjective guessing, which I won't get into right now. With some effort, I think I can separate out the heating from the other electric use, but that will take a lot of work.

Let's calculate the amount of oil saved not by looking at past years, but by looking at how the heat pumps work. The heat pumps have a coefficient of performance of 3.5-3.6. That means that for every unit of energy used to run the heat pumps, we get about 3.5 units of thermal energy out. So, our 8360 KWH turns into 25,080 KWH thermal energy, and converting that to BTUs, we get (using 3412 BTU/KWH) 100 million BTUs. One gallon of heating oil contains, roughly, 139,000 BTUs of energy, and let's assume our boiler is 85% efficient as advertised.

Combining all this together, I get between 845 and 953 gallons of heating oil saved, or between $2020 and $2280 last year. At an electricity cost of between $1548 and $1697, we only saved between $470 and $583, or 2% of our installation cost. At that rate, we are looking at 50 years for this to pay for itself in its present state.

Here enters yet another uncertainty in the calculation. How much did we save in cooling costs? The geothermal is very efficient and would be better than the air conditioners that we would have installed--even very efficient ones. How much savings would that translate into? The hard-core green people would say none, because we are using more electricity cooling the house now than we did before. For the moment, I'll assume no savings.

This coming heating season, the savings look a little better. Heating oil now costs about $2.70/gallon, and electricity has come down to $.17/KWH. If these values stay the same, then we are looking at savings of $850-$950, and that would make the return a not much better 3%. I think we'll do better, but that is because of other things we are doing (details in a later post).

Where would geothermal work best? It seems to me that the Northeast is not the best spot, primarily due to the electricity cost. Note that if the power cost was down to $.10-.12 per KWH, then our return would climb to 4% at the same heating oil cost, and given current interest rates, that makes it a decent-enough long term investment (the 4% is an after-tax equivalent on a long-term investment). In essence, our geothermal is a bet on the heating oil/electricity spread. If electricity costs are cheap and heating costs are high, geothermal makes more sense. This could happen if indeed the dollar keeps plummeting. The bulk of our oil is imported, but the bulk of our electricity is domestic and is based on nuclear and coal and not oil.

I'm a little ambivalent about our move to geothermal. On the one hand, I'm glad we did it, for we are using two-thirds less heating oil, but on the other, I wish we had planned a little better, for better planning would have saved us a little more money, and I also don't like what happened to our electricity usage. It did buy us some insurance though, for we are now less dependent upon foreign sources for our survival (and heat is necessary for survival!), and it did make the world a little greener and one step closer to something we could call sustainable. Perhaps that's worth the extra cost (and probably better than sending the Sierra Club a check for $10,000), but if geothermal or something similar is to become widespread, it will have to be a little more cost-effective.

Before starting with the calculation, it is important to remember the goal, namely, we wish to reduce dependence on foreign energy sources (particularly oil, but also natural gas), and to do it in a manner that helps (or is at least neutral) environmentally. In a world with uncertain oil geopolitics, it is important to consider that a big part of this process is buying insurance, and traditionally, insurance costs more than it is worth (otherwise, insurance companies wouldn't be in existence).

In our particular case, it turns out we aren't saving much money by moving to geothermal from heating oil, so it is win-win-draw: our dependence is reduced, the environment is bettered, but little savings have accrued (or, at least not yet). There are many reasons for this, and if planned properly, I don't think that this has to be the case.

This post has some technical details in it, and they are included for clarity (hopefully) and for helping others make similar calculations. There is a lot of uncertainty in some of the crucial numbers, so the actual numbers may be different. If you spot any errors, please let me know, for I'm more interested in getting to the truth than I am in advocating a position.

Let's recall two graphs from the last two posts: (1) the heating oil use, and (2) the electric use. Also, to beat a dead horse, the house was renovated from late 2005 to mid-2006. There are a lot of moving parts in all of this, and that introduces more uncertainty than one would like.

**System Cost**The total cost to install the 3 wells and the heat pumps was $44,800. To break this down, it was $32,410 for the heat pumps and new air handler, $15,390 for the 3 wells, and we received a $3000 rebate from CL&P. However, we did not install air conditioners, which I estimate would have cost $15,000 for high efficiency condensers. The incremental cost is then $29,800. This cost could be bettered if one plans for geothermal initially instead of making a decision half-way through the process of renovation, but okay, enough self-flagellation.

