Fuel Cost Analysis: Efficiency
For decades Americans have lived in an economy where energy waste was financially feasible. The technologies present in the majority of homes and apartments across the nation reflect this. Over 70% of homes use oil-based furnaces – many of which do not provide zone heating and generate heat at low efficiency. With these furnaces, efficiency can be as low as 60 – 80%. This has had a devastating effect on many families across the nation.
In a recent Gallop Poll, 56% of respondents reported being “very negatively” affected by home heating prices. Many families will have to cut food costs to ensure that they stay warm this winter. The U.S. Energy Administration projects the average cost of heating oil this winter will be around $4.34 per gallon. That represents a 35% increase over last year’s average price of $3.21. The price of heating oil has more than doubled since the year 2000. Most analysts project that the upward trend in prices will not cease until our supply of oil is completely exhausted. As Alan Greenspan has said: “Oil prices will increase forever.”
Meanwhile, electricity prices have increased at a surprisingly slow rate. In the last 20 years the price of electricity has averaged a 1.3% increase per year, for a total of a 43% increase. This is quite low considering that inflation has averaged 3.1% per year during the same time span. Though the average American uses more electricity today than at previous times, a smaller relative portion of their budget goes to electricity. Electricity has always been cleaner and easier to use than oil, but people once shied away from heating with it due to its high cost, relative to oil. A common question that many now ask is, “is it now cheaper to heat with electricity than oil?”
We will approach this question from several perspectives.
Our Starting Point: The BTU Analysis
The most rudimentary analysis of the cost-effectiveness of heat sources is done by comparing the price of producing BTUs – British Thermal Units. BTUs are a measure of heat output. Comparing the cost of BTUs generated by electricity and heating oil involves simple math, but rather big assumptions.
The following is a BTU comparison using data from the U.S. Energy Administration. First, the assumptions are outlined, followed by calculations and a synthesis portion, which states the result.
The Cost of Electricity
The cost of electricity differs drastically from place to place. For example, based on the most recent data, the cost of electricity in West Virginia averaged 6.7 cents per kilowatt hour, while the cost of electricity in Hawaii averaged 29.2 cents per hour. The national average is currently 10.52 cents per kilowatt hour. We will use this in our estimation, but it must be understood that this is simply an average. Furthermore, electricity costs differ at different times of the year – it’s usually more expensive in the summer – and at different times of the day.
Efficiency of Oil Furnaces
Another variable in the subsequent calculation is the efficiency of oil furnaces. It was not possible to find an average efficiency for a furnace used in the U.S. The highest efficiency furnaces are usually rated around 90%. A furnace with this efficiency will convert to 90% of the theoretical energy in oil into heat energy supplied to the space one is attempting to heat. We will assume that a normal oil furnace is about 80% efficient. This is above the Department of Energy’s regulation standard of 78% efficiency. Many old style furnaces are far less efficient and do not meet DOE standards.
Heating Oil Prices
We will use the U.S. Energy Administration’s projection for heating oil prices this winter. The price: $4.34 per gallon.
Efficiency of Electric Heaters
Next, most researchers claim that electric heaters are 100% “efficient”. This is because all the electricity that leaves the outlet of an electrical heaters gets converted into heat in some form. Oversights with this claim will be addressed later, but for now we will simply use this figure in the computation.
One Gallon of Oil
Lastly, it is estimated that one gallon of oil contains about 140,000 BTUs of energy.
The cost of per thousand (1000) BTUs of heat with a normal oil furnace is
($4.34 per gallon)/((140,000 BTUs×80% efficiency) )×1000 BTUs=3.875 cents
Next, 1000 BTUs equals approximately 0.292 kilowatt hours (based on the standard conversion factor). Since the cost of electricity per kilowatt hours averages 10.52 cents, the current cost of generating 1000 BTUs with a typical electric-based heater is estimated around
10.52 cents ×0.292 kilowatt hours=3.07 cents
From this initial estimation it appears that it is currently more cost effective to use electricity in most regions of the country. Based on these figures, heating with oil will typically cost about 27% more than heating with electricity.
A More Informed Analysis
BTUs don’t tell the full cost efficiency story. We have to consider the ultimate goal of heating: people produce heat to warm themselves and the objects around them. Surprisingly, different kinds of heat differ drastically in their capacity to perform this essential task, BTU per BTU. In this sense, not all heat is created equally and a simple BTU analysis neglects a critical issue. The question for anyone searching to gauge the efficiency of a heat source is: “How much of the heat produced actually heats the people and objects in a room?”
Critical to our discussion of efficiency is some background information of different forms of heat.
There are three kinds of heat: convective, conductive, and radiant. The vast majority of electric and fuel-based heaters operate through convection and conduction. Convection involves heating the air around a heat source. Conduction involves heating objects through direct contact. Through convection, air around a heat source gets hot and begins to flow throughout a room. When this air comes in contact with people and objects, it heats them by way of conduction. This process is time consuming and inefficient. Since hot air rises, much of the heat produced through convection flows to the ceiling of a room and then dissipates through ductwork. In this sense, many of the BTUs produced by conventional, convection-based heat sources are quickly lost and do not directly provide heat to people.
Read the Energy Cost Comparison Guide.
*Results may vary depending on ambient temperature, relative humidity, and insulation quality.