Request Monday (on a Tuesday): When should I replace my boiler edition

I have a 40 year old boiler, and I would like to get a couple of more years out of it, but I am also worried that it might break down at any time.  I hear that the new boilers are energy efficient (my heating guy says my current boiler is 80% efficient), so will saving energy help make my decision as to when I should replace?

                           - Marcia from Chicago

At forty years, your current boiler has served you well, and you are smart to start looking for a new one.  Several factors go into the timing of replacing a boiler, and you have identified the first:  reliability.  Much like a car, when you start having frequent repairs or issues, it makes the most sense to start looking.  Unlike a car, if you reach a point where you have to replace it in the middle of winter in an emergency, you will pay more than if you replace it while it is still in working order, so you should make a decision in the next month or so.

In terms of energy efficiency as a determining factor, there are a couple of decisions that can affect: when to replace and with what to replace.  Let's look at the latter first.

When replacing your boiler, you will have two options: standard efficiency and high efficiency.  Although your current boiler has a reported efficiency of 80%, for the age and typical operation it likely falls more in the 72-76% range.  A new standard efficiency boiler will have a rating of about 80-85%, and a high efficiency boiler will have a range of about 91-96%.  If we compare the top end of those ranges (and to make this more general, I have provided a range of annual bills), we see the following:

The labor cost for installing a new boiler will not vary by the efficiency, but the cost of the boiler will.  The price difference between a standard and high efficiency boiler can vary from $500 to $1,000 or more depending on the brand.  If we take the high end of that, and look at $1,000, then if your bill is in the $500 to $1,250 per year, you are saving from $75 to $185 per year if you choose 95% over 80%.  (Note, that even at 80% you are saving $30 to $75 a year by replacing.)  That's a return on investment of as much as 20% depending on inflation and the escalation of energy prices, which have beaten inflation over the past two year, and except for the recession, over the last fifteen.  If your bill is in the $2,000 to $2,500 range, that return increases to almost 60%.  Unless you are paying under $750 per year in natural gas bills, it will pay for you to invest the extra $1,000 in a high efficiency boiler.

As for your question, as to whether replacing now makes sense, we need to come up with the alternate scenario.  If we assume that you will have to replace your current boiler in either five years or ten years because of failure, then we can compare the purchase of a 95% efficient boiler now against either of those two options.  In order to do this, we will assume a 2% inflation rate on the parts and labor, and a 3% escalation rate in energy costs over the next ten years.  Also, for simplicity, we will do the analysis for a $2,000 per year annual heating bill, and use the base installation cost of $4,500 if you were to replace with a high efficiency boiler this year (or any year in the future).

The first column after the year shows you paying $4,500 this year, plus getting the lower energy bill immediately.  The second column shows you paying your current level with escalation until year five when you pay the inflated cost of the boiler, then gather the savings for the remainder of the years to follow.  The last column shows you paying your current bill with escalation until year ten, then reaping the savings of a lower bill.  Accounting for inflation, the present value of replacing now is a lower cost to you than either of the other options.  This does not take into account the presumed lower borrowing cost if you were to finance this purchase through a home equity loan.  In five years, the chances of interest rates being lower is slim, and on the flip side, with the return on savings and money markets low today and likely to rise, having more money available to save over the next couple of years will only increase the net return to you.

Replacing your boiler now with an energy efficient model makes sense given that it has reached the end of its useful life.  Make sure to use a reputable installer and spend the money on a high-quality boiler...you will eat up all of this savings in repair bills if you do not.  The only caveat I will add is that if you have not insulated your home's walls and attic, you should consider doing that work first, then replacing the boiler.  If you have not had one, have a home energy assessment done by your local utility to see if those make sense.