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Understanding the Cost of Energy

To understand the economics of a geothermal system, it is important to understand the relative cost of the various fuels available. In Canada, today with deregulation of the energy sector, fuel prices will fluctuate more with demand than ever before.

It is a certainty therefore, that oil, gas and propane, will be at their highest prices for the year, when the customer needs them the most, in the coldest part of winter.

As fossil fuel demand is related to the weather, the cost of energy will be less throughout a mild winter than throughout a severe winter. That is unless energy producers cut back on the supply to the market in anticipation of a mild winter, then market prices would remain high.

Consumers can attempt to stabilize fuel prices over a few years by signing a long term delivery contract with a fuel supplier. So it's impossible to predict exactly what fuel will cost next year, or even in the next six months We do know however that energy will cost more in the future than it does today.

On the other hand, electricity prices in Ontario and most of Canada are stable, and are predicted to stay relatively stable over the next 5 years, even with electricity deregulation.

Is a Stable Fuel Price Available Anywhere?

It should be well noted that the energy stored in the ground and harnessed by a geothermal system, costs the same today as it did last year and the year before and the year before that.

As fuel prices increase in value, does it not follow that, the value of energy, (Btu's or kWh.) stored in the ground, accessible by a Geothermal System and able to displace fossil fuel consumption, is also worth more money today than yesterday?

The future of geothermal energy looks very bright indeed. There are no better energy alternatives on the horizon as far as we know.

Gross Fuel Values and Btu/$(Based on July 2003 Energy Costs)

Table 1. Compares the amount of thermal energy, (heat), available in a given unit of fuel and the amount of heat the customer receives for $ 1.00.

Propane, has the lowest fuel value of the three fuels shown, yet it is on the average the most expensive fuel in Ontario during the winter.

Natural gas is considered the cheapest fuel source by most people however, if you are not locked into a cheap supply contract today, heating with a 92% efficicient gas furnace would would be close to the same price as heating with an 82% efficient oil furnace.

Fuel Type	Fuel Value Btu per litre	2001 avg. cost per litre	Btu/$
Natural Gas	35.32 Btu/l	$0.00049 per litre	72,082 Btu/$
#2 Fuel Oil	36,984 Btu/l	$0.52 per litre	71,123 Btu/$
Propane Gas	24,313 Btu/l	$0.49 per litre	49,618 Btu/$
Table 1. Fossil Fuel Relative Fuel Values and Btu's/$

Notes:

1. Gross fuel value is the total amount of heat available in that unit of fuel.
2. To calculate the actual amount of heat reaching the home per unit of , the fuel value must be corrected for the combustion efficiency, e.g., 83% efficient, of the heating appliance.
3. Electrical operating costs for the fan and transformer are additional to fuel costs.
4. Fuel prices do not include GST.
5. The three major fuel types do not have equal fuel values per unit volume.

Table 2. Similarly compares the amount of thermal energy, (heat), available in a kilowatt of electricity to the amount of heat received from a geothermal system and respectively, the amount of heat the customer receives for $ 1.00.

Fuel Type	Fuel Value Btu per kW.	2001 average cost kW.	Btu/$
Electricity	3,413 Btu/kW	$0.083	41,120Btu/$
Geothermal	11,602 Btu/kW	$0.083	139,089 Btu/$
Table 2. Electric vs. Geothermal Fuel Values and Geothermal Btu's/$

Notes:

1. Electric resistance heating is considered to be 100% efficient.
2. Average electricity rate includes delivery charges and debt retirement charge.
3. Geothermal Btu/$ calculated at a seasonally averaged COP of 3.4.

Residential Heating, Cooling and DHW Heating Energy Estimation

Table 3. Annual Energy Consumption Estimate – Heating Cooling and DHW Heating

Table 3. Estimates the Annual Heating, Cooling and Domestic Hot Water Heating Energy Consumption Requirements, for a large custom home in the Greater Toronto Area.

Heating and Cooling Annual Btu. Calculations are based upon ASHRAE Handbook of Fundamentals Variable Base Degree Day algorithms, a method considered by the engineering community as suitable for calculating single family home energy use.

