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Heating Costs & Comparisons

How to Estimate Heating Costs and Make Comparisons
How much does it cost to heat your home? If you want to upgrade your present heating system, what are your choices? If you are considering a new heating system or building a new home, use the information offered here to estimate the yearly heating costs for most alternatives.1

For a better understanding of home heating, read the topics below first. As you need more information, you will find links to documents which can be printed and used as a resource for more precise calculations.

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Heating Fuels are Packaged Differently

The most common fuels used for home heating are Natural Gas, Electricity, Propane (LP) gas and Fuel Oil.  Each of these fuels are measured and sold in different “packages” or units of measure.  Here is the unit of measure for each fuel.

Natural Gas – measured in cubic feet. Natural gas is usually sold to residential customers in units  of 100 cubic feet (CCF) or one “therm.”
Electricity – measured in watt hours. Electricity is usually sold to residential customers in units of 1000 watt hours or “kilowatt hours” (kWh).
Propane – measured and sold in gallons.
Fuel Oil – measured and sold in gallons.

Each unit of fuel described above contains a different amount of heat.  If you are interested in learning about the amount of heat contained in each of these fuels and the actual heat your furnace can capture from the fuel, refer to this link:

 Heating Fuels: Types and Values (pdf, 38.9 KB)

Compare Heating Systems by using the Cost per Million BTU

The heating system in your home converts fuel into heat. Any type of heat can be measured by using a term called a "BTU" or British Thermal Unit. A BTU is a small unit of heat, comparable to the amount of heat you get from one wooden match. An average Midwest home may use 60 to 80 million BTUs each winter.

To compare different heating fuels and heating systems we need a common unit of measure that applies to all fuels. The "Cost per one Million BTUs" (Cost per MBTUs) is the best way to compare the heating costs associated with different fuels and different heating systems. Each fuel and heating system will have its own Cost per MBTUs based on the efficiency of the system and the price of the fuel.

Here are some example fuel prices to compare different heating systems:

Natural gas 60% efficient $1.20/CCF(therm) Cost per MBTUs = $20.00
Natural gas 80% efficient $1.20/CCF(therm) Cost per MBTUs = $15.00
Natural gas 90% efficient $1.20/CCF(therm) Cost per MBTUs = $13.33
Electric Furnace $.06/kWh Cost per MBTUs = $17.58
Electric 12 Seer heat pump $.06/kWh Cost per MBTUs = $8.00
Propane gas 80% efficient $1.60/gal. Cost per MBTUs = $16.67

As shown in the list above, if you know the type of heating system and the current cost of fuels, you can easily compare different fuels and heating systems. The following link is a quick comparison of most common heating systems. In this file you can find current rates, the cost per Million BTUs, the amount of heat needed for an average size home and the winter heating cost for all the systems listed.

Current Rates & Estimated Heating Costs (pdf, 42.8 KB)

What are “Estimated Heating Costs”?
The actual cost to heat your home may be a large portion of your total energy bill, but it is usually not the entire energy bill. The estimated heating cost examples used in this information are not intended to include any other appliance usage in your home. Your total energy bill will be a sum of the heating costs and the cost to run all the other appliances in your home. This division is not shown on your energy bill.

Estimating Heating Costs with Changing Fuel Prices

Fuel prices are different with every fuel supplier and they are always changing. The above link for current winter heating costs is just a snapshot of the fuel prices in a recent month.  If your cost of fuel is different from those in the link above or you would like to know how heating systems compare as the price of the fuel changes, you will need more information.

Refer to these two pages for more Cost per Million BTU comparisons. These pages help you compare all the common heating fuels and heating systems within a wide range of fuel prices.

 Gas & Oil: Compare all Rates & Systems (pdf, 50.1 KB)

 Electric: Compare all Rates & Systems  (pdf, 51.7 KB)

Estimating how much heat your home will need in a winter

The above link for current winter heating costs uses only one size home for all the heating comparisons. If your home size, age or the amount of insulation you have is different from this example, you will need more information.

