Geothermal Is A Safeguard Against Rising Energy Prices

Monday, April 16, 2012

Those of us in the ground source heat pump (GSHP) industry already know of the many benefits that these systems hold over conventional heating and cooling systems (and have probably explained them a hundred times over). But as the appeal of geothermal technology shifts to the masses, we must find ways to relate to everyday consumers through metrics such as return on investment, life cycle cost and the like.

When it comes time to give the sales pitch, economics can be a very powerful tool. How many of you have ever made the case for a GSHP system from the standpoint of hedging against inflationary energy prices? In this article we intend to show that when energy prices rise, it actually gets easier to justify an investment in a GSHP system.

First, a Little Ground-Work

In order to make this case, some calculations will be required. The simplest way to compare the cost of heating with a given fuel source is to calculate the cost to deliver a fixed amount of energy to a space. For the purpose of illustration, we will calculate the cost to deliver 1,000,000 Btu’s of heating energy (1 MBtu) using the following equation:

Before getting started, we need to know a few things, such as the amount of energy contained in a given amount of electricity, natural gas, propane and heating oil:

Fuel Type vs. Energy Content (HHV, Higher Heating Value)

Fuel Type HHV Units
Electricity 3,412 Btu per kWh
Natural Gas 100,000 Btu per therm
Propane 92,000 Btu per gallon
Fuel Oil 140,000 Btu per gallon

We also need to know the efficiency of each system and the price we’ll pay for fuel:

Assumed Energy Prices & Efficiencies

System Type Fuel Energy Price Efficiency
Electric Resistance Electricity $0.15/kWh COP = 1.00
ASHP+ Electricity $0.15/kWh COP = 2.00++
GSHP Electricity $0.15/kWh COP = 3.75
Furnace or Boiler Natural Gas $1.50/therm AFUE = 95%
Furnace or Boiler Propane $2.75/gal AFUE = 90%
Furnace or Boiler Fuel Oil $4.00/gal AFUE = 80%
+ASHP - Air Source Heat Pump
++Equivalent to a Heating Seasonal Performance Factor (HSPF) value of 6.8 for ASHP’s

The Calcs

Now that we have all of the necessary information, we can get started with the calculations. For example, the cost to deliver 1 MBtu with natural gas is calculated as follows:

The results of the calculations for each system are summarized in the illustration and table below:

Direct Heating Cost Comparisons

System Type Energy Cost Delivered Cost ($/MBtu) Cost Relative to GSHP Savings Using GSHP (%) Savings Using GSHP ($/MBtu)
Elec. Resistance (COP=1.00) $0.15/kWh $43.96 3.8 73% $32.24
ASHP (COP=2.00) $0.15/kWh $21.98 1.9 47% $10.26
Natural Gas (AFUE=95%) $1.50/therm $15.79 1.3 26% $4.07
Propane (AFUE=90%) $2.75/gal $33.21 2.8 65% $21.49
Fuel Oil (AFUE=80%) $4.00/gal $35.71 3.0 67% $23.99
GSHP (COP=3.75) $0.15/kWh $11.72 -- -- --

Note that we also calculated the cost relative to heating with a GSHP system (because it is the cheapest method) and the savings associated with the GSHP itself. For example, the table shows that heating with the propane-fired furnace while paying $2.75 per gallon is almost three times as expensive as heating with a GSHP system (actually, 2.8x). Furthermore, a GSHP system would save about 65% per year in heating costs (or $21.49 per MBtu’s of heating energy delivered) over the propane system, based on our assumptions.

Through this example, we’ve already made a pretty strong case for the GSHP over a propane-fired furnace or boiler. But so far, we’ve only looked at today’s prices without any real consideration to the future. To show how GSHPs act as a hedge against rising energy prices, we performed the same calculations after an assumed 25% increase in ALL energy prices:

Direct Heating Cost Comparisons (After 25% Increase)

System Type Energy Cost Delivered Cost ($/MBtu) Cost Relative to GSHP Savings Using GSHP (%) Savings Using GSHP ($/MBtu) Operating Cost Increase ($/MBtu)
Elec. Resistance (COP=1.00) $0.19/kWh



(No Change)

(No Change)


ASHP (COP=2.00) $0.19/kWh



(No Change)

(No Change)


Natural Gas (AFUE=95%) $1.88/therm



(No Change)

(No Change)


Propane (AFUE=90%) $3.44/gal



(No Change)

(No Change)


Fuel Oil (AFUE=80%) $5.00/gal



(No Change)

(No Change)


GSHP (COP=3.75) $0.19/kWh


-- -- -- $2.93


Returning to the example of the propane system, after a 25% increase in energy prices, it is still almost three times as expensive to heat with propane compared to the GSHP system. Additionally, the GSHP system still saves about 65% in annual heating costs. However, because the numbers are larger, the savings are more significant.

