After 14 years, my HVAC bit the dust. In shopping for a replacement, I spent a lot of time considering this: Should I continue to heat my home with natural gas, or switch to an electric heat pump? Based on the lower operating costs, available rebates, and environmental factors, the heat pump was the clear winner. 

What is a BTU? 

Before diving into HVAC, let’s review one of the most important units in home heating and cooling: the BTU. BTU stands for British Thermal Unit, and it’s a way to measure energy — specifically, the amount of heat needed to raise the temperature of one pound of water by one degree Fahrenheit.

In HVAC terms, your system is sized based on how many BTUs per hour it can move. A typical home might need 20,000–60,000 BTU/hr depending on climate, size, and insulation. The higher the BTUs, the more heating or cooling power a system can deliver. An HVAC technician can do a load calculation to determine how many BTU’s per hour you need, or you can estimate it yourself using an online tool like this one. My own home, at 2,000 square feet in North Carolina, needs about 22,000–24,000 BTU’s per hour for heating and cooling each floor. 

At a glance, Natural Gas is a lot cheaper than Electricity per BTU

Natural Gas is sold in “Therms.” Each Therm is equal to 100,000 BTU’s, and Dominion Energy charges ~$1.29 per Therm.

Electricity is billed in Killowatt-Hours (KwH). Each KwH is equal to 3,412 BTU’s, and Duke Energy charges $0.1185 per KwH. 

So the cost of 100,000 BTU’s is $1.29 in Natural Gas or $3.47 in Electricity. Based on that, electricity is ~2.69x more expensive than Natural Gas per 100,000 BTU’s. 

However, Electric Heat Pumps can be much more efficient than Natural Gas Furnaces at bringing heat into the home 

Gas furnaces burn fuel to generate heat, and gas furnaces aren’t 100% efficient. If you input 1 Therm of Natural Gas (100,000 BTU’s) into a Gas Furnace, you’ll typically only receive an output of 80,000-96,000 BTU’s of usable heat that will be able to help warm your home. The rest of the energy is lost as exhaust. This efficiency is measured as the furnaces’s Annual Fuel Utilization Efficiency, or AFUE. A typical AFUE is 80-96%. For reference, my home’s gas appliance has an AFUE of 80%. 

Heat pumps are often more efficient than gas furnaces because they don’t generate heat — they move it. Instead of burning fuel, a heat pump extracts heat from the air outside (even when it’s cold) and transfers it into your home. This process uses far less energy than creating heat from scratch. For example, if it’s 47 degrees outside, my new LG Heat Pump can transfer 3.6 units of heat into the home for every unit of electricity it consumes. This ratio is called the Coefficient of Performance (COP), and it represents the ratio of heat output to electrical energy input. The tricky part is that the COP is a variable number that depends on the temperature outside. If it’s colder outside, the heat pump has to work harder to transfer heat into the home, which means it’ll have a lower COP at lower temperatures. 

If it’s really cold outside, some heat pumps can’t keep up and rely on a backup system known as electric resistance heat strips to provide additional heat. Heat strips are built into the air handler and generate heat in the same way a toaster does. They’re 100% efficient (meaning they have a COP of 1.0), however they’re far less efficient than the heat pump, which can carry a COP of 1.5-4 depending on the outdoor temperature. In my case, the analysis below ignores heat strip usage because I’m focusing on a cold-climate rated heat pump that can maintain full heating capacity down to 5°F. Given North Carolina’s relatively mild winters, I don’t expect to rely on the strips under normal conditions.

For example, if it’s 47 degrees outside, the heat pump costs ~40% less per hour to keep my home warm ($0.26/hr vs. $0.435/hr)

In this scenario, let’s assume I’d need ~27,000 BTU’s per hour to keep the inside of my home at 70 degrees. For simplicity, let’s ignore heat loss through the vents etc. 

