The considerable work involved in building a two-story addition makes this the ideal time to consider revamping your HVAC (heating/ventilation/air conditioning) for the entire house. Although in theory you’ll pay more to heat and cool your enlarged house, a new energy-efficient HVAC system may actually reduce your monthly energy bills by 20%, or about $200 annually.

In addition, the IRS allows a tax credit of up to $300 on eligible HVAC systems put into service during 2011. Here’s a guide to your options, and how to make sure you get the best value for your investment.

Start with overall energy efficiency

Before planning construction, a good first step is to evaluate your heating and cooling needs with a professional energy audit of your home. A complete diagnostic test runs $400 to $600 (although some municipalities offer them for free).

A comprehensive energy audit conducted by a home energy rater certified by the Residential Energy Services Network will determine the thermal and energy performance of your house based on a variety of performance factors. You’ll receive a comprehensive report with estimates of energy savings that can be achieved through various improvements.

Those improvements may include: adding and/or upgrading insulation levels (especially in the attic and around ducts); replacing windows and glass doors with higher-performance (insulated, low-E coated) units; and sealing penetrations and ducts against air leakage and thermal loss.

Sharing the results of the audit with your HVAC contractor enables him to provide a number of reliable suggestions for your heating and cooling needs. Your most likely options include:

Extending the existing system

If your existing furnace-A/C setup or heat pump is less than 10 years old and has enough capacity to heat and cool the new addition to the same level of comfort you enjoy now, you’ll only need only to extend the ductwork into the new space—a job that costs $300 to $1,000. 

Under that condition, consider making the room addition a separate zone with its own thermostat (about $300) that controls a damper within the ducts to deliver conditioned air only as needed. Zones are especially effective and energy efficient for occasional-use areas, such as a guest suite or laundry room, but can still save energy for a daily-use addition. Expect to pay about $300 for thermostatically controlled dampers.

To get the most from your HVAC system, have your all duct work—existing and new—sealed and insulated to reduce energy loss and boost the efficiency of the entire system. Expect to pay about $500 for the work.

Upgrading your system

Depending on the size of your current HVAC system, you may have to increase the capacity of your existing system in order to handle the increased demand of a two-story addition.

A 24x16-foot two-story addition adds about 35% more volume to your house, and you’ll need to increase your heating and cooling capacity by about the same percentage.

However, furnaces, air conditioners, and heat pumps that have been in service for a decade or more are 20% less energy-efficient than today’s models, according to information from the federal government’s Energy Star program.

That means you might be able to heat and cool your entire house, including your addition, with a smaller, more efficient system—especially if you install the energy-savings repairs and upgrades recommended by your energy audit. You won’t need to simply buy larger-capacity HVAC units.

Nevertheless, you’ll pay a higher price for a more efficient system. A same-sized furnace with a 95% efficiency rating may cost 75% more ($5,100 vs. $2,900) than a same-size furnace rated at 80% efficiency. However, the higher-efficiency unit should provide a savings of about $200 per year on your utility bills, and will require less maintenance.

The cost of a properly sized, whole-house system upgrade for a 2,250 sq. ft. house (plus a 750 sq. ft. addition) is $9,000 to $13,000, including labor. That cost includes the likelihood you’ll be using your existing ducts to distribute conditioned air through the house and into the addition.

Installing an independent system

Even a larger and more efficient HVAC setup loses its ability to heat and cool an addition if the new space is located across the house from the main trunk of the existing duct system.

In that case, an independent system that doesn’t connect to your existing system may be the most cost-effective solution. Placed adjacent to the addition, a dedicated HVAC system loses less heat and will gain overall efficiency due to the simple fact that the ducts are shorter.

An independent furnace-A/C or heat pump also should be sized to match the size of the addition, resulting in smaller-capacity equipment with an installed cost that’s about half or less than a whole-house upgrade.

Traditional forced-air systems aren’t your only option. Consider the following dedicated HVAC setups as well, most of which qualify for federal energy tax credits.

  • Ductless systems, also known as “mini-splits,” are slim, wall-mounted units that blow hot or cold air into a space without using ducts. The inside unit connects to a small cooling unit or heat pump outside and can serve a 400 square feet of living space. They cost about $1,200 each. Installation adds $400 to $800.
  • High-velocity or “mini duct” systems were originally designed for retrofitting older houses. They use 2-inch-diameter flexible feeder pipes that are easily threaded through stud walls and connect to HVAC units outside the house. Conditioned air enters the room through ports that look like recessed lighting fixtures. Expect to pay a 50% premium over the price of a conventional HVAC system.
  • Hydronic systems use heated and chilled water to condition the space. These systems are embedded in the floor for heating and the ceiling for cooling. Convenient electric radiant heat systems are easily installed under flooring, although you’ll still need to provide a method of cooling the space. Costs for these systems range from $5 to $15 per sq. ft., installed.