Compared to propane, the GSHP system saves $26.86 per MBtu of heating energy delivered (compared to $21.49 per MBtu in the previous example). As shown in the table, the 25% increase in energy prices leads to a $10.99/MBtu increase in the cost of heating with propane compared to a $2.93/MBtu increase in heating with the GSHP system.

The Big Picture

Hopefully, the results of these calculations drive home two main points. The first point is that heating costs and the savings associated with a GSHP system are relative to energy prices. As the prices of natural gas, propane, and heating oil increase with respect to the price of electricity, GSHPs look more attractive. Historically, the rise in electricity prices has been slow but steady while natural gas, propane, and heating oil prices tend to be more volatile.

The second point is that GSHP systems do act as a safeguard against increasing energy prices by virtue of how a GSHP works. Only about one-third to one-fourth of the energy delivered in heating with a GSHP comes from electricity consumption, the rest is extracted from the Earth.

ALL of the energy delivered with a combustion-based heating system comes from the consumption of a fuel source whether it is natural gas, propane or heating oil. To put it simply, a 50% increase in a small number makes a much smaller impact than a 50% increase in a large number.

One Final Thought

Keep in mind that our calculations were based on the cost to deliver 1 MBtu to a space. In reality, 1 MBtu isn’t that much energy. It would probably be more useful to know how much energy it actually takes to heat your home.

We decided to estimate the heating load and associated energy requirements for a 1,500 ft2 home (on the main level) with fully conditioned basement (assuming average construction: R-19 walls, R-20 ceiling and average tightness levels). The table below will give you an idea of how much energy it actually takes to heat a home of this size and construction for a year:

+Approximate Heating Energy Requirements vs. Location (1,500 ft2 Home):

City Heat Energy Required+ City Heat Energy Required+
Atlanta, GA 26 MBtu Indianapolis, IN 56 MBtu
Augusta, ME 74 MBtu Knoxville, TN 37 MBtu
Billings, MT 69 MBtu Pittsburgh, PA 57 MBtu
Boston, MA 63 MBtu Reno, NV 56 MBtu
Brookings, SD 76 MBtu Richmond, VA 37 MBtu
Charlotte, NC 32 MBtu Sacramento, CA 25 MBtu
Chicago, IL 62 MBtu Salk Lake City, UT 57 MBtu
Cleveland, OH 60 MBtu Seattle, WA 55 MBtu
Dallas, TX 24 MBtu Tulsa, OK 37 MBtu
Denver, CO 58 MBtu Witchita, KS 51 Mbtu
Des Moines, IA 66 MBtu Detroit, MI 66 MBtu

+LoopLink Load Estimator was used to estimate peak heating loads and energy requirements for the home in each location.

By taking the information from this table and applying it to the Direct Heating Cost Comparison tables, you can easily figure out what your approximate heating costs would actually be. For example, if your home is located in Brookings, SD and you wanted to know the cost to heat your home with a GSHP using $0.15/kWh electricity:

Compared to heating with propane at $2.75/gal:

After the 25% Increase in Prices…

Heating with a GSHP at $0.19/kWh:


Compared to heating with propane at $3.44/gal:


It is hard to predict what the future will bring. Energy prices rise and fall but the general trend is upward. One major advantage of GSHP systems that is often overlooked is their power to act as a safeguard against rising energy prices. It is relatively easy to show that as energy prices go up, GSHP systems become more and more economically attractive while retaining all of the other benefits. It’s not likely that this point alone will sell the system for you; it’s just another tool for the arsenal.

Originally posted through HeatSpring Magazine on March 9, 2012, this is a revised version of Ryan's May 14, 2010 Article, "GSHPs Act as Safeguard Against Inflationary Energy Prices" which has been removed to eliminate duplicate content.