By knowing the size of your home, its age and if it is insulated and airtight, you can estimate how much heat you may need in a normal winter. Choose one of these two links based on where you live:

For Central Indiana and Central Ohio:
Estimating how much heat you need, Central (pdf, 48.2 KB)

For Southern Indiana and Southern Ohio:
Estimating how much heat you need, South (pdf, 48 KB)

If you know the approximate number of BTUs you need per winter, then you can compare the cost to heat your home with various heating systems.  This includes being able to estimate how much money you may save by installing a new high-efficiency system.

Example: Estimating heating savings, knowing the amount of heat you need
Let’s say you have used the table from one of the “Estimating how much heat you need” links above and would like to compare the costs of purchasing 60 million BTUs per winter.  Using the Cost per Million BTU example above and if you have an 80% natural gas furnace your heating cost per winter may be:

60 MBTU X $15.00/MBTU = $900

Upgrading to a High Efficiency Furnace

If your heating system is about 20 years old or older, you might consider changing to a new, high efficiency system.  It is a common practice to wait until an old furnace needs repaired, but if your old system is less than 70% efficient, you may consider upgrading before a repair is needed.

Example: Estimated savings when you upgrade your old furnace
An old furnace wastes energy and costs you more to heat your home.  Using the heating example above, purchasing 60 million BTUs in a 60% efficient furnace at $1.20 per CCF (therm) of natural gas may cost you:

60 MBTU X $20.00/MBTU = $1200

New high-efficiency furnaces are 90% efficient or even better and reduce your heating cost per million BTUs.

60 MBTU X $13.33/MBTU = $800

Assuming you purchase 60 million BTUs and the price of natural gas remains the same, a new 90% furnace may save you $400 per winter.  Remember, these are just examples to show how you can use the links at the top of the page to estimate your own savings.

Introduction to a Dual Fuel Heating System

One of the best energy-saving investments homeowners should consider is the “Dual Fuel” heating system.  A dual fuel system is an electric heat pump added to your existing furnace.  It can also be referred to as an Add-on Heat Pump.  The best opportunity for this measure and the shortest payback on your investment occurs if you choose this option at the time you are buying a new air conditioner.  Here’s how it works.

When you buy a new air conditioner, you should save money on your cooling bills.  However, a new air conditioner will have no affect on your heating bills.  Consider buying a heat pump instead of just an air conditioner.  A heat pump is an air conditioner in the summer and in the winter it works in conjunction with your existing furnace to reduce your total heating costs.

Today’s heat pumps work efficiently at all outdoor temperatures, but they are extremely energy efficient when they operate in the temperatures from 20 to 60 degrees. Did you know that 80% of all hours in a typical Midwest winter will be in temperatures over 30 degrees?  In this temperature range a new heat pump can generate heat for less than $6.00 per million BTUs when electricity costs $.06 per kWh.  When a heat pump is added to your furnace, the heat pump is able to provide 60% to 70% of your total winter heat at this low price. Your existing furnace is still used in the colder winter temperatures and will supply all the remaining heat.

Example: Estimated savings with a dual fuel, add-on heat pump
Here is an example of the estimated heating costs for a dual fuel heating system assuming a new heat pump is used with an 80% gas furnace to generate 60 million BTUs per winter.  Assume the gas is $1.20 per CCF (therm) and electricity is $.06/kWh.

60 MBTU X 60% winter heat X $5.86 per MBTU with electric heat pump = $211
60 MBTU X 40% winter heat X $15.00 per MBTU with an 80% furnace   = $360

60 MBTU total heat produced with the Dual Fuel heating system     = $571

Recall from our previous example, 60 million BTUs obtained from an 80% gas furnace will cost $900.  Adding a heat pump could reduce your total heating costs to $571.  With the assumptions above, you could save $329 per winter with an add-on heat pump.  You should also save on your air conditioning costs since the heat pump is also a new air conditioner.

