Can Electric Heating Have a Lower Cost Than Gas Heating?

Michael Tobias
6 Minutes Read
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    New York City has some of the most ambitious renewable energy and emissions reduction targets in the USA. The city aims to reduce its emissions by 80% before the year 2050, with respect to the levels measured in 2005. This reduction is equivalent to 43 million metric tons of greenhouse gases per year, and the emissions reduction potential in buildings alone is estimated to be 25 million metric tons of GHG, which represents nearly 60% of the 2050 goal.

    According to the Urban Green Council, heating is by far the largest energy expense in New York City buildings, where space heating represents 27% of energy expenses and water heating represents 10%. The dominant energy source for heating is natural gas, accounting for around 50% of space heating and more than 60% of water heating. Therefore, switching from gas to electric heating can contribute significantly to the emissions reduction targets in NYC.

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    However, there is a key challenge to overcome: NYC homes and businesses use natural gas for heating because it is generally the lowest cost option. Although electricity from renewable sources can deliver environmentally friendly heating, the state of New York has some of the highest electricity rates in the country: the residential sector pays 18.5 cents/kWh on average, while the commercial sector pays 14.5 cents/kWh. To make the transition to electric heating feasible, the cost disadvantage must be overcome.

    Making Electric Heating Affordable

    As of 2017, the average price of natural gas in the state of New York is slightly under $14 per million BTU, according to the US Department of Energy. Assume 1 million BTUs of water heating are needed, and the two options are a tankless gas heater with an energy factor of 0.80, and a storage heater with an EF of 0.67. The energy costs would be the following:

    • Energy cost (tankless heater) = (1 MMBtu / 0.80) x $14 / MMBtu = $17.50
    • Energy cost (storage heater) = (1 MMBtu / 0.67) x $14 / MMBtu = $20.90

    Both options have a much lower running cost than a conventional electric resistance heater. Even assuming a high EF of 0.95, the energy cost of electric heating is significantly higher:

    • 1 MMBtu = 293.07 kWh
    • Energy cost (tankless resistance heater) = (293.07 kWh / 0.95) x $0.185/kWh = $57.07

    Electric resistance heating is around three times more expensive than gas heating in NYC, so it should come as no surprise that many homeowners and businesses have decided to use gas. However, there are two main approaches that make electric heating cost-competitive:

    • Increasing heating efficiency to reduce electricity consumption and offset its high price.
    • Decreasing the cost of electricity itself.

    It is also possible to reduce heating needs by improving the building envelope and minimising the use of hot water. However, these approaches are beneficial for heating efficiency in general, regardless of whether the system uses gas or electricity.

    Option 1: Increasing the Efficiency of Electric Heating

    The main disadvantage of resistance-based heating is that one unit of electricity must be consumed for each unit of heat provided, and then some heat is lost before it reaches the point of use. However, heat pumps use an inverse refrigeration cycle to deliver a heating output that is higher than electricity consumption.

    Air-source heat pumps with the ENERGY STAR label have a coefficient of performance (COP) of 2.5 or more: they deliver 2.5 kWh of heat per kWh of electricity consumed. Ground-source heat pumps are even more efficient, and some models have a COP above 4. With a COP of 2.5, a heat pump consumes 60% less electricity than a resistance heater of the same capacity, and savings increase to 75% with a COP of 4.

    Assume a heat pump with an energy factor of 3 is used instead of the resistance heater in the example, to achieve a significant reduction in energy costs:

    • Energy cost (heat pump) = (293.07 kWh / 3) x $0.185/kWh = $18.07

    The heating demand and price of electricity have stayed the same, but the running cost is now much lower because electricity is being consumed more efficiently.

    In New York City, the energy efficiency incentive program from Con Edison makes heat pumps more affordable by providing rebates. Checking program requirements is highly recommended before purchasing a heat pump to make sure it qualifies for the rebate.

    • Homeowners are eligible for a rebate of $500 when purchasing an electric heat pump.
    • In the commercial sector, heat pumps are eligible for rebates that range from $50 to $125 per ton. The incentive rate varies depending on heat pump specifications.

    Option 2: Decreasing the Cost of Electricity

    Individual homeowners and businesses have no control over the electricity rates charged by utility companies, but there are two ways to access electricity at a lower cost: taking advantage of time-of-day electricity prices, and generating energy on-site. It is important to note that, although generation can be based on renewable sources or fossil fuels, the second option defeats the purpose of replacing gas heating with electric heating.

    Utility companies normally use time-of-day rates, where the cost of electricity is adjusted according to power grid demand. Since operating a highly loaded grid is more expensive for the utility company, a higher rate is charged during those hours. The opposite also applies: in low-demand hours, utilities can rely on their least expensive power plants and grid losses are also at their minimum. A simple way to access low-cost electricity for heating is using more energy when utility rates are low. Hot water can be stored in an insulated tank, and then used directly or for hydronic space heating.

    Self-generation is also a valid approach, as long as energy can be produced on site at a cost lower than the retail price of electricity. A Power Purchase Agreement can be an attractive option for homeowners and businesses who want to avoid the upfront cost of a renewable generation system; in a PPA the system is owned and serviced by a specialized company, and the client agrees to purchase all electricity generated at a price below the retail price of electricity.

    With their efficiency alone, high-performance heat pumps can match the operating cost of gas heaters. If complemented with off-peak heating or on-site energy generation, they can become a lower-cost option that also eliminates the emissions associated with natural gas combustion.

    Concluding Remarks

    Heating is the main energy expense in New York City buildings, and natural gas is the main energy source for heating applications. Although its emissions are lower than those of coal and oil, it is a fossil fuel nevertheless, and NYC has some ambitious targets in terms of renewable energy and emissions reduction. Conventional electric heating has been much more expensive than gas heating, but this is changing thanks to high-performance electric heat pumps, distributed renewable energy, and demand-side management technologies like smart energy storage.

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    Tags : Design Sustainability

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