Homeowners should brace for a costly winter.
The U.S. Energy Information Administration projects costs will increase for all home-heating fuels between October and March. The average homeowner will spend about 10 percent more to heat their home compared to a year ago.
Last year the average winter fuel bill was $889. This year it's expected to jump to $977. CNBC correspondent Sharon Epperson, author of "The Big Payoff," explains why energy costs are rising and what you can do to keep your heating fuel bills down.
Why are energy costs rising?
Higher crude oil prices are to blame. Crude oil prices soared to over $93 a barrel early Monday morning — having now spiked 50 percent so far this year. Some analysts are predicting oil prices could hit $100 this winter. The price of crude oil directly effects heating oil prices, as big oil companies refine crude into heating oil, those high prices will be pass one and consumers will feel the pain.
Wholesale heating oil prices are a good indication of how high retail heating oil prices are headed, and so far this year those prices have soared over 50 percent. Since supplies of heating oil are much lower than they were this time last year, there are also concerns that there may not be adequate supply to meet the demand if it's a really cold winter. Record high crude oil prices are also helping to lift the price for other fuels — even natural gas prices are up 14% this year.
Why aren't consumers panicking?
Consumers haven’t felt the pain of high oil prices, yet. But wait until you turn on the heat in your home. As winter approaches and it gets colder, and the demand for heating fuels will go up, and if crude prices stay at these levels or continue to soar, heating oil prices will increase even more.
Here is a breakdown of what homeowners can expect to pay for heat this winter vs. last winter — based on crude prices staying in the $70 to $80 range. Keep in mind these costs could escalate significantly, if oil stays above $90 this winter.
Another factor that could cause prices to escalate from these levels: a severely cold winter. Last winter was particularly warm. This year's projections from the U.S. Energy Information Administration assume a slightly colder winter (4 percent colder than last year) and increased use of heating fuel. If temperatures are warmer than forecast, heating costs may be lower. But if temperatures are 10 percent colder than forecast, the government projects average household fuel expenditures will skyrocket 18 percent over last year (natural gas users could expect a 20% jump, and homeowners that use heating oil could see a 32 percent jump.)
So what can you do now to lessen the impact of these high prices and keep your home heating bills down? Here are some tips:
1. Opt For a price cap
Oil users will see the biggest jump in fuel costs no matter what. How you pay for oil could save you money. Fuel companies usually let you buy oil as you need it, but many give you an option to "lock in" a price. That means you pay a set price throughout the winter. If you think prices will go higher, you can lock in a set price now and pay that all winter long. Or, you can buy a "price cap," guaranteeing a per gallon price that will not go higher over winter. If prices come down (perhaps just wishful thinking), you'll still benefit from the lower prices, but you'll never pay more than the "capped" price. It’s probably best to ask for that "price cap" now because consumer oil prices are likely to go up just as wholesale prices have. And just in case prices fall, you don't want to be "locked-in" at a higher price.
2. Install a programmable thermostat
A programmable thermostat can save about $150 a year in energy costs if your home temperature is set back 8 degrees in the winter for an 8 hour span during the day when no one is home, and 10 hours at night. Cost: Less than $50
3. Do system maintenance
Now is a good time to give your heating system an "annual checkup." Contact your oil company or the company that installed your furnace or boiler to go over the system, which should cost $100-$150.
4. Get an energy audit
Think about hiring an energy expert to assess your home and do a professional "energy audit" — a room-by-room assessment of your energy use and review of your energy bills. Your state or local government energy office can help identify a local contractor who performs audits. Your gas or electric utility company may even send someone to your home for free to do an assessment and make recommendations. Depending on what they find and what improvement you make, you could cut your energy bill significantly.
5. Do your own assessment
You can do an assessment yourself. Log on to the U.S. Environmental Protection Agency's new ENERGY STAR Home Advisor website (www.energystar.com/homeadvisor) for tips the agency says could help you reduce your energy bills by up 25 percent. Just put in your zip code and the type of heating, cooling system and water heater you have, and you'll get a customized list of recommendations – caulking doorways to adding more insulation to the attic.
6. File for an energy tax credit
Replacing an old furnace, boiler, or water heater with energy — efficient units can save you money on your taxes too. Installing new storm windows and insulation can also help keep your house warmer. Look for products with the ENERGY STAR logo. The EPA says they’re designed to use 10-50 percent less energy and water than standard models. File Form 5695, Residential Energy Credits, with your 2007 Federal Income Tax Return.
Here are the tax credits that you may receive for installing a more energy-efficient product:
Water Heater: $300
Storm Windows: up to $200
Storm Doors: up to $500
Insulation: up to $500