by Peter
(Annandale, Virginia)

I have a gas furnace that is about 20 years old and on its last legs. I am considering replacing it with a geothermal system or a high-efficiency (96.6% AFUE) gas furnace. I understand the huge monthly savings geothermal offers, but how does the high-efficiency gas furnace compare? Thank you.

Answer from Green Energy Efficient Homes

In general a ground source geothermal system will cost you quite a bit more up front than a high-efficiency furnace, but will probably save you a lot of money over its operating lifetime, when compared to any form of fossil-fuel based heat, because you are getting free heat from the earth (and cooling as well) for just a small contribution of electricity to run the system.

According to the US Department of Energy, a geothermal heat pump should cost about $2,500 per ton of capacity, with $7,500 for a 3-ton unit being typical for a home application. If you compare this to the cost of a high efficiency furnace plus air conditioner (since the geothermal heat pump can do both), you’re probably looking at $4,000. Of course that assumes you actually need central air conditioning, or have an inefficient air conditioner that needs replacing.

When I had a geothermal company give me a quote a few years ago for my Toronto home, a geothermal system (with vertical loop) was going to cost $35,000, while a horizontal loop, assuming there had been a yard big enough for them to dig it into, would have cost around $20,000. At that price, there was no way I could justify a geothermal heating system. But clearly prices have come a long way down since then, and you can also get generous tax credits in many states and provinces (and from some federal governments as well) that offset a chunk of the cost. Note that you can also get generous tax credits for installing high-efficiency furnaces and air conditioners, so if you’re doing a cost comparison don’t forget to factor in the credits on both sides of the comparison.

Let’s do a little math to figure out how much energy you’d save using a geothermal system, compared to a 96.6% AFUE furnace. A typical geothermal system can extract between 3.8 and 4 units of heat energy from the ground, per unit of electrical energy consumed. That means the system appears to be almost four times as efficient as the high-efficiency furnace (380% compared to 96.6%).

Except that the electricity itself is not generated at 100% efficiency. If it is generated from a fossil fuel in a high efficiency gas turbine, only 60% of the energy in the gas is converted into electrical energy. With transmission losses of 6-9% of that 60% between the power plant and you, only 55-56% of the original heat energy from the natural gas even reaches your home. For older coal-fired plants, which can operate at efficiencies in the low to mid thirties, with similar transmission losses, only 30-35% of the heat energy from the coal reaches your home as electricity. So now we have a geothermal system at 380% efficiency running on gas-generated electricity that arrives at your home at 30-56% efficiency, which means the geothermal system is only operating at somewhere between 115% (coal) and 215% (gas) efficiency in terms of total energy used in the system. Compare that to the 96.6% AFUE of a new gas furnace, and the geothermal system is somewhere between 11% and 107% more efficient than the 96.6% AFUE furnace.

For a total cost of ownership comparison, you then have to make some assumptions about raw energy costs. It seems pretty likely that in the long term both coal and natural gas will become considerably more expensive than they are now. Supplies of natural gas are dwindling, and with the likelihood of carbon cap and trade legislation, a carbon tax, or carbon sequestration requirements on generating stations, there will be strong pressure for power generators to switch away from coal to natural gas (since coal produces a lot more CO2 per kilowatt hour of electricity generated than natural gas does). That will drive prices up for coal-generated electricity (even if the coal price itself falls as a result of reduced demand – because of the added cost of carbon trading, carbon tax, or sequestration), and it will also drive up demand for natural gas (as more and more new power plants are built to run on the less harmful fuel). The end result is increased natural gas prices. So whatever you think you’ll be paying for natural gas now, you’ll be paying a lot more for it in 5-10 years – double or more sounds reasonable to me.

If your home site lends itself to a horizontal loop installation, which is typically much less expensive than a vertical loop, you may be able to justify a geothermal installation on economic terms alone. But if you want to do your part to reduce your carbon footprint, I would think a geothermal system can easily be justified on a combination of financial and environmental grounds. Consider the fact that if you switch to a green electricity supplier, you can run a geothermal system and not release any CO2 into the atmosphere, whereas with a natural gas furnace you pretty much can’t avoid releasing CO2. Not only that, but your energy saving geothermal system can heat your home, cool your home, and even heat your hot water, all with no CO2 emissions on site and with little human-generated energy use.

25 replies
  1. GAP
    GAP says:

    I am a mechanical Contractor in Michigan and recently compared the cost of a open loop Geothermal unit to the cost of installing a 95% efficiency natural gas furnace & 15 seer central air conditioner in a new home being built.

    The total cost difference was less then $2000 with a annual energy projected savings of $550.00. That would be a less then 4 year payback period.

