Forecast shows clearer picture of fossil fuel heating costs compared to electric heat
Updated methodology from the U.S. Energy Information Administration reveals electric stacks up far better against other heat sources than past projections show.
Each year, the U.S. Energy Information Administration (EIA) forecasts expectations for U.S. residential energy consumption for the upcoming winter in its Winter Fuels Outlook, comparing the estimated costs to heat American homes by the four most common residential heating fuels: “natural” (aka methane) gas, electricity, propane, and heating oil.
In prior years, the EIA did not distinguish between energy devoted to space heating and other uses, which artificially elevated its cost projections for homes heated by electricity (since the bulk of household electricity costs are due to uses besides heating, unlike other fuel sources.)
This year the EIA made electric heating costs distinct from all other electricity costs. And the results are revealing: The projected costs for homes heated by electricity are less than half of what the EIA’s former methodology has been showing in its Annual Winter Fuels Outlook, a new Rewiring America analysis has found.
As seen in the table above, all projected heating costs are higher using the EIA’s initial methodology, which combines all residential end uses. But for the first time, the EIA has taken the step of estimating and including heating-specific costs by month (shown in Graph 1 below). After tallying those figures, we discover the projected cost for electricity-fueled heating is actually 54 percent cheaper than previously reported. It’s important to note that this finding doesn’t mean that homes heated by electricity will necessarily see a reduction in their energy bills this year; the EIA estimates that costs will stay relatively flat for homes heated by all sources. It’s also difficult to make an apples-to-apples comparison between the heating costs of different heating fuels, since homes heated with different fuels tend to be more common in different climates.
There’s still room for improvement. While some of the charts throughout the Winter Fuels Outlook do separate heating costs from other end uses, other tables continue to group them together, potentially confusing readers and the public.
However, this new approach to preparing the data is a step in the right direction and follows concerns Rewiring America raised after last year’s Winter Fuels Outlook.
Efficient vs. inefficient electric heat
A second issue flagged last year by Rewiring America was the flawed methodology the EIA used to project electric heating costs which combined highly efficient electric heating sources (heat pumps) with inefficient ones using resistance heating (like baseboards) in the same category. The EIA made no changes to that aspect of its methodology for its 2024/2025 Winter Fuels Outlook, although it did acknowledge the shortcoming of its approach, noting “We are exploring ways to derive technology-level estimates for future editions of the Winter Fuels Outlook.”
Because the EIA continues to combine efficient electric heat pumps with grossly inefficient electric heating methods in its analysis, the picture is still not as clear as we need it to be. By further updating their methodology for future reports, EIA could provide more precise cost projections for households using efficient electric heat pumps. Considering heat pumps are now one of the most popular types of heating system sold — in 2023, heat pumps made up 55 percent of all heating systems sold, while gas furnaces made up just 45 percent — the EIA’s signal that it is exploring technology-level estimates in future editions is indeed welcome news. And as states and utilities begin to consider incentivizing heat pumps by differentiating winter electricity rates for heat pump users, having clear technology-level data from the EIA will likely aid in that effort.
Additional context
It’s important to note that the EIA did not use its updated methodology throughout this year’s Winter Fuels Outlook and in fact continued to rely on its flawed methodology throughout most of its analysis.
In addition, this important new information was not made entirely clear to readers. Only by tabulating the monthly space heating costs included in the following bar graph (Graph 1) do we learn that costs for households heating their homes with electricity this winter are projected to be $479, on par with methane gas ($480) and cheaper than propane ($926), and fuel oil ($1,198). Note also that the EIA’s bar graph below is an imperfect tool to compare heating costs by fuel type because it stacks heating costs atop other end uses.
In spite of the work still remaining to make the EIA’s Winter Fuels Outlook more precise and therefore more useful to readers, it’s heartening to see the progress made this past year. Because the EIA has begun to correct its approach, differentiating electricity costs devoted to space heating versus all household uses, for the first time we can see a clearer, more accurate picture of electric heating costs.
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