FutureMetrics LLC
Why Converting from Heating Oil Boilers to Wood Pellet Boilers should be done
BEFORE Upgrading Home Insulation
The conventional wisdom is that upgrading the insulation in homes is the most cost effective pathway to
reducing household heating costs. That wisdom is flawed in several ways. This short white paper will
explain why. The principal points are:
•
•
•
While tightening homes will lower fuel usage, it will not protect homeowner from the impacts of
higher heating oil costs. If heating oil costs rise enough all of the savings from insulation are
eliminated.
Of every dollar spent on heating oil, about 78% of that dollar leaves the regional economy.
Home insulation improvement only mitigates this drainage and, if heating oil prices rise from
their current levels, the drain will return to or exceed the levels prior to the insulation program.
Every dollar spent on regionally made pellets stays in the regional economy. The effects of
keeping money circulating in the economy is increased commerce and job growth.
The production and refining of heating oil benefits foreign economies and distant oil refineries.
The production and refining of non-sawlog quality sustainable wood fiber benefits regional
forestry workers and landowners and creates logging, trucking, and pellet plant jobs.
These points are discussed in more detail below.
The northeast states are the nation’s most dependent states on heating oil. The northern New England
states also have very low pipeline natural gas penetration. Conversion to natural gas is not an option for
a majority of New England homeowners.
Percent of New England Homes Using Fuel Oil and Natural Gas
5.8%
Maine
64.2%
19.6%
New Hampshire
46.1%
16.7%
Vermont
33.6%
Connecticut
Rhode Island
32.6%
Massachusetts
29.2%
New York
25.0%
0.0%
5.0%
Natural Gas
43.8%
Fuel Oil
43.7%
52.3%
49.9%
56.4%
10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0%
Source: US EIA State Consumption Data, January, 2015, Analysis by FutureMetrics
FutureMetrics – Globally Respected Consultants in the Wood Pellet Sector
www.FutureMetrics.com
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Improving the insulation of homes will lower the home’s demand for heating oil. But it does not protect
the homeowner from increasing heating oil costs. Heating oil prices have varied dramatically over the
past 20 years. Wood pellet prices however have been relatively stable. The chart below shows the
historical cost to heat a home that uses 1000 gallons of heating oil over the last 20 years (to March
2015). It also shows the cost to heat the same home with the equivalent amount of wood pellet fuel
used in a modern automated wood pellet boiler system 1.
Annual Heating Oil and Pellet Fuel Cost
Delivered to a Typical Home in the Northeast
$5,000
$4,500
(for the equivalent heat from a central heating system)
Jun-2008, $4,426
May-2014, $3,821
$4,000
$3,500
$3,000
Mar-2015, $2,250
$2,500
$2,000
$1,500
Mar-2015, $2,048
$1,000
Oct-2006, $2,090
$-
Dec-1995
Mar-1996
Jun-1996
Sep-1996
Dec-1996
Mar-1997
Jun-1997
Sep-1997
Dec-1997
Mar-1998
Jun-1998
Sep-1998
Dec-1998
Mar-1999
Jun-1999
Sep-1999
Dec-1999
Mar-2000
Jun-2000
Sep-2000
Dec-2000
Mar-2001
Jun-2001
Sep-2001
Dec-2001
Mar-2002
Jun-2002
Sep-2002
Dec-2002
Mar-2003
Jun-2003
Sep-2003
Dec-2003
Mar-2004
Jun-2004
Sep-2004
Dec-2004
Mar-2005
Jun-2005
Sep-2005
Dec-2005
Mar-2006
Jun-2006
Sep-2006
Dec-2006
Mar-2007
Jun-2007
Sep-2007
Dec-2007
Mar-2008
Jun-2008
Sep-2008
Dec-2008
Mar-2009
Jun-2009
Sep-2009
Dec-2009
Mar-2010
Jun-2010
Sep-2010
Dec-2010
Mar-2011
Jun-2011
Sep-2011
Dec-2011
Mar-2012
Jun-2012
Sep-2012
Dec-2012
Mar-2013
Jun-2013
Sep-2013
Dec-2013
Mar-2014
Jun-2014
Sep-2014
Dec-2014
Mar-2015
$500
source: EIA, 2015, regional sources, FutureMetrics' pellet price database, February, 2015. Analysis by FutureMetrics
Until this recent fall in oil prices and slight rise in pellet fuel prices, a home that used 1000 gallons per
year of heating oil that converted from heating oil to wood pellet fueled boilers cut their heating bills in
half putting almost $2000 extra dollars per year in those homeowners pockets.