    I have been installing Geothermal heating systems for 30 years and have installed all open loop systems which usually end up being between 1/2 & 2/3 the cost of a closed loop system.

    Keep in mind that to have a open loop system you must have a good well and a place to get rid of the discharged water and the water quality needs to be acceptable with this type of system. A open loop system also has a higher efficiency rating then a closed loop system as well so there is extra saving there also.

    • Jason
      Jason says:

      Where in MI are you located?

      I live in Kalamazoo. I have a 15 year old Bard 4-ton Geothermal open loop (pump and dump). My home is 3300 square (above and below grade total). We use the Geo almost exclusively for heating and cooling (this winter we are trying to use a couple of oil-filled radiant heat space heaters due to issues with our current set-up). Our home is in the process of being more thoroughly insulated and air-sealed. I believe it is time to replace our system, and I would love to have someone like you come out and help me through the process.

      Thank you,


  2. Robin
    Robin says:

    To the mechanical contractor in Michigan (May 5 2010 comment): Thanks for your input, and it’s great that you can get an open loop geothermal system installed with a 4 year payback period. Unfortunately not everyone has access to a source of water for the heat exchange, and some of us don’t have room for a horizontal loop either. In one of my main articles I indicated that for a vertical loop to be installed at my Toronto home, the cost was around $35,000 three years ago. I was expecting the price would have dropped now with all the increased interest in geothermal heating and cooling systems, but at a recent green living show I talked to several geothermal system installers about current pricing, and they all quoted me roughly the same price to do vertical drilled geothermal systems. Sadly geothermal is still outside the reach of many city folk with limited land around them to lay a horizontal loop, or no water (pond or lake or well) nearby for an open loop.

  3. Ernie
    Ernie says:

    Good article, but it leaves out an important option: air source heat pumps. Particularly in warm to moderate climates, air source heat pumps offer many of the advantages of ground source heat pumps with much lower up front capital costs. Typically they are designed for the peak cooling load, and if the heat load is greater, then a supplemental heater is added for the really cold days. In the frigid north, air source is less desirable, because it becomes harder and harder to get heat from air as the temperature drops.

  4. Dave
    Dave says:

    Over the past 3 years they have found new ways of extracting gas from the ground and there is a estimated surplus for the next 5 years with what they have found today.

    My question would be if I have a 1500 sq foot home in New York State and my present Furnace is 60,000btu’s What should I expect to pay for electric for the month of January?
    The cost of electric is .09/kilowatt

  5. Jeff
    Jeff says:

    Geothermal is not as compelling as the manufacturers claim. Here’s some real data.

    I am currently on geothermal, with a 14 year old 5-ton Water Furnace. There is no natural gas available here, so my options are geothermal, propane or force-air electric. Geothermal wins hands-down.

    But what if I had natural gas at the street? In central Indiana last winter, I used approximately 6,000 kWh from November through April beyond my spring/fall baseline usage (i.e. normal, non-heat usage). My furnace has a COP of 4, meaning that those 6,000 kWh of electricity put 24,000 kWh of heat in the house. A 97% efficiency gas furnace would need to burn 25,000 kWh worth of gas which costs 3.6 cents per kWh after converting a typical US cost of $10.95 per 1000 cubic feet to kWh. I pay 10 cents per kWh for electricity, so my winter bill amounts to $600 on geothermal vs. $900 on gas. Geothermal is about 30% cheaper, not bad.

    But now factor in the upfront cost. I’m having my geothermal furnace replaced today with a new one that’s costing $9,000 (just a change-out, the loop is already there and make the math even less compelling if it were included here). The gas+AC units would have cost around $4,000. The $300 a year savings will take 17 years to break even, at which point this furnace will be worn out and needing to be replace again (probably sooner, average lifetime is 15 years).

    As another poster stated, shale gas means that natural gas supplies are abundant and prices should be stable for years.

  6. Steve
    Steve says:

    This is a tough one. I’ve been involved with renewable energy and efficiency for more than 30 years now. I’ve done retrofits of major high rises, residential systems, photovoltaics, geothermal. It always comes down to economics, and the truth is that a compelling economic argument cannot be made for renewables and high efficiency technologies in comparison to cheap fossil fuels. We are going to have to (or not) at some point bite the bullet and decide that it is not in the interests of humanity and the future of life on this planet to continue using fossil fuels, no matter how cheap or easily accessible (coal). What should it cost to heat and cool a home, provide lighting, electricity for our appliances and electronics? I don’t know, but I do know we could afford to pay more each month – say $50. That would not break the bank. This is not an economic decision in the end, but a public policy decision. I know it’s not easy, especially in these difficult times. But we are going to have to make that choice sooner or later. So if you can afford to buy a geothermal system, I’d do it. And if you can buy energy from a renewable energy plant through your utility, do that as well, and forget about the marginal cost difference between gas and electric. It’s the right thing to do.