Experience has shown that the method is reasonably accurate for buildings requiring up to about 30 tons of cooling. Most of Just Geothermal's customer base falls well within the scope of the algorithms.

The overall calculation takes into account phenomena that tend to delay the need for heat from a heating system such as internal gains from electrical equipment, solar gains, occupant density and construction quality.

The Table 3. example simulates a 10,000+ sq. ft. home built in Vaughan or King Townships, North of Toronto today. The home would have insulation levels somewhat better than the current Ontario Building Code, (OBC) mandates.

Natural gas may not be available to sites in this area without paying the utility for the gas pipe line extension.

Typically served by a 400 amp transformer.

Insulation Levels

Walls Above Grade R 25
Walls Below Grade R 18
Ceilings R 31
Basement Floor Insulated R10 under slab
Windows double glazed argon filled 2 low E coatings R4
Insulated Doors R 6.7

Construction

Tight with good attention to air sealing
Exposure – Exposed to NW
Heat Recovery Ventilation
The calculation MUST be regarded as an "estimate only" as many lifestyle factors can affect energy consumption within a home.

Note: Leaving windows open, door openings and traffic rate all increase the amount of infiltration a home will experience.

The energy required to operate lights and appliances are not considered by this software therefore the energy bill will always be higher than our estimates predict.

Fossil Fuel Systems Operating Cost Estimates

Once an estimate is made of the annual energy consumption for heating, cooling and domestic hot water heating, we only need to know the following additional information and a relatively simple formula to predict how much it would cost to supply the energy to condition the home using various heating and cooling appliances.

Required Information:

fuel type
heating value per unit of fuel
appliance combustion efficiency
cost per unit of fuel

As all furnaces consume electricity, it would provide a more accurate picture if we could calculate out the electrical costs associated with operating a fossil fuel furnace as well.

Helpful Additional Information:

furnace fan motor HP
furnace venter motor HP
cost per kWh of electricity

Table 4. 92% Efficient Propane Furnace, DHW Heating and A/C Operating Cost

Table 5. 82% Efficient Oil Furnace, DHW Heating and A/C Operating Cost

Table 6. 92% Efficient Natural Gas Furnace, DHW and A/C Operating Cost

Fossil Fuel Summary

Although the example shown is for a large custom home, it can be said that heating a home in Ontario today using fossil fuels is costly, regardless of fuel choice.

While natural gas is still the cheapest fossil fuel, it has lost most of its edge over oil. Natural gas is no longer a cheap fuel.

Based on todays's fossil fuel costs, if natural gas is not readily available to your building lot and if you personally have to pay to extend the natural gas line up to your house, then a high efficiency oil furnace would be better a wiser choice than propane.

As propane in Ontario historically has fluctuated to a very high price spike by February over the last 10 years, this should reinforce a consumer's tendency the tendency to favour high efficiency oil over propane.

Note: It should be noted that we prudently calculate and include the fan electricity cost associated with fossil fuel furnace operation.

At an average of $ 230.00 per year, a furnace fan is likely to be the electrical device with the highest operating cost in most homes heated by fossil fuels. A fact of life seldom mentioned by fuel suppliers when estimationg home heating costs.

Geothermal System Operating Cost

Table 7. Geothermal System with Desuperheater DHW Operating Cost

Geothermal System Summary

The Geothermal System will provide the same amount of heating and cooling for:

1/2 the operating cost of a conventional condensing natural gas system with an air conditioner.

1/3 the operating cost of a conventional condensing propane gas system with an air conditioner.

A Geothermal System is a self contained system located in the basement, or other suitable location.

• No chance of unit vandalism
• Easier to service
• Quiet operation
• Premium Comfort

The math for a Simple Payback is quite easy, as shown in Table 4. Simple Paybacks are a fairly rudimentary equation however and the homeowner should take inflation in the price of fuel or electricity into consideration to gain a more realistic perspective.

For example natural gas has costs have almost trippled since late 2000.

