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Case solved: Comparison of Direct Electric, District and Geothermal Heating systems
October 30, 2018
Heating is a significant energy expense in most homes. Choosing the most effective heating system may help to reduce your carbon footprint and save money of your household budget.
In this article, we will compare three heating alternatives for a single-family detached house. This example is fictional but illustrates the techniques of a cost comparison analysis. Take a look at the structure of the calculations provided at the end of this article and use them as a template for your own analysis! The calculations are done with the help of Invest for Excel software.
Case description:
We are choosing a heating method for a single-family detached house with 20 000 kWh annual electricity consumption. We would like to choose the most favourable solution among the three most popular heating alternatives:
- Direct electric heating
- District heating
- Geothermal heating
To find the most favourable solution, we have made a cost comparison of competing solutions. We have created three separate Invest for Excel calculation files, taking into account all costs over the whole lifetime of each competing alternative, the discount rate of 3% and the calculation period of 25 years.
Option A. Direct Electric heating:
Radiators convert electric current from the wall socket directly into heat. They are inexpensive to buy, however costly to use. In this comparison we have excluded the cost of radiators (and eventual piping) of in all 3 alternatives.
Annual operating costs = 20 000 * 0.12 = 2 400 €
Option B. District heating:
In District energy systems the thermal energy produced at the production plants is transmitted to customers as hot water through a system of insulated pipes. In our calculations, we also included a fixed annual fee for District heating, which is approximately 400 €.
Annual operating costs = 20 000 * 0.08887 + 400 = 2 400 €
Option C. Geothermal heating:
A Geothermal heat pump uses the earth as a heat source and transfers the heat to the house. In our calculations, we used a heat pump with SCOP (Seasonal coefficient of performance) of 3. Which means, that a heat pump delivers 3 watts of heat for every watt of electricity it consumes.
Annual operating costs = 20 000 * 0.12/3 = 800 €
The useful lifetime of a Geothermal heat pump is 20 years. After 20 years, the old mechanism should be replaced with a new one, that requires a reinvestment of 8 000 €!
Then, we have created a Comparison Table, where we have compared these three calculation files side-by-side:
Invest for Excel comparison table gives a good overview of considered alternatives. It is created automatically and presents only the most important data needed for the analysis and decision-making, in a compact and easily readable way.
Analysis:
In a cost comparison, the NPV is negative. The best alternative is the scenario with the least negative NPV. Payback can't be used as an indicator. IRR and MIRR can sometimes be used, but not always. In our case, we will base our decision on NPV and NPV as a monthly annuity.
From our comparison table (see picture above), we can see that Geothermal Heating (Option C) bears the least negative NPV: -33 360 EUR.
However, your decision may also depend on whether you are able to invest more now for a better long-term solution or if you prefer to avoid making big investments now, albeit bearing a higher long-term cost. Geothermal heating requires a significant initial investment in the beginning, although it is cheaper than the other options in the long run.
Calculation files to download:
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| Option (A) | Option (B) | Option (C) | Comparison Table |
With Invest for Excel software, such calculations and their analysis can be done really easily. It is used by over 1700 Customers from 54 countries for projects as small as single house heating options comparison to multi-billion Euros oil refineries and everything in between. Contact DataPartner to request a free demonstration!
Do you have any questions or need assistance with your calculations?
Contact us – we will be happy to help!
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