• With a Gas Furnace, since my existing gas appliance has an AFUE of 80%, I’d need 33,750 BTU’s of natural gas to produce 27,000 BTU’s of heat inside the home. That means I’d need 0.3375 Therms of Natural Gas, which at $1.29 per Therm, would cost me $0.435. So with a Gas Furnace, it’d cost $0.435 to heat my home for one hour.
• With a Heat Pump, to provide the same 27,000 of BTU’s of heat into my home, I’d need to consume 2.2KwH of electricity (which corresponds to a COP of 3.6). At $0.1185 per KwH of electricity, it would only cost me $0.26 to heat my home for one hour. 

But as it gets colder, those savings drop. At 30 degrees, the Heat Pump is only 13% more efficient per hour ($0.378/hour vs. $0.435/hour).

Let’s pretend it’s 30 degrees outside now. The Natural Gas Furnace still requires the same amount of Natural Gas to produce 27,000 BTU’s. So the cost there is still $0.435/hour.

But the Heat Pump has to work harder to transfer heat now. To bring 27,000 BTU’s of heat into the home, it now needs 3.19kw of electricity per hour (which corresponds to a COP of 2.55). At $0.1185 per KwH, it would cost $0.378 to heat my home for one hour.  

When it’s really cold outside (~22 degrees F or lower), the Gas Furnace is more cost efficient per hour compared to the Heat Pump

The breakeven point is typically when the Heat Pump’s COP drops below ~2.5. Natural Gas is ~2.5x cheaper than electricity, so in order for the Heat Pump to be more cost efficient, it needs to be ~2.5x more efficient with its inputs.

With the Bosch heat pump below (which is very similar to my new unit), this breakeven point happened at 22 degrees F. If it’s warmer than 22 degrees outside, the Heat Pump is more cost effective. But if it’s less than 22 degrees F, the Gas Furnace is more cost effective. In North Carolina, the temperature doesn’t drop below 22 degrees very often, so the Heat Pump should be more efficient on an annual basis.

Overall, I expect this Heat Pump will save ~$336.74 per year in utility costs compared to my existing system

Cooling costs should be ~$182/year (35%) lower with the new system compared to my existing system

I estimate that I spent ~$525.79 on cooling my home last year (which is probably a low-end estimate). During the winter months of November-March (when the AC was off), my average electric bill was $83.68. During the warmer months of April-October (when the AC was on), my average electricity bill increased to $158.79/month. By subtracting those two numbers, I estimate that it cost ~$75.11 per month to cool my home , or ~$525.79 total for the seven months of April-October. 

The efficiency of Air Conditioners is measured by its SEER rating (Seasonal Energy Efficiency Ratio), which indicates the amount of cooling produced by a air conditioner for every unit of energy consumed. A higher SEER rating means the unit is more energy-efficient. My existing AC has a SEER 13, whereas the new Heat Pump has a SEER of 17.5. Therefore I estimate that the new system will be ~35% more efficient (17.5/13 -1) than my existing system, which will save ~$182 in annual cooling costs. 

Heating costs should be ~$232.95/year (28%) lower with the new system compared to my existing system 

Last year, I estimate that I spent ~$545.79 on heating my home (again this is probably a low-end estimate). My average natural gas bill during the summer months of April-October was $42.91, and the heat was off throughout this period. During the colder months of November-March, my average bill was $152.06, suggesting that having the heat on cost ~$109.15 per month on average ($152.06 – $42.91). Based on that, I estimate that the total cost for heating my home was $545.75 for the five month period of November-March ($109.15/month * 5 months).

It’s more difficult to estimate my projected heating costs for next year. I’ll estimate that a rough average temperature for the heating season (November-March) is ~47 degrees F. At that temperature, the new heat pump uses 2.2Kw per hour, and the system would run ~10 hours per day for this 150 day period. At $0.1185/hour, I project it will cost ~$391.05 to heat my home for the season, which is ~28% more efficient than my bill from last year. 

Heat Pumps are often more expensive upfront but I should make back the difference pretty quickly through: 

• The government provides a $2,000 tax credit for upgrading to a high efficiency heat pump. 
• Duke energy provides ~$825 in rebates for upgrading to a high efficiency heat pump. 
• The monthly operating costs are expected to be $336.74 less per year compared to my existing system. 

Come back next year and I’ll update my analysis with the real-world results.