**The Quick Guestimate**It helps to have a so-called back-of-the-envelope number that is easy to calculate. Here is my version of that. In the older house, for the winter months (Nov-Mar), we'd use between 1500 and 2000 gallons of heating oil. With 2 gallons/day for water heating (I'm still amazed it is that much and am kicking myself for not making sure the de-superheater came with the geothermal unit), and adjusting for the number of days, we can roughly say between 1200 and 1800 gallons were used to heat the house. Last year we used 700, with about 280 for water heating (from 11/17/06 to 4/9/07), and so we used 420 gallons to space-heat. In this simple comparison, we saved between 780 and 1380 gallons of heating oil, or about $1850-$3300. (Heating oil last year was $2.39/gallon).

For power, we used to use between 50-60 KWH per day and we now use around 120 KWH per day in the winter months. In the old house, we used fewer lights, but we used more electric space heating. Let's say net-net the effects cancel, and we are using about 60 KWH per day heating, or about 8600 KWH in the same period we used the 700 heating oil gallons last winter. At $.18/KWH (one of the highest rates in the Continental USA), that cost us $1548, so it is about $300 - $1700 saved from the geothermal, so according to this quick calculation, we made somewhere between 1-6% return on investment. Can we better the estimate? Let's try.

**A More Detailed Estimate**To make some the conversions below, I used the EIA kid's page

(http://www.eia.doe.gov/kids/energyfacts/science/energy_calculator.html#unitsexplained).

A more detailed review of the electricity usage makes me conclude that over the period of 11/17/2006 to 4/9/2007 (the period in which we used 480 gallons of heating oil for space heat), we used between 8360 and 9430 KWH for operating the heat pumps These numbers are still suspect and requires some subjective guessing, which I won't get into right now. With some effort, I think I can separate out the heating from the other electric use, but that will take a lot of work.

Let's calculate the amount of oil saved not by looking at past years, but by looking at how the heat pumps work. The heat pumps have a coefficient of performance of 3.5-3.6. That means that for every unit of energy used to run the heat pumps, we get about 3.5 units of thermal energy out. So, our 8360 KWH turns into 25,080 KWH thermal energy, and converting that to BTUs, we get (using 3412 BTU/KWH) 100 million BTUs. One gallon of heating oil contains, roughly, 139,000 BTUs of energy, and let's assume our boiler is 85% efficient as advertised.

Combining all this together, I get between 845 and 953 gallons of heating oil saved, or between $2020 and $2280 last year. At an electricity cost of between $1548 and $1697, we only saved between $470 and $583, or 2% of our installation cost. At that rate, we are looking at 50 years for this to pay for itself in its present state.

Here enters yet another uncertainty in the calculation. How much did we save in cooling costs? The geothermal is very efficient and would be better than the air conditioners that we would have installed--even very efficient ones. How much savings would that translate into? The hard-core green people would say none, because we are using more electricity cooling the house now than we did before. For the moment, I'll assume no savings.

This coming heating season, the savings look a little better. Heating oil now costs about $2.70/gallon, and electricity has come down to $.17/KWH. If these values stay the same, then we are looking at savings of $850-$950, and that would make the return a not much better 3%. I think we'll do better, but that is because of other things we are doing (details in a later post).

Where would geothermal work best? It seems to me that the Northeast is not the best spot, primarily due to the electricity cost. Note that if the power cost was down to $.10-.12 per KWH, then our return would climb to 4% at the same heating oil cost, and given current interest rates, that makes it a decent-enough long term investment (the 4% is an after-tax equivalent on a long-term investment). In essence, our geothermal is a bet on the heating oil/electricity spread. If electricity costs are cheap and heating costs are high, geothermal makes more sense. This could happen if indeed the dollar keeps plummeting. The bulk of our oil is imported, but the bulk of our electricity is domestic and is based on nuclear and coal and not oil.

**Conclusions**I'm a little ambivalent about our move to geothermal. On the one hand, I'm glad we did it, for we are using two-thirds less heating oil, but on the other, I wish we had planned a little better, for better planning would have saved us a little more money, and I also don't like what happened to our electricity usage. It did buy us some insurance though, for we are now less dependent upon foreign sources for our survival (and heat is necessary for survival!), and it did make the world a little greener and one step closer to something we could call sustainable. Perhaps that's worth the extra cost (and probably better than sending the Sierra Club a check for $10,000), but if geothermal or something similar is to become widespread, it will have to be a little more cost-effective.