What happens to the homeowner’s heating bill if they upgrade their home’s insulation? They
experience a drop in the number of gallons needed, and at current oil prices they save money. For
example, if the insulation project results in a 30% drop in heat losses, a home that uses 1000 gallons of
heating oil per year will use 700 gallons per year.
1
See Maine Energy Systems for examples: www.MaineEnergySystems.com
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Annual Cost with Oil at $2.25/gallon
Cost NO insulation
$2,250
Cost WITH insulation
$1,575
Savings WITH insulation
$675
However, if heating oil prices increase from $2.25/gallon, the difference between the annual heating bill
before the insulation upgrade and the annual bill after the upgrade declines from $675. They use fewer
gallons per year but the gallons cost more; so their heating bill rises. When heating oil prices increase
and pellet prices remain stable (as they have historically), the savings versus the cost of heating oil to
those homeowners that switched from heating oil to pellets (even without the benefit of an insulation
upgrade) increase.
The chart below shows two things: (1) As heating oil prices increase and the homeowner’s heating bill
rises, the homeowner’s savings from a better insulated home decreases as the total cost to heat the
home trends toward the annual cost before insulation. At about $3.20/gallon, the homeowner’s annual
costs are the same as before the insulation upgrade and their savings go to zero; and at any price above
$3.20/gallon the homeowner is worse off than before insulation upgrade in terms of the cost per year to
heat the home. (2) At heating oil costs above $2.00/gallon, the homeowner that converted from heating
oil to wood pellets saves money relative to the cost to heat with heating oil. At heating oil prices above
about $2.55/gallon, the homeowner using pellets without an insulation upgrade saves more money than
the homeowner using heating oil in the better insulated home. If heating oil reaches the average price
seen in 2014, the pellet fueled home saves $1,890 more per year than the better insulated home that
uses heating oil.
Household Savings per Year at Different Heating Oil Prices
$2,500
$2,000
Savings with Insulation
$1,500
Savings with Pellets
$1,000
$500
$$(500)
$(1,000)
$2.00 $2.20 $2.40 $2.60 $2.80 $3.00 $3.20 $3.40 $3.60 $3.80 $4.00 $4.20
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The positive economic impacts of an insulation upgrade program on the economy only work if heating
oil prices remain low. As soon as heating oil prices pass about $3.20/gallon, there is no net benefit to
the economy or the homeowner.
Furthermore if state or local policy promotes insulation upgrade programs before programs for
converting from heating oil to pellet fuel, those homes will still be using imported heating oil. Even with
the decreased heat losses, the purchase of heating oil for those homes will send hundreds of millions of
dollars per year out of the heating oil dependent states. That exported money takes jobs with it and,
with multiplier effects, robs the states of billions of dollars in worker income. A significant proportion of
that exported money makes it way to foreign oil producing nations.
From the significant savings that homes accrue by using wood pellet fuel in modern high efficiency
automatic pellet boilers, the homeowner can then afford to tighten their homes. Switching from
heating oil to regionally made pellets for home heating allows the homeowner to have the benefit of
savings on their annual heating bill no matter how high the cost of heating oil goes. That strategy
assures that the homeowner will not see their annual heating bill increase with heating oil price
increases, and it will provide significant positive economic benefits and job creation for the northeastern
states that are heating oil dependent. Pellet fuel is produced locally not by a distant and sometimes
foreign countries. And as a bonus it is a renewable and low carbon source of energy.
Insulation upgrades are essential to increase the energy efficiency of our homes. But policymakers
should recognize that before the upgrades, the homes need to be switched to lower cost and much less
volatile wood pellet fuel that is produced locally. That will guarantee that not only are homes more
efficient, but that the homeowners are not exposed to seeing their heating costs once again rise to
levels that lower the disposable income of families and rob the economy of commerce and jobs.
526,000 Northeast states' jobs lost if heating oil rises from
$2.25 to $4.25 per gallon
600,000
Without Insulation
Upgrade, 526,000
500,000
Job Losses
400,000
With Insulation
Upgrade, 368,000
Assumes that every home in
the Northeast has a 30%
improvement in heat loss or
has converted to wood
pellet boilers.
300,000
200,000
If Converted to
Wood Pellet
Boiler, 0
100,000
-
Analysis by FutureMetrics
FutureMetrics – Globally Respected Consultants in the Wood Pellet Sector
www.FutureMetrics.com
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