What is the cost of one percent efficiency on an oil heater?

Question

We've now had about 7 contractors come to our house and give us estimates for replacing a) our oil heater (system from the early 1980's, estimated at around 65% effeciency), and b) our central air unit (system from the late 1980's, but no heat pump). There is no option for gas here.

The contractor we liked the most offered a price of around 7800 for the new furnace at 87.2% effeciency. However our current oil company offered us a price of about 4800 for a new furnace at 86.1% effeciency.

With the heat pump the oil should only really kick on 3-4 months out of the year (we live in PA, and based on temperature averages for the past 50 years that's what it comes out to, assuming the pump keeps us warm in our 1100 sqfoot house to about 30 degrees). So, assuming a 30 year lifespan of the heater, do you think the extra 1.1% effeciency would pay for the 3000$ difference between the two contractors? Which system would you choose?

I have no idea how to approach the math on this one.

Answer 1

Try this on for size:

Annual Oil Bill * Efficiency = Cost of Oil actually used for heating. (The rest is waste).

So on an annual bill of $1000, you are currently paying $650 for heat, and $350 out the chimney. (i.e. $650 is as low as you can go with a 100% furnace)

So, if you were to replace that with an 87.2% furnace, your annual cost would be $650/87.1% = $747, and there is about $100 waste. (Note! this is a savings of $250 per $1000 of Oil)

On the 86.1%, that's $650/86.1% = $755 for a difference of $8 per thousand of oil currently used. At that rate, the new furnace would take 375 * (time in which you use $1000 of oil) to pay off the difference.

This analysis is based purely on BTUs produced at the burner.

Now, there are other factors, such as air flow and distribution which may significantly affect your oil use, and the bigger furnace may be more efficient in other ways.