To better understand the Cost per Million BTUs for an add-on heat pump and to see the estimated heating savings for many add-on heat pump applications, refer to this page:

  (pdf, 75.5 KB)

The extra cost to purchase a heat pump instead of a new air conditioner may be an additional $1000 for an average size home.  But this investment could save you about $500 per year when you combine your heating savings and your air conditioning savings.

For a better savings estimate when considering a dual fuel heating system for your home, visit our How Does Your Home Use Energy page.

Fuel Costs: Average Cost versus the Real Heating Cost

If you know your cost per therm of natural gas and your cost per kWh of electricity you will arrive at more accurate results when you use the charts above to estimate heating costs. If you purchase oil or LP gas, it is easy to find your actual cost per gallon of these fuels. But determining the real cost of natural gas or electricity in terms of your heating costs, is more difficult.

An important concept to understand about some utility rate tariffs is the use of rate “steps.” The rate steps are usually designed to allow you to pay less for the next quantity of fuel used in a month’s billing period. Here is an example of a fictitious electric rate tariff to show “declining cost rate steps” for a winter month.

Sample winter rate steps from a fictitious utility Total cost per step
Customer Service charge per month = $10.00
Cost per kWh for the first 300 kWhs = $0.09
Cost per kWh for the next 700 kWhs = $0.07
Cost for all kWhs over 1000 kWhs = $0.05
300 X $.09 = $27.00
700 X $.07 = $49.00
additional = $.05/kWh

If you used 1000 kWhs in a month on the above rates you would be charged:

$10.00 + $27.00 + $49.00 = $86.00

If you want to know your “average cost per kWh” divide your total bill amount by the total kWhs you used. From the above example:

$86.00 ÷ 1000 kWhs = $.086 (average cost per kWh)

For this electric bill, the average cost is 8.6 cents per kWh for this month.

However, the amount you are charged per kWh for heating is not the same as your average cost per kWh.

Understanding the Real Cost of a Heating Fuel
The fuel cost for heating is usually less than your average cost of the total bill. For many homes, the heating usage is all used in the lowest rate step. In the example above, assume this home requires at least 1000 kWhs per month to operate all the household appliances. In a heating month the electric heat will add kWhs to the bill, all in the last rate step at a cost of $0.05/kWh. This is the true cost per kWh for the electric heat.

Natural gas rates may also have more than one rate step. For homes with a gas water heater, it is not unusual to find that most of the home heating usage falls in the last rate step. However, unlike the electric rate example above, some gas rates have only two steps; a base charge and one rate step. In this case, it is much more likely that the heating usage will all be in the last rate step.

The cost of all fuels changes frequently in today’s energy markets and it is hard to keep up with the current costs. You can access Duke Energy Indiana rate tariffs with this link (Duke Energy Indiana Rate Tariffs) but be aware that the tariffs can be very confusing.

Instead of trying to learn the complexities of the many rate tariffs, you can use this link, Current Rates & Estimated Heating Costs (pdf, 42.8 KB) to see some recent fuel prices for your location. The costs listed on this page assume that most of your heating consumption will come from the lowest rate step.

1The estimates found in this web site (“Estimates”) are presented solely for illustrative purposes. Duke Energy and its subsidiaries in no way represent or warrant to you that you will achieve reductions in your home heating bills as set forth in the results of these Estimates. The projections, estimates and examples used in these pages are based on a number of variables and factors beyond the control of Duke Energy and its subsidiaries which could cause actual outcomes and results to differ. Duke Energy and its subsidiaries disclaim any intention or obligation to update or revise the Estimates, whether as a result of new information, future events or otherwise and expressly disclaims any and all liability for any damages of any nature (including direct, indirect, incidental and consequential) arising in connection with the use of the Estimates.