  7. Tom in MI
    Tom in MI says:

    We’re planning on building a new 2600 sq. ft. home here in Michigan. Propane is our only choice as far as “gas” goes. Geothermal is the alternative. We have enough land area to do a horizontal loop system. I’m going to assume that this is a “no-brainer” on which way to go. Somebody re-assure me here. THANKS!

  8. Robin
    Robin says:

    It’s not a no-brainer but the fact that you are on propane (very expensive) and can install a horizontal loop (much cheaper than a vertical loop) will make it easier for you to opt for geothermal. Michigan electricity costs are higher than many US states but not out of control, so geothermal should still be competitive from a cost perspective.

    Whatever you decide, let us know. I’m sure folks following this thread would love to hear about your experience.

  9. Danny
    Danny says:

    I’ve been thinking about getting a geothermal system installed. Currently, I have a gas furnace, and two central AC units. I came up with a fairly decent idea, and after a quick web search, I found that I wasn’t the first person to think of it. The cost of installation would be a bit higher, but if you size a solar panel installation to provide enough power to run your geothermal heat pump system, the cost of running the system could be reduced to zero. One article I read recommended a 3000 watt solar panel system to run a 3 ton Geothermal unit. A grid tie solar system would be cheaper as far as installation goes. One thing to look at is whether your local power company will credit you when your meter runs backwards. No matter how efficient your gas furnace is, it will never operate for free. With a geothermal system running on solar panels, you could never have to pay for HVAC operating costs again. So I say geothermal wins out if coupled with a solar panel array. The only way you can get a lower gas bill than that is if the gas company starts sending YOU money.

  10. Kay
    Kay says:

    Inspired by Jeff’s comment I made my math (I hope I got it right) to see if replacing my really old furnace (unknown age and efficiency) with a geothermal heat pump makes sense.
    I pay $0.26 per kWh electricity and $1.15 per therm (1 therm = 29.3 kWh), which translates to $0.04 per kWH for gas.
    I used up to 60 therms per month in winter which cost me $69 at the current gas price. Those 60 therms are the equivalent of 1758 kWh. Assuming a COP of 4 (the new systems I looked at – close loop – exceed this only marginally for heating) this translates into 439 kWh of electricity being used by the heat pump. Those 439 kWh costs me $114.27 at our current rate here in San Diego.
    So in short I would pay 65% more to switch to the geothermal heat pump not including upfront installation costs and not taking into account the increased efficiency if I just got a new gas furnace with 95-97% efficiency.

  11. Brian
    Brian says:

    I don’t have gas, just geothermal heat and air, very well built concrete to the rafters. 2200 sq ft, all lighting is LED. Hydro bills are average $400 a month. What would high efficiency gas furnace cost to run a month? I guess I just want a comparison.

    • Robin
      Robin says:

      My house is about 2/3 the size of yours, nearly 100 years old but fairly well insulated, and I have a high efficiency gas furnace and a high efficiency air conditioner I rarely use (maybe 5-10 days a summer). My 12 gas bills for 2014 totaled $857 and hydro looks like it will come in around $850 as well this year, so in total about $1700. Adjusting for house size I’d say you’d be looking at $2,500-2,600 a year. That assumes your climate matches mine (Toronto), your house has roughly the same insulation and weatherproofing levels as my house, and your electricity and gas costs are similar to mine.

      Also, I keep my house cool in winter – 68F / 20C when we’re up and about, 58F / 14.4C when we’re asleep or off at work/school.

      Your bills sound awfully high, considering geothermal is usually sold as a system that pays for itself in energy savings within the first 5-10 years in spite of a high up front cost. I wonder if something is not working properly with your system? It might be worth getting an expert in geothermal systems to look at it and figure out if it is operating as intended. I remember a food store I used to be involved in spent $20,000 on a commercial air conditioning system that barely cooled the store, and only after a year or more did we finally find an HVAC technician who figured out the problem – the in and out coolant pipes were switched, or something like that.

      • Brian
        Brian says:

        Thanks Robin The 400$ I mention includes the other charges on the bill, I dont know if you being in Toronto that you have sevice and water/sewer charges I will look a just the hydro portion. Thanks

  12. Rod in Fort Wayne IN
    Rod in Fort Wayne IN says:

    I don’t see where Geo is any better that Hi E gas. Overall Geo is costing more and more to go wrong with an open or closed loop system. With the only positive is it helps with air pollution and closed loop saves water and and kinda helps ground pollution. I believe the changing temps in the ground from closed loop will cause some sort of problems down the road. There needs to be a better way. Maybe solar or wind with batteries can assist if there is a good way found to recycle the batteries.

