These are great questions and, with your heating and hot water systems at the end of their life, it's an excellent time to ask them.
First, I have to clarify one thing. There are two ways to think of 'cost effective':
- what's cheapest up front and
- what's cheapest over several years.
I'm going to assume you mean the latter and you are interested in systems that are the most efficient and cost effective over the long run, even if they may be more expensive up front.
Combined Hydronic System
I believe the type of system you have heard of is called a 'Combined Hydronic' system, which uses a single heat source for heating both your hot water and your home. How this is best configured depends on:
- your fuel source (oil, natural gas, or electricity) and
- how you would prefer to heat your home - continuing with baseboard heat or using your AC ducts and having forced air heating.
It will take a visit from a Home Performance Contractor or, at a minimum, an HVAC Contractor who considers long term energy use as part of his design.
More expensive to install
A Combined Hydronic system is more expensive to install than a basic heating system, but since you are prepared to replace all your systems at the same time, it becomes a very attractive option.
Not only does a Combined Hydronic system have the highest efficiency (which translates to the lowest utility bills) of any systems that burn fuel, a new and well designed system can make your home much more comfortable.
Start with an energy audit
To make such a system work at its best, you should first get the services of a professional Energy Auditor in your area who will do a full energy survey of your home.
He will help you decide if it's most cost effective to:
- reduce uncontrolled air infiltration,
- improve your home's insulation levels, or
- replace windows before the new HVAC system is designed.
If you make sure that the shell of your home is working well first, the new HVAC system can usually be sized smaller and less expensive, saving you money for years to come.
A search here on GreenHomeGuide should bring up a few Energy Auditors (who can help you decide what's the most cost effective options for you) or Home Performance Contractors (usually Energy Auditors who are also Contractors) in your area.
For more information:
Read "We just found that the manufacturer of our tankless hot water heater can team it up with a furnace for efficiency. Thoughts?" a Q&A answered by David Willson.