Are heat pumps cheaper than electric heating? (2022 update)

The price of a heat pump is on average two to three times higher than an electric furnace. However, heat pumps save on your monthly electric bill because they are up to four times more energy-efficient. According to the US department of energy, annual air/air heat pump savings are around 3000 kWh ($435 with the average electricity price of $ 14.47 in 2022).

Both electric heaters and heat pumps run on electricity. However, a heat pump is much more efficient than an electrical heater. Therefore, running a heat pump costs less energy and produces a lower energy bill.

Electrical heaters are 100% efficient. Meaning they convert all of their energy use into warm air. So, for example, a 1500W electric heater produces 1500 watts of heat.

A heat pump, however, can have an efficiency of up to 400%. It can reach such high efficiency because it extracts heat from the air, water, ground, or exhaust, depending on the type of heat pump. It uses only a small amount of energy to do so.

However, a heat pump comes with a relatively large initial investment. Therefore, it may take several years before you earn back the difference in purchase cost between an electric furnace and a heat pump.

Next to air- and ground-source heat pumps, there are heat pumps that run on both electricity and gas (exhaust- and hybrid heat pumps). These types of heat pumps are not included in this article because they do not exclusively run on electricity. For more information on these types of heat pumps, I recommend reading my article:

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Why a heat pump is cheaper to run than electric heating

A heat pump is up to four times cheaper to run than an electric heating system. The costs of running a heat pump, however, vary based on the efficiency it can reach. Its efficiency determines how much heat can be produced with the electricity it uses.

A heat pump extracts energy from either the air, water, ground, or from waste heat (exhaust). The efficiency of the heat pump is dependent on the temperature of the source. A heat pump is most efficient when the source temperature is relatively high and the required heating is relatively low. The efficiency of a heat pump drops when the temperature of the source gets lower.

However, even with freezing temperatures, a heat pump is still able to extract energy. When the efficiency of the heat pump gets lower, the electrical heating element will aid in the production of heat. Therefore, its energy use will go up. However, a heat pump remains more efficient than electric heating as long as the source temperature is above -22°F (-30°C).

How does a heat pump work?

The following explanation is based on the example of an air source heat pump that extracts heat from the outside air and creates hot indoor air. Other types of heat pumps work in a similar way, changing either the energy source and/or heating water instead of air.

In short, heat pumps work similarly to a refrigerator. Just like a fridge they make use of a liquid that takes up heat (energy) from the air, causing it to evaporate. A little bit of electric energy is then used to compress the vaporized liquid to release the energy (as heat). The liquid is now ready to vaporize again for another cycle.

A fridge continuously extracts heat from inside the fridge and releases it at the back. You can test this by feeling the heat at the back of your fridge.

A heat pump does the exact same thing. However, it extracts heat from the outside air and gives off the heat to your room. This costs way less energy than simply turning the electricity into heat. A heat pump has very high energy efficiency, often turning its energy use to three times the energy (heat) output.

A heat pump basically takes the freely available heat that is in the air and kindly brings it into your room.

Heat pump costs vs electric

Electric heating does not cause heat losses like wood, gas, or oil burning, and is therefore 100% efficient. However, electric energy is much more expensive than other types of energy. For example, 1kWh of electrical energy costs $0,14 while the cheapest option, natural gas, only costs $0,04 per kWh. (source)

Electric heating is the most expensive heating option available. However, it does come with other benefits such as being healthier due to a lack of combustion gases. Additionally, by using electricity, we are able to use 100% renewable energy such as solar or wind.

A heat pump makes electric heating cost almost the same as gas

A heat pump uses a small amount of electricity to extract energy from the air, water, or ground. In this way, a lot of heat can be created for a low price.

A Swedish study tested 33 air-to-air heat pumps. They concluded that the average efficiency is about 250% at temperatures from -15 to 0 degrees Celsius (5 to 32 °F). Above 0°C (5 °F), the efficiency grows rapidly to about 375%.

This makes 1 kWh of heat from a heat pump cost approximately $0,047. That is almost the same price as natural gas ($0,04).

According to the US department of energy, annual heat pump savings are around 3000 kWh. This translates to savings of around $435 per year based on electricity prices in 2022.

The purchase cost of an electric furnace vs a heat pump

Although a heat pump creates heat much more efficiently and cheaper, it does come with a higher purchase cost. Therefore, it needs to run for a few years before the investment pays for itself.

A heat pump comes with a relatively large initial investment of approximately $2000-$6000. An electric furnace will cost about $600–$2,700. (source) Therefore, it will take several years, depending on your energy use, to earn back the difference in purchase cost when buying a heat pump.

With the expected annual savings of $435, it will take a few years to earn back the investment of a heat pump. If we assume we purchase the best (most expensive) heat pump over the best electric furnace, the cost difference will be $3300. It will take $3300 divided by $435/year = 7.6 years to earn back the extra investment.

On top of the purchase costs come the installation costs of around $2000. However, these costs will be similar whether you install an electric furnace or a heat pump.

On top of that comes the fact that heat pump technology is rapidly improving. Their efficiency is going up and their price is coming down.

Cost summary table

The following table sums up the costs and energy efficiency of electric heating vs using a heat pump.

AttributeElectricHeat pump
Purchase cost range$2000 – $6000$600 – $2,700
Approximate price for 1 kWh$0,14$0,05
Example energy use vs output1500W -> 1500W720W -> 3050W
Average energy efficiency100%300%
Table 1: Electric furnace vs heat pump

A heat pump is definitely worth the investment once you consider additional factors such as health and safety and sustainability. I go into depth about the different types of heat pump systems compared to gas and electric furnaces in my article: