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Formula Used
Annual Cost = Input Energy × Energy Price
Net Investment = Installed Cost − Rebates
Simple Payback = Net Investment ÷ Net Annual Savings
How to Use This Calculator
- Enter annual heating demand and current efficiency.
- Provide the current energy price per input kWh.
- Enter expected efficiency and energy price for the new system.
- Add installed cost, rebates, and maintenance cost difference.
- Set analysis years, discount rate, and escalation, then calculate.
- Review results above the form and download reports.
Example Data Table
| Scenario | Annual Demand (kWh) | Current Eff (%) | New Eff (%) | Installed Cost | Rebates | Net Annual Savings | Simple Payback |
|---|---|---|---|---|---|---|---|
| Gas furnace upgrade | 12,000 | 80 | 95 | $6,500 | $800 | $375 | 15.20 years |
| Heat pump switch | 12,000 | 85 | 280 | $9,200 | $2,000 | $620 | 11.61 years |
| Boiler replacement | 18,000 | 75 | 92 | $7,800 | $1,000 | $460 | 14.78 years |
Energy Cost Drivers and Efficiency
Heating ROI is shaped by three measurable inputs: annual heat demand, delivered efficiency, and the unit price of energy. For example, a 12,000 kWh thermal demand served by an 80% system requires about 15,000 kWh of input energy. At 0.12 per input kWh, that is roughly 1,800 in yearly operating cost.
Upgrade Savings from Better Performance
When the new system delivers 95% efficiency, the same demand needs about 12,632 kWh of input energy. At 0.10 per input kWh, the operating cost becomes about 1,263. The gross difference is about 537 per year before maintenance adjustments. This calculator reports net savings after subtracting any annual maintenance increase.
Investment, Payback, and First-Year ROI
Net investment equals installed cost minus rebates and incentives. If installed cost is 6,500 and rebates are 800, net investment is 5,700. Simple payback is net investment divided by net annual savings. First‑year ROI is net annual savings divided by net investment, expressed as a percentage, helping compare options quickly.
Discounting and Price Escalation
Long‑term decisions should account for the time value of money and changing prices. With a 6% discount rate and 2.5% energy escalation, future savings grow each year but are discounted when calculating NPV. A positive NPV indicates the upgrade creates value above the chosen discount rate over the analysis period.
Reading the Cashflow Chart
The chart plots cumulative savings against the initial investment across the analysis years. The nominal curve uses escalating savings, while the discounted curve applies the discount rate to each year’s savings. The point where a curve crosses zero represents break‑even, and higher end values indicate stronger lifetime returns.
FAQs
1) What should I enter for annual heating demand?
Use your best yearly heat estimate from bills or an audit. If you only have fuel use, convert it into thermal demand using known efficiencies or contractor guidance.
2) Why is efficiency allowed above 100%?
Some technologies report performance as output divided by electrical input. That can exceed 100% because it moves heat rather than creating it from fuel.
3) What does “maintenance difference” mean?
It is new annual maintenance minus current annual maintenance. Enter a positive number if service contracts, filters, or inspections will cost more after upgrading.
4) How should I choose the discount rate?
Use your target return, loan rate, or an internal hurdle rate. Higher discount rates reduce NPV because future savings are valued less.
5) What if net annual savings are negative?
Payback becomes not meaningful and NPV will likely be negative. Recheck prices, efficiencies, or consider rebates, controls, and envelope improvements.
6) Why do nominal and discounted curves differ?
Nominal cashflow reflects simple escalating savings. Discounted cashflow accounts for time value, so later savings contribute less, producing a more conservative break‑even view.