A/C – Furnace Replacement – Payback Periods

DEAR TIM: It is time to replace my 12 year old outdoor air conditioning (A/C) unit. I intend to purchase the highest efficiency unit available. My indoor furnace still has a useful life of approximately 10 years. Does it make economic sense to tear out the good furnace for a new super efficient furnace? Is there anything else to consider in this decision? R. E.

DEAR R.E.: Yikes! You are about to cross over into the most complicated dimension of home construction and maintenance. Heating and cooling equipment and its proper installation is by far the most technical aspect of residential construction. One mistake here and you will be miserable for quite some time. To answer your question, we need to calculate the remaining life cycle cost of your existing furnace. We need your last year's utility bills.

Pick a bill from the spring and the fall of last year when you know your furnace and A/C were not in use. Add these two together, divide by two, and then multiply the result by 14. This total is considered your "base" utility load. I define base load as the sum total of all electric and gas you might use other than that which goes into your furnace or air conditioner. Take all of last year's utility bills and add them together. Subtract the "base" load. The remainder is the annual cost to heat your home. Now, let's project what it is going to cost to heat your home for the next 10 years. Assuming a 2 percent per year increase in fuel costs, multiply your annual heating cost by 11.07. This should give you an accurate cost to heat your home for the next 10 years. We also need to assume that you will not need any major repairs during the next 10 years.

Let's look at the new system. For sake of discussion, assume you will be getting a furnace that is 95 percent efficient. Based upon the age of your existing furnace, I will assume that it is approximately 75 percent efficient. In this case, you should experience a dollar savings of approximately 21 percent per year in fuel savings (95 - 75 =20 20/95=21).

Will this savings over the next 10 years pay for the added cost of the new furnace? What kind of interest income can you get if you invest the money you might spend for the new furnace? Will the annual interest income offset a major portion of the higher annual fuel cost you are now experiencing? All of these things and more need to be considered.

It gets worse. There is a possibility that the new A/C unit will not operate at its rated efficiency if you don't modify your existing indoor equipment. Published efficiency ratings of outdoor cooling equipment can only be achieved when they are installed with specific types of indoor equipment.

If you mix and match equipment, ask the contractor for verification that the new A/C unit will, in fact, operate at the published efficiency. Discuss whether or not indoor modifications are necessary. Investigate warranties as well. See which warranty offers the best protection. Study who backs the warranty. Some companies have a third party involved in long term warranty claims. Read the fine print!