Geothermal Horizontal Loop Cost	$ 36,000.00	Operating Cost	$3,039.00
HE Propane & A/C System Cost	$20,000.00	Operating Cost	$9,159.00
Capital Cost Difference	$16,000.00
Savings per Year			$6,120.00
Payback = cap cost diff ÷ saving	$16,000 ÷ $ 6,120.00 = 2.61 years
Table 8. Simple Payback Comparison – Geothermal vs. Propane

A Return on Investment (R.O.I.) equivalent to 61.6%

Geothermal Horizontal Loop Cost	$36,000.00	Operating Cost	$3,039.00
HE Natural Gas & A/C System Cost	$20,000.00	Operating Cost	$6,173.00
Capital Cost Difference	$16,000.00
Savings per Year			$3,134.00
Payback = cap cost diff ÷ saving	$16,000 ÷ $ 3,134.00 = 5.1 years
Table 9. Simple Payback Comparison – Geothermal vs. Natural Gas

A Return on Investment (R.O.I.) equivalent to 30.6%

Customers expect a high return on investment from a Geothermal System because they require the highest initial capital investment of almost any heating and cooling on the market today. They are on the average twice the price of a top of the line high efficiency furnace and air conditioning system as manufactured by Lennox or Carrier.

Cost Breakdown

• As with all products there are varying degrees of quality equipment on the market. Some equipment is made by small manufacturers and some by large manufacturers and quality and expertise varies. For most installations:

• 50% represents the cost of the equipment.
• 50% represents the cost of installation and ductwork

Earth Loops

• The major additional cost incurred by the homeowner when installing a Geothermal System is the installation of the loop, (or heat source).
  

  In the case of open loop systems, an open loop systems might be less to install than a competing system.

  Installation costs vary with the following earth loop requirements:

• Difficulty of terrain
• Soil Type
• Location
• Vertical Loop
• Horizontal Loop
• Submerged Loop
• Pipe Diameter

Any type of earth loop designed properly will supply the unit with a free heat source. It is important to the R.O.I. to consider installing the most cost effective, appropriately sized loop style for the home and property.

In the case of a retrofit, a vertical loop installation may be the most economical installation once landscaping costs are taken into consideration.

Types of Loops

• Open Loop – well water supply with an acceptable disposal.
• Vertical Loop – 3/4" dia. heat exchangers, in bore holes 100 ft. to 300 ft. deep.
• Vertical Loop – 1 1/4"dia. heat exchangers in bore holes 100 ft. to 500 ft. deep.
• Pond or Lake Loop – 3/4" dia. coild heat exchangers attached to ploypropylene mats and submerged in a pond or lake.
• Horizontal Loop 2 pipes per trench – 3/4" dia. single layer heat exchanger buried
  5 ft. deep
• Horizontal Loop 2 pipes per trench – 1 1/4"dia. single layer heat exchanger buried 5 ft. deep.
• Horizontal Loop 4 pipes per trench – 3/4"dia. double layer heat exchanger buried at 4 ft. and 6 ft. levels in the same trench.

Generally speaking, the closer heat exchanger pipes are layed together underground, the less the heat exchanger can rely on heat transfer between the pipes because there is little or no temperature difference between the pipes.

In such cases the total footage of heat exchanger increases to compensate for the dense spacing.

Open Loop R.O.I.

Generally speaking, an open loop system is the most cost effective way to install a Geothermal System. They are often retro-fitted into rural properties that have an existing well and appropriate water discharge.

Vertical loop installations usually require the largest capital investment in the earth loop itself. Most geothermal drilling rigs are seismic exploration rigs, operated by experienced drillers trained by manufacturers or other suppliers in Geothermal Vertical Loop installation.

The rigs are able to drill just about any ground condition from sand to rock. Unlikedrilling a water well, it is not necessary for a geothermal driller to take the time to look for water seams. A casing is not required unless the soil is particularly unstable and keeping the bore hole open with drilling mud is impossible.

