Heat-Pump economics

There is no need to use “fossil gas” to heat your home, in fact a cold climate heat pump can substantially reduce the amount of gas used to heat your home, if the winter is mild enough, perhaps all the way to zero. Lets kick of our discussion of heat-pumps by looking at the economics. We find the operating costs can be lower, particularly if you are clever about the schedule settings on your thermostat. Construction costs are similar, since we need an air conditioner anyways. The biggest economic benefit might be resiliency, as a dual-fuel heating system, where you can use either electricity or gas, is more robust to price fluctuations.

Lets start the discussion with a review of energy prices. From our previous post on water-heater economics, we know a few industry numbers on cost per kWh for electricity and gas. To this we add efficiency numbers for both gas and a heat pump (source, source), and 16000 kWh/year energy use for the average Canadian household (source).

Water heater type	Energy price [c/kWh]	Efficiency	Yearly energy consumption [kWh]	Yearly energy cost [$]
Gas	1.6	90 %	18 000	288
Heat-pump	2.6-25	300 %	5 300	138-1325

As was the case with our water heater economics, energy costs dictate which option is cheaper. If it can be had, the Ultralow Overnight Rate (ULO), offers by far the cheapest annual heating bill. Talk about going green. We use the same “thermal-battery” trickery, as with our water heater post, the following is our schedule, aimed to take advantage of the ULO, allowing the heat-pump to warm up the house on the cheapest rate. This is then maintained over the day, before dropping at 4pm to avoid the more expensive peak rate, and again afterwards as we prefer to sleep in a cooler environment.

Time	Temperature setting
5 am to 4 pm	19 C
4 pm to 9 pm	18 C
9 pm to 5 am	17 C

Some experimentation is required here, while a heat-pump will heat your home, it takes longer to make a dent in the temperature than a gas furnace. We settled on letting it start at 5 am, as that way, when 7 am rolls around and its time to get going, the house is nice and warm. We also work from home, hence prefer a warm temperature during the day, again your situation might be different.

As to installation costs, the heat-pump is only marginally more expensive than an air-conditioner. Here in Toronto, I consider air conditioners to be essential kit, but there is some debate among my neighbours on that, with some opting to go without. That said, it may only be a few hundred dollar difference in the installation bill between getting a new furnace-air-conditioning package and a furnace-heat pump package (source). A $500 additional installation cost, could be recovered in a 5 year period with a heat pump shaving $100 of your annual heating bill.

This dual-fuel heating setup gives you much more control over your heating costs. Recall for example, the impact on gas prices following the Russian invasion in Ukraine, price spikes of 150% were recorded (source) in Europe, or the 1970’s Oil embargo which saw gas prices quadrupled (source). Thus it seems plausible gas prices could “go-through-the-roof”, as world events unfold, having a heatpump, which could shoulder more of a heating burden in a high-gas-prices event, can help absorb most of the damage to your household budget.