    • Robin
      Robin says:

      A high efficiency gas furnace is cheaper in the short term, but may cost more in fuel, since with geothermal, your heat is free, you just pay for the energy required to pump it out of the ground or water.

      Geothermal also provides air conditioning as well as heating, which a gas furnace does not. So if you need air conditioning too you need to include the cost of both a furnace and an air conditioner, to compare that against the cost of geothermal.

      Geothermal can also be set up to provide water heating. So perhaps you should factor the cost of a hot water tank into the non-geo option, as well as the energy cost of heating the water during the cooling season, since that comes basically for free during the cooling season with geothermal.

      Finally, the only greenhouse gases you’ll release when using geothermal are those released by a fossil-fuel-burning power plant, whereas every BTU of heat from your high efficiency gas furnace is coming from natural gas. If you live in a region where the power comes mostly from coal, then a gas furnace may have a lower carbon footprint. Otherwise, geothermal is going to be better in terms of greenhouse gas emissions.

  13. HGFJ
    HGFJ says:

    I have a total of 2500 sq ft and about 2000 sq basement with a home built in 2011 with SIP panels and a large window configuration facing south. I use a Waterfurnace Envision geothermal 4 ton unit with open loop and a propane backup. I can almost always cover heating needs with just the Geo. My heating and cooling costs in southwest Michigan- (zip 48838) are between $1100 to $1300 a year. My estimates were propane with a 95%?? furnace would be about double and still would need a backup – in case of power outage or a week of temps below zero. I would recomend geo for anyone with the ability to do an open system but not sure of the issues and costs for closed.

    • HAROLD
      HAROLD says:

      I live in northwest Ohio and can verify your findings. My house is around 2400 sq. ft. and also had an open loop system installed in 08. I was using propane with a yearly usage of 800- 850 gals a year. At an average cost of $2.68 per gal per year my savings have been substantial. Our largest electric bill since installation was $328. We have been very happy with ou unit.

  14. Cory
    Cory says:

    I live in Ontario and contemplating geothermal for a new build on a vacant peice of land. The land does have plenty of space (10+ acres) to accomodate a closed horizontal loop geothermal system and the land should have a fairly high water table as it fronts a lake. Could anyone give me feedback about which system makes most sense?

    My options are quite limited: wood, propane, electric or geothermal. There is no gas line to this rural property. Presently, electricity rates here are around $0.14 per kWh. Propane sells for $0.65 per liter or $2.46 per gallon. I’m feeling geothermal might make the most sense for a new build.

    • Robin
      Robin says:

      I would avoid propane and electric heat both due to their high operating cost. Electricity prices aren’t likely to fall over the long term (in spite of the Ontario government’s misguided move to cut prices now in their desperation to get re-elected). This sounds like an ideal opportunity for geothermal. If your property fronts a lake and the build will be right on the lake, one option is to do an under water geothermal loop instead of a land-based horizontal loop. Should be much cheaper to install.

      The other option is to build a zero-energy home. These homes are so well insulated you can heat them with the heat generated by a hair dryer. My brother has worked on a few of these on the west coast. They are pricey to build (very high efficiency windows from Germany, lots of insulation etc.) but practically free to keep warm or cool.

      • Cory
        Cory says:

        Thanks Robin. I’d love to chat more about this and find out your experience on geothermal heat. Do you find geothermal systems comfortable compared to conventional natural gas (forced air)? I’ve only ever lived in a natural gas forced air home (my parents).

        Yes I absolutely agree what a mess Ontario is in right now. It’s clearly not sustainable and anything but fair to our future generation to be paying for our current consumption, not to mention an additional $25 billion in interest for the borrowing. In addition to a generous contract with the teachers union, selling off HydroOne to fund her bloated government, taking on debt to substidize hydro is another desperate attempt to hold onto power, using the public debt on the backs of future generations to buy votes.

        A closed lake loop may not be practical at my location. During the winter months, there is a significant drawdown of the lake water to prevent flooding in the spring. Is it possible to install the system DIY? It won’t be particularily hard to rent a backhoe and dig some trenches. I’m looking at a 2300 sq ft bungalow with a 2000 sq feet unfinished basement.

    • Peter
      Peter says:

      I have a well built well insulated cottage in Ontario. The cost of hydro is not just the .14 per kWh. My delivery charge is double my rate per KWh. If you are a ful time resident than you pay less. Hydro will sky rocket in the next 4-6 year thanks to th Liberals. I went with propane from electric baseboard heaters and I save about $2500.00 a year and that with out the yearly increase to hydro.
      With the high cost of hydro and the high cost of a new geothermal system best you do your homework.


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