Payback for alternative energy heating

Something very basic I've been meaning to do for a good
while (as simple as using back of envelope, calculator or
website finance calculator) is to work out the real investment
cost of adding 12.5k to a mortgage to fund a well specified
heat pump system or wood pellet system with bulk storage.

Maybe my simple analysis is flawed (please correct me if so)
but I am finding that to add 12.5k to say an AIB standard
variable rate loan (and making the rash assumption that
rates won't go much upwards over the next 20-25 years).
Most analysts would say they'll go up rather than down in
any case. What I am finding is that 12.5K added to a mortgage
equates to 20-22k of total additional payment when looking
at the whole term of the mortgage (more if interest rates
increase). OK, wages will inflate too .. but....

By that reckoning if a heat pump saves 1500Euro on fuel
each year (remember ESB prices are going up too ... so
this is ambitious) then it would be more like 13.5 years
for the heat pump to pay for itself. A plumber who knows
the heatpumps told me that the circulation pump for
the collector has an approx 10 yrs lifetime. I don't know
how much it costs to replace that pump but I'm sure it
is more expensive than standard oil boiler component costs.
They say the main compressor of heatpump has more like
a 20yr lifetime but I'm not so sure of whether those lifetimes
might be shortened in the more contrary Irish climate where
demands placed on the pump can vary a lot day to day.

This looks a bit depressing to me. The investment is way
bigger when you count lending rates in (I've allowed for
SEI grants here by the way)

Am I looking at a glass half empty when I should be looking
at the glass half full. Is this pessimism or realism ??

The biggest factor is whether you are on the national gas grid or not. Are you?
If not you can factor a 3c/kwh saving for a pellet boiler.
Next question is how many kwh's you use.

badabing said:

The biggest factor is whether you are on the national gas grid or not. Are you?
If not you can factor a 3c/kwh saving for a pellet boiler.
Next question is how many kwh's you use.

Click to expand...

Badabing -

We are not on the national gas grid. We're South East Mayo and I know the by now controversial Corrib gas line passes down this way but as far as I am aware the initial plans are that it will bypass our town.. and even there is some brought to the town I'd say we are too remote to see online gas supply to the site in our lifetime.

Secondly - As for the kwhs we would be consuming this is tricky.
One heat pump company I spoke with gave a rough estimate of
1 Euro per sq foot of living area per annum as a coarse guide to how
much (at current oil prices) it would take to run UFH in a two storey
house. Our house will be 2700 sq ft - We have standard 50/60mm
partial cavity fill, I may supplement this with dryline insulation for
outward facing walls on the inside, well spec'ed U values on windows,
some new product which I've heard good things about for attic
insulation and plenty of thin-R xtratherm high density insulation
between subfloor and finished floors. I really wonder if I take all
those measures if realistically I'd be consuming 4000 litres or more
of oil each year at current prices.

I do buy into the pending peak oil crisis theory and the inexorable
inflation of oil prices but I'm still not sure that high capital cost
for heat pump will pay off.

For wood pellets the advice I am hearing from the voices of reason
is that the Austrian models (which are a good deal more expensive
than the Gerkros/Irish one) are way more efficient and also I hear
that it would be unwise to assume the 2:1 price advantage over
oil in the long term.

The best way to compute payback period is to discount all costs to today's values.

The extra mortgage interest seems high - but you have to equate the total cost (e.g.up to 22k over 25 years) to today's values. Remember 22k today is worth a lot more than 22k over 25 years.

Google (or use your search engine of choice) to find out about net present value (NPV), a common way to compute the cost or benefit of an investment.

Regarding make of boiler you are correct. Get one that is fully modulating c/w variable speed flue fan and lambda sensor (reads oxygen in exhaust, controls burning efficiency). It will run at much higher efficiencies than your gerkros etc. and will payback over time.

Pellets are about half the price of oil (when burned in an efficient boiler!) at the moment. Because oil is a finite resource and pellets are not, this gap should increase not go down!

1L oil = 10.5 KWH
4000L oil = 42,00 KWH
Cost / KWH oil incl vat = 6.1c
Annual oil cost = E2,562

Pellet price / KWH = 3.75c
A good pellet boiler will be 15-20% more efficient than the oil boiler
Annual pellet cost = E1,260

Annual savings = E1,302

Pellet boilers seem to range from the 5k region, to 14k plus - now I know the 14k version will be more efficient but it would want to be an awful lot more efficient to warrant the 9 grand difference... badabing - do you have one installed and/or can you recommend one.... How can we choose one over another when all we have to go on are the sellers' blurb?

The term "payback" is not justified for something that needs permanent input of capital, i.e. energy to be purchased. It'll never pay anything.
To get better information from your dealer ask for the "amortisation time" compared to other heat delivering systems. And get the answer/the calculation sheet of the salesmen signed, being part of the contract.
You'll see how quick they turn the back on you....

Hi There,

I suggest that you seek some professional advice from some Energy Consultants or at least the S.E.I. They can advise you of various options for your specific needs and will be able to recommend various suppliers of each respective service.

I have been in contact with consultants before and the S.E.I have been very helpful. Their site is very good. With regards to payback I am of the firm belief that you should not be aiming to achiveve payback as soon as possible. You should consider that fuel prices will continue to rise and so having an alternative heating system is most desirable. You should not be considering changing just for economic reasons at present.

Hope this helps

Unfortunate