FAIRBANKS -- A new survey of 800 residents shows that the idea of switching from oil to natural gas is wildly popular here, but the price of winning converts won't be cheap.
Installing a new boiler could cost a homeowner $10,000 to $15,000, according to some estimates, while upgrading a relatively new boiler to burn natural gas might cost a few thousand. In either case, the key to making gas popular enough to win thousands of customers is to minimize the payback period. It will vary based on individual circumstances and two big unknowns – the cost of fuel and the cost of a new boiler.
"Homeowners believe that bringing natural gas to Fairbanks will help the economy, raise property values and improve air quality," a study released this week by Northern Economics says. "However, their interest and desire for natural gas is tempered when faced with a range of potential conversion costs and annual savings from using natural gas to heat their homes."
The survey, prepared for the Interior Gas Utility, found that to get at least 50 percent of the homes hooked up when gas is available, the cost of converting must be below $6,000. It's not at all clear how that would happen.
Oil-fired boilers used most
Of the 800 households surveyed by landlines and cell phones, 111 reported that they rely entirely on wood. For the 699 other households, most relied on oil-fired boilers and baseboard heat, many with wood as a backup.
The Interior Gas Utility is the municipally-owned enterprise that is vying for the rights to provide natural gas service in the area outside of the commercial and residential center of Fairbanks. Fairbanks Natural Gas, a private company, has a certificate to serve the urban center, and it is competing for the area beyond central Fairbanks. A decision by the Regulatory Commission of Alaska is expected shortly.
It is no surprise that the survey respondents said the cheaper the supply of natural gas and the lower the cost of modifying a heating system, the more likely they would be to change. The study does provide some estimates of the economics, as seen by people who pay heating bills.
A key finding is that some financial assistance is likely to be needed to win lots of converts, even when natural gas is significantly cheaper than oil.
In terms of the cost per thousand cubic feet of natural gas, the study looks at a range of from about $14 to $24, while an equivalent amount of energy from oil is now priced at close to $30.
New boiler system: Up to $15,000
If it costs an average of $12,000 per house to change boilers, for example, less than 10 percent of the respondents said they would swear off of heating oil. If the cost is $4,000, however, 71 percent would change. If the cost could be cut to $1,000 per home, 90 percent of the people would choose natural gas.
"The study data show that conversion rates are likely to be low at the predicted conversion costs and expected delivered gas prices primarily because of the effect of the conversion costs themselves," the study found.
The report said a proposal in the Alaska Legislature to offer financial assistance in the form of a 10-year loan at 1-percent interest "will likely be insufficient to induce high conversion rates if average conversion costs are high."
Northern Economics said it talked to people in the heating business who put the cost of a new boiler system for baseboard heat at $10,000 to 15,000. About 60 percent of Fairbanks homes use baseboard heating.
For forced air systems, used in about 20 percent of homes, the cost would be about $6,000, plus $4,000 for a hot-water heater conversion.
One of the many points requiring further analysis is what it would cost to modify a relatively new boiler with an inexpensive conversion kit costing about $2,000. The report said there is a "significant divergence of opinions" on the practicality of making boiler adjustments. One critic said such devices would lead to an increase in fuel consumption as they are not as efficient.