Value/Cost

The economics of heating with wood pellets is determined by a number of factors, including:

• Capital cost of the pellet-heating system (boiler or stove, plus ancillaries and installation)
• Operating cost of the pellet-heating system, of which the most important are:
  • Fuel cost (i.e. pellet prices)
  • Operation and maintenance cost of the equipment
• Value of any support schemes (e.g. the Renewable Heat Incentive)
• Cost of the alternatives (e.g. oil, LPG, gas, electricity)

Calculating the economic benefit of a pellet-heating system

For example, let's say you currently heat with oil at 60p/litre (approx. 5.7p/kWh). Your oil boiler is 80% efficient and uses 5,000 litres of oil per year. That's a gross energy consumption of around 53.2 MWh, and a net usage (after losses) of around 42.5 MWh per year. You have an avoided fuel-cost of £3,000 if you switch to wood pellets.

Let's say a suitable replacement pellet boiler (plus ancillaries and installation) costs £20,000, and is 85% efficient. You will need 50.0 MWh of pellets per year (42.5 MWh net as before, plus allowance for the 85% conversion efficiency), i.e. 10.4 tonnes.

Let's say the pellets cost you £192/tonne (i.e. 4.0 p/kWh). Your pellet fuel-cost is just under £2,000 per year, i.e. a saving of £1,000 compared to heating with oil. That's not enough for most people to justify a capital cost of £20,000.

And then there's the cost of annual maintenance. Let's say that's £500 per year. The remaining £500 of saving on the fuel-cost won't pay for the kit.

But let's say the Renewable Heat Incentive (RHI) is worth £3,400 per year for this system. Now you've got a net benefit of £3,900 per year, to set against the capital cost of £20,000. It will take you a few years to get your money back, but the RHI is index-linked and guaranteed for 20 years, so you'd get your money back several times over, during the period of the scheme.

Now let's imagine that this is either a new building, or an old building where the old boiler has died. Either way, you have a capital cost for heating, whichever technology you use. Let's say it would cost you £8,000 for the oil-fired boiler that would be required if you didn't install the pellet boiler. Your net capital cost is £12,000 (cost of the pellet boiler less the cost of the oil-fired boiler). Your net benefit remains the same: £3,900 per year. That's a simple payback of just over 3 years. Now you have a really compelling case for investment. And that's ignoring other benefits, like your environmental contribution, and no longer being dependent on the volatile price of our depleting oil resources.

Working it out for yourself

Every circumstance will vary. In order to assess the suitability of wood-pellet heating for your circumstances, you will need to understand how each of these components works out in your case.

The main information that we can provide is the cost of supplying fuel to your location. On our pellet-price pages, we explain our price structure, and provide a price calculator to help you work out more precisely what a given quantity of pellets would cost delivered to a given postcode. Unlike most of our competitors*, we are transparent in our pricing, so you can more easily judge whether pellet-heating is for you. All the same, we cannot take account of every factor in our online calculator, so do give us a ring or send us a message to see if we can come up with an even better offer.

You should speak to equipment suppliers and installers for information on the cost of equipment and installation. And there are many guides online on the Renewable Heat Incentive (for instance from Ofgem). But to get you started, we also provide brief information on the other costs and values that you need to take into account, particularly the RHI.

* If a company hides its prices and makes up the numbers as they go along, you ought to consider how professional they are and what else they are concealing from you. The utilities and oil companies don't disguise their prices from you and make up the numbers to suit, when you are buying electricity, gas or petrol. You don't go into a supermarket and have to ask for the cost of each item while they size you up to work out how much you can pay. That's the cowboy way of operating.

What corners are the cowboys cutting if they are pricing not according to their costs, but according to whatever it takes to win your order? Of course, they'll tell you their quality is good, but they would say that wouldn't they? You get what you pay for, and if someone is selling you a cut-price Rolex down the pub, you'd probably doubt their assurances that it's the real thing. Is it really worth risking damaging your boiler or running out of fuel for the sake of a few quid?