Cogeneration with natural gas delivers the cheapest heat if natural gas costs $4.07/million BTU.
With increases in fossil fuel costs and reductions in their capital costs, heat pumps and solar process heat (probably derived from solar-thermal-electric technologies) will become increasingly competitive heat sources.
Solar heat is not yet cost-competitive with best-in-class gas boilers, but solar costs are dropping, and solar heat avoids the volatility of gas prices, whose five-year market value on 2 May 2011 ($2.10/million BTU, adjusted for conversion efficiencies) is shown as the gray bars. (A longer-term and hence higher volatility value would be more appropriate for such investment comparisons. Coal-price volatility should in principle be shown too but is hard to evaluate due to limited and fragmented coal-price derivative markets.)The fuel prices used here were based on published U.S. Energy Information Administration industrial prices; conversion efficiencies, on internal estimates. Heat pump costs assume 3.2 Coefficient of Performance (COP), 120˚F waste heat, and 45 psi steam.
RMI analysis using data from:
A. U.S. Energy Information Administration. 2010. “Annual Energy Outlook 2010 Macroeconomic Indicators Reference Case.” link
B. Ausra. 2010. Personal communication, November 30.