A geothermal driller needs to bore a hole in the ground of sufficient depth and stability to stay open long enough to get a loop circuit down inside of it. Often geothermal system drillers fuse the u-bend to the circuit pipes, pressure test the heat exchanger, load it into the bore hole and grout the hole to seal it and prevent aquifer contamination. For those reasons, geothermal drilling usually costs less per foot than water wells.

Open Loop Systems Capital Cost

Open loop systems usually cost the same, or just a little more to install than competing systems. Yet they save as much money on heating and cooling costs as do closed loop systems.

If a homeowner has to drill a water well for new construction, or if a well of sufficient capacity already exists on the property, it is a simple matter to supply the system with well water as the heat source.

Southern Ontario, has the deep earth temperatures and thus ground water temperatures ranging between 47° F. and 51° F.

Where groundwater is plentiful and injecting water back to the ground after it passing through a system poses no problems, geothermal systems are extremely competitive.

In Northern Ontario and other colder regions of the country, open loop systems require higher flow rates per nominal ton than in the South. This is because the groundwater is colder in the North and at low flow rates, water can freeze exiting the unit causing reliability problems and possibly damage.

As a general rull of thumb, Just Geothermal Systems likes to use 2 US gpm. (1.7 imp. gpm) per nomnal ton of unit cooling capacity.

Note:

1. A suitable method must be available to return water back to the ground.
2. Water returns to the ground unchanged chemically in any way.
3. Physically the water temperature is a little cooler in the winter and a little warmer in the summer when it returns to the ground.

Suitable methods of returning water to the ground are as follows:

1. Injection well to the same aquifer.
2. Dry well where the ground can accept the quantity of water easily.
3. Shallow well already existing on the property.
4. Pond or lake.

Most aquifers connect underground at some point, particularly in porous rock, sand, cobbles or gravel. Even surface water mixes with some underground aquifers.

The homeowner should consult with a local well driller to verify adequate water supply or consult well logs.

The payback of an Open Loop System is generally a lot faster than a Closed Loop. Table 6. below outlines a simple payback for the same home using an Open Loop System model.

Geothermal Open Loop Cost	$26,000.00	Operating Cost	$3,039.00
HE Propane & A/C System Cost	$20,000.00	Operating Cost	$9,159.00
Capital Cost Difference	$6,000.00
Savings per Year			$6,120.00
Payback = cap cost diff ÷ saving	$6,000 ÷ $ 6,120.00 = 0.98 years
Table 10. Simple Payback Comparison – Geothermal Open Loop vs. Propane

A Return on Investment (R.O.I.) equivalent to 164.5%

Cash Purchase vs. Financing – More Than a Simple Payback

One key to the success of fuel supply companies has been their ability to amortize their delivery system and infrastructure over many years. Financing along with tax breaks from various levels of government plus very clever marketing techniques, have brought us widely distributed "Clean Safe Natural Gas", (which it is neither).

If you are building a new home builder you will most likely carry a mortgage on your home. You will therefore make monthly payments.

In the example above, included in the monthly mortgage payment would be the $ 20,000.00 investment in two propane heating and air conditioning systems.

The true monthly operating cost for the home would be as follows:

monthly mortgage payment + monthly energy payment

Table 11. Geothermal Economic Analysis – Financed Model

Table 11. Illustrates a Total Monthly Cost Analysis, comparing a $36,000.00 geothermal system with a horizontal loop to a $20,000.00, high efficiency propane furnace and air conditioning system, financed in a mortgage at 6.8% interest rate, for a 25 year term.

The true monthly cost of owning the propane system is as follows:

$139.83/month equipment ownership + $ 763.25/month energy payment = $903.08 per month

The true monthly cost of owning the Geothermal System is as follows:

$251.67/month equipment ownership + $ 253.25/month energy payment = $504.92 per month

The net savings in annual outlay would be $ 4,778.00 per year,
or $ 398.16 per month.

Therefore, financing the difference between the propane and the Geothermal System in the mortgage, results in a positive cash flow of $ 398.16 per month.

Why would anybody pay more per month to the fuel company for something that is consumed?

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Questions?  Contact your geothermal specialists
or Telephone 519-808-3987