Electric Heat vs Gas Heat: Which Is Cheaper? | Kiplinger

Oct 14, 2024

The choice of electric heat vs gas heat could have a big impact on your energy bills this winter.

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With energy bills putting a crunch on the U.S. this winter, comparing the costs of electric heat vs gas heat can be an important decision for homeowners looking to save money.

When Kiplinger looked at this same question last year, we concluded that gas heat was the cheaper option. However, a new study found flaws in the way electric heating costs are accounted for, changing the cost outlook. Moreover, electricity costs vary substantially from one U.S. state to another.

In this year’s winter fuels outlook, published by the Energy Information Agency (EIA), it’s forecasted that from November through March, heating-oil customers will pay $1,722; propane users, $1,328; electricity users, $1,072; and gas users, $611. However, according to a recent study from Rewiring American, published by The Guardian, the expected costs for electricity users can be misleading, as it doesn’t distinguish between older electric-resistance appliances and heat pumps.

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Heat pumps are highly efficient, and can cut electricity use by 50% when compared with electric resistance heating, according to the Department of Energy. Because of this, if you’re using a heat pump to warm your home, you’ll likely pay much less than forecasted by the EIA. And they aren't just for mild climates; chilly Maine is leading the country in installing heat pumps.

Additionally, Rewiring America says in the report that "the agency includes all uses of each fuel in its cost estimates, meaning cost projections for electricity customers include energy used to power other electric appliances such as refrigerators and electronics."

The following graphic was tweeted by the EIA illustrating the data.

Furthermore, there are three positive trends for residential heating customers this year. First, this winter will likely be milder than last winter. Forecasters predict a recurrence of the El Niño weather pattern, which tends to bring warmer, wetter weather for much of the U.S.

Second, the milder winter will mean lower demand - and thus lower costs - for energy. The U.S. Energy Information Agency (EIA) predicts that natural gas will be 21% less expensive this winter. That lower cost of natural gas will also help keep electricity prices from increasing, as more expensive coal-fired power plants are replaced by gas-fired plants.

Finally, newer, more efficient heating technologies continue to get cheaper, particularly as economies of scale and subsidies kick in at the state and federal levels.

According to the EIA’s Electric Power Monthly report, the average cost of electricity in the U.S. is 16.21 cents per kilowatt hour or kWh. As stated above, the EIA projects that electric heating costs for U.S. homeowners will average $1,072 for winter 2023-2024.

The Efficiency Maine Trust provides the following cost breakdown for electric heating systems:

According to the U.S. Department of Energy (DOE), installing a more energy-efficient electric heat pump can reduce energy usage in your home significantly, compared to traditional electric resistance heating such as furnaces and baseboard heaters. The most common type, ducted air-source heat pumps, reduces energy use by approximately 50%. More expensive options like geothermal heat pumps can reduce energy use by up to 60%. This type of upgrade saves you on a monthly basis, but you should include sizable upfront installation costs as part of your bill calculations.

However, the American Council for an Energy-Efficient Economy reports that heat pumps may not provide enough heat in especially cold northern regions, resulting in a need for alternative fuel sources and higher bills. In addition, many homeowners may not be able to use the most efficient geothermal heat pump type, which requires digging a large trench near or under your home, according to the DOE.

According to the EIA’s Electric Power Monthly report, the average cost of gas heat in for U.S. homeowners will average $611 for winter 2023-2024.

The Efficiency Maine Trust provides the following cost breakdown for gas heating systems:

For homeowners worried about their home's resale value if they convert to efficient electric heat, there's good news. According to Remodeling magazine's 2023 Cost vs Value report, a conversion from fossil fuel heating and cooling sources to electric is the most valuable remodeling project a homeowner can do. These projects reap, on average, 103.5% value at resale relative to the cost. These estimates are based on a project that removes a fossil-fuel-burning furnace and fully installs an electric heat pump for heating and cooling a 2,000-square-foot home.

The most common electric heat systems have higher monthly operating costs compared with the most common natural gas systems, according to the most recent U.S. government statistics. But efficient heat pumps will save you money, especially over the system's lifetime when compared to gas furnaces.

In some cases, geothermal electric heat pumps can save you money over the most cost-efficient natural gas boilers. They are generally more efficient than gas furnaces and use less source energy on average in moderate climates. However, the more complicated geothermal heat pump systems aren't an option for homeowners without land for an underground trench.

Electric heat pumps, especially when sweetened with tax credits that lower the cost of installation, are the best choice for many homes. Over the next decade, however, the cost of electricity may rise given the enormous strain on the nation's electricity supply. This heightened demand is driven largely by the huge amounts of electricity needed by artificial intelligence, cryptocurrency mining, data centers and clean technology factories.

No matter your choice, you can also meaningfully lower your heating costs by doing a few important things.

For more energy-saving content, check out our home savings hub.

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Ellen writes and edits personal finance stories, especially on retirement. She also covers the nexus between sustainability and personal finance. She worked in the mutual fund industry for 15 years, as a manager and sustainability analyst at Calvert Investments. She focused on consumer staples, consumer goods, climate change and water. She served on the sustainability councils of several Fortune 500 companies and led corporate engagements. Before joining Calvert, Ellen was a program officer for Winrock International, managing loans to alternative energy projects in Latin America. She earned a master’s from U.C. Berkeley in international relations and Latin America.

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