A friend dropped me this email yesterday, asking for some advice (slightly edited):

We spent a lot on oil last winter.  We have a 23 year old heat pump which gives us A/C in the summer, but no heat any longer.  I had a proposal from the installer for a new 14.5 seer heat pump replacement.

Here is the question: how much more efficient will that unit be compared to our old unit?  We are not convinced that it is worth the cost, so we thought you might give us a ball park estimate of potential savings.  Bottom line is enough: does this sound like a good decision?

This is such a great question, that I wanted to share it, and my answer, with the rest of you.

Let’s start with the basics – what is a heat pump?

We all know what an air conditioner is – it’s a system that cools and dehumidifies the air in your house. It works by ‘magic’  – the refrigeration cycle allows it to use the heat of your home to boil a refrigerant. This process literally sucks the heat from your house. It then moves this heat outside and blows it away. That’s why you have those copper lines running between your indoor and outdoor units – they’re carrying the boiling hot refrigerant outside and brings the cold refrigerant inside. Touch the copper lines and you’ll feel that one is really hot and one is cold. (Be careful not to burn yourself – it can be really hot!)

During the winter, a valve simply changes the direction of the heat flow, so now the cold is blown outside and the heat comes inside. Easy, right?

Is it worth getting a high-efficiency heat pump?

Heat pumps may work by magic, but the magic has limitations. The colder it is outside, the less heat they can pump inside and the more auxiliary heat you need to meet the heating requirements of your home. However, a modern heat pump will put out useful heat well below freezing, some even operate efficiently into the single digits (degrees F). In comparison to straight electric heat, like electric radiators or space heaters, a heat pump produces heat two to four times as efficiently. So at moderate temperatures, it is worth running a heat pump as much as possible.

In my friend’s case, he has oil heat also. In the past, oil heat was dirt cheap, but now, heating oil is pushing $4/gallon so the equation has changed. It’s getting really expensive to heat with oil.

In our climate of Eastern Pennsylvania, about 80% of the heating season, the temperature is above the 20’s – temperatures at which a good heat pump can work really well. Older heat pumps, not so good! But new ones can really crank out the heat. The larger and more efficient, the better, where heat pumps are concerned.

I’ve run the numbers a lot, and at current utility costs, a heat pump costs 30%-50% less to operate than a typical oil system for most of the winter. Even when it’s cold out, the heat pump is producing heat less expensively than an oil system. So my answer is, if you can use a heat pump do it! Even if you only use it during more mild weather, there’s still a considerable savings.

I have exactly this configuration in my own home, so I’m not talking theoretical calculations. I turn off my oil system for as much of the year as possible and use the heat pumps and I’ve seen a very significant decrease in my yearly heating costs. Instead of using 1500 gallons of oil per year, at a cost of $4500-$5000, I’m using 500 gallons or less at a cost of $1500-$2000. My electric bills increased because of the heat pumps, but even with that increase, I’m only spending about $500-$750 more to run the heat pumps, so overall, I’m saving a couple thousand dollars a year on heating.

So does it make sense to replace a heat pump? I think so. However I wouldn’t go for the 14 SEER AC/heat pump, In our climate, I’d always want a two-stage heat pump/AC unit. These systems are typically 16-18 SEER for air conditioner and provide much more comfortable heating and cooling throughout the year. Because they’re two stage, you can get a slightly larger system (if your ductwork can handle it), which is better for heating. The air conditioning is improved because it can use the first stage (low speed) of the system for better dehumidification and higher efficiency.

My answer for my friend is then: yes, if you’re planning on living in your house more than a few years, get the highest efficiency, two stage* heat pump you can, and get it slightly larger than it currently is so you get even better heating performance.

* Important note: two stage heating/AC is different than a variable speed air handler. A variable speed air handler is about the blower on the system. A two-stage system refers to having a multi-speed compressor. It’s easy to confuse the two but the difference is profound.