Return on a new furnace investment

Is laying out $2,500 for a new furnace going to save you money? It will if you live in the house long enough to recoup your investment. The following table and information below, furnished by the American Council for an Energy Efficient Economy, can help you calculate your return on investment.

Dollar savings per $100 of annual fuel cost

Annual Fuel Utilization Efficiency, or AFUE, ratings will tell you how much energy is being converted to heat. To determine savings, find the horizontal row corresponding to the old system's AFUE, then choose the number from that row that is in the vertical column corresponding to the new system's AFUE. That number is the projected dollar savings per hundred dollars of existing fuel bills. For example, if your present AFUE is 65 percent and you plan to install a high-efficiency natural gas system with an AFUE of 90 percent, then the projected saving is $27 per $100. If, say, your annual fuel bill is $1,300, then the total yearly savings should be about $27 x 13 = $351.

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That's a lot of money to save each year, especially when you consider the expected lifetime of a heating system, but it still doesn't answer the question of whether replacing the system is a good investment. To answer that, you can calculate the first year return-on-investment, or ROI. The equation is as follows:

ROI = first year savings ÷ installed cost

ROI = $351 ÷ $2,500 = 0.14

A 14 percent return is pretty good. Plus, if fuel prices go up, the annual savings and return on investment also go up. For example, if fuel prices increase 30 percent, the annual savings in this example increases to $456, and the return on investment increases to 18 percent.

If you are thinking about replacing your furnace, consider the factors in the main story, "Is it time to replace the furnace?"